BANKS AND

THEIR
CUSTOMERS
PRESENTED BY: DWIGHT
SIBBLIES LLB, LEC
THE MAIN CONTENT

THE BANKER- NATURE OF THE

CONTRACT AND
01 CUSTOMER
RELATIONSHIP 02 DUTY OF
CONFIDENTIALITY

ADVISORY AND
TERMINATION OF
03 THE RELATIONSHIP 04 TRANSACTIONAL
LIABILITY

THE CONSUMER
05 PROTECTION ACT
 01
THE BANKER-CUSTOMER
RELATIONSHIP
HISTORY OF THE BANKER-CUSTOMER RELATIONSHIP

In the 19th century UK banks were selective in respect to their customers,

so maintaining a bank account enhanced a person’s financial standing and
credit worthiness. Until the end of World War 1, banks were generally
active only for business men, the professionals and landed classes. The
bank customer relationship was a particularly close one. Now a days it is
expected that persons will maintain a bank account with several banks
OVERVIEW

The bank owes a duty to honor its customer’s cheques and other payment
instructions, and to obey its customer’s instructions as regards the
collection of cheques and other effects payable to them. A bank owes
certain incidental duties to its customers such as a common law duty of
care {Abourahmah v Abacha (20050 EWHC 2662 QB 68}, a duty of
confidentiality and also fiduciary duties similar to those that bind a
trustee.
WHO IS A CUSTOMER?

There was a time when it was thought that a person becomes a customer of the bank
only when banking services were being performed for him or her by that bank.
Merely opening an account in that customer’s name was insufficient to confer that
status. Matthews v Williams Brown & Co. 1894 10 TLR 386. However in Ladbrooke
v Todd 1914 30 TLR 433, Bailache J held that the theif had become a customer when
the bank had agreed to open the account and that the advice to the theif that there
had to be clearance before the proceeds could be withdrawn was irrelevant in this
regard.
WHO IS A CUSTOMER?

Commissioners of Taxation v English Scottish and Australian Bank Ltd 1920 AC

683 PC, Dunedin LJ stated “the word customer signifies a relationship in which
duration is not of the essence. A person whose money has been accepted by a bank,
on the footing that they undertake to honor cheques up to the amount standing to his
credit is a customer of the bank; Irrespective of whether his connection is of short or
long standing.” Where the bank performs a casual service for someone, or even if the
person cashes cheques on a regular basis this does not make them a customer.
WHO IS A CUSTOMER?

Where the bank performs a casual service for someone, or even if the person cashes
cheques on a regular basis this does not make them a customer. The House of Lords
held in Great Western Railway Co. v London & County Banking Co. Ltd. 1901 AC
414 that although the bank cashed cheques regularly at the request of the Great
Collector over the years he was not a customer as he did not maintain an account
with the bank. Therefore, a person must operate an account with a particular bank in
order to be defined a customer per the Iskandar v Bank of America National Trust &
Savings Association 1998 1 SLR 37.
WHO IS A CUSTOMER?

However, in Canada, New Zealand and Malaysia, there are suggestions that customer
might include persons who receive services from a bank without necessarily having
an account there, Formosa Resort Properties SDN BHD v Bank Bumiputra Malaysia
Bhd 2009 MLJU 243 MCA.
WHO IS A CUSTOMER?

There are times when it is important to determine the precise moment when the
banker, customer relationship comes into existence. Ladbrooke suggests that this
occurs the moment the bank agrees to open the account and this view is supported by
Woods v Martins Bank Ltd. 1959 1 QB 55. The mere opening of an account in
another’s name without their authority does not establish a banker, customer
relationship between the nominal account holder and the relevant bank.
WHO IS A CUSTOMER?

Accordingly, the banker customer relationship comes into existence:

1) When the bank agrees to open an account in a person’s name it is consenting to
having a regular business relationship with that person. To honor his or her cheques
and executing other types of payment and collecting cheques and other effects
payable to him or her.
WHO IS A CUSTOMER?

