PUT TOGETHER BY

BONNEY GODSON

NATURE OF At common law, a bank is defined as an institution engaged

in banking business.
BANKER/ Section 156 of the Banks and Specialised Deposit-Taking
CUSTOMER Institutions Act (Act 930) defines a bank as a body
RELATIONSHIP corporate which engages in the deposit-taking business and
is issued with a banking license in accordance with this Act.
Section 156 of Act 930 further defines Deposit-taking
business as;
a. taking money on deposit and making loans or other
advances of money; and
b. financial activities prescribed by the Bank of Ghana
for purposes of this definition

The characteristics of a bank were as provided by Lord

Denning MR in United Dominion Trust ltd (UDT) v
Kirkwood are;
a. they accept money from and collect cheques for their
customers and place them to their credit
b. they honor cheques drawn on them by customers
when presented for payment and debit their
customers accordingly
c. they keep accounts of their customers
This characterization has been criticized by some judges and
scholars. Read Ross Cranston’s Principle of Banking Law,
at pg 4.
The essential characteristics of a Bank according Ross
Cranston are therefore
a. the collection of money by receiving deposits upon
loan, repayable when and as expressly or impliedly
agreed upon
b. utilization of the money so collected by lending it
again and in such sums as are required.

NB: Please refer to slides 9-14

Who is a customer?
The contract as between a bank and its customer creates a
duty of care as between them.
But the question is when does one become a customer of a
bank?
Some cases have held it is upon the creation of an account
 with a bank can a person be recognized as a customer of the
bank.
1. Ladbroke & co v Todd
2. Taxation Commissioner’s case
3. Great Western Railway co v London & County
Banking co.
Thus, the existence of an account with a bank determines
whether the person is a customer of the bank.
However, increasingly, the suggestion seems to be that a
customer includes a person who receives a service from a
bank without necessarily holding an account with the bank.

The Nature of Banking Relationship

a. Contractual i.e. debtor/creditor relationship
A banker does not hold sums in a bank account in trust for
the customer but rather, the relationship between them is
that of a debtor and a creditor. When the customer deposits
money in the account, it becomes the bank’s money and the
bank’s obligation to repay an equivalent sum (and any
agreed interest) to the customer or to the customer’s order.
1. Foley v Hill
From the sui generis contract which incorporates several
components, the bank owns the money and owes the
customer a debt which he is entitled to demand for.
The implication of this legal position is that the bank is free
to deal with the money as the customer only makes a
demand for the money.

Who protects the customer?

The Bank of Ghana does so by licensing, regulating and
supervising institutions engaged in banking and non-banking
1. Section 4(h) of the Bank of Ghana Act 2002 (Act
612)
2. Sections 13-24 of the Ghana Deposit Protection
Act, 2016 (Act 931)

b. Implied Terms of the Contract

i. To receive money and cheques
ii. Promise to pay customers on demand
1. Joachimson v Swiss Bank

BANKS & THEIR Mandate and Payment of Cheques

Banks are the agents of their customers and as such must act
CUSTOMERS within their mandate
A cheque is a mandate from the customer. It may be issued
to 3rd parties or presented personally to be honored if funds
are available

The Bank’s duty to pay cheques

Banks must act strictly according to instructions or the
mandate of the customer
1. Burnett v Westminster Bank ltd
Since the bank is required to follow the instructions of the
customer, any instruction which is not clear should be
ignored or the bank must seek clearance from the customer
personally

NB: Since Banks are required to follow the mandate of the

customer, the question is can a customer issue a cheque on a
piece of paper?
In Roberts & co v Marsh, it was held that this is possible
However, Banks have developed cheques with special
features and customers are required to fill cheques before
payments are made to them by the bank as these are made to
have special security features to reduce fraud

Availability and Sufficient funds

The position of the law is that the bank’s duty to pay a
cheque is dependent upon the actual state of the account at
the time of demand
1. Marzetti v Williams
The bank’s duty depends on the availability of adequate
funds on which the customer is entitled to draw actual funds
or an overdraft facility
2. Sierra Leone Tele co ltd v Barclays Bank plc
In some cases, the amount is credited but same is not
available until after the close of some days in the case of a
cheque.

3rd Party Debt Proceedings/ Garnishee Proceedings

NB: A garnishee proceeding is a judicial process of execution or
enforcement of monetary judgement whereby money belonging to a
judgment debtor in the possession of a 3rd party known as the garnishee
(usually a bank) is attached or seized by a judgement creditor, the
garnishor in satisfaction of a judgment debt.
The balance standing to the credit of a customer’s account
can be attached by way of a 3rd party debt order.
Proceedings of this type are usually instituted by a
judgement creditor whose claim against the bank’s customer
has not been satisfied.
The creditor applies to the court for an order under which all
debts due or accruing from the bank to the customer are to
be attached for the purpose of satisfying the creditor’s
judgement against the customer.
If the customer has funds in his accounts, same may be
attached by a 3rd party under garnishee proceedings
The order is made nisi (a rule that takes effect after certain
conditions are met) and later absolute.
Once granted by the court the bank has no option but to
release the funds to the judgment creditor.
However, the bank may show cause why it should not pay.
1. Fraserv v Oystertec plc (he court refused to grant an order absolute
on the basis that the bank had an equitable interest in the money in the account)
Such a problem may also arise in joint accounts and trust
accounts since the other party may have an interest in the
account and not that just account holder against whom the
judgment debt has been issued.
Payment to the judgment creditor or into the court of the
amount involved discharges the bank’s debt to the customer
2. Societe Eram Shipping v Compagnie
Internationale de Navigation
NB: The service of an interim 3rd party debt on the bank
operated as a demand
3. Joachimson v Swiss Bank co.
NB: With respect to respect to treasury bills, the position
used to be that a garnishee proceeding may only be attached
after the treasury bill has matured
4. Webb v Stanton
However, this position has changed and the treasury bills
may be attached.

Freezing Injunctions
Money is seen as a property and such a customer’s
instructions for the transfer of money or cheque may be
abrogated by freezing orders.
The object of the order is to prevent the defendant from
defeating a judgement that may be given against him by
dissipating the property and as such if granted, will not give
the customer access to the money.
1. Fourie v Le Roux

Customer’s death or insanity

The bank’s duty and authority to pay cheques is terminated
when it obtains notice of the customer’s death.
Upon receiving notice of a customer’s death, the bank is no
longer entitled to pay cheques drawn by the customer before
his death.
On a strict application of the common law analysis, the
bank’s mandate to receive the funds is also terminated upon
the customer’s death but as discussed by Ellinger, it doubted
if in practice banks would apply the law so strictly in such a
case
With respect to insanity, as a matter of general principle, an
agent’s authority is automatically determined by the insanity
of the principal
1. Young v Toynbee
But in the case of the bank, it can be said that the mandate
terminates when the bank receives notice of the customer’s
insanity.
It possible however in to apply to the court to appoint a
deputy to take charge of the customer’s affairs as he is
unable to make a decision for himself in that state and the
bank may safely follow the instructions of the duly
appointed deputy.

Bankruptcy and Winding up

Customers property is vested in trustees. During winding up,
the property is vested in the liquidator.
Once a bank receives notice of a customer’s bankruptcy, it
has the effect of terminating the authority of the bank to
honor any such cheques from customer i.e. the bank is not
under any duty to honor cheques drawn on a customer’s
account once the bank has notice of the bankruptcy or
winding up.
1. Petit v Novakovic
Thus any cheque issued lapses.
However it is still a debt against the entity but it must be
presented with evidence.

