United Dominions Trust Ltd v Kirkwood [1966] 2 QB 431 was a decision of the Court of Appeal relating to what constitutes "banking business" as a matter of English law.[1]
Ellinger's Modern Banking Law refers to the judgment as a "landmark decision".[2]
Facts
United Dominions Trust was a finance company which brought an action to recover payment of a loan which it had made to a dealer. The dealer defended the claim for repayment on the basis that the United Dominions Trust was not registered under the Moneylenders Act 1900 and hence the loan contract was unlawful. United Dominions Trust claimed that it was exempt under section 6(d) of that Act because it conducted "banking business". In support of this it argued that it was recognised in the City as a bank, it enjoyed certain privileges given only to banks, and it had a clearing number.[3]
The court considered an older Australian decision, Commissioners of the State Savings Bank of Victoria v Permewan, Wright and Co Ltd (1915)1 19 CLR 457 where Issacs J said (at 470):
The essential characteristics of the business of banking are, however, all that are necessary to bring the appellants within the scope of the enactments; and these may be described as the collection of money by receiving deposits upon loan, repayable when and as expressly or impliedly agreed upon, and the utilisation of the money so collected by lending it again in such sums as are required.
The court also considered decisions in Bank of Chettinad Ltd of Colombo v Commissioner of Income Tax, Colombo [1948] AC 378, 383 (PC); Banbury v Bank of Montreal [1918] AC 626 and Woods v Martins Bank Ltd [1959] 1 QB 5.
Lord Denning MR opined that normally a company would only constitute a bank if it undertook certain activities: (1) the acceptance of money from, and the collection of cheques for, customers and the placing of the funds to the customers’ credit; (2) honouring cheques or orders drawn on the bank by their customers when presented for payment and the debiting of the customers' accounts accordingly; and (3) keeping some form of current or running accounts for the entries of customers' credits and debits. But he further added that a company might still constitute a bank, even though it did not undertake these activities if it was regarded as a bank by other bankers. He stated that "[l]ike many other beings, a banker is easier to recognise than to define. In case of doubt, it is, I think, permissible to look at the reputation of the firm amongst ordinary intelligent commercial men." He also argued that when a business is running as a bank, judges should be reluctant to hold that it is not a bank.[1]
Harman LJ (dissenting) thought the defining feature of a bank was the maintenance of current accounts, including deposit or savings accounts where notice is required before withdrawal of funds. The collection of cheques was "an additional requirement", but not an essential feature of a bank. Therefore, he opined, United Dominion Trust was not a banker because it did not operate current accounts. He acknowledged that it was regarded as such by other bankers, he regarded this as insufficient to make it a bank itself.
What I think is common to all modern definitions and essential to the carrying on of the business of banking is that the banker should accept from his customers loans of money on "deposit," that is to say, loans for an indefinite period upon running account, repayable as to the whole or any part thereof upon demand by the customer either without notice or upon an agreed period of notice.
Both Lord Denning and Diplock LJ seemed to have been influenced by the consequence of not finding United Dominions Trust to be a banker within the meaning of the legislation, which would have meant that potentially thousands of agreements would have been rendered unenforceable.[1] The court accepted that whilst acceptance of deposits was a necessary condition of being a bank, it was not of itself a sufficient condition.[2] An institution cannot be a bank unless it opens on behalf of customers current accounts which are operable by cheque and into which customers can pay cheques and other financial instruments for collection.
Commentary
The decision of the Court of Appeal has now been largely superseded for banking regulatory purposes in terms of defining what constitutes a bank - firstly by the Banking Act 1979 and then by the Financial Services and Markets Act 2000. However, the decision remains important for determination of who constitutes a banker (and accordingly, a customer) for the purposes of bankers' rights and duties at common law.
See also
Financial Services Authority v Anderson[2010] EWHC 599(18 March 2010)
A commercial bank is a financial institution which accepts deposits from the public and gives loans for the purposes of consumption and investment to make profit.
A transaction account, also called a checking account, chequing account, current account, demand deposit account, or share draft account at credit unions, is a deposit account or bank account held at a bank or other financial institution. It is available to the account owner "on demand" and is available for frequent and immediate access by the account owner or to others as the account owner may direct. Access may be in a variety of ways, such as cash withdrawals, use of debit cards, cheques (checks) and electronic transfer. In economic terms, the funds held in a transaction account are regarded as liquid funds. In accounting terms, they are considered as cash.
