The trial decision of Cockerell J in Federal Republic of Nigeria v JPMorgan Chase Bank NA [2022] EWHC 1447(Comm) in the England and Wales Commercial Court has just been delivered this week.
This was a claim by the Nigerian Republic against the defendant bank for releasing approximately US$1 billion (in more than one step) from an account in the Republic's name on the instructions of the designated signatories and with the consent of the Republic’s then Attorney-General.
Background
The facts of the case were extremely complex and ranged over the period 1998 to 2013. The background to the case was a grant in the late 1990s of very valuable offshore oil and gas rights to a company (“Malabu”) connected with a government minister.
Malabu entered into arrangements with companies in the Shell Group to exploit the rights. But then a differently constituted government purported to revoke Malabu’s rights on the grounds of corruption and to grant them directly to the Shell Group companies. Malabu later managed to get the Nigerian House of Representatives to uphold a complaint about these steps, and a settlement was reached reinstating Malabu’s rights.
This in turn led Shell to sue the Republic in the civil courts and in an ICSID arbitration. Eventually in 2011, a series of multi-party settlement agreements saw Malabu giving up its claims in favour of Shell in return for the payment by the Republic of $1 billion on certain conditions. The defendant was the escrow agent, or stakeholder, under these arrangements.
After a long and complicated process, the funds were ultimately released by the defendant, only to then find that the Republic asserted that the settlement arrangements were themselves corrupt and that the defendant was grossly negligent in not realising this and in continuing to pay out the funds as instructed.
Quincecare duty
The Republic’s claim relied on a version of the so-called Quincecare duty. This duty asserts that a bank must not follow the instructions of a named signatory (or “mandatary”) where there are reasonable grounds to believe that the customer is being defrauded (either by the mandatary or a third party). The Republic had in fact to prove gross negligence because clauses in the particular banking contract excluded ordinary negligence.
Cockerell J has now held that the Republic failed to show that the 2011 arrangements were corrupt or fraudulent. This was fatal to the Republic’s case. She went on to conclude that the defendant had not, in any event, been grossly negligent in the way that it had followed instructions.
I have argued elsewhere that the Quincecare duty does not, or ought not to at least, exist: see P Watts “The Quincecare Duty: Misconceived and Misdelivered” [2020] JBL 402. The bank’s task is simply to follow instructions unless it has actual knowledge that the mandatary is acting in fraud of the customer. In New Zealand, implicit support for this view can be obtained from the reasoning and conclusions of the Supreme Court in Westpac New Zealand Ltd v MAP & Associates Ltd [2011] NZSC 89, [2011] 3 NZLR 751.
The trial decision
Such a view was not open to Cockerell J given the current state of the case law in England and Wales. Nonetheless the Judge referred to my article with apparent sympathy. She stated (at [145]–[146]):
[145] It is fair to say that the Quincecare duty is one which has developed on a somewhat slender foundation. Authorities dealing with it have not been numerous, as the summary above indicates. In academic terms the direction of travel has been less than enthusiastically received. For example, during the trial I referred the parties to the article by Prof Peter Watts QC: "The Quincecare Duty: Misconceived and Misdelivered" at JBL [2020] 403, in which the following passages appear:
- “England & Wales prides itself on being one of the leading commercial jurisdictions in the world. It is of some importance then that the Quincecare duty be reviewed by the UK Supreme Court promptly. It is a mis-step. Other jurisdictions should give it a wide berth.”
- “…the notion that a junior agent should disobey a more senior agent when the former has reasonable grounds to believe that the latter is acting dishonestly in relation to the principal is not a satisfactory general principle. For some types of agent, or for particular agents in particular circumstances, such a duty may be appropriate. For others, and in other circumstances, it will not be.”
- “It is respectfully suggested that the only proper interests to be taken into account here are those of banker and customer. This is private law. Given that there can be little doubt that the Quincecare duty can be excluded by the terms of the banking contract, lending any weight to extraneous (public) interests is a sideshow. ... It is Parliament’s job to experiment. It is the common law’s job to provide only the bedrock.”
[146] I note these points just to highlight that the existence and ambit of the Quincecare duty, even so many years after its emergence, is not entirely uncontroversial. That points up a requirement to be absolutely clear as to what the law as it stands today establishes and not to venture beyond that.
Final thoughts
Cockerell J’s judgment contains a good discussion of the existing case law and the concept of “gross negligence”. It also touches on issues of causation and contributory negligence. One can be sure that this corner of banking law will continue to trouble the courts for some time.
For earlier strike-out proceedings, see JP Morgan Chase Bank NA v Federal Republic of Nigeria [2019] EWCA Civ 1641.
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