Scope and Limits of a Bank's Duty of Care to Third Parties
Since the Supreme Court of the Netherlands confirmed, on 9 January 1998,1 that banks have a special duty of care not only to their clients but also to third parties, and that under certain circumstances banks will be acting unlawfully if they fail to investigate whether the client is acting in accordance with regulatory legislation,2 banks have been struggling with various questions about the scope and limits of this duty of care. Recent case law of the Amsterdam District Court and the Hague Court of Appeal provide some answers about a bank’s duty of care to third parties, but uncertainty remains.
Recent case law on the scope of duty of care to third parties
Since a Supreme Court ruling on 23 December 2005,3 it is standard case law that the scope of a bank’s duty of care to third parties depends on the circumstances of the case. Those circumstances include the fact that Dutch financial regulatory rules and regulations are intended to protect the interests of investors. The Hague Court of Appeal took this ruling of the Supreme Court as a starting point and ruled in a recent case that if a bank becomes aware that certain payment transactions of its client are unusual, it is obliged, on the basis of its duty of care to third parties, to assess whether the client has violated any financial regulatory rules and regulations.4
The Amsterdam District Court on 8 October 20145 ruled that if a bank learns that investment activities carried on by a client possibly violate securities legislation or becomes aware of payment irregularities, the bank is obliged to investigate the payment transactions or activities of the client.6 Similarly a preliminary relief judge of the same District Court ruled on 6 March 2015 that a bank’s duty of care to a third party entails, in any event, that a bank must investigate without delay, if it suspects that regulatory rules are being violated. If its suspicions are confirmed, it must endeavour to protect the interests of investors by taking measures against its client.7 The bank’s investigation into the client’s activities, the question of whether the client is acting in accordance with regulatory legislation and the measures taken must be performed with due care. The preliminary relief judge of the District Court also required the bank to check the outcome of its investigation with the regulator.8
The Amsterdam District Court has considered whether a bank is obliged to actively monitor clients’ payment transactions in light of its duty of care to third parties. The District Court observed that in Europe payments into and out of the account are (virtually) entirely automated. A bank therefore is not expected to monitor every automated transfer.9
The mere execution of an automated payment transaction does not create an obligation to actively investigate that payment. In another case, the District Court considered whether the type of activities performed by a client could give rise to an obligation on the bank to actively monitor payment transactions. The District Court ruled that the fact that an accountholder performs a certain type of activity, such as investing third-party monies, is not enough to impose a monitoring obligation on that client.10
Comment
These cases give guidance on the extent to which a bank is required to actively monitor its clients’ payments. The Court of Appeal seems to expect a bank to actively monitor payments.11 That expectation is however at odds with a nearly entirely automated payment system.
The mere execution of payment transactions and the nature of a client’s business, such as investing third-party monies, seem insufficient to impose such an obligation on a bank. However, it is not clear that what the Court of Appeal considers to be an “unusual” payment in retrospect, can be identified as such by a bank at the time the payment is made Consequently, special circumstances have to justify a bank’s active monitoring of payments of a specific client.
The case law suggests that a bank’s duty of care to third parties means that, under certain circumstances, banks will be required to investigate a client’s activities to check whether the client is acting in accordance with regulatory legislation. This investigation must be performed with due care. In an individual case, the preliminary relief judge of the District Court required the bank to confirm the outcome of its investigation with the regulator. Case law is uncertain as to whether a bank will need concrete indications that the regulator might not agree with its findings regarding the client before it can be required to reach out to the regulator.
If a bank’s investigation shows that the client has acted in violation of regulatory legislation it will, in principle, need to take steps to protect the interests of third parties. Which measures are appropriate in any specific case will depend on the circumstances of that case, the bank’s relationship with the client and the interests of third parties that are to be protected. The requisite care to be taken will also need to be determined on a case by case basis.
Facilitating payment transactions sometimes puts banks in a difficult position. A bank will need to balance the interests of its client with those of third parties meriting protection. Performing a careful investigation, even though it may not always be clear to a bank whether certain payments may be viewed as ‘unusual’ in retrospect, and taking proportionate measures would appear to be paramount, although there will of course always be a risk that the client will consider any measures taken to be disproportionate and that third parties will argue that the bank took insufficient measures to protect their interests.
Footnotes
1. Supreme Court 9 January 1998, ECLI:NL:HR:1998:ZC2536, NJ 1999/285 (MeesPierson/Ten Bos), legal finding 3.6.2.
2. Supreme Court 23 December 2005, ECLI:NL:HR:2005:AU3713, NJ 2006/289 (Safe Haven), legal findings 6.2.2, 6.3.3 and 6.3.4.
3. Supreme Court 23 December 2005, ECLI:NL:HR:2005:AU3713, NJ 2006/289 (Safe Haven).
4. Hague Court of Appeal 18 March 2014, ECLI:NL:GHDHA:2014:996, JOR 2014/5 (interlocutory judgment), with commentary from C.W.M. Lieverse and mr. M.H.C. Sinninghe Damsté. (Fortis Bank / Van den Berg).
5. Amsterdam District Court 8 October 2014, ECLI:NL:RBAMS:2014:6318, RF 2015/7 (Claimant/Bink Bank).
6. Amsterdam District Court 8 October 2014, ECLI:NL:RBAMS:2014:6318, RF 2015/7, legal finding 4.5.
7. Amsterdam District Court (Prel. Relief Judge) 6 March 2015, ECLI:NL:RBAMS:2015:1246 (Fibonacci/Bink Bank).
8. Amsterdam District Court (Prel. Relief Judge) 6 March 2015, ECLI:NL:RBAMS:2015:1246 (Fibonacci/Bink Bank).
9. Amsterdam District Court 10 September 2014, ECLI:NL:RBAMS:2014:8275, JOR 2015/36, with commentary from S.K.M. van ’t Hooft, legal finding 4.1.
10. Amsterdam District Court 10 September 2014, ECLI:NL:RBAMS:2014:8275, JOR 2015/36, with commentary from S.K.M. van ’t Hooft (Stichting Gedupeerden Overwaardeconstructie X&P/ABN AMRO).
11. Hague Court of Appeal 18 March 2014, ECLI:NL:GHDHA:2014:996, JOR 2014/5 (interlocutory judgment), with commentary from C.W.M. Lieverse and mr. M.H.C. Sinninghe Damsté. (Fortis Bank / Van den Berg)
