Options for Jill and Prem with Regard to Common Law - Case Study Example

Banking Law [Name] [Professor Name] [Course] [Date] Abstract: The impact of the banking industry in the modern-day economy cannot be underrated. Like in all other economies across the globe, Australian banks play a significant part in the performance of the markets. The unique position held by banks and the degree of activities they are involved on makes it necessary to examine the banker-customer relationship in the Australian Law. Generally, in the banking industry, consumer-disputes are those that involve the contract between the bank and the customer1. This paper examines a case study where a bank (Metro Bank) is viewed to have omitted issuance of terms and conditions to the customers (Jill and Prett), and where it breached its duty of confidentiality by revealing the customer’s personal credit information to the employer2. The paper explores options for Jill and Prem with regard to common law, legislation and Industry Codes. It further describes the account facilities and of the matters covered in the consent form. Banking Law Introduction Metro Bank has omitted issuance of terms and conditions to Jill and Prett who have applied for a joint savings and joint cheque account, and individual credit card facilities. Further, Metro is seen to have breached its duty of confidentiality by revealing the customer’s personal credit information to the employer. In examining the obligations of the bank to a customer, Jill and Prem should be advised that under the contract law, the bank is duty-bound to fulfill certain obligations as far as the customer-banker relationship exists. Indeed, according to s.18 of the ACL, an individual is disallowed from engaging in deceptive acts3. Metro Bank also owed Jill and Pret the duty of care. This situation arises in tandem with tort such as evidenced in the case Merrett Syndicated Ltd v Henderson4. In this case, the bank was supposed to give investment advice to the customers. However, in a typical scenario such as in the case Cradock v Selangor United Rubber Estate, the bank was imposed on high standard of care by the court of law with regard to the duty of care5. Thus it can be argued that Metro Bank was obligated to put into effect reasonable care and skill when it performed its duties while working out a contract with Jill and Prett. For that reason, this brings about an issue that the test is substantially burdensome to the Metro bank and that there lies the likelihood that it would be held as having held breach of duty of care despite the possibility that the negligence part is insignificant. Such a principle was proved in the case Burden v Karak Rubber Ltd, where the court ruled that the bank had showed negligence for failure to put into effect reasonable skill in informing its client and making inquiries6. Since the customer-banker relationship will often be protected by the contract law, when the bank will be viewed to be in a fiduciary relationship when it takes extra steps and the customer-banker relationship exceed the limits provided for within the contractual basis, as a result, if Metro had induced Jill and Petro in opening an account, then Metro will be held to have fiduciary as it has expertise in the area and that both Jill and Petro, as the customers, depend on the bank’s expertise to make a decision. In any case, when Metro fails to inform Jill and Petro that there exists some form of conflict of interest and that they should therefore seek an independent advice then the bank will be held as legally responsible for breach of fiduciary duty. A case that demonstrates this position is the Smith v Commonwealth Trading Bank7. Further, the Metro can also be argued to be having the duty if confidentiality to Jill and Pret. Indeed this is showed in the case Law Society v Parry Jones8, where it was held by the court that the bank should have the duty of confidentiality to clients, as it exists in the banker-customer relationship9. Under this circumstance, the bank owes its customers the confidentiality duty and the customer information should only be disclosed where the court of law compels it, when it is for the public good and when it is for the interest of the bank. In the case of National Provincial and Union Bank of England v Tournier, the circumstances where a bank owed its customers a duty of confidentiality was demonstrated10. Similar to the previous case, the court held that bank could not be compelled to protect customer privacy under certain circumstances, including when the law required it to disclose customer information, where it was for the public benefit, where the customer was in consent and lastly, where it was in the interest of the bank to do. The bank violated ASIC Act Chapter 7, which provides that it should promote the privacy and informed participation of consumers in the financial matters that concern individual customers (section 1)11. Do Jill and Pret Qualify as Customers? With this regard, it is important that Jill and Prem understand that they are customers in relation to Metro Bank as provided by the contract law12. The bank should have applied due diligence requirement in opening Jill and Prem’s account as customers. However, to find out whether both Jill and Prem qualify as customers, there are a number of judicial attempts that can be invoked. First, the Australian Consumer Law (ACL) 2010 Section 3, an individual is regarded as a consumer if he acquires services or goods that are not more