Law Report: Assignees of BCCI deposits can claim: Depositors Protection Fund v Dalia and another - Chancery Division (Sir Donald Nicholls, Vice-Chancellor): 3 July 1992

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If assignments of parts of deposits in an insolvent bank had been made before 31 July 1991, when the Banking Act 1987 (Meaning of Deposit) Order 1991 came into force, the assignees could still claim compensation from the Deposit Protection Board even though such assignments had been made after the presentation of the petition to wind up the bank.

Sir Donald Nicholls, Vice-Chancellor, so declared on the board's originating summons against Varsha Dalia and Barclays Bank plc.

John Jarvis QC and Jonathan Nash (Clifford Chance) for the Deposit Protection Board; Lord Irvine of Lairg QC and Philip Sales (Ashurst Morris Crisp) for Mrs Dalia; Michael Brindle QC and Bankim Thanki (Lovell White Durrant) for Barclays.

SIR DONALD NICHOLLS V-C said a deposit protection fund had been set up by the Banking Act 1979 to alleviate hardship when a recognised bank became insolvent.

The Board paid depositors compensation which, under the Banking Act 1987, was limited to pounds 15,000, being three-quarters of the amount of the deposit up to a maximum deposit of pounds 20,000.

On 5 July 1991, the Bank of England petitioned the court to wind up the Bank of Credit and Commerce International SA (BCCI). Depositors ceased to be able to withdraw their money.

Fearing the worst, some large depositors sought to maximise compensation from the fund by assigning pounds 20,000 portions of their deposit to family or friends. The intention was that, instead of their whole deposit only attracting pounds 15,000 compensation, each assigned portion would attract pounds 15,000.

In this way, more than 50 depositors assigned several million pounds to more than 200 assignees.

The scheme was quickly stopped in its tracks by the Banking Act 1987 (Meaning of Deposit) Order 1991 (SI 1776). From 31 July 1991, 'deposit' under the Act excluded a sum to which a person became entitled, otherwise than by operation of law, after presentation of a winding-up petition.

The question for the court was whether assignments made before the apparent loophole was closed had the desired effect.

In his Lordship's judgment, they did. This was clear from the Act's treatment of trusts. To confine 'depositor' under the Act to the person who made the deposit would be inconsistent with the object section 61 sought to achieve in relation to trusts.

If A held a deposit on trust for B absolutely, then, under section 61(3), B was to be 'treated as entitled to the deposit without the intervention of any trust'.

The twofold consequence was that B was regarded as the depositor for the purpose of receiving compensation under section 58, and also for the purpose of the definition of 'protected deposit' in section 60.

It was inconceivable that Parliament intended an assignee of the whole of the deposit under a statutory assigment should be in a worse position, for the purposes of the deposit protection scheme, than the beneficiary under a declaration of trust.

Although the assignment of only part of a deposit could not be a statutory assignment but was equitable only, the position of such an assignee was, for compensation purposes, the same as that of a statutory assignee.

Finally, both the existence and the terms of the 1991 Order confirmed that assignees qualified as depositors for compensation purposes.

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