Libyan Arab Foreign Bank v Bankers Trust Company

JurisdictionEngland & Wales
Judgment Date1988
Date1988
Year1988
CourtQueen's Bench Division
[QUEEN'S BENCH DIVISION] LIBYAN ARAB FOREIGN BANK v. BANKERS TRUST CO. [1986 L. No. 1567 and 1986 L. No. 4048] 1987 June 8, 9, 15, 17, 18, 22, 23, 24, 25, 29, 30; July 1, 2, 6, 7, 8, 9, 13, 14, 15; Sept. 2 Staughton J.

Conflict of Laws - Contract - Proper law - London branch of U.S. bank - Account held by Libyans - All Libyan assets under U.S. control frozen by order of President - Libyans demanding balance of London account - Whether bank obliged to pay - Whether payment possible without illegal activity in U.S. - Whether contract frustrated - Banking - Duty to customer - Demand for payment - Libyan customer of American bank - Bank daily transferring dollars between customer's accounts with New York and London branches - Presidential order freezing Libyan assets - Whether customer entitled to payment of dollars by London branch

The plaintiffs, a Libyan bank, had a call account with the London branch of the defendants, an American bank. They also had a demand account with the defendants' New York branch. The arrangement was that the plaintiffs maintained a peg balance of U.S.$500,000 in the New York account. Each morning, in the light of the balance of the New York account at the end of the previous day's trading, funds were transferred to or from London so that the peg balance was maintained. At 2 p.m. each day the balance of the New York account was again determined and similar transfers made between the two accounts. At 2 p.m. on 7 January 1986 a sum of U.S.$165.2m. was available for transfer to London and at 2 p.m. on 8 January there was a sum of U.S.$161.4m. available. Neither sum was transferred. At 4 p.m. on 8 January 1986 the President of the United States of America signed an executive order freezing all Libyan property in the United States or in the possession or control of United States persons including overseas branches of United States persons. The plaintiffs demanded payment of U.S.$131m., the balance standing to the credit of the London account at the close of business on 8 January 1986 and a further U.S.$161m. on the basis that that sum should have been transferred from the New York to the London account on 8 January. Payment was demanded by banker's draft, in cash or by any other commercially recognised method of transferring funds. The defendants refused to pay contending that it would be impossible for them to make any payment to the plaintiffs without committing an illegal act in the United States. The plaintiffs commenced proceedings, claiming the sums in debt or damages or, alternatively, on the ground that the contract had been frustrated: —

Held, giving judgment for the plaintiffs, (1) that the defendants would be excused from complying with the plaintiffs' demands for payment if the payment was illegal by the proper law of the contract or it involved doing an act which was unlawful in the place in which it was to be performed; that there was only one contract between the parties in respect of the New York and London branches of the defendants but the contract was governed by both English and New York law; and that, applying the general rule that the contract between a bank and its customer was governed by the law of the place where the account was kept, the rights and obligations of the parties in respect of the London account were governed by English law (post, pp. 328E, 329F, 332A, H).

Toprak Mahsulleri Ofisi v. Finagrain Compagnie Commercial Agricole et Financiere S.A. [1979] 2 Lloyd's Rep. 98, C.A. applied.

(2) That the plaintiffs had to show that they had made a demand for payment with which the defendants were obliged to comply; that, in respect of their credit balances with the London branch the plaintiffs had a personal right to demand cash or an account transfer; that since by making a demand for payment, the plaintiffs had exercised their right unilaterally to determine the management account arrangement, it was no longer a term of the contract that all transactions should pass through New York; that no such term could be implied from the usage of the international market in Eurodollars; and that, therefore, the London branch had obligations to make transfers from that account on the instructions of the plaintiffs which did not involve infringement of United States law in the United States (post, pp. 333F–G, 334F–G, 340B–E, H–341B, C–E, 343F).

(3) That, although the plaintiffs demanded a banker's draft on the defendants' London office, a draft for the sums demanded would not have been eligible in the circumstances for London dollar clearing and, therefore, the defendants were not obliged to comply with the demand for a banker's draft; but that a demand for cash was an assertion of a customer's fundamental right and delivery by the defendants of cash in London of the sums claimed would not have involved illegal action in New York; and that, therefore, since the plaintiffs had made a demand for cash, they were entitled to receive payment in dollars or, if payment in dollars was impossible, in sterling and, accordingly, the defendants were liable to the plaintiffs for breach of their obligation to provide cash on the plaintiffs' demand (post, pp. 330D–F, 346B–D, 347F–G, 349D–F, G–350C).

In re Lines Brothers Ltd. [1983] Ch. 1, C.A. applied.

(4) That the defendants were in breach of contract in failing to transfer U.S.$165.2m. to the London account at 2 p.m. on 7 January and in not transferring U.S.$161.4m. to London at 2 p.m. on 8 January as a result of which there had been a net loss to the London account of U.S.$161.4m.; that, but for the breaches of contract that sum would have been recoverable by the plaintiffs from the London account; and that therefore, the plaintiffs were entitled to recover a further U.S.$161.4m. (post, p. 352D–F).

(5) That the effect of the Presidential order was to suspend the defendants' contractual obligation; that the parties had not been altogether discharged from further performance of the contract; and that, accordingly, the contract had not been frustrated (post p. 355A–E).

