## Facts

- Bankers Trust Company (BT) was a New York bank with a London branch; Libyan Arab Foreign Bank (LAFB) was affiliated with the Libyan government and held U.S.-dollar accounts with BT in both New York and London.
- BT made entries on the London account in London, and the London account relationship was administered through the London branch as the customer’s branch.
- On January 7–8, 1986, amid rising U.S.–Libya tensions, U.S. authorities focused on unusual Libyan transfers; the president of the Federal Reserve Bank of New York asked BT’s chairman to report unusual transfers from Libya’s accounts.
- On January 7, 1986, the U.S. issued executive measures restricting U.S. persons from extending credit to Libya-related entities.
- On January 8, 1986 at about 4:10 p.m., the U.S. issued further measures blocking Libyan-government property and interests in property that were or would come into the United States; BT’s chairman learned during a call with the U.S. Treasury Secretary that BT could not make transfers from LAFB’s accounts.
- BT New York did not carry out intended same-day transfers (including large transfers meant to move funds to BT London) and did not execute certain payment instructions connected to LAFB’s accounts.
- In April 1986, LAFB instructed BT New York to transfer about $291 million in cash to BT London; BT did not comply, citing U.S. sanctions. Similar demands were repeated in July and December 1986 without payment.
- LAFB also made demands for payment from the London branch, at times specifying the method (e.g., a negotiable banker’s draft payable in London) and at other times indicating willingness to accept recognized alternative means (including the sterling equivalent).
- LAFB sued BT in the English Commercial Court for breach of contract and related claims, including failure to pay on demand, failure to execute payment instructions, alleged breach of confidence in communications with the New York Federal Reserve, frustration/restitution arguments, and a separate complaint about a prior change to BT’s interest-crediting method that reduced interest without LAFB’s knowledge.

## Issues

1. Whether the bank–customer contract for LAFB’s London U.S.-dollar account was governed by English law and required payment in London.
2. Whether U.S. executive orders and related U.S. blocking measures excused or justified BT London’s refusal to pay LAFB on demand in London.
3. Whether any supervening illegality or impossibility arising from U.S. measures discharged BT’s obligations by frustration (or instead only affected performance temporarily).
4. Whether BT breached a duty to execute particular payment instructions in early January 1986, and if so whether LAFB proved resulting loss.
5. Whether BT breached its duty of confidence by providing information to the Federal Reserve Bank of New York, and whether any such breach caused loss.
6. Whether BT was liable for reducing interest credited to LAFB by changing its internal interest-crediting method without proper notice or authority.

## Decision

- The court held that the London account relationship was governed by English law and that the obligation to meet a proper demand on that account was performable in London.
- BT could not rely on U.S. blocking measures, as a matter of English law governing the London account, as a complete defence to nonpayment in London; the foreign public law measures did not, of themselves, displace the English-law obligation of the London branch to its customer.
- A frustration-based route to relief (including restitutionary recovery under the Law Reform (Frustrated Contracts) Act 1943) failed; the court treated the impact of U.S. measures, at most, as a restraint on performance rather than an event that brought the contract to an end, and the deposit/restoration theory did not fit the statutory scheme.
- Claims based on BT’s failure to execute particular payment instructions in January 1986 failed on the facts and proof: BT was not shown to have been obliged to execute by a specific time, and LAFB did not prove compensable loss from the delay/non-execution.
- The breach-of-confidence claim failed primarily for lack of proof of loss; the court indicated, tentatively, that a public-interest basis may justify disclosure in circumstances involving serious public concerns, but the claim did not succeed in any event.
- LAFB succeeded on a separate claim that BT had altered the operation of its interest-crediting method in a way that reduced interest without LAFB’s knowledge, resulting in liability on that issue.

## Legal Principles

- A bank deposit is a debtor–creditor relationship; the governing law and place of performance ordinarily follow the branch account relationship where the account is kept and where demand is to be met.
- English courts do not automatically give effect to foreign public law (including foreign sanctions and blocking orders) to defeat an English-law contractual obligation requiring performance in England.
- Exposure to foreign criminal or regulatory risk does not, without more, discharge an English-law obligation to pay in England; the effect of foreign measures may be treated as temporary restraint rather than termination, depending on the contract and the facts.
- Frustration requires a supervening event that ends (not merely delays or burdens) the contractual obligation; restitution under the 1943 Act depends on whether sums were paid “in pursuance of” the contract in the statutory sense.
- A bank must execute a customer’s payment mandate within the time required by the contract or, if none is fixed, within a reasonable time; damages require proof of loss caused by the breach.
- A bank’s duty of confidentiality is not absolute; where asserted, a claim still requires proof of causation and loss, and disclosure may be justified on public-interest grounds in limited circumstances.
- A bank is not entitled to reduce interest payable by altering an interest-crediting method without contractual authority and effective notice to the customer.

## Conclusion

The Commercial Court treated LAFB’s London dollar account as an English-law contract requiring payment in London and held that U.S. Libya blocking measures did not, as a matter of English law, provide BT’s London branch with a complete defence to nonpayment, while rejecting several ancillary claims for want of obligation or proof of loss and finding BT liable on a separate issue arising from an undisclosed change to its interest-crediting method.


Libyan Arab Foreign Bank v. Bankers Trust Co., [1988] 1 Lloyd’s L. Rep. 259