Customs & Excise v Barclays Bank Plc [2004] EWHC 122 (Comm)

Case No 2003 Folio No. 145
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
[2004] EWHC 122 (Comm)
NEUTRAL CITATION NO.
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 3 February 2004
Before
THE HONOURABLE MR JUSTICE COLMAN
Between
Commissioners of Customs & ExciseClaimantBarclays Bank PlcDefendant
Mr Philip Sales and Mr Daniel Stilitz (instructed by Solicitor’s Office, HM Customs & Excise) for ClaimantMr Michael Brindle QC and Mr Richard Handyside (instructed by Messrs Lovells) for DefendantHearing Hearing dates : 16-17 December 2003
Approved JudgmentMr Justice Colman :Introduction
[1]The preliminary issue now before the court raises a hitherto unexplored and undecided point in relation to freezing injunctions. The issue only has to be stated for it to be seen that it also goes to the very heart of the law of negligence.[2]In outline the claimants obtained freezing injunctions in respect of outstanding VAT against two companies both of which held current accounts with the defendant (“the Bank”) which were at all material times in credit. The two orders each specifically prohibited disposal of or dealing with the debtor company’s assets up to a stated amount including in particular any money in identified accounts at the Bank. After the orders were made, the claimant’s solicitors gave notice of them to the Bank, sending a copy of the orders by fax.[3]Some two hours later, each of the two debtor companies effected direct transfers of substantial sums from their respective accounts by use of the Bank’s so-called Faxpay system by which a customer can send direct payment instructions to the Bank’s payment centre as distinct from the customer’s branch. The Bank failed to stop these transfers. In the result the amounts remaining in credit in each of the two debtor’s accounts were considerably less than the outstanding indebtedness to the claimants. The claimants now claim damages for negligence against the Bank on the basis that they are now unable to enforce judgments which they have subsequently obtained against the debtor companies as fully as if there had been no transfers out of their respective accounts at the Bank.[4]It is admitted by the Bank that the withdrawals were permitted, in the case of one debtor company, due to operator error and, in the case of the other company, because the Faxpay system was set up to bypass the Bank’s control facility. The Bank, however, denies that it owed a duty of care to the claimants to prevent these payments. That is the issue that by order dated 11 July 2003 Tomlinson J. ordered to be tried as a preliminary issue on the assumption that the facts alleged in the Particulars of Claim were true.

The Assumed Facts

[5]The two debtor companies were Brightstar Systems Ltd (“Brightstar”) and Doveblue Ltd (“Doveblue”) both of which were by the beginning of 2001 heavily indebted to the claimant in respect of VAT.[6]As to Brightstar, on 26 January 2001 Pitchford J. granted a freezing injunction up to a value of £1.8 million. It provided specifically:- “1. The Defendant must not remove from England and Wales or in any way dispose of or deal with or diminish the value of any of its assets which are in England and Wales whether in its own name or not and whether solely or jointly owned up to the value of £1,800,000.00. This prohibition includes the following assets in particular, namely any money in the accounts numbered 01311633 at HSBC Bank, and account number 70845302 at Barclays Bank Plc.”[7]Under the heading GUIDANCE NOTES there appeared the following: “1. Effect of this[8]This is the standard wording for such freezing injunctions. Having recited that the Judge had accepted the undertaking set out in Schedule B to the Order, the Order included in Schedule B the following undertaking:
“The Claimants will pay the reasonable costs of anyone other than the Defendant which have been incurred as a result of this Order including the costs of ascertaining whether that person holds any of the Defendant’s assets and if the Court later finds that this Order has caused such person loss, and decides that such person should be compensated for that loss, the Claimants will comply with any Order the Court may make.”
[9]The claimants served a copy of the Brightstar order on the Bank by fax at 12.33 on 29 January 2001.[10]By letter to the claimants dated 29 January 2001, but bearing a “Letter Opened” stamp dated 31 January 2001, Ms Julie Fisher, Legal Adviser at the Bank, stated:
“We confirm that the Bank will abide by the terms of the order and would be grateful if all future correspondence concerning this matter could be forwarded to this Office quoting our reference shown above. Substantial costs are incurred in handling Freezing Orders. You will no doubt be aware that we are entitled to reimbursement and would direct your attention to the Practice Direction dated 28 October 1996, made by the Lord Chief Justice with the concurrence of the President of the Family Division. Please find enclosed a schedule of the work typically involved, for your information. In this case our costs to date amount to £150 and we shall be pleased to receive your early remittance in settlement. Cheques should be made payable to “Barclays Bank Plc”
. Where further work is required, for example on an amended Order, we reserve the right to claim reimbursement of any additional costs incurred.”[11]At about 14.30 on that same day the Bank permitted three payments out of the Brightstar account and further debited the account with charges relating to two such payments overseas. The total paid out and debited was £1,240,570. When the Bank discovered what had happened, it informed the claimants by letter dated 31 January 2001, which explained these three substantial payments by reference to “operator error”.[12]On 8 May 2001 the claimants obtained judgment in default against Brightstar for £2,285,788.98. On 30 July 2001 they obtained a garnishee order absolute against the Bank in the sum of £563,124.46. That was all that remained in the Brightstar account. The shortfall on the judgment debt exceeded the sum of £1,240,570, which had been paid out of the account. Brightstar has paid nothing. The claimants claim this latter sum plus such interest as would have accrued on that amount between the date when it was erroneously paid out and the date of the garnishee order.[13]With regard to Doveblue, on 30 January 2001 Cresswell J. granted to the claimants a freezing injunction to a maximum amount of £3,928,130.00. Like the Brightstar order, this injunction specifically prohibited disposal of funds in the Doveblue account with the Bank. It also included similar provisions and undertakings to those set out at paragraphs (6-8) above. It was served on the bank by fax at about 11.38 on 30 January 2001.[14]At about 1400 on 30 January 2001 the Bank permitted payments out of the Doveblue account which with charges totalled £1,064,289.[15]By letter dated 31 January 2001, the day after the order had been served, Ms Julie Fisher on behalf of the Bank wrote to the claimants acknowledging that the freezing order had been received and confirming that the Bank would abide by the terms of the order. The letter contained identical paragraphs relating to the Bank’s handling costs to those in relation to Brightstar and stating similarly that the Bank’s costs in the case of Doveblue amounted to £150 and asked for early remittance. However, the letter continued:
“Unfortunately a problem arose, shortly after the service of the Order, which we have been unable to resolve. The Order was served by fax at 11.38 am on 30 January 2001. Doveblue had the use of the Bank’s ‘Faxpay’ system, enabling it to make direct transfers without reference to the branch. Steps were taken to amend the instructions on that system so that Doveblue could no longer make such transfers. However, at approximately, 2.00 pm, before the amendment could be put in place, funds were transferred from Doveblue’s account under the ‘Faxpay’ system. The Bank took immediate steps to recall the payments. A number of discussions took place with the recipient Banks. Unfortunately, the recipient Banks were unwilling to repay the sums transferred on the grounds that payments were in the ordinary course of their customers’ businesses.”
[16]On 23 February 2001 the claimants obtained judgment in default against Doveblue for £3,944,095.85. Doveblue has failed to pay any of this debt. On 31 May 2001 the claimants obtained a garnishee order absolute against the Bank for £130,630.81, which was all that remained in Doveblue’s account after the transfers out on 30 January. The shortfall of that amount from the judgment debt far exceeded £1,064,289 paid out of the account. The claimants claims this latter amount together with interest that would have accrued on it from the date of notice of the injunction to the date of the garnishee order.

Preliminary Matters

[17]Before considering the question whether the Bank owed a duty of care to prevent these payments out of the two accounts it is necessary to have in mind the nature of a freezing injunction of the kind now before the court. The purpose of such an order is to prevent the party alleged to be liable for a debt or damages making itself judgment-proof by putting its assets out of the reach of the claimant. The making of such an order creates no proprietary interest in the assets to which it relates, whether they consist of choses in action or tangible assets. The effect is to preserve their availability for execution in case the claimant obtains a judgment against the defendant. In making an order of that kind the court is therefore protecting the enforceability of such judgments as it might in future make.[18]Where therefore a defendant against whom such an order has been made contravenes it by disposing of assets covered by the order, it does not cause to the claimant any loss of a personal right to property: it merely reduces the assets available for execution should the claimant or anyone else become a judgment creditor of the defendant in the future.[19]Breach of a freezing injunction therefore causes no immediate loss to the claimant: it merely increases the chance that if he ever becomes entitled to levy execution against the defendant he will be unable to do so as effectively as if the breach had not occurred. Whether he ultimately suffers any financial loss as a result of the breach by disposal of assets will depend on whether he ultimately becomes a judgment creditor and whether the defendants’ remaining assets are sufficient to satisfy his debt as well as those of any other competing creditors.[20]The court having made an order against the defendant restraining the disposal of his assets, the claimant has hitherto been regarded as having no remedy for a breach of that order except to bring proceedings for contempt of court. Such proceedings are punitive in nature. A bank or other third party which holds assets on behalf of the defendant and which is given notice of the freezing injunction will equally be in contempt of court if it knowingly disposes of the assets contrary to the court’s[21]In that case there was a substantial level of culpability on the part of the defendant bank. It was therefore held to be appropriate that a sequestration order be made against the bank providing for the sequestration of funds equivalent to the amount which had been transferred in breach of the court’s order. However, such an order would not be a direct source of compensation for the claimant. It could only be used as a lever to enforce the court’s original freezing order. Thus, in that case leave was given to issue a writ of sequestration with a stay of execution for a limited period within which the defendant bank was given the opportunity to replace the funds which it had transferred in breach of the original order. By that indirect means the court was therefore able to restore the security, which it had been the purpose of the freezing order to provide to the claimant. However, the availability and extent of any such penalty would depend in each case on the degree of culpability as proved to the criminal trial standard of proof and not merely on the presence of negligence proved on the balance of probabilities in failing to comply with the court’s order. In particular, the sanction imposed by the court might not be co-extensive with the asset-deficiency caused by the breach of the court’s order. Nor might the sanction of sequestration of assets or imprisonment proposed by the court prove to be an effective means of inducing compliance with the original order. The party in breach might already have disposed of the assets which it would have used to comply with the order. The claimant would have no enforceable judgment for damages against a third party asset – holder who had failed to comply with the order, but merely the opportunity that if the court’s punishment for contempt were imposed, that might yet induce compliance with the order.[22]It is against this background that I turn to the parties’ submissions.

