Alan L Tyree

Does Tournier apply to building societies?

Introduction

As is well known, the great case of Tournier v National Provincial and Union Bank of England1 held that a bank owes a duty of confidentiality to its customers. The duty extends at least to information concerning account transactions and extends beyond the date of the termination of the banker customer contract. The duty is not absolute for the bank may disclose information where the disclosure is under compulsion by law, where there is a duty to the public to disclose, where the interests of the bank require disclosure and where the disclosure is made by the express or implied consent of the customer.

This well-known duty of the bank is recited in the new Banking Code of Practice, although the duty is somewhat diluted by s12 that gives the bank the right to disclose information to related entities.2 Under the general law a disclosure to a related entity is a breach of the duty of confidentiality: see Bank of Tokyo Ltd v Karoon3 and Bhogal v Punjab National bank.4

Both Building Societies and Credit Unions have also released codes of practice. In both cases the codes are very similar to the Banking Code of Practice save for some changes where the Banking code is simply not relevant. For example, the Credit Union Code of Practice does not reproduce the Banking Code provisions on foreign currency transactions.

The only striking and inexplicable difference between the Codes is that the Building Society Code omits the equivalent of s12 of the Banking Code. I presume that the reason for this is that Building Societies believe that they are not bound by the Tournier duty. This would be a surprising result if correct. An examination of the reasons given by the judges of the Court of Appeal suggests that building societies and other financiers are bound by a duty of secrecy similar in all respects to that established by the Tournier case.

The Tournier Case

Tournier had an overdraft with the defendant bank. He had made arrangements to make payments toward the reduction of the overdraft, but after only three instalments ceased to make further payments. Tournier was the payee of a cheque drawn by Woldingham Traders Ld. Rather than deposit the cheque in his account with the defendant bank, he indorsed the cheque to a customer of the London City and Midland Bank. The defendant bank came to know about the cheque by virtue of the fact that Woldingham was a customer. Upon seeing the cheque presented for payment the manager rang the appropriate branch of the London City and Midland Bank to enquire as to the identity of their customer. It was learned that the indorsee was a bookmaker.5

The manager than rang the employers of Tournier and had conversations with two of the directors. The actual contents of that conversation are not clear, but it was alleged that the manager informed them that Tournier was having dealings with a bookmaker. As a consequence of that communication the employer refused to renew Tournier's contract of employment.

Tournier sued both in defamation and for breach of contract. He lost at first instance and appealed with respect to both heads primarily on the grounds that the judge had instructed the jury erroneously. He succeeded in the Court of Appeal with respect to both claims, the Court ordering a new trial. It is, of course, the claim as to breach of contract with which we are concerned here.

The question left to the jury with regard to the action in breach of contract was "Was the communication with regard to the plaintiff's account at the bank made on a reasonable and proper occasion?" to which the jury answered "Yes". The plaintiff contended that this was inadequate since there was no direction as to circumstances in which the occasion would be reasonable and proper. Unfortunately, in the statement of claim the plaintiff alleged that the bank was bound by an absolute duty of secrecy in respect of the plaintiff's account and business.

The defendant argued, and this is the reason that the case is remembered, that it had never been decided whether the bank’s duty not to disclose the state of the customer's account was anything other than a moral duty.

As is well known the Court of Appeal held that there was a legal duty of secrecy limited by the four exceptions outlined above. Bankes LJ held that the duty arose out of contract. His view of the nature of the contract was elaborated upon when he came to consider whether this particular information, derived not from the account but from other sources was information that was subject to the duty.6

"The privilege of non-disclosure to which a client or a customer is entitled may vary according to the exact nature of the relationship between the client or the customer and the person on whom the duty rests. It need not be the same in the case of the counsel, the solicitor the doctor and the banker, though the underlying principle may be the same."

This makes it clear that Bankes LJ was relying on a general principle of confidentiality, at least in contractual relationships, rather than on a purely banker-customer contract. He goes on to note that the relationship of banker and customer is one in which the confidential relationship is "very marked"7 because the credit of the customer depends on the observance of the confidence.

