N v S & Anor [2015] EWHC 3248 (Comm)

[2015] EWHC 3248 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Monday, 19 th October 2015
Before
MR JUSTICE BURTON(In Private)
Between
NClaimantSDefendantNational Crime AgencyInterested Party
Paul Downes QC (instructed by Howard Kennedy LLP) for ClaimantClare Stanley QC (instructed by Berwin Leighton Paisner LLP) for DefendantRichard Saynor (instructed by National Crime Agency) for Interested PartyHearing Hearing date: 19 October 2015
J U D G M E N TMr Justice Burton :
[1]This application arises out of the freezing and then the purported termination without notice by the Defendant, S, of its banking relationship with the Claimant, N.[2]The Claimant is an English company registered with the Financial Conduct Authority as an authorised payment institution under the Payment Services Regulations 2009 and with HMRC under the Money Laundering Regulations 2007. It provides foreign exchange and payment services to its customers, including foreign exchange delivery and payment services to private clients, to expatriates sending money home, to corporate clients and to investment funds. It also supplies foreign exchange hedging services to corporate clients and investment funds, pre-paid cards for private clients’ travel money and anti-money laundering services to funds and fund administrators. It transacts in excess of 300 bank transfers per day (domestic and international), with an average daily payment amount of £2.7m, and its daily average foreign exchange turnover for the period 5-9 October was £6.2m. It has made profits of more than £1m per year in recent years and was recently valued at approximately £27m. It has a full money laundering reporting and compliance team, and has not been the subject of any criticism or complaint by the relevant regulatory authorities, and has indeed recently received commendation from the City of London Police.[3]The Defendant is a bank and is authorised and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The Claimant has been its customer since at least January 2013, and has maintained approximately 160 accounts with the Bank, of which there are four main accounts through which the bulk of the Claimant’s transactions flow, and those accounts have an annual turnover of approximately £700m.[4]Both the Claimant and the Defendant are, of course, subject to the provisions of Part 7 of the Proceeds of Crime Act 2002 (“POCA”) relating to money laundering. The three money laundering offences of concealing (etc) criminal property, entering into or becoming concerned in an arrangement and acquiring, using or possessing criminal property are established by ss.327 to 329 of POCA. Each of those sections provides, in sub-section (2), a provision that a person does not commit such an offence if he makes an authorised disclosure under s.338 of POCA and (if the disclosure is made before he does the relevant act) has the appropriate consent. For these purposes the duty to disclose is to the National Crime Agency (“NCA”) and a timetable is provided by s.335 of the POCA for the provision of consent in the event of disclosure to it. The NCA has seven working days to respond to the making of a disclosure, and if it does not respond then consent is deemed to be given, while if there is a refusal of consent within such timescale there is then a moratorium period of 31 days during which the NCA must take steps, and if no such steps are taken then the end of the moratorium (therefore a maximum, providing for working days, of 42 days after disclosure) effectively consent is deemed to be given. Each offence relates to the concealing, making arrangements, acquisition, use etc. of “criminal property”. The interpretation section is in s.340 of POCA whereby:
“(3) Property is criminal property if— (a) it constitutes a person’s benefit from criminal conduct or it represents such a benefit (in whole or part and whether directly or indirectly), and (b) the alleged offender knows or suspects that it constitutes or represents such a benefit.” (a) it constitutes a person’s benefit from criminal conduct or it represents such a benefit (in whole or part and whether directly or indirectly), and (b) the alleged offender knows or suspects that it constitutes or represents such a benefit.”
