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28 Oct 2019

Banks may have their customers' trust, but they do not hold their money as trustees


First City Monument Bank Plc v Zumax Nigeria Ltd [2019] EWCA Civ 294 (01 March 2019)

In this helpful Court of Appeal decision, it was confirmed that no relationship of trust is created by an international money transfer between bank accounts, executed by a clearing system or correspondent bank.

The following principles were highlighted:

  • Only in exceptional circumstances will a banking customer be able to establish that a bank holds funds under an express or ‘Quistclose’ trust;
  • The basic banker-customer relationship is that of debtor and creditor, not trustee and beneficiary; and
  • In this case, the Court construed the execution of the customer’s payment through a correspondent bank (and the associated steps) as standard 'bookkeeping' rather than an express segregation of funds.

Stephenson Harwood comment

This reversal of the High Court’s decision is a useful decision for banks and re-states previous case law on the basic banker-customer relationship.

If a trust had been held to have been created in the present case then it was difficult to see why it was not created in almost every other international funds transfer case involving correspondent banks, or indeed every bank transfer involving a bank-to-bank stage coupled with some sort of transfer instruction identifying the ultimate recipient.


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