Non-contractual banking duty of care
Normally, an extra-contractual duty of care on the part of a bank in the interest of third parties can only exist in special cases. In this case, when opening a bank account, there was insufficient reason for ING to have to understand that there was a serious danger that the account would be used for fraudulent acts that would cause the foundation and/or its debtors to suffer damage. Also while using the bank account, there was no reason to block the account because ING was (or should have been) unaware that the payment transactions on the account were fraudulent.
The facts
What was actually going on? Suppliers sold building materials to a foundation. The foundation resold these building materials and received the purchase price, but did not pay the suppliers of the building materials. Once the sales prices for building materials were paid into the foundation's account, the director withdrew these amounts in cash. Thus, these were thus withdrawn from the foundation's assets.
Due in part to breach of the banking duty of care to the foundation and the joint creditors, the foundation's trustee held ING liable.
For example, the trustee accuses ING of failing to conduct any or sufficient customer due diligence on the foundation when opening the bank account. The foundation had been "dormant" for years when suddenly an application for a bank account was made by a one-member board, even though that board member had been placed under administration and had shortly before been convicted of fraud (according to a cat-catcher in the trustee's view). The foundation operated from a social rented house in the poorest hamlet in the very poorest part of northeastern Groningen and claimed from nowhere that an annual turnover of €500,000.00 to €1,000,000.00 could be generated. In addition, ING should have blocked the account immediately after the first cash withdrawal.
Judgment of the court
- No special duty of care by ING to protect against fraud director
ING consulted the UBO register and the incidents register (EVR) under the Money Laundering and Terrorist Financing (Prevention) Act (W wft) when opening the business bank account. It followed that the director was authorized to represent the foundation. ING was not obliged to additionally consult the Central Register of Curators and Administrators or inquire about the director's criminal past, the court said.
The start-up of commercial activities, the director's home address, nor the expected high turnover did not have to alarm ING or force it to conduct a further client investigation.
The court of appeal put first and foremost that there was no special duty of care on the part of ING to protect the foundation or its creditors against fraud by the director. Furthermore, the facts relied on by the trustee did not imply that ING understood or should have understood when opening the bank account that there was a serious danger that this account would be used for fraudulent acts as a result of which the foundation or its creditors would suffer damage. The court concluded that ING had not acted unlawfully.
- No obligation to block bank account
This is not banking fraud, i.e. using the account contrary to intentions. It is a case of non-bank fraud by an authorized representative of the account holder/foundation who carried out authorized payment transactions (read: withdrew amounts in cash). The court held that there was no evidence that ING was or should have been aware that these payment transactions were fraudulent .
Only in special cases can a specific extra-contractual duty of care be assumed in the interest of third parties. After the cash withdrawals of substantial amounts occurred, ING requested and received further information on a number of occasions. In doing so, the bank verified that the stated business activities were actually being carried out. After consultation with ING, the director finally decided to close the account.
Given this course of events, the court cannot point to an appropriate moment at which the account should have been blocked. Like the court, the court rejected the trustee's claims.
Conclusion
ING performed the required customer due diligence at the start of the credit relationship. It did not have to investigate other possible circumstances on its own initiative, as there was no reason to do so at the start of the relationship. The duty to investigate when entering into a credit relationship is limited by the statutory framework and not also by a duty of care towards third parties.
Even during the relationship between bank and customer, ING fulfilled its duty of investigation by asking timely questions in response to the significant cash withdrawals. In retrospect, there was no time when it should have blocked the foundation's bank account for cash withdrawals.
The rule of law that seems to flow from this is that a bank' s duty of care does not extend so far as to require it to protect third parties from fraudulent use of a bank account in a situation such as this, when the bank has fulfilled its duty of inquiry about the customer and about the significant cash withdrawals.
