CASE ANALYSIS OF SAUDI ARABIAN MONETARY AGENCY V DRESDNER BANK AG  EWCA Civ 1074 (A) Basic Information 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. B) Issues 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 debtor and not whether the customer held the account in its own name for its benefit or as nominee/trustee for another.
The court’s decision concerning the latter issue was once again in support of the previous judgement. It was held that the evidence proving that SAMA maintained the account as trustee for the Saudi Government was not “clear and indisputable”. The rationale behind this decision was because of the contradictory views and evidence provided. Saudi lawyer Mr Mahassni specified that Article 2 of the Charter under which SAMA was established by Royal Decree, stated that the assets under SAMA’s management belong to the government and that SAMA shall not have any capital.
However, where there should be no assets or liabilities in SAMA’s account keeping the above said in mind, audited accounts confirm it as a trading organization with a separate section of its balance sheet attributable to Independent Organizations, one of which is GOSI. In support, the Director of General Investment of SAMA stated that the funds were “maintained in SAMA’s name with Dresdner Bank and managed by SAMA for the benefit of [GOSI]”. Chadwick LJ continued to say “The contention that SAMA held all its assets as trustee for the Saudi government first emerged… n the defence filed some six or seven months later. No attempt was made… to substantiate the assertion that SAMA was an arm of MOF. To my mind that… provides the answer to the second issue. ” Chadwick LJ took into account the identification and application of the ‘Bhogal principle’ in three cases previously, namely, both the Bhogal and Basna appeals, Uttamchandami v Central bank of India and Bank of Credit and Commerce International(in liquidation) v Al-Saud.
He also expressed doubt in holding Ex parte morier, re Willis percival & Co “as authority, on its facts, for a proposition of that width”. Lord Justice Longmore went on to support the application of the ‘Bhogal principle’ and stated that in the present case it is even clearer than Bhogal. (C) Additional Analysis It can be stated that the backbone of the outcome of this case weighs on the ‘Bhogal principle’. The Bank has a duty to SAMA to comply with its instructions and unless an implied term may be suggested in a possible contract, there is no prospect of overriding the legal system.
A clear and convincing argument was not illustrated by Dresdner in order to entitle it to apply the doctrine of equitable set- off. I also agree with the fact that while Bhogal and the present case may not have the exact situation, it is not the concern of the bank as to whether the money in the account is SAMA’s own or held beneficially for another. As stressed on earlier, unless it can be proven indisputably that it is in fact being held beneficially for Dresdner’s debtor, the bank must uphold the instructions of SAMA. On the ther hand, the use of the ‘Bhogal principle’ may be seen as the court wearing blinkers when deciding a summary judgement application and may be viewed by some as unfair for the bank. It is important to view it as a procedural rule and not a substantive rule that is meant to defeat substantive equitable set- off. It is therefore suitable for banks/lenders to incorporate express terms dealing with the doctrine of equitable set- off so as to reduce the burden on them and ease their option of exercising the right of set- off. Defence of Set-off and Concept of Combination of Accounts
When considering the difference between the defence of set- off and the concept of combination of bank accounts, it is vital to note that the Bank has a common law right to combine two or more of the customer’s current accounts at different branches without notice to the customer (definition of combination of bank accounts), whereas a bank cannot simply refuse to repay a deposit of one customer and apply the principle of set-off, without clear and obvious proof to challenge that some other debtor has an equitable interest in the money. BIBLIOGRAPHY 1. Bank of Credit and Commerce International S.
A. (in liquidation) v. Al-Saud  1 B. C. L. C. 2. Bhogal v Punjab National Bank: Basna v Punjab National Bank  2 AER 296. 3. Chaikin, D. 2011, Bank as Depository and Bank’s Duties, CLAW 2204 at The University of Sydney, Semester 1. 4. Ex parte Morier, re Willis Percival & Co. (1879) 12 Ch. D. 491. 5. Ho, L. C. (2004) Bankers Duties to Customers Reaffirmed- CHAPS Transfer and Equitable Set- off, Journal of International Banking Law and Regulation, (issue 11), pp 466-468. 6. Mayer, Brown, Rowe and Maw,2005, Finance Legal Update, pp 6-8. 7.
Saudi Arabian Monetary Agency v Dresdner Bank AG EWCA Civ 1074. 8. Uttamchandami v Central bank of India, (C. A. ) (1989) 139 N. L. J. 222. ——————————————– [ 2 ]. Saudi Arabian Monetary Agency v Dresdner Bank AG EWCA Civ 1074. [ 3 ]. Bhogal v Punjab National Bank: Basna v Punjab National Bank  2 AER 296. [ 4 ]. Saudi Arabian Monetary Agency v Dresdner Bank AG EWCA Civ 1074. [ 5 ]. Saudi Arabian Monetary Agency v Dresdner Bank AG EWCA Civ 1074. [ 6 ]. Uttamchandami v Central bank of India, (C. A. ) (1989) 139 N. L. J. 222. [ 7 ].
Bank of Credit and Commerce International S. A. (in liquidation) v. Al-Saud  1 B. C. L. C. [ 8 ]. Ex parte Morier, re Willis Percival & Co. (1879) 12 Ch. D. 491. [ 9 ]. Saudi Arabian Monetary Agency v Dresdner Bank AG EWCA Civ 1074. [ 10 ]. Ho, L. C. (2004) Bankers Duties to Customers Reaffirmed- CHAPS Transfer and Equitable Set- off, Journal of International Banking Law and Regulation, (issue 11), p 468. [ 11 ]. Mayer, Brown, Rowe and Maw,2005, Finance Legal Update, pp 6-8. [ 12 ]. Chaikin, D. 2011, Bank as Depository and Bank’s Duties, CLAW 2204 at The University of Sydney, Semester 1.