When does a bank become liable for the actions of clients who use its accounts as a vehicle for fraud?

This was the question considered in Abou-Rahmah v. Abacha [2006] EWCA Civ 1492 as reported in 9 ITELR.

A victim of fraud made payment into a Nigerian bank account through an English branch which funds were promptly removed from the bank by the fraudsters who disappeared. The victim sought damages against the Nigerian bank by way of a proceeding commenced in England.

Having lost at trial, the Plaintiff appealed, arguing that the bank had knowingly assisted in the fraudster’s breach of trust. The Court of Appeal (Civil Division) dismissed the appeal and, in so doing, comprehensively reviewed the authorities.

In short, a finding that the bank had knowingly assisted in the breach of trust would require a dishonest state of mind such that the bank had knowledge that rendered its participation “contrary to normally acceptable standards of honest conduct.”

Such a state of mind could involve suspicions combined with a conscious decision not to make enquiries. Applied to the case at hand, the Court considered that, although the bank had general suspicions that the account holder who subsequently committed the fraud was possibly involved in money laundering, the bank had no knowledge of any specific act of dishonesty regarding the transactions in question.

Until tomorrow,

David