3PLR – MAHOMED V. BANK OF BARODA

POLICY, PRACTICE AND PUBLISHING, 3PLR, LAW REPORTS

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MAHOMED

V.

BANK OF BARODA

COURT OF APPEAL, CIVIL DIVISION

16^TH NOVEMBER 1998

3PLR/1998/74 (CA-E)

 

BEFORE:

LORD JUSTICE SIMON BROWN;

LORD JUSTICE MANTELL AND

LORD JUSTICE MUMMERY

 

MAIN ISSUES

BANKING AND FINANCE:- Banker-customer relations – Proposal for repayment of multiple outstanding indebtedness through financial instruments – Acceptance of by bank – Effect

 

 

MAIN JUDGEMENT

JUDGMENT (As Approved by the Court)

LORD JUSTICE SIMON BROWN:

Before the Court are two consolidated appeals, each brought by the defendant Bank with the leave of the judge below. Both arise in an action for monies standing to the plaintiff’s credit on a US Dollar term deposit account maintained with the defendants. Two defences were raised to the claim: first, that the deposit was security for the continuing indebtedness to the Bank of a company called Manlon Trading Limited (Manlon); second, that the claim was time-barred under the Limitation Act 1980. Both defences have been held to fail.

 

The first appeal is against the order of Harman J made on 29th November 1996 in Order 14 proceedings refusing the defendants leave to defend in relation to their defence of security, on the basis that Manlon’s liability to the defendants had been discharged in 1987. The second appeal is against the order of Mr Michael Burton QC sitting as a deputy judge of the High Court on 8th July 1997 rejecting the Limitation Act defence and ordering payment of the sum claimed, amounting at that date to some US$330,000.

 

With that brief introduction let me flesh out the relevant facts as shortly as may be. The account was opened in 1979. By 1987 (perhaps well before) it had been agreed that the contents of the term deposit were, without specific instructions, to be rolled over each month for a further monthly fixture together with the interest credited to the account at monthly rests. By Memorandum of Agreement between the parties dated 21st August 1994 the plaintiff agreed that the balance of the deposit together with all sums accruing should be “a continuing security for all monies and liabilities … due or owing to the Bank … by the Principal [Manlon] … and that:

“So long as the Principal remains under any obligation or liability … to the Bank … the depositor shall not be entitled, except with the prior consent in writing of the Bank, to withdraw the whole or any part of the deposit.”

 

Such liability on the part of the Principal arose in respect of two bills, one a Nigerian bill and the other a Benin bill, the latter being later replaced by a Nigerian promissory note. Whether, as Harman J held, that liability was discharged in 1987 depends upon the true construction of a letter from Manlon to the defendants dated 5th November 1987 and this I must set out in full (adding paragraph numbers for convenience):

“1.     Further to our meeting on 2nd November I confirm that in view of the severe financial difficulties it is virtually impossible for us to repay your advances on Benin and Nigeria and I have explained to you the background of the circumstances.

2. I therefore, in accordance with my suggestion, enclose herewith a Promissory Note No. RB 12349 issued on 4/07/87 for US$601,552 for which there is going to be an interest payable in excess of 40% of the value which is to be capitalised and you will be receiving the note covering this interest amounting to about $240,400.
3. I propose this Note be accepted as settlement for our outstandings on Benin.
4. As for our Bill due from Nigeria here the debt has been matched amounting to US$180,000 for which you will be receiving payment in instalments from Export Credits Guarantee Dept. We do not intend lodging a claim as documentations are incomplete. Here again you can expect interest of 40%, as no previous interest has been paid.
5. After taking into account the above Note and proposed payment in instalments from ECGD, we anticipate that you should eventually get full settlement of your outstanding on us, which we humbly request that you agree to.
6. In the past we have paid you on the above outstanding interest of about $130,000 and have also repaid you principal amount of about £20,000.
7. We have had an account with your Bank for a considerable period and we are embarrassed to give you this proposal but circumstances do not permit us to do anything better.
8. We hope that you will put this proposal to your Head Office and discharge us from our liabilities to your Bank.”

 

It is common ground that upon receipt of that letter the Bank duly effected the transfer of the Nigerian Promissory Note into their own name in the books kept by the Chase Manhattan Bank. The issue arising was whether (as the Bank maintain) only the Benin liability was thereby settled or (as Manlon and the plaintiff maintain and as Harman J held) the letter contained a single and indivisible offer which could only be accepted as a whole.

 

On 8th June 1988 Manlon were wound up.

 

The plaintiff’s first demand for payment of the sum standing to his credit at the Bank was made by letter to the defendants dated 8th July 1989 in these terms:

“US$ Account No. 264474-100

The above account be closed on the next maturity which is 17 July 1989 and the entire balance be remitted to me by means of a banker’s draft. … I look forward to receive the banker’s draft.”

The Bank declined to make payment, writing on 17th August 1989:

“Please note that this deposit is under lien of our Bank as security for the facilities granted to [Manlon] as per Memorandum dated 21st August 1984 duly signed by you. In view of this we regret our inability to release the proceeds of this deposit till the outstanding dues are paid by [Manlon]. The present outstanding dues are in excess of the amount of your deposit.”

