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MS Fashions Ltd v Bank of Credit and Commerce International SA

Weekly Law Reports The Times Law Reports Cited authorities 10 Cited in 31 Precedent Map Related
Vincent
JurisdictionEngland & Wales
Judgment Date27 November 1992
Date27 November 1992
CourtChancery Division
[COURT OF APPEAL] M.S. FASHIONS LTD. AND OTHERS v. BANK OF CREDIT AND COMMERCE INTERNATIONAL S.A. (IN LIQUIDATION) AND OTHERS HIGH STREET SERVICES LTD. AND OTHERS v. BANK OF CREDIT AND COMMERCE INTERNATIONAL S.A. (IN LIQUIDATION) HIGH STREET SERVICES LTD. AND OTHERS v. BANK OF CREDIT AND COMMERCE IMPEXBOND LTD. AND OTHERS v. SAME [1992 M. No. 4775] [1992 H. No. 5560] [1992 No. 007615] 1992 Sept. 24, 25; Nov. 27 1993 March 15, 16; 25 Hoffmann J. Hoffmann L.J. Dillon, Nolan and Steyn L.JJ.

Insolvency - Winding up - Set-off - Company's debts to bank guaranteed by director as “principal debtor” by charging personal deposit account with bank - Bank becoming insolvent - Director seeking to set off claim to return of deposit against liability to pay company's debts - Whether bank entitled to claim whole debt from company leaving director to prove for deposit in winding up - Insolvency Rules 1986 (S.I. 1986 No. 1925), r. 4.90

Between 1984 and 1989 three company directors each signed as a “principal debtor” an agreement with the bank whereby, as guarantee for repayment of loans by the bank to his company, the bank could withdraw money from his deposit account with that bank towards satisfaction of his company's debts. In 1992 the bank was compulsorily wound up. The directors and companies issued notices of motion seeking declarations that the directors were entitled, pursuant to rule 4.90 of the Insolvency Rules 1986F1, to set off the sums in their deposit accounts against the companies' respective liabilities to the bank. The judge granted the declarations.

On the bank's appeal in the second and third cases:

Held, dismissing the appeals, that where there were existing cross-claims arising out of mutual dealings before the commencement of the winding up of a company, rule 4.90 of the Insolvency Rules 1986 took effect so as to bring about a set-off; that where a liability had been entered into by a “principal debtor” it was a primary liability not contingent upon the making of a demand in writing and could constitute a valid cross-claim for the purposes of the rule; and that, accordingly, the indebtedness of the companies as at the date of the winding up of the bank had been extinguished or reduced by the amounts which on that date were standing to the credit of the directors on their deposit accounts (post, pp. 236D–E, 238D–239A, 242B–C).

The following cases are referred to in the judgment of Dillon L.J. in the Court of Appeal:

Barnett, Ex parte, In re Deveze (1874) L.R. 9 Ch.App. 293

Bradford Old Bank Ltd. v. Sutcliffe [1918] 2 K.B. 833, C.A.

Brown's (J.) Estate, In re; Brown v. Brown [1893] 2 Ch. 300

Caldicott, Ex parte; In re Hart (1883) 25 Ch.D. 716, C.A.

City Equitable Fire Insurance Co. Ltd. (No. 2), In re [1930] 2 Ch. 293, C.A.

Daintrey, In re; Ex parte Mant [1900] 1 Q.B. 546, C.A.

Ellis & Co.'s Trustee v. Dixon-Johnson [1924] 2 Ch. 451, C.A.; [1925] A.C. 489, H.L.(E.)

Halesowen Presswork & Assemblies Ltd. v. National Westminster Bank Ltd. [1972] A.C. 785; [1972] 2 W.L.R. 455; [1972] 1 All E.R. 641, H.L.(E.)

Hiley v. Peoples Prudential Assurance Co. Ltd. (1938) 60 C.L.R. 468

Joachimson v. Swiss Bank Corporation [1921] 3 K.B. 110, C.A.

Mid-Kent Fruit Factory, In re [1896] 1 Ch. 567

Palmer v. Day & Sons [1895] 2 Q.B. 618, D.C.

Pollitt, In re; Ex parte Minor [1893] 1 Q.B. 455, C.A.

Rowe v. Young (1820) 2 Bli. 391

Sovereign Life Assurance Co. v. Dodd [1892] 2 Q.B. 573, C.A.