Counterman of Payment
A bank’s mandate to pay a cheque drawn on it by its
customer is determined by countermand of payment.
As a general rule, if the bank disregards such a
countermand, it is unable to debit its customer’s account
with the amount of any cheques that it pays.
To be effective however, the customer’s countermand must
comply with a number of requirements;
a. The countermand must communicated or delivered
to the branch on which the cheque is drawn
1. London Provincial & South Western Bank v
Buszard
2. Burnett v Westminster Bank

b. The counterman should be as clear as possible and

free from ambiguity
So that if the bank acted in accordance with what it honestly
believed to be the customer’s intentions, it is entitled to debit
his account with the amount of the cheque
1. Ireland v Livingston
2. Westminster Bank v Hilton
NB: The position however differs if the ambiguity is patent
on the face of the countermand in which case the bank
should verify its instructions with the relevant customer or if
the countermand is sufficiently clear despite the customer
failing to include full details in his instruction
1. Remfor Industries ltd v Bank of Montreal The
Ontario (COA held that if the details set out in the countermand notice
were adequate to identify the cheque, the bank was under a duty to stop it even
if the notice was inaccurate in respect of one detail; where the cheque was
described with reasonable accuracy the bank had in case of doubt to enquire
whether the cheque presented was the one the customer sought to stop)
2. Reade v Royal Bank of Scotland

c. The customer must communicate the countermand in

the proper form and manner

d. The countermand will not become effective until the

bank has received actual notice thereof
The court has held that there was no room for a constructive
countermand and that to be effective, a countermand had to
come to the notice of a bank employee with authority to act
upon the instruction prior to the payment of the cheque
1. Giordano v Royal Bank of Canada
2. Commonwealth Trading Bank v Reno Auto Sales
ltd

The Customer’s duty to the Paying Bank

The customer is under a duty to execute orders with care
1. Joachimson’s case
In drawing cheques, the customer is under a duty to draw the
cheque in a way that does not facilitate fraud
2. Young v Grote (blank signed cheque leaflets)
3. London Joint Stock bank v Macmillan (figure written but
no words)
In these cases, there customers were negligent and were
liable.
NB: The negligence must be in the manner the cheque was
drawn!

 Duty to declare any known forgery

Any forgery known to the customer must be declared to the
bank since where the customer fails to relay such
information to the bank, it may operate as an estoppel
against the customer from claiming against the bank
1. Brown v Westminster Bank ltd (the servants of a woman
forged her signature 329 times on cheques drawn on her current account. The
branch manager called the woman on several occasions to enquire about the
genuineness of the cheques but was assured by her that all was well. The
customer’s son subsequently sued the bank to recover from the bank. It was
held that her conduct precluded her from asserting subsequently that some of
these cheques had been forged)
2. Greenwood v Martins (a wife forged her customer’s signature on
cheques drawn on his account with the defendant bank. The husband found out,
confronted her and accepted her explanation for her conduct and at her request
agreed not to disclose the forgeries to the bank. Sometime later, he found out
that the explanations were false. When he threatened to expose her, she
committed suicide. The husband disputed the debit on his account. It was held
that he was under a duty to make dull disclosure to the bank as soon as he
discovered the initial forgeries. His silence lulled the bank into the belief that
the signatures executed by the wife were genuine)

Passbook and Statement

Is a bank statement conclusive?
The business of banking is a business of the bank to offer a
service. Honor customers cheque among others.
If they pay out a customer’s cheques which are not his, their
act is outside their mandate and cannot plead his authority to
justify.
This is a risk to be borne by the bank.
Thus, even though the customer is under a duty to declare
forgeries on his account to the bank, the customer is not
under a duty to keep a vigilant eye on his business with a
view of detecting forgeries expeditiously
1. National Bank of New Zealand ltd v Walpole and
Patterson ltd
2. Tai Hing Cotton Mill ltd v Liu Chong Hing Bank
ltd (here, Lord Scarman Despite the lapses, the court held that the bank was
liable. The inability of the customer to even check the statement did not avail
the bank. Justification is twofold; The bank can absorb losses incurred and the
presence of verification clause)

Mistakes in Statement of Accounts

‘Settled account’, an agreed one or ’account stated’, an
admitted one.
The entries may be incorrect and this caveat is given for
customers to check the statement within a certain time else
bound by the statement.
NB: The position of the law is that a customer is not bound
by a statement which contains incorrect entries even if the
customer fails to check.
1. Tai Hing Cotton Mill ltd v Liu Chong Hing Bank
ltd
2. Vagliano bros v Bank of England (the court held that ‘’there
was no evidence to show that as between a customer and his bank, the customer
was under duty to peruse his statement of account with a view to pointing out
errors)
NB: A customer can be expected to examine the entries in
his passbook and to return it for correction where an error is
discovered.
This is a customer’s right.
3. Devaynes v Noble (Clayton’s case)
NB: Notwithstanding the customer’s right to examine
entries in his passbook and return it for correction where an
error is discovered, Estoppel may operate against the bank
where it has made a party to believe in a financial position
4. Skyring v Greenwood & Cox
NB: A bank is always entitled to rectify errors appearing in
a statement issued to a customer.
5. United Overseas Bank v Jiwani

Verification Clauses
Thus, the general principle that the customer is under no
duty to peruse the bank statements.
However, the Canadian courts have held that where the bank
inserts a verification clause in the contract agreement as
between themselves and the customer, where the customer
fails to verify the bank statements, he is estopped from
reclaiming later errors on his bank statement.
1. Columbia Grraphophone co v Union Bank of
Canada
2. Arrow Transfer co ltd v Royal Bank of Canada

An entry in a pass-book is not conclusive and binding on the

bank or the customer, rather each case must be judged on its
own peculiar facts....
Further, the bank is not estopped from recovering the money
from the defendant, even though he had parted with the
money,
it was to his benefit and not detriment.
1. Barclays Bank v Dabo

EXCEPTIONS
a. In cases of carelessly drawing cheques which
facilitate fraud
1. Young v Grote
2. London Joint Stock bank v Macmillan
b. Where the customer is aware of fraud but fails to
disclose same to the bank.
3. Greenwood v Martins
Under any of these circumstances, estoppel will operate
against the customer and be a defence in favour of the bank.
The customer cannot therefore challenge the entries in the
statement under any of these circumstances.
NB: Where the customer knows so much, the means of
knowledge may be equated with actual knowledge
4. Morrison v London County & Bank
Westminster

RECOVERY OF MONEY PAID BY MISTAKE

Where a bank pays money as a result of a mistake of fact or
law, it may bring a common law action for money had and
received against the payee.
Thus where a bank pays out a customer’s money without
proper mandate, the banks course of action is to proceed
against the beneficiary of a wrongful payment
Nowadays, this is generally referred to as a personal claim
in restitution at common law.
The claim is founded on the unjust enrichment of the payee
at the bank’s expense and mistake does not allow for unjust
enrichment
1. Goss v Chilcott
The claim is also founded on failure of consideration.
This refers to where the mistake which resulted in the
payment is attributable to the bank itself. This principle
permits the bank to go after the beneficiary.
2. Lipkin Gorman v Karpnale Ltd
3. Barclays Bank Ltd. v Simms & Cooke
NB: The bank should be entitled to recover compound
interest as a matter of right from the payee for the period
between the receipt of the money and the banks recovery of
those funds.
Such interest represents the time value of the mistaken
payment and the full benefit that the payee had derived from
its use of the funds
4. Sempra Metals ltd v IRC

Conditions for Recovery

a. Paid under mistake,
b. Mistake caused payment and
c. Payment not within the mandate.
1. Kleinwort Benson v. Lincoln City Council.