Following further exchanges between the parties the plaintiff instructed solicitors who on 25th May 1990 wrote to the Bank as follows:

“We act for Mr A.S.A.A. Mahomed who has consulted us in connection your refusal to comply with his instructions dated 8th July 1989 to close US$ account No. 2644740-100 on next maturity and remit to him the proceeds.

We understand that your reason for refusing to comply with our client’s instructions is that you claim to place some reliance on a memorandum of continuing deposit dated 21st August 1984 … … it has been superseded by your acceptance of the offer of Manlon Trading Limited contained in the letter sent to you by recorded post on 5th November 1987 whereby certain notes were delivered in satisfaction of the indebtedness of Manlon Trading Limited. …

Having accepted those notes in full satisfaction of any indebtedness of Manlon Trading Limited to the Bank, you cannot now seek to rely upon the memorandum of continuing security for facilities which you had made available to Manlon Trading Limited.

In the circumstances please take this letter as our client’s formal demand that your repay our client’s deposit to him. Please send your draft to us at this address. Unless we receive your confirmation within the course of the next seven days that you will make payment at next maturity, we anticipate that our client will instruct us to take appropriate steps for recovery.”

Following further correspondence the Bank’s solicitors on 11th June 1992 wrote to the plaintiff’s solicitors as follows:

“We understand that our respective clients have had discussions and have agreed that if our client receives from the Liquidator of Manlon Trading Limited the interest received by him from E.C.G.D. in respect of the unpaid Bill together with an irrevocable authority from him to E.C.G.D. to make all future payments of principal and interest directly to our clients, they will release their charge over your clients deposits.

Please confirm you have been similarly instructed and that you are taking the matter up with the Liquidator.”

It appears that nothing came of that and eventually, on 7th December 1995, the plaintiff issued his writ. This was, of course, more than six years after the first letter of demand dated 8th July 1989 and so it was that the Bank put forward the two defences already referred to.

As to the first defence – the Bank’s reliance on Manlon’s alleged indebtedness – Harman J, as stated, ruled against it. He found the letter of 5th November 1987 to be “a clear single offer”, accepted by conduct so as to extinguish Manlon’s liability to the Bank. The Limitation Act defence, however, he regarded as “not at all clear” and for this he gave leave to defend, ordering the issue to be tried under RSC Order 33 Rule 3.

Before Mr Burton QC three points were taken on behalf of the plaintiffs. First it was said that the May 1990 demand (the later demand and one which was, of course, made within the six year limitation period) was itself a valid demand such as to set time running again. Second, that the Bank’s solicitors letter of 11th June 1992 constituted an acknowledgment of the claim within the meaning of s.29(5) of the Limitation Act 1980 so that the right of action fell to be treated as having accrued only on that date. Third, that the Bank’s conduct in continuing to credit interest monthly to the plaintiff’s account even after the two demands had been refused (indeed, right up to the date of trial) on each occasion constituted the making of a payment in respect of the claim within the meaning of ss.29(5) and 29(6) of the 1980 Act so as repeatedly to extend the date from which time was to run. The Deputy Judge found for the plaintiff on points 1 and 3, for the defendants on point 2. The defendants appeal on points 1 and 3; there is a respondent’s notice on point 2.

On these appeals, therefore, four issues in all arise: first, as to whether the 1987 settlement extinguished the whole or only part of Manlon’s indebtedness to the Bank, and then three as to the proper application here of the Limitation Act 1980, issues of some general importance in the field of banking law and practice.

The First Appeal – the 1987 Settlement

The matrix of fact against which to construe the letter of 5th November 1987 is not in dispute. Manlon had only one account with the Bank in respect of both advances. Paragraphs 1 and 7 of the letter sufficiently indicate the circumstances in which they were making their settlement approach to the Bank. It is not suggested that anything of further relevance was said at the meeting on 2nd November referred to in paragraph 1.

In contending that only the Benin liability was settled by their acceptance of the promissory note, the Bank not surprisingly rely heavily on paragraph 3. They submit that, if it had been intended to settle liability also under the Nigerian bill, the letter would have expressly said that the transfer of the promissory note was in full and final settlement of all indebtedness and not just the Benin liability. The letter, they argue, is in two distinct parts: paragraphs 2 and 3 relate only to the Benin liability; paragraphs 4-8 turn separately to the Nigerian bill and seek what counsel called “a letter of comfort” that the Bank would waive all liability even though nothing further was being offered with regard to that bill. It was open to the Bank, they submit, to accept the promissory note and yet refuse that wider letter of comfort.

Like the judge below, I would reject these contentions, and hold instead that the offer was a single package to be rejected or accepted as a whole. True it is that within the package the promissory note was being allocated to the substantially larger liability represented by the Benin bill. But the Bank were also being told of their expectations from the ECGD with regard to the Nigerian bill. Paragraph 5 draws the two together and invites agreement with regard to “your outstanding on us”, a reference to a global indebtedness on a single account. Paragraph 6 similarly discusses the single account. Paragraphs 7 and 8 each refer to “this proposal” in the singular, namely an overall proposal, which in paragraph 8 is contrasted to a discharge from “our liabilities” in the plural, a reference to both bills.

