Lombard Bank has been ordered to pay two account holders $250,000 after a court ruled that the bank had not exercised due diligence when it had permitted a withdrawal of this sum from their account.
Plaintiffs Ali El-Haddar and Saleh Frage Abuaisha had opened a joint account to which they transferred more than $480,000.
In January 2000, when Mr El Haddar went to the bank to withdraw $10,000, he discovered that US$250,000 had been transferred out of this account. According to Mr El Haddar, this transfer had been made on the strength of a fax which allegedly bore his signature. But he told the court that he had never authorised this transfer. He also had no connection with the account to which the funds were transferred.
Lombard Bank confirmed that the transfer had taken place on the strength of a fax received by the bank. It had offered to help the two plaintiffs recover the funds from the bank in Albania where they were transferred to but the Albanian authorities had not been of assistance.
The bank's general manager told the court that when the bank agreed to accept instructions over the phone or by fax it insisted that the client sign an indemnity form. This meant that when the bank accepted instructions by fax, the client would bear the risk of the transaction and exempted the bank from responsibility. If the client refused to sign this indemnity form, the bank would not accept to implement payment orders received by fax.
In his judgement, Mr Justice Joseph Zammit McKeon ruled he was not satisfied that the bank had taken all the necessary precautions to ensure that the instructions it had received by fax were authentic before it implemented the instructions. The bank ought to have sought further confirmation of the instructions from its clients.
It further resulted that following this case the bank had changed its practices and started to carry out further verifications over the telephone.
The court added that it was not satisfied that the bank had adequate measures in place to verify signatures.
A fax indemnity form, said the court, could not exonerate the bank from carrying out proper due diligence. The bank could not, by means of this indemnity form, contract out of its liability towards its clients.
The court concluded its judgment by ordering the bank to refund the two plaintiffs $250,000 with interest from May 2001 which was when the bank was served with the plaintiffs' court case.