Martin, Rhett --- "Silence please - Banking confidentiality" [2007] MonashBusRw 51; (2007) 3(3) Monash Business Review 48

Silence please
Banking confidentiality

Rhett Martin

Are banks keeping silent to maintain confidentiality or to obstruct justice? Rhett Martin analyses the difference.

Silence under certain circumstances may be seen as misleading and deceptive conduct under Section 52 of the Trade Practices Act 1974 (Cth) (TPA). Banks are subject to the equivalent duty to refrain from engaging in misleading or deceptive conduct by virtue of Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act) Section 12DA. A finding of liability for silence being misleading or deceptive appears to depend on circumstances where there is an expectation or belief that disclosure would be made.

The problem for bankers is to reconcile the duty to maintain confidentiality of a customer’s account details long established under common law with the obligation imposed under the Trade Practices Act 1974 (references to the TPA shall be seen as also a reference to the ASIC Act as the same legal principles will apply) to not engage in misleading and deceptive conduct. The tension between the two legal duties, while seemingly at odds with each other, allows for worthwhile policy analysis that might provide a guide to a banker seeking to avoid liability.

Existing case law generally considers liability of a banker for silence being misleading or deceptive conduct under s 52 of the TPA as arising where there is a failure to disclose a relevant fact to the customer that came to the attention of the banker when there was a ‘reasonable expectation’ that such a fact be disclosed. What is reasonable seems to be based on an assessment of the banker/customer relationship and by definition must encompass an assessment of both parties’ expectations within what is essentially a contractual relationship.

What is a reasonable expectation does seem to require an objective assessment but there is little guidance in case law on the nature of this objective assessment. The other issue is whether the ‘reasonable expectation’ arises directly from the nature of the banker/customer relationship or whether it arises from some independent source. We would need to consider all elements of the banker/customer relationship as well as other matters that may arise separately from that relationship but which are relevant to it.

Where the banker has a duty to maintain confidentiality there is some common law support for the view that the duty of confidentiality prevails, since given the duty to keep the customers affairs confidential there can be no ‘reasonable expectation’ to disclose. However the appropriate caveat to this view must be that each situation be assessed on its individual circumstances. The best option for the banker is to advise the inquiring party that they are under a duty of confidentiality and that enquiries should be made directly to the customer for the matter in question. Thus, the banker has not ‘swept the matter under the carpet’ but instead has suggested it is important enough for further direct inquiry to be made.

In any event the competing duties, on the one hand to maintain confidentiality and the other to not engage in misleading or deceptive conduct is a constant balancing act that can make the banker’s life a demanding one. However it is clear that the banker’s duty to maintain confidentiality is not an absolute one as there are recognised exceptions to the duty consisting of when there is a compulsion of law to disclose, disclosure in the public interest, disclosure with the consent of the customer and disclosure where it is in the legitimate interests of the bank. Given these recognised exceptions, a banker might argue that disclosure comes under one or more of these exceptions. The problem, of course, is for the banker to be clear as to a particular situation and whether it is within a recognised exception to the duty to maintain confidentiality.

The banker also needs to recall the basis on which liability under s 52 of the TPA arises. Note the section does not just say whether the customer has actually been misled or deceived but also says there is a breach of the section if it is likely the customer could be misled or deceived. The implication of this is that a breach can arise under the section even if the banker has acted honestly and properly and is only dependant on whether the customer has either been misled or likely to be misled.

Thus the banker must go to great pains to ensure the customer clearly understands what is going on. This may require the customer, in certain circumstances to receive independent advice.

The banker is not normally seen as under a fiduciary obligation to the customer and therefore there is no real requirement to explain matters that might arise under a fiduciary relationship such as between trustee and beneficiary under a trust. However, simply because the bank is not usually under the obligations of a fiduciary does not mean that a fiduciary obligation may not arise.

The strongest position for the banker is to have regard to the terms of s 52 itself before looking at peripheral issues. Thus the banker should have regard to all relevant circumstances and make a determination as to whether a failure to disclose information may be a potential breach of s 52 TPA.

The bank must ask: could the customer be misled or deceived by remaining silent? In addition the banker should be reluctant to assume more responsibility than is necessary to properly perform its obligations to a customer since the assumption of responsibility greater than necessary may carry increased obligations to inform or disclose information, thereby increasing the risk of potential breach of the section. The banker must appreciate the question of silence and breach of s 52 is dependant on the context in which the silence occurs which may or may not relate to a reasonable expectation that disclosure be made. The reasonable expectation seems to be the operative issue and the banker must be ever vigilant in conducting banking business as to whether a reasonable expectation to say something may arise or not.

Case law cited in this study

Kimberly NZI Finance Ltd v Torero Pty Ltd

Kabwand Pty Ltd v National Australia Bank Ltd

Rhone-Poulenc Agrochimie SA and Another v UIM Chemical Services Pty Ltd and Another

Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd

Plum v Commonwealth Bank of Australia

Demagogue v Ramensky

Commonwealth Bank of Australia v Mehta (1991)

David John Crisp v Australia and New Zealand Banking Group Ltd

Raymond George Sorell & Others v National Australia Bank Ltd and Another

Commercial Bank of Australia v Amadio

Stern v National Australia Bank

Fraser v National Australia Bank

Figgins Holdings Pty Ltd v Commonwealth Bank of Australia

Arbest Pty Ltd v State Bank of New South Wales

State Bank of NSW v Kit Cheng Chia and Others (2000)

MBR subscribers: to view full academic paper, email [e-mail]

Public access: www.mbr.monash.edu/full-papers.php (six month embargo applies).

Cite this article as

Martin, Rhett. 'Silence please'. Monash Business Review. 2007.; Monash University ePress: Victoria, Australia. http://www.epress.monash.edu.au/. : 48–49. DOI:10.2104/mbr07051

About the author

Rhett Martin

Rhett Martin is a Lecturer in banking law at Monash University.