Under
English law
English law is the common law list of national legal systems, legal system of England and Wales, comprising mainly English criminal law, criminal law and Civil law (common law), civil law, each branch having its own Courts of England and Wales, ...
, 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 the 1975 House of Lords decision in ''
''
972
Year 972 ( CMLXXII) was a leap year starting on Monday of the Julian calendar.
Events
By place
Byzantine Empire
* Spring – Emperor John I Tzimiskes divides the Bulgarian territories, recently held by the Kievan Rus', into six ...
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 (a separate common law right). 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.
Mutuality
In order for the bank to combine accounts there must be mutuality, i.e. it must be the same customer and the same legal entity for the bank. However, accounts held at different branches of the same bank may still be combined. Although it has not been finally determined by case law, most commentators accept that accounts in different currencies may be combined, as may accounts in different countries (so long as the governing law in each country permits such combination).
Bars to combining accounts
There are various grounds set out in the case law which indicate when an account may not be combined.
* Agreement to forbear: An agreement by the bank not to combine accounts will be binding, possible even in the absence of any consideration. If not an express time, then it will generally be implied that a material change in circumstances would terminate such an agreement (in ''Halesowen'' it was held that calling a meeting of creditors would constitute such circumstances, but in Australia it has been held that appointing a receiver did not.
[''Direct Acceptances Corp v Bank of NSW'' (1968) 88 WN (NSW) (Pt 1) 498]
* Money held for specific purpose: In line with the authorities on
''Quistclose'' trusts, if money is held by the bank for a specific purpose, then it is impressed by a trust and is not subject to combination.
* Money held on trust: Where the customer holds the money in the account as trustee and so is not beneficially entitled to it, it cannot be combined. However, it appears that the reverse is not true - if a trust account is overdrawn then the bank can combine that with a trustee's personal account because the trustee is personally liable for the obligations of the trust.
[''Daniels v Imperial Bank of Canada'' (1914) 19 DLR 166]
* Where account is subject to a
security interest
In finance, a security interest is a legal right granted by a debtor to a creditor over the debtor's property (usually referred to as the '' collateral'') which enables the creditor to have recourse to the property if the debtor defaults in m ...
. Provided the security interest is fixed and not
floating, this will prevent combination of accounts.
* Where one account is a loan account. This is considered further below.
Loan accounts
There is a distinct line of authority which indicates that where one of the accounts is a loan account then the bank cannot exercise its rights to combine accounts (Obed Tashabya v DFCU Bank). Most of the authorities relating to this are older cases, but the rule was applied more recently in ''Fraser v
Oystertec plc''
006
Alec Trevelyan is a fictional character who is the main antagonist in the 1995 James Bond film ''GoldenEye,'' portrayed by actor Sean Bean. Bean's likeness was also used as the model for Alec Trevelyan in the 1997 video game '' GoldenEye 007' ...
1 BCLC 491.
Although slightly anachronistic, the rationale appears to be that the customer of the bank should not be at risk of the bank combining a short-term current account on which the customer writes cheques for daily expenses with a long-term loan account which is not due for repayment until some future time. In practice, most loan agreements will usually give the bank a contractual right to set-off in any event.
Notice
Although there is one case which argues to the contrary, the orthodox position is that the bank does not need to provide the customer notice prior to exercising a right to combine accounts.
[''Good Property Land Development Pte Ltd v Société Générale'' ]996
Year 996 ( CMXCVI) was a leap year starting on Wednesday of the Julian calendar.
Events
By place
Japan
* February - Chotoku Incident: Fujiwara no Korechika and Takaie shoot an arrow at Retired Emperor Kazan.
* 2 March: Emperor ...
2 SLR 239 at 250
Insolvency
If the bank does not exercise a right to combine accounts prior to a company going into insolvent liquidation, then insolvency set-off will operate automatically, and the insolvency set-off rules will prevail over the bank's right to combine accounts.
['''' ]972
Year 972 ( CMLXXII) was a leap year starting on Monday of the Julian calendar.
Events
By place
Byzantine Empire
* Spring – Emperor John I Tzimiskes divides the Bulgarian territories, recently held by the Kievan Rus', into six ...
AC 785
Foreign countries
The banker's right to combine accounts has been recognised at appellate level by the courts of various other
common law jurisdictions
Common law (also known as judicial precedent, judge-made law, or case law) is the body of law primarily developed through judicial decisions rather than statutes. Although common law may incorporate certain statutes, it is largely based on prece ...
, including Australia,
Canada,
Guyana
[''British Guiana Bank v OR'' (1911) 104 LT 754 (PC)] and Singapore.
However, there does not appear to be any corresponding general right in civil law jurisdictions outside of the conventional right of
set-off.
External links
A banker's right to set off money
Footnotes
{{reflist, 30em
United Kingdom business law
Bank account
NatWest Group litigation