Bank Has No Duty of Care to Advise Customers on the Wisdom of Commercial Transactions

In Delaney v AIB [2016] IECA 5, Court of Appeal, Peart J, 28 January 2016 the Court of Appeal held that a bank had no duty of care to advise customers on the wisdom of a commercial transaction. 

Facts

The Plaintiff lent money to Mr Killaly by way of bank drafts, payable to Mr Killaly who had an account at the same branch of AIB as the Plaintiff and into which account the bank drafts were lodged. Mr Killaly had looked after the Plaintiff’s tax affairs for a number of years and had approached the Plaintiff looking for financial help for what he claimed were temporary financial difficulties.

The Plaintiff was given a 24 year and nine month lease over commercial premises, as security for the loans, however the premises were mortgaged to AIB and written consent was required before there could be any lease of the premises.  As AIB had not given such consent, the security was void and unenforceable.

In 2009, AIB obtained judgment against Mr Killaly in the sum of €15.5 million, and Mr Killaly and his wife were declared bankrupt shortly thereafter. Receivers were appointed by AIB over the commercial property and the Plaintiff gave up possession of the premises. Accordingly, the Plaintiff was left without his money and without security.

This Plaintiff argued that as both he and Mr Killaly were customers of AIB, it must have known of Mr Killaly's precarious financial position, and accordingly it had a duty to him, as a customer

• to warn him of Mr Killaly’s financial weakness
• to advise him not to lend monies, or any further monies because of this, and
• to actively prevent him from doing what he did or was doing, by e.g. not issuing the bank drafts which had been requested on his behalf, or by not lodging any of them to the account of Mr Killaly.

High Court

Cregan J, in rejecting the claim, referred to the strict duty of confidentiality which a bank owes all of its customers.  The Court noted that the bank’s knowledge of Mr Killaly’s financial position was limited to the account it held and for all it knew he may have been in credit with other financial institutions.  The Court was further of the view that, in the absence of being consulted, either by way of being asked for advice or for a credit reference or otherwise, the Bank would have had no justification in intervening in this loan transaction simply because the parties involved were two of its customers.  The Court pointed out that the bank was not being asked to lend money to the Plaintiff, rather he was simply withdrawing his own monies and  the bank was not at any stage aware of the purpose of those withdrawals/ transfers.  Finally, the Court had regard to the fact that it had never been suggested that the Plaintiff at any time relied on any guidance, representation or otherwise from the bank.

The Court held that there was no obligation on the bank to question the applicant as to the reasons or purpose of withdrawing the sums in question or to check the credit worthiness of the recipient of such advances, in order to advise the Plaintiff on the wisdom of his commercial judgment.  Neither was the bank was under a duty to investigate the account and the financial position of Mr Killaly

Accordingly, the Court ordered that the claims be struck out on the basis that they were either unstateable or were bound to fail.  The Plaintiff appealed.

Court of Appeal

The Court of Appeal, in its judgment referred to the "terrible catastrophe" which had befallen the Plaintiff.  However, it agreed with the judgment of the High Court and held that the duty of care, as envisaged by Plaintiff, was far too wide to impose on a bank and was not one which was recognised in the law of negligence. Furthermore, the Court held that the bank's duty of confidentiality to its customers prevented it from intermeddling in dealings between customers, unless specifically asked to give advice or to give a credit reference.  Accordingly, the Court of Appeal also held that the negligence claim was unstateable in law and had to be dismissed.

The Supreme Court has recently refused the Plaintiff leave to appeal from this decision.

For more information please contact Paula Mullooly or your usual contact in A&L Goodbody.

Date Published: 12 April 2016