Scrutton LJ noted the lack of authority as to the duty to keep customers' or clients' affairs secret "either by banks, counsel, solicitors or doctors."8 Following the principle that a term would be implied which was necessarily in the contemplation of parties making a contract, Scrutton LJ had no doubt that there was a term of secrecy to be implied in the banker-customer contract. He went on "This duty equally applies in certain other confidential relations, such as counsel or solicitor and client, or doctor and patient."9 Although agreeing that the direction to the jury was inadequate, Scrutton LJ made it clear that he did not believe that the duty extended to information derived from independent sources.

Atkin LJ also found in favour of a duty of secrecy on the basis of an implied term in the contract. He reached this conclusion by a consideration of the way in which banks actually act. They bound their servants to secrecy, they communicated this to their clients in the pass-book and he was satisfied that they would claim to be under an obligation of secrecy if so asked.10

In Parry-Jones v Law Society,11 a case concerning solicitor-client confidentiality, Diplock LJ noted that the contractual duty of confidence exists in a wider range of relationships. He included the standard counsel or solicitor and client, doctor and patient as well as adding accountant and client.12

Application to Building Societies

The point of this rather extended analysis is that there is nothing in the judgments or in ordinary common sense to exclude a duty of secrecy being imposed upon a building society, and there is a substantial reason to believe that such a duty would in fact be imposed. It appears that a duty of confidentiality arises in any contractual relationship that entails the communication of “private” information about one of the parties to the other in the course of fulfilling the contract. Clearly the Court in Tournier considered that financial information qualified for this protection, so that a Building Society would be bound by duties similar to those enunciated in Tournier. This is particularly so as building societies offer more and more services that were traditionally offered only by banks.

Two members of the Court also considered that the duty could arise with respect to information gathered before the banker-customer contract came into being and the bank was under a continuing duty of confidentiality following the termination of the contract. This analysis is defective in that it does not protect information obtained from a prospective customer where the contract never actually materialises. In order to provide protection for such information it is necessary to consider the equitable duty of confidentiality.

It is also now well recognised that an equitable duty of confidentiality may arise independently of contract: see, for example, Attorney General v Guardian Newspapers Ltd (No2);13 Coco v A N Clark (Engineers) Ltd.14 There further seems to be no reason why the equitable obligation may not exist alongside the contractual one: see, for example, Stephens Travel Service International Pty Ltd (Receivers and Managers Appointed) v Qantas Airways Ltd15 and Attorney-General v Guardian Newspapers Ltd.16

According to Megarry J in Coco, the duty of confidence arises when the information imparted by the confider is of a confidential nature and the information is communicated in circumstances importing an obligation of confidence. Megarry J admits that the test for determining whether the circumstances import an obligation of confidence is unclear, but considers that if a reasonable person standing in the shoes of the recipient would realise that the information is confidential then that is sufficient to impose a duty. In particular, it is probable that the fact that the information is received in the course of fulfilling a business contract is sufficient to impose the duty.

In the context of the duty of a building society and its member/customer, the information imparted in the operation of an account is precisely the kind of information found to be worthy of protection in the Tournier case. Further, the circumstances under which the building society receives information concerning the financial affairs of its member/customer are precisely those which the Court found to impose a duty on the bank, that is, a reasonable person would find that there was an expectation of confidentiality.

Consequently, the answer to the question posed in the title must be “yes” and, further, the building society will be fixed with a co-existing (although not necessarily co-extensive) equitable duty to maintain secrecy with respect to its member/customer’s affairs.

Alan L Tyree
Landerer Professor of Information Technology and Law
University of Sydney




1
[1924] 1 KB 461.
2
See s12.2 and the discussion in Tyree, “Banking Code Losers” 6 JBFLP XXX.
3
[1987] AC 45.
4
[1988] 2 All ER 296.
5
This is one of the interesting aspects of the Tournier case that is often overlooked in the standard textbooks. The information in question was not obtained from the operation of Tournier's account but that of another customer, and even that in a circuitous manner.
6
At 474.
7
At 474.
8
At 479.
9
At 481.
10
At 484.
11
[1969] 1 Ch 1.
12
At 7.
13
[1988] 3 WLR 776.
14
[1969] RPC 41.
15
(1988) 13 NSWLR 331.
16
supra; see also J M Walter and N Erlich "Confidences - Banks and Customers: Powers of Banks to Maintain Secrecy and Confidentiality" (1989) 63 ALJ 404.