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Contents
- Preliminary Material
- Main Text
- 1 Lender Liability Arising Out of the Banker-Customer Relationship
- Preliminary Material
- A Introduction
- B Debtor-Creditor Nature of the Banker/Customer Relationship
- C Contractual Basis of the Banker/Customer Relationship
- D Principal and Agent Aspects of the Relationship and the Customer’s Mandate
- E Liability for Breach of Implied Contractual Obligations in the General Banking Contract and Breach of Mandate
- F Liability for Conversion of Cheques
- G Connected Lender Liability—Sections 75 and 75A of the Consumer Credit Act 1974
- 1.84
- (a) Three-Party Situations
- (b) Four-Party Transactions
- (c) Applicability/Effect of the Consumer Credit Act 1974, section 75(1)
- (d) Summary
- (e) Rationale for Liability
- (f) Creditor’s Indemnity
- (g) Monetary and Other Limits
- (h) Breach of Agreement Not a Ground of Relief
- (i) Applies to Overseas Transactions
- (j) Section 75A of the Consumer Credit Act 1974
- H Liability under the Consumer Protection from Unfair Trading Regulations 2008 (Unfair Commercial Practices)
- 1.102
- 1.103
- (a) No General Law Consequences
- (b) Enforcement of the 2008 Regulations
- (c) What is a ‘Commercial Practice’?
- (d) What is a ‘Product’?
- (e) ‘The Average Consumer’
- (f) What Commercial Practices are Unfair?
- (g) Causation Test—Effect on the ‘Average Consumer’
- (h) The ‘Unfair Commercial Practices’
- 1.126
- (i) Breach of Professional Diligence—regulation 3
- (ii) Misleading Action—regulation 5
- (iii) ‘Misleading Omissions’—regulation 6
- (iv) ‘Aggressive Commercial Practices’—regulation 7
- (v) Deemed Unfair Commercial Practices—Schedule 1
- (vi) Offences
- (vii) Punishment
- (viii) Offence Due to the Default of Another Person
- (ix) Defences
- (x) Time Limits
- I Conclusion
- 2 Lender Liability for Breach of Confidence
- Preliminary Material
- A Introduction
- B What is ‘Confidential Information’?
- 2.03
- (a) Judicial Definitions of Confidential Information
- (b) Limitations on Confidentiality
- (c) Effect of Limitations on Confidentiality
- (d) Specific Banking Law Limitations—The Tournier Exceptions
- (e) Relationship Between General Law Exceptions and Tournier Limitations
- (f) Nature of Disclosure by the Lender
- C Scope of Obligation of Confidentiality
- D Non-Contractual Liability for Breach of Confidence
- E Tournier Case Exceptions to Lender’s Duty of Confidentiality
- 2.27
- 2.28
- (1) Legal Compulsion
- (2) Public Duty to Disclose
- 2.48
- (a) What is ‘the Public Interest’?
- (b) Categories of Public Interest
- (c) Sub-categories
- (d) What and to Whom to Disclose?
- (3) Disclosure in the Lender’s Interest
- 2.79
- 2.80
- 2.81
- (a) When Will a Disclosure be in the Lender’s Interests?
- (b) Problem Areas Under the Third Tournier Exception
- 2.90
- (i) Disclosure Within the Lender’s Group—Marketing
- (ii) Disclosures to Credit Reference Agencies
- 2.106
- (i) ‘Black Information’ and ‘White Information’
- (ii) Disclosure of ‘Black Information’
- (iii) Disclosure to Credit Reference Agencies—General Law Position
- (iv) Problems of Disclosure to Credit Reference Agencies Without Consent
- (v) Lender’s Interest—Data Protection Act 1998
- (vi) Consequences/Implications for Customer of Disclosure to Credit Reference Agencies
- (vii) Justification for Disclosure to Credit Reference Agencies
- (iii) ‘Conflicts of Duties’
- (4) Express or Implied Consent of Customer
- F Remedies for Lender’s Breach of Confidence
- 2.155
- 2.156
- (1) Injunctions/Interdicts for Breach of Confidence
- 2.157
- (a) Prohibitory and Mandatory Injunctions/Interdicts
- (b) Effect of Granting or Not Granting an Interim Injunction or Interim Interdict
- (c) Effect of Human Rights Act 1998 Re Interim Injunctions/Interim Interdicts for Breach of Confidence
- (d) The Position Under Section 12(3) of the HRA 1998
- 2.177
- (i) Interim Injunctions/Interdicts
- (ii) Effect of Section 12(3) on Interim Injunctions
- (e) Effect of Section 12(4)—Press Publication
- (2) Damages
- G Conclusion
- 3 Lender Liability for Money Laundering and Breach of Data Protection Legislation
- Preliminary Material
- Part I: Money Laundering
- Part II: Proceeds of Crime Act 2002 and Money Laundering Regulations 2007
- 3.04
- A Proceeds of Crime Act 2002 (POCA)
- B The Money Laundering Regulations 2007
- 3.75
- 3.76
- 3.77
- (a) ‘Customer Due Diligence’
- 3.78
- (i) Obligations on Lenders
- (ii) Verification
- (iii) ‘On-going Monitoring’
- (iv) Cessation of Relationship or Transaction
- (v) Enhanced Due Diligence
- 3.88
- (1) Where a customer has not been physically present regarding their identification process.
