Case Analysis of Saudi Arabian Monetary Agency V Dresdner Bank Ag [2004] Ewca Civ 1074

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The claimant with regard to this case is the Saudi Arabian Monetary Agency (“SAMA”) and the defendant is Dresdner Bank AG (“Dresdner”). The legal representatives for the parties involved were; Mr Robin Potts QC and Mr Charles Marquand on behalf of the claimant and Miss Elizabeth Jones QC on behalf of the defendant. SAMA sought relief in the form of a declaration that the Bank had no right to block SAMA’s account held at its branch in London, and an order that required the Bank to transfer the sum of €49,147,576.71 and any interest thereon to the Deutsche Bank account as initially instructed. On the other hand, Dresdner wished to set off the debt it was owed by the Government of the Kingdom of Saudi Arabia, by the equivalent held in SAMA’s account as it viewed SAMA as an arm of the Ministry of Finance and National Economy of the Kingdom of Saudi Arabia (“MOF”). Relevant Facts

On the 10 October 2002, SAMA instructed Dresdner to transfer a sum of roughly €292 million from its account to SAMA’s account held at Deutsche Bank, Frankfurt. Dresdner did not comply in full with this request and instead withheld a sum of approximately €49 million which was owed to Dresdner Bank Luxembourg (“DBL”) by the Ministry of Defence and Aircraft (“MODA”) and MOF of the Kingdom of Saudi Arabia. Dresdner insisted that it was clear that a right of set- off existed against the assets of SAMA, which was an arm of MOF. SAMA on the other hand, disputed this with regard to the principle applied in Bhogal v Punjab National Bank: Basna v Punjab National Bank that a banker is not entitled to refuse to honour a customer’s demands when there is money in the account to cover it, merely on the basis of a suspicion that the account was held by the customer as a nominee (‘The Bhogal principle’). SAMA claimed summary judgement against Dresdner for payment of money in the account, which was granted in favour of SAMA and the judgement was confirmed in favour of SAMA by the Court of Appeal.

The two key issues on appeal were,
* Was the application of the ‘Bhogal principle’ correct in such a case where the customer accepted that it was not the beneficial owner of the funds in the account? * Holding in regard the ‘Bhogal principle’, whether the judge should have held that the evidence provided by Dresdner stating that SAMA held the account on behalf of the Saudi government, was indeed clear and indisputable. Court decision and Ratio Decidendi

The court’s decision with regard to the initial issue reiterated that of Mr Justice Neuberger, on the basis of the ‘Bhogal principle’ even in the present case where the customer accepted that it was not the beneficial owner of the funds in the account in question. The court’s reasoning was as follows:

“The question whether the banker, say A, is entitled to set-off a debit balance owed by B against the credit balance on an account in the name of C – on the grounds that C holds that account as nominee or trustee for B – turns on the contract between A and C. It is, I think, plain that that contract could provide that there were no circumstances in which A could set-off B's debt against the balance on C's account. Conversely, the contract could provide that A could set–off B's debt against the balance on C's account whenever A had reasonable grounds for a belief that B was beneficially interested in the monies in that account. But, if the contract is silent on that question, then – in the light of the decisions of this Court in Bhogal and Uttamchandami - the rule is that stated by Mr Justice Scott in the Basna case: "a bank is not entitled to refuse payment of money deposited with it on the basis merely of an arguable case that some other debtor of the bank has an equitable interest in the money"”. The matter in hand was whether the customer held the account as nominee/trustee for the bank’s...
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