Cheque clearing or bank clearance is the process of moving cash from the bank on which a cheque is drawn to the bank in which it was deposited, usually accompanied by the movement of the cheque to the paying bank, either in the traditional physical paper form or digitally under a cheque truncation system. This process is called the clearing cycle and normally results in a credit to the account at the bank of deposit, and an equivalent debit to the account at the bank on which it was drawn, with a corresponding adjustment of accounts of the banks themselves. If there are not enough funds in the account when the cheque arrived at the issuing bank, the cheque would be returned as a dishonoured cheque marked as non-sufficient funds.
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A cheque, or check, is a document that orders a bank to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The person writing the cheque, known as the drawer, has a transaction banking account where the money is held. The drawer writes various details including the monetary amount, date, and a payee on the cheque, and signs it, ordering their bank, known as the drawee, to pay the amount of money stated to the payee.
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Lipkin Gorman v Karpnale Ltd[1988] UKHL 12 is a foundational English unjust enrichment case. The House of Lords unanimously established that the basis of an action for money had and received is the principle of unjust enrichment, and that an award of restitution is subject to a defence of change of position. This secured unjust enrichment as the third pillar in English law of the law of obligations, along with contract and tort. It has been called a landmark decision.
United Kingdom banking law refers to banking law in the United Kingdom, to control the activities of banks.
A deposit account is a bank account maintained by a financial institution in which a customer can deposit and withdraw money. Deposit accounts can be savings accounts, current accounts or any of several other types of accounts explained below.
Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105 is an English trusts law case, concerning constructive trusts. It held that a trust arose to protect a payment made under a mistake, with the benefit of a proprietary remedy. This is seen important for the question of what response, personal or proprietary, may come from a claim in unjust enrichment.
Banque Belge pour L’Etranger v Hambrouck [1921] 1 KB 321 is an English trusts law case concerning the common law remedies for receipt of trust property.
Barclays Bank Ltd v W J Simms, Son and Cooke (Southern) Ltd [1980] 1 QB 677, [1979] 3 All ER 522 was a decision of the High Court of Justice relating to the recovery of a payment mistakenly made by a bank after the customer had countermanded the cheque.
Smith v Lloyds TSB Group plc [2001] QB 541 was a decision of the Court of Appeal relating to the liability of a bank where it makes payment upon a fraudulently altered cheque. The case was a co-joined appeal from one High Court action and a County Court action.
National Westminster Bank Ltd v Halesowen Presswork & Assemblies Ltd [1972] AC 785 is a decision of the House of Lords in relation to a banker's right to combine accounts under English law. It is the leading English case and a banker's right to combine accounts, and also an important decision relating to insolvency set-off.
A banker's lien is a legal right arise in many common law jurisdictions of a bank to exercise a lien over any property in the custody of the bank as security. Lien is of two types:
Particular lien
General lien
Under English law, a bank has a general right to combine accounts where a customer has multiple accounts with the same bank. The right has been recognised since at least 1860. However it was not until 1975 in the House of Lords decision in National Westminster Bank Ltd v Halesowen Presswork & Assemblies Ltd [1972] AC 785 that it was finally determined that this was a type of set-off right rather than anything related to the banker's lien. Typically the right will be exercised where one account is overdrawn and the other is in credit so that the bank can secure full repayment of overdraft without the need to take any further action with respect to the customer. The broad rationale is that separate numbered accounts are set up for administrative convenience only, but the legal duty upon a bank to "account" to its customers for the sums held by it only extends to the net sum.
Joachimson v Swiss Bank Corporation [1921] 3 KB 110 is a judicial decision of the Court of Appeal of England and Wales in relation to the fundamental nature of the legal relationship between banker and customer. Together with Foley v Hill (1848) 2 HLC 28 it forms part of the foundational cases relating to English banking law and the nature of a bank's relationship with its customer in relation to the account.
Foley v Hill (1848) 2 HLC 28, 9 ER 1002 is a judicial decision of the House of Lords in relation to the fundamental nature of a bank account. Together with Joachimson v Swiss Bank Corporation [1921] 3 KB 110 it forms part of the foundational cases relating to English banking law and the nature of a bank's relationship with its customer in relation to the account.
Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363 is a judicial decision of High Court of Justice of England and Wales in relation to the banker-customer relationship, and in particular in connection with the bank's duties in relation to payment instructions which give rise, or ought to give rise, to a suspicion of fraud.
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