The Second Appeal

Before addressing the various Limitation Act issues it is convenient first to set out a section of Mr Burton’s judgment in which he helpfully summarises his factual findings:

“1.     After the demand of July 1989 it is now apparent that the defendant bank took no notice of that demand, or of the implied revocation of any authority to place the money into fresh and continuing monthly term deposits contained in the instruction to pay out to the plaintiff the total balance on maturity of the then existing term deposit. This was because the bank wanted to keep the bank account going as it was, in exactly the same form and manner, because it did not intend to write off, and did not consider it had in any way compromised, its claim in respect of the liability of Manlon Trading Ltd. under the Nigerian bill or the former Benin bill, now a Nigerian promissory note payable by instalments through to 2012. Accordingly, the account number 2444740-100, with exactly the same number, was operated by the bank exactly as before in the name of the plaintiff, with regular monthly term deposits, exactly as before, and monthly crediting of interest, exactly as before.

The plaintiff’s account was thus neither closed nor off-set against the liabilities of Manlon Trading Ltd. nor paid into a suspense account. Mr Walia [the manager of monitored accounts for the defendant bank] confirmed in his evidence that the file continued unchanged and the bank statements for the account, which had not in any event for some years been posted to the plaintiff, continued in exactly the same form.

2. The May 1990 demand was thus made in respect of a still extant and active account. Although there was complaint by the plaintiff’s solicitors of non-compliance with the earlier instructions, the demand was not for payment forthwith, but it accepted the fact of the continuing term deposits and simply required repayment upon maturity of the then existing term deposit.
3. The accounts remained in existence after May 1990 on exactly the same basis. From time to time Mr Aziz [the plaintiff’s brother who handled most matters on his behalf] rang up and asked for, and received, information about the balance of the account, including the interest which was being credited to that account as before at monthly rests.
4. The interest was credited gross on the basis that the account holder, Mr Mahomed, the plaintiff, was non-resident, and from time to time the bank requested signature by the plaintiff of a form R105 to regularise his tax position.”

(1) Was the May 1990 Demand a Valid Further Demand?

In reaching his conclusion that the May 1990 demand was indeed an effective further demand which set time running afresh Mr Burton said this:

“… the bank continued to operate the account actively. (a) It placed the balance into a monthly fixture each month exactly as before. It is unclear to me whether there was a monthly money market placement, but that seems likely. (b) It credited interest at the end of each month and then rolled the interest over together with the principal, to the next month. (c) It treated the account holder as entitled to the interest and regarded him as a non-resident entitled to be paid or to be credited the interest gross, and it dealt or sought to deal with his tax position.

In my judgment, as the account continued exactly as before, the plaintiff was entitled to make a further demand in respect of that account, the first not having been complied with, and, insofar as necessary I consider that he ratified the acts carried out in the interim without his authority, insofar as he had revoked such authority, by calling for payment upon maturity of a deposit which the bank had set up without his instructions.”

 

The Bank challenge that conclusion. They argue essentially as follows:

1. Sums deposited in a bank account create a debt between the bank and its customer which is repayable on demand. That such a demand is a necessary ingredient in the cause of action against a bank for money lent was decided by the Court of Appeal in Joachimson v Swiss Bank Corporation [1921] 3KB 110.
2. Under the Limitation Act, therefore, time starts to run from the date of the demand or, in the case of a term deposit, immediately after the agreed period expires. The first demand here was made on 8th July 1989 and required closure and payment on 17th July. It was accordingly from that date that time started to run.
3. Once time starts to run it will as a rule continue to do so and, as the deputy judge himself said, “a plaintiff cannot simply extend the limitation period by serving another demand and seeking to start the six years up again.”
4. The reasons given by the deputy judge for holding that the second demand was a valid one were unsound: so far from the letter of 25th May 1990 ratifying what the Bank had done by way of continuing to operate the account actively since the previous demand, it in fact complained about the Bank’s “refusal to comply” with the earlier instructions.
5. In short, nothing had occurred to stop time running in respect of the first demand and no new agreement had come into being such as to entitle the plaintiff to make a fresh demand and start time running again.

The respondent meets that argument in two ways. His first and wider submission is that there is nothing to stop a bank customer from making as many demands as he likes and each one creates a fresh right of action with its own fresh six year limitation period. The deputy judge, submits Mr Collings (albeit without a respondent’s notice or skeleton argument to herald such a submission) was wrong to say that “a plaintiff cannot simply extend the limitation period by serving another demand and seeking to start the six years up again”. Failing that, the respondent seeks to uphold the judgment on the narrower basis adopted by the deputy judge below.

In considering these arguments it is helpful to have in mind certain observations of the Court of Appeal in Joachimson and to notice too how the law of limitation has been changed with regard to loans generally.

The judgments in Joachimson included the following passages:

“The question whether there was an accrued cause of action on August 1, 1914, depends upon whether a demand upon a banker is necessary before he comes under an obligation to pay his customer the amount standing to the customer’s credit on his current account. This sounds as though it was an important question. In a sense no doubt it is, but it is very rarely that the question will in practice arise. In most of the cases in which the question is likely to arise, even if a demand is necessary to complete the cause of action, a writ is a sufficient demand. It is only therefore in the unlikely case of a banker pleading the statutory limitations, or in a case like the present where the facts are very special, that the question becomes important.” (Bankes LJ at p.115).

