The Supreme Court case of Westpac New Zealand Limited v MAP & Associates Limited held that there is only one basis on which a bank can defend itself against a claim for breach of mandate.  That is, if the bank could establish that it would have incurred liability for dishonestly assisting in a breach of trust (or other wrongful conduct) by acting on its customer's instructions.  A suspicion or belief that it would have incurred liability, even on reasonable grounds, is not a sufficient defence.

This decision was based on both policy grounds and authority.  The Court found that policy meant the bank must bear any loss occasioned by declining to act on its customer's instructions, given that no liability would actually have attached to the bank for doing so.  Furthermore, this area of the law had been regarded as settled since 1868, when an English House of Lords decision ruled that, in the first instance, banks should ordinarily honour their customers' instructions, and that only very limited exceptions from this rule were appropriate.

See Court decision here.