The First Hall of the Civil Court, presided over by Mr Justice Joseph R. Micallef, on June 26, in the case ‘Kevin Dingli on behalf of Ammar Shammout v Lombard Bank plc’ held, among other things, that the bank was liable to pay damages for permitting the withdrawal of funds in violation of its contractual obligations. A mandatary was obliged to perform the mandate and if he failed to perform, he was liable to damages and interest.

The facts in this case were as follows:

Ammar Shammout filed legal proceedings against Lombard Bank requesting the court (i) to declare that the bank violated its mandate by allowing the withdrawal of $86,545 from a joint account in the names of Naser Elfitouri Elghawi and Ammar A. F. Shammout personally, without the signature of both signatories, and that it did so abusively, in violation of the law and the provisions of mandate, and without justification, to the prejudice of Shammout, and (ii) to condemn the bank, within a short time, to restore into the account $86,545 with legal interests.

The bank in reply contested the legal proceedings. It requested the other signatory on the joint account, Elghawi to be joined in the proceedings and claimed that Shammout lacked legal interest to file this lawsuit.

On October 15, 2001, the court refused to join Elghawi into the proceedings.

The court considered that this lawsuit was based on the basis of a breach of mandate. Shammout opened a joint account at Lombard Bank with Elghawi on March 6, 1998. According to instructions given to the bank, both signatories had conferred authority to each other, to withdraw up to $5,000 every three months. If the amount exceeded $5,000, the signature of both account holders was required.

It resulted that the holders of the account acted for two companies which were in a joint venture arrangement: Yamana International Couriers Ltd was represented by Elghawi and Aramax International Ltd by Shammout. The Lombard Bank account was used for purposes of the joint venture between Aramax and Yamana.

After March 2000, Shammout ceased to work for Aramax International. It so happened that between June 1, 1999, and August 13, 1999, Elghawi requested Lombard to withdraw funds from this account ($86,545) in writing.

Shammout asked Lombard for clarification and to restore the amount withdrawn without the instructions of both signatories.

Legal interest of Shammout: the court said that this plea could be raised at any stage of the proceedings. Legal interest of plaintiff had to exist throughout the suit. It could not be hypothetical.

The bank raised this plea as Shammout was no longer an employee of Aramex International and that the funds in their Lombard account belonged to the company in its joint venture dealings with Yamana Express.

The court, however, noted that as the account was opened by two physical persons, their relations with third parties was of no concern to the bank. There was no doubt that when the account was opened, Shammout had every interest/rights in the operation of this account.

His legal interest continued to exist until the closure of the account. There was no proof that this account was not closed nor was it shown that after March 1998 the instructions to the bank had been changed, pointed out the court.

It could not be stated that Shammout had no legal interest. Shammout still had legal interest after the termination of his employment with Aramax International. He had interest in the operation of the account; nor could it be said that his interest was academic. The court said that his interest was actual as he was still a signatory on the account and dismissed the bank’s plea that Shammout lacked legal interest.

The court had no doubt that the legal relations between Shammout and Lombard Bank was contractual; though it was now accepted that the legal relations between the banker and his client was that of debtor and creditor, as well as of mandatary and mandator.

In addition, when a bank account was opened, the provisions relating to deposit also applied. It was also accepted that the duty of confidentiality between the bank and his client was similar to the duty of good faith which the law imposed on a mandatary.

The court said that a joint bank account gave rise to particular legal effects, owing to the nature of the account vis-à-vis the bank and the account holder. In Law on Banking by Lord Chorley, it is stated:

“According to the view which seems to meet with the most favour, such an account is both joint and several. Thus, while the signatures of both parties are required in any action taken with regard to the account, such as the drawing of cheques, if one of these signatures is forged, or added without authorisation, and the banker acts as if he had in fact held the order of both the parties to the account, he will be liable to the party who did not in fact sign, for breach of his obligation to him not to act without his signature.”

In the court’s opinion, this applied to this case as the account holders had given the bank specific instructions on how this account had to be operated.

The amounts which were withdrawn by Elghawi between June and August 1999 required the signature of both signatories. This was not done and Elghawi was permitted to withdraw funds by the bank in excess of the limits

A mandatory was obliged to perform the mandate and if he failed to perform, he was liable to damages and interest. He was responsible not just for dolo but also for negligence. There were sanctions imposed by law on a person who failed to perform his obligations.

The court noted that in the circumstances the bank was given a mandate on how the account had to be operated. The bank had accepted the mandate and the instructions were not changed.

It resulted that the amounts which were withdrawn by Elghawi between June and August 1999 required the signature of both signatories. This was not done and Elghawi was permitted to withdraw funds by the bank in excess of the limits. In this respect, the court said that the withdrawal was in breach of the express mandate granted to the bank.

The bank was obliged to request the signatures of both, if the amounts were in excess of $5,000. When the bank accepted the mandate, it was obliged to operate the account, in the manner as instructed.

The bank was not justified to plead that the ‘old’ account was operated differently; nor that the funds were deposited in error in this account nor that the funds ultimately belonged to third party companies. It had no right to permit one signatory to withdraw funds to the prejudice of the other signatory. One mistake was not rectified by another mistake.

The bank was bound by the mandate and the withdrawal by Elghawi was contrary to the mandate.

For these reasons, the First Hall of the Civil Court on June 26, declared that Lombard Bank had violated its contractual obligations and was liable to pay damages. The bank should not have accepted the withdrawal without the consent of both signatories.

It dismissed the bank’s pleas of defence. It said that Shammout had legal interest to file this lawsuit. The bank failed to observe the mandate by allowing one signatory to withdraw sums inbreach of the mandate, without any good reason.

The court ordered the bank to restore into the account $86,545 within 10 days, with interests from the date of the withdrawal of such funds up to the date of the reintegration of the account.

Dr Karl Grech Orr is a partner at Ganado Advocates.