Defences to the action

Restitutionary claims based on mistake are subject to the
general defences which apply to all restitutionary claims i.e.
change of position, estoppel, the agent’s defence of payment
over.
 Change of Position
This defence is based on considerations of common justice.
It appears inequitable to demand that a person repay money
where he has in reliance on its receipt incurred a liability or
given up an advantage.
The defence is however not applicable in all cases.
In its more limited senses, the defence is applicable to a
detriment incurred directly as a result of the payment. The
release of a security is a classic example.
1. Barclays Bank ltd v W.J. Simms & sons & Cooke
ltd (in certain cases, the recipient of funds paid to him under a mistake of fact
was entitled to retain them provided that he has changed his position in good
faith or deemed in law to have done so)
Lord Goff clearly explained the applicability of the defence
that where the innocent defendant’s position is so changed
that he will suffer an injustice if called upon to repay, the
injustice of requiring him to repay outweighs the injustice of
denying the claimant restitution.
Lord Goff emphasized that the mere fact that the payee had
spent the money did not of itself involve a change in his
position that would bring into operation the defence. The
expenditure incurred should be one that he would not other
have incurred or have otherwise acted in such a way as to
render it unjust that he should now be compelled to refund
the payment. Where the payee has purchased goods or
services the benefit of which he still retains, he may still be
held to have been unjustly enriched to their value as a result
of the payment.
2. Lipkin Gorman v Karpnale ltd
The COA made two observations in the operation of the
defence in a subsequent case;
To them, firstly, there must be a casual-link between the
change of position and the mistaken payment which makes it
inequitable and unjust to demand the payee to make
restitution i.e. those who relied on the payment to their
detriment.
Secondly, the court should not apply too demanding a
standard proof when an honest recipient says that he spent
an overpayment improving his lifestyle but cannot produce
any detailed accounting. i.e. No strict proof of how the
money was spent.
3. Scottish Equitable plc v Derby
Therefore, if the payee spent the money to his benefit, it
would amount to unjust enrichment and thus the defence
would not be available to him
4. Barclays Bank v Dabo
 5. United Overseas v Jiwani

 Good Consideration
A claim to recover money on the ground of mistake will fail
if the defendant has provided good consideration for the
payment
1. Barclays Bank ltd v W.J. Simms Sons & Cooke
2. Bank of New South Wales v Murphett
3. Lloyd Bank plc v Independent Insurance co. ltd
The consideration must be good consideration and so
excludes consideration that is illegal or contrary to public
policy.
4. Lipkin Gorman v Karpnale
The good consideration defence operates where the claimant
mistakenly pays the defendant and this has the effect of
discharging a debt owed to the defendant
5. Jones v Churcher
6. Barclays Bank ltd v W.J. Simms Sons & Cooke

 Estoppel
The paying bank must be estopped by representation from
recovering money paid under a mistake.
Several requirements must be met for this to happen.
a. There must be a representation from the paying bank
leading the recipient to believe that he was entitled to
treat the money as his own.
NB: the mere payment of money cannot in itself constitute a
representation which will estop the payor from recovering
the payment
1. R.E. Jones td v Waring & Gillow ltd
2. Philip Collins ltd v Davies

b. The recipient must have relied on the representation

to his detriment.
Often a corresponding bank can raise the defence because it
paid away the funds to the payee’s order
1. Deutsche Bank v Beriro

c. The recipient must not be at fault.

There will be fault for example if the recipient realized the
mistake and did nothing about it or somehow induced it or
knows of material facts which would have made the payor
recognize his mistake
1. George Whitechurch ltd v Cavanagh
The defence of estoppel by representation has however been
questioned with Jonathan Parker J in Phillip Collins ltd v
 Davies stating that the law has now developed to the point
where a defence of estoppel by representation is no longer
apt in restitutionary claims where the more flexible defence
of change of position is in principle available.

CONFIDENTIALITY The confidential nature of the banker-customer contract

stems from the fact that that relationship comprises elements
of an agency relationship.
As a general rule, an agent owes a duty of loyalty and
confidentiality to his principal.
The customer’s expectation is that information about his
account will not be divulged.
This expectation is not absolute as it may be overtaken by
disclosure requirements and the need to protect customers
NB: The duty of confidentiality is entrenched because of
two factors namely;
a. Economic – a person needs to assure those engaging
him that his discretion can be relied upon. E.g.
Solicitor and client relationship
b. Historically - the agent is in a position of trust and
bound to protect the interest of the principal i.e.
protect the principal against unwarranted enquiry
into his affairs
Confidential information is a piece of information one has
acquired through dealings with a party.
A bank usually owes a duty of confidentiality to its
customers as a result of a term implied in law into the
banker-customer contract.
1. Bodnar v Townsend
The necessity of implying such a term was held in;
2. Tournier v National Provincial and Union Bank of
England (a claimant who was heavily overdrawn with the defendant bank failed to
meet the relevant branch manager’s repayment demands. The branch manager noticed that
a cheque drawn on the account of another customer at a different branch was payable to the
claimant’s order and had been indorsed to a bookmaker by the claimant and was being
collected for that person’s account. He telephoned the claimant’s employers to ascertain the
claimant’s private address. He then disclosed that the claimant’s account was overdrawn
and that he had had dealings with bookmakers. The claimant’s employer subsequently
declined to renew the claimant’s contract upon expiration. The court held that the bank had
breached its duty of confidentiality and awarded damages to the customer.)
In coming to its decision, the court clearly stated that the
bank’s duty of confidentiality extended to information
received by the bank from other sources and not only those
received from the customer himself.
3. Tournier v National Provincial and Union Bank of
England
4. Barclays Bank plc v Taylor (the banker-customer relationship
imposes upon the bank a duty of confidentiality in relation to information
concerning its customer and his affairs which it acquires in the character of his
banker).
NB: Notwithstanding that the banks are under a duty to keep
confidentiality, Banks LJ in the Tournier case identified 4
situations in which the bank owed no confidentiality at all
and in which the scope of implied term to that effect was
qualified by the circumstances
The qualifications can be classified as follows;
a. Where disclosure is under compulsion of law
b. Where there is a duty to the public to disclose
c. Where the interests of the bank require disclosure
d. Where the disclosure is made by the express or
implied consent of the customer
NB: This obligation even exist after the customer has ceased
to operate the account
Let’s thus take each of them

