Bank of Baroda v Mahomed
| Jurisdiction | England & Wales |
| Judge | Simon Brown,Mummery,Mantell L JJ. |
| Judgment Date | 16 November 1998 |
| Date | 16 November 1998 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Simon Brown, Mummery and Mantell L JJ.
John Cherryman QC and Howard Smith (instructed by Balsara & Co) for the appellant.
Matthew Collings (instructed by Hobson Audley Hopkins & Wood) for the respondent.
The following cases were referred to in the judgments:
Bank of Credit & Commerce International SA, Re (No. 8); Morris v Rayner Enterprises IncELR[1998] AC 214; [1997] BCC 965.
Jackson v OggENR(1859) Johns 397; 70 ER 476.
Joachimson v Swiss Bank CorpELR[1921] 3 KB 110.
Surrendra Overseas Ltd v Government of Sri LankaWLR[1977] 1 WLR 565.
Webb v StentonELR(1883) 11 QBD 518.
Banking Limitation Whether customer's demand for payment from bank started time running again Whether bank's letter constituted acknowledgment of claim Whether crediting interest to account constituted making of payment in respect of claim Limitation Act 1980, s. 6, 29(5), 29(6).
A bank appealed against decisions that the respondent's deposit with the bank was not security for the debts of a company to the bank and that the respondent's claim for repayment of the deposit was not time-barred.
Manlon Trading Ltd was indebted to the bank on its account in respect of advances under a Nigerian and a Benin bill. The respondent made a deposit with the bank and agreed that the deposit should be security for Manlon's indebtedness. In November 1987 Manlon told the bank that it was virtually impossible for it to repay the advances on the bills and proposed to the bank that the Benin bill should be replaced by a Nigerian promissory note and that in that way Manlon's liability to the bank would be settled. The bank accepted the promissory note. In 1988 Manlon was wound up. In 1989 the respondent sought return of his deposit from the bank and closure of the account. The bank refused claiming that the deposit remained security for the facilities granted to Manlon. The respondent made a further demand in 1990. In June 1992 the bank wrote to the respondent proposing a basis on which the bank would release its charge over the deposit but nothing came of that and in 1995 the respondent issued a writ. Harman J held that the bank's acceptance of the Nigerian promissory note settled Manlon's liability under both bills, but ordered a trial of preliminary issues on a limitation defence put forward by the bank. The deputy judge held that the respondent's 1990 demand set time running again so that the writ was not out of time. The bank's letter of June 1992 did not constitute an acknowledgment of the claim within s. 29(5) of the Limitation Act 1980 but the bank, by crediting interest to the account even after the demands had been refused, was making payments in respect of the claim within s. 29(5) and (6) of the 1980 Act thereby extending time. The bank appealed against both decisions and the respondent cross-appealed on the acknowledgment point.
Helddismissing the appeals:
1. Harman J was right that the 1987 settlement extinguished the whole of Manlon's indebtedness to the bank and not just part of it. Manlon's offer was a single package which the bank accepted as a whole. Manlon had only one account with the bank and the proposal was an overall proposal referring to its global indebtedness on the single account.
2. (Per Mummery and Mantell L JJ) The respondent's deposit account was governed by a contract between him and the bank and after the first demand the bank did not close the account or take steps to enforce its security. The terms of the contract governing the account remained in force and did not preclude the making of a fresh demand. There was thus no legal fetter on the respondent's right to make a further demand giving rise to a new cause of action. (Per Simon Brown LJ) The deputy judge's decision that the 1990 demand started time running again could be supported on the ground he adopted that the bank continued to operate the account actively after the original request for repayment and closure. The account in effect started afresh and the respondent was entitled to make a fresh demand (impliedly withdrawing the earlier demand) giving rise to a new cause of action.
3. The bank's letter of 1992 was an acknowledgment of the respondent's claim within s. 29(5). The bank's assertion of a charge over the deposit carried with it the acknowledgment of a debt. While the charge subsisted the debt was not repayable but the bank was not denying the debt only its present liability to repay it (Surrendra Overseas Ltd v Government of Sri LankaWLR[1977] 1 WLR 565 distinguished; Re Bank of Credit and Commerce International SA (No. 8); Morris v Rayner Enterprises IncUNK[1997] BCC 965; [1998] AC 214 considered.)
