Swiss Bank Corporation v Lloyds Bank Ltd

JurisdictionEngland & Wales
JudgeLORD JUSTICE BUCKLEY,LORD JUSTICE BRANDON
Judgment Date01 February 1980
Judgment citation (vLex)[1980] EWCA Civ J0201-12
Docket Number1975 S No. 1620
CourtCourt of Appeal (Civil Division)
Date01 February 1980

[1980] EWCA Civ J0201-12

In The Supreme Court of Judicature

Court of Appeal

(Civil Division)

On Appeal from The High Court of Justice

Chancery Division

Group B

(Mr Justice Browne-Wilkinson)

Before:

Lord Justice Buckley

Lord Justice Brandon

Lord Justice Brightmanm

1975 S No. 1620
Between:
Swiss Bank Corporation
Plaintiffs (Respondents)
and
Lloyds Bank Limited
First Defendants Appellants; Respondents in 2nd appeal
Barclays Bank Limited
Second Defendants
Israel Financial Trust Limited
Third Defendants (Appellants in 2nd Appeal)
Triumph Investment Trust Limited
Fourth Defendants

MR. P. J. MILLETS? Q. C. and MR. J. R. SYKES (instructed by Messrs. Linklaters & Paines, Solicitors, London EC2V 7JA) appeared on behalf of the Defendants Lloyds Bank Ltd. (Appellants); Respondents in second appeal.

MR. J. F. PARKER Q. C. and MR. TIMOTHY LLOYD (instructed by Messrs. Simmons & Simmons, Solicitors, London EC2M 2RJ) appeared on behalf of the Plaintiffs (Respondents).

MR. RICHARD YORKE Q. C. and MR. GAVIN LIGHTMAN (instructed by Messrs. Nabarro Nathanson, Solicitors, London W1A 4SA) appeared on behalf of the Defendants Israel Financial Trust Ltd. (Respondents); Appellants in second appeal.

LORD JUSTICE BUCKLEY
1

There are before this court two appeals, by the first defendants, Lloyds Bank Limited ("the bank"), and the third defendants, Israel Finance Trust Limited ("IFT") respectively, against a judgment of Mr. Justice Browne-Wilkinson delivered on 8th May 1978 (now reported in (1979) 3 Weekly Law Reports, 201), in each of which the plaintiffs, Swiss Bank Corporation ("SBC"), have served a respondents' notice, and also a cross-appeal by SBC. The facts are set out carefully and fully in the judgment of the learned judge, to which referent a should be made. I do not propose to restate them in more detail than is necessary to make my judgment intelligible.

2

IFT is a sub-subsidiary of the fourth defendants Triumph Investment Trust Limited ("Triumph"). IFT sought Bank of Englan permission under the Exchange Control Act 1947 to borrow from SBC a sum of Swiss francs of a value of £2.1m for investment in shares and loan stock of an Israeli bank called First International Bank of Israel Limited ("FIBI"). On 22nd October 1971 the Bank of England gave the necessary permission subject to certain conditions numbered (i) to (viii) referred to at page 209 of that report. Particular reference should be made to condition (v) relating to maintenance of a specified margin of cover for the borrowing, condition (vi) relating to the payment of interest and charge in respect of the loan out of the income arising from the securities acquired and condition (vii), which I shall read: "Repayment of the borrowing is made from the sale proceeds of foreign currency securities held by the above-named borrower in the relative 'loan portfolio' or, in the event of a shortfall and subject to the Bank of England's prior permission being obtained, with investment currency".

3

The conditions ended with the following requirement: "In view of the terms of subparagraphs (iv) and (vi) above, it will be appreciated that the securities acquired with the foreign currency borrowing will need to be kept on a separate account to distinguish them from any other foreign currency securities owned by the borrower".

4

As a term of the loan SBC required IFT to deposit with SBC the sterling equivalent of the advance or advances actually made and to deposit further sums from time to time (to be guaranteed by Triumph) to cover any exchange differences which might arise.

5

On 11th January 1973 SBC and IFT entered into the relevant written loan agreement for a sum limited to 10.5m Swiss francs. The obligation of SBC to make any advance under the agreement was expressly made conditional on all necessary consents being granted by the Bank of England and the appropriate sterling cash deposits being made. By clause 3(b) IFT warranted and covenanted with SBC that "All necessary consents and authorizations for the service maintenance and repayment of the Loan have been obtained by or on behalf of the Company and all conditions thereof will be observed by the Company during the continuance of this Agreement". Clause 8 contained a charge by IFT, on the sterling cash deposits as security for the principal moneys, interest and all other sums payable under the agreement. Clause 8(e) stipulated that the sterling cash deposits should be maintained at not less than 95 per cent of the sterling equivalent of the advances-at middle market prices on the London Foreign Exchange Market. Clause 9 provided that the loan should be repayable on demand and that SBC should be entitled to realise its security (which Mr. Parker concedes to be a reference to the charge upon the sterlingdeposits) on a number of specified contingencies. Triumph, by a separate instrument, guaranteed the maintenance of the cash deposits at the specified level.