 Compulsion of Law
1. Parry Jones v Law Society (A contractual duty of confidence is
subject to, and overridden by the duty of any party to that contract to comply
with the law of the land. If it is the duty of such a party to contract, whether at
common law or under statute, to disclose in defined circumstances confidential
information, then he must do so and any express contract to the contrary would
be illegal and void)
There are legislations that permit courts to order the
inspection and disclosure of bank documents or otherwise
requiring bank disclosure in specific circumstances.
This duty has eroded the duty of confidentiality
The bank may be compelled under law to disclose the
information of a customer to whom a duty of confidentiality
is owed if the person or a member of a group to which the
person belongs in under investigation.
In the field of company law, a bank as an agent of its
corporate customer may be required under law to produce
books relevant to the prosecution of the customer’s directors
or managers.
i. Under Statutes
1. Economic and Organised Crime Office 2010, (Act
804) (To investigate acts that cause financial or economic loss to the State
money laundering, human trafficking, cyber crime, tax fraud, political
corruption and others. Section 3 of Act 804 to investigate and prosecute
suspected offences. Eoco needs to collect and collate information from the state
agencies and this includes information from banks. Under section 19 and 20,
EOCO’S Executive Director has power to request for information including
from banks).
2. Narcotics Drugs (Control, Enforcement and
Sanctions) Law PNDCL 236 (S. 10- facilitate or assisting in the
promotion management, establishment which is an offence. S. 12- laundering
proceeds from narcotics. S. 13- confiscation of property acquired with drug
money. S. 16- A.G’s power to ask the police to investigate S.28-AG’s power to
ask the police to investigate.)
3. Anti–Money Laundering Act (Act 749) (Shortfalls in
PNDCL 236 has resulted in the following Acts. See section 1-6, 21-24, 37, 38
and the first schedule Act 749).
4. Anti- Money Laundering (Amendment) Act 2014
 (Act 874)
5. The Banking Act as amended (See also the Banking
Amendment Act 738 sections 30, 31 and 32)
6. The Credit Reporting Act, Act 726 (See also sections 12,
21(c), 24, 25 and 26 of the Credit Reporting Act, 2007 Act 726).
The effect of these legislations is that banks have to act as
policemen.
For example see Section 28(3) of PNCL 236 which provides
that a person who willfully fails or refuses to disclose an
information or produce the accounts or documents or articles
to the authorised person commits an offence and on
conviction liable to the payment of a fine or imprisonment
or both)
7. C v S (A bank was ordered to disclose certain information about a customer
and a defendant accused of defrauding. A report had already been made to the
authorities)
Therefore if the bank reports, it amount to tipping off and if
it fails, contempt
This causes the bank to be in a dilemma.
8. The Bank v A Ltd. (SFO) Interested Party (The SFO
informed the bank that a customer was under investigation and tipping off
applies. The dilemma was that if you allow the customer access to funds, liable
and if you refuse to transact business with the customer, the customer becomes
suspicious)
The international response;
1998 Vienna Convention on Drugs Trafficking;
Measures;
To criminalize the participants,
Confiscate property or proceeds from crime and
International co-operation between law enforcers
The G7 Summit in Paris
In 1989, the G. 7 summit in Paris set up the
Financial Action Task Force (FATF) on money laundering.
A host of reccomendations;
Lead the crusade against money laundering by issuing
directives.
Countries are to adopt and implement these measures.
The IMF & World Bank now uses these measures as
benchmarks to assess countries level to combat Money
Laundering.
Action to combat ML
Inter-Governmental Action Group against ML in West
Africa (GIABA),
Bodies to fight ML in Ghana;
Financial Intelligence Centre (FIC)
Regulators- Bank of Ghana, Securities & Exchange
Commission & National Insurance Commission.
Law Enforcement- EOCO, BNI & NACOB
Aside specific statutes, there exists more general legal bases
upon which a bank may be legally compelled to disclose
confidential information of the customer.

ii. Garnishee proceedings

Without notice to the customer, the bank is required to
disclose details of one’s account if served with an order that
a customer’s account has been garnisheed.
Once served the bank has no option than to release the
money standing to the credit of the customer.
NB: where a 3rd party applies for information from a bank
about his customer using a garnishee proceeding, the bank
does not owe its customer a duty to oppose the application
or inform him that such an application has been or is going
to be made
1. Barclays Bank plc v Taylor

iii. Subpoena or witness summons

Where the bank is served with same, the bank has no option
than to disclose the customer’s information and that would
not amount to a breach of confidentiality
1. Robertson v Canadian Imperial Bank of
Commerce. (The details of plaintiff’s account was disclosed under a
subpoena and the plaintiff sued that his feelings has been wounded and his
pride injured. Court held that the action is not sustainable because the bank
acted under a subpoena)

iv. Insolvency
Also, where a bank is believed to have information
concerning the affairs of its insolvent corporate customer, it
may be ordered by the court to submit an affidavit detailing
its dealings with its customer or produce any books, papers
or records in its possession
1. Re Pantmaenog Timber co. ltd.
In the field of company law, a bank as an agent of its
corporate customer may be required under law to produce
books relevant to the prosecution of the customer’s directors
or managers.

 Duty to the Public

Duty to the public may permit banks to disclose costumer
information without incurring liability.
1. Price Waterhouse v. BCCI Holdings (Luxembourg)
2. Pharaon v Bank of Credit & Commerce
International SA

 The Bank’s own interest

The bank’s duty of confidentiality may be qualified where
the interests of the bank require disclosure
1. Brandeaux Advisers UK ltd v Chadwick
2. Sunderland v Barclays Bank
This qualification may cover the situation where a bank
commences proceedings against its customer to recover an
unpaid or overdraft facility and the bank ahs to disclose in
the pleadings the extent of the customer’s liability.
Or in other contexts, where the bank reveals information in
circumstances where its interests conflict with that of the
customer
3. Guertin v Royal Bank of Canada
Similarly, when a bank is a defendant to proceedings
brought by its customer or a 3rd party, a bank may be entitled
to justify any defensive disclosures as being in its best
interest.
4. Nam Tai Electronics inc v Pricewaterhouse
Coopers
5. Sunderland v Barclays Bank

 Disclosure with customers consent;

Disclosure of confidential information by a bank is
permitted where the disclosure is made by the express or
implied consent of the customer.
Express consent is not an issue. The problem comes with
implied consent.
It has been held that a customer’s consent may be implied
where the act for which the consent is implied forms part a
banking usage or custom that can accordingly form a basis
of an implied term in the banker-customer contact even if
the customer is unaware of it.
However, to fall within this category, the banking practice
must be notorious, certain and not contrary to law.
1. Turner v Royal Bank of Scotland
In Turner, the court explained further that a bank could only
rely on a banking practice that deprived a customer of his
substantive right like confidentiality if the customer was
aware of or assented to that practice
2. Barclays Bank plc v Bank of England

 Banks outside the jurisdiction;

See Order 39 rule 2(1)(a) of C.I. 47.

NB: As what has been discussed above will constitute

protected disclosure, the bank is protected from liability for
breach of its duty of confidentiality and may escape any
 liability for breach of mandate
1. Shah v HSBC Private Bank (UK) ltd

BANK’S DUTY OF The bank as agent of the customer owes a duty of care to the
customer and thus, the customer may try to recover losses
CARE from the bank by pleading the breach of that duty to exercise
reasonable care and skill.
1. Barclays Bank v Quincecare (an agent for reward is to exercise
reasonable care and skill in carrying out instructions of the principal...banks are
not immune from this duty)
The English courts have recognized that the bank’s duty
may arise in two areas; Contract and Torts
2. Henderson v Merrett Syndicates ltd