“The practical bearing of this decision is on the question of the statutory limitations. Since the case of Pott v Clegg 16M and W 321 in 1847 it has been laid down in text-books that, in the case of a current account, the statute runs from the time of the money being deposited with the banker … The result of this decision [to the contrary] will be that for the future bankers may have to face legal claims for balances on accounts that have remained dormant for more than six years. But seeing that bankers have not been in the habit as a matter of business of setting up the Statute of Limitations against their customers or their legal representatives, I do not suppose that such a change in what was supposed to be the law will have much practical effect.” (Atkin LJ at p 130 and 131.)”

The situation was, however, different with regard to what I may call non-banking loans and this attracted the concern of the Law Revision Committee in 1977. In their 21st (and final) Report on Limitation of Actions they noted:

“… a defect in the law which may cause considerable injustice, in that a defence of limitations can be successfully raised in answer to a claim for the repayment of a loan when, if effect were given to the true intention of the parties, the claim would be well within the limitation period.” (paragraph 3.19).”

Accordingly, they recommended that:

“… where money is lent and no date specified for its repayment, then, for the purposes of limitation, time should not begin to run in favour of the borrower until the date on which a written demand for repayment is first made.” (paragraph 3.26)

It was that recommendation which led to s.6 being included in the Limitation Act 1980. I need not read it. Generally speaking it provides that the normal six year limitation period does not begin to run in favour of the borrower until the lender has made a written demand for repayment.

The temptation to accede to the respondent’s wider submission is acute. It is after all surprising and unattractive to find a bank taking the Limitation Act defence in the first place. But the consequences of accepting this submission are, as Mr Collings recognises, that in no circumstances could a bank ever successfully invoke the Limitation Act – they could never prevent the customer from creating a new cause of action by means of a fresh demand – and for my part I am not prepared to go this far. Take this very case and assume, contrary to the facts, that after Manlon went into liquidation and before the plaintiff’s first demand the Bank had purported to appropriate the deposit towards the discharge of Manlon’s liability. Had the Bank then refused the plaintiff’s demand on the basis of that appropriation and the plaintiff waited over 6 years before suing, his claim would have been statute barred. I see no basis on which he could thereafter have resurrected his statute-barred claim simply by making a fresh demand. That would be to circumvent ss.5 and 6 of the 1980 Act. Were it otherwise, not merely bankers but others too sued as debtors under contracts of loan would effectively be outside the protection of the Act. S.6 of the Act would effectively be a dead letter. Certainly the relevant part of the Encyclopaedia of Banking Law (1998 edition, whose editors include Cresswell J), dealing with limitation of actions, would need to be rewritten: it is clearly implicit in that work that the problems of limitation in the field of banking cannot in every case be overcome simply by the making of a fresh demand.

That said, I certainly do not accept Mr Cherryman QC’s submission that a demand, once made, cannot be retracted. If a customer, having demanded closure and repayment of his account, then changes his mind, he can notify the bank accordingly and, assuming always that the bank is content to continue holding the account, the contract will in effect start afresh. The cause of action arising from the original demand will have ended and a fresh one will arise upon the making of a fresh demand.

That seems to me essentially the thinking underlying the judgment below. True, the plaintiff here never expressly withdrew his earlier demand, but such withdrawal was necessarily implicit in the May 1990 demand for “payment at next maturity” which would otherwise have been inconsistent with it. There was no question here of the Bank denying the credit balance or being unwilling to maintain the account. On the contrary, as the judge pointed out, they actively operated the account throughout.

I would accordingly uphold the judge’s conclusion upon this issue: on the facts of the present case the plaintiff was entitled to make a further demand and start time running afresh.

(2). Was the Letter of 11th June 1992 an Acknowledgment?

S.29(5) of the 1980 Act, so far as material to this issue, provides as follows:

“… where any right of action has accrued to recover:

 

(a)     any debt or other liquidated pecuniary claim …

and the person liable or accountable for the claim acknowledges the claim … the right shall be treated as having accrued on and not before the date of the acknowledgment …”

 

S.30(1) of the Act provides that:

“To be effective for the purposes of s.29 of this Act, an acknowledgment must be in writing and signed by the person making it.”

S.30(2) provides that for s.29 purposes such an acknowledgment may be made “by the agent of the person by whom it is required to be made”.

The plaintiff in this regard relied upon the Bank’s solicitors statement in their June 1992 letter stating that in certain circumstances their clients “will release their charge over your clients deposits”. It was plainly implicit in this assurance that they continued to hold the plaintiff’s deposit account. The Bank’s response to that, however, was and remains that, so far from this constituting an acknowledgment of the claim, it was disputing any liability to pay, maintaining (as had the Bank’s earlier letter) that, by reason of their charge, nothing was payable until Manlon’s outstanding liability had been disposed of.

