MOI UNIVERSITY AN ISO 9001:2008 CERTIFIED INSTITUTION SCHOOL OF BUSINESS MANAGEMENT AND ECONOMIES FLB 305: BANKING LAW

NAME: KAMAU, GODFREY CHEGE ADM: BBM/2687/10 GROUP A: MONDAY EVENING CLASS

ASSIGNMENT I BANKERS DUTY OF CONFIDENTIALITY The case of TOURNIER VS NATIONAL PROVINCIAL AND UNION BANK OF ENGLAND (1924) is conclusive on Bankers duty of confidentiality in Kenya. Discuss

BANKERS DUTY OF CONFIDENTIALITY It is an implied term of the contract between a banker and his customer that the banker will not divulge to third persons, without the consent of the customer express or implied, either the state of the customers account, or any of his transactions with the bank, or any information relating to the customer acquired through the keeping of his account, unless the banker is compelled to do so by order of a Court, or the circumstances give rise to a public duty of disclosure, or the protection of the bankers own interests requires it. The leading authority on this subject is the case of Tournier v. National Provincial and Union Bank of England. (1924) A brief record of the facts: Tournier had an overdraft with the defendant bank. He had arranged to make payments toward the reduction of the overdraft, but after only three installments ceased to make further payments. Tournier was the payee of a cheque drawn by Woldingham Traders Ld. Rather than deposit the cheque in his account with the defendant bank; he indorsed the cheque to a customer of the London City and Midland Bank. The defendant bank came to know about the cheque by virtue of the fact that Woldingham was a customer. Upon seeing the cheque presented for payment the manager rang the appropriate branch of the London City and Midland Bank to enquire as to the identity of their customer. It was learned that the endorsee was a bookmaker, a person who accepts and pays off bets. The manager then rang the employers of Tournier and had conversations with two of the directors. The actual contents of that conversation are not clear, but it was alleged that the manager informed them that Tournier was having dealings with a bookmaker. As a consequence of that communication the employer refused to renew Tourniers contract of employment. Tournier sued both in defamation and for breach of contract. He lost at first instance and appealed with respect to both heads primarily on the grounds that the judge had instructed the jury erroneously. He succeeded in the Court of Appeal with respect to both claims, the Court ordering a new trial and Tournier eventually won the case. Judge Bankes L.J stated that In my opinion it is necessary in a case like the present to direct the jury what are the limits and what the qualifications of the contractual duty of secrecy implied in the relation of banker and customer. There appears to be no authority on the point. On principle, I think that the qualifications can be classified under four heads: 2

1) 2) 3) 4)

Where disclosure is under compulsion by law; Where there is a duty to the public to disclose; Where the interests of the Bank require disclosure; Where the disclosure is made by the express or implied consent of the customer. of secrecy does not cease the moment a Information gained during the currency confidential unless released under case within one of the classes of referred to. Again the confidence is not of the customers account it extends to account itself.

He goes on to say the duty customer closes his account. of the account remains circumstances bringing the qualifications I have already confined to the actual state information derived from the Judgment of Scrutton J.

In the words of Scrutton J, it is an implied term of bankers contract with this customer that the bank shall not disclose his account or the transaction relating thereto except in certain circumstances. The circumstances in which disclosure is allowed are sometimes difficult to state. I think it is clear that the bank may disclose the customers account and affairs to an extent reasonable and proper for its own protection (as when a bank is collecting or suing for an overdraft. Or to the extent reasonable and proper for carrying on the business of the account as in giving a reason for declining to honour cheques when there are insufficient assets or when ordered to answer questions in the law courts or to prevent frauds or crimes. Lord Atkins observed that the implied legal duty towards the customer to keep secret his affairs does not apply to knowledge which the bank acquires before the relation of banker and customer was in contemplation or after it ceased or to knowledge derived from other sources during the continuance of the relation. The banks can by express agreement provide for circumstances when the bank may be at liberty to disclose. The exemption above explained below: 1. Disclosure under Compulsion of Law a) Court Order Order to inspect entries in the Banker's books To assist police with their enquiries Evidence for foreign trials b) Request from an official For instance from Kenya revenue Authority c) Bank liable to prosecution if information not revealed Information in the course of profession business or employment 3

