Recent Developments in Banking and Finance Law

1. Recent Developments in Banking and Finance Law Richard Hooley

2. Credit Crunch • Banking (Special Provisions) Act 2008 S 2(1) Power of Treasury to make order under s 3 (transfer of securities) or s 6 (transfer of property, rights and liabilities) for purposes of: S 2(2)either (a) maintaining the stability of UK financial system, or (b) protecting the public interest where financial assistance has been provided

3. Credit Crunch • Building Societies (Financial Assistance) Order 2008 • Bradford & Bingley plc Transfer of Securities and Property etc Order 2008

4. Companies Act 2006 • Private company can give financial assistance to acquire shares in itself or another private company • Reversal of Buchler v Talbot (Re Leyland Daf) • Repeal of Companies Act 1985, s 349(4)

5. Banking Codes 2008 • ‘lend responsibly’ • no liability for losses through on-line bank account unless customer acted fraudulently or ‘without reasonable care’ • T2-4-6

6. Payment systems • TARGET2 • Faster Payments Service

7. Grosvenor Casinos Ltd v National Bank of Abu Dhabi Flaux J held: ICC’s URC 522 do not create privity of contract between customer of remitting bank and collecting bank.

8. Socimer International Bank Ltd v Standard Bank London Ltd Cl 14(a)(bb): ‘The value of any Designated Assets liquidated or retained and any losses, expenses or costs arising out of the termination or the sale of the Designated Assets shall be determined on the date of the termination by the Seller.’

9. Rix LJ at [66] ‘a decision-maker’s discretion will be limited, as a matter of necessary implication, by concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality. The concern is that discretion should not be abused. Reasonableness and unreasonableness are also concepts deployed in this context, but only in a sense analogous to Wednesbury unreasonableness, not in the sense in which that expression is used when speaking of the duty to take reasonable care, or when otherwise deploying entirely objective criteria.’

10. OFT v Abbey National plc Prelim issues: • whether the terms providing for the levying of charges were excluded from assessment as to fairness under the Unfair Terms in Consumer Contracts Regulations 1999 because of reg 6(2) • whether the absence of ‘good faith’ was a self-standing prerequisite to a finding of unfairness under the Regulations – the court was not asked to determine whether the terms or charges were fair under the Regulations; and • whether the terms providing for the levying of charges were capable of constituting penalty clauses at common law.

11. Request for an overdraft • Customer not in breach of contract • Customer makes offer to the bank • If accepted then on bank’s standard Ts & Cs unless agreed otherwise • Bank not obliged to consider request • But bank must follow ‘proper banking procedures’.

12. Penalties • Payment upon a breach of contract • Not a genuine pre-estimate of loss from breach but extravagant and unconscionable in amount in comparison with prospective loss • Law relating to penalties not excluded by 1999 regs

13. UTCC Regs 1999 Reg 6(2) ‘(2) In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate – (a) to the definition of the main subject matter of the contract, or (b) to the adequacy of the price or remuneration, as against the goods or services supplied in exchange.’

14. Andrew Smith J at [358] ‘It requires broader consideration of the substance of the provision and the part that the term plays in the contract, and of whether it is directly to do with a payment that is properly within the expression ‘the price or remuneration’.

15. JP Morgan Chase Bank v Springwell Navigation Corp Gloster J held: no duty of care to advise as to appropriate investments and as to the structure of investor’s portfolio as a whole. Why? • Sophisticated investor • No written advisory agreement • Actual role of bank • Disclaimers • Regulatory background

16. Investment advice v sales pitch • Giving advice was part and parcel of normal role of a salesman in the City of London • Did not amount to assumption of responsibility so as to bring into play full range of obligations of investment adviser • Acted in way that was consistent with role of an emerging markets bond salesman

17. Disclaimers • that Springwell was a sophisticated investor; • that the transaction had been conducted on an execution-only basis; • that the Chase entities had not given and Springwell had not received any advice in relation to any of the relevant transactions; • that Springwell had not relied upon any advice from any of the Chase entities.

18. Contractual matrix • Held that contractual matrix is fundamentally important in determining the existence and scope of any duty of care • Held that bulk of terms not exclusion clauses so UCTA 1977 and Misrepresentation Act 1967 do not apply • Held contractual estoppel does not require proof of detrimental reliance

19. JP Morgan Chase Bank v Springwell Navigation (No 2) ‘In entering into or taking or refraining from taking any action with respect to, any Transaction, Chase shall be responsible for exercising only that degree of care which it exercises in relation to the administration of similar transactions for its own account, provided that Chase shall not be liable to the Holder with respect to anything Chase may do or refrain from doing with respect to this Note or any Transaction in the absence of the gross negligence or wilful misconduct of Chase.’

20. Gloster J at [204] ‘It could be said that, by definition, necessarily, any breach of that lower level of duty of care involved “gross negligence”.’

21. Financial Collateral Arrangements (No 2) Regs 2003 • Establishes new regime for taking and enforcing financial collateral arrangements. • Introduces a right of ‘appropriation’ as a new means of realising collateral in an event of default without the need for a court order. • But what amounts to ‘appropriation’?

22. Alfa Telecom Turkey Ltd v Cukurova Finance Int Ltd • English law mortgage over shares in private company incorporated in BVI. • Enforcement by equitable mortgagee by ‘appropriation’. • Does this require collateral-taker to be registered as legal owner of shares? • Held: ‘No’ because c-taker becomes ‘full’ or ‘absolute’ owner of beneficial interest

23. Beconwood Securities Pty Ltd v ANZ Banking Group Ltd Federal Court of Australia (Finkelstein J) upheld the absolute nature of a transfer under a securities lending agreement and refused to recharacterise it as a mortgage or charge. The agreement in question was based on market standard documentation used outside, as well as within, Australia.

24. IIG Capital LLC v Van Der Merwe • Outside the banking context, there is a strong presumption again deeds of guarantee creating an independent primary obligation. • But in this case rebutted by language of instrument: ‘upon demand unconditionally pay’, ‘as principal obligor’ and also ‘conclusive and binding’ certificate.

25. Orascom Telecom Holding SAE v Republic of Chad • S 13(2)(b) SIA 1978 provides that ‘the property of a State shall not be subject to any process for the enforcement of a judgment or arbitration award or, in an action in rem, for its arrest, detention or sale’. • S 13(4) states that ‘sub-s (2)(b) above does not prevent the issue of any process in respect of property which is for the time being in use or intended for use for commercial purposes’. • ‘Commercial purposes’ defined in s 17(1) to mean purposes mentioned in s 3(3).

26. Definition of commercial transaction (s 3(3)) • (a) any contract for the supply of goods or services; • (b) any loan or other transaction for the provision of finance and any guarantee or indemnity in respect of any such transaction or of any other financial obligation; and • (c) any other transaction or activity (whether of a commercial, industrial, financial, professional or other similar character) into which a State enters or in which it engages otherwise than in the exercise of sovereign authority.

27. ETI Euro Telecom Int NV v Bolivia • S 9(1) of SIA 1978 provides that where a State has agreed in writing to submit a dispute to arbitration, ‘the State is not immune as respects proceedings in the courts of the UK which relate to the arbitration’. • But nothing in s 9 overrides prohibition in s13(2)(b).

28. Trade Finance • Greenland Bank Ltd v American Express Bank Ltd • Uzinterimpex JSC v Standard Bank plc

29. Miscellaneous cases • Berghoff Trading Ltd v Swinbrook Developments Ltd • British Energy Power & Energy Trading Ltd v Credit Suisse • Langston Group Corporation v Cardiff City Football Club