[5]At the end of September 2015 the Defendant formed suspicion about seven accounts relating to particular customers of the Claimant, now eight, about which the Claimant’s own compliance had already been carrying out retrospective reviews, and those accounts were frozen by the Defendant, and it has been common ground between Claimant and Defendant that those accounts should remain frozen.[6]The Defendants however then took further steps, namely to freeze effectively all the Claimant’s accounts with them on 12 October 2015, in particular being the four main accounts referred to above, and followed this up with suspending the Claimant’s access to the bank’s on-line FX liquidity platform to buy/sell currency, which deprived the Claimant of the ability to buy or sell currency, and shortly thereafter the Defendant also lost access to the online facility to view and make payments from its other client currency accounts and GBP accounts. All the Claimant’s banking transactions were entrusted to the Defendant, and could not be activated, and, while the Defendant continued to accept incoming payments from the Claimant’s customers, the Claimant was unable to identify (as a result of the revocation of on-line access) which payments had been made and in which currencies. The Claimant commenced these proceedings for a mandatory injunction and interim declaratory relief on 15 October, and on 16 October the Defendant gave notice to terminate all of the Claimant’s banking facilities with the Defendant (other than outstanding FX trades) with immediate effect.[7]The Defendant did so in reliance upon the following contractual provisions: i) The Bank’s terms of business for the Claimant’s current account (“current account terms”) provide that the Bank may close an account without giving a reason, but that the Bank will give a customer not less than 60 days’ written notice for such closure unless it considers that there are exceptional circumstances. The terms provide that on closure of an account, the Bank will return any credit balance to the customer and the customer will repay any debt balance to the Bank. The terms further provide that the Bank will have no liability for, and may delay or refuse to process any payment if in its reasonable opinion it is prudent to do so in the interests of crime prevention or compliance with laws including sanctions laws and regulations. ii) The Bank’s terms of business (“FX terms”) relating only to the FX trading services (forwards and options trades) provided by the Defendant to the Claimant provide that the Bank may at its absolute discretion refuse to accept or act in accordance with any instruction given by the customer, and that where the Bank refuses to act on any instruction, it will notify the customer of that refusal but will be under no obligation to give reasons. Those terms also confirm that nothing in them obliges the Bank to do anything it believes to be contrary to any applicable regulation. The terms further provide that the arrangement to which they give effect shall be terminated forthwith and without notice if the Bank considers it necessary or desirable to do so for its own protection or to prevent what it considers is or might be a violation of any applicable regulation or good standard of market practice. However, it was further explicitly provided in the FX terms that termination will not affect the completion of any outstanding transactions and any other legal rights or obligations which may already have arisen.[8]The immediate effect was that there were some 476 individual transactions (identified in a confidential schedule before me) which were left in limbo, many of them involving individual customers’ very urgent requirements, such as the imminent completion of property purchases. The Claimant has no alternative banking arrangements that could effect the outstanding transactions. Although there was the saving in the FX terms in relation to FX transactions, there was no such saving in the current account terms.[9]The witness statement of Ms Thackeray on behalf of the Claimant described in vivid terms the real crisis which was thus caused to the Claimant, not only in respect of the imminent loss to those customers but ongoing in the near future in relation to outstanding commitments and imminent transactions. In paragraphs 27 to 29 of her witness statement she described the real risk of loss of customers, of the risk of being pursued by customers for damages as a result of interruption to their business activities, the damage to its reputation as a result of its being unable to process on-going transactions and the serious risk of failure of the Claimant’s business: the Claimant’s best estimate was that it might be able to continue for a matter of days before business had to cease altogether. She estimated, on instructions, that the Claimant had around £22.8m of client money held by the Defendant which was due to be paid out, in the process of currency conversion or in the process of being transferred to the Claimant Group for cash custody, and had been unable to book and process foreign exchange trades worth approximately £1.5m, and had already lost in excess of £45,000 profit in relation to transactions that it had to turn away and was suffering further losses because it had been unable to effect the anticipated currency conversions.[10]Mr Downes QC on behalf of the Claimant applied ex parte on notice to the Defendant before Walker J on 15 October, who adjourned the matter to come on, as it eventuated, before me, on 19 October, and he ordered a timetable for the production of evidence and a skeleton argument from the Defendant and also for such production of evidence and argument from the NCA, which had been given notice of the hearing before him but had written by letter dated 15 October to say that they did not intend to attend the hearing before Walker J as “it does not consider that it will be able to assist the Court in relation to the Claimant’s position”.[11]The Defendant produced within the required timescale a witness statement from Mr Stephens, their solicitor, who revealed at paragraph 16 as follows:
“16. I can now confirm that the Bank has reported to the NCA in connection with the Claimant’s accounts on a number of occasions since 29 September 2015. Much, but not all, of that reporting has also involved requesting the NCA’s consent to carry out specified acts. Where consent has been sought by the Bank, it has been phrased in terms of the consent to return funds to the Claimant upon the Bank terminating the banking relationship. That consent was granted on 15 October 2015 (save that a more limited consent in respect of certain accounts was granted on 8 October 2015). The Bank has not requested consent to allow it to effect any specific transactions.”
