UNIVERSITY OF DAR ES SALAAM

UNIVERSITY OF DAR ES SALAAM SCHOOL OF LAW

PROGRAMME: TAUGHT LL.M. DEGREE PROGRAMME IN CORPORATE AND

COMMERCIAL LAW

COURSE TITLE: ADVANCED BANKING AND FINANCIAL INSTITUTIONS LAW

COURSE CODE: LW 607

STUDENT NAME: HALFANI MOSHI

REG. NO: 2019-06-05841

COURSE INSTRUCTOR: PROFESSOR NICHOLAS NDITI

INDIVIDUAL ASSIGNMENT

ASSIGNMENT QUESTION
“Banking law and operations have very much been affected by developments Information and
Communications Technology (ICT); so much so that the principles enunciated in the case of Joachimson
v. Swiss Bank Corporation [1921] All E.R. 92 (CA) and the principle of branch separateness appear to
have been overtaken by such developments”. (Anonymous)

Do you subscribe to the above statement?

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GENERAL INTRODUCTION
In Tanzania, the main legislations governing banking sector are the Banking of Tanzania Act 1, and the
Banking and Financial Institutions Act2, The banking sector in Tanzania is regulated and supervised by the
Bank of Tanzania3. As far as bank’s branches is concern Section 27 (1) (a) of The Banking and Financial
Institutions Act4, is to the effect that any bank and financial institution may upon application and with the
approval of the Bank, establish a banking unit whether in the United Republic or abroad. And that Section
27 (3) of The Banking and Financial Institutions Act 5defines a “banking unit” to mean a branch, agency,
representative office or any other office of the bank or financial institution.
In 19th Century, unlike today, the maintenance of an account with a bank enhanced a person’s financial
and general standing in society. The banker-customer relationship was a close one and a matter of prestige
for both parties. Banks were therefore particular about whom they accepted as customers and until the
1920’s they primarily served businessmen, professionals and the landed gentry 6. In this era even where a
‘banking house’ operated several branches, each operated more or less as an independent entity since
efficient inter-branch communication were lacking. Over the last few decades there has been a revolution
in the banking sphere. Advances in Information and Communication Technology (ICT) amongst, have led
to new challenges in all aspects of banking and especially so in the banker-customer relationship7.

The Principle of Branch Separateness

From the nineteenth century the common law treated the branches of a bank for some purposes as distinct
entities from their head office, even though not separately incorporated. Thus a basic rule became that a
customer must make demand for payment of money deposited at the branch of the bank where the account
is kept. In as much as courts have been explicit about localization of this obligation to pay, they have put it
on the basis of an implied term in the deposit contract rather than as a matter of law. A corollary of the
basic rule is that probably countermand of a payment instruction must be made at the branch where the
original order was given.8

1
Act No. 4 of 2006
2
Act No. 5 of 2006
3
Section 5 (1) of the Bank of Tanzania Act, 2006
4
Act (No 5) of 2006
5
Ibid
6
E.P. Ellinger, E. Lomnicka and R.J.A. Hooley, Ellinger’s Modern Banking Law (4th Edition), (Oxford University Press, 2005,
p. 117
7
Ibid
8
Cranston, R. Principles of Banking Law, (2nd Edition), New York: Oxford University Press, 2002, p. 10

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However, while a customer has had to make demand at the branch where the account is kept, somewhat
inconsistently the courts have given banks the privilege of combining the accounts of a customer held at
different branches when one of them is in deficit. The origin of this basic rule about where payment must
be demanded was that it was the customer's branch which had the most ready access to the true state
of his or her account.