Actions for breach of Bank’s Contractual duty in the

ordinary course of business
It was held that a bank has a duty under its contract with its
customer to exercise reasonable care and skill in carrying
out its part with regard to operations within its contract with
its customer i.e. the reasonable banker
1. Selangor United Rubber Estates ltd v Cradock
The standard of that reasonable care and skill has been held
to be an objective standard applicable to bankers which
NB: Thus, a bank is said generally not to owe its customer
any particular duty of care to its customer in respect of
transactions in the ordinary course of business (e.g. ordinary
payment transaction carried out by the authorized signatory
on the customer’s account
2. Lipkin Gorman v Karpnale & co
3. Verjee v CIBC Bank and Trust Company
Thus, a bank would generally not owe any duty to advise
customers who borrow money as the advisability of taking
out the particular loan or the soundness of the transaction
they propose to finance
4. Williams & Glyn’s Bank v Barnes
Nor should the courts recognize any similar duty upon banks
to advise customers as to the wisdom of providing security
or as to the nature and effect of such a transaction
5. Jeffers v Northern Bank ltd
6. Wilkins v Bank of New Zealand
Similarly, banks do not generally owe a duty of care
regarding how it enforces its security.
NB: It has also been recently held that Banks are not liable
for failing to insist that customers have appropriate
insurance cover or for failing to advise as it its desirability in
particular circumstances
 7. Burrows v Bank of Nova Scotia
Similarly, banks owe no general duty to advise customers as
to the tax efficiency of particular transactions or to have
regard to the tax implications of a proposed course of action
8. Schioler v Westminster Bank ltd (the court held that in not
seeking the customers specific instructions regarding the foreign currency
instrument, the bank had acted in accordance with standard banking practice
and accordingly was not liable for failing to consider the tax consequences of
its actions)
NB: Indeed, it can’t be said that the bank can never be in
breach of a duty of care when carrying out ordinary banking
transactions for its customers.
It has thus been held that on the facts, where a bank has
assumed a duty to exercise reasonable care in advising the
borrowers, a breach of that duty would make them liable
9. Verity & Spindler v Lloyd’s Bank plc
A number of key factors was said to influence the judge’s
decision. These included;
a. The borrower’s financial inexperience
b. The branch manager’s inspection of properties
(contrary to usual lending practices) and
encouragement to purchase one property over
another
c. The wording of the bank’s advertisement which ed
the borrowers to expect tailor-made advice for
business ventures which included helping customers
to decide how much they could readily afford to
invest.
NB: This case is said not to provide any general guide to
bank’s liability as it was held on its own special and unusual
facts.
NB: The court’s reluctance to impose a contractual or
common law duty of care on banks is not limited to the
provision of ordinary banking services or products.

Actions for breach of Bank’s Contractual duty in special

or high-risk transactions
A similar tendency is discernible in relation to banking
products that are particularly risky, sophisticated or unusual
and is discernible in circumstances where a bank provides its
customer with financing that he uses for speculative dealings
or to enter risky transactions and the customer subsequently
complains that its losses result from the bank’s failure to
warn him of a particular risk or particular market condition.
1. Bankers Trust International plc v PT Dharmala
Sakti Sejahtera (no duty of care in relation to swap transactions)
2. J.P. Morgan Chase Bank v Springwell Navigation
Corp (no duty of care to advise as to appropriateness of investing in GKO-
 linked notes or as to the structure of the customer’s investment portfolio)
3. Peekay Intermark ltd v Australia & New Zealand
Banking group ltd (no liability for misrepresentation as the legal
effects of structured US dollar hedged Russian treasury bill deposit)
The Justification for this stance in relation to speculative or
high-risk transactions is slightly different from that of
ordinary banking transactions.
a. The speculative or risky nature of such transactions
usually makes it difficult to predict whether they are
likely to have a positive outcome for the investor and
this accordingly militates against requiring banks to
provide advice in relation to such investments and
against allowing a customer to argue that he was
reasonably entitled to rely on the bank’s guidance
4. Stafford v Conti Community Services

b. The manner on which the customer conducts his

trading activities in the relevant market and the
arrangements that he makes in that connection often
indicate that the customer has made his own
independent decision regarding a specific investment
and its associated risks and this militates against
imposing liability on banks that become involved in
their customer’s activity of this kind.
5. Valse Holding SA v Merrill Lynch International
Bank ltd (Morris J held that the bank had not breached its implied
contractual duty of care by failing to stop the claimant from engaging in high-
risk investment strategy that was beyond his stated investment objectives and
that significantly refused his portfolio’s value. Not only was the claimant
sufficiently financially sophisticated to understand the risks associated with his
investment decisions but the account terms also meant that the client is the
master of the account and accordingly took ultimate responsibility for accepting
or rejecting any advice tendered)
6. Lloyd v Citicorp Australia
Nevertheless, there are instances that fall on the other side of
the line.
It has been held that a prudent banker would have advised a
customer with no prior experience of forex loans to hedge
their losses
7. Foti v Banque Nationale de Paris (in holding the bank liable,
the judge considered other factors important to his conclusion including the
disparity in the parties’ business experience; the impression given by the bank
that it would monitor the transaction’s foreign currency implications, as well as
monitoring the loan the loan itself at the relevant rollover times)

Actions for breach of Bank’s Contractual duty in

fiduciary duties
The general principle drawn here too is that a bank does not
generally owe its customers any general duty of care to
furnish careful advice on business or banking transactions
unless such advice is specifically requested and the bank
specifically undertakes to provide it
1. Lloyd Bank plc v Cobb
The difficulty lies however in identifying those
circumstances in which a bank may be taken to have crossed
the line and assumed an advisory role with the attendant
duties.
2. J.P. Morgan Chase Bank v Springwell Navigation
Corp.
In holding the bank not liable in an instance where the bank
had never specifically undertaken to provide advisory
services to the claimant, the court proceeded to lay down
factors the court should consider when determining the
existence of a bank’s duty to advice customers regarding the
suitability of or risks associated with sophisticated banking
products;
a. The court should assess the customer’s degree of
commercial sophistication and financial acumen
1. J.P. Morgan Chase Bank v Springwell
Navigation Corp (the court considered the customer to be a
highly sophisticated investor as a material factor in denying the existence
of any duty of the bank to advise)
2. Banker’s Trust International plc v P.T.
Dharmala Sakti Sejahtera
3. Titan Steel Wheel ltd v Royal Bank of Scotland
plc
So that if where the customers are financially inexperienced,
a duty would be imposed on the bank
4. Foti v Banque Nationale de Paris
5. Verity & Spindler v Lloyd’s Bank plc

b. A court should examine the extent to which a bank

has held itself out as offering advisory services or as
a financial expert whether orally in its contractual
agreement or in promotional literature
1. J.P. Morgan Chase Bank v Springwell
Navigation Corp (the absence of a formal agreement for the
provision of advisory services of any formalized fee structure relating to
the provision of advisory service in the contemporaneous documents all
militated against the existence the existence of a common law duty to
advise)
2. Titan Steel Wheel ltd v Royal Bank of Scotland
plc (documentation was made clear that no advisory service would be
provided without the bank’s express agreement)
In contrast, where the bank assures the customer of the
bank’s expertise and the customer relies on same, a duty
may be imposed
3. Foti v Banque Nationale de Paris
Or the bank highlighting the offer of tailor-made advice in
the bank’s advertisement
4. Verity & Spindler v Lloyd’s Bank plc

c. A court should treat as relevant the status and role

within the bank of any individual with whom the
customer deals and the capacity in which that person
tenders any alleged advice
1. J.P. Morgan Chase Bank v Springwell
Navigation Corp (the court drew a distinction between an
investment adviser properly so-called and a bonds salesman. As the
person with whom the claimant dealt with was only a salesman, of limited
asset class, his enthusiasm for the product he was selling and his
recommendations as to which products to purchase did not by themselves
make him a financial adviser)
2. Titan Steel Wheel ltd v Royal Bank of Scotland
plc (the claimant dealt with the bank’s corporate treasury manager with
a front-office role for forex business. The court held that any advice that
the manageress tendered was merely as a saleswoman rather than a
financial adviser)
Where the customer is particularly inexperienced, however
the fact that the claimant deals with a senior bank employee
like an experienced branch manager may be highly relevant
to establishing a duty of care
3. Verity & Spindler v Lloyd’s Bank plc
Although a bank’s employee’s lack of seniority does not
necessarily preclude the bank from being liable
4. Foti v Banque Nationale de Paris

