PRACTICE OF BANKING

COVENANT UNIVERSITY M.SC/ACIB

PROGRAMME
Termination of Banker-Customer Relationship

 The relationship between the banker and the customer

could be brought to an end by any of the followings:
1) Express or implied closure by the customer
2) In the Interest of the bank
3) Death of a customer
4) Mental Incapacity
5) Garnishee Order
6) Writ of Sequestration
7) Mareva and other injunction (Acton Pillar)
8) Banking (Freezing Account Act) of 1990
9) Other government Directives
10) Bankruptcy of a Customer
 Closing Account by Customer
 A customer can call at his bank to close his
account immediately. He will only be required to
draw out his balance, after the banker has
deducted its charges to date or has credited
accrued interest to the account and surrender his
unused cheque leaves.
 Where the account is in debit the customer will
pay of the debit balance with outstanding interest
charges and surrender his unused cheque leaves.
 Closing Account by the Bank
 The procedure to close a customer’s account by
the bank is not easy and straight forward as if the
customer that wishes to close his account
 The procedure to be taken by the bank will
depend on whether the account is in credit or
debit, whether the account has been satisfactorily
conducted or not, and whether the account is
personal or business account.
 One of the duties of a banker to its customer eas
established in the case of Joachimson v. Swiss
Bank Corporation (1921) is that the bank will not
cease to do business with the customer except
upon reasonable notice.
 From decided cases, what is a reasonable time will
depend on the circumstances and the fact of each
case.
Closing an Account with Credit Balance
 A bank may wish to cease relationship with a
customer whose account has become troublesome or
who has become subject of bad publicity even
though his account is in credit (like being in habit of
stopping cheques, postdating his cheques or leaving
out essential details from his cheques so that the
cheques will not be paid or the customer may
continually draw against uncleared effects or engage
in cross firing).
 Cross-firing is a way to create “virtual” amounts of
money (in other words, the money doesn't really exist)
by depositing checks back and forth between two
banks. Perhaps you use two different banking
institutions and find yourself a little short in order to
pay your bills this month.
 It is a type of fraudulent trading in which a company
plays lending institutions against each other. For
example, a company may send payment checks
between its different divisions in order to create the
appearance of a healthy, profitable company. Auditors
may not readily realize that the company is not making
money, which in turn leads creditors to believe that
the company is still solvent. It is wrongful trading also
called check kiting.
 The bank in these instances should give notice to
the customer to close his account. The notice
should be adequate to enable the customer to
make alternative banking arrangement. A period
of one month is considered adequate for a
personal account but for a business account,
longer notice will be required depending on the
nature and scope of the business.
 In Prosperity Ltd v. Lloyds Bank Ltd (1923), the
court ruled that one month notice was held to be
insufficient. (The company was subject of bad
publicity because of its method of selling
insurance based on a pyramid scheme.
 The bank which did not want to be associated with
the scheme gave the company one month notice
to close its account. The company went to court
and sued the bank for breach of contract and also
sought injunction to prevent the bank from
terminating its relationship with the company.
Closing an Account with Debit Balance
 Although it was held in Prosperity Ltd v. Lloyds
Bank Ltd (1923) that no notice to close an account
that is overdrawn is required, the practice among
bankers in order to avoid problems is to give
notice to the customer.
 The banker can call up the account on overdrafts
on demand even though the time for review of
the facility has not come. This was confirmed in
the case of Barnes v. Williams and Glyn’s Bank Ltd
(1980)
 The same applies to loan facilities where the
customer breached any of the conditions for the
grant of the loan or failed to keep to the
repayment terms and schedules.
 Mental Incapacity of a Customer
When a bank receive notice that its customer has
become mentally ill and unable to take control of his
affairs, the bank should take the following actions:
 Credit Account: The account should be stopped
immediately. Cheques received after the notice will
be returned with answer such as “mandate revoked”.
The bank will dispose of the credit balance on the
instruction of the office of Administrator General or
Committee in Lunacy.
 Debit Account: If the bank wants to take full recourse
to the estate of the mentally ill customer, it will break
the account immediately it receives the notice and
rely on the estate of the mentally sick customer.
