Re Charge Card Services Ltd
Millett J held that a bank could not take a charge over its own customer's deposit with it, a view rejected by the House of Lords in Re BCCI (No 8), which held that such charge backs are possible.
Facts
Charge Card Services operated a credit card scheme, and assigned its receivables to a factoring company. When Charge Card Services went into liquidation, a question arose whether the factoring company had a valid charge over sums which it owed to Charge Card Services, in effect a charge over a debt owed by the chargee itself. Such an arrangement is known as a charge back, and was commonly used by banks to take security over their customers' deposits.
Legal principle
Millett J held that a charge in favour of a debtor over his own indebtedness to the chargor was conceptually impossible, because a person cannot have a proprietary interest in a debt owed by himself. The arrangement could take effect only as a contractual right of set off. The decision caused concern in the banking world, and was rejected by the House of Lords in Re Bank of Credit and Commerce International SA (No 8), where Lord Hoffmann held that there was no conceptual impossibility in a bank taking a charge over its customer's deposit. The Court of Appeal later dismissed an appeal on other points.
Related cases on lending, guarantees and security
- Agnew v Commissioner of Inland Revenue (Re Brumark Investments Ltd) [2001] UKPC 28, [2001] 2 AC 710
- Barclays Bank plc v O'Brien [1994] 1 AC 180
- Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd [2009] UKPC 19
- Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159
- Holme v Brunskill (1878) 3 QBD 495
- Kleinwort Benson Ltd v Malaysia Mining Corp Bhd [1989] 1 WLR 379
- Moschi v Lep Air Services Ltd [1973] AC 331
- National Westminster Bank plc v Morgan [1985] AC 686
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