In the case of Turner v Royal Bank of Scotland plc the Court of Appeal held in their judgment dated 24 March 1999 that a bank was not permitted to give credit references without first obtaining the express consent of its customers.
Facts
The Plaintiff opened business and personal accounts with the Defendant Bank which subsequently became overdrawn. In September 1986, the Bank made a formal demand for repayment of the monies owing. The Bank issued proceedings to recover the sums outstanding and obtained summary judgment on 20 November 1987.
Between 19 March and 24 May 1989 the Bank received and responded to eight separate credit status enquiries from the National Westminster Bank plc without the consent of the Plaintiff and in terms which were unfavourable to the Plaintiff.
The Plaintiff commenced proceedings against the Bank alleging a breach of an implied term of confidentiality. The Bank’s defence was that it had the implied consent of its customers to give credit references without express consent because the giving of such references was a standard banking practice. The practice was therefore binding on the customers, even if they were not aware of its existence, by virtue of the banking relationship between Bank and customer which impliedly allowed the Bank to pursue customary banking practices. The Bank further contended that every customer opening an account with the Bank must be taken to have agreed to such standard banking practices and to have authorised the Bank to give references to third party enquiries based on information that would normally be confidential.
Held
The Court of Appeal dismissed the Bank’s appeal and held that the Bank did not have the implied consent of its customers to give credit references. The judge made a number of factual findings:
- the Plaintiff was unaware of the banking practice under which the Bank gave references in response to status enquiries;
- nothing was said or disclosed to the Plaintiff to put him on notice of the existence of such banking practices; and
- the Bank went to considerable lengths to conceal from its customers the fact that it was giving references about their credit worthiness.
In a normal banking relationship the duty not to disclose confidential information could be qualified if there was an implied consent, following Tournier v National Provincial & Provincial & Union Bank of England [1924] 1 KB 461. There has until now been an academic debate as to whether a Bank had such implied consent to give credit references without seeking the express consent of its customers.
The Court looked back to basic principles in order to determine whether the banking practice that the Defendant was relying on was "notorious, reason-able and not contrary to law". The issue of whether the practice was notorious rested on the knowledge of the customers of the Bank. A policy could not be notorious if it was concealed from the customers.
On the facts of the appeal it was held that the policy of giving credit references was a private arrangement between banks and could not bind a customer merely because it was a common practice between banks.
Comment
A customer is protected by a duty of confidentiality by the banks. A bank should make it known to its customers at the time an account is opened that the bank may be requested to give credit references and should obtain the consent of the customer to the giving of such references in the future if it wishes to avoid the need to seek express consent from its customer before responding to each request for a credit reference from another bank.
The issues in this case have been somewhat overtaken by the incorporation into the Banking Code of the banking services report presented to Parliament in 1989. Paragraph 4.5 of the 1994 Code now provides that "We will tell you if we provide a banker’s reference. If a banker’s reference about you is requested we will require your written consent before it is given."
The 1994 Code of Banking Practice does not, however, provide new rights which did not already exist under the implied term of confidentiality.
This note is intended to provide general information about some recent and anticipated developments as of the date at the head of this note, which may be of interest. It is not intended to be comprehensive nor to provide any specific legal advice. It will not necessarily be updated and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained. If you would like further information or specific advice, please contact Tony Evans at Macfarlanes London Office.