The Bank’s Duty of Care and Fiduciary Duty Towards its Customer

July, 2021 / EKW


In the relationship between the bank and the customer, the former owes a duty of care towards the latter. It was determined that the extent of care imposed on the bank is to take all precautions which a reasonable bank would have taken under the circumstances. And what are these precautions? Well, these depend on the circumstances and are examined according to the specific case.

The question asked is whether the relevant risk, which is examined retrospectively, was a possible risk in terms of the probability of its existence? Would it have been possible to prevent its realization at reasonable costs? Was the damage caused severe damage? Could the bank or the customer have prevented the risk or otherwise distribute it?

On the other hand, one must remember that the bank has another duty, which is the duty to fulfill the customer’s instructions. In this framework, the bank has the duty to honor checks which the customer has withdrawn to the credit of a third party, the duty to fulfill the execution instructions given to the bank by the customer for money transfer and/or other actions, and the duty to not cause him damages by preventing or delaying the execution of the customer’s instructions. Sometimes, it seems, the bank is between a rock and a hard place.

In this column, we will discuss the duty of care and fiduciary duty imposed on the bank with regards to handling a customer who deals in complex financial transactions (financial instruments) and whose account has emptied over time. The question examined in Civil Case 47617-11-15 Ploni vs. Discount Bank Israel Ltd. (published on Nevo 17/05/2020) (hereinafter: “Ploni Judgment”), is a violation of the duty of care towards the customer due to “willful blindness”, ignoring the unusual nature of the actions, the incompetence of the customer as well as a duty to inform the partner in the account.

The legal state

A person’s competence to perform actions is determined in the Law of Legal Competency and Guardianship, where it was provided that any person is competent to perform legal actions, unless this competency was denied or limited by law or by a court ruling. Only with a declaration by the court is a person considered legally incompetent, and so long as the court has not declared so, the person is competent to perform any action, apart from one which was limited by law.

In this case, the bank had no reason to suspect that the customer is not competent to perform transactions vis-à-vis the bank’s transaction room. In the framework of conducting the legal proceeding, it was proven that in the framework of conversations which took place between the bank and its customer, the latter was perceived to be proficient, understanding, knowledgeable and one who provides unequivocal instructions. The fact that that customer was addicted to speculative activity does not attest to a lack of legal competency or lack of personal competency to act, all the more so when such activity is not prohibited by law.

The scope of the duty of care as stated is contingent on the type of activity as well as the type of customer. Whereas, the duty of care imposed on performing an unusual action (in nature and in scope) is not the same as a routine action of a simple execution instruction. Trade in derivative instruments is not examined under the same criteria as the action of redeeming checks. A one-time action is not the same as actions performed during the customer’s regular course of business, noticing the nature of activity of that specific customer.

It was determined that the relationship between a customer and a bank, and sometimes even between a bank and a third party, is a special relationship, resulting from the trust which the public has towards the bank. The latter is perceived as a professional authority, due to the fact that it has in its possession information which is not accessible to the general public. The bank as a financial institute also has special qualifications and technical means which are not accessible to every person. Thus, the bank can sometimes prevent damages from its customers, while the potentially injured party has no similar ability. The fact that the customer is aware of the bank’s qualifications and means, relies on it and greatly trusts it, causes him to not take precautions on his side in order to prevent possible damage, even if he is able to do so[1].

On the matter of Kaholi[2], standards were discussed to determine the scope of the duty of care – such as the type of action discussed, whether it is a routine action by the customer, whether it is an action which must be performed quickly, an action in the framework of the existing relationship with the bank, the customer’s personality, his age and education and the nature of the relationship which has developed between him and the bank. In addition, the reasonable banking custom in cases such as these must also be examined.

There needs to be a distinction between the customer who receives consultation from the bank to purchase/sell securities in a sporadic manner, for which the bank is bound by rules of full disclosure and an extended duty of care, and a case where the customer is acting autonomically, very frequently and makes the decisions with regards to making the transactions by himself, when the bank only provides him with the platform to perform said transactions.

In the case of the Ploni Judgment, in light of the customer and his wife signing the forms, whose content was clarified by the bank representatives, the customer was aware of all the material details in performing the actions in derivative instruments and with regards to the existing risk in making the transactions which are considered mere speculation.

Since the Banking Law (Customer Service) does not condition performing transactions in foreign currency upon any precondition (knowledge, experience and professionalism) prior to giving the customer the permit to perform transactions in foreign currency directly vis-à-vis the transaction room, it is not possible to limit the freedom to perform transactions and damage the autonomy of the individual. The freedom of engagement is one of the fundamental principles in the Israeli social and legal perception. Anyone limiting and minimizing this freedom has the duty to clarify and show the source of the limitation they wish to impose on the freedom of engagement.

With regards to the fiduciary duty, the ruling has provided that it changes from case to case, in accordance with the individual circumstances. The scope of the duty and the level of trust are influenced, inter alia, by the extent of the bank’s involvement in the transaction, the type of the action, the type of the customer and his personality, and the extent of the customer’s reliance on the bank.

It is important to distinguish between the scope of the duty when dealing with investment consultation, and the scope of the duty when dealing with technical execution of order for buying and selling financial products as per instructions given by the customer. In our case, the plaintiff has not received investment consultation services from the bank, and the extent of the bank’s involvement was only in executing the instruction, unlike making the decision of whether to perform the buying/selling of the currency.

Thus, the bank serves as a neutral platform in performing actions and it must act this way so long as no unusual and extraordinary actions are performed, which raise a real suspicion with regards to their propriety or legality. This is because the bank’s involvement in activity conducted in the accounts of its customers damages the customer’s autonomy to manage the account affairs as he sees fit and might expose the bank to liability in torts[3].


In Ploni Judgment, it was ruled that the bank has not violated its duties, be it the contractual duties, the duty of care, the fiduciary duty or the duty of good faith, by not requesting that the customer meet the precondition of professionalism in trading foreign currency in the transaction room, all the more so when the plaintiff has presented himself all along as knowledgeable, professional and proficient.

Remember that the bank is bound by a contract with the customer. In the framework of the contract, the bank receives instructions and performs them in the framework of the service it provides to the customer. The way in which a person manages his account is his own business. A person has a right to spend his family fortune by himself or by a proxy.

A bank performing the instructions of its customers should not have the duty to supervise the manner in which they manage their investments imposed on it, especially when they have already performed similar actions in the past. It is not the bank’s job to check the customer’s actions, and it is not its job to estimate whether the detailed instruction it has received for execution is expected to yield profit or loss. When the debt balance in the customer’s account has not deviated from the credit limit approved for him, and the securities which were provided exceeded the credit sum, it seems that the bank does not have a cause to stop the activity in the account, unless it was regulated, for example, with the agreement system or it is illegal.

[1] Civil Appeal 5893/91 Tefahot Mortgage Bank Israel Ltd. vs. Nathan Sabah (published on Nevo 11/04/1994)

[2] Civil Appeal 636/89 Dr. Avraham Kaholi vs. Barclays Discount Bank Ltd. (published on Nevo 14/04/1991)

[3] Civil Appeal 8068/01 Ayalon Insurance Company Ltd. vs. Administrator of the Late Chaya Opelgar of blessed memory (published on Nevo 04/11/2004)