Banking law week 1 - Lecture notes 1 PDF

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Duties and Obligations The banker and customer relationship This Relationship is one of debtor and creditor. This is crucial to banking law. It means that you get you pay cheque and you as a customer go into the bank and lodge it. The bank owns that money. But the bank in turn owes you a debt. Implication: The bank owns the money it can do what it wants eg invest. Foley v Hill and others – old case. In the case it talks about this relationship of baker, customer and debtor and customer. It talks of the implications of this and how the bank can do whatever it wants with the money and the duties and rights that come with this relationship. These are: the bank has a duty to repay the money and the customer has a right to this. Next issue: areas of law. The fundamental relationship is governed by contract. In the past this wasn’t reduced to writing but now it is. Up until recently that contract was unwritten – Joachimson v Swiss Bank Corpn. Certain contracts and things are always reduced to writing eg loan, credit card, debit card. There are other areas of law that inform banking law eg tort, the duty of care for example can arise between banker and customer. Also informed by statute in certain cases the legislation has intervened to protect consumers. Needed create legislation intervention so we see broader and deeper legislations arising to protect consumer. There are also equity duties that arise. What happens when you go in and enquire about opening an account? You don’t have much negotiation you’ll just get contract to sign.

That puts us at disadvantage because the bank is writing the contract but there are all sorts of consumer protection to even the playing field. The consumer protection code is highly relevant. Commencement and termination of the banking relationship: How do you start this? You open an account. – Great western railway co. v. London & County Banking Co. modern caselaw says this starts the rights and duties. Alternative methods? Woods v martin 1959 QB55 – the scenario here is that woods came into a certain amount of money and he wanted to invest that money and he went to the local bank manager and chatted about how best to invest the money. At a later point and opened a bank account. He invested his money and it turned out that the investment was a bad one. Woods had invested that money based on advice he had gotten from the bank and the bank should’ve known that the investment was a bank one. At this time the duty of care didn’t exist unless he prove he was a customer of the bank. The court found that once advice had been given to mr woods even though the bank account hadn’t opened yet that he was a customer of the bank. Termination of a relationship:  Normal way is closure. You have to confirm your intent to close in writing and this is a good to close accounts to prevent dormant accounts.  Dormant accounts act will gather up that money and put it to good social use. Dormant account 2001 provides for the transfer of money out of dormant account who is one where there has been no transaction for 15 years. The bank has to write to the customer informing them that their account is going to be treated like a dormant account. If the account holder cannot be reached or there is a small amount of money

eg 100 or less and the bank can take out an advertisement in the local newspaper that they have dormant account that’ll be dealt with in accordance with legislation.  Overseen by the Minister and its used by the funds that’ll invest it into community programs.  People who may have just left the money in the account can reclaim the funds plus interest. They just contact the bank where they had invested the funds. This is a situation where banks are closing customer accounts.  Other circumstances where banks can close your account? Yes but theyre almost unheard of in practice. Its very rare to close an account without permission or your request.  Circumstances are – overdrawn and where the banks suspects in illegality or criminality using that account eg money laundering.  In relation to circumstances where the banks suspects illegality or overdrawn the bank isn’t required to give reasonable notice that you’re closing the account.  Side notes: Difference types of overdraft. Where there is an agreed overdraft – a contract that you’re allowed to overspend – does the bank have to give notice before closing your account? Unclear.  Death – money in the account passes to the survivor. You can have a joint or sole account. If one of yous die then the other person is the survivor. Also on the death of the customer the bank loses the right or duty to pay out on that account. So any money that’s in that account cant be spent the bank has to hold onto it until a personal representatives of the decease presents the bank with letter of probate or intestacy.  Eg elderly customer who is still writing cheques – normal clearly circumstances is 3 days. They could write the cheque and pass away and then the cheque is presented the