The Main Submissions

[23]On behalf of the claimant Commissioners Mr. Philip Sales’s submissions may be summarised as follows.(a) The appropriate test for the existence of a duty of care on the facts of the present case is the so-called “threefold test” of (a) foreseeability of damage,(b) proximity between the claimant and the defendant and(c) that it should be fair, just and reasonable to impose a duty. The foundations for this test are formulated by Lord Griffiths in Smith v. Eric Bush [1990] 1 AC 831. at p. 865 and by Lord Bridge in Caparo Industries v. Dickman [1940] 2 AC p. 605 at page 617 – 618. (b) Although the test of duty of care by reference to whether there has been a voluntary assumption of responsibility by the defendant as derived from Hedley Byrne v. Heller [1964] AC 465, per Lord Reid at p. 486-7, Lord Morris at p.502-3, Lord Hodson at p. 510 and 514 and Lord Devlin at p.528-9 has been applied relatively recently in such cases as Henderson v. Merrett Syndicates Ltd. [1995] 2 AC 145 per Lord Goff at p. 180-1 and White v. Jones [1995] 2 AC 207 per Lord Goff at p. 268, in the latter case where there was no direct dealing between the solicitor and plaintiff intended beneficiaries under the will, it is a less appropriate test for the circumstances of the present case than the threefold test. In this connection reliance is placed on the observations advanced in Clerk & Lindsell on Torts, 18 Edn, paras 7-22 and 7-23. Further, the test of assumption of responsibility is particularly apposite in cases where there has been a negligent misrepresentation or the negligent provision of professional services which by being relied upon have caused purely economic loss, as distinct from financial loss attributable to physical loss or damage, and in relation to which there is need for a restriction as to the extent of an assumption of responsibility to an identifiable individual or group, as explained by Lord Goff in Henderson v. Merrett Syndicates Ltd., supra, at page 181. (c) A further test identified by Sir Brian Neill in Bank of Credit and Commerce International (Overseas) Ltd. v. Price Waterhouse [1998] BCC 617 at pages 631-634 as the incremental approach, which involved ascertaining whether the factual situation in question was closely analogous to that found in cases where a duty of care had been held to exist, was not treated as an independent test but rather as a cross-check or reference system by which to measure the extent to which a proposed extension of the scope of duty of care would be justifiable.(d) That the assumption of responsibility test is not appropriate in the present case is demonstrated by the fact that this is not a case where the Bank gave negligent advice or information to the Commissioners nor where there has been consequential economic loss of the type sustained in Hedley Byrne. In both cases there was a specific fund in the account which, but for the Bank’s negligence in permitting payment out, would have been available to the Commissioners as a means of enforcing their judgment debts. These facts differ materially from those found in cases where the assumption of responsibility test has been applied.(e) As regards application of the threefold test, foreseeability of loss if a freezing order is ignored, is self-evident. This is not challenged on behalf of the Bank.(f) As to proximity, the Commissioners reasonably relied on the Bank to protect their interest in as much as, having applied to the court for the orders, they had served them on the Bank. They had, by the act of obtaining the order and serving it, undertaken to pay the Bank’s charges, as provided for in Schedule B, paragraph 7 (see paragraph (8) above). The Bank knew that the Commissioners were relying on it to preserve the companies’ assets. Indeed, the Bank was familiar with the operation of freezing injunctions as shown by its responding to service of the orders by sending standard form letters to the Commissioners which referred expressly to the Practice Direction of 28th October 1996.(g) The combination of the Bank’s knowledge that the Commissioners were relying on it to protect their rights of enforcement and that only the Bank could provide that protection in respect of those assets against the background of the Bank’s duty to the court to comply with the order were sufficient to create proximity.(h) Further, the Commissioners and the Bank had a relationship closely akin to that of a contract. Even had there been no express undertaking to pay the Bank’s reasonable expenses, such an enforceable undertaking would arise by implication, as indicated by Lord Denning MR in Z Ltd. v. A-Z and AA-LL [1982] 1 QB 558 at page 575.(i) It is further submitted on behalf of the Commissioners that although, on the facts of this case, an assumption of responsibility by the Bank does not have to be established, the Bank nevertheless did assume responsibility for compliance with the orders by the very fact of its carrying on a public banking service in a jurisdiction in which freezing orders against customers’ accounts are commonplace and/or by its sending out its letters of acknowledgement in response to service of the order. In this connection as regards the order against Brightstar, the Bank had already sent its letter of acknowledgement before it released the funds, whereas as regards the Doveblue order, although it had acted internally in an attempt to comply with the order, the letter of acknowledgement was not sent out until the funds had already been released. It is submitted that there was objectively an assumption of responsibility in both cases, responsibility being assumed as a necessary incident of the Bank’s business and subsequently acknowledged in its letter of 31st January 2001.(j) The fact that the Bank was under a duty to the Court to comply with its order could not in itself preclude the existence of the necessary proximity. In this connection the Commissioners rely on the recent decision of the House of Lords in Arthur J.S. Hall & Co. v. Simons [2002] 1 AC 615 in which it was held that the fact that an advocate owes a duty to the court in the conduct of civil litigation no longer provides justification for his owing no duty of care in negligence to his client. The materiality of this approach is that the existence of a parallel but non-conflicting duty as a matter of professional ethics does not preclude the existence of an overlapping duty of care owed to a person who is sufficiently proximate. The Commissioners also relied on Al-Kandari v. J.R. Brown & Co. [1988] 1QB 665 as exemplifying the court’s preparedness to find a duty of care on the part of someone (in that case a defendant’s solicitor) who undertook to act in a particular capacity to the plaintiff and possibly to the court (namely as custodian of the plaintiff’s children’s passports), notwithstanding the solicitor’s professional duty of care to the defendant client. In further support of the argument that, where there is foreseeability of loss and sufficient proximity, a duty of care can arise owed by a solicitor advising a client borrower as to security for a loan and the lender upon whom it was the purpose of the advice to confer adequate security, the Commissioners rely on Dean v. Allin & Watts [2001] 2 Lloyd’s Rep 249. In this connection, Mr Sales, on behalf of the Commissioners, draws attention to the concept expressed in X(minors) v. Bedfordshire CC [1995] 2 AC 633 per Lord Browne-Wilkinson at pages 735-739 that a duty of care can arise from a relationship in respect of which a statutory duty exists by reference to the threefold test, provided always that there is no inconsistency between the common law duty and the statutory duty and that there would be no risk that the existence of a common law duty of care would tend to prejudice performance of the statutory duty.(k) Finally, the Commissioners submit that it would be fair, just and reasonable for a duty of care to be imposed on the Bank. Firstly, but for such a duty, the party obtaining the freezing injunction would have no remedy for its breach other than the availability of proceedings for contempt, which would not necessarily provide an effective remedy, as explained in paragraph (21) above. Secondly, the magnitude of the risk of damage to the claimant having the benefit of a freezing order would be very great compared with the relatively light task of exercising reasonable care which such a duty would impose on a bank, particularly having regard to the fact that banks appear to have in place systems which, if properly operated, enable banks to comply with freezing injunctions and banks are entitled to be reimbursed the cost of compliance. Additionally a bank could insure against its liability arising from negligent operation of its blocking facilities. The standard of care required to comply with such a duty would overlap with that required to avoid non-compliance for the purposes of contempt proceedings. Thirdly, the fact that Brightstar and Doveblue by their conduct in triggering the bank’s transfer machinery directly brought about the Commissioners’ losses is not a reason for concluding as a matter of what is fair, just and reasonable that the Bank should be under no duty of care because (i) the Bank had an independent duty to the court to comply with the order and (ii) that duty extended to taking all reasonable steps necessary to prevent its customers from failing to comply. Analogous duty situations were exemplified by Dorset Yacht Co Ltd v. Home Office [1970] AC 1004, Al-Kandari v. J R Brown & Co (supra), and Reeves v. Commissioner of Police of the Metropolis [2000] 1 AC 360 where the House of Lords held there to be a duty of care owed to a person held in police custody to prevent him from committing suicide. Neither the existence of an overlap nor, conversely, the lack of co-extensiveness between what was required of the Bank in its performance of its duty to the court and what would be required of it were there to be a duty of care would not be a reason for excluding a duty of care. This was supported by Al-Kandari v. J R Brown, supra, X(Minors) v. Bedfordshire CC, supra, and also by Spring v. Guardian Assurance plc [1995] 2 AC 296, as to the incidence of a duty of care on a reference-giver in circumstances capable of being covered also by defences to claims for defamation.[24]The Submissions advanced by Mr Michael Brindle QC on behalf of the Bank may be summarized as follows:(a) The claim by the Commissioners is for purely economic loss.(b) Based on the observations of Sir Brian Neill in Bank of Credit and Commerce International (Overseas) Ltd v. Price Waterhouse [1988] BCC 617 at p634 para 719, the appropriate course for ascertaining whether there is a duty of care, at least in an economic loss case, is to look at any new set of facts by using each of the three approaches in turn, namely the threefold test, voluntary assumption of responsibility and the incremental test. “If the facts are properly analysed and the policy conditions are correctly evaluated the several approaches will yield the same result”, per Sir Brian Neill at page 634, para 7.19.(c) As to the threefold test, the relationship between the Commissioners and the Bank was not one of adequate proximity because service of the court’s orders on the Bank imposed on it an automatic duty of compliance as to which the Bank had no choice.(d) Further, the context in which the Bank’s duty to the court arose was that of contentious litigation and, although the Bank was not a party to the underlying litigation between the Commissioners and its customers, it occupied a position analogous to a party on the opposite side to the Commissioners. In that context, the relevant principle was that one litigant does not in general owe a duty of care to an opposing litigant as to the way in which the litigation is conducted. Thus, in Business Computers Ltd v. Company Register [1988] 1 Ch 229 a winding up petition having been served at an address which was not that of the plaintiff’s registered office, and nobody having appeared at the hearing, a winding up order was made against the plaintiff company which then sued in negligence in respect of the losses it alleged to have been sustained as a result of the order. The claim failed, Scott J. holding that it was not just and reasonable that a duty of care should be imposed. At pages 239-240 he said this:
“Is it just and reasonable that a plaintiff should owe a duty of care to a defendant in regard to service of the originating process? I do not think that it is. The plaintiff and the defendant, the petitioner and the respondent, are antagonists. The plaintiff, or the petitioner, is seeking a legal remedy in an adversarial system. The system stipulates the rules and requirements that must be observed by the two parties. The plaintiff must issue his process and must serve it on the defendant. If there is default in service the process must be struck out. If an order is obtained without the prescribed rules or regulations having been observed, the order may be discharged or set aside, sometimes by an application at first instance, sometimes on appeal. The prosecution of the action or of the petition is subject throughout its career from institution to final judgment to judicial control. Service of process is a step, in the prosecution. It must usually be proved before an order can be obtained against an absent defendant. The proposition that a duty of care is owed by one litigant to another and can be superimposed on the checks and safeguards that the legal system itself provides is, to my mind, conceptually odd. The safeguards against ineffective service of process ought to be, and I think must be, found in the rules and procedures that govern litigation. The rules and procedures require that, save on ex parte applications, proof of service be shown before an order is made against an absent party. If the proof of service is false, be it through negligence or design, an order may be made that should not have been made. The injured party’s remedy is to have the order set aside. An action for damages cannot be based on the falsity of the proof of service. Nor, in my judgment, can the adequacy of the efforts made to effect service be subjected to a tortious duty of care.”
[25]He concluded his judgment with the following, at page 241:
“In my judgment, there is no duty of care owed by one litigant to another as to the manner in which the litigation is conducted, whether in regard to service of process or in regard to any other step in the proceedings. The safeguards against impropriety are to be found in the rules and procedure that control the litigation and not in tort. I am therefore of opinion that the plaintiff’s statement of claim does not disclose a reasonable cause of action against the second defendant and ought to be struck out.”
[26]In this connection Mr. Brindle further relies on Connolly – Martin v. Davis [1999] PNLR 826 where the issue was whether one party’s counsel who had advised it that it was not bound by an undertaking that he had given that money would be paid into a joint account owed a duty of care to the opposite party who had suffered loss in consequence of such payment not having been made and of the counsel’s party having gone into liquidation. It was held by the Court of Appeal that the authorities did not support the proposition “that counsel for one party may in the absence of circumstances evidencing a voluntary assumption of responsibility to that other party owe a legally enforceable duty of care to that party:” per Brooke L.J. at p.835. On the basis of these authorities, it is submitted that if, instead of assets covered by a freezing injunction being in the custody of a bank as here, they were under the control of a solicitor for the defendant and the solicitor negligently allowed them to be discharged after he had full knowledge of the injunction, there would be no cause of action in negligence against him, the only course open to the claimant being proceedings for contempt to be pursued with the purpose of giving the solicitor the opportunity of purging the contempt if the court considered that a punishment were warranted.[27](e) It is argued that the Commissioners did not rely on any conduct on the part of the bank as regards the preservation of the companies’ assets. What they relied on was the order of the court and the automatic effect of its being served on the Bank. To this effect the letters sent by the Bank added nothing material to the existence of a duty of care. They were, in effect, no more than receipts or acknowledgements of the service of the court’s order and of the existence of the Bank’s pre-existing duties to the court. (f) The Commissioners’ undertakings to pay the Bank’s reasonable charges was merely their undertaking to the court. It did not amount to a promise, much less an enforceable promise, to pay the Bank which the Bank had a personal right to enforce by action. Its only remedy was to invite the court to enforce the undertaking. Thus in Cheltenham & Gloucester Building Society v. Ricketts [1993] 4 All ER 276 at page 281 Neill L.J. in setting out the salient principles relating to cross-undertakings as to damages included the following:
“(1) Save in special cases an undertaking as to damages is the price which the person asking for an interlocutory injunction has to pay for its grant. The court cannot compel an applicant to give an undertaking but it can refuse to grant an injunction unless he does. (2) The undertaking, though described as an undertaking as to damages, does not found any cause of action. It does, however, enable the party enjoined to apply to the court for compensation if it is subsequently established that the interlocutory injunction should not have been granted. (3) The undertaking is not given to any party enjoined but to the court. (4) In a case where it is determined that the injunction should not have been granted the undertaking is likely to be enforced, though the court retains a discretion not to do so.”
[29]With specific reference to Mareva injunctions Gibson L.J. (at p.286) recognised that, although it might normally be the case that when the defendant successfully applied for such an injunction to be discharged, the court would make an order for an enquiry as to damages, the making of such an order was a matter of discretion and not of right. It is thus agreed that the undertaking to the court to pay the Bank’s expenses in enforcing the order and its repetition to the Bank itself does not operate in a manner relevant to whether it is fair just and reasonable that a duty of care should be imposed on the Bank. (g). As to whether there was a voluntary assumption of responsibility, objective analysis of the Bank’s conduct demonstrated that there was none. In this connection the Bank relies on certain observations of Lord Steyn in Williams v. Natural Life [1998] 1WLR 830. in that case the relevant issue was whether the defendant managing director and principal shareholder of a franchising company was under a duty of care to the plaintiffs who had entered into a franchising agreement with the company in reliance on a brochure which referred to the managing director’s experience and on certain financial projections in the preparation of which the managing director had played a major part. In the course of his judgment, with which Lord Goff, Hoffmann, Clyde and Hutton agreed, Lord Steyn said this at page 834:
“My Lords, a great many precedents were cited at first instance, in the Court of Appeal and in the printed cases lodged for the purpose of the present appeal. It is unnecessary to embark on a general review of the authorities. The sole purpose of the citation of precedent is, or ought to be, the identification of a legal principle or rule which covers, or may arguably cover, the issue in the case to be decided. And that is how I hope to approach the problem under consideration. In this case the identification of the applicable principles is straightforward. It is clear, and accepted by counsel on both sides, that the governing principles are stated in the leading speech of Lord Goff of Chieveley in Henderson v. Merrett Syndicates Ltd. [1995] 2 A.C. 145. First, in Henderson’s case it was settled that the assumption of responsibility principle enunciated in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465 is not confined to statements but may apply to any assumption of responsibility for the provision of services. The extended Hedley Byrne principle is the rationalisation or technique adopted by English law to provide a remedy for the recovery of damages in respect of economic loss caused by the negligent performance of services. Secondly, it was established that once a case is identified as falling within the Hedley Byrne principle, there is no need to embark on any further inquiry whether it is “fair, just and reasonable” to impose liability for economic loss: p.181. thirdly, and applying Hedley Byrne, it was made clear that ‘reliance upon [the assumption of responsibility] by the other party will be necessary to establish a cause of action (because otherwise the negligence will have no causative effect)”
(p.180).’ Fourthly, it was held that the existence of a contractual duty of care between the parties does not preclude the concurrence of a tort duty in the same respect. ‘reliance upon [the assumption of responsibility] by the other party will be necessary to establish a cause of action (because otherwise the negligence will have no causative effect)” (p.180).’[30]And at page 835:
“Thus the issue in this case is not peculiar to companies. Whether the principal is a company or a natural person, someone acting on his behalf may incur personal liability in tort as well as imposing vicarious or attributed liability upon his principal. But in order to establish personal liability under the principle of Hedley Byrne, which requires the existence of a special relationship between plaintiff and tortfeasor, it is not sufficient that there should have been a special relationship with the principal. There must have been an assumption of responsibility such as to create a special relationship with the director or employee himself.”
[31]Then also at page 835 Lord Steyn observed: “Two matters require consideration. First, there is the approach to be adopted as to what may in law amount to an assumption of risk. This point was elucidated in Henderson’s case by Lord Goff of Chieveley. He observed, at p.181: ‘especially in a context concerned with a liability which may arise under a contract or in a situation ‘equivalent to contract’, it must be expected that an objective test will be applied when asking the question whether, in a particular case, responsibility should be held to have been assumed by the defendant to the plaintiff.’ The touchstone of liability is not the state of mind of the defendant. An objective test means that the primary focus must be on things said or done by the defendant or on his behalf in dealings with the plaintiff. Obviously, the impact of what a defendant says or does must be judged in the light of the relevant contextual scene. Subject to this qualification the primary focus must be on exchanges (in which term I include statements and conduct) which cross the line between the defendant and the plaintiff. Sometimes such an issue arises in a simple bilateral relationship. In the present case a triangular position is under consideration: the prospective franchisees, the franchisor company, and the director. In such cases where the personal liability of the director is in question the internal arrangements between a director and his company cannot be the foundation of a director’s personal liability in tort. The inquiry must be whether the director, or anybody on his behalf, conveyed directly or indirectly to the prospective franchisees that the director assumed personal responsibility towards the prospective franchisees.” ‘especially in a context concerned with a liability which may arise under a contract or in a situation ‘equivalent to contract’, it must be expected that an objective test will be applied when asking the question whether, in a particular case, responsibility should be held to have been assumed by the defendant to the plaintiff.’ (h) Against that background it is submitted on behalf of the Bank that for reasons already summarised above, there was no assumption by the Bank of responsibility for giving effect to the court’s orders, for all that crossed the line in each case was an acknowledgement that it had been served and nothing more. In particular the Bank thereby assumed no responsibility to the Commissioners. The necessary relationship between the Bank and the Commissioners was simply never created by any conduct on the part of the Bank.