 Articles Deposit for Safe Custody: Any article
deposited will only be released on the instruction
of the office of the Administrator General or
Court Order.
 Death of a Customer
 Death determines all mandates.
 Any cheque that has been issued by the customer and
not presented before the bank has notice of the
customer’s death will not be paid.
 Any such cheque which had been received through
clearing though stamped paid will be returned to the
collecting bank if by Clearing House Rules such
cheques are not irrevocably paid before notice of
death.
 The paid stamp on the cheque will be cancelled and
the cheque will be returned with the remark
“stamped paid in error, Drawer Deceased.
 A cheque which has been drawn under a cheque
guarantee card will be debited to the deceased
account even after notice of death as the payment
can be deemed to be a contract in the course of
completion before the death of the customer.
 However, the personal representatives will be
made to know why the cheque is being debited
late.
 All payments out of the account under standing
orders and direct debits are revoked on notice on
death.
 The bank has right of set-off of the deceased
account so as to determine the amount due to or
from the deceased estate.
 If there is sufficient fund in the account of the
deceased, funeral expenses can be paid and debit to
it provided the account of the expenses is rendered
directly to the bank by the funeral undertakers.
 Settlements relating to purchase of stocks and shares
which were contracted for, but which were not
concluded before death could be made from the
deceased credit balance. The bank will have to bring
the payments later to the attention of the personal
representatives.
 Credits received in favour of the deceased after
notice of death would be placed in a suspense
account while credits in respect of pension or annuity
should be returned as the right of the deceased to
either of them is terminated by death.
 Where the account of the deceased is in debit, it
must be stopped immediately and the bank will
bring that fact to the attention of the personal
representatives.
 The bank will disclose to them both the balance
including accrued interest and the securities held
by the bank.
 If the deceased customer had stood as guarantor to
another customer, the account of the latter has to
be stopped immediately on receipt of notice of
death of the guarantor if the bank wants to retain
his right of claim against the estate of the deceased
guarantor.
 If the deceased (debtor’s) account is allowed to
continue unbroken the rule in Clayton’s case will
operate against the bank.
 The bank will promptly bring its claim in respect
of the liability of the deceased under the
guarantee to his personal representatives.
Garnishee Order
 This is an order from the court obtained by a
judgment creditor, directed to attach the money of
his judgment debtor which is in the hand of a third
party, with the effect that the third party is
prevented from paying the money so attached to
anybody but to hold it as a custodian for the court
until the court gives directives on how the money is
to be applied.
 Garnishee nisi or ex-parte: a temporary
injunction without hearing the pleas of the
creditor or debtor.
Exception to the Rule:
 By section 84(1) of the Sheriff and Civil Process
Act, where money liable to be attached by the
garnishee order is in custody or control of a
public officer in his official capacity, the order
nisi shall not be made until consent to such
attachment is obtained from the appropriate
officer.
 The order may be Limited or Unlimited Oder.
Rules as to Attachment
 All credit balances due to the customer are
attachable. This include overdraft not fully
withdrawn. However, the bank can exercise right of
set-off.
 Money held on behalf of another party or in trust is
attached as long as the customer can withdraw it.
However this fund can be protected if the beneficiary
can prove his interest.
 The order must correctly identify the bank’s customer
otherwise the bank will be entitled to ignore it.
 Only money owed to the customer at the time of
service the order is attached.
 Only money which could be conclusively said as
already paid from the account will not be attached
provided the payment of such money or its effective
transfer has been completed at the time of serving
the order.
 A garnishee order issued to one party in a joint
account does not attach the joint account. However,
an order naming a joint account will attach the joint
and individual account of the customers.
 Garnishee order does not protect contingent
liabilities.
 Deposit account, whether fixed or short-term, not
withstanding any maturity condition or any notice of
requirement is attached.
 Cheques paid in but not yet cleared are not attached
except there operates a standing arrangement under
which the customer can draw from uncleared effects.
 Proceeds from the disposal of assets on the
customer’s behalf are not attached in so far the bank
has not actually collected the proceeds.
 Money held in account outside the country is not
attached because it is outside the court’s
jurisdiction.
