Bank of England faces BCCI trial

By a three to two majority, the Law Lords ruled BCCI’s liquidator, Deloitte & Touche, had good arguable claims against the Bank of England for failing to fulfil its role in licensing and supervising the fraud-ridden bank.

The Lords allowed Hertfordshire-based Three Rivers District Council, one of thousands of creditors represented by Deloittes, to appeal that its action for damages against the Bank of England should be permitted.

When the civil trial goes ahead, the Bank of England is expected to be accused of ‘misfeasance in a public office’ by failing in its public duty to supervise banking operations in the UK. Its most senior staff, including Sir Edward George are possible witnesses in a case which could last between six months and a year.

BCCI collapsed in July 1991 with debts totalling more than Pounds 7.03bn. An official report by Lord Bingham into the collapse, criticised the Bank’s continued licensing of BCCI even though it had received warnings of BCCI’s fraudulent activities.

Three Rivers, a depositor with BCCI, which lost its deposits when BCCI failed and went into liquidation, will allege the Bank had either wrongly granted a licence to BCCI or had wrongly failed to revoke BCCI’s licence, and so should be liable to pay damages.

The total claims of all the claimants amount to around Pounds 550m, but this figure does not include interest which could increase the sum by as much as Pounds 450m, to a total of around Pounds 1bn.

Lords Steyn, Hope of Craighead and Hutton allowed the action despite Lord Hobhouse of Woodborough’s warning that the eventual trial would last a whole year and involve the application of ‘very substantial’ resources both at the trial and in preparation.

He said: ‘The volume of paper, forensic and evidential, is already formidable and the events which will have to be trawled over extend over some 15 years.’

Nevertheless, the Lords rejected the Bank’s claim that it should be awarded summary judgement because the Council had not pleaded a reasonable cause of action and had no realistic prospect of success. Lords Hobhouse and Millett dissented.

Lord Hope said: ‘I consider that the claimant’s pleadings give sufficient notice to the Bank of the case they wish to present and that the facts pleaded are capable of satisfying the requirements of the tort.

‘I think it would be to risk pre-judging the case to attempt to evaluate the action’s prospects of success by considering at this stage, before hearing evidence, whether the claimant’s case against the Bank is inherently implausible or scarcely credible.

‘These factors, taken as a whole, point clearly against giving a summary judgement in the Bank’s favour.’

In May last year the same judges ruled the Council’s action could not be taken to the European Court of Justice, and must be tried in the UK courts.

Christopher Morris, one of the liquidators, said: ‘We are delighted with the judgements and hope that, after significant delays, the proceedings can at last move ahead to an early trial.

‘As liquidators, we are accountable to the court and creditors to realise assets of BCCI and maximise recoveries in order that dividend payments can be made to creditors as quickly as possible.’


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