Transcript Recent Developments in Banking and Finance Law

Recent Developments in
Banking and Finance Law
Richard Hooley
Credit Crunch
(a) 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
Credit Crunch
• Building Societies (Financial Assistance)
Order 2008
• Bradford & Bingley plc Transfer of
Securities and Property etc Order 2008
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)
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
Payment systems
• TARGET2
• Faster Payments Service
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.
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.’
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.’
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.
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’.
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
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.’
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’.
JP Morgan Chase Bank v
Springwell Navigation Corp
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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
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
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.
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
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.’
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”.’
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’?
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
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.
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.
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).
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.
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).
Trade Finance
• Greenland Bank Ltd v American Express
Bank Ltd
• Uzinterimpex JSC v Standard Bank plc
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