Built onto the basic rule is that English law regards the law of the place where the account is kept as the
proper law of a bank account for conflict of laws purposes. This principle of the separateness of branches
was accepted throughout the common law world, including the United States. 9 As regards branches in
different countries, it has been adopted in the Uniform Customs and Practices for Documentary Credits
(UCP 500) and in the UNC1TRAL Model Law on International Credit Transfers. Given the organizational
and technological developments in banking, however, there must be a question mark over its future.
Branches are linked electronically and there seems no reason why payment instructions should not be
effected at any branch, at least within a single jurisdiction. Ordinary customers can now withdraw moneys
(make demand) wherever an automatic teller machine is located, and with telephone and internet banking
need not have a branch at all.10

Other aspects of separateness, such as the notion that notice given to the head office may not constitute
notice to the branches, sit ill in the modern day. Even if the law is brought up to date as regards payment
instructions the proper law of a bank account-in the absence of express provisions can remain that of the
jurisdiction where the customer has the account. But that is because that is the one with which the banking
contract has its closest connection, rather than as a consequence of any notion of the separateness of bank
branches.11

THE PRINCIPLES ENUNCIATED IN THE CASE OF JOACHIMSON V. SWISS BANK

CORPORATION [1921] ALL E.R. 92 (CA)
The principle of branch separateness is rooted in long history whereby the branches of banks had
considerable autonomy from their head office. To date, customers tend to associate more with their
branches, that is, where their accounts are domiciled. The managers, at the branch, wield important
decision-making power on matters like lending.

9
Cranston, R. Principles of Banking Law, (2nd Edition), New York: Oxford University Press, 2002, p. 10
10
Ibid
11
Ibid

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It is against this background that the common law relating to branch banking developed. Common law
thus treated branches as separate from the head office for some purposes even though not separately
incorporated. This is called the principle of branch separateness. The basic rule became that a customer
must make demand for payment of money deposited at the branch of the bank where the account is kept.
This means that a countermand of payment instructions must also be made at the branch where the
original order was given. The rationale of this rule was that it was the customer’s branch which had the
most ready access to the true state of his or her account.
In the case of Joachimson V. Swiss Bank Corporation12 the key elements of the bank-customer
relationship as far the principle of branch separateness is concern was summarized inter alia that;

“A promise to repay any part of the amount due against the written order of the customer addressed
to the bank at the branch; and that the bank is not liable to pay the customer the full amount until
he demands payment from the bank at the branch at which the current account is kept…”

Thus, a comparison of the above pronouncement against the realities of modern day banking, with
customers accessing their accounts through Automatic Teller Machines (ATMs), irrelevance of written
orders for payments, twenty-four hour 365 day banking, digital signatures, near instantaneous global
electronic fund transfers, credit/debit cards etc., underscores the revolutionary changes that have occurred
and therefore the principle of branch separateness appear to have been overtaken by this development. 13 In
the age of the computer it may not be strictly accurate to speak of the branch where the account is kept.

Banks no longer have books in which they write entries; they have terminals by which they give
instructions; and the computer itself with its magnetic tape, floppy disc or some other device may be
physically located elsewhere14. For example, in traditional banking when drawing a cheque or bill of
exchange, the customer, as principal, authorizes his bank, as agent, to make payment. This in electronic
banking is done by using a credit card on the ATMs or a password when a customer is using a home or
office computer and another situation is when a person is using his mobile phone.

12
[1921] All E.R. 92 (CA)
13
https://dynalex.wordpress.com/2017/06/10/implications-of-the-information-and-communications-technology-ict-revolution-
on-the-banker-customer-relationship/ Accessed on 14/06/2020
14
Sommer H, J. “Where is a Bank Account?” Vol. 57 (Issue 1), Maryland Law Review, (1998), p. 54

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ADVENT OF MODERN TECHNOLOGY AND WHETHER THE PRINCIPLE HAS BEEN
COMPLETELY OVERTAKEN BY TECHNOLOGICAL DEVELOPMENT.

After the advent of information technology electronic banking for example, provides consumers with
among others Twenty-four-hour access to their accounts; Payments need not be made upon written orders;
Widespread use of digital signatures; Payments may be made through public access terminals, for
instance Automated Teller Machines (ATM); Electronic pay roll systems; Direct transfers and Electronic
cheques and so on. Moreover, due to the technology of Core banking this is an acronym for Centralized
Online Real-time Exchange banking. This technology allows banking services to be provided through a
group of networked bank branches, allowing the banks’ customers to have access to their funds and carry
out transactions from any branch in the network. 15 In the case of an international bank such as the Hong
Kong and Shanghai Banking Corporation (HSBC) core banking technology allows customers to access
their accounts from hundreds of locations across the world.