The appropriate Methodology

[32]As appears from my description of the consequences that flowed from the failure of the Bank to comply with the freezing injunction, this is a case of pure economic loss, the Commissioners having been deprived of the means of enforcement of such judgments as they eventually obtained against the two companies. There can be no doubt that in many factual situations involving negligent mis-statements or the negligent provision of services to the claimant the question whether there exists a duty of care can be conclusively determined by asking whether the defendant has by his conduct directly or indirectly represented to the claimant that he assumes the responsibility of due care for the accuracy of the statement or the quality or sufficiency of the service. Hedley Byrne v. Heller, supra, is the seminal example and, more recently in Henderson v. Merrett Syndicates, supra, and Williams v. Natural Life Ltd, supra, the House of Lords has deployed what has been described as the “extended Hedley Byrne principle” as the appropriate analytical methodology to test for a duty of care in cases where the conduct directly or indirectly tendered to the claimant is said to have caused economic loss. If the defendant’s conduct represents to an identifiable person or group that the defendant accepts responsibility for the carefulness of his statement or the quality of the service by words or deeds which, in the words of Lord Steyn in Williams v. Natural Life, supra, at page 835 have directly or indirectly “crossed the line” between the claimant and the defendant, there is the basis of a sufficiently proximate nexus between the parties.[33]In other words the defendant’s conduct must in the circumstances have been brought home to the claimants and invited the claimant’s reliance on the care with which the information has been provided or the service provided. It is this justifiable reliance in the particular circumstances by an identified representee which engenders the duty of care. It is in this context that it is meaningful to analogise by phrases such “akin to contract”.[34]There may however, be factual situations where the defendant’s conduct has caused the claimant economic loss but where the nexus between the claimant and the defendant does not in any real sense bear comparison with a contract because the defendant’s conduct does not tender advice or a service to the claimant but to some other party in circumstances where the accuracy of the advice or the quality of the service can confidently be expected to be relied upon by the claimant. Because there is such an oblique nexus between the parties, to attempt to adopt an extended assumption of responsibility methodology which invites investigation of whether representations have “crossed the line” may not, in my judgment, be a helpful process in all such cases because it is likely to constrict liability for pure economic loss within unduly narrow confines. That is not to say that there may not be cases of a tripartite relationship, such as one finds in Smith v. Bush, supra, where there is a very close nexus between the defendant and the claimant because the service provided is one for the benefit of the claimant.[35]It is with these considerations in mind that it is necessary to consider the effect of Smith v. Bush, supra, and the threefold test methodology which was there approved by the House of Lords on the facts of that case and of Harris v. Wyre Forest DC in which the appeal was heard at the same time. The relevant issue in Smith was whether the building society’s independent contractor valuer was under a duty of care to a potential mortgagor who had paid an inspection fee to the building society, to whom a copy of the report was sent and who, in reliance on that report, purchased the house without further survey. In Harris the question was whether a duty of care was owed by a valuer employed in-house by a local authority to potential purchasers who had paid an inspection fee and who, in reliance on an offer of a mortgage on the house by the local authority, had purchased it and taken out a mortgage, never having seen the valuer’s report. The local authority was under a statutory duty to value the house before offering a mortgage. Its valuer carelessly carried out that function. The local authority acted upon it by making its offer. The purchasers relied on that offer in buying the house. In Harris, therefore, the relationship between the valuer and the purchasers was significantly more distant than in Smith where the valuer’s report was predictably sent on to the potential purchaser.[36]Lord Griffiths, with whose speech Lords Keith and Brandon agreed, observed at page 862 with regard to the decision of Park J. in Yianni v. Edwin Evans & Sons [1992] QB 438 the correctness of which had been doubted by Kerr LJ. in the Court of Appeal:
“Mr Ashworth drew attention to the doubts expressed about the correctness of this decision by Kerr LJ. in the course of his judgment in the Court of Appeal, and submitted, on the authority of Hedley Byrne & Co Ltd v. Heller & Partners Ltd [1964] AC 465 that it was essential to found liability for a negligent misstatement that there had been “a voluntary assumption of responsibility” on the part of the person giving the advice. I do not accept this submission and I do not think that voluntary assumption of responsibility is a helpful or realistic test for liability. It is true that reference is made in a number of the speeches in Hedley v. Byrne to the assumption responsibility as a test of liability but it must be remembered that those speeches were made in the context of a case in which the central issue was whether a duty of care could arise when there had been an express disclaimer of responsibility for the accuracy of the advice. Obviously, if an adviser expressly assumes responsibility for his advice, a duty of care will arise but such is extremely unlikely in the ordinary course of events. The House of Lords approved a duty of care being imposed on the facts in Cann v. Wilson (1888) 39 CH D 39 and in Candler v. Crane, Christmas & Co [1951] 2 KB 164. But if the surveyor in Cann v. Wilson or the accountant in Candler v. Crane, Christmas & Co, had actually been asked if he was voluntarily assuming responsibility for his advice to the mortgagee or the purchaser of the shares, I have little doubt he would have replied, “Certainly not. My responsibility is limited to the person who employs me.”
The phrase “assumption of responsibility” can only have any real meaning if it is understood as referring to the circumstances in which the law will deem the maker of the statement to have assumed responsibility to the person who acts upon the advice.”[37]He then referred to the fact that in Ministry of Housing v. Sharp [1990] 2 QB 233 both Lord Denning MR and Salman LJ. “rejected the argument that a voluntary assumption of responsibility was the sole criterion for imposing a duty of care for the negligent preparation of a search certificate in the local land charges register.”[38]Later, at page 864-865, Lord Griffiths said this:
“I have come to the conclusion that Yianni [1982] QB 438 was correctly decided. I have already given my view that the voluntary assumption of responsibility is unlikely to be a helpful or realistic test in most cases. I therefore return to the question in what circumstances should the law deem those who give advice to have assumed responsibility to the person who acts upon the advice or, in other words, in what circumstances should a duty of care be owed by the adviser to those who act upon his advice? I would answer – only if it is foreseeable that if the advice is negligent the recipient is likely to suffer damage, that there is a sufficiently proximate relationship between the parties and that it is just and reasonable to impose the liability. In the case of a surveyor valuing a small house for a building society or local authority, the application of these three criteria leads to the conclusion that he owes a duty of care to the purchaser. If the valuation is negligent and is relied upon damage in the form of economic loss to the purchaser is obviously foreseeable. The necessary proximity arises from the surveyor’s knowledge that the overwhelming probability is that the purchaser will rely upon his valuation, the evidence was that surveyors knew that approximately 90 per cent, of purchasers did so, and the fact that the surveyor only obtains the work because the purchaser is willing to pay his fee. It is just and reasonable that the duty should be imposed for the advice is given in a professional as opposed to a social context and liability for breach of the duty will be limited both as to its extent and amount. The extent of the liability is limited to the purchaser of the house – I would not extend it to subsequent purchasers. The amount of the liability cannot be very great because it relates to a modest house. There is no question here of creating a liability of indeterminate amount to an indeterminate class. I would certainly wish to stress that in cases where the advice has not been given for the specific purpose of the recipient acting upon it, it should only be in cases when the adviser knows that there is a high degree of probability that some other identifiable person will act upon the advice that a duty of care should be imposed. It would impose an intolerable burden upon those who give advice in a professional or commercial context if they were to owe a duty not only to those to whom they give the advice but to any other person who might choose to act upon it.”