 Money held in account opened under trading name
(not incorporated companies) is attachable as much
as the name attached is the sole owner of the
business.
 Money held in suspense account of a bank is
attached, if it belongs to judgment debtor.
Other Issues in Effective Payment
 If a cheque is presented through special clearing and
the bank has issued its own instrument (like bankers
payment), to pay it before the receipt of garnishee,
the amount of the cheque must be deductible in
computing balance to be attached.
 However, cheque presented through normal clearing
should be returned unpaid since it has not been
advised by the collecting bank.
 Cash paid in at other branches of the bank, though
not yet received in the branch where the account is
kept, but once discovered must be attached.
 
 If a bank confirms through telephone that a
particular cheque would be paid and before
presentment, an order is served, the account will not
be debited. (Since a bill of exchange cannot be paid
in proxy).
Procedure on Receipt of Orders or Summons
 Ascertain the order is really against the customer
 Open a new account for the subsequent credit to be
received.
 Stop the account and advise the customer of the
steps taken and its effect on his bank account.
 The court and the judgment creditor should be
informed of the position of the account.
 The bank should invite the customer to discuss the
situation, in order to establish if the reason is due
to a special on-off circumstance or pressure from
a range of creditors.
 If cheques have to be returned as a consequence,
the customer should be advised of each one.
 The head office should be advised of the
customer’s accounts and their respective
balances.
 The bank should appear in court and pay into the
court the amount stated when the order is made
absolute. At this stage, the bank is entitled to
exercise its right of set-off.
 What Is a Deceased Account? A deceased account
is a bank account, such as a savings or checking
account, owned by a deceased person. When a
bank receives notice that a customer has died, it
will freeze the account(s) while waiting for
direction from the authorized court regarding
payment to heirs and creditors.
 What happens when a bank customer dies?
 Many banks allow their customers to name a
beneficiary or set the account as Payable on
Death (POD) or Transferable on Death (TOD) to
another person. If the account holder established
someone as a beneficiary or POD, the bank will
release the funds to the named person once it
learns of the account holder's death.
 Will banks release money without probate?
 In some countries like US, you can add a "payable-
on-death" (POD) designation to bank accounts such
as savings accounts or certificates of deposit. ... At
your death, the beneficiary can claim the money
directly from the bank without probate court
proceedings.
 Writ of Sequestration
 A writ of sequestration is a prejudgment action that
allows the court to seize or attach property or assets on
behalf of the plaintiff. In an effort to make this process
easier, a writ of sequestration bond is often used. The
surety bond covers the action, so in the event something
goes awry, the bond keeps things together.
 A writ of sequestration is a legal process which occurs
before a final judgment, in which a court orders the
seizure or attachment of property to be maintained in
the custody of a law enforcement official, under court
order and supervision until the court determines a
release of the property is appropriate. The purpose of
the writ of sequestration is to preserve the named
property pending the outcome of the litigation.
 Surety bonds are commonly used in attachment
proceedings. A surety bond expert can always be
contacted to determine if your situation would
benefit from a surety bond.
 The terms of a writ of sequestration bond are
typically set by the court. There are situations
where the defendant can make special requests,
but it is up to the court’s discretion.
 Most commonly, a writ of sequestration bond
covers the value of the assets being seized.
Securing a bond that protects the assets, proves
to the court that the plaintiff has taken the
appropriate steps.
Where Is a Writ of Sequestration Applicable?
 For title to or possession of personal property or
fixtures to enforce a mortgage, lien or security
interest on personal property or fixtures
 For title to or possession of real property or
foreclosure on real property under the same
circumstances
 For title to or possession of property from which
the plaintiff has been ejected by violent means
 In a lawsuit seeking to assess the title to real
property, such as to remove a cloud of title,
which prevents an owner from selling his or her
property
 Mareva Injunction
CASE SCENARIO
Mr. Bayo advanced a loan of 50 million Naira to Mr.
Sawyer, a Liberian residing in Nigeria. The loan was
secured by Mr Sawyer’s landed property located in Lagos.
Mr Sawyer failed to repay the loan, and Mr. Bayo sued in
the Lagos high court. During the pendency of the suit, Mr.