The leading case on the meaning of acknowledgment in s.29 of the 1980 Act (earlier enacted as s.23(4) of the Limitation Act 1939) is Surrendra Overseas Ltd v Government of Sri Lanka [1977] 1 WLR 565. The issue there was whether a debtor “acknowledges the claim” in a statement of account which sets out the claim but at the same time denies the debtor’s indebtedness on the ground of an alleged set off or cross-claim. There being no reported case directly in point since the provision was first introduced in 1939, Kerr J reviewed the earlier authorities and at page 575 continued:

“What I draw from these authorities, and from the ordinary meaning of ´acknowledges the claim, is that the debtor must acknowledge his indebtedness and legal liability to pay the claim in question. There is now no need to go further to seek for any implied promise to pay it. That artificiality has been swept away. But, taking the debtor’s statement as a whole, as it must be, he can only be held to have acknowledged the claim if he has in effect admitted his legal liability to pay that which the plaintiff seeks to recover. If he has denied liability, whether on the ground of what in pleader’s language is called ´avoidance, or on the ground of an alleged set off or cross-claim, then his statement does not amount to an acknowledgment of the creditor’s claim. Alternatively, if he contends that some existing set offs or cross-claim reduces the creditor’s claim in part, then the statement, taken as a whole, can only amount to an acknowledgment of indebtedness for the balance. In effect, ´acknowledges the claim means that the statement in question must be an admission of that indebtedness which the plaintiff seeks to recover notwithstanding the expiry of the period of limitation.

In my judgment this analysis is supported by three considerations. First, I think that the statement relied upon as an acknowledgment must be taken as a whole; the creditor is not entitled to pick out parts and ignore others. Secondly, I think that an acknowledgment of indebtedness is the ordinary meaning of ´acknowledges a claim and that the pre-1939 authorities do not preclude any other conclusion. Thirdly, I think that this construction of the statute is in accordance with good sense and justice. Otherwise, as was said by Bayley J in Swann v Sowell (1819) 2 B and Ald 759, this statutory provision could lend itself to abuse and injustice. Having received a statement of account like the present, the recipient could wait until the alleged set off or cross-claim has become barred by the effluxion of six years and then, as here, institute proceedings on that part of the statement of account which conceded his claim, disregarding the other side of the account in the knowledge that it had become time barred. This would neither be sensible nor a just construction of the Act.”

The deputy judge clearly had his doubts about the correctness of that approach. He said:

“What is thus described in the Statute as ´acknowledgment of a claim , which might well be interpreted as simply an acknowledgment of the indebtedness of the debtor, but coupled with some reason why the money should not be paid, has become, if Kerr J be right, a necessity for admission unconditionally of that indebtedness.”

Given, however, his conclusion on the earlier issue, he thought it best to leave these doubts to be resolved in a higher court on some other occasion.

As to whether Surrendra could be distinguished on the facts of the present case, the deputy judge said this:

“… on reading [the] memorandum of agreement I am satisfied that it amounts not just to security but to the creation of a liability of the plaintiff sufficient to be an off-set within Kerr J’s words. Secondly, I conclude that, although there is an indication in the letter that in certain circumstances the bank would be prepared to release the charge, nevertheless the letter records, as at the date of the letter, the existence of the set-off not yet so released.”

He therefore held Surrendra indistinguishable.

Before us Mr Collings contended first that Surrendra was wrongly decided and second that it is in any event distinguishable. It is convenient to deal first with the latter submission which in my judgment is plainly correct.

The critical distinction between this case and Surrendra is that whereas there the defendant was denying outright and for all time any indebtedness to the plaintiff, here the defendants were denying only that they were under any present liability to pay the debt. The central question raised by s.29(5) is: has the writer acknowledged “the claim” (which for present purposes is clearly the “debt” – see the language of s.29(5)(a))? To that question there seems to me only one answer: yes, he has. Unless there existed a debt owed by the bank to the plaintiff there would be nothing against which the bank could exercise its charge. The very assertion of the charge necessarily carried with it the acknowledgment, indeed the assertion, of a debt. True, whilst the charge subsisted, that debt was not repayable. But that is not to say that the Bank was denying the debt: only their present liability to repay it. It is not a necessary feature of a debt that it is presently repayable. As Lindley LJ observed in Webb v Stenton (1883) XI QB 518 at 527:

“… a debt is a sum of money which is now payable or will become payable in the future by reason of a present obligation, debitum in presenti, solvendum in futuro. An accruing debt, therefore, is a debt not yet actually payable, but a debt which is represented by an existing obligation.”

Any doubts there may have been as to whether a bank could have a charge over a debt owed by itself were recently laid to rest in In Re BCCI (No 8) [1998] AC 214. At pages 226 – 227 Lord Hoffmann said this:

“The method by which the property would be realised would differ slightly: instead of the beneficiary of the charge having to claim payment from the debtor, the realisation would take the form of a book entry. In no other respect, as it seems to me, would the transaction have any consequences different from those which would attach to a charge given to a third party. … The depositor would retain an equity of redemption and all the rights which that implied. There would be no merger of interests because the depositor would retain title to the deposit subject only to the bank’s charge . The creation of the charge would be consensual and not require any formal assignment or vesting of title in the bank. If all these features can exist despite the fact that the beneficiary of the charge is the debtor I cannot see why it cannot be properly said that the debtor has a proprietary interest by way of charge over the debt.”

