Banking lawBy Simon Sugar, Barrister, 36 Bedford Row, LondonDisposition of property from insolvent customers bank accountHollicourt (Contracts) Ltd v Bank of Ireland [2001] 2 WLR 290 CAIn ignorance of the fact...Disposition of property from insolvent customers bank accountHollicourt (Contracts) Ltd v Bank of Ireland [2001] 2 WLR 290 CAIn ignorance of the fact that a winding-up petition had been presented against a corporate customer, a bank continued to honour cheques drawn on the customers account.

Three months after presentation, the bank discovered the existence of the petition and froze the operation of the account.

By that time the bank had debited more than 156,000 from the account in respect of payments made to third parties.

The account was in credit at all material times.

The customer went into liquidation.

The liquidator subsequently brought an action against the bank under section 127 of the Insolvency Act 1986 to recover the payments that had been debited from the account.

The Court of Appeal dismissed the action.Section 127 provides that in a winding up by the court, any disposition of the companys property made after the commencement of the winding up is, unless the court otherwise orders, void.

Winding up commences upon the presentation of the petition.The Court of Appeal held that in honouring its payment obligations the bank was acting as agent and merely obeying the order of its principal to pay, out of the principals money, the amount of the cheque to the payee.

The avoidance of a disposition under section 127 imposed a restitutionary liability on the payee of a cheque.

There was no restitutionary liability on the bank in circumstances where the bank was merely following its payment obligations.Prior to this case there was some considerable confusion in the law as to whether, without a validation order obtained from the court, a bank would be liable to make restitution of all payments made into and out of a bank account after presentation of a winding-up petition.

It remains to be seen whether upon receipt of notice of presentation of a winding-up petition bankers will continue with their normal practice of freezing accounts and insisting that all further trading be carried out on a new account.

Certainly section 127 no longer requires them to take such a course.Expert evidence of negligence in futures and derivatives tradingBarings Plc (in liquidation) v Coopers & Lybrand (9 February 2001) Evans-Lombe JThis case is concerned with the aftermath of the Nick Leeson affair.

In defence of the negligence action brought against them, the defendant auditors filed expert evidence to support their defences of lack of causation and contributory negligence.

The expert evidence was directed to the question of whether various officers and employees of the claimant ought to have been aware of the unauthorised trading without the assistance of the auditors and thereafter taken action to stop it.

The claimant applied to strike out the experts reports.

Their application was dismissed.The judgment of Mr Justice Evans-Lombe is important on two levels.

On a general level it appears set to become the leading authority on the ambit and purpose of expert evidence and will therefore be valuable authority for all areas of litigation.

The judgment is also important from a banking-specific point of view.

Expert evidence was held to be admissible in any case where the court accepts that there exists a recognised expertise governed by recognised standards and rules of conduct capable of influencing a courts decision on any of the issues to be decided.

The court found that there was a body of expertise with recognised standards in relation to the managers of investment banks who conducted or administered the highly technical and specialised business of futures and derivatives trading.

In any prospective action for the negligent provision of futures and derivatives services, expert evidence will generally now be both admissible and necessary to support an allegation that a bank fell below the standard of care usually expected of a reasonably competent investment banker.Reliance by bank on legal advisers in OBrien cases National Westminster Bank Plc v Breeds and Breeds (1 February 2001) Lawrence Collins JThis is yet another case dealing with the principles upon which a court will allow a bank to enforce its security against a wife who has charged the matrimonial home to the bank as a consequence of her husbands misrepresentations and undue influence.

In this case the principal question was whether the bank was entitled to rely on a statement by a solicitor that he had explained the transaction to the wife where on the facts of the case the solicitor who advised the wife had a serious conflict of interest.

The answer to the question depended upon the limits of the principles established in Royal Bank of Scotland v Etridge (No 2) [1998] 4 All ER 705 CA.

Etridge established that a bank is not normally concerned with the independence of the solicitor or any conflict he may have.

These were matters for the solicitor to resolve.

If the solicitor undertook the task of advising the wife he would in effect be representing that he considered himself to be sufficiently independent and the bank would avoid being fixed with constructive notice of the wifes equity.

The court held that Etridge was binding authority in the normal case that conflicts of interest were not the concern of the bank.

However, the facts of this case took the case out of the ordinary.

The facts of the case as known to the bank pointed to the strong probability of a real conflict of interest for the solicitor and the judge refused to allow the bank to enforce its security.The effects of this case may be short-lived.

Royal Bank of Scotland v Etridge is being appealed to the House of Lords.

However until the appeal is heard, where a bank is aware of facts that show a strong probability of the solicitor having a real conflict of interest the only safe course of action to take is to insist that a wife takes alternative and truly independent legal advice.