bank cant pay out on this cheque and they’ll write drawer deceased on it and send it back.  Mental incapacity – this doesn’t terminate it in itself it changes it. The fact that someone may be incapable doesn’t terminate the relationship. The obligations are still there. Old scenario – the person was made a ward of the court which meant that the bank must ay over the money to the wards personal representatives and these are the committees of the ward. This is very old. Didn’t make a lot of sense to do this where someone didn’t have a lot of money so for this and for other reasons eg giving recognition to the different types of capacity new legislation was invented – Assisted Decision making capacity act 2015 – this is being implemented on a phase basis. o Previously the old law had this kinda black and white view as to whether someone had capacity or not. But this legislation takes a different view it says your capacity to make a particular decision is assessed in relation to the question you’re trying to answer and the time you’re making the decision so this means you might be able to have capacity in one area of your life and not another eg medical decisions vs financial decision. It also highlights that in one point of time someone may be able to make a decision and at another stage not. o The legislation tries to empower people by having a series of decision-making supports that are available to people in these scenarios – decision making, co decision making, assisted decision making. With assisted they have someone to guide them but ultimately the decision rests with the decision maker. A step up is co decision making were the decision is made jointly. Then a decisionmaking representative – the person can’t make their own decisions for

themselves even with help from another. The ward of courts are now review in accordance with this new legislation and help is provided under these 3. o New legislation means applications are reviewed by the CC.  Bankruptcy or personal insolvency of the customer- until recently we had really strict bankruptcy laws and therefore people didn’t apply for bankruptcy. The crash and a big bearing on how we viewed insolvency. A person became bankrupt when they couldn’t pay their debts or when they claimed an act of bankruptcy. Once the proper bankruptcy proceedings went through the name was published and the bank accounts were frozen. New legislation 2012 – reduced the period of bankruptcy to 1 year.  Winding up of a company – mostly the same. Different types of winding up in Ireland -voluntarily or involuntarily, liquidator becomes involved. Rule: any disposition of the property of the company after the commencement of the winding up is void unless the courts order otherwise. – Re Ashmark ltd company drew a cheque on a company account after the winding up commenced. The writing of the cheque didn’t constitute a deposition but moving or paying out on that cheque so this is a deposition. So banks cant pay out on cheques after winding up had commenced. However, if the bank pays out in good faith in the ordinary course of business where it was unaware that winding up has commenced then they can go to court and petition them to approve of the payment so they can debit the account. This must be satisfied that there has been no attempt to favour one creditor over another and that the payment was to the benefit to the company (this second limb is very hard to satisfy as this company doesn’t exist any more).  Bank becomes insolvent – a bank is just a company. In the past banks were considered safe institutions that made a lot of money and had a lot of securities in them and they didn’t go bust. There is an exception that makes people see that banks can be risky –

BCCI 1980-90 – biggest financial scandal in history – unusual organisation it was established in Pakistan and expanded really rapidly and had lots of branches in different countries by the time is collapsed it had 400 branches in 78 countries. This bank had ben engage in money laundering, arms trafficking, etc. BCCI had expanded rapidly to escape onus regulation sin one country and to move money. It is one of the largest bank frauds in history. BCCI was a bank favoured by criminals it had 3000 criminal customers banking with. It was put into insolvent liquidation when it was recognised as being fraud. This made people see banks can be risky and so protections were put in place. There can be huge social consequences when you have people depositing money into the bank you are an unsecure creditor so the implication of something like this is enormous. So the EU introduced a directive a deposit guarantee scheme 1995 – set up a fund that could be accessed if banks became insolvent so the whole idea was to stop ordinary people being harmed if the bank became insolvent. The idea was to pay back depositors. So every bank int eh EU has to pay into this fund in a proportion of the total amount of funds they have. Depositors can claim up to 100,000.  What if you have joint deposit accounts? Each can claim 75,000. If you owned 400,000 you can claim up to 100,000 each. What if you also have other bank accounts? The balance ae aggregated together and you can claim up to 100,000 across the accounts. The idea is to protect small and moderate sums on deposit that ordinary people may have on their bank accounts. – Deposit Protection Board v Dalia.  Say you claim back 100000 from one institution but you had 150 in your bank account so you’re still you’re owed 50000 so you’re being paid back this as an unsecured creditor.

 ELG – put in place a decade ago now. Ended in 2013 and there was a 5-year grace period put in place for anyone who had deposits so that’s now expired. Just need to know that this was a scheme specific to Ireland that was an additional level of protection and that is now expired....