The important words for present purposes are those I have underlined. Under an arrangement such as this the depositor retains title and the bank cannot assert their charge without at the same time recognising that title. Of course, once the debtor enforces his charge over the debt then it is extinguished. But despite express provision for appropriation in the Memorandum of Agreement here, the Bank never have purported to enforce this charge, not even since their June 1992 letter.

Mr Cherryman lays stress on Surrendra’s requirement that “the debtor must acknowledge his indebtedness and legal liability to pay the claim in question.” Here, he submits, the claim in question was for the immediate return of the deposit, and the right of action accrued on the first demand in 1989. The June 1992 letter, whether or not technically it acknowledged the Bank’s indebtedness, certainly denied any legal liability to pay that claim. Thus, the argument runs, the letter falls short of what Surrendra suggests is necessary for an effective acknowledgment.

I would reject the argument. Surrendra was simply not concerned with a case like this where the dispute was as to when, rather than whether, the debt was to be paid (if not first extinguished by appropriation under the charge). The third consideration referred to by Kerr J in support of his conclusion, a consideration of obvious importance in the great majority of cases involving set off or cross-claim, simply has no application in the present situation: there was no question here of the right of appropriation under the charge becoming statute barred.

It follows from all this that, even were it necessary here to decide the issue of acknowledgment (which strictly it is not, assuming that my Lords share my conclusion upon the validity of the second demand), it is quite possible to do so in the respondent’s favour without throwing doubt upon the correctness of the decision in Surrendra. That said, the point may be of some general importance and I would venture a few words upon it.

The essence of Mr Collings criticism of Surrendra I understand to be this: not all set offs and cross-claims, he submits, should be held to negative what would otherwise be recognised as an acknowledgment, only those which can properly be said to impugn the claim. At one end of the spectrum are clear cases of equitable set off which he readily accepts would impugn the claim and would defeat any plea of acknowledgment. That indeed he accepts was probably the position in Surrendra itself. At the other extreme, however, would be a wholly unconnected and speculative cross-claim which, even if raised in response to an (otherwise admitted) claim, ought not, he submits, be held to preclude treating that admission as an acknowledgment.

For my part I see some force in this argument. It raises, however, its own real difficulties in determining just when a claim is impugned and when it is not and certainly I would be most wary of importing into this area of the law all the problems as to defences, set offs and stays of execution which arise in Order 14 cases. My strong inclination would therefore be to accept the essential correctness of the Surrendra approach whilst leaving over to another day the possibility of contending that not every asserted cross-claim would necessarily operate to defeat a plea of acknowledgment.

(3) Did the Monthly crediting of Interest constitute the making of Payments?

The provisions of the 1980 Act material to this issue are as follows:

“29(5) Subject to sub-section (6) below, where any right of action has accrued to recover:

(a)     any debt or other liquidated pecuniary claim …

and the person liable or accountable for the claim … makes any payment in respect of it the right shall be treated as having accrued on and not before the date of the … payment”

“29(6) A payment of a part of the … interest due at any time shall not extend the period for claiming the remainder then due, but any payment of interest shall be treated as a payment in respect of the principal debt.”

 

“30(2) For the purposes of s.29, any … payment –

(b)     shall be made to the person, or to an agent of the person, … in respect of whose claim the payment is being made.”

The deputy judge concluded that even if the claim was statute barred and not subsequently acknowledged, “the continued payment of interest by way of crediting it to the plaintiff’s account gross extends the period of limitation.”

In reaching that conclusion he relied first on the evidence given by Mr Walia that these credit entries were genuine in the sense that the money would have been released to the plaintiff had Manlon paid off their liability, second on the width of s.29(6) – in particular the reference there to ” any payment”, and third on the Encyclopaedia of Banking Law.

The Encyclopaedia, in a paragraph headed “Acknowledgment or Part Payment”, says:

“An acknowledgment of a debt by the bank … before the expiry of the relevant limitation period may … have the effect that the cause of action on the debt accrues afresh on the date of acknowledgment. For example, where a demand is made by the customer and is not complied with by the bank, the bank may thereafter provide the customer with account statements or other documentation showing the balance on the relevant account. It may continue to credit the account with interest.”

Since the Bank here did not provide the plaintiff with account statements or other documentation showing the balance on his deposit account – instead merely from time to time orally communicating the details to his brother by telephone – this information could not constitute an acknowledgment since it was not “in writing and signed by the person making it”. Could the crediting of the account with interest, however, constitute the making of payments within s.29(5)?

In submitting not, Mr Cherryman relies principally upon Jackson v Ogg (1859) Johns 397, a decision of Vice-Chancellor Sir W. Page Wood. The debt in question there was a simple debt payable on demand with interest. The plaintiff argued that time did not begin to run until payment was demanded, alternatively that interest had periodically been capitalised in the defendant’s books and that this was equivalent to payment. The Vice-Chancellor rejected both arguments:

“… the statute must be held to have begun to run from the date of the advance. That being so, there has been nothing to take the case out of the operation of the statute. There have been no signed acknowledgments or payments. No accounts or documents were furnished to [the plaintiff]; and all that is relied on is the entry from time to time in the books of the firm … of interest to the credit of the plaintiff. …

The entry of interest as due is not, in fact, an admission that interest has been paid, but, on the contrary, a statement that it has not been paid. There is nothing equivalent to payment, and there is no signed admission of the debt. The statute is therefore a bar.”

