The collapse of BCCI resulted in a number of cases. The Hong Kong Court of Appeal and the Privy Council (replaced by the Court of Final Appeal in Hong Kong since July 1 1997) have recently delivered two judgments.
The first case restated the traditional principle of the legal status of a bank's branch. Although it is commonly accepted in many areas of banking that the branch of a bank is treated separately from its head office, in legal proceedings it is treated as the same legal entity.
The other case dealt with the construction of the default provisions in a bank's facility documents. The judgment of the Privy Council also illustrates a reluctance to imply a trust relationship into normal banker-customer dealings as debtor-creditor, especially where there is a clear contractual agreement between the parties.
Bank of Credit and Commerce International (Overseas) Limited (In liquidation) v Bank of Credit and Commerce International (Overseas) Limited-Macau Branch (in liquidation),  HKLRD 304, was a dispute between the liquidators of BCCI in different jurisdictions, the Cayman Islands head office and its Macau branch respectively, over funds deposited by the Macau Branch with a third party bank in Hong Kong.
Macanese law provides that 'assets applied by banks having their head office overseas shall only be used to meet obligations incurred abroad when all obligations contracted in [Macau] have been met'.
In 1991, the management of the Macau Branch placed substantial funds on deposit in Hong Kong, under a contract governed by Hong Kong law.
The trial judge held that under Hong Kong law, the deposits, although placed by the Macau Branch, were done so on behalf of BCCI, which thus had the right to the deposits.
The liquidators of the Macau Branch appealed against the trial judge's decision on the grounds that the trial judge wrongly refused to hear any evidence of Macanese law. The Macau Branch argued that because the deposits were made by the management of the Macau Branch out of assets held by the Macau Branch, the deposits should be treated as assets of the Macau Branch, which under Macanese law could not be made available until the Macau Branch's obligations had been met.
The Court of Appeal unanimously upheld the trial judge's decision, holding that, according to Hong Kong law (being the proper law of contracts of deposits) the right to repayment of deposits was a right in Hong Kong. The right should not be treated as available to the liquidator of the Macau Branch.
In BCCI (in liquidation) v Chairod Mahadumrongkul,  2 HKC 509, the plaintiff was a customer of BCCI. The plaintiff deposited money with BCCI to cover the principal and interest of fixed term loans to four companies (the borrowers) controlled by them.
The right to interest on the deposits with BCCI was dissolved from the date of presentation of the winding up petition against the BCCI. Accordingly, BCCI was charging interest on the loans while the customer was not earning interest on the deposit. The dispute turned on the set-off date of the deposit against the loan.
The facility letter from BCCI to the borrowers stated that if the borrowers failed to pay the owed amount on the due date or on demand, the debt would immediately become due and payable on written demand. An agreement letter from BCCI to the customer regarding the loans, stated that if the borrowers fail to pay any owed amount within 10 days of the relevant due date, BCCI would automatically apply the deposits in settlement of the loan.
The High Court judged that the deposits were held on trust for the plaintiff, and that BCCI had a duty to repay itself the outstanding loan amount from the trust as at the beginning of its winding up.
The Court of Appeal in Hong Kong unanimously dismissed the trial judge's trust point. It held that the specific purpose of the deposits under the agreement letter was a contractual matter, but accepted the customer's submission on automatic set-off. It explained that on a true construction of the default provisions, the borrower's debt immediately became due and payable either on a written demand or, where no written demand was required, 10 days after the borrowers' failure to pay on the relevant due date. The Court of Appeal held that both cases would bring about an automatic set-off under the Agreement Letter.
The Privy Council allowed the appeal by BCCI, and held that the effect of any one of the defaults referred to in the default provisions of the facility letter, gave the bank the right to make a written demand for the full debt, but there was no liability to repay until the demand was made. Accordingly, the automatic set-off under the agreement letter only came into operation after the demand.
Stephenson Harwood & Lo
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