Sawyer put up the land for sale on OLX. If Mr. Sawyer is
allowed to sell the land, there would be no way to
enforce the judgement that Mr. Bayo may eventually
get. What can Mr. Bayo do in order to prevent Mr.
Sawyer from selling the land until a judgement is
delivered in the pending suit?
 One big event that has characterized the 21st century
is the advent and the development of technology
which has impacted nearly all facets of life. As a
matter of fact, court processes has had its own fair
share of these developments.
 In some jurisdictions, it has become a possibility to
transfer title to properties online. This has in recent
times, made the enforcement of court judgements
against the assets of judgement debtors a cumbersome
process.
 In the light of the foregoing, litigants are left with
empty judgements with no means to enforce them and
this definitely has a deleterious effect on litigants
causing them to lose faith in the justice system.
 In response to the obvious injustice occasioned by
the unfortunate reality pointed out above, the
Mareva injunction was introduced to grant solace
to litigants.
WHAT ARE INJUNCTIONS
 Injunctions generally were defined by Karibi-
Whyte JSC, in Babatunde Adenuga & 5 Ors v. K.
Odunewe & Ors (2001) 2NWLR (Pt 696) 184 at 195
as: “… an equitable order restraining the person
to whom it is directed from doing the things
specified in the order or requiring in exceptional
situations the performance of a specified act”.
MEANING OF MAREVA INJUNCTION
 Mareva injunction aka Freezing order is a form of
injunctive order that prevents the dissipating or
dealing with the properties (pending the
determination of a dispute) that could render the
judgment of a court or the resolution of that dispute
nugatory.
 It operates until the substantive determination of the
civil rights and obligations of the parties with regard
to the subject properties. In order words, the
doctrine of Mareva injunction operates to stop a
defendant against whom a plaintiff has a good
arguable claim from disposing of or dissipating his
assets pending the determination of the case or
pending payment to the plaintiff.
THE LEGAL POSITION ON FREEZING ORDERS BEFORE
1975
 Originally, a plaintiff could not obtain any interim
injunctive relief intended to prevent a defendant from
dissipating the assets or taking his assets outside the
jurisdiction in the face of imminent lawsuit or
judgement.
 Cotton L.J puts the position in the case of LISTER AND
CO V STUBBS (1970) 45 Ch.D 1 at P.14 thus: “If we
were to order the defendant to give security asked for,
it would be introducing an entirely new and wrong
principle – which we ought not to do, even though we
might think that, having regard to the circumstances of
the case, it would be highly just to make the order”.
 This position of the law clearly worked a hardship
upon plaintiffs; and, in turn, assisted the recalcitrant
defendant to evade possible or anticipated execution
of judgment against his assets.
POST 1975
 The foregoing was the position until 1975 when the
doctrine of Mareva injunction was developed by the
High Court of Justice in England in two successive
cases of Nippon Yusen Kaisha vs. Karangeorgis (1975)
1 w. L. R 1093 and Mareva Compagnia Naviera S.A. v.
International bulkcarriers S.A (1980) 1 AII ER 213,
from which the doctrine acquired its name.
 THE MAREVA CASE
 In the case of MAREVA COMPANIA NAVIERA S.A. V.
INT’L BULK CARRIERS S.A. (SUPRA) under a voyage
charter, a vessel was loaded with a cargo of
fertilizer consigned to India.
 The Indian High Commission, in accordance with
the obligations under the voyage charter, paid
90% of the freight but paid it to a bank in London
to the credit of the charterers. Out of that, the
charterers paid to the first two instalments by
credit transferred to the ship-owners.
 The third was due on 12 June 1975, but the
charterers failed to pay it. The ship-owners
treated the charterers’ conduct as a repudiation
of the charter. They issued a writ on 20 June.
They claimed the unpaid hire, which comes to
$US30,800, and damages for the repudiation.
 Meanwhile, they believe that there is a grave
danger that the money in the bank in London will
disappear. So they have applied for an injunction
to restrain the disposal of those moneys which are
now in the bank.
INSTANCES WHEN MAREVA INJUNCTION WOULD BE
GRANTED
 Where the defendant against whom the injunction
is sought is a foreigner. It is not unusual that
foreigners owe debts to Nigerians or Nigerian
banks and then go ahead to sell the debt
securities or move them out of Nigeria in order to
avoid their obligations under the loan agreement.
