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Duty of Confidentiality

Duty of Confidentiality

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Published by: Godfrey Chege on Jan 22, 2012
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MOI UNIVERSITY AN ISO 9001:2008 CERTIFIED INSTITUTION SCHOOL OF BUSINESS MANAGEMENT AND ECONOMIES FLB 305: BANKING

LAW

NAME: KAMAU, GODFREY CHEGE ADM: BBM/2687/10 GROUP A: MONDAY EVENING CLASS

ASSIGNMENT I BANKERS DUTY OF CONFIDENTIALITY The case of TOURNIER VS NATIONAL PROVINCIAL AND UNION BANK OF ENGLAND (1924) is conclusive on Bankers duty of confidentiality in Kenya. Discuss

BANKERS DUTY OF CONFIDENTIALITY It is an implied term of the contract between a banker and his customer that the banker will not divulge to third persons. or the circumstances give rise to a public duty of disclosure. It was learned that the endorsee was a bookmaker. a person who accepts and pays off bets. the Court ordering a new trial and Tournier eventually won the case. The leading authority on this subject is the case of Tournier v. There appears to be no authority on the point. He had arranged to make payments toward the reduction of the overdraft. Tournier sued both in defamation and for breach of contract. The manager then rang the employers of Tournier and had conversations with two of the directors. (1924) A brief record of the facts: Tournier had an overdraft with the defendant bank. He lost at first instance and appealed with respect to both heads primarily on the grounds that the judge had instructed the jury erroneously. unless the banker is compelled to do so by order of a Court. He succeeded in the Court of Appeal with respect to both claims. On principle. but it was alleged that the manager informed them that Tournier was having dealings with a bookmaker. Rather than deposit the cheque in his account with the defendant bank. or the protection of the banker’s own interests requires it. Tournier was the payee of a cheque drawn by Woldingham Traders Ld. 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. either the state of the customer’s account. without the consent of the customer express or implied. As a consequence of that communication the employer refused to renew Tournier’s contract of employment. The actual contents of that conversation are not clear. The defendant bank came to know about the cheque by virtue of the fact that Woldingham was a customer. but after only three installments ceased to make further payments. or any of his transactions with the bank. or any information relating to the customer acquired through the keeping of his account. Judge Bankes L. he indorsed the cheque to a customer of the London City and Midland Bank.J stated that “In my opinion it is necessary in a case like the present to direct the jury what are the limits and what the qualifications of the contractual duty of secrecy implied in the relation of banker and customer. I think that the qualifications can be classified under four heads: 2 . National Provincial and Union Bank of England.

The exemption above explained below: 1. Lord Atkins observed that the implied legal duty towards the customer to keep secret his affairs does not apply to knowledge which the bank acquires before the relation of banker and customer was in contemplation or after it ceased or to knowledge derived from other sources during the continuance of the relation. Disclosure under Compulsion of Law a) Court Order • Order to inspect entries in the Banker's books • To assist police with their enquiries • Evidence for foreign trials b) Request from an official • For instance from Kenya revenue Authority c) Bank liable to prosecution if information not revealed • Information in the course of profession business or employment 3 . The banks can by express agreement provide for circumstances when the bank may be at liberty to disclose. Where there is a duty to the public to disclose. of secrecy does not cease the moment a Information gained during the currency confidential unless released under case within one of the classes of referred to. In the words of Scrutton J. The circumstances in which disclosure is allowed are sometimes difficult to state. Again the confidence is not of the customer’s account it extends to account itself.” He goes on to say “the duty customer closes his account. Where the interests of the Bank require disclosure. of the account remains circumstances bringing the qualifications I have already confined to the actual state information derived from the Judgment of Scrutton J. it is an implied term of bankers contract with this customer that the bank shall not disclose his account or the transaction relating thereto except in certain circumstances.1) 2) 3) 4) Where disclosure is under compulsion by law. Where the disclosure is made by the express or implied consent of the customer. Or to the extent reasonable and proper for carrying on the business of the account as in giving a reason for declining to honour cheques when there are insufficient assets or when ordered to answer questions in the law courts or to prevent frauds or crimes. I think it is clear that the bank may disclose the customer’s account and affairs to an extent reasonable and proper for its own protection (as when a bank is collecting or suing for an overdraft.