In short the NCA had given consent for the return of the Claimant’s funds to the Claimant (of course subject to the common ground referred to in paragraph 5 above).[12]I am entirely satisfied that for the purposes of the interlocutory relief before me today the Claimant has an arguable case by reference to the question as to whether the Defendant was entitled to terminate its banking relationship without notice, in accordance with either its current account terms or its FX terms, and in any event by reference to the Claimant’s allegations of breaches of the Defendant’s duty of care.[13]The relief sought is by way of mandatory injunction. It is clear from Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670 and National Commercial Bank Jamaica v Olint Corp Ltd [2009] 1 WLR 1405 that I am entitled and obliged to exercise the ordinary principles relating to interlocutory injunctions, albeit that this would be a mandatory rather than a negative injunction. I am satisfied that there is both a serious issue to be tried and that the balance of convenience and justice requires that the Claimant should be given protection from the very substantial loss and damage which I am satisfied they imminently face, provided that the Defendant can be given protection by reference to the provisions of POCA.[14]The Claimant submits that I can and should grant such protection, and the Defendant seeks it, if I am otherwise to grant the relief sought by the Claimant, by reference to the grant of an interim declaration in the form sought, namely that in performing the transactions identified the Defendant will not commit any criminal offence under POCA or otherwise (“the Criminal Law”) and that the Defendant is not obliged to make any disclosure as would or may be required by the criminal law or any other law.[15]The jurisdiction to grant an interim declaration is set out expressly in CPR 25.1(1)(b), as from the introduction of the CPR in April 1999. Its existence was however trailed earlier, such as in Clarke v Chadburn by Megarry VC [1985] 1 WLR 78, where he in fact made a final declaration on an interlocutory application. The jurisdiction to grant an interim declaration is discussed in Lewis: Judicial Remedies in Public Law (5th Ed) at paras 7-070-3 in Judicial Review Principles & Procedure: Auburn etc (paras 29.55ff) and in De Smith’s Judicial Review (7th Ed) at para 18-021, and all commentators are agreed that it is likely to be rarely exercised. However plainly, like final declarations, it can be exercised in the case of declarations in relation to criminal law (Lewis para 7-054ff), and a signal example of such use was in R (AM) v DPP [2012] EWHC 470 (Admin) (Divisional Court), where an interim declaration was sought and granted in circumstances relating to assisted suicide. That was a judicial review case, but it is clear, not least from the fact that CPR 25 is not so limited, that it is available in ordinary civil proceedings. Lord Woolf LCJ in Bank of Scotland v A [2001] 1 WLR 751, itself a money laundering case, spelt out the availability, and (in circumstances where there is a genuine dilemma for a bank) appropriateness, of the making of an interim declaration. At paragraph 40 Lord Woolf considered that the bank in that case was in a “genuinely difficult situation”, and discussed the making of an interim declaration “for a fairly limited period”. At paragraph 45 he discussed the historical development of the declaration, recorded that the development of declaratory relief had not been confined to judicial review and recorded that “now the Civil Procedure Rules acknowledge that just as interim injunctions can be granted, so can interim declarations”. He stated in terms at paragraph 47 that “the use of the Court’s power to grant interim declarations in proceedings involving the [Serious Fraud Office, whose duties have now been replaced by the NCA], will protect a bank from criminal proceedings”.[16]Whereas the consent of the NCA was, as described by Mr Stephens, sought and granted as he there described (a matter to which I shall return), no express consent has been sought from the NCA by the Defendant in respect of the transactions the subject matter of this application. If it were now sought, the periods of time specified in s.335 of POCA referred to in paragraph 4 above, of up to 42 days would now triggered, with realistically almost certain disastrous consequences for the Claimant. The draconian consequences of the money lending legislation in this regard has already been discussed, with concern, by the Courts: in SquirrellLtdv National Westminster [2006] 1 WLR 637 at para 7, and by Ward and Sedley LJJ in UMBS Online Ltd and SOCA [2007] EWCA Civ 406 at paragraphs 8 and 58.[17]I am satisfied that this is an appropriately exceptional case in which, particularly given the balance of injustice weighing in favour of the Claimant, with the consequent injustice to the Defendant if no declaration is given, an interim declaration should be made: i) The significant fact here is that the NCA has already given its consent in terms, which can only be deduced from the evidence of Mr Stephens set out in paragraph 11 above, to the return by the Defendant of the Claimant’s funds to the Claimant, upon the Defendant terminating the banking relationship. That plainly means, and I am satisfied, that there is no evidence known to the NCA that the monies being so transferred with its consent are criminal property or suspected of being so, and that no objection is being taken to the Claimant, as indeed on the evidence before me there is no reason to do. The Claimant has followed and does follow all necessary compliance procedures. ii) In any event it is clear from R v Montila [2004] 1 WLR 3141 at paragraphs 30, 37-38 and 41, but in particular from the common ground between the parties recorded by Supperstone J in Shah v HSBC [2013] 1 AER (Comm) 75, that it is necessary, by reference to s.340 of POCA to establish a case, at least at this stage an arguable case, not simply that (in this case the Defendant) suspects that monies constitute or represent a benefit from criminal conduct, but that such monies must also in fact constitute or represent such benefit in relation to the transactions before me. There is no evidence in that regard.[18]Without the benefit of such declaration, the Defendant asserts, and reasonably so, that it would be left in the dilemma referred to by Lord Woolf. The Defendant seeks not simply a declaration in respect of the position under criminal law but also for its fullest protection a declaration that gives it similar protection in relation to civil liability. Lord Woolf addresses this at paragraph 47 of Bank of Scotland:
“The use of the Court’s power to grant interim declarations in proceedings involving the [NCA] will protect a bank from criminal proceedings, but it will not automatically provide protection for the bank against actions by customers or third parties. However it seems almost inconceivable that a bank which takes the initiative in seeking the court’s guidance should subsequently be held to have acted dishonestly so as to incur accessory liability.”
