The Private Banker: A Fiduciary?
Common law Courts have traditionally been reluctant to classify the relationship between a banker and its customer as fiduciary in nature, with the modern exception perhaps being in instances where the bank assumes responsibility to manage your investment portfolio for you. Otherwise, for most other transactions, the banker-customer relationship is traditionally viewed as merely a contractual one. One faces quite a task in attempting to supplant this default view in a common law Court.
However, it is perhaps high-time that this traditional or default view be re-assessed. The modern bank is no longer a mere depository or lender of funds, but whose role has evolved over the decades to accommodate social and commercial shifts. Modern bankers these days have ventured far from the merely providing the conventional transactions of old. They take on more and more of an advisory role, especially in the realm of private banking. They often advise on matters ranging from loan options to pick from to investment products which best suit your objectives. This advisory role which bankers have embraced is epitomized by the modern phenomenon of "dedicated relationship managers" provided to high-value clients, whose advertised tasks sometimes go beyond merely proposing or suggesting products based on customer objectives, to taking on a monitoring, review and advisory role over customer portfolios.
It is perhaps high-time that the law re-assess the duties owed by bankers to their customers, when such relationships go beyond the conventional services of over-counter deposits and money lending.
An opportunity to do so came by when I was involved in a Sessions Court suit against one of the leading banks in Malaysia. My client, the Plaintiff, was a "priority client" of the Defendant Bank. It was the Plaintiff's case that when he approached his bankers for a facility to purchase a property, he was presented with a slew of products. The dedicated relationship manager assigned to him eventually narrowed the products to a small handful to be cross-combined, which suited his parameters. He eventually took up 2 loan facilities with the Bank believing certain specific representations made by the dedicated relationship manager. It transpired that these representations were not true.
One of the limbs of our case was the argument that the Bank and its officers, in this case the dedicated relationship manager, owed a fiduciary duty to the Plaintiff which includes, amongst others, advising the Plaintiff on the management of his accounts and products towards achieving the financial objectives of the Plaintiff. We argued that from an analysis of 3 relevant cases, general principles can be distilled that there can exist a fiduciary duty in a banker-customer relationship when it can be shown that:-
in a relationship between adults of sound minds, one party relies on the guidance or advice of another;
the other person is aware of that reliance;
the other person obtains, or may well obtain, a benefit from the transaction or has some interest in it being concluded; and
there must be shown the element of “confidentiality” in the relationship, one beyond a mere arm’s length business transaction or where parties are on equal footing.
After 4 days of trial and submissions by parties, the Sessions Judge agreed with our argument that the bank owed fiduciary duties to our client, and consequently allowed our client's claim against the Bank. The decision was grounded upon, amongst others, two critical findings by the Sessions Judge, as follows:-
the Bank was bound by the promises and representations displayed on its website; and
the Bank and its officers owed the Plaintiff a fiduciary duty which included, amongst others, advising the Plaintiff on the management of his accounts and products towards achieving the financial objectives of the Plaintiff.
The Bank appealed to the High Court. The matter was eventually amicably settled out of court between parties.
Although the outcome was a satisfactory one for my client, I unfortunately will have to wait for another opportunity, or for you, to invite a judicial re-assessment by a superior court of the duties owed by bankers to their customers.