Saudi Arabian Monetary Agency v Dresdner Bank AG
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE NEUBERGER |
| Judgment Date | 19 December 2003 |
| Neutral Citation | [2003] EWHC 3271 (Ch) |
| Date | 19 December 2003 |
| Court | Chancery Division |
| Docket Number | HC03C01669 |
[2003] EWHC 3271 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand
London WC2
Mr Justice Neuberger
HC03C01669
MR R POTTS QC AND MR C MARQUAND appeared on behalf of the CLAIMANT
MISS E JONES appeared on behalf of the DEFENDANT
The issues in these proceedings is the extent and application of the principles laid down in Bhogal v Punjab National Bank [1988] 2 AER 296. That principle is summarised in the holdings recorded in the head note at 296 J to 297 B:
"A banker was required to pay all cheques drawn by a customer in accordance with the mandate given to him if he had funds belonging to the customer, and he was not entitled without warning to refuse to honour a customer's cheque, when there was money in his account to cover it, merely on the basis of a suspicion that the account was held by the customer as nominee for a third party who was indebted to the bank. Instead, clear and undisputable evidence was required that the customer held his account as a nominee or bare trustee for the third party before the bank could set-off the credit in one account against the debits in the other. Accordingly, since the evidence did not clearly establish that the" (two relevant accounts) "were nominee accounts, the bank could not raise defence of equitable set-off in their actions. The bank's appeal" (I again interpose against the summary judgment entered by Scott J in favour of the account holder would therefore be dismissed."
The facts of the present case are as follows. On 10 October 2002 the claimant, the Saudi Arabian Monetary Agency (SAMA) requested the London branch of Dresdner Bank AG (Dresdner) to transfer all monies from an account in the name of SAMA (the account) namely some 292.6 millions Euros, into an account in SAMA's name at Deutsche Bank Frankfurt. Dresdner did not comply in full with that request in that it blocked approximately 49 million Euros in the account. I will refer to that sum as "the fund." Dresdner contends that it is entitled to block the fund because the Ministry of Defence and Aircraft of the Kingdom of Saudi Arabia (MODA) and/or the Ministry of Finance and National Economy of Saudi Arabia (MOF) owe to Dresdner Bank Luxembourg (DBL) a sum effectively equal to the funds.
For the purpose of this hearing, the following is accepted by SAMA. First that MADA and/or MAF owe that sum to DBL. Secondly, in that connection, DBL as a creditor is a bare trustee for Dresdner. Thirdly, that MADA and MOF are emanations of the Saudi Arabian Government (the Government). In these circumstances, it is common ground that Dresdner would be able to block the fund on the ground of equitable set-off if the money in the account is clearly beneficially the property of the Government. In that connection, equity permits such a set-off where both debts are legal debts. Further, where either or both debts is or are held on trust the right of set-off would be determined by reference to the beneficial title —see Cochrane v Green 9 CB (NS) 448 and Thornton v Maynard Law Reports 10 695 at 698 to 699.
Following Dresdner's blocking of the account, SAMA wrote to Dresdner on 19 October 2002 saying:
"SAMA does not owe any liabilities either to your bank [DBL] and has no obligation in respect of the financing arrangement you mention. You will also be aware the distinctness and separateness of Central Bank's standards worldwide and SAMA is no different in this respect. You are not entitled to block SAMA's funds and assets in respect of disputes concerning sums owed between completely different parties. There is no mutuality whatever and these matters have nothing whatsoever to do with SAMA."
On 1 May 2003, SAMA issued these proceedings seeking an injunction requiring Dresdner to unlock the fund in the account. In paragraph 10 of its "details of claim" SAMA said as follows:
"SAMA avers that Dresdner … Action is unlawful, SAMA is legally functions independently and is separate MOF. The account is held by SAMA legally and beneficially for itself."
On 24 June 2003, in answer to a request from Dresdner's solicitors, SAMA's solicitors wrote saying, among other things:
"The Central Bank of the Kingdom of Saudi Arabia maintains accounts for the Government and its agencies …"
Then a little later in the same letter:
"SAMA receives interest dividends and other incomes and assets deposited or invested within international financial institutions. SAMA has reviewed its internal records regarding the funds in the account with Dresdner … as well as the securities accounts with Dresdner Bank Frankfurt branch and confirm that all these funds and securities are attributable to independent organisations, a fact that is generally not disseminated outside some except some independent organisations themselves and we provide to you on a confidential basis only for the purpose of these proceedings."