Although I can see that that does leave open the possibility of some prejudice to the Defendant, I am not prepared to make such a declaration, which might have effect on the rights of third parties, and the absence of that final piece of comfort does not in my judgment weigh against the overwhelming case made by the Claimant for the grant of an injunction and an interim declaration as to the absolution of the Defendant from criminal liability.[19]I am entirely satisfied that I am able in the light of the authorities to make a declaration which protects the Defendant, in relation to the operation of the Claimant’s bank accounts, being an interim declaration, with liberty to apply.[20]There have been banking instructions given to the Defendant prior to termination, and I am told there are also instructions which have been given this morning, with which the Bank has not complied, and with which in the circumstances the Claimant requires compliance, given that I have found that there is an arguable case on the evidence that the retainer has not been lawfully terminated and that they were not entitled to terminate without notice.[21]I have no doubt at all as to which way the answer lies with regard to the balance of convenience or justice and in addition the Defendant will have the benefit of a cross-undertaking in damages given by the Claimant. So far as a mandatory order is concerned I shall hear the parties as to whether I need to make that mandatory order or whether it can be done by consent, but the essential part is the making of a declaration.[22]Both the Claimant and the Defendant wish such a declaration, the Claimant because, although it does not affect the Claimant, it is content for the Defendant to have that protection, the Defendant because it is, as Miss Stanley QC put it, neutral, but would certainly would not be prepared to give consent or to comply with any mandatory order which puts it at the risk of criminal liability, fanciful as that may be in respect of the particular bank in question.[23]So it is to the NCA to whom I look to see whether there is any reason why I should not grant the interim declaration. Mr. Saynor has appeared today for the NCA, and has emphasised that the NCA has not given consent for anything other than the transfer of the moneys back to the Claimant. As I indicated earlier in this judgment, I am satisfied that that carries with it of necessity the fact that the NCA has no evidence as of now that any of this money is the proceeds of crime or constitutes or represent the benefit from criminal conduct, nor any objection to the Claimant, a registered entity. All these instructions with which I am now dealing have been given, and I have seen many of them, relating to small amounts, and relating, I am told by Mr. Downes, to 98% of the business of the Claimant, with regard to which there has been no complaint. As indicated above, as to such 2%, the Claimant itself has been concerned and the Claimant is content for those moneys to remain frozen and any transaction or instructions in respect of those moneys not to be complied with by the Defendant.[24]I am clear that there ought to be, on the balance of convenience, compliance by the Defendant with its outstanding instructions, including instructions given up to and including 1 p.m. today, rather than have this extraordinary scenario of an immediate termination, leaving large numbers of transactions in limbo. The Defendant has been willing to agree to comply with instructions in relation to FX transactions, notwithstanding the absence of consent by the NCA, and I conclude that the Defendant should also be, and indeed, to be fair, it is, also willing to comply with other instructions, and the only way in which they can be so protected in relation to all transactions, both FX and other transactions, is if I make an interim declaration.[25]Mr. Downes is not content with the grant of an interim declaration in relation to existing instructions, although he cannot foresee at this moment circumstances in which there will be any operation of the bank account other than in accordance with existing instructions. He understandably reserves his client’s position as to whether it might not be as straightforward as they at the moment hope to find a new bank who can comply with fresh instructions, but that, I am satisfied, should not lead me to do other than make an interim declaration in relation to the existing transactions. There is inevitably liberty to apply in relation to transactions eventuating over the next few days and until the Claimant is able to transfer all its transactions and moneys to a new bank, and I give liberty to the parties to apply, and reserve it to myself.[26]With that exception, I am prepared to make a declaration in the terms that are sought by the Claimant, limited to those transactions in relation to which instructions have prior to 1 p.m. today already been given to the Defendant.