Banking and the duty of confidentiality watered down or still a primary duty?

Introduction

The duty of confidentiality arose from the common law interpretation as followed in the case of Tournier
1
and involves a duty arising from the contract between the bank and its customer. The duty is hinged on
the basis that there is an expectation that vests in the contract that assumes that the bank will maintain
the customers’ business, financial and personal matters confidential.

Tournier 2stated that there were a number of exemptions to this duty that entitled the bank to otherwise
disclose personal information. These exemptions can be described as situations where the law requires
disclosure where it is in the interest of the bank to make disclosure, where there is a public duty to disclose
and where there is an implied or express consent by the customer to make disclosure3.

It is important to understand this as the fundamental protection that a customer enjoys in order to
evaluate and contrast this as a basis with other countries.

Evolution

The common law position stated above was entrenched during a number of cases and the Banking
Services: Law and Practice report 4 stated that confidentiality was the cornerstone of the customer bank
relationship without which confidence in the system would be negated.

The Banking Code that emanated as a voluntary code of best practice based on the report contained the
four exemptions as codified principles that banks and institutions would rely on to safeguard customer
information.

What is accepted is that the same standard that applied in the late part of the last century has been under
attack by the advent of controversial issues such as globalisation, terrorist funding and the international
fight against money laundering5.

Despite this the basic principles seem to be tempered by a good dose of common sense as banks do not
have isolated dealings with its customers and hence should guard in disclosures only in such events as
described in Tournier.

The Safeguards

1
Tournier v National Provincial and Union Bank of England [1924] 1 KB 461
2
Tournier v National Provincial and Union Bank of England [n1] at 471
3
Tournier v National Provincial and Union Bank of England [n1] at 473
4
The Banking Services: Law and Practice report 1989 Cm 622
5
E.P. Ellinger, E. Lomnicka & R.J.A Hooley, ‘Ellinger’s Modern Banking Law’, 4th edition, Oxford University Press,
2006 at page 173
The four safeguards are fundamental in ensuring the confidence is maintained in the level of
confidentiality on the one hand and ensuring the functioning of the financial and legal system on the
other.

Requirement by law

Since the Tournier 6 case there have been a number of global political and ideological changes globally
that have changed the perspective as to which laws apply to the provision of confidential information
under the guise of been required by law.

These laws cover both the common law as well as statutory laws. Inter alia the statutory laws would
include the Banking Acts and Regulations, the Financial Services and Markets Act7, the Bankers Books and
Evidence Act 18798, The Taxes Management Act9, Police and Criminal Evidence Act10, Serious Organised
Crime and Police Act 200511, the Insolvency Act 198612 and the Proceeds of Crime Act13.

Each of these acts has the ability to enable process to be served upon the bank to provide information
that may be viewed as confidential. In addition the international, European14 and bilateral treaties provide
for mechanisms and standard to be adopted to curb terrorist funding and avoid money laundering.

Public duty

The duty of the bank may be overridden by the duty to the public order, this has become topical in the
view of the threat post the terrorist attacks in New York, Madrid and London that were financed greatly
by grey funding. The principle dictates that the banker will alert the authorities as the right to public order
would demand this.

Interests of the bank require disclosure

This is potentially the most controversial ground in that it authorises the bank to provide information to
its own measure in certain events like for argument sake a default by a client on an overdraft which will
enable the bank to take action against that party.

Customer's consent

In the case of a customer’s consent this may be obtained either tacitly or express, the express this would
emanate from a written instruction that contains specific instructions to the bank15. In the case of the

6
Tournier v National Provincial and Union Bank of England [n1]
7
The Financial Services and Markets Act 2000 (c 8)
8
The Bankers Books and Evidence Act 1879 (43 Vic. No. 7.)
9
The Taxes Management Act 1970 (c9)
10
Police and Criminal Evidence Act 1984 (c60)
11
Serious Organised Crime and Police Act 2005 (c15)
12
the Insolvency Act 1986 (c45)
13
Proceeds of Crime Act 2002 (c29)
14
EC Directive 95/46/EC
15
Suriya & Douglas v Midland Bank PLC [1999] LSG 33
tacit consent this can be assumed by conduct where the customer for argument sake requests the bank
to provide a reference of good standing.

Australian Context

The Code of Banking Practice16 and the Privacy Act17 have adopted standards of conduct that are
applicable to the Banks these have reiterated the common law and created the same four grounds of
exemption as contained in Tournier 18. The duty covers all information gained by the bank pursuant to its
relationship with the customer and specifically governs accessory information gleaned from the pretext
of the account.

In Australia the duty is conversed by a duty to disclose as was anticipated in the case of Ramensky19 that
places a positive duty on the bank to disclose information in certain circumstances.

One of these circumstances is where the bank is aware of certain facts that may play a role or adversely
affect a client of the bank. This does create the obvious climate for a conflict of interest but accords with
the duties of the Bank20 under the Trade Practices Act21.

In the case of Kabwand22 the duty was pointed out as in conflict with the Banks duty under other statutes
and excluded as another ground not based on the benefit to the bank but generally to ensure that by its
silence the bank does not engage in misleading or deceptive conduct23.

Conclusion

Gwendoline Griffith’s statement that the minority of states view the rights of the customer bank
confidentially issue as central is not borne out in regard to the common law rights that vest in this principle
as central to the relationship.

In reading the Tournier judgement the reality of relationship dawns on one that the learned judge viewed
this concept as central to marinating trust in the banking system.

I find it strange if Griffiths believes that the right and duty to confidentiality has been so watered down
that the banks endeavour at all costs to protect24 the information despite all of the statutory leave way
the banks can only be obliged to provide information when legally bound by the 4 exemptions.

16
Code of Banking Practice 2008
17
The Privacy Act 1988 (Cth)
18
Tournier v National Provincial and Union Bank of England [n1]
19
Demagogue Pty Limited v Ramensky (1992) 39 FCR 31
20
Section 52 of the Trade Practices Act 1974
21
Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 68 ALR 77
22
Kabwand Pty Ltd & Others v National Australia Bank Ltd [1989] ATPR 40-950 FCA
23
Section 52 of the Trade Practices Act 1974
24
Verity Lloyds Bank PLC [1995], N.P.C. 148
I also find it strange that the cases suggest otherwise in that while the losses have generally been limited
the reputational harm25 to a bank that is accused on bantering client information is tremendous.

Finally while on different grounds I do believe that the duty to confidentiality does need an urgent review
not to restate the grounds but to adapt to the ever changing technologies and advances that have
occurred since 1989. This is anything may lead to the erosion of client confidentiality rights.

25
Der Spiegel, ‘Tax Whistleblower Sold Data to the US’, 25 February 2008, Accessed online at
<http://www.spiegel.de/international/business/0,1518,537640,00.html> on 20 January 2013