THE relation between a bank and its customer is of such nature that it gives the right to the bank to set-off the customer’s debit and credit balances irrespective of the type of his accounts. The bank in this respect has the right to ascertain the status of a customer’s account through a simple calculation and to set off any balance due from any other account or accounts of the same customer which are in credit. This right is called banker’s lien or set off and is applicable in Cyprus. The said right is recognised to any banking institution to set off different accounts of the same customer even in the absence of an agreement.

As long as the customer meets his obligations to the satisfaction of the bank, their relationship is normal and no issue is created, the customer has direct access to his deposits and can use them freely. However, when the customer is unable to repay his loan or does not operate his current account satisfactorily, the bank can exercise the banker’s lien or set off his deposits without any obligation to inform him or receive his approval, provided there is no agreement to the contrary. Normalisation of the customer’s accounts can take the form of a simple calculation through which the bank covers the debit with the credit balance and the customer has no actionable right. The existence of accounts is a requirement for the obligations between the bank and the customer to be mutual but not independent; in such a case, the bank has the right of banker’s lien or set-off. This right usually derives from securities the bank obtains from a customer, but it is extended to cover any other securities given to the bank by any third person.

It is clear that when a bank customer who acts at the same time as a depositor, debtor or guarantor and wishes that certain of his deposits remain independent and separate from his existing obligations to the bank, he must enter into a relevant agreement with the bank, so that the latter will not have the right of banker’s lien on his deposits and to be able to withdraw money from his deposits whenever he wishes.

The right of banker’s lien or set-off on the money deposited in the account of a guarantor to cover the obligations of the principal debtor was examined by the Supreme Court in a judgement issued on 7.12.2021. In particular, a bank granted credit facilities to its customer – principal debtor in a current account agreement with an overdraft. The complainant was the guarantor, who guaranteed in writing all the obligations of the principal debtor to the bank deriving from the current account agreement with an overdraft. According to a term of the guarantee, the complainant agreed that the bank would have, as a security or guarantee in relation to any money and obligations owed by the principal debtor to the bank, a right of banker’s lien over the whole or part of the guarantor’s money. He also agreed that the bank had the right, without any notice to him, to transfer any credit balance or balances of any of his account or accounts with the bank for full or partial repayment of any of the obligations for which the guarantee was given.

The bank, on the basis of the guarantee agreement, proceeded, without the complainant giving any relevant instructions, to close his account and deposited the amount in the accounts of the principal debtor guaranteed by the complainant. The complainant instituted a private criminal case against the bank alleging theft or theft by a representative, but the Court of first instance acquitted the bank. On appeal, the complainant alleged that the Court had misinterpreted the general right of banker’s lien, which, according to him, did not give the bank the right to take his money.

The Supreme Court did not agree with the complainant, deciding that it did not follow from the facts of the case that there had been any fraudulent act on the part of the bank and upheld the judgment of the Court of first instance. What the bank did was to enforce the right of the banker’s lien granted to the bank by the appellant under the guarantee he had signed. The fact that the complainant did not give his consent to the bank to close his account and retain the amount does not alter the situation, since such consent was not required under the guarantee agreement. Consequently, the Court dismissed the appeal and pointed out that the competent authorities and in particular the House of Representatives should examine and re-define the framework within which the right to institute a private criminal case should be exercised, because abuse of this right has been observed.