Bank's duty of care to third parties

We saw earlier that the bank's duty of care is not limited to its own clients or relationships. Thus, the bank also has a duty of care to third parties.

In this third article of the series, we review the banking duty of care to third parties. The focus is on the scope of the duty of care and the persons who can rely on a possible breach of this duty of care.

Scope of banking duty of care to third parties

The social function of banks entails a special duty of care, also towards third parties whose interests they should take into account. The scope of this duty of care depends on the circumstances of the case.

The bank's duty of care is not limited to care towards persons in a contractual relationship with the bank. To a certain extent, it must also protect third parties from their own levity and lack of skill and insight. Case law shows that action is required of the bank the moment it is aware, or ought to be aware, of the risks to which third parties are exposed. Moreover, it follows from a 2015 Supreme Court ruling[1 ] that the duty of care extends even a little further and that in certain situations a bank must inform third parties if it discovers irregularities in accounts.

The duty of care can also extend to third parties who provide security for a customer of a bank (third party security), such as a director of a company who provides a mortgage right on his private home for financing to the company of which he is a shareholder and director. The content of the duty of care for persons providing third-party security depends greatly on the stage at which the parties are at. In fact, there is a difference between the pre-contractual phase and the contractual phase. The bank's duty of care applies in both phases, only it differs in terms of obligations. For example, in the pre-contractual phase there is a duty to investigate/advice, while this does not apply in the contractual phase.

Because these phases and the obligations they entail are so different, it is difficult to formulate general rules when a bank breaches its duty of care and is liable to a third party. For the content of the duty of care in the pre-contractual phase, the circumstances at the time of the provision of security are mainly considered, while in the contractual phase, all circumstances during the duration of the security are important. The latter are subject to change.

Who qualifies as a "third party"?

It would be undesirable to make the group of "third parties" so broad that it would include virtually everyone. This would also be impracticable for the bank. Nevertheless, the group that qualifies as a third party is quite large.

First, these are close third parties, such as private guarantors. Such third parties provide a guarantee in case a customer of the bank fails to fulfill its obligations to the bank. These private sureties entail risks for the person providing the security, and the bank must protect this third party from them, or at least take into account the interests of these third parties.

There are also more distant third parties who can claim the bank's duty of care. Consider customers of a bank's customer. Liability for these individuals was assumed in the Safe Haven ruling.[2]

Whereas previously the duty of care towards third parties only applied to private individuals, the Court of Appeal of The Hague has further extended this to "professional" third parties.[3] If the bank is aware of unusual activities that may entail dangers, a duty of care rests on banks, under circumstances also towards investors, or at least "professional" parties.[4] The circumstance that this third party is a professional party does weigh in the interpretation of the duty of care, but does not constitute a ground for deeming the duty of care not present.

However, the third party must have some connection with the bank. The third party is not entitled to rely on the duty of care if he did not have any connection with the bank.[5] However, this limit is not particularly hard because under certain circumstances, the bank must still take into account third parties outside this scope.

Conclusion

The concrete group of third parties who can claim the bank's duty of care has expanded in recent years. With that, the scope of banks' duty of care to third parties has also increased. The bar for assuming a bank's liability for breach of the duty of care is still quite high. It depends on all the facts and circumstances of the case, and a breach will not be assumed lightly. What is clear is that it is also possible for certain third parties to rely on it. As a rule, nearby third parties will have a greater chance of succeeding than distant third parties.

[1] ECLI:NL:HR:2015:2741.

[2] Safe Haven ruling.

[3] ECLI:NL:GHDHA:2018:2417.

[4] ISG/Danstruplund.

[5] Rb. Rotterdam 13 July 2011, JOR 2011/335, r.o. 4.12.