Note: MAP and Associates Ltd. (Customer), an accounting firm for the shareholders, opened an account in its name with Westpac New Zealand Ltd. (Bank) and deposited approximately US$ 50,000,000, the proceeds of the sale of the shares, in an escrow account later to be distributed to shareholders of a Bolivian bank. Customer gave Bank two sealed envelopes with instructions on how to transfer the money. These envelopes were not to be opened by Bank until told to do so by Customer. When Customer told Bank to release the funds, Bank refused to comply with the request, suspecting that the parties to receive funds from Customer's account were not the Bolivian bank's shareholders. Bank believed it could be "dishonestly assisting in the commission of a breach of trust" and could later be held liable if it did release the funds.

Thereafter, Customer sued Bank for breaching its contract to make the appropriate transfers. The High Court found that Bank was required to follow Customer's instructions to make the payments and awarded Customer costs plus interest. On appeal, the Court of Appeal affirmed, but changed the date from which interest was due the Customer for Bank's inaction would be calculated.

The Court considered whether Bank needed actual proof that wrongdoing would result by following Customer's instructions to distribute the funds. Bank asserted that its transaction with Customer differed from routine practices associated with LCs, in which a bank is obligated to pay unless there is evidence of fraud. Bank argued that using this standard would promote wrongdoing even if a bank suspected misbehavior, since it would be required to complete the transaction anyway. Customer argued that allowing a bank to breach contracts simply on a suspicion that there have been transgressions would undermine the strength of commercial contracts.

The Supreme Court of New Zealand, in an opinion by Tipping, J., ruled that Bank did not sufficiently demonstrate that acting upon Customer's instructions would necessarily result in dishonesty or fraud. The Court also noted that Bank did not try to discover whether following the instructions would have resulting in liability on its part. Consequently, the appeal was dismissed.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.