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Published: Fri, 02 Feb 2018
Relationships Between Banks And Customers
There are many types of relationships which can arise between a bank and its customers as bank nowadays are providing many types of services to the public. The relationships are usually complex as a result of the huge variety of product and services being offered by the bank in the modern era. The nature of these legal relationships will be discussed in this essay. At the same time, comparisons of these relationships with other industries will be made as well. It will be shown that the law in this area is unique and it is needed to be unique due to the factor that the practices in the banking industry itself are unique and incomparable with other industries.
Who can be a customer?
The first requirement of establishing bank-customer relationship is that an individual must be classified as a customer. Not all persons who approached the bank for services will automatically be considered as a customer. In Great Western Railway v London and County Banking Co. Ltd  , a rate collector who regularly cashed his cheques at the bank was not considered as customer as he did not maintain an account with the bank.
Another way to establish as a bank-customer relationship without maintaining an account is expressed in Woods v Martins Bank Ltd  where the banks gave investment advices and subsequently executed the advices for an individual who were inexperienced in business. It was held that the relationship was generated when the officer agreed to open an account for the claimant, not the time when advice was given  .
It is submitted that by contrast to bank-customer relationship the relationship of solicitor-client is much easier to be formed. For solicitor-client relationships, all people who approached the solicitor would automatically become a client regardless of the nature of tasks assigned. Besides that, an individual would automatically become a client at the moment when he is approaching for legal advice. The status of being a client would not be determined by an individual’s profile.
The most basic service which a bank is providing is saving accounts.
It is where a customer deposits his money to his bank account and withdraws it when he needs the money. It is understood that once the money is credited to the bank account, the bank has the right to use the funds and what is retained with the customer is that the right to withdraw the money at anytime. The House of Lords in Foley v Hill  described the nature of this relationship as a debtor (bank)-creditor (customer) relationship. This is not fiduciary in nature as the bank would not be able to retain the profits made by investment its customers’ money if the bank is classified as a fiduciary.
This can be contrasted with the relationship of a customer (debtor) who owes money to his supplier of goods (creditor). In the customer-supplier relationship, it would be the duty of the customer as the debtor to seek out the creditor i.e. the supplier to clear off the debts as to claim the early repayment discount or to avoid late interest rate being applied(subject to the contract). In the bank-customer scenario, the creditor (customer) would have to go to the bank and demand for the money  , the bank would not come to the customer and actively seeking to repay back the money as there is no liability to pay until a demand is made by the customer  . In the customer-supplier relationship, the debtor is being active to make the repayment as the earlier the payment, the more benefits that he will gain from the earlier repayment. Compared to the bank-customer relationship, the debtor here is being passive in making the repayment and the later the repayment is made the more benefits the bank will get as they will be able to employ the money in further investments. This can be contrasted with the ordinary debtor-creditor relationship where the longer the repayment period is dragged then the more interest (disadvantage) will have to be bear by the debtor.
Nevertheless it is submitted that although there are differences between debtor-creditor relationships for bank-customer and debtor-creditor for customer-supplier, this will bring any affect the applicability of debtor-creditor relationship for bank and its customers in the context of how savings account is being operated. This is because the essence of in debtor-creditor relationships i.e. the right to get the money back is there.
Fiduciary relationship gives rise to trust and confident relationship and a fiduciary must act in good faith, not making any secret profit, must not place him himself in a position of conflict of interest and duty, and cannot act for benefits of his own or other party without permission from his principle  .
In ordinary depositing collecting transaction, there is no fiduciary relationship and debtor-creditor relationship is being applied (discussed in above).
There are four circumstances where a fiduciary relationship might arise between the bank and the customer  , i.e. (1) when it is receiving or transferring the customer’s money; (2) when it is giving advice in a position of conflict of duty and interest; (3) when the bank is holding confidential information of its customer; (4) where money is mistakenly paid or credited. The second circumstances would be described and analysed.
Advice in the position of conflict of interest and duty
Merely advice would not bring a bank into a fiduciary position.
In Woods v Martins Bank  , the Court held that there was a fiduciary relationship as the manager had chosen to give the advice and he was advising the claimant in a position where there was conflict of duty and interest  . Furthermore, there was no disclosure of such interest made to the claimant.
In travel services agency, advice will be given to the customers based on the request and budget of the particular customer. In advising the customer, the travel firm itself does have an interest in it e.g. commission from the airlines companies which they are affiliated with. Nevertheless in giving such advices, they are not in breach of fiduciary duty even by not disclosing the fact that they are getting benefits from the transaction.
