Relationship between a bank and its customers

Q5. The relationship between a bank and its customers has been analysed as one of depositor/dispotee, principle/agent, of a fiduciary nature, or between creditor debtors. Explain these relationships applied to the banking contract. ( Courts dealing with concept of Fairness of terms and conditions) Abbey v National plc 2009. This post is sponsored by Notary public central London


An agent is a person who has the power to represent another legal party (the principal) and brings the principal into a legal relationship with a third party.
An insurance agent (or insurance broker) creates a legal relationship between yourself (principal) and the insurance company (third party)

Common law is the main source of law of agency, however the Commercial Agents ( Council Directive) Reg 1993 contains a number of special rules which apply to agency relationships.

How is an agency relationship created?  

This may be brought about by a formal agreement (written contract) but more usually by implication from the conduct of the parties. No written contract is required. Agents authority may be express, implied or apparent.

Agent’s duties to his Principal: The agent’s duty may be divided into non-fiduciary or fiduciary duties.

The first non f duty imposes an obligation on the agent to follow the principal’s instructions. If the principal’s instructions are unclear then he is not liable.  Regulation 3(2)c of the regulations impose this.

Gilmour v Clark 1853

In this case it was held that if an agent breaches the instructions of the principle, he is liable in damages for any loss suffered by the principle.

Second duty, the agent must exercise skill and care performing his obligations. Where he fails to meet the standard he will be in breach of his duty.

The final non f duty is that an agent is to keep accounts in writing or in some informal medium, depending on what was agreed between and p.

Fiduciary Duties;

Law recognises relationship between A&P is one of mutual trust and good faith. Thus, the principle duty is for the agent to act in good faith and disclose all facts and circumstances with regard to principles business (Bell principles S22)

Regulation 3(1) – builds on the common law duty of good faith, all agents must look after interests of their principles and act dutifully.

Regulation 3(2) – agent must make proper efforts to negotiate, and where appropriate, concluding the transactions he is instructed to take care of and communication all necessary info to principle

The first fiduciary duty is to consider the agents duty to account to the principle in respect of all benefits received in connection with the principles business. An agent cannot take commission without knowledge or consent from principle.

Commonwealth oil and gas v Baxter 2010

However, in terms of  Lothian v Jenolite 1969

  • An agent does not require to account for extra income he has generated by working for a competitor of the principle in the absence of a non-competition restrictive covenant.
  • When agent breaches this duty, the remedy is an action of accounting rather than damages. E.g. if the gain enjoyed by the agent may be disgorged and transferred to principle. However, if no enjoyment the principles action will be incompetent.

Second duty is the agent must not disclose or exploit confidential information regarding the business of the principle.

Third duty is agent is disentitled from entering into transactions whereby agent generates a profit at principles expense “ no profit” rule Cunningham v Lee 1874

Fourth, agent must not delegate his duties to third parties subject to certain expiations

Finally, duty to relieve the principle of any liability suffered as a result of agent entering into any contract in excess authority.

Principles duty; Regulation 4, the principle must act dutifully and in good faith towards the commercial agent. The principle must provide the commercial agent with the necessary documents relating to the goods concerned and obtain info needed for agents performance, and in a reasonable time. Reasonable period of his acceptance or refusal of any transactions which he is involved in

The Agent’s Legal Rights:

  • to claim payment for services performed
  • to claim expenses legitimately incurred
  • to exercise a lien (retain and hold goods pending payment) over the principle’s property
  • If an agent fails to pay a third party, the principal remains liable as seen in the case of                             Lonsdale v Hallam ltd 2007Compensation – Regulation 17(6) to compensate the agent for the damage suffered as a result of the premature termination of the agency relationship.