4. The crediting of interest to the account did not constitute the making of payments under s. 29(5) and (6). The entry of interest in the bank's books as due was not a payment. The holding of the credit balance itself did not constitute an acknowledgment or payment nor did an entry which merely increased that balance. The account merely recorded the extent of the bank's debt, not its payment. (Jackson v OggENR(1859) Johns 397 applied.)
Simon Brown LJ: Before the court are two consolidated appeals, each brought by the defendant bank with the leave of the judge below. Both arise in an action for moneys standing to the plaintiff's credit on a US dollar term deposit account maintained with the defendants. Two defences were raised to the claim: first, that the deposit was security for the continuing indebtedness to the bank of a company called Manlon Trading Ltd (Manlon); secondly, that the claim was time-barred under the Limitation Act 1980. Both defences have been held to fail.
The first appeal is against the order of Harman J made on 29 November 1996 in O. 14 proceedings refusing the defendants leave to defend in relation to their defence of security, on the basis that Manlon's liability to the defendants had been discharged in 1987. The second appeal is against the order of Mr Michael Burton QC sitting as a deputy judge of the High Court on 8 July 1997 rejecting the Limitation Act defence and ordering payment of the sum claimed, amounting at that date to some US$330,000.
With that brief introduction let me flesh out the relevant facts as shortly as may be. The account was opened in 1979. By 1987 (perhaps well before) it had been agreed that the contents of the term deposit were, without specific instructions, to be rolled over each month for a further monthly fixture together with the interest credited to the account at monthly rests. By memorandum of agreement between the parties dated 21 August 1994 the plaintiff agreed that the balance of the deposit together with all sums accruing should be;
a continuing security for all moneys and liabilitiesdue or owing to the Bankby the Principal [Manlon]
and that:
So long as the Principal remains under any obligation or liabilityto the Bankthe depositor shall not be entitled, except with the prior consent in writing of the Bank, to withdraw the whole or any part of the deposit.
Such liability on the part of the principal arose in respect of two bills, one a Nigerian bill and the other a Benin bill, the latter being later replaced by a Nigerian promissorynote. Whether, as Harman J held, that liability was discharged in 1987 depends upon the true construction of a letter from Manlon to the defendants dated 5 November 1987 and this I must set out in full (adding paragraph numbers for convenience):
[1] Further to our meeting on 2nd November I confirm that in view of the severe financial difficulties it is virtually impossible for us to repay your advances on Benin and Nigeria and I have explained to you the background of the circumstances.
[2] I therefore, in accordance with my suggestion, enclose herewith a Promissory Note No. RB 12349 issued on 4/07/87 for US$601,552 for which there is going to be an interest payable in excess of 40% of the value which is to be capitalised and you will be receiving the note covering this interest amounting to about $240,400.
[3] I propose this Note be accepted as settlement for our outstandings on Benin.
[4] As for our Bill due from Nigeria here the debt has been matched amounting to US$180,000 for which you will be receiving payment in instalments from Export Credits Guarantee Dept. We do not intend lodging a claim as documentations are incomplete. Here again you can expect interest of 40%, as no previous interest has been paid.
[5] After taking into account the above Note and proposed payment in instalments from ECGD, we anticipate that you should eventually get full settlement of your outstanding on us, which we humbly request that you agree to.
[6] In the past we have paid you on the above outstanding interest of about $130,000 and have also repaid you principal amount of about 20,000.
[7] We have had an account with your Bank for a considerable period and we are embarrassed to give you this proposal but circumstances do not permit us to do anything better.
[8] We hope that you will put this proposal to your Head Office and discharge us from our liabilities to your Bank.
It is common ground that upon receipt of that letter the bank duly effected the transfer of the Nigerian promissory note into their own name in the books kept by the Chase Manhattan Bank. The issue arising was whether (as the bank maintain) only the Benin liability was thereby settled or (as Manlon and the plaintiff maintain and as Harman J held) the letter contained a single and indivisible offer which could only be accepted as a whole.
On 8 June 1988 Manlon were wound up.
The plaintiff's first demand for payment of the sum standing to his credit at the bank was made by letter to the defendants dated 8 July 1989 in these terms:
US$ Account No. 264474-100
The above account be closed on the next maturity which is 17 July 1989 and the entire balance be remitted to me by means of a banker's draftI look forward to receive the banker's draft.
The bank...
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