- (2) Where a correspondent lender is not from an EEA state.
- (3) Where there is a proposed business relationship or occasional transaction, by the lender, with ‘a politically exposed person’.
- (4) Where ‘any other situation’ arises which, due to its nature, may pose ‘a higher risk of money laundering or terrorist financing’.
- (vi) Branches and Subsidiary Undertakings in Non-EEA Countries
- (vii) Shell Banks
- (viii) Reliance
- (ix) FATF Directions
- (b) Record Keeping
- (c) Policies and Procedures
- (d) Training of Employees
- (e) Civil and Criminal Liability
- (f) The Financial Services Authority (FSA) and Money Laundering
- (g) Breach of Money Laundering Regulations 2007 and Damages for Breach of Statutory Duty
- (h) Conclusion
- Part III: Terrorism Act 2000
- A Introduction
- B Definition
- C Main Offences
- D Exemptions/Defences
- 3.136
- (a) Arrangements with Prior Consent
- (b) Post-Arrangements Disclosure
- (c) Reasonable Excuse
- (d) Co-operating with the Police
- E Other Offences
- Part IV: Counter-Terrorism Act 2008 (CTA 2008)
- Part V: Data Protection
- A Introduction
- B Definitions
- C Application of Data Protection Principles
- D Use of Personal Data by Lenders
- E Exceptions to DPA 98 and Data Principles
- 3.283
- (a) National Security
- (b) Crime and Taxation
- (c) Regulatory Activity
- (d) Information Which is Available to the Public or Under Enactment
- (e) Disclosures required by law or in connection with legal proceedings
- (f) Confidential References by the Data Controller
- (g) Management Forecasts
- (h) Corporate Finance
- F Enforcement, Sanctions, and Punishments
- 3.301
- (a) Preliminary Options
- (b) Civil Penalties: Monetary Penalties
- (c) Criminal Liability
- G Conclusion
- 4 Liability for Failing to Advise or Warn about a Transaction or Provide Information
- Preliminary Material
- A Introduction
- B Primary Liability under the General Law
- C Secondary Liability under the General Law for Failure to Advise—Guarantees and Third Party Securities
- D Liability under Delegated Regulation, Legislation, and Codes of Practice for Failure to Advise
- (1) Regulation
- [1] FSA Handbook Regime
- 4.36
- (a) PRIN
- (b) BCOBS
- 4.44
- 4.45
- (i) Categories of Information to be Complied With
- (c) COBS
- 4.75
- (i) Pre-transactional Warnings to Clients
- (ii) Clear Communications With Clients
- (iii) Communicating With Retail Clients
- (iv) Instances Where Risk Has to be Advised
- 4.79
- (i) ‘General Principle’—4.5
- (ii) Direct Offer Financial Promotions
- (iii) Information Regarding the Lender
- (iv) Information Regarding Keeping a Retail Client’s Designated Investments and A Retail Client’s Money Safe
- (v) Suitability of Advice
- (vi) Suitability Reports
- (vii) Stakeholder Products: Basic Advice
- (viii) Other Investment Services: Appropriateness Re Non-Advised Services
- (v) Consequences of COBS Being Breached
- [1] FSA Handbook Regime
- (2) Legislation
- [1] Consumer Credit Act 1974 Regime
- [2] Payment Services Regulations 2009 (the 2009 Regulations)
- (3) Code of Practice: The Lending Code
- (1) Regulation
- E Conclusion
- 5 Liability of Lenders as Fiduciaries
- Preliminary Material
- A Introduction
- B What is a Fiduciary?