Disclosure with the Customer’s Consent It is now common for bank’s to request customers for permission to give a reference. and Kenya Continental Ltd. Nderitu received a cheque for 17 Million shillings drawn by Customs & Excise in favour of his company Intercom Services Ltd. The facts in this case are that a Mr. Disclosure in the Bank’s Interest Bank dishonoured cheques of wife as insufficient funds in account and also concerned about gambling told Husband . The bank accepted the cheque without raising any questions as it appeared to be proper on the face of it. 761 OF 1988 E. Sunderland v Barclays Bank Ltd (1938). • No offence is committed if the information is disclosed as soon as is reasonably practicable after the information came to the person's knowledge or there was a reasonable excuse for non-disclosure. Swiftair. Facts of the case: Judgment of Visram J. Inter State. 2 391. Nderitu went to Westlands Branch of Standard Chartered Bank and deposited that cheque there. James Kanyita Nderitu was a director of 4 companies Intercom Services Ltd.• The person knew. It is also a defence for legal advisers if the information arose in privileged circumstances. The cheque was specially cleared and on the 4 . suspected or had reasonable grounds for knowing or suspecting that another person is engaged in money laundering • The disclosure is made as soon as practicable after the information comes to the discloser d) Where the law compels the bank to disclose information and it is an offence not to do so • It is an offence to fail to report a person's engagement in any kind of illegal money-laundering wen the information is acquired in the course of business if the defendant has knowledge or suspicion or reasonable grounds for knowledge or suspicion. R 2002 VOL.A. 4. 2. And he banked it on the persuasion of the Branch Manager of Standard Bank Westlands and it was common ground or it was conceded that. that cheque represented a substantial amount of money in those days. The account was relatively new having been opened some 8 days prior to the depositing of the cheque. STANDARD CHARTERED BANK LIMITED CIVIL CASE NO. This case has been applied in Kenya under INTERCOM SERVICES LIMITED & OTHER V. One Saturday Mr. L. In 1985 Mr.held entitled to do so.

The first enquiry was to Kenya Commercial Bank upon which the cheque was drawn and KCB confirmed that the cheque was good and hence they made the payment. Establishment and Licensing of Bureaus in Kenya. found the bank guilty of violating its duty of confidentiality. he is not to inquire what the moneys are that are paid into the account and he is not to inquire for what purpose moneys are drawn out of the account. The suspicion did not end there and they spoke to a Police Officer in the Fraud section of the Central Bank of Kenya. He also discussed the principle and cites Joachimson with approval and concludes that “that a banker in these circumstances is not to inquire for what purpose the customer opened the account. The enquiry does not end there as the bank calls the department of customs and excise and speak to the first signatory of the cheque who assured them of the legitimacy of the cheque. Today. Mr. Nderitu brought an action against the bank on the following 1. I accordingly enter judgment on liability in favour of the plaintiff. Nderitu was in fact allowed to use some of the funds in the Intercom account and he drew some of the money and transferred 15 Million shillings to the account of Swiftair Kenya Ltd in the same Bank. The bank has no business asking for proof at this stage. They called the 2nd signatory who also assured them that the cheque was legitimate. He was finally acquitted after a very long battle. Mr. the duty of confidentiality becomes tricky. Visram J. However.following Monday the Bank manager telephoned Mr. bank violated its duty of confidentiality. Nderitu was ultimately arrested and charged with a criminal offence of obtaining money by false pretences and all his accounts were frozen. The bank noticed from the payment voucher what it considered significant discrepancies on the payment voucher not on the cheque namely the amount shown in words in the payment voucher does not tally with the amount shown in figures and this raises eyebrows at the bank. He discussed the law at great length and analysis the bankers duty of confidentiality and the duties of a collecting bank and to an extent the duties of a paying bank in as far as the cheque is concerned. He also pegs the responsibility of the bank to what would be considered good banking practice. the Banking Act Cap488 Laws of Kenya directs the manner and situations where information relating to a customer can be disclosed besides the four reason given 5 . Nderitu obliged and produced a payment voucher from the Customs & Excise. Mr. for money paid under the Export Compensation Scheme. Nderitu and informed him that his superiors thought the deposit was somewhat unusual and he was requested to provide some documentary proof of payment. But anyway Mr. Breach of the bank’s duty to his company by disclosing his account affairs to other parties. Meanwhile the bank commenced a series of enquiries.

