This is an appeal from an order made on 19 December 2003 by Mr Justice Neuberger on an application for summary judgment in proceedings between Saudi Arabian Monetary Agency (“SAMA”) and Dresdner Bank AG. The issue between the parties in those proceedings was whether the Bank was required to comply with an instruction given by SAMA for the transfer of all funds then standing to the credit of an account held in its name at the Bank’s London Branch; or, as the Bank contended, was entitled to retain on that account an amount equivalent to the indebtedness (or alleged indebtedness) of the Saudi Arabian government to its affiliate, Dresdner Bank Luxembourg SA (“DBL”). The judge held that the Bank was not entitled to retain monies with a view to set off against the government debt. The Bank appeals with the permission of this Court (Lord Justice Jacob).

The underlying facts may be stated shortly:

These proceedings were commenced on 1 May 2003. The relief sought was a declaration that the Bank was not entitled to block SAMA’s account (described there as number 760004109 370051) held at its branch in London; and an order requiring the Bank to transfer €49,147,576.71 and any interest thereon to Deutsche Bank account number 10009570961 1000 in accordance with SAMA’s instruction of 10 October 2002. In its defence the Bank asserted (i) that the government of the Kingdom of Saudi Arabia, through its ministries MOF and MODA, owed a debt of US$48,533,232 to DBL “which DBL holds a trustee for [the Bank] absolutely”; (ii) that the Bank was indebted to SAMA in the same sum; (iii) that “Either SAMA is an emanation or agency of the Government of the Kingdom of Saudi Arabia such that its assets (including the debt due from [the Bank]) are the assets of the Government or SAMA holds all its assets as trustee or agent for the Government”; and (iv) that “Accordingly [the Bank] is entitled to set off the debt due (in equity) to it from the Government against the debt due from [the Bank] to SAMA and owned beneficially by the Government”.

By an application notice issued on 24 September 2003 SAMA sought an order for summary judgment, under CPR Part 24, on the whole of its claim. In conjunction with the application for summary judgment, and by the same notice, SAMA sought permission to amend paragraph 10 of its Details of Claim. As originally pleaded the paragraph had contained the following assertions:

The application came before Mr Justice Neuberger in December 2003. At paragraph 3 of the judgment which he delivered on 19 December 2003 he recorded that, for the purposes of its application for summary judgment, the following was accepted by SAMA:

At paragraph 23 of his judgment the judge identified the two issues which had been argued before him:

In that context, the three cases to which the judge had referred earlier in his judgment were Bhogal v Punjab National Bank [1988] 2 All ER 296, Uttamchandami v Central Bank of India (1989) New Law Journal 222 and Bank of Credit and Commerce International SA (in liquidation) v Al-Saud [1997] 1 BCLC 457. The “special rule” was that set out in the headnote to the report of the Bhogal appeal, to which Mr Justice Neuberger had referred in paragraph 1 of his judgment:

The judge took the view that the first of the two issues identified in paragraph 23 of his judgment was not, on a true analysis, a real issue between the parties. As he put it, at paragraph 37 of his judgment: “Although it was SAMA’s initial case that the fund was its property beneficially, SAMA has now unreservedly resiled from that and accepts, and indeed contends, that the fund is held beneficially for GOSI”. But he went on to observe that, if that were a real issue between the parties, the Bank “would face insurmountable difficulties because the Bhogal approach would be applicable and the very high hurdle set by that test could not in my view be crossed by Dresdner”.

The judge accepted that the second of the two issues identified in paragraph 23 of his judgment raised a point of principle:

The judge held, for the six reasons which he gave, that what he had described as the Bhogal principle did apply in a case such as the present – that is to say in a case where, as he put it, “the account holder’s case is that it is not the beneficial owner of the money in the account concerned, and that another party, not the debtor of the bank, is the beneficial owner”. Accordingly, he made the order for summary judgment which SAMA had sought.

The issues raised on this appeal are (i) whether the judge was right to hold that he should approach the application for summary judgment against the Bank on the basis of what he had described as the Bhogal principle even in a case (such as the present) where the customer accepted that it was not the beneficial owner of the balance standing to its credit on the account; and (ii) if so, whether the judge ought to have held that, approaching the application on that basis, the evidence that SAMA held the balance on the account for the Saudi government was sufficiently clear and indisputable.

