A Banker’s “Duty of Care”

A feature of any trust is the requirement for the Trustee or Trustees to hold the assets of the Trust Estate (Fund) separately to their own assets and to use a “Trust Account” to manage the financial transactions of the trust.

Once a banker knows an account is a trust account the banker owns a “duty of care” not only to the customer (the Trustee) but also to the beneficiaries of the trust whose funds are being held on trust.

Where a bank knows or should know that there is a breach of trust, then it will be liable to the beneficiaries for any funds which have been diverted by the trustee. This is irrespective of whether the bank obtains a benefit from the breach {Stephens Travel Services International Pty Ltd v Qantas Airways Ltd (1988) 13 NSWLR 331.}

Where a banker receives trust property in Breach of Trust with knowledge of an actual trust it is sufficient that here is knowledge of the facts that are relevant. It is not necessary to show knowledge of the law {Ninety Five Pty Ltd v Banque Nationale de Paris [1988] WAR 132.

The New South Wales Court of Appeal in Evans v European Bank Ltd [2004] NSWCA 82 stated at [160]:

In my opinion, it is an essential aspect of accessorial liability for `knowing receipt’ that the act of transfer of the property – relevantly the deposit by Benford with the Respondent – must be in breach of a fiduciary obligation.

The court then cited various authorities at [161]:

This proposition has been variously expressed in the authorities:

  • · “there must … be some misapplication, some breach of trust”: Gray v Johnston (1868) LR 3 HL 1 at 11.
  • · “the payment is being made in fraud of a third person”: Thomson v Clydesdale Bank Limited [1893] AC 282 at 287-288.
  • · “the money is being applied in breach of trust”: Coleman v Bucks and Oxon Union Bank [1897] 2 Ch 243 at 250, 254.
  • · “misapplied funds”: Belmont Finance Co v Williams Furniture Ltd [1980] 1 All ER 393 at 405.
  • · “the transfer to him was a breach of trust”: Agip (Africa) Limited v Jackson [1990] Ch 265 at 291G. See also Lipkin Gorman v Karpnale Limited [1987] 1 WLR 987 at 1006B.
  • · “a disposal of his assets in breach of fiduciary duty” El Ajou v Dollar Land Holdings plc [1993] EWCA Civ 4; [1994] 2 All ER 685 at 700; Bank of Credit and Commerce International (Overseas) Limited v Akindele [2001] Ch 437 at 448.
  • · trust money was “misapplied”. See El Ajou v Dollar Land Holdings plc [1993] 3 All ER 717 at 739-740; Polly Peck International plc v Nadir [1992] EWCA Civ 3; [1992] 4 All ER 769 at 777; Koorootang Nominees Pty Ltd v ANZ Banking Group Limited [1998] 3 VR 16 at 105, line 35.

  • On 20 January 2014, PFS Nominees Pty Ltd received $443,207,841 with knowledge that these funds had been transferred from the Trust Estate of the occupational pension fund established on the 23 December 1913 in Breach of Trust.

    As well as having a liability for receiving trust property in Breach of Trust “knowing receipt” {1st limb of Barnes v Addy} a banker may also have a liability for “knowing assistance” {2nd Limb of Barnes v Addy}

    In a case of “knowing receipt” a banker must return the benefit received, but in the “knowing assistance” category a banker may have to account for funds that went to the benefit of some third party.

    Jacobs P in the New South Wales Court of Appeal in DPC Estates Pty Ltd v Grey and Consul Developments Pty Ltd [1974] 1 NSWLR 443 stated at (459):

    The point of difference between a person receiving trust property and the person who is made liable, even though he is not actually a recipient of trust property, is that in the first place knowledge, actual or constructive, of the trust is sufficient, but in the second place “knowing assistance” something more is required, and that something more appears to me to be the actual knowledge of the fraudulent or dishonest design, so that the person concerned can be truly be described as a participant in that fraudulent dishonest activity”

    The Banker as Trustee

    When the banker is also the Trustee, as is the case with NAB Wealth and its corporate Trustee, PFS Nominees Pty Ltd, the banker must exercise a high standard of care, a standard that is higher than an ordinary trustee {Bartlett v Barclay’s Bank Trust Co Ltd [1980] 1 All ER 139.

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    This tab updated on 20 March 2015