Question 1: Discuss the banker - customer relationship

1. Definition of a bank “bank” means a body corporate which engages in the deposit
taking business and is issued with a banking licence in accordance with Act 930;

2. Who is a customer of a bank Taxation Comrs v English, Scottish and Australian

Bank Ltd [1920] AC 683, Privy Council: Per Lord Dunedin – the word “customer”
signifies a relationship in which duration is not of the essence. The contrast is not
between a habitual and a newcomer, but between a person for whom the bank
performs a casual service, such as, cashing a cheque for a person introduced by one of
their customers and a person who has an account of his own at the bank.

Also per Woods v Martins Bank Ltd (1959) 1 QB 55, in which the plaintiff wrote to
the defendant bank asking it to collect monies he had ordered a building society to pay
to the bank, to pay part of the sum received to a particular company and to retain the
balance of the proceeds to his order. The bank agreed to comply with the instructions,
even though the plaintiff did not have an account with them at the time. It was held
that, the defendant bank accepted the instructions contained in this letter as the
plaintiff's bankers and at any rate from that date the relationship of banker and
customer existed between them

In Warren Metals Ltd v Colonial Catering Co Ltd [1975] 1 NZLR 273 (Supreme
Court of New Zealand) McMullin J held that (at 276) defined a customer as someone
who has an account with a bank or who is in such a relationship with the bank that the
relationship of banker and customer exists, even though at that stage he has no account
a. Traditional banking regimes. The opening of an account is the glue that holds the
traditional banker-customer relationship

b. Modern banking regimes

But modern banks also offer a wide variety of other services to account and non-
account holders alike. They include financial advice, fund management, bank finance.
A bank can also become the customer of another bank (eg, the clearing banks maintain
an account at the Bank of Ghana). It also arises where one bank, domestic or foreign,
uses another as its agent to gain access to a clearing system

3. Nature of banker customer relationship

a. Creditor & debtor

b. Principal & agent

c. Bailor & bailee

d. Beneficiary & trustee

4. Duties a. Bank to customer

i. Duty to honour customer’s mandate

ii. Duty to obey customer’s countermand (ie cheques, obligations & other bills of
exchanges)

iii. Duty of confidentiality (ie secrecy regarding customer’s affairs)

iv. To receive customer's cheques, cash and other instruments for collection.

v. To pay a customer's cheques, or allow him to withdraw cash to the extent of his
balance on receipt of a proper and written authority during banking hours at the
account holding branch, or at another bank or branch subject to suitable arrangements.
(For example cheque card or credit card).

vi. To maintain the duty of secrecy regarding the customer's affairs.

vii. To give reasonable notice before closing the credit account Prosperity Ltd V Lloyds
Bank (1923), where it was held that one month's notice is unreasonable for a business
with complex banking affairs. However, one month was considered to be suffi cient for
a private account.

viii. To honour the word of its authorised officials.

In Box V Midland Bank (1979), the branch manager told a customer that head office
sanction would be a mere formality provided that an (ECGD Export Credit Guarantee
Department policy was obtained. The manager failed to explain the differences between
the two policies in operation by ECGD on the suitability for the facility:. Head office
refused to accept the policy obtained by the customer and as a result, the customer got
into financial trouble was not granted. It was held that the bank had failed to take
reasonable care ie. the level of care expected of a competent bank manager. The bank
was held to be liable in tort to the plaintiff"

ix. To inform a customer if his signature has been forged on a cheque or other
instructions.
x. To exercise reasonable skill in carrying out its customer: instructions when paying his
cheques. The bank should not pay cheques which it knows, or should have known, are
drawn for illegal purposes. If the bank pays such cheques, it will be liable to refund the
money as payment is a breach of trust - Selangor United Rubber Estate V Craddock
(1968) (the Selangor United' 4 difficulties and became bankrupt, because of the
borrowing facility Rubber case). The issue, which causes difficulty here, is the
ANSWER of deciding in what circumstances a court would say a bank should have
known" of the illegal purpose.