2) The bank agrees to act as the customer’s agent in banking transactions and to
exercise the same degree of care and skill in this regard as can be expected of a
reasonable banker.
3) A bank acquires certain defenses vis a vis third parties in situations where the
banks operations on behalf of its customer, such as the honoring and collection of
cheques would otherwise expose the bank to claims e.g. conversion of a cheque.
 02
NATURE OF THE CONTRACT
AND DUTY OF
CONFIDENTIALITY
NATURE OF THE CONTRACT

It is a contractual relationship. The nature of this agreement is that an amount equal

to that deposited has to be repaid by the bank. In respect of a current account the
amount is repayable without interest or with minimal interest against the customers
demand and the customer retains the right to draw on his funds by means of a cheque
or other payment instructions. The essence of the banker customer contract, is the
bank’s right to use deposits for its own purposes and it’s undertaking is to repay an
amount equal to that deposited with or without interest either on call or at a fixed
time.
NATURE OF THE CONTRACT

The House of Lords in Foley v Hill 1848 2 HLC 28 HL held that the banker customer
contract was fundamentally a contract between debtor/borrower and creditor. Lord
Cottenham stated that when the account was in credit the banks duty was to repay to
the principal when demanded a sum equivalent to that paid into his hands. The
obligation of the bank to repay the debt exists only when the demand is made, per
Joachimson v Swiss Bank Cooperation 1921 KB 110 CA. The fundamental banker
customer relationship is not based on agency, trust or bailment.
NATURE OF THE CONTRACT

There are different types of contracts such as:

● agreement to operate current and savings account
● loan agreements
● letters of credit
● safety deposit box
● credit card.

Deposit of funds without accounts does not constitute the relationship. World Wise
Partners Ltd v Rbbt and NCB v Olint 2009
CONFIDENTIALITY
The secrecy of officials is mandated by statute with criminal sanctions. Do not
divulge information except in any of the circumstances specified in the 34 (d)
schedule Bank of Jamaica Act, section 85, the 8th schedule of the Building
societies act, Section 13 credit Reporting Act.

This arises from the fact that the banker customer relationship includes elements
of an agency relationship. The general rule is that an agent owes a duty of loyalty
and confidentiality to his principal; but that duty varies depending on the type of
agent involved. For e.g. the confidentiality expected of the attorney-at-law client
relationship is much higher than that expected in other relationships.
CONFIDENTIALITY

The connection between the banks duty of confidentiality on one hand and other
types of agency relationships, involving the provision of highly personal services
on the other was emphasized by Diplock LJ in Parry Jones v Law Society “such a
duty of secrecy exists not only between solicitor and client but for e.g between
banker and customer, doctor and patient, accountant and client. Such a 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. It is the duty of such a party to a contract to
disclose in defined circumstances, confidential information then he or she must do
so. Any express contract to the contrary would be illegal and void.”
CONFIDENTIALITY

An attorney-at-law cannot represent his interests effectively unless the client is

able to discuss his matters openly. This justifies the duty of confidentiality in the
banker/customer relationship. Persons are encouraged to enter into a banking
relationship since they can conduct their financial dealings with the bank in
private away from his family and or his commercial competitors, as the services
offered by the bank facilitates the customer being willing to provide the bank with
detailed information of his financial affairs if this is done on a confidential basis.
CONFIDENTIALITY