Arab Bank Ltd. v. Barclays Bank (Dominion, Colonial & Overseas) [1954] A.C. 495, H.L.(E.) applied.

The following cases are referred to in the judgment:

Arab Bank Ltd. v. Barclays Bank (Dominion, Colonial and Overseas) [1953] 2 Q.B. 527; [1953] 3 W.L.R. 67; [1953] 2 All E.R. 263, C.A. [1954] A.C. 495; [1954] 2 W.L.R. 1022; [1954] 2 All E.R. 226, H.L.(E.)

Barclays Bank International Ltd. v. Levin Brothers (Bradford) Ltd. [1977] Q.B. 270; [1976] 3 W.L.R. 852; [1976] 3 All E.R. 900

Brimnes, The [1975] Q.B. 929; [1974] 3 W.L.R. 613; [1974] 3 All E.R. 88, C.A.

Drexel Burnham Lambert International N.V. v. El Nasr [1986] 1 Lloyd's Rep. 356.

Euro-Diam Ltd. v. Bathurst [1987] 2 W.L.R. 1368; [1987] 2 All E.R. 113

Foley v. Hill (1848) 2 H.L.Cas. 28, H.L.(E.)

Foster v. Driscoll [1929] 1 K.B. 470, C.A.

General Reinsurance Corporation v. Forsakringsaktiebolaget Fennia Patria [1983] Q.B. 856; [1983] 3 W.L.R. 318, C.A.

Joachimson, N. (A Firm Name) v. Swiss Bank Corporation [1921] 3 K.B. 110, C.A.

Lines Bros. Ltd., In re [1983] Ch. 1; [1982] 2 W.L.R. 1010; [1982] 2 All E.R. 183, C.A.

Mackinnon v. Donaldson, Lufkin & Jenrette Securities Corporation [1986] Ch. 482; [1986] 2 W.L.R. 453; [1986] 1 All E.R. 653

Mardorf Peach & Co. v. Attica Sea Carriers Corporation of Liberia [1976] Q.B. 835; [1976] 2 W.L.R. 668; [1976] 2 All E.R. 249, C.A.; [1977] A.C. 850; [1977] 2 W.L.R. 286; [1977] 1 All E.R. 545, H.L.(E.)

Miliangos v. George Frank (Textiles) Ltd. [1976] A.C. 443; [1975] 3 W.L.R. 758; [1975] 3 All E.R. 801, H.L.(E.)

Momm v. Barclays Bank International Ltd. [1977] Q.B. 790; [1977] 2 W.L.R. 407; [1976] 3 All E.R. 588

Ralli Brothers v. Compania Naviera Sota y Aznar [1920] 2 K.B. 287, C.A.

Reardon Smith Line Ltd. v. Ministry of Agriculture, Fisheries and Food [1963] A.C. 691; [1963] 2 W.L.R. 439; [1963] 1 All E.R. 545, H.L.(E.)

Regazzoni v. K.C. Sethia (1944) Ltd. [1958] A.C. 301; [1957] 3 W.L.R. 752; [1957] 3 All E.R. 286, H.L.(E.)

Reg. v. Grossman (1981) 73 Cr.App.R. 302, C.A.

Richardson v. Richardson [1927] P. 228

Toprak Mahsulleri Ofisi v. Finagrain Compagnie Commerciale Agricole et Financiere S.A. [1979] 2 Lloyd's Rep. 98, Robert Goff J. and C.A.

Tournier v. National Provincial and Union Bank of England [1924] 1 K.B. 461

Veflings (George) Rederi A/S v. President of India [1979] 1 W.L.R. 59; [1979] 1 All E.R. 380, C.A.

Wells Fargo Asia Ltd. v. Citibank N.A. (1985) 612 F. Supp. 351

Whitworth Street Estates (Manchester) Ltd. v. James Miller & Partners Ltd. [1970] A.C. 583; [1970] 2 W.L.R. 728; [1970] 1 All E.R. 796, H.L.(E.)

X A.G. v. A bank [1983] 2 All E.R. 464

No additional cases were cited in argument.

ACTION

By a writ and statement of claim dated 13 May 1986 the plaintiffs, Libyan Arab Foreign Bank, claimed against the defendants, Bankers Trust Co., for recovery of certain sums held on account with the defendants. Demand was made for payment by bankers draft or in cash. By a writ and statement of claim dated 31 December 1986 the plaintiffs claimed payment of the same sums by any commercially recognised method of transferring funds. On 21 January 1987 the two actions were consolidated and were subsequently amended. The claims were (1) a claim in debt or damages for approximately U.S.$131.5m. the balance standing to the credit of an account held at the defendants' London branch; (2) a sum of U.S.$165.2m. or U.S.$6.7m. or U.S.$161.4m. being sums which were not transferred by the defendants from a New York account to the London account at 2 p.m. on 7 or 8 January in breach of the agreement between the parties; (3) damages of U.S.$ 226.1m. arising from a number of payment instructions which, in breach of contract, were not executed by the defendants prior to 4.10 p.m. on 8 January 1986. The pleadings were subsequently amended to include claims that (4) the defendants were in breach of duty of confidence in disclosing information to the Federal Reserve Bank of...

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