Bank – Money laundering – Authorised disclosure – Claimants instructing defendant bank to transfer funds – Defendant suspecting funds to be criminal property – Defendant making authorised disclosure to relevant agency – Whether delay in transfer giving rise to breach of duty to claimants – Defendant applying to strike out parts of claim and/or for summary judgment – Claim allowed in part
The claimant account holders instructed the defendant bank to execute four transfers from their account. However, the defendant delayed in doing so and failed to explain the delay. The claimants claimed damages for breach of duty.
At the time, the defendant asserted that the delay had arisen because it had to comply with UK statutory obligations. However, the underlying reason resulted from the defendant’s suspicion that the funds in the claimants’ account comprised criminal property, such that, before proceeding with each transaction, the defendant was obliged to make an authorised disclosure to the relevant authorities and await appropriate consent under Part 7 of the Proceeds of Crime Act 2002. Where the transfer instructions were maintained, consent was provided and the transfer made shortly thereafter.
The claimants alleged that when the real reason for the delay became known, rumours spread in Harare that the first claimant was suspected of money laundering in the UK. This, they claimed, stigmatised his reputation and led to the Zimbabwean authorities seizing his investments in the country, thereby causing him substantial losses.
The defendant applied to strike out and/or sought summary judgment in respect of substantial parts of the pleaded claim. It argued that it had suspected that the funds comprised criminal property and, since suspicion was a subjective matter and no allegation of bad faith had been made against it, the claim for breach of duty had to fail. The claimants contended that a suspicion had to be rational to be deemed a relevant suspicion under the Act; if a suspicion had been induced by negligence or automatically by a mechanical error, it would not constitute a relevant suspicion.
Held: The claim was allowed in part.
Suspicion under the Act was a subjective matter. It was irrelevant whether there were reasonable grounds for that suspicion provided that it was genuinely held. Where a banker was compelled to make an authorised disclosure under the Act, he could not be in breach of contract in doing so. To impose a superadded requirement of reasonableness would put the banker in an impossible position and mean that he could be in breach of duty even though he was acting as the law compelled him to, which was neither sensible nor principled. If a suspicion arose, regardless of its reasonableness, the bank’s obligations under the Act were triggered: K Ltd v National Westminster Bank plc [2006] EWCA Civ 1039; [2007] 1 WLR 311 applied.
To impugn the decision to make an authorised disclosure under the Act and the consequent failure immediately to execute their payment instructions, the claimants had to challenge the good faith of the defendant’s suspicion. They could not and did not seek to do so. In such circumstances, the claimants had no real prospect of establishing that the failure to execute their payment instructions amounted to a breach of duty. That claim should therefore be struck out.
A bank owed a general duty of care to its customers in the way in which it executed their orders, including the handling of their accounts and compliance with their lawful instructions. The defendant’s duty to comply with its obligations under the Act might restrict and qualify those duties and it was arguable that the Act did not completely exclude such duties. If a bank obtained appropriate consent to make a transfer under the Act but unreasonably delayed in carrying it out, it might be acting in breach of duty. In the present case, the authorised disclosures had been made at most within two days of the payment instruction and this was not an unreasonable delay.
However, the issues of remoteness of damage and causation were fact-sensitive and could not be determined on the limited material before the court. It could not be said that the claimants had no real prospect of success on those issues. They should therefore proceed to trial.
Paul Downes and Simon Goldstone (instructed by Edwards Angell Palmer & Dodge UK LLP) appeared for the claimants; Richard Lissack QC and Nicholas Medcroft (instructed by DLA Piper UK LLP) appeared for the defendant.
Eileen O’Grady, barrister