 The person knew, suspected or had reasonable grounds for knowing or suspecting that another person is engaged in money laundering The disclosure is made as soon as practicable after the information comes to the discloser d) Where the law compels the bank to disclose information and it is an offence not to do so It is an offence to fail to report a person's engagement in any kind of illegal money-laundering wen the information is acquired in the course of business if the defendant has knowledge or suspicion or reasonable grounds for knowledge or suspicion. No offence is committed if the information is disclosed as soon as is reasonably practicable after the information came to the person's knowledge or there was a reasonable excuse for non-disclosure. It is also a defence for legal advisers if the information arose in privileged circumstances. 2. Disclosure in the Banks Interest Bank dishonoured cheques of wife as insufficient funds in account and also concerned about gambling told Husband - held entitled to do so. Sunderland v Barclays Bank Ltd (1938). 4. Disclosure with the Customers Consent It is now common for banks to request customers for permission to give a reference. This case has been applied in Kenya under INTERCOM SERVICES LIMITED & OTHER V. STANDARD CHARTERED BANK LIMITED CIVIL CASE NO. 761 OF 1988 E.A. L. R 2002 VOL. 2 391. Facts of the case: Judgment of Visram J. The facts in this case are that a Mr. James Kanyita Nderitu was a director of 4 companies Intercom Services Ltd, Inter State, Swiftair, and Kenya Continental Ltd. In 1985 Mr. Nderitu received a cheque for 17 Million shillings drawn by Customs & Excise in favour of his company Intercom Services Ltd. And he banked it on the persuasion of the Branch Manager of Standard Bank Westlands and it was common ground or it was conceded that, that cheque represented a substantial amount of money in those days. One Saturday Mr. Nderitu went to Westlands Branch of Standard Chartered Bank and deposited that cheque there. The account was relatively new having been opened some 8 days prior to the depositing of the cheque. The bank accepted the cheque without raising any questions as it appeared to be proper on the face of it. The cheque was specially cleared and on the 4

following Monday the Bank manager telephoned Mr. Nderitu and informed him that his superiors thought the deposit was somewhat unusual and he was requested to provide some documentary proof of payment. The bank has no business asking for proof at this stage. But anyway Mr. Nderitu obliged and produced a payment voucher from the Customs & Excise, for money paid under the Export Compensation Scheme. The bank noticed from the payment voucher what it considered significant discrepancies on the payment voucher not on the cheque namely the amount shown in words in the payment voucher does not tally with the amount shown in figures and this raises eyebrows at the bank. Mr. Nderitu was in fact allowed to use some of the funds in the Intercom account and he drew some of the money and transferred 15 Million shillings to the account of Swiftair Kenya Ltd in the same Bank. Meanwhile the bank commenced a series of enquiries. The first enquiry was to Kenya Commercial Bank upon which the cheque was drawn and KCB confirmed that the cheque was good and hence they made the payment. The enquiry does not end there as the bank calls the department of customs and excise and speak to the first signatory of the cheque who assured them of the legitimacy of the cheque. They called the 2nd signatory who also assured them that the cheque was legitimate. The suspicion did not end there and they spoke to a Police Officer in the Fraud section of the Central Bank of Kenya. Mr. Nderitu was ultimately arrested and charged with a criminal offence of obtaining money by false pretences and all his accounts were frozen. He was finally acquitted after a very long battle. Mr. Nderitu brought an action against the bank on the following 1. Breach of the banks duty to his company by disclosing his account affairs to other parties; bank violated its duty of confidentiality. Visram J. found the bank guilty of violating its duty of confidentiality. He discussed the law at great length and analysis the bankers duty of confidentiality and the duties of a collecting bank and to an extent the duties of a paying bank in as far as the cheque is concerned. He also discussed the principle and cites Joachimson with approval and concludes that that a banker in these circumstances is not to inquire for what purpose the customer opened the account, he is not to inquire what the moneys are that are paid into the account and he is not to inquire for what purpose moneys are drawn out of the account. He also pegs the responsibility of the bank to what would be considered good banking practice. I accordingly enter judgment on liability in favour of the plaintiff. Today, Establishment and Licensing of Bureaus in Kenya, the duty of confidentiality becomes tricky. However, the Banking Act Cap488 Laws of Kenya directs the manner and situations where information relating to a customer can be disclosed besides the four reason given 5