than $40,000 or more than the amount if the purposes of acquisition are for personal and not commercial use. In any case, a person can be considered as a customer when he maintains an account, as demonstrated in the case Okenrhe v Barclay Bank. In the case Colonial Catering Co Ltd v Warren Metals Ltd, the court held that a customer is an individual who maintains an account13. The legal position suggests that a crucial aspect that determines the customer-banker relationship is that of opening an account.14 Thus since Jill and Prem can identify themselves as customers, it is imperative that they understand what duties the bank owes to customers as provided for by the consumer protection15 legislation, specifically the Australian Competition and Consumer Act 2010 and the ASIC Act 2001. The ACCC shields consumers against dishonest conducts by industry players. With respect to ASIC Act: s12DA, the law protects consumers who enter into a contract with banks. In which case, any breach of terms, or certain terms that may exclude or limit the liability with regard to breach of contract is subject to be tested for reasonableness as provided for by ASIC Act. In which case, the burden of proof lies with the bank. In this way, the terms of agreement as set out by the bank need to be fair and reasonable. An example of a case where tests for reasonableness is demonstrated is the Smith v Eric Bush16. Matters in the Consent Form As enshrined by the ASIC Act s.12BG (1), the consent form should have terms and conditions17. In a contract with a consumer, the section however provides that the terms and conditions would be “unfair” when it is likely to cause a substantial imbalance in the rights of either of the parties or when it is unlikely to protect the legal interests of the party that should benefit from the term. For the contract to be valid, certain conditions must be met including existence of an offer by the bank of the terms, as well as acceptance by the customer who enters into the contract. With this regard, it can as well be noted that the Code of Banking Practice obliges the bank to provide its customers with the whole terms and conditions in written from whenever negotiating a contract18. The law further provides that terms that are in the contract not negotiated individually should be in logical and clear language, such that the consumers can aptly understand. This implies that the terms in the contract should be in an intelligible form enabling a typical consumer to know his rights and duties so as he can make a fully informed choice. Jill and Prem were not presented with this opportunity. In such as situation, the bank’s conduct can be viewed as unconscionable as specified by s.20 of the ACCA 201019. Jill and Prem should be advised that the bank owed them the obligation (as customers) in relation to the fairness of the term with regard to s.23 of the Consumer protection Act 2010. A case that demonstrates the issue of fairness is the First National Bank v Director General Fair Trading where the court ruled that terms should not be excluded. Indeed when this happens, then it can be said that Jill and Pret were misled by Metro into a contract they did not understand20. The conduct of the bank can be argued to have attributes of unconscionable behaviour as defined by S12CA-CC ASIC Act21. ASIC Act s.12 provides that an individual shall not engage in financial transactions that are unconscionable22. This was demonstrated in the case Amadio v Centran Bank of Australia23. Concerning other obligations that the Metro Bank owes to Jill and Prem in relation to tort, it is essential to note that the broad relationship as construed in the banker-customer relationship should primarily be enshrined by the contract law, since the bank accepts the offer by Jill and Prem to operate an account with it, as demonstrated in the case Okenarhe v Barclay Bank24. In conclusion, the paper concludes that when the bank failed to issue terms and conditions to the customers (Jill and Prett), its conduct was unconscionable and in breach of Code of Banking Practice 2013 and the ACCA 2010. Further, the bank breached its duty of confidentiality by revealing the customer’s personal credit information to the employer. Reference List Case Notes Barclays Bank Ltd v Okenarhe [1966] 2 Commercial Bank of Australia v Amadio [1983] 151 CLR 447 Commonwealth Bank of Australia v Smith (1991) 102 ALR 453 Henderson v Merrett Syndicates Ltd [1994] UKHL Selangor United Rubber Estates Ltd v. Cradock (No 3) [1968] Smith v Eric S Bush. [1989] 2 All ER 514 Tournier v National Provincial and Union Bank of England [1924] 1 KB 461 Warren Metals Ltd v Colonial Catering Co Ltd [1975] Books and Articles Allens Linklater. 2012. Contract Law Update 2012. (Online) Retrieved from: [http://www.allens.com.au/pubs/pdf/ldr/contldr12dec12.pdf] Accessed 10 May 2013 AustLII. n.d. Commonwealth Consolidated Acts: Competition and Consumer Act 2010 - Schedule 2. (Online) Retrieved from: [http://www.austlii.edu.au/au/legis/cth/consol_act/caca2010265/sch2.html] Accessed 9 May 2013 Cassella, S. 2006. “Recovering the Proceeds of Crime from the Correspondent Account of a Foreign Bank.” Journal of Money Laundering Control, 40(1) Chalkin, D. 2010. A Critical Examination Of How Contract Law Is Used By Financial Institutions Operating In Multiple Jurisdictions. Melbourne University Law Review. Vol 34 Edwards, R. 2012. Banking Law in Australia. 2nd ed. LexisNexis Huang, H.n.d. 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