Opening a bank account is generally in writing resulting thereby into rights and obligations for both the bank and the customer. Given that it is a contractual relationship, the opening of a bank account is governed by the provisions of article 1134 of the Mauritian civil code, which stipulates: «Les conventions légalement formées tiennent lieu de loi à ceux qui les ont faites. Elles ne peuvent être révoquées que de leur consentement mutuel, ou pour les causes que la loi autorise. Elles doivent être exécutées de bonne foi.» The existence of a contract means that there are express and implied terms in the agreement; and duties owed by the customer to the bank.

The relationship is essentially a contractual one although it may take many forms. However, a bank’s liability may be more extensive; it could comprise of a) a contract only; b) a debtor/ creditor relationship; c) contract and tort; and d) contract and trust. The general obligations of the contract are not usually expressed in writing, but are implied. This may seem surprising since the banks deal with very large amounts of money on behalf of their customers. The explanation is that over many decades it has become well understood and established in banking practice that a bank renders certain services and is bound by certain obligations in its relationship with customers.

It is therefore considered unnecessary to express these matters in a long document. When the parties take for granted something, which is essential to the contract between them and normal in practice, it is readily implied that they have tacitly agreed that it should be part of the contract. The essential implied terms of this relationship were stated in the case of Joachimson vs Swiss Bank Corporation [1921] 3 KB 110 and are as follows:

1. The bank undertakes to receive money and collect bills for its customer’s account;

2. The bank borrows the proceeds and undertakes to repay them;

3. The bank will not cease to do business with the customer except upon reasonable notice so that there is time for his outstanding cheques to be presented before the account is closed – the same rule applies to withdrawal of overdraft facilities;

4. The bank is not liable to pay until the customer demands payment from the bank, but it will repay at the customer’s branch during banking hours; and

5. The customer on his part undertakes to exercise reasonable care in executing his written orders so as not to mislead the bank or to facilitate forgery.

Controlling contractual rights in loans

Loan agreements frequently confer unilateral rights on the lender. Borrowers have sometimes invited the Court to find implied restrictions on the exercise of those rights. In Sarnath Constructions Ltd vs Banque des Mascareignes Ltée [2015] SCJ 43, the bank was entitled to cancel any loan agreed upon where the information supplied in connection with the application for the loan was incorrect or misleading and where there was a breach of the term and condition of the loan which was recognised to be material.

However, this discretion is under the scrutiny of the Court. Sometimes, on a proper construction of the agreement, the contract will supply the machinery by which the power is to be exercised (Compass Group UK and Ireland Ltd (t/a Medirest) vs Mid Essex Hospital Services NHS Trust [2013] BLR 265; Brogden vs Investec Bank Plc [2017] IRLR 90.

The Socimer-type of implied terms

The exercise of this discretion is not unregulated (Abu Dhabi National Tanker Co vs Product Star Shipping Ltd (The Product Star) (no 2) (1993) 1 Lloyd’s Rep 397 at p. 404. Perhaps the most well-known type of restriction on the exercise of a contractual discretion is found in Rix LJ’s judgment in Socimer International Bank Ltd vs Standard Bank London Ltd ([2008] Bus LR 1304), wherein his Lordship reviewed the authorities and stated: “It is plain from those authorities that a decisionmaker’s discretion will be limited, as a matter of necessary implication by concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality.”

Bibliography: Paget’s Law of Banking, 15th Edition