However the banks duty of confidentiality may at times be superseded by matters

of state which are considered to be of greater importance. Presently the banks duty
of confidentiality is in the form of a term implied into the banker customer
contract. Suggestions have been made that this principle should be codified. This
course has been adopted in Austria, Singapore whose legislation was described as
providing a more comprehensive regime in relation to bank confidentiality than
the previous common law principles.
 03
TERMINATION OF THE
BANKER-CUSTOMER
RELATIONSHIP
TERMINATION OF THE BANKER-CUSTOMER
RELATIONSHIP
The Banker-Customer relationship can be determined on ways applicable
to ordinary contracts. There are four methods of discharging contractual
obligations in an ordinary contract, these include: performance,
agreement, impossibility or frustration and breach. However, as per the
banker-customer relationship, the only applicable and practical methods
are agreement and impossibility or frustration.
TERMINATION OF THE BANKER-CUSTOMER
RELATIONSHIP
The banker-customer termination will be determined by agreement
through mutual agreement where both the banker and customer agree to
extinguish the rights and obligations under the banking contract. This can
be enlightened by the maxim “Eodemmodo quo oritur,
eodemmododissolovultir” which translates to: “what has been created by
agreement, can be extinguished by agreement.”

However, in usual banking situations, this termination of contract is rare.

TERMINATION OF THE BANKER-CUSTOMER
RELATIONSHIP
Frustration or impossibility will also occur in instances where the account
holder is using the account for illegal activities. In this case, the bank can
close the account of the user without giving notice. This is in line with the
bank’s superior public duty, not to be involved in illegality. In Bannex ltd.
v Gold Trust Bank ltd., it was held that the bank’s duty is to act in
accordance with the lawful requests of the customer in the normal
operation of the customer’s account.
TERMINATION OF THE BANKER-CUSTOMER
RELATIONSHIP
Frustration is also observed where a bank’s right to transact banking
business has been revoked by the central bank. In ordinary contracts, this
may be viewed as frustration due to government intervention. This is
because a banker-customer relationship can be determined by the central
bank which is a government entity.

Mental incapacity is encompassed under frustration and may determine

the relationship of a banker-customer as well as that of a contract. In
Jackson v Union Marine Insurance Co. ltd, an ordinary contract to write a
book was frustrated by the supervening insanity of the author. Drew v
Nunn.
TERMINATION OF THE BANKER-CUSTOMER
RELATIONSHIP
Death also arises under frustartion as the determinant of a contract. The
common law rule is that upon the death of a party to a contract there is
automatic assignment of the rights and liabilities of the deceased to his
personal represntatitives but this law doesnt apply to contracts of a
personal nature, which the banker-customer contract is. Therefore, where a
bank receives notice of the customer’s death, its duty and authority to pay
a cheque drawn on the bank per the customer is determined by the …..
This will however depend on the question of facts.
TERMINATION OF THE BANKER-CUSTOMER
RELATIONSHIP

The customer’s death thus terminates the contract between a banker and
such customer. The balance on the account is vested in the legal
representative of the deceased customer and where the customer dies
intestate, the administrator first obtains letters of administration. Graves v
Cohen.
TERMINATION OF THE BANKER-CUSTOMER
RELATIONSHIP

Other ways od fetermining a bank-customer contract includes:

1. Closure of the account by customer on demand of the balance held
within. Wilson v Midland Bank ltd.
2. Closure of an account by the bank without illegality, after giving
written notice to the customer. Joachimson v Swiss Bank. Prosperity
Ltd. V Lloyd’s Bank Ltd.
3. Bankruptcy of a customer.
4. Winding up of a customer (businesses have their own legal identity).
 04
TRANSACTIONAL AND
ADVISORY LIABILITY
 TRANSACTIONAL LIABILITY

Claims against a bank which has wrongly paid away funds can generally be
grouped under the following main heads:
a. Breach of mandate;
b. Negligence;
c. Accessory liability.

Claims for breach of mandate usually arise either because the bank has wrongly
refused to make a payment or has wrongly made a payment without proper
authority. Claims for breach of mandate are claims for breach of contract and/or
for an account. The liability is strict, so issues of contributory negligence do not
arise
TRANSACTIONAL LIABILITY

If a bank wrongly refuses to make a payment for its customer, the customer’s
claim will be for damages to compensate for any reasonably foreseeable losses
incurred by the customer as a result of the bank’s failure to pay.