In both scenarios, the similarity is that both service providers (bank and travel agency) are promoting their products, e.g. investment property for bank and flight ticket for travel agency to the customers. Customers are also seeking advices in both scenarios when they are making the purchases. Both bank and travel agency are getting benefits from the advices. Nevertheless one is being imposed the duty to disclose all duty and interests while the other one is not. Furthermore, it is also well understood that both are also not charity organisation but business agencies where their objective is to make profit.
It is submitted that the fiduciary duty is being imposed on the bank but not on the travel agency is justified by the nature of benefits they got from the advices. The undisclosed benefit received by the travel agency is solely based on the transaction of selling the product itself. But in the scenario like facts in Woods v Martins Bank  , the benefits received not only from the transaction of selling the shares itself e.g. the commission from the transaction but the benefit was expanded to the extend where the investment would settle the debts owed to the bank by the company proposed to be invested. Thus it is deemed reasonable by virtue of public interest to impose such a duty to bank to disclose any other benefits from the scope beyond the transaction of sales and purchase.
Duty of secrecy
The rules of confidentiality for bank-customer relationship is laid down in Tournier v National Provincial and Union Bank of England  , it was mentioned that it is the bank’s duty to treat those information learnt from the customer’s account and also information aroused from the bank-customer relationship as confidential  .
At the same time, four qualifications were given to the bank to disclose the ‘confidential information’, i.e. (1) where the disclosure is compelled by the law; (2) where there is a duty to public to disclose, (3) where the disclosure is required by the interests of the bank and (4) where the customer impliedly or expressly consented to the disclosure.
Compulsion by law to disclose
This can be contrasted with solicitor-client relationship where the duty of confidentiality is absolute  . Where a bank has the qualification to disclose the confidential information in the Court when it is requested to do so, a solicitor is excluded from giving testimonial in Court as regard to the dealings between him and his clients  . This can be justified as full disclosure of facts by the client to his solicitor should be encouraged as this is a process of truth seeking. An absolute duty of confidentially will then eliminate the fear or worries of a client to fully disclose the material facts to his solicitor.
In a bank-customer relationship, a compulsion of disclosure by law again can act as the tool for truth seeking. When the law feels that the disclosure is needed to ensure the justice or public interest, it can do so by compelling the bank to do so.
Thus it is submitted that the law does not discriminate in imposing this duty to banks but not solicitors. Both decisions are driven by the encouragement of truth facts findings.
Disclosure for public interest
This was described as the hardest qualification to be defined  . Millet J in Price Waterhouse v BCCI Holdings (Luxembourg) SA  commented that public interest in detecting or preventing crimes should be upheld against the interest in having duty of confidentiality. It is submitted that the operations of bank are closely related to the public (this can be interpreted from the government’s effort in implementing the protection schemes, banking policies and etc.). The bank’s main role can be seen as providing payment system and etc for the public. Thus it is reasonable to impose the duty to protect the public to the bank.
Furthermore, the matters involving solicitor-client relationship are more private in nature. It has nothing to do with public interest. The amount and frequency of people using the banking services is far higher than people who use solicitor services. On the other hand, the number of solicitor is far higher than the number of banks that we have. This again justifies the close link between banks and the public compared to public-solicitor.
Disclosure as to protect bank’s own interest
The classic example of this would be when a bank discloses the customer’s account information and details in the proceeding for recovery of the loan. One of the justifications of this is that in this scenario, the relationship is the bank as the creditor and the customer as the debtor. In an ordinary debtor-creditor relationship such as customer-supplier, the creditor is allowed to disclose documents such as bills, invoices and etc in the Court’s proceeding for money recovery. The question of the bank is breaching the fiduciary as it is acting for its own benefit rather for its principle does not arise here as there is no fiduciary duty involved here as the relationship involved is just as an ordinary debtor-creditor relationship.
The bank-customer’s legal relationship is complex as it involves many areas of law like equity & trust, commercial law, tort law and contract law. There might be overlapping between these areas of law when they are being applied in the banking industries. Those overlapping should not be seen as ‘challenges’ to each respective area of law as it must be understand that the relationship between bankers and its customers are unique. Thus a separate set of law is needed to be employed exclusively for banking aspects.
It is submitted that although there are some doubts in the suitability of existing principles being applied in the context of bank-customer’s relationship, the existing principles are adequate enough to cope with present banking cultures and behaviours.
It must be reminded that as the pace of changing of cultures and behaviours in this industry is fast thus there is a need to review the legislation from time to time in order to ensure its efficiency.
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