d. Even in circumstances where the bank might

otherwise have crossed the line to become a financial
adviser, a court must consider the possibility that the
terms of the parties’ contractual relationship may
operate to negate the existence of any implied or
concurrent duty of care.
1. Raiffeissen Zentralbank Osterreich AG v Royal
Bank of Scotland plc
In some cases, the contract will define the parties’ obligation
in such a narrow was as to prevent a duty to advise from
arising from the outset.
2. J.P. Morgan Chase Bank v Springwell
Navigation Corp (the court held that the contractual
documentation showed that the parties specifically contracted upon the
basis of a trading and banking relationship which negated any possibility
of a general or specific advisory duty coming into existence)
3. Banker’s Trust International plc v P.T.
Dharmala Sakti Sejahtera
4. Peekay International ltd v Australia & New
Zealand Banking Group ltd (customer had signed a risk
disclosure statement indicating that he had satisfied himself that the
complex derivative products in that case were suitable for him)
In some cases, the contract may contain a clause that seeks
to exclude or limit that the bank’s liability for a proven
breach of a duty to advice.
5. Titan Steel Wheel ltd v Royal Bank of Scotland
plc
6. Hedley Byrne v Heller & Partners (Where a person
such as a banker receives a request for information or advice and knows
that his skill or judgment is being relied upon and gives the information
without a clear disclaimer of responsibility, he accepts a legal duty to
exercise proper care)
NB: Such a disclaimer must be known to those being
advised. It ensures that those seeking the reference are in no
doubt about the bank denying liability.
At common law, disclaimers should be given before the
contract is concluded.
7. Olley v Marlborough
This has been legislated in the United Kingdom S. 2(2) of
the Unfair Contract Terms Act, 1977.

Actions for Breach of Bank’s duty in Torts

Such actions may arise in contractual situation or involve 3rd
parties with whom the bank has no direct contractual
relationship.
Whether a bank owes a tortious duty of care to a 3rd party
will depend broadly upon whether there is a sufficient
relationship of proximity between the parties.

Test for establishing duty of care in Pure Economic

losses
In Customs & Excise Commissioners v Barclays Bank plc,
the court explained that there are 3 established approaches or
tests for ascertaining whether one party owed another a duty
of care in respect of pure economic loss
a. By the incremental test.

b. A bank may owe a duty of care to a 3rd party if it can

be shown that there exists a special relationship
between the them as a result of the bank voluntarily
assuming responsibility to that 3rd party
1. Hedley Byrne v Heller & Partners ltd
2. Williams v Natural Life Health Foods ltd
Whilst the voluntary assumption of responsibility test was
originally limited to cases involving negligent advice and
misstatements, the principle has been extended to economic
loss caused by the negligent provision of services
3. Henderson v Merrett Syndicates ltd
NB: Lord Goff in Hedley Byrne held that the voluntary
assumption must be coupled together with reliance by the
claimant.
However, in some circumstances, the bank may be liable
where their act or omission causes economic loss to the
claimant even where there is no reliance on same by the
claimant
4. White v Jones

c. A duty of care may exist where a claimant satisfies

the Caparo test i.e. the 3-fold test which requires
foreseeability of damage, a relationship of proximity
and that it be fair, just and reasonable to impose the
duty
1. Caparo Industries plc v Dickman

NB!!! The discussion supra are my notes from Ellinger. I

couldn’t reconcile them with the Lecturer’s slides
because of time so I’m adding the slides so you can read
the notes and the slides together to get an idea of what he
expects us to know. PLEASE READ THE SLIDES!!!

Doctrinal Basis
The bank as agent of the customer owes a duty of care to the
customer.
1. Barclays Bank v. Quincecare (an agent for reward is to exercise
reasonable care and skill in carrying out instructions of the principal...banks are
not immune from this duty)
The duty arises in two main areas;
a. Contract and
b. Tort

NB: Where a person such as a banker receives a request for

information or advice and knows that his skill or judgment is
being relied upon and gives the information without a clear
disclaimer of responsibility, he accepts a legal duty to
exercise proper care
1. Hedley Byrne v. Heller & Partners (A customer arranged for
its bank to obtain reference from another customers bank. The bank gave the
reference without responsibility for the use of the bank seeking the reference.
The reference - ‘firm responsibly managed and as standing by its
commitments’. It failed to state that the customer was heavily indebted. The
HOLS held that in view of the disclaimer, the referee bank was not liable. The
House however was unanimous that the referee bank owed a duty of care to the
enquirer and it has been breached. But for an express disclaimer of
responsibility that prevented any liability arising, the defendant bank had
breached its duty of care to the enquirer by providing an erroneous banker’s
reference)

Knowledge of the disclaimer

Such a disclaimer must be known to those being advised.
It ensures that those seeking the reference are in no doubt
about the bank denying liability.
This has been legislated in the United Kingdom S. 2(2) of
the Unfair Contract Terms Act, 1977.
Disclaimers should be given before the contract is
concluded. Common law;
1. Olley v Marlborough

Audited Accounts
Caparo Industries v Dickman (Takeover bid launched by relying on an
audited accounts presented at an AGM. Issue – did the auditors owe a duty of care to
members of the public and the shareholders? The COA held that take over imminent and
thus auditors liable. The auditors were negligent, however the HOLS overruled the COA
and held that the claimant was not entitled to recover loss from the auditors. Lord Oliver
held that such claims are confined to reference given to a known person)

What is the basis for recovery?

To recover the loss, the HOLS held that;
a. the advisor must know the identity of the recipient,
b. the purpose of the request must be known
c. the recipient must rely on the information
These points establish a relationship of proximity

Economic Loss-threefold test

The court further listed 3 ingredients for a duty of care to
exist in economic losses;
a. the damage must be foreseeable,
b. there must exist a relationship of proximity
c. the situation should be one where it is fair and just
for the court to impose the duty

What about failure to request?

1. McEvoy v ANZ Banking Group Ltd. (Took a loan and
failed to ask for advice and instead shopped around. Sued for a loss. The bank
did not owe the customer any duty of care. The customer knew that others paid
for it and he wanted it for free. Decision confirmed on appeal).
2. Smith v Bush (A surveyor was engaged to value a house for a building
society. The valuation was undertaken negligently although the surveyor knew
that the report was to be used by a lender to secure a loan. Held that he owed a
duty to the bank in contract and customer in tort)

Duties of care in Contract

What is acting in accordance with instructions?
Issue - should the banks obey all instructions to the latter or
apply its knowledge and skill?

NB: The responsibility arises only upon a request for advice.

1. James v Barclays Bank (The plaintiff a farmer used the bank’s
literature in which the bank claimed some expertise. The plaintiff used the
information and lost. He sued the bank. Held that although the bank held itself
out as an expert, he failed to ask and the bank not liable)
2. Schioler v Nat West Bank Ltd (Customer opened an account in
a tax haven but money sent to London and taxed. She sued the bank for
 breaching a duty and failure to exercise reasonable care in handling her affairs.
Bank not liable. That the bank is not obliged to consult her before acting
ordinarily as that would burdened the bank)
3. Williams & Glyns Bank v Barnes (Loan to purchase shares in
a company went bad. Bank not liable as no advice was sought)
Conclusion, the courts are cautious to burden the banks.
Banks should carry out duties effectively.