A bank which wrongly pays money away when it has no authority to do so will
usually be treated as if it had paid using its own funds, not those of its customer.
The customer’s claim will be for a declaration that the debits made to its
account should be reversed out, and for damages to compensate the customer for
any reasonably foreseeable losses incurred by the customer as a result of the
bank’s failure to state the balance of the account accurately
 TRANSACTIONAL LIABILITY

Even if the payment was made in accordance with the terms of the mandate, the
bank will be liable to its customer for damages in negligence if it made the
payment in circumstances where it had reasonable grounds (although not
necessarily proof) for believing that the instruction to make the payment was an
attempt to misappropriate the funds of the customer. Such claims are more likely
to succeed where the person authorising the payment is an agent (such as a
director of a company) signing payment instructions on behalf of the customer.
It is more difficult to see how such a claim could be made where the signatory is
an individual customer.
TRANSACTIONAL LIABILITY

If the funds paid away were, in the hands of the bank’s customer, impressed
with a trust in favour of a third party, by paying away the funds outside of the
intended recipient of the trust, the bank may incur liability as an accessory for
assisting a breach of trust if the bank is found to have acted dishonestly. Though
dishonesty can be difficult to prove, it now seems the standard is an objective
one.
TRANSACTIONAL LIABILITY

“The application of the standard requires one to put oneself in the shoes of the
defendant to the extent that his conduct is to be assessed in the light of what he
knew at the relevant time, as distinct from what a reasonable person would have
known or appreciated. For the most part dishonesty is to be equated with
conscious impropriety. But a person is not free to set his own standard of
honesty. This is what is meant by saying that the standard is objective. If by
ordinary standards, the defendant’s mental state would be judged to be
dishonest, it is irrelevant that the defendant has adopted a different standard or
can see nothing wrong in his behavior”.

Aerostar Maintenance International v Wilson

TRANSACTIONAL LIABILITY

There is a second class of accessory liability which can attach to a bank which
receives trust property lawfully and not for its own benefit, but then deals with it
in a manner which is inconsistent with the trust, Agip (Africa) Ltd v Jackson
[1990]. There is some debate whether this too requires dishonesty to be shown,
or is established by the unconscionability test applied in claims of knowing
receipt.
BANKER’S LIABILITY

Claims against a bank which has received funds to which it was not entitled can
generally be grouped under the following main heads:
a. Conversion;
b. Liability for money had and received;
c. Accessory liability.
TRANSACTIONAL LIABILITY

Conversion: When the payment is made by an instrument (such as a cheque, bill

or note) collection of the cheque for a customer who is not entitled to it can be a
conversion for which the receiving bank is liable in damages. To be the subject
of a claim in conversion the debt must be embodied in an instrument such as a
cheque, because conversion claims relate to chattels, not to choses in action,
OBG Ltd v Allan [2008] (although the damages payable for wrongful
conversion of a cheque equate to the face value of the cheque, not just the value
of the paper of which it is written).
TRANSACTIONAL LIABILITY

Liability for money had and received: Most commonly this is the basis on which
money paid by mistake is sought to be recovered from the recipient bank.
Money paid by mistake is generally repayable subject to the bank establishing
one of the available defences, Barclays Bank Ltd v W J Simms [1980]. The
claim is not limited to the immediate recipient but may be brought against a
subsequent transferee, Agip (Africa) Ltd v Jackson [1990].
TRANSACTIONAL LIABILITY

Accessory liability: If the recipient bank has received trust funds for its own
account (for example, so as to reduce its customer’s borrowing on overdraft or
loan), the bank may incur liability as an accessory for knowing receipt if the
bank’s state of knowledge is such as to make it unconscionable for the bank to
retain the benefit of the receipt, BCCI v Akindele [2001]. It remains unclear
whether a bank which receives money paid by mistake automatically holds the
funds on trust to repay the paying party,Fitzalan-Howard v Hibbert [2010] but it
probably will do if the mistaken payment was made at its request, the fund is
identifiable and the recipient has notice of the claim,3 Commerzbank v IMB
Morgan [2004]
 ADVISORY LIABILITY