Young v. Bank of Bengal (1836) 1 Moo.Ind.App. 87, P.C.

The following additional cases were cited in argument in the Court of Appeal:

Batson v. Spearman (1838) 9 Ad. & E. 298

Birks v. Trippet (1666) 1 Wms. Saund. 28

Bowyear v. Pawson (1881) 6 Q.B.D. 540, D.C.

Charge Card Services Ltd., In re [1987] Ch. 150; [1986] 3 W.L.R. 697; [1986] 3 All E.R. 289; [1989] Ch. 497; [1988] 3 W.L.R. 723; [1988] 3 All E.R. 702, C.A.

Esso Petroleum Co. Ltd. v. Alstonbridge Properties Ltd. [1975] 1 W.L.R. 1474; [1975] 3 All E.R. 358

General Produce Co. v. United Bank Ltd. [1979] 2 Lloyd's Rep. 255

Hill v. Wade (1616) Cro.Jac. 523

Mackay, Ex parte, Ex parte Brown; In re Jeavons (1873) L.R. 8 Ch.App. 643

National Benefit Assurance Co. Ltd., In re [1924] 2 Ch. 339

Palmer v. Carey [1926] A.C. 703, P.C.

Quistclose Investment Ltd. v. Rolls Razor Ltd. [1970] A.C. 567; [1967] 3 W.L.R. 1097; [1968] 3 All E.R. 651, H.L.(E.)

Wallis v. Scott (1718) 1 Str. 88

Welsh Development Agency v. Export Finance Co. Ltd. [1992] B.C.C. 270, C.A.

The following cases are referred to in the judgment of Hoffmann L.J.:

Barnett, Ex parte; In re Deveze (1874) L.R. 9 Ch.App. 293

Bradford Old Bank Ltd. v. Sutcliffe [1918] 2 K.B. 833, C.A.

Brown's (J.) Estate, In re; Brown v. Brown [1893] 2 Ch. 300

Charge Card Services Ltd., In re [1987] Ch. 150; [1986] 3 W.L.R. 697; [1986] 3 All E.R. 289; [1989] Ch. 497; [1988] 3 W.L.R. 723; [1988] 3 All E.R. 702, C.A.

Daintrey, In re; Ex parte Mant [1900] 1 Q.B. 546, C.A.

Debtor, In re A; Ex parte Peak Hill Goldfield Ltd. [1909] 1 K.B. 430, C.A.

Dynamics Corporation of America, In re [1976] 1 W.L.R. 757; [1976] 2 All E.R. 669

Esso Petroleum Co. Ltd. v. Alstonbridge Properties Ltd. [1975] 1 W.L.R. 1474; [1975] 3 All E.R. 358

Farley v. Housing and Commercial Developments Ltd. (1984) 26 B.L.R. 66

M.S. Fashions Ltd. v. Bank of Credit and Commerce International S.A. (unreported), 22 May 1992; Court of Appeal (Civil Division) Transcript No. 484 of 1992, C.A.

Middleton v. Pollock; Ex parte Knight and Raymond (1875) L.R. 20 Eq. 515

New Quebrada Co. Ltd. v. Carr (1869) L.R. 4 C.P. 651

Northern Counties of England Fire Insurance Co., In re; Macfarlane's Claim (1880) 17 Ch.D. 337

Owen v. Wilkinson (1858) 5 C.B.(N.S.) 526

Sovereign Life Assurance Co. v. Dodd [1892] 2 Q.B. 573, C.A.

Stephens, Ex parte (1805) 11 Ves. 24

The following additional cases were cited in argument before Hoffmann J.:

Barclays Bank Ltd. v. T.O.S.G. Trust Fund Ltd. [1984] A.C. 626; [1984] 2 W.L.R. 650; [1984] 1 All E.R. 1060, H.L.(E.)

Batchellor v. Lawrence (1861) 9 C.B.(N.S.) 543

Bowyear v. Pawson (1881) 6 Q.B.D. 540, D.C.

British Eagle International Airlines Ltd. v. Compagnie Nationale Air France [1975] 1 W.L.R. 758; [1975] 2 All E.R. 390, H.L.(E.)

Caldicott, Ex parte; In re Hart (1883) 25 Ch. D. 716, C.A.

