Banking Case Law - Breach of Confidence by a Bank – A Closer Look at Quantum
This English law decision not only serves as a timely reminder of a bank’s duty of confidentiality to its clients but is potentially worrying as the case confirms loss of opportunity to earn future profits as a recoverable head of damage following breach of confidence. Jackson v Royal Bank of Scotland (2005) UKHL3,  A ER(d)280 Facts: Jackson (trading under the name Sampson Lancastrian (Sampson)) had entered into a contract to supply dog chews to another UK entity, Economy Bag. The chews were imported from Thailand and payment was to be made by transferable letter of credit. The letter of credit was opened with Royal Bank of Scotland (Bank) on the instructions of Economy Bag with Sampson named as beneficiary of the credit. The price was to be paid on the transfer of insurance documents packing list and the invoice issued by Sampson which included their mark up on the goods imported from Thailand. Economy Bag was aware of the identity of the Thai producer but did not know the extent of Sampson’s mark up. Business continued between Sampson and Economy Bag for a number of years with a different mark up on each transaction depending on the variety of items sold. About 3 years into the contractual arrangements between Sampson and Economy Bag the Bank inadvertently sent the invoice from the Thai supplier to Economy Bag rather than to Sampson. This invoice revealed a 19% mark up for Sampson. Consequently, Economy Bag withdrew its business, as a result of which Sampson ceased to trade. Sampson commenced proceedings against the Bank claiming that the Bank had breached its duty of confidence to Sampson. It was held at first instance that the Bank had indeed breached its duty of confidentiality and the Court held that Sampson was entitled to damages for loss of opportunity to earn profits over the remaining 4 years of the contract, awarding damages on a decreasing scale over 4 years. On appeal, the Court of Appeal agreed that the Bank was in breach of its duty of confidence but held that the quantum awarded at first instance was erroneous and amended the award so that damages were awarded for loss of profit for 1 year only, the Court considering that all other loss was too remote and was not reasonably foreseeable by the Bank. Sampson appealed this decision. Held: The House of Lords held that the Court of Appeal was wrong to limit the Bank’s liability to 1 years worth of profit and that the original quantum of damages awarded at first instance was more appropriate. The House of Lords noted that there was no specific undertaking from the Bank contained in the letter of credit but recognised that a duty arose notwithstanding and did not limit the liability of the Bank. The Lordships rejected Economy Bag’s submission that as Economy Bag knew the name of the Thai supplier and was free to find out the level of mark up available to Sampson from that source, the bank was released from its duty of confidentiality. In considering the quantification of damages, the House of Lords held that one had to assess what was in the Bank’s reasonable contemplation as being a consequence of any breach of confidentiality at the time the contract was made and so rejected the Court of Appeal conclusion that the Banks reasonable contemplation introduced a cut off period beyond which the Bank was not liable.
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