The appeal to this Court in Bhogal v Punjab National Bank [1988] 2 All ER 296 was one of two conjoined appeals; the other was an appeal in Basna v Punjab National Bank. Each of the claimants, Mr Ajit Singh Bhogal and Mr Yaacoub Basna, were customers of the Punjab National Bank, with accounts at the bank’s London branch. They each called for payment of the amounts standing to the credit of the accounts in their names. The bank refused payment. Its case was that each of Mr Bhogal and Mr Basna, and a third customer, Mr P Kumar, held the accounts ostensibly in their respective names for a fourth party, Mr Joginder Pal Sanger; that the account in the name of Mr Kumar was overdrawn in a substantial amount at the time when Mr Bhogal and Mr Basna demanded payment; and that the bank was entitled, by way of equitable set-off, to set the debit on the account in the name of Mr Kumar against the credits on the accounts in the names of Mr Bhogal and Mr Basna. Mr Bhogal had obtained summary judgment against the bank in the Commercial Court (Mr Justice Hobhouse); and Mr Basna had obtained a summary judgment for interim payments in the Chancery Division (Mr Justice Scott). As Lord Justice Dillon put it, in this Court, the claims of the bank to set-off “were rejected by Hobhouse J in Mr Bhogal’s case as not amounting on the facts to an arguable defence and by Scott J on the law in Mr Basna’s case”. The issue in this Court was whether Mr Justice Scott had been correct in the approach which he had adopted in the Basna case. He had said this:

As Lord Justice Dillon explained, in giving judgment on the conjoined appeals, the doctrine of equitable set-off has developed from the practice of the courts of equity, before the Judicature Acts, of granting an injunction to restrain a claimant from pursuing his claim at law against a defendant pending the resolution of some cross-claim of the defendant which, at law, would not have provided a defence to the claimant’s claim. And, as Lord Justice Dillon also pointed out ([1988] 2 All ER 296, 300):

After referring to the decision of this Court in Ex parte Morier, In re Willis, Percival, & Co (1879) 12 ChD 491 – and, in particular, to the observations of Lord Justice James at page 496 – Lord Justice Dillon went on:

Lord Justice Dillon described as “extensive” the inquiries which need to be made if the bank were to be granted leave to defend and the actions were to go to trial. He observed that the extent of those inquiries took the cases “way outside” the concept of equitable set-off as explained by Lord Justice Brett in the passage which he had cited from Ex parte Morier. He concluded that the bank had failed to show an arguable defence on the law in either action. And he added that, in the Bhogal action, he agreed with Mr Justice Hobhouse that no arguable defence had been made out on the facts; as he put it “there is no evidence worthy of the name to support the contention that Mr Bhogal was a bare nominee for Mr Sanger”.

Lord Justice Bingham, the other member of the Court in the Bhogal and Basna appeals, took the view (differing from Mr Justice Hobhouse and Lord Justice Dillon in the Bhogal case, but agreeing with Mr Justice Scott in the Basna case) that, in each case, the bank had demonstrated a triable issue, on the facts, that Mr Sanger was the true holder of the accounts in the names of the claimants and of Mr Kumar. So, in the context of both appeals, it was necessary for him to address what he described as the second question: whether, if there were a triable defence on the facts, that would in law afford the bank any defence to the claims.

At [1988] 2 All ER 296, 305e-306h, Lord Justice Bingham set out a long passage from the judgment of Mr Justice Scott in the Basna case. He observed, at page 306j, that the facts of the cases then before the court “powerfully illustrate the wisdom of the rule which Scott J laid down”. After summarising those facts he went on to say this (ibid, 307c-f):

The Bhogal and Basna appeals were decided by this Court in November 1987. A similar point came before the Court for decision some fourteen months later, in Uttamchandami v Central Bank of India (1989) New Law Journal 222. It was submitted on behalf of the bank in that case (i) that the decision in the Bhogal appeals were not binding on this Court – on the grounds (it was said) that no ratio decidendi could be identified because the two judgments in those appeals had proceeded on different grounds – and (ii) that Lord Justice Dillon had misunderstood the reasoning in Ex parte Morier. Lord Justice Lloyd (with whose judgment the other member of the Court, Sir Roger Ormrod, agreed) rejected both of those submissions. He held that the ratio decidendi in the Bhogal appeals was to be found in a single sentence of the judgment of Mr Justice Scott in the Basna case (which both Lord Justice Dillon and Lord Justice Bingham were to be taken to have adopted):

As Lord Justice Lloyd recognised, it would have been sufficient, in Uttamchandami, merely to rely on the earlier decision of this Court in the Bhogal appeals; but he added some observations of his own:

In Bank of Credit and Commerce International (in liquidation) v Al-Saud [1997] 1 BCLC 457, this Court (Lord Justice Neill, Lord Justice Simon Brown and Lord Justice Waite) had to consider whether, in circumstances in which the bank was in liquidation, the principles said to be derived from Ex parte Morier (supra) were distinguishable or were to be taken to have been modified by the decision of the House of Lords in Stein v Blake [1996] AC 243, [1995] 2 BCLC 94. The Al-Saud case is of little direct assistance: the present case is not one in which statutory set-off under the insolvency code is in point. But, in the course of his judgment (with which the other members of the Court agreed), Lord Justice Neill said this ([1997] 1 BCLC 457, 465h-j):