Areas of Negligence
Bank’s fault leads to a loss of customer’s money.
1. Weir v National Westminster (Bank failed to detect a forged
signature and was liable for the loss)
2. Middle Temple v Lloyds Bank & Sekerbank (Plaintiff
issued cheque for payment of insurance and the cheque was stolen and cleared
by the 2nd defendant. The defendants were held liable for the amount)
3. Standard Chartered Bank v Victoria Islands
Properties & ANZ Grinlays Bank Ltd (Second defendant
swindled by a rogue. The rogue opened an account with Stanchart and cleared
same. Stanchart held liable. Decision affirmed on appeal. On appeal, the SC
held that Stanchart is not liable since its received the amount. The originator
bank is liable)

Protecting the customer’s account

The bank’s duty to pay cheque quickly should not result in
sacrificing skill and care.
1. Selangor United Rubber Co v Cradock (to exercise
reasonable care and skill includes making enquiries if the banker has suspicion
that the signatories are misusing their authority or defrauding their principal)
2. Lipkin Gorman v Karpnale (The issue is whether the bank has
failed to recognise that the account is being abused)

Investment and Business Advice

A contractual duty in tort under HB exist when a banker
gives investment advice, to take reasonable care.
1. Woods v Martins Bank (The bank gave investment advice which
was false and the plaintiff lost. Bank held liable. Rationale; a. Borrowers were
inexperienced. b. Bank manager inspected the house. c. Wording of the advice
(Customers’ should expect to receive “tailor made” advice)
2. Spindler & Verity v Lloyds Bank (Inexperienced persons
advised to buy a house based on a brochure and sued for loss. Bank was liable)
3. Royal Bank v Pampellonne (Bank held not liable when its
manager advised with no fee. The minority taught otherwise)
4. Foti v Banque Nationale de Paris (Two Italian labourers
borrowed funds denominated in Swiss Franc to reduce the financing cost of
their acquisition of a shopping centre. The bank knew the background of the
borrowers but gave no advice about the risk of adverse currency fluctuations.
They lost and sued, the bank was held liable)
a. Justification;
An expert witness informed the court that a prudent banker
would have advised the customer with no prior experience
of forex loans to hedge their losses.
b. Escape Liability;
The bank could escape liability by drawing the clients
attention to the currency exchange risks involved and advise
them to discuss the transaction with an accountant.

Is the bank obliged to furnish advice?

A bank ordinarily has no such duty.
However a duty arises when the customer request for advice
and the bank agrees.
The issue is when is the bank deemed to have crossed the
line and assumed an advisory role although not asked.
This imposes a duty of care.
1. JP Morgan Chase Bank v. Springwell Navigation
Corporation (The claimant was an investment company. It held a trading
account with the defendant bank. The claimant invested in high risk
sophisticated instruments denominated in Russian rubles. The crisis in Russia
cause a drop in the value of the investment. The claimant sued – cause of
action. The bank owed a contractual duty to tender an advice on the suitability
of the investment. The issue was whether the bank owed a common law duty to
provide advice? The court held that no such duty existed and decision was
affirmed on appeal)
The significance of this decision is that the court should
consider certain factors before concluding that a bank has a
duty to advise customers with regard to risk associated with
sophisticated banking products)
Factors
a. The court should assess the customers degree of
commercial sophistication and financial acumen.
That is, the claimant knew what he was about.
b. The court should examine the extent to which the
bank has committed itself (oral or documentary).
c. The court should treat as relevant the status, capacity
and the role played by the official(s) of the bank.
d. If the bank has crossed the line to become a financial
adviser the court must balance that with the terms of
the contract signed by the parties.

Is the customer’s experience relevant?

In investment issues it does.
1. Bankers Trust Int. v P.T. Dharmala Sakiti
Sejahtera (The defendant borrowed money and failed to pay and when
sued said the bank failed to advise him. The court held that the bank assumed
no such duty and just needed to explain the facts and matters and no more)
The level of experience of the person dealing with the bank
will impact on the court’s assessment of the bank’s duty of
care.

THIS IS NOTES I FOUND BASED ON THE

LECTURER’S SLIDE I DECIDED TO INCOPORATE. IF
YOU ALREADY UNDERSTAND THE DISCUSSION
GOING ON, SKIP TO THE NEXT TOPIC BUT YOU
CAN READ THIS FOR CLARIFICATION
 The Doctrinal Basis
Banks as agents of their customers owe a duty of care to
their customers. As agents their duties require them to carry
out customers instructions with reasonable skill and care.
1. Barclays Bank plc v. Quincecare Ltd. (The case held
among others that prima facie every agent for reward is also bound to exercise
reasonable care and skill in carrying out instructions of the principal. Bankers
are not immune from this duty. In my judgement it is implied term of the
contract between the bank and the customer that the bank will observe
reasonable skill and care in and about executing the customer’s orders)
These duties arise in contract where there is basically a
contract between the customer and the bank.
NB: Another duty also arises in Tort.
In tort a duty may exist between a banker and the customer
and another duty between the banker and third parties.
In tort the banks liability is based on negligent
misstatements.
2. Hedley Byrne Co. Ltd. V. Heller & Partners Ltd.(it
was about the liability of a bank for the reference it gave about one of its
customers to a claimant through another bank. The defendant bank avoided
liability because of the standard disclaimer that the bank gave. Such a
disclaimer must be clear to those being advised so that they are not in doubt that
the bank is denying liability if the advice proves wrong. Hence the disclaimer
should be given before the advice is given)
In Hedley Byrne the House of Lords held that if a person,
such as a bank, upon receiving a request for information or
advise in circumstances that should showed that his skill or
judgement is being relied upon and the bank gives that
information or advise without a clear disclaimer of
responsibility, he accepts a legal duty to exercise proper care
in doing so even though he is not under any contractual or
fiduciary obligation to the inquirer and if he is negligent an
action for damages will lie. Since the bank in this case made
a disclaimer the bank is free from any liability.
3. Caparo Industries plc v. Dickman, (the claimant relied on an
audited account presented to an annual general meeting to formulate its
takeover bid. The auditors have been negligent in preparing the account. The
issue was whether the auditors of the company’s account were liable to the
members of the public who will invest in the company. The House of Lords
overruled the Court of Appeal and held that the claimant was not entitled to
recover from the auditors the loss incurred. The claimant argued that on the
facts, takeover was imminent and the auditors should have foreseen that
members of the public were going to rely on the audited account to launch a
takeover bid. The claimant however conceded that in launching the takeover
bid, they did not consult the auditors)
The Hose of Lords in arriving at their decision established
three ingredients to be satisfied by any claimant in cases of
economic loss. These are:
(a) The damage (loss) must be foreseeable;
(b) There must exist a relationship of proximity;
(c) The situation should be one where it is just and
fair for the court to impose a duty.
 4. Smith v Bush (a surveyor was engaged to value a house for a building
society. The result of the valuation was going to be used by the lender as a
potential security for the transaction. The valuation was done negligently. It
was held that the surveyor owed a duty of care to the purchasers in tort because
the purchasers did not engage a surveyor and the surveyor also owed a
contractual duty to the building society. The issue here was that the surveyor
knew that the purchaser would also rely on the report and he also knew the
purpose for which the valuation was being done. In this case there was liability
on the surveyor both in tort (purchaser) and in contract (building society)
NB: The conclusion from the Caparo & Smith case was that
a party owes a duty towards another if you expressly ask for
the advice.