In such cases, an order of Mareva Injunction can
be granted to prevent a foreigner from selling or
moving such properties out of the country.
 Where there are indications that the defendant
has commenced the sale of the assets, an order of
Mareva Injunction can be granted in order to stop
the sale and freeze the asset pending the
determination of the pending suit or dispute.
 Mareva Injunction may also be granted against a
fraudulent party who has committed fraud with
the assets, so as to freeze the property and
preclude him from further commission of such
fraud.
CONDITION FOR THE GRANT OF MAREVA INJUNCTION
 In DUROJAIYE v. CONTINENTAL FEEDERS (NIG) LIMITED
(2001) 14 WRN 141, the court made it clear that by the
very nature of the injunctive relief, an Applicant must
show that he has a cause of action against the
Defendant which is justifiable, that there is a real and
imminent risk of the Defendant removing his asset from
jurisdiction and thereby rendering nugatory, any
judgment which the Plaintiff may obtain,
 That the Applicant has made a full disclosure of all
material facts relevant to the application, that he has
given full particulars of the assets within the
jurisdiction, that the balance of convenience is on the
side of the Applicant, and that he is prepared to give
an undertaking as to damages for failure to satisfy the
Court in any of the above.
 That he has given full particulars of the assets
within the jurisdiction.
 That the balance of convenience is on the side of
the applicant.
 That he is prepared to give an undertaking as to
damages.
LEGAL EFFECT OF MAREVA INJUNCTION
 A Mareva order takes effect as soon as it is made
and served. It does not operate as an attachment
to the asset. It merely restrains the owner of the
asset from dealing with the assets in a specified
manner. Buckley, L. J., in CRETANOR MARITIME
CO. LTD. VS. IRISH MARINE MANAGEMENT LTD
(1978) W.L.R. 966 AT 974, made this point very
clearly when he stated as follows:
 “…..It is, I think, manifest that a Mareva injunction
cannot operate as an attachment. Attachment’
must, I apprehend, mean a seizure of assets under
some writ or like command or order of a competent
authority, normally with a view to their being
realized to meet established claim or held as a
pledge or security for the discharge of some claim
either already established or yet to be established.
 An attachment must fasten on particular assets……
A Mareva injunction, however, even if it relates to a
particular asset…… is relief in personam…… All that
the injunction achieves is in truth to prohibit the
owner from doing certain things in relation to the
asset…..”
EFFECT OF MAREVA INJUNCTION ON THIRD
PARTIES
 A third party that has been given notice of the
injunction, if he knowingly assists in a breach of
the order, will be guilty of contempt of court,
irrespective of the defendant’s knowledge of the
injunction. A bank must, therefore, dishonour any
cheque or refuse any transfer of money once it
has received notice of the injunction.
 Freezing Order (Post-No-Debit)
 A Lagos state high court has ruled that Access Bank
Plc’s decision to place a post-no-debit (PND) alert
on the accounts of Blaid Construction Ltd. and Blaid
Properties Ltd. without a court order is unlawful.
 In a landmark judgement, the court ruled that the
accounts were illegally frozen for at least fifteen
months outside the period granted the Economic
and Financial Crimes Commission (EFCC) in a court
order.
 It asked the bank to pay the sum of N5 million to
the companies as damages for breaching banker-
customer relationship.
 The EFFC had been investigating two companies
owned by Ochuko Momoh, wife of a former
managing director of the Pipelines and Product
Marketing Company (PPMC), for wrongdoing and
on July 1, 2016, obtained an order from a federal
high court to freeze their bank accounts
domiciled in Access Bank.
 Although the order, which was for a period of
three months, elapsed on September 30, 2016,
the accounts were still frozen prompting a legal
tussle between the companies and the bank.
 In May 2017, the companies filed a suit before the
Lagos high court, seeking an order that the
continued freezing of their accounts is illegal and
that they should be paid damages of N500 million.
 This judgement has proved that placing PND on
customer’s account must receive the blessings of
the court otherwise the bank may receive legal
rebuke.