We are pleased to provide our latest contentious financial services update covering recent developments impacting on the payments and lending sectors.
The developments discussed in this briefing and the relevant decisions of the Privy Council and the English courts are highly likely to be applied by the Cayman courts and are therefore relevant to Cayman lenders and financial institutions.
The Campbells team has deep experience of managing contentious risks for banks and other clients in the financial services industry. Please do not hesitate to contact any of the team should you wish to discuss any of the matters covered in this update further.
Processing payments and APP fraud
In 2023, the UK Supreme Court in Philipp v Barclays Bank UK plc [2023] UKSC 25 settled the law on the extent of the duties owed by banks when processing customer payment instructions, including clarifying and confirming the limited extent of the so-called Quincecare duty.
Subsequently, customers defrauded by payment scams have continued to explore novel ways in seeking to hold banks liable in such circumstances.
- Who owes the so-called Quincecare duty – good news for receiving banks:
In Larsson v Revolut [2024] EWHC 1287, the English High Court confirmed that the so-called Quincecare duty is not owed to third parties, finding that the receiving bank did not owe such a duty to the defrauded payor (and applying the Privy Council decision in JP SPC 4 v Royal Bank of Scotland [2022] HKPC 18). - The extent of the so-called ‘retrieval’ duty – good news for receiving banks:
One issue left open by the Supreme Court in Philipp was whether a paying bank, once alerted to a payment fraud, owed a duty to take reasonable steps to retrieve the sums paid out as a result of the fraud.
While the UK Supreme Court in Philipp refused to strike out a claim that such a duty was owed by the paying bank and held that it should go to trial, the point has subsequently been considered in the context of a claim against a receiving bank: Santander UK Plc v CCP Graduate School [2025] EWHC 667.
In Santander, the English High Court allowed the bank’s appeal and held that any such duty would arise from the contractual relationship between a bank and its customer as a potential application of the bank’s duty to interpret, ascertain and act in accordance with its customer’s instructions. The High Court held that there was no basis for imposing such a duty in the absence of a contractual relationship and therefore declined to extend such a duty to a receiving bank. - Claims for unjust enrichment against receiving banks:
We are seeing other examples of claims being brought by defrauded payors against receiving banks in unjust enrichment seeking to recover sums paid away as a result of a fraud.
In Terna Energy Trading v Revolut [2024] EWHC 1419 (Comm), the English High Court refused to strike out such a claim, albeit permission to appeal the decision has been granted. The refusal to strike out the claim on the grounds of a lack of any enrichment to the receiving bank was perhaps surprising: in the normal course, an incoming credit to the value of a payment received by a bank is matched by a corresponding debit obligation to its customer, meaning the bank is not “enriched”.
The English Court of Appeal will hopefully provide clarity on the point in due course. - Novel use of derivative claims mechanism on behalf of corporate vehicles of fraud:
In Hamblin v Moorwand [2025] EWHC 817 (Ch), the victims of an APP fraud brought a novel claim against the financial institution that paid away sums received as part of a fraud on behalf of its corporate customer.
The claim was brought as a derivative claim on behalf of the corporate entity used as a vehicle for the fraud, which itself had been defrauded by its agent which gave the payment instructions to pay the relevant sums away. Permission was granted to bring the derivative claim and the claim succeeded on appeal, the English High Court finding that the financial institution had acted in breach of the so-called Quincecare duty owed to its customer.
The High Court also held that an exclusion clause in the contractual terms which excluded liability for damages arising out or connected in any way with the customer agreement did not apply to defeat the claim. A clause which excluded liability for damages was not effective to restrict an obligation to reinstate a customer’s account, which would be the appropriate remedy for breach of the Quincecare duty (and the court agreed that this would otherwise render the obligation to act in accordance with the mandate meaningless).
Lending issues
- Security provided via equitable mortgages over shares: undated share transfer remained valid for enforcement purposes:
In Yeung Ka Man v OP Multi Strategies Investment Fund (unreported decision of Kawaley J dated 31 January 2025), the Grand Court of the Cayman Islands considered the typical situation in which a lender takes as part of its security an equitable mortgage over shares in a Cayman company owned by the mortgagor.
Pursuant to the equitable mortgage, the mortgagor provided in the usual way an executed but undated share transfer in respect of the shares. However, on seeking to implement the share transfer on default, the mortgagor disputed the validity of the share transfer on the grounds that the person who executed the transfer was no longer a director at the time of enforcement and was no longer authorised. The issue was whether notwithstanding this the share transfer remained valid for enforcement purposes.
