Lecture 3

Substantive legal issue, legal rules, predominantly relationship btw bank and the customer
- last lecture how we construct relationship btw bank and customer as a legal relationship base on
the contract
- the idea of contract base on the premise of a debt, i.e. if a customer account is in credit, it means
the bank owes money to the customer, the bank is a debtor. but if the customer overdraw the
money from his account, as in borrow money from the bank, because they utilise money that do not
actually belong to them, pursuing in the overdraft facilities, in this case you get a reversal of role,
the bank no longer the debtor.
- what kind of rights and obligation the parties have before we explore further whats the right

- go back to contract law, banking contract usually is in writing, usually when we open an account

with the bank, we receive lots of term and condition in writing, it is an express term of a contract,
but under a contract, theres might be an implied terms, so what kind of term that might be
implied in the contract even it is not specifically stated within those written terms and conditions?

- it may not appear often as evident, these are the core duty a bank owes to a customer, the first

thing is the duty of the bank to confirm with the customer mandate(it is very central to the whole
relationship), it is important to how the account has to be operated

- once the mandate has been given to the bank, the bank cannot deviate from that mandate,
unless instruction given by the customer, may be ambiguous, depends on the scenario.

- if the bank suspects it is ambiguous, the bank has the obligation to make reasonable enquiries
from the customer to assisting of what exactly are the instructions from the customer

- if the instruction is clear and unambiguous, customer gives instructions, and the bank does
indeed act on this instruction, then theres a little scope for imposing liability to the bank for

breaching the mandate

- customer are required to give clear instruction and little scope for the bank to deviate
- Mandate problems (mrs fielding case) whether the bank has acted negligently withdrawn from
the account until it was substantially overdrawn, so then the bank pursuing kind of large amount
of money from the customer by way of repayment

- mandate refers to, the bank is liable to confirm customers instruction in term of paying money or
collecting money
- so if the customer wants to draw a cheque then the bank obligation under this particular
headings is to make sure they pay to the correct party with the correct amount and to ensure
that if theres insufficient fund in the account that they do not dishonour the cheque was
presented for payment,
- in certain situation the account might be overdrawn and the questions might raise whether the
bank is oblige to clear a cheque or confirm to payment instruction (because most of us do online
banking/electronic payment nowadays),
- how far is the duty to confirm a customers mandate extend to an overdrawn account, here it
really depends the position taken by the law, if theres no overdraft facilities agreed btw the

parties, then strictly speaking the bank is not oblige to clear a funds or make a payment(cheque
or payment instruction made to them) to deduct from the customers account

- however, if an overdraft facilities has been agreed btw the bank and the customer, and the fund

are being requested by the way of payment falls within the overdraft limit, then the bank is oblige
to make payment, because the bank has agreed the customer may use such amount to overdraft

- what happen if the bank was to breach to confirm customers mandate? clearly when look at

contract law, damages will be use in order to repay the losses suffered by the customer,
damages here isn't referring huge amount of money, it has to depends what the situation is and
back to contact law, quantum of the damages will be payable depends on the losses whether it
is foreseeable or mitigated to some extent by the customer etc.
- Bank will be liable if 1) no compliance with the mandate or negligence when carrying out the
mandate or dishonoured without a good reason when its dishonour

- when it comes to Payment, it will equally apply to situation where the customer may be initiated
instructions to the bank to make payment but may have change his mind and wants to stop the
payment, so we also referring to the mandate covering a situation which is bank is instructed by
the customer to stop payment (revocation of instructions, countermand - where the customer
revoke instruction to make payment) - usually dealt with paper payment (cheque).
- problem with technologies nowadays, how do you stop payment? it has been regulated, you can
find that in the payment services regulation 2009

- regulation 67(1) (2009) - when you can revoke and when you cannot revoke payment service
order// person who uses the payment service is payment service user(payee or payer).

- once the payee initiates the payment service order then normally a payer will not be able to

revoke payment order, once that instructions has been transmitted or the payer has given his
consent to the transaction being carried out , unless the payee consent or it falls certain
circumstances that stipulated the regulation

- what the law has to do to go beyond case law, rather than talking in the language of conditional
or unconditional payments that you would see the older cases where we dealt main only paper
payment.

- but now we have many electronic payment, main idea is to speed up the payment, but the cost
of speeding up things is also difficult to stop things as well once you initiate is very difficult to
recall.

- the time allowed to the party in the payment service transaction to revoke payment is much
slimmer now than it used to be, compare to paper payment(cheques)

- when we talk about complying mandate relatedly, also talking about bank collecting instruments
for their customers, banks duty to a customer is to make sure they collect payments (correct

person and amount)

- the extend to which a bank is required to provide bank statement to their customers, its not
about giving an account to a customer, theres an obligation to send out statement to their
customer from time to time, obligation usually depends on the arrangement btw the bank and the
customer
- we have a problem of the consequences of the statement , not the issuer of the statement.