[39]Lord Templeman, with whose speech Lords Keith and Brandon also agreed, cited Lord Denning’s dissenting judgment in Candler v. Crane Christmas Co [1951] 2 KB 164 at pages 180-181 where he observed in relation to an accountant’s duty to those to whom it was known that the accounts were to be shown:
“But I do not think the duty can be extended still further so as to include strangers of whom they have heard nothing and to whom their employer, without their knowledge may choose to show their accounts … The test of proximity in these cases is: did the accountants know that the accounts were required for submission to the plaintiff and use by him?”
[40]Lord Templeman then cited Lord Devlin in Hedley Byrne [1964] AC 465 at page 528-9. He then cited without comment those passages from the judgments of Lord Denning MR and Salman LJ in Ministry of Housing v. Sharp, supra, at pages 268 and 279 respectively, to which Lord Griffiths referred and, in concluding that the valuers owed a duty of care in both cases, Lord Templeman observed at page 847:
“I agree that by obtaining and disclosing a valuation, a mortgagee does not assume responsibility to the purchaser for that valuation. But in my opinion the valuer assumes responsibility to both mortgagee and purchaser by agreeing to carry out a valuation for mortgage purposes knowing that the valuation will probably be relied upon by the purchaser in order to decide whether or not to enter into a contract to purchase the house.” 42. and later: “In the present appeals, the statutory duty of the council to value the house did not in my opinion prevent the council coming under a contractual or tortious duty to Mr and Mrs Harris who were cognisant of the valuation and relied on the valuation.”
[41]It is important to appreciate that:(i) the House of Lords clearly regarded the statements as to the appropriate methodology in Ministry of Housing v. Sharp, supra, as correctly qualifying or supplementing the references to voluntary assumption of responsibility in Hedley Byrne;(ii) that qualification was at the foundation of the submission on behalf of the purchasers in Harris v. Wyre Forrest DC at page 835C that in an economic loss case, in spite of the fact that there was no direct contact (not “contract” as printed in the report) between the provider of the information and the recipient of it, there could be sufficient proximity to impose a duty of care provided that the ultimate recipient was identifiable and was somebody who would foreseeably suffer loss if the information were inaccurate;(iii) the applicability of the assumption of responsibility methodology to the facts in Harris, in which the valuer’s report was at no time shown to the potential purchasers, who simply relied on having received an offer of a mortgage from the local authority, would be appropriate only if that assumption were deemed to exist not because the facts were in any real sense “akin to contract” but because the law imposed a duty of care on the valuer having regard to the nature of his relationship with the purchasers, forseeability of loss if the information were inaccurate and, as a general control mechanism what was fair, just and reasonable; in their words the threefold test.[42]Although Lord Templeman certainly considered that the relevant relationships could be described as “equivalent to contract” (page 846), both Lord Griffiths and Lord Jauncey (at page 871 c-f) with whom Lords Keith and Brandon agreed considered that this was not a helpful analogy and both considered that in that type of factual situation “assumption of responsibility” was useful only if the assumption were deemed because the general law imposed a duty of care in the circumstances.[43]The significance of this decision for present purposes is that it establishes that in some factual situations the methodology appropriate for ascertaining whether a duty of care exists in cases of pure economic loss does not require an analysis of the facts as akin to contract. Once one removes this comparative reference analogy one is left with the question what leads to the assumption of responsibility being “deemed”? That problem was solved both by Lord Griffiths and Lord Jauncey by adopting an approach which in substance was closely similar to that of Lord Denning and Salmon L.J. in Ministry of Housing v. Sharp. The latter is a case of pure economic loss where the facts did not remotely lend themselves to the “equivalent to contract” analogy or to any ordinary use of the words “assumption of responsibility” unless “assumption” is synonymous with “imposition”. In that case no information was directly or indirectly tendered to the Ministry by the local land charges registrar or by the clerk in his office who carelessly conducted the search of the land charges register. The clean certificate was issued to the intending purchasers and in their possession it was, as a matter of law conclusive evidence under the Land Charges Act 1925 s.17 (2) as against any person such as the Ministry claiming to rely on a charge or the existence of that charge. The duty of care was imposed on the registrar and his clerk because of the foreseeability of loss in the context of their proximity or neighbourhood relationship with the Ministry, this notwithstanding the parallel statutory duty of the registrar and his clerk to issue an accurate certificate. The Ministry was simply an identifiable sufferer of economic loss if the recipient of the certificate relied on it as a defence to a claim to enforce the charge.[44]In Caparo v. Dickman [1990] 2 A.C. 605 Lord Bridge, with whose speech the other members of the House of Lords expressly agreed, observed at pages 617 to 618: “But since the Anns case a series of decisions of the Privy Council and of your Lordships House, notably in judgments and speeches delivered by Lord Kinkel, have emphasised the inability of any single general principal to provide a practical test which can be applied to every situation to determine whether a duty of care is owed and, if so, what is its scope: see Governors of Peabody Donation Fund v. Sir Lindsay Parkinson & Co. Ltd. [1985] A.C. 210, 239f-241c; Yuen Kun Yeu v. Attorney General of Hong Kong [1988] A.C. 175, 190e-194f; Rowling v. Takaro Properties Ltd. [1988] A.C. 473, 501d-g; Hill v. Chief Constable of West Yorkshire [1989] A.C. 53, 60b-d. What emerges is that, in addition to the foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care are that there should exist between the party to whom it is owed a relationship characterised by the law as one of “proximity” or “neighbourhood” and that the situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope upon the party for the benefit of the other. But it is implicit in the passages referred to that the concepts of proximity and fairness embodied in these additional ingredients are not susceptible of any such precise definition as would be necessary to give them utility as practical tests, but amount in effect to little more than convenient labels to attach to the features of different specific situations which, on a detailed examination of all the circumstances, the law recognises pragmatically as giving rise to a duty of care of a given scope. Whilst recognising, of course, the importance of the underlying general principles common to the whole field of negligence, I think the law has now moved in the direction of attaching greater significance to the more traditional categorisation of distinct and recognisable situations as guides to the existence, the scope and the limits of the varied duties of care which the law imposes. We must now, I think, recognise the wisdom of the words of Brennan J. in the High Court of Australia in Sutherland Shire Council v. Heyman (1985) 60 A.L.R. 1, 43-44, where he said: ‘It is preferable, in my view, that the law should develop novel categories of negligence incrementally and by analogy with established categories, rather than by massive extension of a prima facie duty of care restrained only by indefinable ‘considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed.’ One of the most important distinctions always to be observed lies in the law’s essentially different approach to the different kinds of damage which one party may have suffered in consequence of the acts or omissions of another. It is one thing to owe a duty of care to avoid causing injury to the person or property of others. It is quite another to avoid causing others to suffer purely economic loss.” ‘It is preferable, in my view, that the law should develop novel categories of negligence incrementally and by analogy with established categories, rather than by massive extension of a prima facie duty of care restrained only by indefinable ‘considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed.’[45]At page 628 Lord Roskill said this:
“But subsequent attempts to define both the duty and its scope have created more problems than the decisions have solved. My noble and learned friends have traced the evolution of the decisions from Anns v. Merton London Borough Council [1977] A.C. 728 until and including the most recent decisions of your Lordships’ House in Smith v. Eric S. Bush [1990] 1 A.C. 831. I agree with your Lordships that it has now to be accepted that there is no simple formula or touchstone to which recourse can be had in order to provide in every case a ready answer to the questions whether, given certain facts, the law will or will not impose liability for negligence or in cases where such liability can be shown to exist, determine the extent of that liability. Phrases such as “foreseeability,” “proximity,” “neighbourhood,” “just and reasonable,” “fairness,” “voluntary acceptance of risk,” or “voluntary assumption of responsibility” will be found used from time to time in the different cases. But as your Lordships have said, such phrases are not precise definitions. At best they are but labels or phrases descriptive of the very different factual situations which can exist in particular cases and which must be carefully examined in each case before it can be pragmatically determined whether a duty of care exists, and, if so, what is the scope and extent of that duty. If this conclusion involves a return to the traditional categorisation of cases as pointing to the existence and scope of any duty of care, as my noble and learned friend Lord Bridge of Harwich, suggests, I think this is infinitely preferable to recourse to somewhat wide generalisations which leave their practical application matters of difficulty and uncertainty. This conclusion finds strong support from the judgment of Brennan J. in Sutherland Shire Council v. Heyman, 60 A.L.R. 1, 42-44 in the High Court of Australia in the passage cited by my noble and learned friends. My Lords, I confess that like my noble and learned friend, Lord Griffiths, in Smith v. Eric S. Bush [1990] 1 A.C. 831, 862, I find considerable difficulty in phrases such as ‘voluntary assumption of responsibility’ unless they are to be explained as meaning no more than the existence of circumstances in which the law will impose a liability upon a person making the allegedly negligent statement to the person to whom that statement is made; in which case the phrase does not help to determine in what circumstances the law will impose that liability or indeed, its scope.”
[46]Lord Oliver, at page 635, identified the possibility of different methodologies being appropriate to different factual situations and in particular the appropriateness of “guidelines” being applicable to cases of negligent statements:
“Perhaps, therefore, the most that can be attempted is a broad categorisation of the decided cases according to the type of situation in which liability has been established in the past in order to found an argument by analogy. Thus, for instance, cases can be classified according to whether what is complained of is the failure to prevent the infliction of damage by the act of the third party such as Dorset Yacht Co. Ltd. v. Home Office [1970] A.C. 1004, P. Perl (Exporters) Ltd. v. Camden London Borough Council [1984] Q.B. 342, Smith v. Littlewoods Organisation Ltd. [1987] A.C.241 and, indeed, Anns v. Merton London Borough Council [1978] A.C. itself, in failure to perform properly a statutory duty claimed to have been imposed for the protection of the plaintiff either as a member of a class or as a member of the public (such as the Anns case, Ministry of Housing and Local Government v. Sharp [1970] 2 Q.B. 223, Yuen Kun Yeu v. Attorney-General of Hong Kong [1988] A.C. 175) or in the making by the defendant of some statement or advice which has been communicated, directly or indirectly, to the plaintiff and upon which he has relied. Such categories are not, of course, exhaustive. Sometimes they overlap as in the Anns case, and there are cases which do not readily fit into easily definable categories (such as Ross v. Caunters [1980] Ch.297). Nevertheless, it is I think, permissible to regard negligent statements or advice as a separate category displaying common features from which it is possible to find at least guidelines by which a test for the existence of the relationship which is essential to ground liability can be deduced.”
[47]He also approached the phrase “voluntary assumption of responsibility” as going no further than expressing factual relationship with reference to which the law has imposed a duty of care: see page 637f-g.[48]In Henderson v. Merrett Syndicates Ltd., supra, it was not suggested that there were no factual situations involving economic loss in which it would be appropriate to apply the threefold test methodology. Lord Goff’s speech at page 181 goes no further than indicating that in a case such as that before him it was appropriate to apply the assumption of responsibility test and unnecessary to apply the threefold test, for where objectively analysed one person provided services to another in circumstances in which it could be said that the relationship was equivalent to contract it was unnecessary to investigate whether it was fair, just and reasonable that liability for economic loss should, be imposed.[49]The view that assumption of responsibility is not necessarily definitive because “it is not so much that responsibility is assumed as that it is recognised or imposed by the law” was expressed by Lord Slynn in Phelps v. Hillingdon London Borough Council [2001] 2 AC 619 at p791.[50]The authorities on duty of care were comprehensively and illuminatingly analysed by May LJ. in Merrett v. Babb [2001] Q.B. 1174. That was a case where there was a claim against a qualified surveyor who was an employee of a firm of valuers instructed by a building society to value a house in response to a mortgage application by the claimant. The valuation report was never provided to the claimant and was held to have negligently failed to take account of certain defects. It was thus a case very similar on its facts to Harris v. Wyre Forest D.C., and the essential issue was whether, in the light of Lord Steyn’s review of the authorities in Williams v. Natural Life Health Foods Ltd., supra, there being no assumption of responsibility by the valuer, there was no duty of care. It was held by a majority that such a duty of care should be imposed. May L.J., with whom Wilson J. agreed, considered that the methodology deployed in Harris v. Wyre Forest should apply. At page 1194, para. 45, he said this:
“The decisions of Williams v. Natural Life Health Foods Ltd. [1998] 1 W.L.R. 830 and Standard Chartered Bank v. Pakistan National Shipping Corpn. (no.2) [2000] 1 Lloyd’s Rep 218 do not, in my view, help Mr. Babb. They were each dealing with relationships and circumstances where the principal defendant was a limited company and the question was whether the director of the company had also assumed a personal responsibility. In those circumstances it was necessary to look for overt dealings between the director personally and the claimant sufficient to give rise to a personal liability which would otherwise not arise, since normally the director of a company is not personally liable for the actions of the company. But in many cases where Smith v. Eric Bush [1990] 1 A.C. 831 applies, including the present cases, there is no direct dealing at all between the valuer and the purchaser. Yet the law recognises that in those circumstances there is a duty of care without the need to find any direct overt dealings between the valuer and the purchaser.”
[51]In my judgment, these authorities do not support the proposition that in every case where there has been negligent provision of a service which is said to have caused the claimant pure economic loss there has to be a relationship akin to contract before a duty of care can be imposed. If, objectively analysed, the relationship is too oblique or indirect to bear that analogy there can be an assumption of responsibility only in the artificial sense that a responsibility is imposed as a matter of law. However, when one comes to the void at which Lord Oliver arrived in Caparo at page 637G, the methodology appropriate to a relationship akin to contract has to be replaced and in those circumstances it is the threefold test which provides a broad analytical guideline towards the existence of a duty of care. However, there may be novel factual situations where it is appropriate to supplement application of the threefold test by reference to other comparable situations in which the courts have imposed or, as the case may be, declined to impose a duty of care. This supplementation has been explained by Phillips LJ. in Reeman v. Department of Transport [1993] PNLR 618 at page 625:
“When confronted with a novel situation the court does not … consider these matters [foreseeability, proximity and fairness] in isolation. It does so by comparison with established categories of negligence to see whether the facts amount to no more than a small extension of a situation already covered by authority, or whether a finding of the existence of a duty of care would effect a significant extension to the law of negligence. Only in exceptional cases will the court accept that the interests of justice justify such an extension.”