It is clear, therefore, that the Bhogal principle has been recognised and applied in this Court on three occasions in the past twenty years. Counsel for the Bank accepts that it is binding on us; although she has drawn our attention to the criticism of the principle in Derham, The Law of Set-Off (Third Edition, 2003) at paragraphs 11.12 to 11.16 and she reserves the right to challenge the principle elsewhere. In that context, I note that the principle is referred to without apparent disapproval in Paget’s Law of Banking (12th Edition, 2002) at paragraphs 29.27 to 29.28 and in Wood, English & International Set-Off (1989) at paragraph 21-156, where it is expressed in this form:

For my part I can see force in the criticism that, in general, the existence or non-existence of a right of set-off in equity should not depend on whether the necessary mutuality between the debts which are to be set-off against each other is obvious, without investigation, or only becomes apparent after investigation. With respect to those who have taken a different view, I have some doubt whether Ex parte Morier (supra) was authority, on its facts, for a proposition of that width. It is, I think, important to have in mind that, in that case, the monies in the executors’ account were assets in an unadministered estate. Until the estate had been administered and accounts taken it could not be said that one executor (the brother) was beneficially entitled to the exclusion of the other (his sister). The question, in that case, was not whether, at the time of the purported set-off, the executors held the account on a bare trust for the brother; but whether, when the estate had been fully administered and accounts taken, it would be seen that no-one other than the brother was beneficially interested in the monies standing to the credit of the account. But it is unnecessary to express a considered dissent from the proposition; even if it were open, in this Court, to do so in the light of the subsequent authority. What, to my mind, is the critical element in cases where a banker seeks to rely on a right of equitable set-off against his customer – that is to say, against the person in whose name the account is held – is that their relationship is governed by the underlying banking contract to which they (and they alone) are party.

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”. If it is thought necessary to seek some jurisprudential basis for that rule, then it can be found either in the need to imply a term to that effect into the banking contract between A and C in order to give business efficacy to the relationship of banker and customer; or in the proposition that, where the existence of the equitable interest is not clear and indisputable, equity will not override the clear rules of law on which bankers and customers habitually deal with each other. There is support for both in those passages from the judgments in this Court which I have already set out.

If that is the correct analysis of the authorities binding on this Court, then the judge was plainly right to hold that he should approach the application for summary judgment against the Bank on the basis of what he had described as the Bhogal principle even in a case (such as the present) where the customer accepted that it was not the beneficial owner of the balance standing to its credit on the account. The relevant question, as between the customer and the bank, is not whether the customer holds the account in its name for its own benefit or as nominee or trustee for another: the relevant question is whether the customer holds the account as nominee or trustee for the bank’s debtor. It is in relation to that question that the rule applies. The bank is not entitled to refuse to comply with instructions given by its customer on the basis merely of an arguable case that some other debtor of the bank has an equitable interest in the money standing to the credit of the customer’s account.

It was submitted on behalf of the Bank that, even if the judge were right to hold that the application before him was to be approached on the basis that SAMA’s averment that the monies in account 410937 51 were “attributable” to GOSI did not take the present case outside the Bhogal principle, he should have held that the evidence that SAMA held those monies as trustee for the Saudi government was sufficiently clear and indisputable to meet the test which that principle requires. In support of that submission the Bank relied on the charter under which SAMA was established by Royal Decree in 1957; and on the evidence of Mr Hassan Mahassni, a Saudi lawyer who is a partner in White & Case, the international law firm instructed by the Bank in the present case.

Mr Mahassni’s evidence, at paragraph 18 of his witness statement dated 18 July 2003, was that SAMA’s relationship with the Saudi government is twofold:

The final sentence of that paragraph appears – at least to English eyes – to contradict the assertion in the third sentence of that paragraph, that the monies “are held in trust for the Government”. If the monies which, as the accounts show, SAMA invests on the world markets were, in truth, held upon trust for the Government, they would appear in SAMA’s accounts as neither assets nor liabilities of SAMA; they would be shown as assets of the Government. But the accounts which are in evidence (for the year ending 30 June 2002) have been audited by a well known international firm of accountants (Ernst & Young) and they do show SAMA as a trading organisation with a profit and loss account and assets and liabilities of its own. More pertinently the accounts show, in a separate section of the balance sheet, assets and liabilities attributable to “Independent Organizations”, amongst which is GOSI.

