Saudi Arabian Monetary Agency v Dresdner Bank AG

A bank cannot refuse to follow its customer’s payment instructions merely because it has an arguable case that the customer holds the account for another person indebted to the bank. Equitable set-off requires clear and indisputable evidence that the bank’s debtor is beneficially entitled to the account balance, without the need for further inquiry. The rule applies even where the customer accepts that it is not the beneficial owner and identifies a different beneficiary who is not indebted to the bank. The relevant evidence may be assessed by reference to the material available when payment was refused.

Saudi Arabian Monetary Agency instructed Dresdner Bank AG’s London branch to transfer the full balance of its euro account. The Bank withheld a sum equivalent to a debt allegedly owed by Saudi governmental ministries to its Luxembourg affiliate, asserting that the funds were beneficially owned by the Saudi Government and could be set off against that debt.

On SAMA’s application under Civil Procedure Rules 1998 Part 24, Mr Justice Neuberger granted summary judgment. He held that the principle in Bhogal v Punjab National Bank applied even though SAMA said that the funds were attributable to GOSI rather than claiming beneficial ownership itself. The Bank appealed, challenging that legal approach and the assessment of the evidence.

1. Appeal dismissed. The Bank was not entitled to retain the account balance or rely on equitable set-off. The order granting SAMA summary judgment was upheld.
2. The rule in Bhogal v Punjab National Bank [1988] 2 All ER 296 applies where the account-holder accepts that it is not beneficially entitled to the money and contends that another person, who is not the bank’s debtor, is the beneficiary. The relevant question is whether the account-holder holds the account as nominee or trustee for the bank’s debtor.
3. Where the banking contract is silent, a bank cannot refuse payment merely on an arguable case that another debtor has an equitable interest in money standing to the customer’s credit. The rule is justified either by an implied term giving business efficacy to the banker-customer relationship or because equity will not override the ordinary rules of banking where the alleged beneficial ownership is not clear and indisputable.
4. The evidence relied on by the Bank did not meet that threshold. The charter and conflicting evidence did not establish clearly and indisputably that SAMA held the money for the Saudi Government. The evidence disclosed an arguable case that GOSI was the beneficiary.
5. Lord Justice Chadwick added that the position should be assessed by reference to the material on which the Bank relied when it refused payment. The contemporaneous explanation referred to SAMA as an arm of MOF, whereas the assertion that SAMA held its assets on trust for the Government first appeared in the defence and was not substantiated.
6. Lord Justice Longmore added that the principle applied with particular force because the claim sought specific performance of the Bank’s obligation to comply with its customer’s instructions. Lord Justice Mummery agreed with both judgments. The appeal was dismissed with costs; leave to appeal to the House of Lords and a stay were refused.

• Court of Appeal (Civil Division): appeal dismissed and the order granting summary judgment to SAMA upheld.
• High Court of Justice, Chancery Division: Mr Justice Neuberger granted SAMA summary judgment on 19 December 2003 under Part 24 of the Civil Procedure Rules 1998.