b. Duties of Customer to Bank

i. To exercise reasonable care in drawing his cheques or other authorities so as not to

mislead the bank or facilitate fraud London Joint Stock Bank Ltd V Macmillan &
Arthur (1918). (the Macmillan Case). This duty applies to all instructions to the bank
and not only cheques. The customer must not be careless. for example, writing cheques
in pencil or leaving the amount to be paid blank to a subordinate to complete. Any
losses incurred as a result of unauthorised increases in the amount remains the
customer's liability provided the customer's signature is not forged or an alteration is
not apparent to a prudent banker, which eventually facilitates fraud. ).

ii. To advise the bank immediately he discovers that his signature has been forged on a
cheque or his cheque book is stolen Greenwoods V Martins Bank (1933). A customer
has a duty to inform the bank as soon as he becomes aware that his signature on his
cheques was being forged. This case is based on the doctrine of estoppel. Failure to
report immediately will mean that the customer must stand the loss caused by any
cheques debited subsequently. The bank will also be protected against cheques debited
before the customer became aware of the fraud if this delay has prevented the bank
from seeking redress from the forger. ti However, in Tai Hing Cotton Mill V Liu
Chong Hing Bank and Other (1985) (Thai Hing Cotton Mill Case), a bank owes a
duty to reimburse the customer if it pays cheques on which the customer's Signature
unaware of has been forged provided the customer was previously the forgeries and
provided the customer reported the forgery The as soon as he became aware of the
problem. The case also ruled that the fact that a customer's own Incompetence has
aided the fraud is immaterial because the Customer owes no duty to exercise care in the
banking supervision of his affairs to prevent fraud. Though the court was satisfied the
company's system was relax and internal financial control inadequate from the point of
view of detecting fraud. It was held that there is no duty on a customer to take
precautions in the general course of his business to prevent forgeries on the part of his
servants. The bank must refund interest of principal on any amounts debited without
authority. Finally, the case confirmed that a customer is under no to examine his bank
statement. If the customer finds a mistake in his statement and fails to notify the bank
promptly, he is estopped from bringing the mistake to the notice of the attention at a
later date. The bank in such a case must correct mistakes.

iii. To repay any overdraft on demand. In Williams & Glvn': Ltd V Barnes (1981), it
was held that when money is overdraft by a bank, and there is no agreed date for
repayment and no special terms which could imply that the repayment is due on
demand, then the overdraft is repayable on demand. It is recommended that banks add
the words 'subject to in banking terms and conditions which include the right of the
customer to demand payment at any time' to any correspondence regarding overdraft
facilities being granted.

iv. To pay "reasonable" charges for the work involved in the account, and to pay all
charges set out in the regagreement. In Spencer V Wakefield (1887), it was the
knowledge by a customer in the charging of commission sufficient to entitle the bank to
charge in the absence of

v. Bankers' Opinion/References (Status Enquiries) Banks usually reply to status

enquiries from other banks: mercantile enquiry agents. The mere opening of an
account customer obviously constitutes an implied authority to reply to such enquiries.
In practice, the banker does not need to obtain the customer's opion before replying
such enquiries. Libel, Risks Involved in Replying to Status Enquiries Fraud, breach of
with unauthorised disclosure and negligence no action fraud, the statutes of Fraud
Amendment Act 1828 provide shall be taken on a fraudulent made representation
unless for fraud in writing and signed by the party to be charged.

5. Exceptions (bank customer relationship) Duty of secrecy / confidentiality

i. Disclosure under compulsion of law

ii. Duty to the public to disclose iii. In the banks interest to disclose

iv. Disclosure with the customer’s consent

6. Remedies of a bank

a. Recovery of monies paid under a mistake by the common law action for monies had
and received
b. Tracing in equity so that the bank can claim under equitable proprietary interest in
money in hands of the recipient

c. Raising a defence to the customer’s claim that his account was wrongly debited by
pleading that the payment was made for the benefit of the customer in payment of his
duty (ie the Liggett doctrine)