- C When Does the Fiduciary Standard Apply?
- D Factors Involved in a Fiduciary Relationship
- E Regulatory Liability
- F Situations in which Lenders Can be Fiduciaries
- 5.57
- 5.58
- (1) The Banker as an Adviser
- (2) Examples of Banks as Fiduciaries
- (3) Where the Lender Acts for Both Sides in a Take-over and Has a Stake in the Target : Standard Investments Ltd v Canadian Imperial Bank of Commerce (CIBC)
- (4) Conclusions on Customer Conflicts of Interest
- (5) Duties to Other Banks: Syndicated Loans
- G Remedies for General Law Liability
- H Time Limits for Bringing an Action for Breach of Fiduciary Duty
- (1) English Law
- (a) The General Rule
- (b) Section 21(1) of the Limitation Act 1980 (English Law)
- (c) Meaning of ‘Breach of Trust’: s 21 of the Limitation Act 1980
- (d) Fraudulent Breach of Trust: s 21(1)(a) of the Limitation Act 1980
- (e) Section 21(1)(b) of the Limitation Act 1980
- (f) Account of Profits: s 23 of Limitation Act 1980
- (g) Summary: Breach of Fiduciary Duty and Limitation
- (2) Scots Law
- (1) English Law
- I Conclusion
- 6 Liability of Lenders for Negligence
- Preliminary Material
- A Introduction
- B Recovery for Pure Economic Loss under the General Law—The Duty of Care Requirements
- (1) Duty of Care for Pure Economic Loss: Three Tests
- C Exclusions and Disclaimers of Liability—Unfair Contract Terms Act 1977 (UCTA)
- D Breach of Duty and Causation
- E Damages for Negligence
- F Situations in which Lenders can be Liable in Negligence
- (1) Giving Advice on Transactions or Investments
- (2) Breach of Duty
- (3) Failure to Warn of Foreseeable Risks
- (4) Advice on Take-overs
- (5) Duties of an Agent Bank During the Life of the Loan
- G Regulatory Liability
- H Conclusion
- 7 Liability for Intentional Acts:
- Preliminary Material
- A Introduction
- B Fraud/Deceit
- 7.02
- (1) Criminal Liability for Fraud
- 7.03
- (a) English Law—Fraud Act 2006
- (b) Scots Criminal Law
- (c) FSMA 2000, Section 397
- (d) Unfair Commercial Practices—2008 Regulations
- (e) Regulatory Liability—FSA Handbook
- (2) Civil Law Liability for Fraud
- 7.52
- (a) Civil Liability for Fraud
- (b) Fraud Distinguished from Negligence
- (c) No Contributory Negligence
- (d) The Elements of the Tort/Delict of Deceit: Proving Fraud Under the General Law
- (e) Pleading Fraud and Burden and Standard of Proof
- (f) Discussion of Criteria
- (g) Exclusions of Liability
- (h) Vicarious Liability of a Lender for Fraud of Its Employees/Agents
- (i) Statute of Frauds Amendment Act 1828: Misrepresentation as to Credit
- (j) Remedies for Fraud: Rescission and Damages
- (k) Conclusion
- C Conspiracy
- D Tortious/Delictual Interference with Contract
- 7.115
- 7.116
- (1) Elements of the Tort/Delict
- 7.117
- (a) English Law
- (b) Scots Law
- (c) Example of Lender Intention
- (d) Justification
- (e) ‘An Equal or Superior Right as Justification’
- (f) De Mattos v Gibson Principle Under English Law
- (g) Remedies for Interference with Contract
- (h) Inducing a Breach of a Negative Pledge Clause in Loan or Security Documentation
- (i) Secured Lending
- (j) Details of Negative Pledges on Company Charges Register
- (k) Result of a Breach of the Negative Pledge in a Floating Charge
- (l) Unsecured Lending
- (m) Knowledge
- (n) Intention
- (o) The Position in Practice
- E Causing Loss by Unlawful Means
- F Conclusion
- 8 Lender Liability as a Constructive Trustee under English Law
- Preliminary Material
- A Introduction
- B Dishonest Assistance and Knowing Receipt
- C Dishonest Assistance
- (1) Secondary/Accessory Liability—Civil Liability
- 8.06
- (a) Criteria
- (b) Rationale for Assistant Liability
- (c) Fault-based Liability: Not Strict or Receipt-Based
- (d) Initial Trust or Fiduciary Relationship
- (e) Who to Sue?/Parties to the Action
- (f) What is ‘Assistance’?