In light of that, it appeared to those advising SAMA that paragraph 10 of the details of claim did not reflect the position SAMA was putting forward in correspondence. Paragraph 10 was accordingly amended so that all but the first sentence was deleted and replaced with these words:
"(1) SAMA is legally independent and separate from MADA and MOF. (2) In relation to accounts in its name held outside Saudi Arabia SAMA was the sole counter-party in respect of their party. (3) The monies in that account are attributable to the General Organisation of Social Insurance (GOSI)."
SAMA's application to make that amendment, coupled with an application for summary judgment in these proceedings, was issued on 24 September 2003. During the course of argument earlier this week, Mr Robin Potts QC, who appears for SAMA with Mr Charles Marquand, applied for permission to make that amendment to paragraph 10 of SAMA's claim, and, subject to the question of costs, I permitted such an amendment.
SAMA's case following the reasoning in Bhogal, in order to resist summary judgment is that (1) Dresdner must establish that there is no real room for dispute that SAMA holds the fund in the account for the Saudi Government or an emanation thereof, and (2) SAMA cannot do this.
SAMA's says that it does not own the fund beneficially, that it holds the fund on behalf of an independent organisation, albeit one connected with the Saudi administration, GOSI, and that therefore there can be no questions of any set-off.
Dresdner's case is as follows. (1) SAMA may well not hold the fund for GOSI in light of the term of Sama's charter, the expert evidence provided by Dresdner and the weakness of SAMA's evidence on the point. (2) If SAMA does not hold the fund on trust for GOSI, then in light of the terms of SAMA's charter and the expert evidence, SAMA holds the funds on trust for the Saudi Government, and therefore even on the Bhogal test, it is open to Dresdner to rely on set-off. (3) Even if Dresdner has no more than an arguable case in relation to a set-off because SAMA may have established an arguable case for saying that it holds the funds on trust for GOSI, that is enough to enable Dresdner to resist summary judgment.
Before turning to the arguments, I should refer in a little more detail to the authorities. Bhogal itself, as I have mentioned, was a case where the bank was raising a set-off argument on the basis that the account may have been held by the account holder on trust for a person who owed the bank money, thereby giving rise to a set-off. Despite that argument, Scott J gave summary judgment in favour of the account holder and the Court of Appeal upheld that decision. In his judgment, Dillon LJ began by explaining the nature of the set-off citing a passage in Ares Tanker Corporation v Total Transport Limited [1977] 1 WLR 185 191. Miss Elizabeth Jones QC, who appears for Dresdner, contends that was not a case concerned with an equitable set-off and was, therefore, not in point. I respectfully agree, but it does not seem to me that that effects the reasoning, let alone the conclusion, of Dillon LJ.
Dillon LJ turned to the decision of the Court of Appeal in ex parte Morier Re Willis Percival and Co [1879] 12 Ch D 491. Again, Miss Jones said that he misunderstood the effect of that case. I am not convinced that he did, but even if he did, again it does not seem to me that that would impeach his reasoning or his conclusion reached. At 301 B to F Dillon LJ said this:
"It is to be noted that the law laid down in ex parte Morier is crystallised in a short statement of Brett LJ expressly approved by James LJ which was in the following terms at 502." (and he quotes):
"My view is this, that, the account standing in the names of the brother and sister, the case could not have been brought within the rules of equitable set-off or mutual credit, unless the brother was so much the person solely beneficially interested that a Court of Equity, without any terms or any further inquiry, would have obliged the sister to transfer the account into her brother's name alone."
Dillon LJ immediately after that quotation added: "My emphasis". He continued:
"It is one thing when the fact that a customer holds his accounts as nominee or bare trustee for a third party is clear and undisputable. It is quite another where the alleged nomineeship is very far from plainly made out and is strongly disputed. It would be wholly contrary to the rules of banking law, above indicated, of a bank could without warning dishonour a customer's cheque when there are funds to cover it in the account, on a tenuous, if just arguable, suspicion that the account was held by the customer as...
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