Law Report: BCCI deposit assignees can claim: Deposit Protection Board v Dalia and another - Court of Appeal (Lord Justice Russell, Lord Justice Simon Brown and Sir Michael Fox), 6 May 1993

If equitable 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 claim compensation, as depositors, from the Deposit Protection Board pursuant to section 58(1) of the 1987 Act.

The Court of Appeal by a majority dismissed an appeal by the second defendant, Barclays Bank Ltd, and a cross-appeal by the plaintiff, the Deposit Protection Board, and upheld the decision of Sir Donald Nicholls, Vice-Chancellor (Independent, 12 August 1992; (1992) 3 WLR 945) granting a declaration in favour of the first defendant, Mrs Varsha Dalia.

Under section 58(1) of the 1987 Act, where a recognised banking institution became insolvent, the board paid out of a depositors' protection fund to each 'depositor' compensation equalling three-quarters of his 'protected deposit'. Under section 60(1) the protected deposit was limited to a maximum 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 draw their money.

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

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 then arose whether assignments made before the apparent loophole was closed had the desired effect in law. Sir Donald Nicholls V-C held that they did, notwithstanding that the assignment of part of a debt could only take effect as an equitable assignment, with the result that both the assignor and the assignee were persons to whom the bank might properly be said to be liable in respect of the assigned part of the debt.

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

LORD JUSTICE RUSSELL said that while the differences between legal and equitable assignees were real, they did not, in the context of this case, justify a fundamental distinction being drawn so the board was liable to one and not to the other.

Had there been no insolvency, each and every equitable assignee could have sued BCCI to judgment if BCCI, on demand, had declined to pay out whatever sum had been assigned to the individual assignee.

The scheme of the Act was that the board, as compensating authority, should stand in the shoes of the defaulting bank, and there was no reason why, subject to the financial limit, it should be in any better position, vis-a-vis equitable assignees, than it would have been but for the insolvency.

If the bank would have been liable to the equitable assignee by due process of law, and, absent any good cause demonstrated by the assignor, then the board must acknowledge the claim of the equitable assignee.

SIR MICHAEL FOX concurred. The Vice-Chancellor's declaration was correct and these appeals should be

dismissed.

LORD JUSTICE SIMON BROWN, dissenting, said only those to whom the bank was legally liable were depositors within the scheme and it was the sum of a depositor's legal, rather than equitable, claims against the bank which delimited the size of his protected deposit under section 60(1).

Paul Magrath, Barrister

Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Senior Digital Marketing Consultant

£28000 - £45000 per annum: Recruitment Genius: A Senior Digital Marketing Cons...

Recruitment Genius: Assistant Stores Keeper

£16640 - £18500 per annum: Recruitment Genius: An Assistant Stores Keeper is r...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Software Developer - C# / ASP.NET / SQL

£17000 - £30000 per annum: Recruitment Genius: Developer required to join a bu...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before