It can be argued that in practical terms, core banking technology has negated the rule that a bank is bound
to repay a customer only at the branch at which his account is maintained. The issue of an ATM/debit card
can also be interpreted as overriding this requirement by a contrary agreement. 16 The Singaporean Court of
Appeal has in fact suggested that ‘in the light of modern technological and business development it is
doubtful whether the principle of banking law that a demand for payment must be made at the branch
where the account is kept in order to found a cause of action is still good law 17 In this context it is
respectfully submitted that greater innovation by courts to cater to developments in modern day banking is
preferable.

Thus, the principle that the bank is not liable to pay the customer the full amount until he demands
payment from the bank at the branch at which the current account is kept, no doubt this principle to the
great extent is overtaken by technological development where for example, Automated Teller Machines
(ATMs) provide many more services than simple dispensing cash. ATMs have evolved from simple note
distributors to true mini branches where the customer can pay bills, verify checking account balances and
obtain statements. When I interviewed through phone, a CRDB branch manager, he told me that, the
principle of the branch separateness has not completely overtaken by the technological development

15
All major banks with branch networks in Sri Lanka utilize core banking systems, an example being the People’s Bank which
uses IBM-I series systems connecting over 400 locations across the island.
16
Ellinger, op.cit p.124
17
Damayanthi Kantilal Doshi v. Indian Bank [1999] 4 SLR 1 (Sing. CA)

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because there are services which still requiring the customer to physically attend the branch where his/her
account is kept. For example the loss of ATMs cards, updating the customer’s information, and so on. But,
due to technological development going on across the globe, these services also can be offered without
demanding physical attendance18.

CONCLUSION

Banking has come a long way since the definitive decision on the debtor-creditor relationship between
banker and customer in Joachimson v. Swiss Bank Corporation. The greatest impact on the nature of this
relationship has been due to the advent of technology and an expansion of banking activities beyond its
original function. But the question to pose is that, is there legal framework that regulates the debtor-
creditor relationship between banker and customer kept pace with these developments and to what extent?
It is my view that the new legislations such as The Cyber Crimes Act, 2015 and Electronic Transactions
Act, 2015 have started a trend in the right direction in Tanzania, where it is clear that the complex
situations that can arise between banker and customer in the modern age have been appreciated.

18
Rrchard, K (CRDB Branch Manager, Bariadi-Simiyu), interviewed by Halfani 13.07.2020, University of Dar es Saalam.

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 BIBLIOGRAPHY
BOOKS
Cranston, R. Principles of Banking Law, (2nd Edition), New York: Oxford University Press, 2002

Mark Hapgood QC, Paget’s Law of Banking, 11th edition (Butterworths, London, 1996)

P.E Smart, Chorley and Smart Leading Cases in the Law of Banking, (6th Edition), Sweet and Maxwell,
1990,

JOURNAL/ARTICLES

Sommer H, J. “Where is a Bank Accout?” Vol. 57 (Issue 1), Maryland Law Review, (1998), p.
54

STATUTES.
Bank of Tanzania Act, Act No. 4 of 2006
Cyber Crimes Act, 2015
Electronic Transactions Act, 2015
The Banking and Financial Instructions Act, Act No.5 of 2006

CASE LAWS
Joachimson v. Swiss Bank Corporation [1921] All E.R. 92 (CA)

Damayanthi Kantilal Doshi v. Indian Bank [1999] 4 SLR 1 (Sing. CA)

WEBSITE
https://dynalex.wordpress.com/2017/06/10/implications-of-the-information-and-communications-technology-ict-revolution-on-
the-banker-customer-relationship/ Accessed on 14/06/2020 Retrieved on 10th July 2020