6

Pursuant to the loan agreement SBC made advances to IFT of an aggregate amount of 9,352,833 Swiss francs, which were invested by IFT in shares and loan stock of PIBI ("the PIBI securities"). These were deposited with Triumph as an authorised depository under the Act.

7

Additional foreign currency securities were earmarked to make up the "cover" for the loan to 115 per cent of its amount in accordance with Bank of England condition (v) referred to earlier. These securities ("the additional securities") were at all material times deposited with Barclays Bank as an authorised depositary.

8

In 1973 the Triumph Group were in financial straits and applied to the bank for assistance. In February 1974 the bank offered the Group a credit line of £27.5m with further stand-by facilities on terms including unlimited guarantees by, amongst other companies of the Group, IFT and charges over all unencumbered securities held by companies of the Group. The securities to be charged included the FIBI securities. In due course IFT, through another company of the Group, guaranteed all Triumph's liabilities to the bank and on 24th September 1974 IFD by a written memorandum under hand charged or purported to charge by way of fixed charge in favour of the bank ("the bank's charge") (inter alia) the PIBI securities to secure all moneys at any time due from IFT to the bank. Before that memorandum was signed (a) Triumph had, without Bank of England consent, lodged the scrip for the FIBI securities with the bank, both Triumph and the bankbeing authorised depositaries under the Exchange Control Act; and (b) the bank had full knowledge of the loan agreement and its terms but were not aware in any detail of the conditions attached to the Bank of England permission.

9

On 24th December 1974- SBC, being then entitled to do so, demanded repayment of the loan. In their statement of claim (paragraph 14) SBC assert that in the circumstances the PIBI securities became subject to a trust for repayment of the loan thereout or alternatively the FIBI securities became subject to an equitable charge securing repayment of the loan thereout. By paragraph 15 of the statement of claim they also assert similar claims in respect of the additional securities. In argument no distinction was drawn between a trust and an equitable charge. The argument was presented on the footing that any equitable interest which SBC acquired on the securities constituted an equitable charge.

10

In January 1973 SBC registered the loan agreement under the Companies Act 1948, section 95, and no point has been taken below or in this court about any inadequacy of that registration to cover such equitable charge, if any, as SBC have over the PIBI securities or the additional securities, although Mr. Millett for the bank reserves the point for argument elsewhere if necessary.

11

Mr. Justice Browne-Wilkinson held first that on the true construction of the loan agreement clause 3(b) related to the conditions from time to time attached to the Bank of England permission for the borrowing and not only to the original conditions. SBC no longer dispute this and it has accordingly been common ground in this court.

12

It has also been common ground in this court that any equitable charge created by the loan agreement on the investments and capital moneys representing the borrowed money is a floating charge upon that fund in whatever state it may be from time to time.

13

The learned judge further held that SBC was at all material times entitled to specific performance of clause 3(b) of the Loan agreement requiring (a) the FIBI securities, or their proceeds, to be kept separate; (b) the interest and loan charges to be paid out of the income and (c) the debt, when repayable, to be paid out of the proceeds of sale, and that the equitable right so arising ought to prevail over the bank's charge. He accepted that it was not the conscious intention of the parties to the loan agreement that the FIBI securities should be a security for the loan, but he held that, if the loan agreement bound IFT by a specifically enforceable obligation to repay the loan out of the FIBI securities or their proceeds, this would create an equitable charge on, or interest in, the securities and their proceeds, whether or not the pas-ties knew and intended that legal consequence to follow He accordingly held that the loan agreement constituted an equitable charge in favour of SBC.

14

As a secondary line of attack SBC contended below and in this court that if the loan agreement conferred on SBC no proprietary equitable interest in the FIBI securities, the bank nevertheless took the bank's charge with notice of a subsisting contract between SBC and IFT requiring the FIBI securities to be used for servicing and repayment of the loan, and that consequently the bank could be restrained from acting so as to occasion a breach of that contract: (De Mattos v. Gibson, 4- De Gex& Jones, 276), Mr. Justice Browne-Wilkinson held that...

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