Banking lawBy Simon Sugar, barrister, 36 Bedford Row, LondonActing on an ambiguous mandate and the extent of the duty of a customer to report fraudPatel & others v Standard Chartered Bank (2001) 6 April, Mr Justice ToulsonThe claimant account holders obtained a mandate form from the bank to enable them to delegate powers to R.

After the words 'I/we ...

have given our authority to ...

to', the form set out nine numbered paragraphs that itemised the individual powers to be delegated.

At the bottom of the form were the words 'delete any paragraph which is inappropriate'.

The claimants returned the mandate to the bank with a manuscript circle around the number (vi) and without the deletion of any paragraphs.

The bank did not query the form in which the mandate in favour of R was completed and returned.

The claimants deposited more than $160,000 (114,000) in the account.

R was dishonest and abstracted all the money from the account.

Upon discovering the fraud the claimants brought an action against the bank to recover all the sums they had deposited.The judge held that on a true construction of the mandate the positive identification of paragraph (vi) conferred that authority alone on R irrespective of the fact that inapplicable paragraphs were not deleted.

The judge also held that a bank acting upon an interpretation of ambiguous instructions would escape liability for breach of mandate only if the bank behaved reasonably in acting upon that interpretation.

Since the bank prepared the mandate form and the irregularity in the way it was completed by the claimants was apparent on its face, the bank would not be able to rely on this defence.Best banking practice is likely to be reinforced as a consequence of this case.

Whenever a customer completes a bank mandate in an ambiguous manner the bank ought to take immediate steps to clarify the customer's intentions.

The failure to do so may mean that a bank will be unable to rely on a defence that they acted reasonably on an interpretation of an ambiguous mandate.

The bank also sought to extend a customer's implied contractual duty to include a requirement to report fraud of which the customer does not know, but which a putative reasonable person, possessing the same information as the customer, would have discovered.The judge refused to imply such a duty, which he held to be inconsistent with the ruling and the reasoning in Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80.

The duty of a customer to report fraud was limited to a forgery or fraud of which he was aware.

This duty was extended to circumstances of wilful blindness (that is to say, deliberately refraining from making enquiries from unwillingness to know the results).

However, this case confirms that customers will not be liable for the failure to report fraud merely as a consequence of having the means available to discover the fraudulent activity.Misfeasance in public office and banking regulation Three Rivers District Council & Ors v Governor & Co of the Bank of England (No.3) [2001] 1 UKHL 16In this case the claimants, who were former depositors with BCCI, brought an action against the Bank of England.

The claimants alleged that the Bank of England was liable to them under the tort of misfeasance in public office as a consequence of the bank's alleged improper regulation of BCCI.The House of Lords dismissed the Bank of England's application to strike out the claimants' draft particulars of claim and thereby paved the way for the case to go to trial.Although the Bank of England is no longer responsible for regulating banking in the UK, the outcome of this case will be of real interest to the bank's successor, the Financial Services Authority.

The claimants allege that the Bank of England continued to licence BCCI despite knowledge of financial irregularities.

Therefore, the case may provide guidance to banking regulators on a difficult and complicated issue, namely, at what point should banking regulators close a bank down and give up on any hope that a bank will improve its behaviour.

Against this background it appears likely that banking regulators will adopt an ever more prudent and cautious approach to future regulation issues.The Treasury, in its capacity as owner of the Bank of England, will also be interested in the outcome of the case, since reports estimate that the level of damages and interest claimed against the bank approach 1 billion.Human rights and SFA disciplinary proceedingsR v The Securities and Futures Authority Ltd, ex parte Fleurose (2001) 26 April, Mr Justice MorisonThis judicial review case is of real importance to the financial services industry.

The applicant had been found guilty of improper conduct as a trader in securities.He claimed that the disciplinary proceedings brought against him were conducted contrary to his rights under the European Convention on Human Rights and sought judicial review of the decision of the disciplinary appeal tribunal of the Securities and Futures Authority (SFA).

The judge found that the SFA disciplinary proceedings were not to be classified as involving a criminal charge, and consequently articles 6(2), 6(3) and 7 did not automatically apply to the proceedings.

However, the disciplinary proceedings were subject to the fair trial provisions of article 6(1) which could under the requirement of fairness embrace certain article 6(2) and (3) stipulations.Having so found, the judge held that the right to a fair hearing was not infringed by the use of evidence given under compulsion in SFA disciplinary proceedings.

Furthermore, there was no automatic right to free legal representation before an SFA disciplinary tribunal.The financial services industry will be relieved that the right to a fair trial has not been infringed by the workings of the disciplinary tribunals of the SFA.If the tribunals had been unable to rely on evidence given by traders under compulsion the whole system of regulation would have become effectively unworkable and the need to protect the investing public would have been seriously undermined.