Bank Fraud and Customer Confidentiality – Guideline High Court Ruling

Bank Fraud and Customer Confidentiality - Guideline High Court Ruling

Banks and other financial institutions are generally keen to assist in uncovering fraud and, for that purpose, routinely submit to court orders requiring them to disclose otherwise confidential client information. In an important case, the High Court analysed the uses to which such disclosed information may be put.

The case concerned a company that had fallen victim to a so-called ‘authorised push payment scam’. Almost $250,000 that it had intended to pay to a supplier was diverted by a fraudster to a bank account specially set up for the purpose. On the fraudster’s instructions, the bank then paid the money to an overseas account in six tranches. The last of those tranches was sent just two hours before the company notified the bank of the fraud.

The company launched proceedings with a view to recovering its money and was granted an injunction which required the bank to disclose information concerning its dealings with its client, the fraudster. There was no suggestion that the bank was complicit in the fraud and, in applying for the injunction, the company stated in terms that it had no current intention to bring proceedings against the bank.

After reviewing documents disclosed pursuant to the injunction, however, the company had a change of heart in that respect and intimated a claim against the bank. The company sought judicial permission to use the disclosed documents for the purpose of bringing proceedings against the bank.

Resisting the application, the bank argued, amongst other things, that allowing such use of the documents would set an undesirable precedent and encourage victims of fraud to bring speculative claims against banks. It would also encourage financial institutions to abandon their customary cooperative approach and to resist applications for injunctions requiring disclosure of client information.

In granting the company the permission it sought, the Court was unpersuaded by those arguments. It noted that the public interest in protecting the confidentiality of the relationship between banks and their clients was plainly overridden in the event of fraud. The fraudulent transactions appeared uncommercial and, on the basis of the disclosed documents, it was at least possible for the company to argue that the bank was on notice of potential wrongdoing by its customer prior to the fraud.

Our articles are provided for general interest and information only. They do not constitute legal advice. Whilst every effort is made to ensure that the content accurately reflects the law in England as at the date of its transmission, no liability is accepted for any loss or damage arising from any act or omission resulting from any information contained herein.

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