- we take that statement as a conclusive evidence of your account

- can statement be a conclusive evident or can it be queried?

- could the bank then argue rendering in to an account , is the customer then bound by the

statement in that statement is an conclusive evident (tai hing cotton mill and leu cheung hing
bank) - the bank did issue a statement to the customer but the customer didn't actually cheque

the statement carefully, the bank has a conclusive evidence clause which stipulates that if the
statement has been issued to the customer, the customer has 30days to raise any queries about
the statement, obviously tai hung didn't raise any problem within the particular period of the time
frame, they raised it after the period of time,
- question before the court, would such a term in the contract be binding to both party, if so what
would be the consequences? should the customer be permitted to query the statement and have
it adjusted or are they bound by the statement they just have to absorb the losses they have
incurred by this inaccurately printed out statement of the account?

- what the court did , Looking back to the contractual principle, the effect of a clause in a contract,
esp if a clause is going to have an adverse effect to one of the contracting party, again using the

similar principle red hand rule in contract law , where you're going to introduce by way of a term
in the contract which has a negative impact on one of the contracting party, according to the red
hand rule, you must draw it to the attention of the contracting party in order for it to be a valid
term
- if the bank wants to rely on such a clause, certainly it has got an adverse effect on the customer
who is contracting with them, then the bank has to draw that clause and explain to the customer
the effect of that clause before the clause becomes a valid contractual term.

- UTCCR, good faith test should be excluded from the contract

- if the bank is going to included a clauses that limits the right of the customer, it will not be valid
without drawing the term to the customer attention that the adverse effect of the clauses
otherwise the court will not uphold these clauses
Duty of reasonably care and skill
- sometimes the written contract btw bank and customer might to spelt out clearly and explicitly
that the bank has to provide banking services with a reasonable care and skill

- in terms of ascertaining, what are the standard of the care and skills in order to satisfy these
particular duty, the court attended to apply hybrid test (objective and subjective test)

- objective ; in determining whether the standard care and skills has been exercised, they will ask
a question whether a reasonable person which has the same experience/ expertise of the bank
would have carried out the services?

- subjective ; what about an individual banker? what about his level of expertise? his knowledge
of that facts, his awareness of the circumstances, would someone like him with his subjective
knowledge has thought of carrying out his duty with reasonable care and skills?

- in addition, even if the contract is silent, as in nothing is written in term and conditions, the bank
is under their obligation to perform their services reasonable care and skills, s.13 Supply of
Goods and Services Act 1982 -

- s.13 Supply of Goods and Services Act 1982 - stipulates that when youre providing goods

and/or services you must do so with reasonable care and skills

- so when the bank provides services to the customer, it is gonna be caught by this particular act
- even theres no express term in the contract, section13 is already implied in it that the bank has
to provide their services with care and skills

- but this does not mean that the bank is under an obligation to provide financial advice services
- starting premise of this is that this is a contractual relationship, under english law when you have
2 parties contracting, the normal position we take that is the contracting parties are trading at
arms length and theres no obligation on either part of the contracting parties to protect the
interest of the other contracting party, the whole concept of liberal notion of laser fair
- so it comes to financial advice( borrow money ) , what are the risk might be inherent in that
transaction, the bank are not required to advice customer on this

- the bank will not have obligation to give advise given the extend of the Act
- the bank should see business without giving reasonable notice to the customer, as long as a

reasonable time frame is given to the customer to organise/arrange their affair before the bank
scissors operation, that will be sufficient notice to the customer , here it could be vary by the
usage of the customer, what payment instruction may have already given in order to determine
what might be a reasonable time frame

- duty of confidentiality (important duty) a bank owes to a customer , very much part of the
contractual relationship that exist between the parties (Tournier case) - is premise on a

contractual obligation owed by the bank to every customer, it is because of the contract btw the
parties, that it imposes this obligation of confidence, the court said that the duty of confidentiality
will survive the relationship, even when the relationship between the bank and the customer has
terminated, it doesn't mean the bank can then publish all the information about a customer, they
will stil have to keep it confidential. In Tournier, it basically mix a general overarching proposition
of law i.e. because of the contract btw the parties, there is a duty of confidentiality, so the bank is
not permitted to disclose information about the financial affair of their customer when it comes to
possession because of that relationship
- (Tournier) four exception that duty of confidentially maybe waived (1) compulsion of law, if there
is any legal requirement for a disclosure of confidential information , that trumps the persons
right to confidentiality ( money laundering provision - impose certain obligation on certain people
to report suspicion money laundering , terrorist financing - those public interest are going to
trump any provision )