Bank Customer Relationship

Bank Customer Relationship

Bank Customer Relationship

Wednesday, 21 January 2015 20:49

By Vivien Wong

The history of the modern banking system can be traced back to the 16th century. Nowadays, the vast majority of the world’s population are customers of banks. With banks providing a diversity of services, how much do you know about your relationship with your bank?

Duty of Care
Banks and their officers often carry themselves out as professionals in assisting people with their assets and finances. Many people assume that banks owe a duty of care to protect their assets deposited with the banks.  The legal position is that banks do owe a duty of care to their customers under contract and/or in tort.  However, it is the extent of that duty that is often misconceived.

Contractual and/or Tortious Duty of Care
When a potential customer opens an account with a bank, the bank would normally provide a service agreement containing terms which govern the bank-customer relationship.  The terms set out the nature and the scope of the services that bank is contracted to provide.  At common law, it is implied in contracts under which a professional or skilled person provides services to his customer in return for a fee, that he will exercise reasonable skill and care in rendering those services.  In the context of bank services, the bank is under an implied contractual duty to exercise reasonable skill and care in carrying out its customers’ instructions.

Further or alternatively, banks owe a duty of care in tort to render services with reasonable skill and care.  For example, banks have the duty to make queries where there is suspected fraud. Failing to exercise due care may give rise to a cause of action in negligence.

Profession duties relating to the provision of investment advice?
However, whether the bank owes further professional duties to manage the customer’s account, advise the customer, ensure that recommended investments are suitable for customers or ensure that the customer understood the nature and risks of recommended products is subject to debate and facts of the case.  Banks often include express terms in their service agreements that the bank is responsible for the execution of transactions only; the bank is not required to provide any advice to the customer; any investment decisions are made solely upon the customer’s judgment and discretion and the customer should seek independent financial or legal advice before making investment decisions. 

The doctrine of contractual estoppel was recognized by the Court of First Instance in the case of DBS Bank (Hong Kong) Ltd. v San-Hot HK Industrial Company Ltd [2013] HKEC 352, as being applicable in Hong Kong.  This means that a bank customer may not imply duties on the part of the bank which are contrary to its express terms.  The customer may be estopped from claiming that he had relied on representations made by the bank when investing.  That said, the application of the doctrine remains a controversial issue and is subject to vigorous debate in Hong Kong.  Moreover, the case law so far only concerns sophisticated investors.  The full extent of its application remains untested in Hong Kong. 

Also in the San-Hot case, as part of the customer’s contention that the bank owed professional duties, there was the issue on whether the Code of Conduct issued by the Securities and Futures Commission formed part of the services agreement between the bank and the customer.  In that case, the bank had succeeded in arguing that it was not based on the interpretation of the relevant clause in the agreement.  It is possible that the Court may arrive at a different conclusion with another agreement. 


Following the global financial crisis in 2008, there are a considerable number of bank customers bringing legal action against their banks claiming for the substantial losses they suffered as a result of investing in or being advised to invest in high risk products such as accumulators.  It should be noted that the law with respect to the banks’ potential liabilities in this area is still developing. 

Regardless of the development with law in this area, bank customers should always be conscious of their objectives in asset management and take extra caution when partaking in transactions that they do not understand or are not familiar with.