Does Law Recognise Any Duty of Care Owed by Customer Contract

Greenwood v. Martins Bank Ltd (1933) AC 51

Banks alleged that duty was wider…both implied term in contract …to take reasonable precautions in the management of the business with the bank to prevent forged cheques to be presented…and in tort duty to check periodic statements and advise of irregularities

Test of whether a term should be implied in contract is necessity. Not necessary here.

If banks want it they have to put it in their contracts expressly or use their influence to get it into legislation

Any obligations in tort no greater than those in contract

GREENWOOD V. MARTIN’S BANK (1933) AC 51

Greenwood opened cheque account with Martins

Wife forged signature

Most drawn in favour of non-existing person

She indorsed them and obtained payment from bank

11 months later Mr. G found her out

Allowed another 7 months to go by before reporting

She then shot herself

He claimed bank could not debit him for cheques

Bank denied claim

He sued and successful

Appeal to CA successful. Greenwood appealed to HL

Crockett Justice

No question of ratification or of adoption. Estoppel?

Essential factors giving rise to estoppel

Mere silence not representation BUT

When there is duty and then deliberate silence this may become a representation. As in this case

Duty to disclose forgery to bank admitted

Appeal dismissed

CUSTOMER DUTIES with respect to forgery, unauthorised signature

1) Duty to take care to prevent fraudulent alterations of cheques which might cause loss to banker

Commonwealth Trading Bank of Australia v. Sydney Wide Stores which confirmed Macmillan (english case)

In absence of express agreement to contrary, customer’s duty is limited to duty to refrain from drafting a cheque in such a manner as to facilitate fraud or forgery

2) Duty to inform bank of any unauthorised cheques as soon as aware

No duty to check statements

Tai Hing Cotton Mill Ltd v. Liu Chong Hing Bank Ltd (1986)

Applying Greenwood

Attempts to expand duty have failed:

Tai Hing Cotton Mill Ltd (1986)

National Australia Bank Ltd v. Hokit (June 96)

Tournier v National Provincial and Union Bank of England [1924] 1 KB 461

Tournier v National Provincial and Union Bank of England [1924] 1 KB 461 was a landmark legal case in the United Kingdom. It established the conditions under which banks owed confidentiality to their clients, allowing four circumstances wherein banks were not required to guard privacy: where compelled by (1) law, (2) public duty, (3) the interest of the bank, or (4) where the client had consented, even implicitly, to disclosure.[1]

In this case the bank disclosed to its customer’s employer the fact that one of the customer’s unpaid cheques was drawn in favour of a bookmaker’s account. As a result, the customer’s employer did not renew his contract with the customer. The Court of Appeal held that confidentiality was an implied term in the customer’s contract and that any breach could give rise to liability in damages if loss results.

FACTS in full details of the case

The case of “Tournier v National Provincial and Union Bank of England” [1924] 1KB 461 (CA), clarifiedEnglish law on the banker’s duty of confidentiality. There is an implied contractual term between banks and their customers that the bank will not divulge information to any third party without express or implied consent to do so. The duty is not absolute for the bank may disclose information where the disclosure is under compulsion of law, where there is a duty to the public to disclose and where the interests of the bank require disclosure. It is arguable that a similar duty is implied in the relationship between an individual and his accountant, financial adviser and trustee.

Tournier had an overdraft facility with the National Provincial and Union Bank of England. He had made arrangements to make payments toward the reduction of the overdraft, but after only three instalments had ceased to make further payments. Tournier was the payee of a cheque drawn by Woldingham Traders Ltd. Rather than deposit the cheque in his account with the defendant bank, he endorsed the cheque to a customer of the London City and Midland Bank. The defendant bank came to know about the cheque by virtue of the fact that Woldingham was a customer. Upon seeing the cheque presented for payment the manager rang the appropriate branch of the London City and Midland Bank to enquire as to the identity of their customer. It was learned that the endorsee was a bookmaker, a person who accepts and pays off bets. The manager then rang the employers of Tournier and had conversations with two of the directors. The actual contents of that conversation are not clear, but it was alleged that the manager informed them that Tournier was having dealings with a bookmaker. As a consequence of that communication the employer refused to renew Tournier’s contract of employment.

Tournier sued both for defamation and for breach of contract. He lost at first instance and appealed on the grounds that the judge had instructed the jury erroneously. The Court of Appeal held that a banker owes his customer a legal duty of confidentiality not to disclose information to third parties, and any breach of this duty could give rise to liability in damages if loss results. This duty arises between a banker and customer upon the opening of an account and continues beyond the time when the account is closed (termination of the contract). It covers all transactions concerning the account and information obtained by virtue of the relationship between the banker and its customer, including information attained from other sources, such as a credit reference agency. The duty is qualified by a few exceptions however, laid down in the Tournier case and more recently confirmed in “Elli Christofi v Barclays Bank Plc” [2000] 1 WLR 937, although this case related to information already available to the public ie. a caution at HM Land Registry.

The case held that the duty of confidentiality confers privilege (the right to refuse to divulge information obtained in a confidential relationship) on bankers from disclosure when supported by statute. However, this obligation of confidence is subject to qualification at both common law and by way of statute. he Tournier case sets out these qualifications and also gives circumstances when disclosure must occur, if required by:—

*Compulsion of law, for example a court order under Section 29 of the Data Protection Act 1998 (1998 cap.29)

*Public interest (see “Pharaon and Others v Bank of Credit and Commerce International SA (in liquidation)” [1998] )

*Interests of the bank. This would occur, for instance, in proceedings by the bank against a customer claiming repayment of an overdraft, where the bank must state details of the amount of the overdraft on the face of a summons which is, of course, a public document

*Express or implied consent of the customer. Express consent should be in writing stating specifically the purpose for which the consent to make disclosure has been given. An example of implied consent is a reference a banker might be requested to provide to a third party on behalf of the customer

There is also no breach of confidence if the disclosure occurs whilst under obligation in the course of proceedings (see “El Jawhary v Bank of Credit and Commerce” [1995] ). Therefore any order of the court will override the general duty of confidentiality. Indeed, “Christofi v Barclays Bank” [1998] 2 All ER 484 held that material disclosed pursuant to statute is not covered by confidentiality even if it is was originally received in confidence. While the duty of confidentiality can be overridden by order of the courts, the right of the police and other public bodies to order disclosure is limited. Disclosure without a court order can only be obtained if the disclosure is for (a) the purpose of prevention or detection of crime, (b) the apprehension or prosecution of offenders, or (c) the assessment or collection of any tax or duty or of any imposition of a similar nature.

The usual method of obtaining information under this legislation is by way of a standard letter to the Controller of Information at the bank but, if the Controller of Information is not content that the grounds are satisfied they do not have to disclose.

A banker’s duty of confidentiality is overridden by potential danger to the national interest however. In times of war, for example, a bank would have a public duty to disclose information relating to a particular customer to the authorities, if it had knowledge of that customer trading with the enemy.