Mr Cherryman submits that that decision is plainly correct and that the Encyclopedia appears to have overlooked it. I agree. Unreal though in one sense it may seem to treat the crediting of an account with interest as non-payment rather than payment of interest, that must be the proper view of the matter in the present context. After all, if, as is common ground, the holding of the credit balance does not itself constitute an acknowledgment or payment by the Bank, why should an entry which merely increases that balance be regarded any differently? The account merely records the extent of the Bank’s debt, not its payment.

I would accordingly disagree with the deputy judge’s conclusion upon this issue whilst in fairness to him noting that Jackson v Ogg was unfortunately not cited below.

It is, of course, sufficient for the respondent’s purposes on the second appeal to succeed on any one of the three issues and in my judgment he succeeds on the first two. I would accordingly dismiss both these appeals.

LORD JUSTICE MUMMERY:

In Joachimson -v- Swiss Bank Corporation [1921] 3 KB 110 at 131 Atkin LJ said

“…….bankers have not been in the habit as a matter of business of setting up the Statute of Limitations against their customers or their legal representatives….”

Bankes LJ was of the same view. He said (at page 115) that a banker pleading the Statute of Limitations was an ” unlikely case”.

Times have changed. In this case the Bank of Baroda (the Bank) have taken a limitation point against their customer, contending that his claim for repayment of monies in a US dollar term deposit account with them is statute barred because more than 6 years passed between 8 July 1989, when he first made a demand on the bank for repayment, and 7 December 1995, when the writ was issued claiming payment of the sums standing to the credit of that deposit account.

For the reasons given by Simon Brown LJ the limitation defence fails, as does the Bank’s claim to have continuing security rights by way of charge over the account.

I only wish to add a few words of my own on two aspects of the limitation defence which may be of general interest to bankers and their customers.

1. The Demand Point.

 

(1)     It is common ground , as appears from paragraph 3 of the statement of claim and paragraph 3 of the defence, that it was a term of contract between the Bank and Mr Mahomed that the Bank would repay the amount standing to the credit of the account on the final maturity of the account and when demand had been made.

(2)     It is also common ground that in such a case a demand by the customer is a necessary ingredient of the cause of action against the Bank for repayment. The Court of Appeal (Bankes, Warrington and Atkin LJJ) unanimously held in Joachimson that the customer of a bank is not entitled to sue the bank for the balance standing to the credit of his current account without making a previous demand upon the banker for payment. The same express condition applies this deposit account: it is repayable on maturity and upon demand.

(3)     By his letter of 8 July 1989 Mr Mahomed made an unequivocal demand for his account to be closed on the next maturity (17 July 1989) and that ” the entire balance be remitted to me by means of a bankers draft”. The Bank did not comply with that demand, contending that the deposit account was subject to the Bank’s security rights by way of charge for facilities granted to Manlon Trading Ltd and that the amount due from that company exceeded the amount in the deposit account. The account was not closed by the Bank. The balance was not remitted by the Bank. Mr Mahomed then had an accrued cause of action against the Bank. I agree with Mr Cherryman QC, who appeared for the Bank, that, subject to the acknowledgment point, the claim for repayment based on that demand and that cause of action became statute barred after six years.

(4)     The critical question is whether a fresh cause of action accrued in May 1990, when Mr Mahomed’s solicitors wrote to the Bank making a formal demand for repayment of his deposit to him and the Bank refused to comply with that, relying on the charge made by Mr Mahomed to the Bank over the deposit account to secure the indebtedness of Manlon Trading Limited to the Bank. In the statement of claim (paragraphs 5 and 6 ) Mr Mahomed relied on that demand for payment and on the Bank’s wrongful failure to pay him. The Bank admitted the demand and the refusal to pay, but pleaded, in addition to reliance on their rights as chargees, that Mr Mahomed had demanded repayment by his letter of 8 July 1989 and that that demand.

“…….was made more than 6 years prior to the issue of the pleading herein and the plaintiff’s claim is therefore statute barred by virtue of the Limitation Act 1980.”

(5)     Mr Cherryman QC submitted that Mr Mahomed had a good cause of action for repayment of his deposit in July 1989; that nothing more was required to make his cause of action complete; that he could have sued the Bank immediately for repayment; that once time had begun to run, it continued to run; that the fact that Mr Mahomed had made a further demand through his solicitors on 25 May 1990 did not mean that a new cause of action accrued in May 1990; that Mr Mahomed’s contention that a new cause of action arose every time there was a demand was wrong; and that the Deputy judge was in error in holding that the demand of 25 May 1990 created a new cause of action.