- (g) Trustee/Fiduciary Does Not Have to Be Dishonest
- (h) Receipt of Trust Property By Assistant Not Needed
- (i) Breach of Fiduciary Duty or Trust Property?
- (j) Basis of Liability: Equitable Wrongdoing
- (k) Lender’s ‘Liability as a Constructive Trustee’
- (l) Lender’s Dishonesty—Civil Liability
- (m) ‘Objective Dishonesty’
- (n) Clarification of Twinsectra
- (o) Awareness of Breach of Trust or Fiduciary Duty
- (p) Conclusion on Barlow Clowes
- (q) ‘Shutting Your Eyes’/‘Blind-Eye Knowledge’ and Dishonesty
- (r) Conclusion on Dishonesty
- (s) The Position in Commonwealth Countries Regarding the Tan and Twinsectra Cases
- (t) Obeying Customers’ Instructions vs ‘Liability in Equity’
- (u) Making Further Enquiries in a Civil Context
- (v) US International Marketing Ltd v National Bank of New Zealand Ltd
- (w) Presumption of Honesty
- (x) ‘Indoor Management Rule’
- (y) Causation
- (z) The Effect of the Breach of Trust or Breach of Fiduciary Duty Re the Assistance
- (aa) Defence—No Causative Effect Re the Assistance
- (ab) Excusing or Releasing the Trustee or Fiduciary
- (ac) Limitation Period
- (ad) Remedies
- (ae) Examples of Lender’s Dishonest Assistance
- (1) Secondary/Accessory Liability—Civil Liability
- D Knowing Receipt
- (a) Introduction
- (1) Criteria for Knowing Receipt
- (2) Remedies: Personal and Proprietary
- (3) Tracing and Knowing Receipt
- (4) Defences to Knowing Receipt
- 8.196
- (a) Ministerial Receipt
- (b) Bona fide Purchaser
- 8.202
- 8.203
- 8.204
- (i) When the Defence Will Apply
- (ii) Difference with Change of Position
- (iii) Elements of the Defence
- (iv) Change of Position
- (v) Characteristics of Change of Position
- (vi) Section 61 of the Trustee Act 1925
- (c) Criminal Liability for Knowing Receipt
- E Conclusion
- 9 Lender Liability Under Scots Law for Receipt of Trust Money and Assisting a Breach of Trust
- Preliminary Material
- A Introduction
- B Receipt-based Liability in Scots Law
- C Common Instances of Receipt-based Liability for Lenders
- D Defences to a Claim for Knowing Receipt or Unjustified Enrichment
- E Liability for Assisting a Breach of Trust
- F Criminal Liability: Money Laundering
- G Conclusion
- 10 Liability for breach of contract by a lender
- Preliminary Material
- A Introduction
- B General Principles of Contract Damages
- C Remoteness of Damage
- 10.21
- (a) The Traditional Approach
- (b) Principles of Remoteness of Damage
- 10.25
- 10.26
- 10.27
- 10.28
- 10.29
- 10.30
- 10.31
- 10.32
- 10.33
- 10.34
- 10.35
- 10.36
- 10.37
- 10.38
- 10.39
- 10.40
- 10.41
- 10.42
- 10.43
- 10.44
- 10.45
- (i) Summary of Remoteness
- D Situations when Lenders will be Liable in Damages
- 10.73
- (1) Breaches of: (a) the general banker-customer contract, and (b) a specific contract (most commonly a loan and/or overdraft facility)
- E Damages for Injured Feelings/Emotional Distress
- F Contributory Negligence
- G Conclusion
- 11 The Liabilities of a Secured Lender to Borrowers and Third Parties
- Preliminary Material
- A Introduction
- B Issues Arising
- C The Nature of the Relationship Between Secured Lender and Mortgagor or Debtor
- D Basis of Liability: Lender’s Obligations
- E When Secured Creditor May Sell Secured Asset
- 11.19
- 11.20
- (1) English Law
- (2) Scots Law
- (3) Exceptions to Security Holder Selling When He Wishes
- 11.29
- (a) United Kingdom
