Bank Liability for Negligent Advice
“If [a banker] undertakes to advise he must exercise reasonable care and skill in giving the advice. He is under no obligation to advise, but if he takes upon himself to do so, he will incur liability if he does so negligently.” ' House of Lords in Banbury v. Bank of Montreal[1]
I. Introduction
The issue of legal liability of banks in the provision of negligent advice is one doctrine of law that has evolved through the years. In light of current controversies hounding the UK banking sector, it is not far-fetched nay unthinkable to surmise that such act would again be subjected to closer scrutiny and for the courts to perhaps develop, clarify, and/or expand the doctrine’s reach. At the outset, are banks under a duty to provide advice to their clients on financial matters? If so, what factors must be taken into account for adjudging banks liable should such advice run awry?
This paper shall start by defining the nature of banker-customer relationship and how it arises. It shall be followed by a discussion on the several circumstances whereby banks may be held liable for issuing negligent advice as well as the evolution of such finding of liability. Factors underpinning courts’ decisions vis-à-vis this issue shall also be identified. In the concluding portions, recommendations shall likewise be provided as to how courts should apply this doctrine in order to effectuate its purpose.
II. The Nature of Bank-Customer Relationship: What is the reckoning point? It is essential to identify at what point the banker-customer relationship arises because a duty to exercise reasonable care and skill vis-à-vis customers’ financial matters is owed when a banker-customer relationship begins”.[2] Normally, this relationship commences when a customer opens an account with a bank.[3] However, there are cases where the same relationship is deemed established when a bank agrees to open an account under the customer’s name.[4] Thus, in Woods v.
I. Introduction
The issue of legal liability of banks in the provision of negligent advice is one doctrine of law that has evolved through the years. In light of current controversies hounding the UK banking sector, it is not far-fetched nay unthinkable to surmise that such act would again be subjected to closer scrutiny and for the courts to perhaps develop, clarify, and/or expand the doctrine’s reach. At the outset, are banks under a duty to provide advice to their clients on financial matters? If so, what factors must be taken into account for adjudging banks liable should such advice run awry?
This paper shall start by defining the nature of banker-customer relationship and how it arises. It shall be followed by a discussion on the several circumstances whereby banks may be held liable for issuing negligent advice as well as the evolution of such finding of liability. Factors underpinning courts’ decisions vis-à-vis this issue shall also be identified. In the concluding portions, recommendations shall likewise be provided as to how courts should apply this doctrine in order to effectuate its purpose.
II. The Nature of Bank-Customer Relationship: What is the reckoning point? It is essential to identify at what point the banker-customer relationship arises because a duty to exercise reasonable care and skill vis-à-vis customers’ financial matters is owed when a banker-customer relationship begins”.[2] Normally, this relationship commences when a customer opens an account with a bank.[3] However, there are cases where the same relationship is deemed established when a bank agrees to open an account under the customer’s name.[4] Thus, in Woods v.