(6)     I do not accept the Bank’s arguments on this point. The true analysis is that the deposit account was governed by a contract between Mr Mahomed and the Bank. Under that contract the Bank was liable to repay to Mr Mohamed the money standing to credit of his account on the final maturity of the account and when demand had been made. The Bank did not comply with the demand of 8 July 1989. It is true that Mr Mahomed then had a cause of action against the Bank. But the Bank did not close the deposit account. It remained at the Bank. The Bank did not take any steps to enforce the security rights which they asserted over the account. The terms of the contract between the customer and the Bank governing the account remained in force. The Bank took no steps to terminate that contract. One of the contractual terms was that the Bank would repay the money standing to the account on final maturity and on demand. It is not alleged that there was any express or implied contractual term precluding the customer from making a fresh demand. Mr Cherryman QC apparently relied on the Limitation Act for his contention that the right of the customer to make a demand for repayment was ” spent ” on the making of the first demand, as time then began to run and continued to run against the customer, and that the making of the subsequent demand was legally ineffective. I do not understand the legal basis of that submission. In the absence of reliance by the Bank on any statutory provision, or on any contractual term (whether arising from express agreement or by implication or from custom or practice), or any estoppel, there is no legal fetter or limit on the right of Mr Mohamed to demand repayment by the Bank of money in an account which has not been closed by the Bank and which continues to be governed by a contract under which it is expressly repayable on demand It follows that, although the cause of action arising in July 1989 was prima facie statute barred, a new cause of action arose in May 1990. The writ in this action was issued within the 6 year period from the accrual of that cause of action.

1. The Acknowledgement Point.

If I am wrong on that point, Mr Mahomed succeeds on the acknowledgment point. In letters written within the limitation period (13 June 1990 and 11 June 1992) the Bank acknowledged Mr Mahomed’s claim to the monies in the deposit account, subject only to the Bank’s right to retain those monies by virtue of a charge on the account. The Bank acknowledged that the deposit account was a debt due from the Bank to Mr Mahomed. Consistently with that, the Bank asserted security rights by way of charge over that account.

The nature of such a charge by a bank depositor in favour of a bank was analysed by Lord Hoffmann in Re: Bank of Credit and Commerce International SA (No 8) [1998] AC 214 at 225 E to 227 C, where he explained that a depositor’s right to claim repayment of his deposit from a bank is a chose in action recognised as property and that a charge over such a chose in action could be validly granted not only to a third party but also to the bank itself under such arrangement. He said that

“The depositor would retain an equity of redemption and all the rights which that implies.”

The Bank’s assertion of a continuing charge over the account was not a denial of the existence of the debt to Mr Mahomed. On the contrary, the Bank was asserting the existence of the debt as constituting the subject matter of the security on which they relied as the reason for refusing immediate repayment of the account.

A present debt may exist (and therefore a claim to it may be acknowledged within the meaning of the Limitation Act), even though actual payment of the debt is, or is alleged to be, postponed until a future date (e.g. after the discharge of a security over it) : see Webb -v- Stenton [1883] 11 QBD 518 at 527 per Lindley LJ who described ” a debt ” as

“a sum of money which is now payable or will become payable in the future by reason of a present obligation.”

For all those reasons and for the reasons given by Simon Brown LJ I would dismiss this appeal.

LORD JUSTICE MANTELL:

For the reasons given by Simon Brown LJ I agree that the first appeal should be dismissed.

In agreement with both Simon Brown LJ and Mummery LJ I have no doubt that the second appeal ought also to be dismissed if only because the letter of 11th June 1992 is rightly to be regarded as an acknowledgement of the debt.

So far as what has been called “the demand point” is concerned I agree with Mummery LJ that a deposit account, and indeed a current account also, is governed by the contract between the customer and the bank. I also agree that a demand for payment does not of itself put an end to the contract. Nor, on ordinary principles, does a refusal or failure to comply (breach) of itself put an end to the contract. It is for the injured party to elect whether or not to treat the refusal or failure to pay as a repudiatory breach. And, of course, it is the breach which provides the cause of action although the trigger for the limitation period is the date on which the demand was made: see section 6(3) of the Limitation Act 1980. That this is a fiction is acknowledged by the wording of the section itself:

“(3)   Where a demand in writing for repayment of the debt under a contract of loan to which this section applies is made by or on behalf of the creditor (or where there are joint creditors, by or on behalf of any one of them ) section 5 of this Act shall thereupon apply then as if the cause of action to recover the debt had accrued on the date on which the demand was made.”

The emphasis is mine.

So, if, on a true appraisal of the facts of this case, the contract survived the making of the demand, I would entirely agree with Mummery LJ’s analysis of the position.

However, I am troubled that, by his letter of 8th July 1989, Mr Mahomed not only made a demand for payment but required his account to be closed on the next maturity date. It is at least arguable that in so doing Mr Mahomed was giving notice of termination of the contract to the bank. If that were the true position other considerations would apply and I would prefer to adopt the route taken by Simon Brown LJ.

The factual issue which I have identified was not argued on the appeal and in those circumstances I decline to express a concluded view. It matters not. Either way I would hold that the limitation defence fails and that the appeal should be dismissed.

Order: Appeals dismissed with costs on standard basis. Leave to appeal dismissed. Stay granted for 6 weeks.