The House of Lords decided on October 30 in the landmark case of Morris v Agrichemicals (also called BCCI No. 8), that it is legally possible for a bank to take an equitable charge over money deposited with it. This ruling ends more than a decade of controversy caused by the decision in Re Charge Card Services Limited  when Millett J stated that a charge-back was "conceptually impossible".
The earlier decision of the Court of Appeal rejecting the concept of charge-backs was criticized in the March 1996 issue in articles by Geoffrey Yeowart and Philip Wood as a missed opportunity to establish that a charge-back is perfectly possible. The House of Lords has now clarified the position.
Lord Hoffmann, on behalf of the House of Lords, stated that a charge-back does create a proprietary interest in the deposit in the bank's favour. It is binding on assignees and a liquidator, subject to questions of registration and the rights of any purchaser for value without notice. The depositor retains an equity of redemption in the charged deposit. There is no merger of interests because the depositor retains title to the deposit subject only to the bank's charge.
Lord Hoffmann referred to the Court of Appeal's view that a charge-back would take effect on the alternative basis of set-off and, if the deposit was made by a third party, "flawed asset". He observed that it may well be that the security provided in these ways will, in most cases, be just as good as that provided by a proprietary interest. But that is no reason for preventing banks and their customers from creating charges over deposits if, for reasons of their own, they want to do so. Where there is no threat to legal consistency and no public policy objection, the courts should be very slow to declare a practice of the commercial community to be conceptually impossible.
On the secondary question of whether a charge over a deposit is registrable, Lord Hoffmann recognized that it would be registrable under Section 395 of the Companies Act 1985 if created by a company over its "book debts". He expressed no view on the registration question but drew attention to the decision of the Northern Ireland Court of Appeal in Northern Bank Limited v Ross  BCC 883 as suggesting that, in the case of deposits with banks, an obligation to register is unlikely to arise.
A full article on this case will appear in the January issue.