Additions to the banking casebook

Over the past year, there have been a number of important cases involving banking, building societies and financial services in which leading counsel and their juniors have established their reputations and raised important questions in new areas of the law. Among these cases are NRG, BBL and BCCI (No. 8), which covered issues ranging from misrepresentation and jurisdictional issues to a bank's responsibility to its customers.

In choosing the right counsel to assist in this area, there are a number of well-known chambers. Inevitably, most City lawyers tend to use the same major players in these areas.

Most of theses major players have been instructed in the headline cases. Peter Scott QC at Fountain Court was involved in 1996 in two major cases. One involved Banque Bruxelles Lambert and Eagle Star, and the other was NRG v Ernst & Young and Bacon & Woodrow, in which a bank, and other institutions, were sued over negligent advice they provided during a takeover. “While the case was eventually abandoned against the Swiss Bank Corporation, it was important in that it examined the role of investment and merchant banks advising parties to do a takeover, either alone or with other specialist advisers,” says Scott.

Two other cases which lawyers in this area followed with interest were Smith New Court v Scrimgeour Vickers (Asset Management) and Citi-bank NA, which dealt with the extent to which damages are recoverable for fraudulent misrepresentation, and Banco Exterior v Thomas & anr, which considered the extent to which a bank is put on notice to its customer's own position when obtaining a guarantee from that customer. The question, explains Scott, is whether the bank can rely on the guarantee if the bank has information that giving the guarantee is not in the customer's best interest.

Nicholas Stadlen QC is acting for the Bank of England in the BCCI case, which raises the question of the role of a registered authority. When one of its institutions collapses, does the bank have a responsibility to sustain the losses?

Citing the BBL case, John Jarvis QC, chair of the Commercial Bar Association, points out that banks are increasingly initiating actions of professional negligence against auditors. “What we are seeing is a tendency when banks have exhausted recovery against valuers and surveyors that they are now picking up liability against the auditors,” he says.

David Owen is a junior at 20 Essex Street who worked with Iain Milligan QC on Bankers Trust International v Dharmala, which was one of the first swaps futures derivatives cases.

According to Owen, this case raised “the extent to which a bank owed a duty of care to advise a counterparty. The judge held that there was no special duty when dealing with sophisticated party, over and above the duty not to misrepresent the characteristics of the transaction.”

In addition to covering new areas of law, these recent cases can be of guidance for plaintiffs who are seeking to enforce their rights in certain jurisdictions and those who want to find ways of optimising their claims in terms of awards for damages.

“As a result of the Smith New Court case, it may be that parties who prove fraud will be able to recover significantly more than parties who can recover for negligence,” comments Ian Glick QC, of 1 Essex Court, who acted in the case. “As it happens, this was a case involving a sale of shares but it applies to all fraud.”

Rhodri Davies has acted as a junior at these chambers on a number of cases in banking law, including Kleinwort Benson v Birmingham City council which was heard in the Court of Appeal and will now be going to the House of Lords.

Davies comments: “The question comes up, can one recover payments made under a mistake of law as opposed to a mistake of fact?”

One of the major cases of 1996 involving banks, building societies and financial services was Re BCCI SA (No 8) which dealt with a number of major issues, including whether a case should be heard in the UK or in Luxembourg.

The courts found that the UK had jurisdiction and this was a major step in giving protection to English creditors. Acting in that case were John McDonnell QC, Christopher Carr QC and Robin Dicker, a well-known junior in this area.

However, while many major cases like BCCI (No 8) are reported, many more cases are increasingly being settled before judgment and are not getting reported.

“Reported judgments are not necessarily the whole story,” explains Jarvis, who points out that many of the big name cases are settled and receive no public attention.