The Scope of the Duty

a. Acting in accordance with instructions – Duties of
care in contract
Banks are to obey customers’ instructions promptly at the
same time they should not exceed their authority.
In undertaking their duty banks should observe reasonable
skill and care.
The problem is should the banks obey all instructions to the
letter or apply its knowledge and skill?
This has raised customers hope and there is a tendency for
the customers to later blame the banks for any loss that
might incur.
To that extent if a bank advertises and holds itself out that it
has some expertise on which the plaintiff relies to his
detriment, there is misrepresentation and the bank is liable.
1. James v. Barclays Bank (the plaintiff was a farmer and the
defendant bank had a literature in which it claimed it had an expertise in
financial advice. The plaintiff sued the bank alleging that the advice given was
negligent and he has suffered a loss. The Court of Appeal held that by the
literature the bank has held itself out as having the expertise to offer advice to
people like the plaintiff if they ask. Since the plaintiff just relied on the
literature but did not ask the bank for their advice, the bank is not liable)
2. Shola v. Natwest Bank (the plaintiff was a Danish national. She
opened an account with the defendant bank in Germany where transactions
were not taxable. She received her dividend in pounds sterling into this account
which was not subject to tax. One of such dividends was sent in Malaysian
dollars to this account. The bank had not been instructed of what to do in such
a situation and since the bank did not have facilities to convert it sent the money
to London to be converted and after the conversion tax was deducted from that
particular amount. The plaintiff sued the bank claiming that the bank had
breached its duty and has not exercised reasonable care in handing her account.
The court held that the bank was not obliged to ascertain the tax implications
for the customer or consult her before acting in the ordinary way of their duty.
If the bank was to do this, this would amount to unreasonably burdening the
bank.
The bank acting in the normal practice is not bound to warn
the customer or seek the customers’ permission. This is so
even if the line of action taken by the bank will lead to a loss
on the part of the customer.
3. Williams & Glyn’s Bank Ltd. v. Barnes (the plaintiff
requested for a loan for purposes of buying shares in a company. A specific
request was needed so as to be directed to the appropriate department. He did
not request for such information. He sued the bank when he made a loss. It
 was held that if he had asked he would have been given directions to the
appropriate department and since he did not ask the bank did not owe him any
duty to consider the commercial advisability of the loan)
From the cases discussed above it may be concluded that the
courts are cautious to increase the burden on banks.
The emphasis now is on the need for the banks to carry out
their commercial functions effectively without concerning
themselves with the need to fulfil the expectations of the
customer.

b. Area of negligence
The principle is that when a bank is paying or collecting
cheques, it owes a duty of care not only to their customers
but to third parties as well.
To this extend the bank is required to report forgeries that
might occur in the administration of the customers account.
The Bills of Exchange Act, 1961, Act 55 has given some
protection to banks in their dealings with regards to payment
of and receipt of cheques.
Section 79 deals with protection to a banker where the
cheque is crossed whilst section 81 deals with the protection
accorded a collecting bank.
Under both cases the position is that the banker must act in
good faith and without negligence.
These two concepts are not defined and whether a bank is
negligent or has acted not in good faith depends upon
circumstances of each case.
ILLUSTRATIONS
1. Weir v. NatWest Bank (a solicitor was the agent of a customer and
was given the power to sign the customers’ cheque. An employee of the
solicitor forged his signature and the bank negligently failed to detect the fraud.
The negligence was in the fact that the withdrawals were very large and
unusual. The solicitor thus sued the bank and it was held that the bank was
liable. The court further stated that the bank owed a duty to a person who is the
authorised signatory of the customers account and should take reasonable care
to guard such account. The bank should have also detected that the withdrawals
were unusual because of the frequency the cheques were presented)
2. Middle Temple v. Lloyd Bank & Sekerbank (the
plaintiffs issued a cheque of £200,000 as insurance for its members in favour of
Sun Alliance. The cheque was stolen and it appeared in Turkey. The second
defendant agrees to collect the cheque on behalf of a man who was not known
to the bank and allowed him to open an account with the cheque. The cheque
was an Account PAYE and was therefore not transferable but there was an
endorsement which had been forged. The second defendant presented the
cheque to the first defendant and same was paid whereupon the second
defendant credited the said customers account immediately. The said customer
immediately withdrew the said amount from his account. The plaintiff sued
both banks for the money and it was held that both banks were liable as they
had been negligent. On the part of Lloyd bank it was founded on their part that
since the second defendant had not sent any cheque for clearance and all of a
sudden such a large cheque been presented by them should have aroused their
suspicion. Secondly, the endorsement was written rather than being stamped
and there was also evidence that some senior members of Lloyds Bank advised
against the payment of the cheque. With Sekerbank it was negligence because
it did not know its customer and it was the grossest negligent for them to accept
an English cheque payable to an English company to a stranger who until the
 presentation was not known to them as a customer. The bank should have at
least asked the person to explain at least how he came by the cheque and why
not go to his own bank)
It may be concluded that the decisions in the above cases
does not mean that banks in their bid to honour customers’
cheque promptly should close their eyes to obvious
dishonesty. Banks should always make inquiries that a
reasonable man should make.

c. Investment & Business Advice

Where a bank gives an investment advice it owes a
contractual duty to the customer and a duty in tort to other to
take reasonable care.
1. Woods v Martins Bank (the bank held itself out as giving
investment advice to the plaintiff who had no experience in the field. At the
time the bank gave the advice to the plaintiff, the company’s account with the
bank was overdrawn and it was likely that the company was going to fail. The
plaintiff after being advised invested in the company and the company did fail.
He sued the defendant bank for fraud and negligence. It was held that the bank
was negligent as the bank owes a duty towards the client and even the plaintiff
later opened an account with that particular bank. Again the plaintiff had gone
to the bank purposely for investment advice and that was what the bank did)
2. Spindler & Verity v. Lloyds Bank plc (the plaintiff, a
couple, borrowed money from the bank and claimed they have suffered loss
because of the advice by the bank manager. The manager did not only advice
but inspected the house with the couple and encouraged them to buy. It was
held that on the facts, the manager did assume duty of advising the couple on
the prudence of the transaction and thus owed a duty of care which said duty
had been broken)
3. Royal Bank Trust Co. (Trinidad) v Pampellone (the
branch manager of the bank met the plaintiff twice where the bank manger gave
misleading investment advice with no fee charged. Majority of the Privy
Council held that the manager had supplied information in his possession and
had not advise him. The minority thought that there was a duty of care as the
client relied on the advice and a banker giving advice cannot be classified as
casual)

d. Bank References
It has been held that bank references relates to the credit
worthiness and not the identity or character of the fellow.
Most references contains disclaimer. What it means is that
the reference is given without responsibility on the part of
the giver.

What is the liability for incorrect references?

Banks are liable to both the customer and the recipient
of the statement or reference. With the customer he can
bring an action in defamation. It should be established
that the incorrect reference has lowered his reputation
within the right-thinking members of the society. The
recipient of the incorrect statement may also maintain
an action in negligence against the bank.
1. Spring v Guardian Assurance (where the House of Lords
 imposed a duty of care in respect of negligently giving bad reference)

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