Mr Mahassni’s view is contradicted by the evidence of Mr Mohamed Al-Shumrani, the Director of General Investment of SAMA, who described the monies in account 410937 51 as “funds maintained in SAMA’s name with Dresdner Bank and managed by SAMA for the benefit of [GOSI]”. Mr Ghassan Al Awaji, an attorney practising in Riyahd, explained that GOSI was “a legal entity with an independent legal existence”. Its purpose is “to administer the social insurance system in the State by providing social benefits to workers in Saudi Arabia, primarily those in the private sector and their related beneficiaries”. Its funds are not the funds of the Government; but are derived from employer and employee contributions. Dr Mohamed Almulhim, now practising as an attorney in Riyahd but formerly a Minister of State and Member of the Council of Ministers of the Kingdom of Saudi Arabia and a Professor of Law and Dean of the College of Commerce at King Saud University, confirmed that, “like any other central bank, [SAMA] acts as banker to the Government of Saudi Arabia”; but that “as a matter of law and fact, SAMA is a distinct and autonomous entity, separate from and independent of the Saudi Government”.

In the light of that conflicting evidence the judge held that the Bank had not established to his satisfaction that the Saudi Government was the beneficial owner of the monies in account 410937 51. There was “plainly an arguable case, on the facts and the arguments raised by SAMA, that GOSI is the beneficiary”. At paragraph 39 of his judgment he had said this:

In my view the judge was right to hold that the evidence upon which the Bank sought to rely in order to establish that SAMA held account 410937 51 as trustee for the Saudi government was not clear and indisputable. That is sufficient to dispose of this appeal.

I would add, however, that it seems to me that the correct approach is to look at the position on the basis of the material on which the Bank relied at the time when it refused to comply with SAMA’s instruction on 10 October 2002. If the rule is that 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, then – whether the basis for that rule lies in the need to imply a term into the banking contract in order to give business efficacy to the relationship of banker and customer or in the proposition that there is no equity in the Bank to override the clear rules of law on which bankers and customers habitually deal with each other – the rule ought to be applied by reference to the reason for refusal given at the time when payment ought to have been made. It is pertinent, therefore, to have in mind that the reason for the refusal to comply with SAMA’s instructions in the present case, given on behalf of the Bank by DBL in the letter dated 18 October 2002, was that “it is clear that a right of set-off does exist against the assets of SAMA, which is an arm of MOF and the entity that has been used to remit payments due from MOF and MODA.” The contention that SAMA held all its assets as trustee for the Saudi government first emerged (as an alternative basis for the refusal) in the defence filed some six or seven months later. No attempt was made in these proceedings to substantiate the assertion that SAMA was an arm of MOF. To my mind that, of itself, provides the answer to the second issue.

I would dismiss this appeal.

I agree with Chadwick LJ that this appeal is governed by the principles set out in Bhogal v Punjab National Bank [1988] 2 All ER 296. It would be “lamentable”, to use the word of Scott J at first instance in that case, if a bank which had received a customer’s instructions to transfer what is on the face of the account the customer’s money could assert against the customer an equitable set-off on the basis that the money in the account was beneficially held for a person who was himself indebted to the bank, without having “indisputable” evidence that the money in the account was so held. The judge was correct to hold that the evidence relied on by the bank in the present case was by no means indisputable and that summary judgment should, therefore, be given to the customer.

Miss Jones QC sought to distinguish Bhogal by submitting that in Bhogal the claimant was beneficially entitled to the money in the account in his name, whereas in the present case the claimant did not claim to be beneficially entitled to the money but only entitled in law. That is not a distinction which appeals to me; the bank ought not to be concerned whether money in an account is held beneficially for the account-holder or beneficially for another. The bank must comply with its customer’s instructions and it can only be in a clear and convincing case that it can be entitled to invoke the doctrine of equitable set-off.

I would myself have said that the present case is even clearer than Bhogal. As my Lord has pointed out the claim in the present case is that the bank has failed to follow the claimant’s instructions and that the bank be required to follow the instructions given. The order of the judge upheld the claim. This is a form of specific performance. I do not consider that it is possible to say that the existence of a cross-claim to recover a debt is a defence to an action for specific performance. The most that a defendant in that position can say is that the court should not, in its discretion, grant specific performance of an obligation to comply with its customer’s instructions to transfer money if it is clear that the money which the bank is asked to transfer belongs beneficially to a person indebted to the bank. But, as it seems to me, the Bhogal test that a defendant bank must be able to say that such beneficial ownership is “indisputable” should apply even more strongly in a case where the claim is for specific performance than in a case where the claimant, as in Bhogal, is merely asserting a claim in debt.

I agree that the appeal should be dismissed.

I agree with both judgments. The appeal is dismissed.