Swiss Bank Corporation v Lloyds Bank Ltd
| Jurisdiction | UK Non-devolved |
| Judge | Lord Wilberforce,Lord Russell of Killowen,Lord Keith of Kinkel,Lord Scarman,Lord Bridge of Harwich |
| Judgment Date | 14 May 1981 |
| Judgment citation (vLex) | [1981] UKHL J0514-2 |
| Date | 14 May 1981 |
| Court | House of Lords |
[1981] UKHL J0514-2
Lord Wilberforce
Lord Russell of Killowen
Lord Keith of Kinkel
Lord Scarman
Lord Bridge of Harwich
House of Lords
My Lords,
This appeal is concerned with competing claims to a fund of £828,066 held on deposit by Lloyds Bank Limited (Lloyds). It represents the proceeds of sale of securities issued by a company incorporated in Israel, F.I.B.I. Holding Company Limited, to the respondent Israel Financial Trust Limited ("I.F.T."). These securities are referred to as "the F.I.B.I. securities". There are three issues: (1) whether the appellants, Swiss Bank Corporation ("S.B.C."), had a charge over or a proprietary interest in the F.I.B.I. securities and, if so, what is the nature of that charge or interest; (2) whether a charge created by I.F.T. over the F.I.B.I. securities in favour of Lloyds is valid; (3) (depending on the answers to questions (1) and (2)) whether the interest of S.B.C. has priority over the charge to Lloyds.
The only effective parties to the appeal are S.B.C. and Lloyds, the fourth and fifth respondents being insolvent.
The answer to the first question depends upon two documents. The first is a letter of consent under the Exchange Control Act 1947 given by the Bank of England to G. T. Whyte & Co. Ltd. (on behalf of I.F.T.) on 22nd October 1971, for a loan to I.F.T. of up to 10�5 million Swiss francs. The Bank of England granted consent for this loan subject to various conditions set out in the letter and an accompanying memorandum. It was contemplated that the loan was to be used in order to take up what became the F.I.B.I. securities: under the terms of the consent these securities had to be deposited with an Authorised Depositary, and held on a separate account distinguished from any other foreign securities belonging to I.F.T. The memorandum set out eight conditions, evidently designed to protect sterling. Those most relevant are the following:
"(iv) No security acquired is sold for sterling and no foreign currency sale/redemption etc., proceeds thereof are sold for sterling in the investment currency market.
(vi) Interest and other charges in respect of the borrowing and management expenses are paid out of the income arising from the foreign currency securities acquired, any shortfall being met from the sale proceeds of such securities, or from any part of the borrowing then held in liquid form or, subject to the Bank of England's prior permission being obtained, with investment currency or by an increase in the borrowing.
(vii) 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.
� �
In view of the terms of sub-paragraphs (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."
The agreement for the loan by S.B.C. was made on 11th January 1973 between S.B.C. and I.F.T. It provided for a loan of up to 10-5 million Swiss francs to be taken up by I.F.T. not later than 31st March 1974. It contained a number of provisions designed to ensure that the loan should be in conformity with Exchange Control Regulations and that all necessary consents would be obtained by I.F.T. The critical clause is Clause 3 which reads:
"THE Company hereby warrants to and covenants with the Bank as follows: �
(a) This Agreement will when executed constitute a valid and enforceable obligation of the Company which has the necessary authority to enter into it. Nothing hereby contained contravenes any statutory requirement or contractual obligation binding upon the Company or any provision of its Memorandum and Articles of Association.
(b) All necessary consents and authorisations 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."
The agreement provided for a sterling cash deposit to be made by I.F.T. with S.B.C. of an amount which I.F.T. agreed to maintain at 95 per cent of the sterling equivalent of the amounts advanced, and with regard to this deposit it was agreed as follows:
"8. (a) As a continuing security for the principal moneys and interest and all other sums payable by the Company under this Agreement and the performance and observance of all the terms and conditions set out herein the Company hereby charges with effect from each of the relevant Advance Dates the Sterling Cash Deposits on the terms set out below and undertakes to execute on demand any further documents which may reasonably be required by the Bank to give effect to this Clause 8."
The loan was repayable on demand and also in a number of specified events including breaches by I.F.T. of any condition of the loan.
In due course, S.B.C. advanced to I.F.T. a total of Swiss francs 9,352,833, which I.F.T. used in acquiring the F.I.B.I. securities. These securities were deposited with Triumph Investment Trust Ltd. ("Triumph") as Authorised Depositary: Triumph was the parent company of I.F.T.
In 1974 the Triumph group of companies ran into financial difficulties, to meet which Lloyds agreed to lend Triumph some £27�5 million, on terms that I.F.T., and other subsidiaries, should guarantee this loan, and grant charges over various assets. I.F.T. accordingly executed a memorandum of deposit in favour of Lloyds on 24th September 1974: I explain the transaction in greater detail below. Later in 1974 the F.I.B.I. securities were sold by agreement with Lloyds, and the dollar proceeds of the sale converted into sterling, realising the above-mentioned sum of £828,066.
On the first question, it is contended by S.B.C. that the effect of Clause 3(b) of the loan agreement, taken together with the conditions on which permission for the loan was granted, in particular condition (vii), was to confer upon S.B.C. an equitable charge, or some other equitable interest of a proprietary nature. The learned trial judge accepted this contention and he held that S.B.C. was contractually entitled to have the loan repaid out of the proceeds of sale of the F.I.B.I. securities; that the agreement to this effect was specifically enforceable by S.B.C; and that consequently S.B.C. acquired an equitable interest of a proprietary character in those proceeds. The Court of Appeal took the opposite view that S.B.C. was not entitled to any charge or other proprietary interest. In my opinion they were right.
I do not doubt the correctness of the principles of law upon which the appellants, S.B.C., rely and which were stated by the learned judge. These are best summed up in the well-known passage from the judgment of the Privy Council in Palmer v. Carey [1926] A.C. 703, 706, delivered by Lord Wrenbury:
"The law as to equitable assignment, as stated by Lord Truro in Rodick v. Gandell (1852) 1 De G.M. & G. 763, 777, 778, is this:...
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