- (b) English Law
- 11.39
- (i) Law of Property Act 1925, section 91(2)
- (ii) Administration of Justice Acts 1970 and 1973
- (iii) Residual Jurisdiction
- (iv) Schedule 3, para 2 to the Land Registration Act 2002—Protected Interest: ‘Actual Occupation’
- (v) Mortgage Repossessions (Protection of Tenants etc) Act 2010 and the Dwelling Houses (Execution of Possession Orders by Mortgagees) Regulations 2010
- (vi) Conclusion
- (c) Scots Law
- 11.65
- (i) Conveyancing and Feudal Reform (Scotland) Act 1970, s 24
- F Liability to Third Parties
- G Secured Creditor’s Liability for Acts or Omissions of Agent
- H Effect of Mortgagor’s/Debtor’s Claims for Injunctions/Interdicts and Counterclaims
- I Post-Sale Remedies
- J Exclusion of Liability by the Secured Creditor
- K Some Pitfalls for Lenders
- L Time Limits
- M Conclusion
- 12 Liability of Lenders for the Acts of Receivers They Appoint
- Preliminary Material
- A Introduction
- B Floating Charges and Receivers
- C Liability of Lender for the Receiver’s Conduct
- D Conclusion
- 13 Environmental Liability of Lenders
- Preliminary Material
- A Introduction: Contaminated Land
- B Issues for Consideration
- 13.33
- (1) Responsible Authority
- (a) United States
- (b) England and Scotland
- (2) Who is Responsible for the Clean-up?: The Appropriate Person
- C Other Types of Environmental Liability
- 13.101
- (1) Removal of Waste or Reducing its Consequence: EPA 90, s 59
- 13.102
- 13.103
- (a) Water Pollution: Water Resources Act 1991 (WRA) (England)
- 13.104
- (i) Works Notices
- (ii) Failure to Comply With Works Notice
- (iii) Water Pollution in Scotland: Water Environment (Controlled Activities) (Scotland) Regulations 2005
- 13.121
- (i) Ambit of the Regulations
- (ii) Clean-Up: Enforcement Notices
- (iii) SEPA Doing Works and Investigations
- (iv) Compensation
- (v) Information: SEPA
- (vi) Criminal Liability
- (vii) Criminal Penalties
- (viii) Corporation Committing an Offence
- (ix) Court Enforcement: Non-compliance With Enforcement Notice
- (x) Defence
- (2) Waste Management: Duty of Care
- D European Directive on Environmental Liability: Effect on Lenders
- (a) Introduction
- (b) To Whom and What the EC Environmental Directive Applies
- E Domestic Legislation Resulting from the Directive
- F Conclusion: What Should Lenders Do?
- 14 Wrongful Trading—Liability of Lenders as Shadow Directors
- Preliminary Material
- A Introduction
- B Shadow Directorship
- C Wrongful Trading
- 14.28
- (a) Wrongful Trading—Definition
- (b) Liquidator Brings the Application and Bears Onus of Proof
- (c) Has There Been Wrongful Trading?
- (d) Relationship Regarding Continued Wrongful Trading and the Increased Losses
- (e) Purpose and Nature of a Wrongful Trading Contribution—Compensatory: Not Penal
- (f) Director’s Standard of Skill Re Wrongful Trading
- (g) Liability is Generally Several: Not Joint
- (h) Directors’ Knowledge or Conclusions
- D Defence to Wrongful Trading: Minimizing Creditors’ Losses
- E Who is Entitled to the Contributions: Floating Charge Holders or Ordinary Creditors?
- F Problem Areas for Lenders Re Shadow Directorships and Wrongful Trading: Monitoring Loans and Lender Nominee Directors
- G Limitations and Prescription Periods and Costs/Expenses Issues
- H Conclusion
- 1 Lender Liability Arising Out of the Banker-Customer Relationship
- Further Material
