1. Doctrinal bases of liability4
1.1. Reasonable Care and Skill . 4
1.2. Fiduciary Law5
1.3. Knowing Receipt, Inconsistent Dealing, and Assistance6 1.4. Emerging Standard: Due Diligence, Suitability, Good Faith7 2. Duty to advise and the liability for the advice given8
2.1. Duty to advise8, 9
2.2. Liability for advice given10
In this report I defined the duties and liabilities of a Banker under Advisory and Transactional liability in Banking Law. My discussions include the doctrinal bases of liability, duty to advice and the liability for the advice given. Also, I stated the various important cases such as Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964), Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank (1986), Woods v Martins Bank Ltd (1959), Barnes v Addy (1874), Cornish v Midland Bank plc (1985), Barclays Bank plc v O’Brien (1994), Royal Bank of Scotland v Etridge (2001) and cited the decisions of these decided cases.
1. Doctrinal bases of liability
There are three areas of doctrine of importance to banks. The first concerns the general standard of care the law expects, once a duty of care has been established, whether that be in contract, tort, or fiduciary law. Then the potential liability of a bank is explored as a fiduciary, constructive trustee, or an accessory. Finally, there is brief mention of some emerging standards of liability which have primarily a statutory base.
1. 1. Reasonable Care and Skill
A duty of reasonable care and skill for anyone providing a service (including giving advice) runs through contract, tort, and fiduciary law. After a mass of conflicting case law, notably the challenge to concurrent liability in contract and tort posed by the banking case, Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank (1986), it is now settled that a claimant may seek compensation for economic loss caused through the failure to exercise reasonable care and skill in both contract and tort. As for fiduciary law, it has long been the position that a fiduciary (including a trustee) must act or advise with reasonable care and skill. There is long-established authority, in the context of bills of exchange that a bank can be in breach of its duty of reasonable care and skill in failing to make inquiries. Factors such as the standing of the customer, the bank’s knowledge of the signatory, the amount involved, the need for prompt transfer, the presence of unusual features, and the scope and means for making reasonable inquiries may be relevant.
1. 2. Fiduciary Law
(i) Fiduciary Duties and Their Negation
Apart from the duty of care key prescriptions are that fiduciaries (1)Should not permit their private interests to conflict with their duty to a beneficiary of the duty; (2)Should not permit their duties to one beneficiary to conflict with their duties to another; (3)Should not make a secret profit, i.e. a profit from their position which is undisclosed to their beneficiaries; and (4)Have a duty of confidentiality.
While contracts may modify the scope of fiduciary duties, however, it cannot be that contract can be invoked to negate them regardless of the circumstance. Thus, since many private customers will not necessarily expect their bank to be conducting conflicting corporate-finance business, it will be difficult to imply a contract term negating the undivided loyalty the bank may owe if it is a fiduciary.
(ii) Trustees and Agents
Fiduciary duties are clearly imposed on trustees and agents. The position with trustees is relatively straightforward. In acting as a trustee of an estate or investment fund a bank must not invest with itself. But a bank will not be in breach of its fiduciary duties if the trust instrument empowers it to open accounts or make deposits or investment with itself, despite its being the trustee. The fiduciary duties...