Commercial Bank of Australia Ltd. v. Official Assignee of the Estate of John Wilson & Co., [1893] A.C. 181, P.C.

Debtor (No. 66 of 1955), In re A.; Ex parte the Debtor v. Waite's Trustee [1956] 1 W.L.R. 1226; [1956] 3 All E.R. 225, C.A.

Ellis & Co.'s Trustee v. Dixon-Johnson [1925] A.C. 489, H.L.(E.)

Halesowen Presswork & Assemblies Ltd. v. National Westminster Bank Ltd. [1972] A.C. 785; [1972] 2 W.L.R. 455; [1972] 1 All E.R. 641, H.L.(E.)

Hanson, Ex parte (1811) 18 Ves. 232

Ince Hall Rolling Mills Co. Ltd. v. Douglas Forge Co. (1882) 8 Q.B.D. 179

Langley Constructions (Brixham) Ltd. v. Wells [1969] 1 W.L.R. 503; [1969] 2 All E.R. 46, C.A.

Lep Air Services Ltd. v. Rolloswin Investments Ltd. [1971] 1 W.L.R. 934; [1971] 3 All E.R. 45, C.A.; [1973] A.C. 331; [1972] 2 W.L.R. 1175; [1972] 2 All E.R. 393, H.L.(E)

Mackay, Ex parte, Ex parte Brown; In re Jeavons (1873) L.R. 8 Ch.App. 643

Mersey Steel and Iron Co. Ltd. v. Naylor, Benzon & Co. (1882) 9 Q.B.D. 648, C.A.; (1884) 9 App. Cas. 434, H.L.(E.)

Peat v. Jones & Co. (1881) 8 Q.B.D. 147, C.A.

Rolls Razor Ltd. v. Cox [1967] 1 Q.B. 552; [1967] 2 W.L.R. 241; [1967] 1 All E.R. 397, C.A.

Sass, In re; Ex parte National Provincial Bank of England Ltd. [1896] 2 Q.B. 12

Ulster Bank Ltd. v. Lambe [1966] N.I. 161

Welsh Development Agency v. Export Finance Co. Ltd. [1992] B.C.C. 270, C.A.

MOTIONS M.S. FASHIONS LTD. AND OTHERS v. BANK OF CREDIT AND COMMERCE INTERNATIONAL S.A. (IN LIQUIDATION) AND OTHERS

The plaintiffs, M.S. Fashions Ltd., M.S. Fashions (Wholesale) Ltd. and Mohammed Sarwar, as against the defendants, the Bank of Credit and Commerce International S.A. (In Liquidation) and Anthony Richmond and Roger Taylor, joint administrative receivers of the first and second plaintiffs, by a notice of motion dated 5 June 1992, asked the court to determine certain questions of law relating to the principles of set-off in insolvency in respect of the first and second plaintiff companies' gross aggregate indebtedness to the bank as at 5 July 1991, £596,945.36 together with any interest thereon accruing thereafter.

The questions of law to be determined were (a) whether the third plaintiff's set-off, pursuant to rule 4.90 of the Insolvency Rules 1986, of the bank's debt to him in respect of the amount standing to his credit on his deposit account with the bank's Isle of Man branch, against his liability to the bank as guarantor of the first and second plaintiff companies' gross aggregate indebtedness to the bank, either as “principal debtor,” or alternatively following a demand for payment, made by the bank on 12 November 1991, constituted or took effect as a payment by him, as guarantor of the companies' liabilities to the bank, of part of their gross aggregate indebtedness thereby partially discharging it, so that the true level of their indebtedness to the bank was the amount of their net aggregate indebtedness, namely the gross aggregate indebtedness after account was taken of the set-off; (b) whether, alternatively, by reason of the bank's liquidation and on its failure or inability to repay to the third plaintiff, the sums standing to his credit on his Isle of Man deposit account, the bank appropriated or was to be deemed to have appropriated those sums in partial satisfaction and discharge of the gross aggregate indebtedness of the companies, thus reducing the true level of their indebtedness to the amount of their net aggregate indebtedness; (c) whether the companies' offer to pay £318,031.92, contained in a letter dated 27 May 1992 from the third plaintiff's solicitors to the bank's solicitors, was a good tender of all the sums due from the plaintiffs to the bank, on payment of which the bank was bound to discharge the debentures, mortgages...

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