registration number. passport number. The section states the following: (1) Customer information which shall be exchanged pursuant to these Regulations is any customer information concerning a customer’s non-performing loans. and may include details specified in sub-regulation Customer information which may be exchanged pursuant to these Regulations is any Customer information concerning a customer’s performing loans. personal identification number. Under section 14 of the same act deals with confidentiality of customers information. career. legal proceedings and related matters.by Judge Bankes L. driving licence number. national identity card number. advances and other credit facilities mentioned in sub-regulation (c). including(a) in the case of a natural person his name. and may include details specified in sub-regulation (2) (3) T h e n a t u r e o f c u s t o m e r i n f o r m a t i o n t o b e s h a r e d p u r s u a n t t o sub. past and current addresses and other contact details and related matters. Credit bureaus duty and conduct has been outlined in Banking Act Cap 488 Section 13 Laws of Kenya. past and current addresses and other contact details and related matters. amounts outstanding thereof and related matters. and related matters. date of birth. (f) d e t a i l s o f p a t t e r n s o f p a y m e n t o f c r e d i t f a c i l i t i e s o r default in payment by the customer. (e) the nature and details of security or securities taken or proposed to be taken by an institution as security for the loans. professional or business history. and related matters. names of directors. (4) Customer information shall be furnished using a standard format established by agreement of the institutions furnishing 6 . shareholders or partners. its name.J in the case of TOURNIER VS NATIONAL PROVINCIAL AND UNION BANK OF ENGLAND (1924). including the nature and amounts of loans or advances and other credit facilities granted or to be granted to a customer. debt restructuring and actions taken by the institution to recover unpaid amounts including realization of securities. (d) the customer’s credit history. (b) in the case of a customer who is not a natural person. personal identification number.regulation (1) and (2) include the customer’s identity. (c) the customer’s employment. income.

Under no circumstances may a subscriber release such information to any third party other than the subscriber’s 7 . Under section 15. (5) The nature of information to be shared under this regulation shall not adversely affect the rights and freedoms of the customer. 4. or otherwise issued by the Central Bank. and (c) that has agreed to properly dispose of customer information so that it cannot reasonably be read or reconstructed. 2. directors. (iii) authorized in writing by the customer concerned. employees or agents. 3.information and licensed Bureaus. a perpetual duty of confidentiality with regard to the information divulged to them in terms of these Regulations. A Bureau shall only release customer information in accordance with sub-regulation (1) (a) (iii) to a subscriber(a) that requires customer information to evaluate a customer’s application for credit or other customer-initiated business transaction. (c) ensure that the customer information maintained by it is not mortgaged or charged for any purpose whatsoever. (d) observe. (b) take all such steps as are reasonably necessary to ensure that the customer information maintained by it is duly protected against any loss or unauthorized access or use or unauthorized disclosure. (a) utilize the information collected solely for the purposes set out in these Regulations. officers. or (iv) as required by law. A Bureau shall(1) ( a ) p r o t e c t t h e c o n f i d e n t i a l i t y o f c u s t o m e r i n f o r m a t i o n r e c e i v e d in terms of these Regulations and shall only report or release such customer information: (i) to the customer concerned. No subscriber of information from a Bureau shall use such information for any purpose other than for reaching decisions on the business of the subscriber in the ordinary course of such business. through its shareholders. (b) that has certified to the Bureau that it will use the customer information for the purpose of making a permitted eligibility decision and for no other purpose. (ii) to the Central Bank of Kenya.

Laws of Kenya Kenya Law Resource Center blog 8 . The exemption as per the case above will apply here to a large extent. how. in what manner. 5. A Bureau or a person who fails or refuses to comply with sub-regulation (1) shall be liable to penalty of five hundred thousand shillings in the case of a Bureau or one hundred thousand shillings in the case of a natural person. It is therefore clear what information can be disclosed. Article 35 (b) of the constitution of Kenya states that every citizen has the right of access to information held by another person and required for the exercise or protection of any right or fundamental freedom. to whom and for what purpose. A person may argue on this article but disclosure be exercised in discretion where necessary especially in banking matters. References: Banking Act Cap 488. state security as well as other areas of public interest.appointed agent for the purpose of assisting the subscriber in the recovery of any of its debts.

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