by Judge Bankes L.J in the case of TOURNIER VS NATIONAL PROVINCIAL AND UNION BANK OF ENGLAND (1924). Credit bureaus duty and conduct has been outlined in Banking Act Cap 488 Section 13 Laws of Kenya. Under section 14 of the same act deals with confidentiality of customers information. The section states the following: (1) Customer information which shall be exchanged pursuant to these Regulations is any customer information concerning a customers non-performing loans, and may include details specified in sub-regulation Customer information which may be exchanged pursuant to these Regulations is any Customer information concerning a customers performing loans, and may include details specified in sub-regulation

(2)

(3) T h e n a t u r e o f c u s t o m e r i n f o r m a t i o n t o b e s h a r e d p u r s u a n t t o sub- regulation (1) and (2) include the customers identity, including(a) in the case of a natural person his name, date of birth, national identity card number, personal identification number, passport number, driving licence number, past and current addresses and other contact details and related matters; (b) in the case of a customer who is not a natural person, its name, registration number, personal identification number, names of directors, shareholders or partners, past and current addresses and other contact details and related matters; (c) the customers employment, income, career, professional or business history, and related matters; (d) the customers credit history, including the nature and amounts of loans or advances and other credit facilities granted or to be granted to a customer, amounts outstanding thereof and related matters; (e) the nature and details of security or securities taken or proposed to be taken by an institution as security for the loans, advances and other credit facilities mentioned in sub-regulation (c), and related matters; (f) d e t a i l s o f p a t t e r n s o f p a y m e n t o f c r e d i t f a c i l i t i e s o r default in payment by the customer, debt restructuring and actions taken by the institution to recover unpaid amounts including realization of securities, legal proceedings and related matters. (4) Customer information shall be furnished using a standard format established by agreement of the institutions furnishing 6

information and licensed Bureaus, or otherwise issued by the Central Bank. (5) The nature of information to be shared under this regulation shall not adversely affect the rights and freedoms of the customer.

Under section 15, A Bureau shall(1) ( a ) p r o t e c t t h e c o n f i d e n t i a l i t y o f c u s t o m e r i n f o r m a t i o n r e c e i v e d in terms of these Regulations and shall only report or release such customer information: (i) to the customer concerned; (ii) to the Central Bank of Kenya; (iii) authorized in writing by the customer concerned; or (iv) as required by law. (a) utilize the information collected solely for the purposes set out in these Regulations; (b) take all such steps as are reasonably necessary to ensure that the customer information maintained by it is duly protected against any loss or unauthorized access or use or unauthorized disclosure; (c) ensure that the customer information maintained by it is not mortgaged or charged for any purpose whatsoever; (d) observe, through its shareholders, directors, officers, employees or agents, a perpetual duty of confidentiality with regard to the information divulged to them in terms of these Regulations. 2. A Bureau shall only release customer information in accordance with sub-regulation (1) (a) (iii) to a subscriber(a) that requires customer information to evaluate a customers application for credit or other customer-initiated business transaction; (b) that has certified to the Bureau that it will use the customer information for the purpose of making a permitted eligibility decision and for no other purpose; and (c) that has agreed to properly dispose of customer information so that it cannot reasonably be read or reconstructed. 3. No subscriber of information from a Bureau shall use such information for any purpose other than for reaching decisions on the business of the subscriber in the ordinary course of such business. 4. Under no circumstances may a subscriber release such information to any third party other than the subscribers 7

appointed agent for the purpose of assisting the subscriber in the recovery of any of its debts. 5. A Bureau or a person who fails or refuses to comply with sub-regulation (1) shall be liable to penalty of five hundred thousand shillings in the case of a Bureau or one hundred thousand shillings in the case of a natural person.

It is therefore clear what information can be disclosed, in what manner, how, to whom and for what purpose. Article 35 (b) of the constitution of Kenya states that every citizen has the right of access to information held by another person and required for the exercise or protection of any right or fundamental freedom. A person may argue on this article but disclosure be exercised in discretion where necessary especially in banking matters, state security as well as other areas of public interest. The exemption as per the case above will apply here to a large extent.

References: Banking Act Cap 488, Laws of Kenya Kenya Law Resource Center blog