Preston Russell Law - Legal Services for Southern People

The Perils of Joint Bank Accounts

by Miriam Sinclair, senior solicito category Commercial Law

It is relatively common for people to have a joint bank account, for example some may be married or in de facto relationships. Often both partners are expressly stated to have signing rights independently of each other. If this is the situation, the bank is required to pay on behalf of the account when it is demanded to, having one or both partners authority. This is an everyday event that usually occurs with no ill effects.

However, a case recently in Scotland (Fielding v Royal Bank of Scotland [2004] EWCA 64) has demonstrated that opening joint bank accounts may result in a situation that many couples did not or do not contemplate when they decide to open such an account. They may be placing themselves in a situation that they may not have considered could occur with such an arrangement.
In the case above, the married couple had a bank account and when it was set up they authorized the bank to pay if either one of them signed the order, which as stated is relatively common.

They later set an overdraft limit (with the consent of both partners) of 200,000 pounds.

Nevertheless, despite this limit, the bank account eventually ended up millions of pounds in overdraft and the bank began action to recover this. The husband had withdrawn this money and his wife did not believe action was able to be taken against her to recover money that had not been used by her or on and it had been used without her authority. She also argued against action being taken over the limit that had been set by both partners.

However the court found that she was liable for this money and it was not an issue that the bank had continued to honour payments that were over the partners’ agreed overdraft limit.

The court ruled that the bank was within its rights, as the mandate that the couple had signed, to meet the cheques that were written only by the husband and this meant both partners were liable to pay off the overdraft.

One partner was able to increase the overdraft limit that had been set by continuing to draw money from the account.

This has significance for New Zealand, as it is a common occurrence here for partners to sign such mandates allowing one partner to authorise the bank to act over a joint account.

It is likely that if the same situation happened here, a similar result to the situation in Scotland would occur.

This demonstrates that opening and acting over joint bank accounts needs to be carefully considered and before opening such an account, partners may need to weigh up the risks.