In a reassuring decision from the perspective of lenders taking such security, Kawaley J confirmed that the transfer remained valid and that the question of authority should be considered and determined as at the date of execution rather than when the transfer was later enforced. The Judge recognised that to hold otherwise would render nugatory the widespread commercial practice of providing undated but executed instruments of transfer by way of security for use if the need for enforcement arose. - Implied duties in exercising contractual discretions:
There are a string of recent decisions considering the obligations owed by banks and financial institutions when exercising contractual discretions, particularly under the terms of their lending. These decisions provide helpful guidance on the obligations owed when a bank is considering, for example, issuing demands for repayment and taking enforcement action against security held.
In Murfet v Property Lending LLP [2024] EWHC 2787, the English High Court declined to find that the contractual right of a lender to demand repayment of loans at any time without reason was subject to any implied contractual obligation to act in good faith and not to act arbitrarily or capriciously (the so-called Braganza duty). Helpfully from the bank perspective, the Court doubted such a term would ever apply to the right to call in a loan. - Default interest clauses – unenforceable penalty?
In Houssein v London Credit Limited [2024] EWCA Civ 721, the English Court of Appeal considered whether a default interest clause amounted to an unenforceable penalty.
Although the matter was referred back to the High Court for determination of this issue, the Court of Appeal helpfully recognised that lenders have a legitimate interest in charging a higher rate of interest where a borrower has defaulted on repayment given the increased credit risk arising. The Court of Appeal held that the High Court had failed to give sufficient weight to and recognition of this legitimate interest on the occurrence of a default, and did not assess the subsequent question as to whether the default rate was “extortionate, exorbitant or conscionable” in light of that legitimate interest.
This decision supports the position that default interest clauses are likely to be held to be enforceable – provided the amount of interest payable is proportionate. - Realising security – the duties of mortgagees:
The Privy Council has considered in the context of a Bahamas case the duties owed by a lender when seeking to realise security provided under a loan as mortgagee: Garet O Finlayson v Caterpillar Financial Services Corp (The Bahamas) [2025] UKPC 24.
In reiterating the duty to secure the best price reasonably obtainable when exercising a power of sale, the Privy Council held that there was no obligation to undertake improvements to the asset before sale in order to obtain the best possible price. The burden of proving a breach of this duty remains squarely on the mortgagor. - Undue influence – joint borrowing:
The UK Supreme Court has considered and clarified the appropriate test for determining whether a lender has constructive notice of undue influence in relation to joint borrowing where part of the lending is to meet one borrower’s sole obligations: Waller-Edwards v One Savings Bank [2025] UKSC 22.
In allowing the appeal of the appellant borrower, the Supreme Court held that a bright line test should apply in these circumstances. Accordingly, a lender is put on inquiry as to potential undue influence whenever there is more than a de minimis element of borrowing which serves to discharge the debts of one of the borrowers and so might not be to the financial advantage of the other. In such circumstances, lenders should ensure that the steps set out in the “Etridge protocol” are taken, including ensuring that the person providing the security receives independent legal advice (see Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44).
Lenders should review their processes and procedures in handling applications for lending to joint borrowers in such circumstances to ensure these requirements are met. - Use of credit intermediaries – lender liability for commission payments:
In a high profile and much anticipated decision, the UK Supreme Court has delivered its judgment on the liability of lenders to account for undisclosed commissions paid in the context of motor finance: Hopcraft v Close Brothers Limited [2025] UKSC 33.
The claims against the lenders included common law and equitable claims in bribery and for accessory liability for breaches of fiduciary duty by the relevant car dealer. In unanimously allowing the lenders’ appeal on these aspects and rejecting the claims,[1] the Supreme Court held that fiduciary duties were not owed by the dealers to the consumers in the circumstances. The decision represents a return to the orthodox position regarding the circumstances in which fiduciary duties arise and the legal requirements for the tort of bribery in the context of commission arrangements with third party credit intermediaries.
The decision will be of wider interest in the motor finance sector and in other areas in which lenders use third party credit intermediaries in the sale of finance.
[1] A separate ground of appeal relating to claims brought under s140A of the UK Consumer Credit Act was upheld in favour of the consumer, holding that the credit relationship was unfair having particular regard to the size of the commission paid and the fact that the extent of the commercial ties between the lender and the broker was not disclosed. The FCA has moved quickly to launch a regulatory consultation on a redress scheme for consumers that were not treated fairly.
