Relationship between a banker and a customer

Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35 (5 February 2014)

93. However, as part of the wider framework, reference also must be made to the established principles concerning the relationship of banks and their customers. These were summarised in Andrews Trial at [81]-[82] (see also BMP Global Distribution Inc v Bank of Nova Scotia [2009] 1 SCR 504 at [47]-[48]) as follows:

It is trite that the relationship between a banker and a customer is in contract: Foley v Hill [1848] EngR 837; (1848) 2 HL Cas 28. Such contracts have been described as:

… ordinary commercial contracts to be construed and applied according to their terms, and in accordance with a ‘basic principle of the common law of contract … that parties to a contract are free to determine for themselves what primary obligations they will accept’.

Williams and Glyn’s Bank v Barnes [1981] Com LR 205 at 209 (quoting Photo Production Ltd v Securicor Transport Ltd [1980] UKHL 2; [1980] AC 827 at 848) cited with approval in Narni Pty Ltd v National Australia Bank[2001] VSCA 31 at [19].

Unsurprisingly, the contractual terms are important; it is a contract usually with many terms (Joachimson v Swiss Bank Corporation [1921] 3 KB 110 at 127) but from which the following core banking law principles derive:

1. A savings or deposit account is in law a loan to the banker: Pearce v Creswick [1843] EngR 304; (1843) 2 Hare 286; Dixon v Bank of New South Wales [1896] NSWLawRp 103; (1896) 17 LR (NSW) Eq 355; Khan v Singh [1936] 2 All ER 545. The bank borrows the money and proceeds from the customer and undertakes to repay them on demand. The bank’s undertaking includes a promise to pay any part of the amount due against the written order of the customer addressed to the branch of the bank where the account is kept: Joachimson at [127]. Conversely, the bank will not pay any part of the amount due to the customer without such an order or some other compulsion or entitlement recognised by law;

2. The issue of a cheque by a customer, or the giving of a payment instruction or withdrawal request to its bank, which would have the effect of overdrawing a customer’s account, is construed as a request by the customer for an advance or loan from the bank, and the bank has a discretion to approve or disapprove the loan: Cuthbert v Robarts, Lubbock & Company [1909] 2 Ch 226 at 233; Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd [1980] 1 QB 677 at 699-700; Ryan v Bank of New South Wales[1978] VicRp 54; [1978] VR 555 at 577; Narni Pty Ltd v National Australia Bank Ltd [1998] VSC 146 at [37] and Narni Pty Ltd v National Australia Bank Ltd [2001] VSCA 31 at [21];

3. A written order by a customer which requires the bank to pay a greater amount than the balance standing to the credit of the customer may be declined. There is no obligation on the bank to pay a cheque unless there is a sufficient balance in the account to pay the entire amount or unless overdraft arrangements have been made which are adequate to cover the amount of the cheque: Bank of New South Wales v Laing [1954] AC 135 at [154]; Office of Fair Trading v Abbey National plc [2008] EWHC 875(Comm) at [45] and Narni [2001] VSCA 31 at [12];

4. If a customer with no express overdraft facility draws a cheque which causes his account to go into overdraft, the customer, by necessary implication, requests the bank to grant an overdraft on its usual terms as to interest and other charges: Lloyds Bank plc v Voller [2000] 2 All ER (Comm) 978 at 982.

See also Weaver GA and Craigie CR, The Law Relating to Banker and Customer in Australia, (Thompson Lawbook Co) at [2.140] (update 62).