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The reputation of the Bank of England is in the dock on
Tuesday, as it faces on the beginning of a court case in London
over its role in the world's biggest bank fraud.
The case of the liquidator of Bank of Credit and Commerce
International versus the Old Lady of Threadneedle Street has
taken more than a decade to come to court and is expected to
last 18 months and could cost the bank £1bn in damages.
It is a saga which one Bank official described as having "the
ghastly inevitability of a Greek tragedy". His comment in January
1987 came in an internal supervisory department memo as debate over
how to handle the maverick BCCI intensified between international
regulators.
Four years later, the insight proved painfully accurate: the
long-suspect, Middle Eastern-owned bank collapsed owing more than
£10bn. Even after the likes of Enron and Parmalat, it still counts
as one of the world's biggest corporate demises. On Tuesday, the Old
Lady can only hope cool reason rather than Greek histrionics will
permeate courtroom 73 at the Royal Courts of Justice.
Deloitte & Touche, the BCCI liquidators, are alleging that
officials in the central bank's supervisory division were so
reckless in the way they oversaw BCCI that they wittingly put
depositors at risk.
The Bank has statutory immunity against charges of negligence
but, after a long legal fight, the liquidators have won the right to
bring the case as a more demanding "misfeasance in public office"
claim. This is a rarely-argued tort, although it has been invoked
recently by Railtrack shareholders in their damages case against the
Department for Transport. It requires the claimants to prove bad
faith - in effect, dishonesty - on the Bank's part.
The potential sums involved are substantial. Since BCCI's
collapse, D&T has recovered and repaid to creditors about 75 per
cent of their money. But if the liquidators can prove the Bank's
misfeasance stretched back to the first BCCI licensing decision in
1980, damages against the Bank, including interest, could yield
another £1bn.
The sheer dimensions of the case will be extraordinary. Gordon
Pollock, a top-charging barrister with a flamboyant turn of phrase,
will open proceedings for the liquidators on Tuesday.
He will remain on his feet for the next two to three months,
detailing the allegations against the Bank.
In large part, the liquidators' case will depend on the
truckloads of paper records to which its lawyers have won access.
Much of this involves material which Lord Bingham - then a senior
judge and now the senior law lord - saw when he produced a critical
report on the BCCI fiasco in 1992. But already, in pre-trial
hearings, Mr Pollock has made clear that the liquidators contend
there is other evidence which, it is claimed, Lord Bingham did not
see.
Only in March or April will Nicholas Stadlen QC, the bank's
senior barrister and another who has made it into the £1m-a-year
club, get the chance to reply.
On behalf of the Bank, he is expectedly to deny strongly any
suggestion of dishonesty by its supervisory department staff. By
late spring or early summer, the Bank will start calling witnesses
to bolster its case. Three former governors - Lord Richardson, Lord
Kingsdown (better known as Robin Leigh-Pemberton) and Sir Edward
George, will take the stand, although is not alleged that they were
guilty of misfeasance, but rather that they were misled by the
supervisory department.
After that, the six surviving senior supervisory department
officials who dealt with BCCI - including Brian Quinn, now chairman
of Celtic Football Club, Peter Cooke, Rodney Galpin and Roger Barnes
- are likely to be called. Following them, any number of the 16
"part two" officials - the lower-ranking supervisors and analysts
who are also embroiled in the misfeasance charge - could find their
way to the witness box.
Cross-examination will be shared between Mr Pollock and Clare
Montgomery QC, a feisty Matrix Chambers barrister whose clients have
ranged from solicitor Sally Clark, recently cleared of infanticide,
to General Pinochet and Kevin Maxwell.
It could be well into 2005 by the time closing arguments have
been submitted and the trial wraps up. Given the heavyweight legal
teams on both sides, estimates put the potential bill at tens of
millions of pounds.
With so much at stake, it is no surprise that the lawyers have
already been at work, arguing about everything from how to organise
the thousands of paper files to the extent to which the copious
paper records have to be disclosed.
Already, the case has challenged some established legal
principles. The liquidators' quest for access to the information
that flowed between Bank officials who liaised with Lord Bingham and
the Bank's solicitors, Freshfields, has set new ground rules over
the extent of "legal privilege", although this issue still awaits
final clarification from the Court of Appeal. The hearing will not
take place until the main trial has started.
Most recently, Lovells, for the liquidators, and Freshfields have
waded back into court over the question of whether Bank witnesses
should be excluded from hearing prior evidence, as would normally be
the case in a criminal trial, and whether yet-another "part 2"
official could be added to the existing list of 15.
Mr Justice Tomlinson, the judge who will be hearing the case,
allowed the latter request. But he refused the former, saying it was
"an offence of justice" that a person in public office should be
precluded from what was effectively a trial of his or her conduct
and, from a practical standpoint, "simply unrealistic".
That decision, he added, did not mean that such measures might
never be appropriate, but reflected the "particular circumstances of
this very long and unusual trial". Over the coming months, that is
one assessment no one is likely to dispute. | 
