In Common Law (Australia): When The Lender is Allowed to Breach Its Duty of Secrecy?
The rule of confidentiality is an old term that can be
found in the history of lending transactions, and some commentators have suggested
that reserving borrower information began more than four thousands year ago
during the Babylon period.[1]In
common law countries, the privacy law is derived from common law and equity. In
fact, the duty to uphold secrecy is usually implied in contracts between
creditors and their customers, otherwise the duty is imposed by equitable
obligations of fair treating and good conscience.[2]
Moreover, Jeremy Birch suggests that information related to financial
transactions is similar to property and that the law of property should apply to
this kind of data.[3]
In Foster v the
Bank of London, Erle CJ asserted that the bank, as a third party, could only
receive the information “insufficient assets” about its customer.[4]
Thus, the confidentiality obligation is a strict right for debtors and the
bank’s customers and cannot be breached. However, it appears that the duty of secrecy
duty does not apply in certain circumstances, which was established in Hardy v Veasey by the jury’s verdict which
was in the defendant’s (the bank) favour.[5]
The defendant was found not guilty of informing a third party (the money-lender)
about the plaintiff’s sufficiency to assist him in that situation.[6]
At this stage, the limit and definition of confidentiality was not clear in the
lender-borrower relationship.
Nevertheless, in Tournier
v National Provincial and Union Bank of England, where the defendant’s bank
manager disclosed to the plaintiff’s employer about his employee’s overdraft,
the claimant, Bankes LJ mentioned four situations where the secrecy duty does
not apply, which are:
(a)
where
disclosure is under the compulsion of law
(b)
where
there is a duty to the public to disclose
(c)
where
the interests of the bank require disclosure
As a result,
a lender is liable to the borrower to keep their obtained information private, because
of the contractual relationship.[8]
However, this confidentially obligation is waived in the four conditions that Bankes
LJ mentioned above: under law enforcement, for public obligation, in the bank’s
interest and via customer endorsement. Finally, it should be noted that the
duty of confidentiality is not limited to banks but it extends to other financial
institutions, such as credit unions.[9]
In
fact, it was suggested in Australia in the case of Tourneir v National Provincial and Union Bank of England, that this
obligation should be limited to banks;
therefore, other financial institutions are excluded.[10] Nevertheless, the court’s decision in Bodnar v Townsend, where the respondent
claimed to have considered the credit union’s testimony against the defendants
in the evidence of the ongoing trail, was to reject the idea of restraint the
secrecy duty upon banks by confirming the comprehensiveness of the confidential
obligation. This would mean applying the exceptions upon non-bank entities by accepting
the defendant’s statement about the similarity of the service provided by the credit
union and Australian banks.[11]
As a result, the Australian Code of Banking Practice contains the four
exemptions indicated in Tourneir v
National Provincial and the Union Bank of England.[12]
[1] James O’Donovan, Lender Liability (LBC Information
Services, 2000) 80.
[2] Ibid 81.
[3] Jeremy Birch, ‘Breach
of Confidence: Dividing the Cause of Action Along Proprietary Lines’ (2007) 81 Australian
Law Journals 338.
[8] O’Donovan, above n ,
85.
[10] Michael Kirby (ed) et
al, The Laws of Australia (Lawbook,
2000) 124.
[11] [2003] TASSC 148, 6.
[12] (1924) 1 KB 461.
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