Hedley Byrne v Heller & Partners [1964] AC 465. That case laid down, as a
general proposition of wide application, that (per Lord Morris of Borth-y-Gest at
502-503): “if in a sphere in which a person is so placed that others could
reasonably rely upon his judgment or his skill or upon his ability to make
careful inquiry, a person takes it upon himself to give information or advice to
… another person who, as he knows or should know, will place reliance upon it,
then a duty of care will arise.”
ADVISORY LIABILITY

Their Lordships went on specifically to recognise and affirm the application of

this principle to banks giving investment advice, expressly approving Woods v
Martins Bank [1959] 1 QB 55, and endorsing Lord Finlay LC’s dictum in
Banbury v Bank of Montreal [1918] AC 626 that a banker “is under no
obligation to advise, but if he takes upon himself to do so, he will incur liability
if he does so negligently”
 FIDUCIARY DUTY

Apart from the bank’s core duty to obey its customers instructions the execution of its
customers payment instructions or the performance of other incidental banking services
for him, may lead to the imposition of other duties or forms of liability on the bank.
These services may include: A bank may become a fiduciary owing its customer the
core fiduciary duties of loyalty and fidelity. A bank attracts fiduciary duties arising
from its proximate relationship with a given customer whether by actually assuming
the role of a fiduciary or by knowingly dealing with a customer in circumstances that
have induced the customer to regard the bank as having assumed such a role.
 FIDUCIARY DUTY

Bristol & West Building Society v Matthew [1998] Ch 1 CA Miller LJ clearly

distinguished thE duty held in common law and contract from the so called fiduciary
duties. Unlike the equitable duty of care fiduciary duties are prescriptive in nature in
that they tell the fiduciary what he must not do, not what he ought to do and they
attract remedies that are primarily restitutionary or restorative rather than
compensatory. The distinguishing obligation of a fiduciary is the obligation of loyalty.
Breach of fiduciary obligation therefore connotes infidelity or disloyalty. Mere
incompetence is not enough
FIDUCIARY DUTY

According to Miller LJ “a fiduciary is someone who has undertaken to act for an on

behalf of another in a particular matter in circumstances which give rise to a
relationship of trust and confidence.” The principal is entitled to the single minded
loyalty of the fiduciary. Hence a fiduciary must act in good faith, he must not make a
profit out of his trust, and he must not place himself in a position where his duty and
his interests may conflict. He may not act for his own benefit or the benefit of a third
person without the informed consent of his principal.
FIDUCIARY DUTY

Beyond the duties of skill and care banks do not generally owe their customers the
fiduciary duties of loyalty and fidelity. The courts do not impose fiduciary duties on
banks towards their commercial customers and this reluctance has also been extended
to personal customers who might be considered to be more vulnerable when dealing
with a bank
 05
THE CONSUMER
PROTECTION ACT
THE CONSUMER PROTECTION ACT

The Consumer Protection Act is legislation which provides for the promotion and
protection of consumer interest, in relation to the supply of goods and the
provision of services in order to ensure protection of life, health and safety of
consumers and others, the establishment of a Consumer Affairs Commission and
for connected purposes.
THE CONSUMER PROTECTION ACT

Rights of a Consumer

● The right to satisfaction of basic needs such as food, shelter, healthcare and public
utilities.
● The right to safety and protection from hazardous goods and services.
● The right to be informed and protected against fraudulent, deceitful or misleading
information.
● The right to choose and have access to a variety of products and services at fair and
competitive prices.
● The right to be heard and to express and represent consumer interests in the making of
economic and political decisions.
● The right to redress and to be compensated for misrepresentation, substandard goods or
unsatisfactory services.
THE CONSUMER PROTECTION ACT

The Consumer Protection Act 2016

https://moj.gov.jm/sites/default/files/laws/The%20Consumer%20Protection
%20Act_0.pdf
 End of
Presentation