Re BCCI (No 8)
[1998] AC 214
Independent editorial summary — not the official judgment. Read the full judgment via the source link.
Ratio Decidendi
A bank may take a valid proprietary charge over its own customer's deposit with the bank as security for that customer's or a third party's liabilities. This is conceptually possible and is not inconsistent with the principle that a person cannot owe a debt to themselves, because the security is realised by book entry rather than by a personal claim.
Facts
BCCI's liquidators sought directions in two test cases where BCCI had lent money secured by deposits placed with BCCI itself: about US$3.5m advanced to Rayners Enterprises Inc, secured by a charge over deposits beneficially owned by Mr Mohammed Jessa, and advances of over £4m and US$4m to companies in the Solai Group, secured by deposits made by Société Générale de Gestion et Services SA. The Court of Appeal below had held that a charge over a customer's own deposit with the chargee bank was a conceptual impossibility, though the arrangement could still work contractually as a 'flawed asset'.
Judgment Summary
The House of Lords, in the leading speech of Lord Hoffmann, rejected the 'conceptual impossibility' doctrine that had originated in Re Charge Card Services Ltd. Their Lordships held that none of the normal features of an equitable charge is inconsistent with the chargee also being the debtor on the underlying chose in action, since realisation of the security simply takes the form of a book entry rather than a claim against a third party.
Subsequent Treatment
Applied in subsequent banking security cases.
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