Discussion

[52]In the present case the relevant duty to the court arose automatically upon service of the order on the Bank. Because of the sequence of events relating to the Doveblue account, from which the Bank released the funds before writing to the Commissioners and to the Brightstar account, where no conduct of the Bank appears to have been brought home to the Commissioners before release of the funds, it is first necessary to investigate whether a duty to the Commissioners arose at the time of service of the order as distinct from the time of sending and receipt of the letters.[53]Since forseeability of loss is conceded, the starting point is proximity.[54]The substance of the relationship between Bank and the Commissioners was quite different from that to be found in cases such as Hedley Byrne v. Heller or Smith v.Bush or Henderson v. Merrett Syndicates Ltd. The Commissioners have not acted to their detriment in reliance on the provision of any information, professional advice or professional services. Rather, they have sustained economic loss in being deprived of the ability to enforce their judgments. In this respect, they have been placed in a position which is materially similar to the position of the Ministry of Housing in Ministry of Housing v. Sharp. In both cases the carelessness of a third party (in that case the registrar of land charges and his employee and in this case the Bank) has deprived the claimant of a financial benefit in circumstances where it was a foreseeable consequence of the third party’s conduct that a particular individual could suffer precisely the loss that had been suffered. The obvious distinction between the two cases is that in Ministry of Housing v. Sharp the registrar was under a statutory duty whereas in the present case the Bank was under a duty arising out of the procedure of the court and the making of the court’s order. A further distinction, which I shall have to consider later in this judgment, is that in that case the loss was irremediable unless the registrar’s or his clerk’s conduct could be analysed as breach of a duty of care giving rise to liability in damages, whereas in the present case it might be possible by means of the invocation of the court’s punitive jurisdiction to force the Bank to replace the assets which it failed to protect: see the discussion of Z Bank v. DI, supra, in paragraph (21) above.[55]Freezing injunctions have in the course of the last thirty years become an extremely prevalent incident of the conduct of the business of a clearing bank in this country. A substantial bank such as Barclays clearly receives notice of such injunctions very frequently: so frequently in fact that it has a standard form letter which it sends out in response to notices. It follows that upon receipt of notice of such an order the Bank knows that:-(i) the court has taken the view that there is a real risk that, absent such an order, the customer will remove his assets otherwise than in the ordinary course of business with the effect of avoiding execution of a judgment;(ii) it is not unlikely that the party who has obtained the freezing injunction will obtain judgment against the customer;(iii) if the customer is permitted to remove funds from the account without the permission of the court there is a serious risk that such judgment as may be obtained will go unsatisfied, thereby causing economic loss to the party who has obtained the injunction;(iv) the party who has obtained the injunction undertakes to the court and impliedly undertakes to the bank to pay the bank’s expenses in administering the order : (see Z Ltd. v. A-Z and AA-LL [1982] 1 Q.B. 558, per Lord Denning M.R. at page 575).(v) if the bank were mistakenly to release funds covered by the injunction it would be exposed to proceedings for contempt of court which might, but would not necessarily, result in the sequestration of its assets unless it purged its contempt by restoring the availability of such funds as it had released, although this might be difficult in practice.[56]As to (v) I have already drawn attention to the fact that the court’s contempt jurisdiction is punitive, its purpose being to protect the integrity of its own procedure, and further that, since the sanction which it imposes on the contemnor depends on the gravity of the contempt and not on the objective of compensating the party who has obtained the injunction, the punishment if any which the court regards as appropriate may not facilitate the restoration of the benefit of the injunction to the party who has obtained it. The gravity of the offence may not justify sequestration of an amount of the Bank’s assets equivalent to the amount covered by the injunction. Further, replacement by the Bank of an equivalent amount of assets in the account from which the transfer out had been permitted would not be an available device because there would be no justification for causing the Bank to bestow a windfall credit balance on the customer. Further, it is not easy to see how, consistently with current contempt procedure, the bank could be forced to make good the loss of security, although it might be possible to make an order similar to that in Z Bank v. DI, supra, sequestrating assets unless the bank within a limited time paid an appropriate sum into a joint account of itself and the party having the freezing injunction.[57]In summary, therefore, the Bank knows as soon as it receives notice of a freezing injunction that if it mistakenly releases assets in breach of the order, the party in whose favour the order was made may suffer loss irremediable by operation of the contempt procedure.[58]These considerations set out in the last three paragraphs clearly provide at least a provisional foundation for the proposition that as between the Bank and the Commissioners there existed a neighbourhood or proximity relationship. Is that conclusion disturbed by the fact that the Bank was under a duty to the court to comply with its orders made in the course of litigation and in particular by a general principle that non-compliance with a court order should be dealt with only within the remedies and sanctions of the rules of procedure?[59]This issue should probably arise at the fair, just and reasonable stage of the threefold test. However, there is a sustainable argument that it goes to proximity because its effect is to exclude the bank from the possibility of a relationship of sufficient proximity because it has become involved in the conduct of the litigation. So, although the effect of service on a bank of an order of the court is in many ways similar to the imposition of a statutory duty which is not necessarily inconsistent with a duty of care, is there some intrinsic characteristic of such a court order which precludes a proximity relationship or renders it otherwise than fair, just and reasonable that a duty of care should be imposed?[60]In testing this point it is necessary to separate a number of different strands to the problem.[61]Firstly, there is the fact that the duty to act in accordance with the court’s order arises from the fact that the court has made the order and from receipt by the Bank of notice of that order. In this connection, it must be remembered that when the court makes a freezing injunction it is exercising statutory powers, under section 37 of the Supreme Court Act 1981. A party to whom notice of such an order has been given who knowingly disregards it at the request of the party enjoined facilitates a breach of the court’s order by the principal offender and thereby becomes liable for contempt as a secondary offender. The true nature of the bank’s duty to the court is therefore a duty to do nothing to facilitate breach of the order made by its customer. It follows that the bank is in a position analogous to a party in a contractual or other relationship with another where the latter is under a statutory duty vis-à-vis a third party. If the first party facilitates breach of that statutory duty by the person who owes it and that is a criminal offence the first party will be a secondary party to the offence by the party who is in breach.[62]There is clear authority that the mere fact that a parallel statutory duty rests on a party does not necessarily preclude a relationship of proximity or duty of care to a person to whom the statutory duty is owed. Apart from Ministry of Housing v. Sharp, supra, Caparo Industries v. Dickman was a typical example of parallel duties. In X(Minors) v. Bedfordshire CC [1995] 2 AC 633 it was laid down by the House of Lords that application of the threefold test to a relationship in which one party owed a statutory duty to another could give rise to a duty of care in parallel with the statutory duty: see, for example Lord Jauncey at p729. Lord Browne-Wilkinson observed at page 739:
“If the plaintiff’s complaint alleges carelessness, not in the taking of a discretionary decision to do some act, but in the practical manner in which that act has been performed (eg. the running of a school) the question whether or not there is a common law duty of care falls to be decided by applying the usual principles ie. those laid down in Caparo Industries Plc v. Dickman [1990] 2 AC 605, 617-618. Was the damage to the plaintiff reasonably foreseeable? Was the relationship between the plaintiff and the defendant sufficiently proximate? Is it just and reasonable to impose a duty of care? See Rowling v. Takaro Properties Ltd [1988] AC 473; Hill v. Chief Constable of West Yorkshire [1989] AC 53. However the question whether there is such a common law duty and, if so, its ambit, must be profoundly influenced by the statutory framework within which the acts complained of were done. The position is directly analogous to that in which a tortious duty of care owed by A to C can arise out of the performance by A of a contract between A and B. In Henderson v. Merrett Syndicates Ltd [1995] 2 AC 145 your Lordships held that A (the managing agent) who had contracted with B (the members’ agent) to render certain services for C (the Names) came under a duty of care to C in the performance of those services. It is clear that any tortuous duty of care owed to C in those circumstances could not be inconsistent with the duty owed in contract by A to B. Similarly, in my judgment a common law duty of care cannot be imposed on a statutory duty if the observance of such common law duty of care would be inconsistent with, or have a tendency to discourage, the due performance by the local authority of its statutory duties.”
[63]In the present case, if a duty to the court is taken to be analogous to a duty under statute, it is impossible to say that imposition on a bank of a duty of care not to facilitate breach of the court’s order by its customer would be inconsistent with its duty to the court or could diminish or discourage performance by the bank or its customer of their duties to the court.[64]Secondly, in the context of statutory duties, the fact that non-compliance may be a criminal offence for which penalties may be imposed is not a reason for precluding a civil action for breach of a duty of care arising out of the same facts. Thus actions for negligence (as distinct from breach of statutory duty) on facts amounting to an offence under section 33 of the Health and Safety at Work Act 1974 are commonplace. It is not suggested that exposure of an employer to criminal proceedings and a penalty precludes a common law duty of care.[65]Thirdly, the position of a party such as the Bank who is put on notice of a freezing injunction is not the same as that of a party who gives an undertaking to the court. If there is a breach of the undertaking, the party in breach will be directly in contempt. Whether a party having notice of an injunction is in contempt will depend on whether its conduct has been such as knowingly to facilitate breach of the injunction by the party against whom the order has been made.[66]Fourthly, adverse parties to litigation are not in a position of proximity with regard to the conduct of the litigation or at least it is not fair, just or reasonable that they should assume a duty of care. In Business Computers International Ltd v. Registrar of Companies [1988] 1 Ch 229 the issue was whether there could be a duty of care owed to a party who had caused a plaintiff company to be put into liquidation by negligently serving a winding up petition at the wrong address thereby leaving the plaintiff in ignorance of the winding up proceedings and allegedly causing it damage. Scott J. held that there was no duty of care. His reasoning is set out in paragraph (0) above. This judgment was relied upon as correct by the Court of Appeal in Al-Kandari v. J R Brown & Co [1988] 1 QB 665 per Lord Donaldson MR at p672 with whose judgment Dillon LJ. agreed at p675. Bingham LJ. approached the issue in the latter case with the following statement of principle at p675. “In the ordinary course of adversarial litigation a solicitor does not owe a duty of care to his client’s adversary. The theory underlying such litigation is that justice is best done if each party, separately and independently advised, attempts within the limits of the law and propriety and good practice to achieve the best result for himself that he reasonably can without regard to the interests of the other party. The duty of the solicitor, within the same limits, is to assist his client in that endeavour, although the wise solicitor may often advise that the best result will involve an element of compromise or give and take or horse trading. Ordinarily, however, in contested civil litigation a solicitor’s proper concern is to do what is best for his client without regard to the interests of his opponent.”[67]Mr Sales, on behalf of the Commissioners, relied heavily on that case and in particular the following passage from the judgment of Bingham LJ. at p676. “In so holding the passport the defendants were not acting as solicitors and agents of the husband, their client, but as independent custodians subject to the directions of the court and the joint directions of the parties. I have no doubt that in this situation the defendants owed the plaintiff a duty of care, since the purpose of holding the passport at all was to protect her lawful rights.

The judge defined the duty [1987] QB 514, 522 as:

‘a duty to take reasonable care that the passport should not leave the possession of themselves or, where relevant, their agents. They owed her, in my judgment, the further duty to take all reasonable steps to prevent harm coming to her from any failure to comply with or any agreed relaxation of the undertaking.’
I would put it very slightly differently. In my view the defendants in all the circumstances owed the plaintiff a duty to take reasonable care to keep the passport in their possession (save as the plaintiff might otherwise agree) and to inform the plaintiff if for any reason it ceased to be in their possession. I rather doubt whether the defendants should be treated as having themselves given any undertaking to the court (although plainly they could not connive at any breach by their client), but whether they should or not I regard their duty to the plaintiff as something separate and different.” ‘a duty to take reasonable care that the passport should not leave the possession of themselves or, where relevant, their agents. They owed her, in my judgment, the further duty to take all reasonable steps to prevent harm coming to her from any failure to comply with or any agreed relaxation of the undertaking.’[68]Mr Sales submits that Bingham LJ. has there proceeded on the express assumption that, even if (which he doubted) the defendant solicitors as distinct from their client had given an undertaking to the court, they owed a duty of care to the plaintiff. So, it is argued, here is an example of the imposition of a duty of care on a party who is independent of the adverse parties to the litigation.[69]In my judgment, it is clear that both Lord Donaldson at p675 D and Bingham LJ. in the passage cited above at p676 proceeded on the basis that by its conduct the defendant firm had in effect undertaken, as part of the settlement of the proceedings, not to part with the passport, not only to the court, but also to the plaintiff personally. I do not therefore regard this case as supporting the proposition that, where there is nothing more than an undertaking to the court or, by analogy, notice of an injunction, a duty of care can be imposed on the party to whom such notice is given.[70]The approval by the Court of Appeal in Al-Kandari of the judgment of Scott J. in Business Computers International Ltd v. Registrar of Companies, supra, is further reflected in the more recent decision of the Court of Appeal in Connolly-Martin v. Davis [1999] PNLR 826 (see paragraph (26) above). In that case, having reviewed the relevant authorities, Brooke LJ. observed:
“None of these English decisions, in my judgment, go anywhere near establishing a proposition that counsel for one party may in the absence of circumstances evidencing a voluntary assumption of responsibility to that other party owes a legally enforceable duty of care to that party. Nor do the two New Zealand cases to which we were referred.”
[71]In Welsh v. Chief Constable of Merseyside Police [1993] 1 All ER 692 it was held that a prosecuting solicitor owed a duty of care to the defendant in criminal proceedings to inform a magistrates court that certain offences had been taken into consideration when the defendant was sentenced by the Crown Court. This duty arose because of the solicitor’s express assumption of responsibility. In Elguzouh-Daf v. Commissioner of Police [1995] QB 335 Steyn LJ. at pages 348-349 explained that in Welsh there had been an assumption of responsibility within the Hedley Byrne principle. In the absence of such assumption of responsibility the Crown Prosecution Service owed no duty of care to a defendant on remand to act with reasonable expedition in analysing available evidence.[72]The effect of these authorities is, in my judgment, that, absent an assumption of responsibility by an adverse party’s legal representative, application of the threefold methodology does not in any circumstances give rise to a duty of care to the opposite party in civil proceedings. Similarly, an adverse party owes no duty of care to the opposing party in civil proceedings unless there is an assumption of responsibility. If there is such an assumption of responsibility there may be sufficiently enhanced proximity to give rise to a duty of care. In this context, the authorities are clearly using assumption of responsibility not in its sense of deemed or imposed responsibility, but rather in its narrower connotation of words or conduct which “cross the line” and bring home to the opposing party that the other party accepts the risk of negligence as to the information or service provided.[73]This analysis therefore leads unavoidably to the consequence that, where a freezing injunction has been obtained, the defendant against whom the order has been made does not thereby occupy a relationship of proximity vis-à-vis the claimant, unless there is super-added to the relationship conduct amounting to an assumption of responsibility by that party. The claimant’s sole remedy against that party, ineffective as it may be, is to bring proceedings for contempt. It would be completely inconsistent with this analysis to conclude that, although a defendant given notice of a freezing order owed no duty of care to the claimant, by application of the threefold test, a bank holding the defendant’s assets, upon being given notice of the same order, by that very notice, did owe a duty of care to the claimant. There is nothing in the bank’s relationship with the claimant which so enhances the element of proximity above that of the defendant as to provide a foundation for a duty of care by application of the threefold test. Nor is there anything in that relationship which makes it any more fair, just or reasonable that the Bank should owe a duty of care in circumstances which did not engage such a duty on the part of the defendant customers.[74]It therefore follows that unless, prior to the release of the funds from its customers’ accounts, the Bank had by its conduct objectively assumed responsibility to the Commissioners to take reasonable care to prevent disposal of its customers’ funds in accordance with the injunction, it could be under no liability in negligence. In order to ascertain whether there has been an assumption of responsibility it is necessary to apply the analysis identified and explained by Lord Steyn in Williams v. Natural Life, supra, at page 835. Has the defendant bank by words or conduct which has “crossed the line” between it and the claimant represented that it assumes responsibility and has the claimant’s loss been caused by his reliance on that assumption?[75]In this connection, it is obviously essential that the representation of assumption of responsibility should “cross the line” at a point of time before that conduct by the Bank which is said to have caused loss to the Commissioners. Were it otherwise, it could not be said that the Commissioners had justifiably relied on the Bank to comply with any assumption of responsibility: all that could be relied upon was the Bank’s duty to the Court. There must be adequate proximity by assumption of responsibility to comply with the injunction before the Bank’s duty to the Commissioners could be engaged.

Was there an Assumption of Responsibility by the Bank?

[76]It is necessary to consider separately the position of the two customers, Brightstar and Doveblue.[77]As to Brightstar, the letter dated 29 January 2001 which the Commissioners rely upon as the Bank’s words or conduct giving rise to an assumption of responsibility (see paragraph (10) above) bears the same date as that on which the Bank released the funds. There is no evidence that it was sent by fax. However, the letter bears a “mail opened” stamp dated 31 January 2001. If the Commissioners are to establish that the Bank owed them a duty of care relevant to their claim against the Bank it is incumbent on them to plead and establish an assumption of responsibility by the Bank, yet the particulars of claim include no allegation that the letter was received by the Commissioners before the funds were released. This is not a fact which I can infer from what is pleaded. On the contrary, the inference is that, whenever that letter was posted, it was not delivered to the Commissioners until after the Bank had already released the funds. Accordingly, if the letter were capable of amounting to an assumption of responsibility so as to super-add a duty of care to the Commissioners in addition to the Bank’s duty to the court, it crossed the line too late to have any such effect, save in respect of the funds which remained in the account after the Bank’s release of the payments on 29 January 2001.[78]If the letter had been received by the Commissioners before release of the funds, would it have amounted to a relevant assumption of responsibility? I consider that it would. The expression of confirmation of compliance with the court’s order was volunteered by the Bank: it could have said nothing. Instead, it chose to make contact with the Commissioners not merely to inform them that a copy of the freezing injunction had been received, but also(i) to confirm that it would be complied with by the Bank;(ii) to express the principle that its costs were to be reimbursed;(iii) to explain the kind of work which service of such an injunction was likely to involve;(iv) to quantify its costs so far incurred at £150;(v) to call for early remittance of that sum; and(vi) to request confirmation that the Bank should immediately be advised of the amendment or discharge of the order.[79]The relationship arising from that letter would, in my judgment, be sufficiently analogous to a contract to fall within the assumption of responsibility methodology. Once the Commissioners had received that letter they would be justified in relying on the Bank to act in accordance with it. It would in such circumstances also be fair, just and reasonable that the Bank should in such circumstances owe a duty of care, if such be relevant where there has been an assumption of responsibility.[80]I therefore conclude in relation to Brightstar that unless the 29 January 2001 letter from the Bank were delivered to the Commissioners before the funds were released, the Bank undertook no relevant assumption of responsibility and therefore owed no relevant duty of care to the Commissioners. It did, however, undertake a sufficient assumption of responsibility and owed a duty of care in respect of what remained in Brightstar’s account.[81]As to Doveblue, the letter of 31 January 2001 was written (and delivered) after the Bank had already discovered that it had failed to comply with the court’s freezing injunction. The first page of the letter being in identical terms to that relating to Brightstar, there would have been a relevant assumption of responsibility if it had been received before the funds were released. In the event it arrived too late and could operate only as an assumption of responsibility giving rise to a duty of care in respect of the funds still remaining in Doveblue’s account.[82]I therefore conclude that on the facts pleaded in the particulars of claim in relation both to the Brightstar account and the Doveblue account, the Bank was under no relevant duty of care to the Commissioners.

Order

It is a Contempt of Court for any person notified of this Order knowingly to assist in or permit a breach of this Order. Any person doing so may be sent to prison, fined or have his assets seized. 2. Set off by Banks: This injunction does not prevent any bank from exercising any right of set off it may have in respect of any facility which it gave to the Defendant before it was notified of this Order. 3. Withdrawals by the Defendant: No bank need enquire as to the application or proposed application of any money withdrawn by the Defendant if the withdrawal appears to be permitted by this Order.” order: see generally Z Ltd. v. A-Z [1982] 1 AB 558 per Lord Denning M R at p.244. To do so would be to obstruct the course of justice. The claimant who obtained the freezing injunction, although able to initiate proceedings for contempt of court against a third party who has acted in breach of the order, is not provided by the contempt procedure under the CPR with any direct means of obtaining compensation against the contemnor. A company in contempt of court may have acted with a greater or lesser degree of culpability and the court has a discretion to impose punishment commensurate with that culpability, although some penalty is likely to be appropriate unless the contempt has been casual or accidental or unintentional or subsequently purged. In the course of my judgment in Z Bank v. D1 [1994] 1 Lloyd’s Rep. 656 I said this: “That, however, does not mean that there are no cases of negligent contempt where a penalty in the form of committal or sequestration would be appropriate. For example, where a contemnor had committed an isolated breach of a Mareva injunction due to the negligence of those responsible for giving appropriate orders to junior staff or perhaps due to having received negligent legal advice and had attempted to purge the contempt by restoring the status quo as far as possible, it might well be quite unnecessary for the protection of the administration of justice for any penalty to be imposed. Where by contrast there has been a very culpable degree of negligence which has resulted in numerous breaches of the Court’s order involving the abstraction of large sums of money, it will often be appropriate to impose not merely a nominal penalty but one which will be recognized as reflecting the serious view taken by the Court of the failure to comply with its orders.”

Cited in 3 later judgments