Shah and another v HSBC Private Bank (UK) Ltd; [2010] EWCA Civ 31; [2010] WLR (D) 27

BANKING — Bank’s liability — Proceeds of crime — Suspicion of money-laundering — Requirements for authorised disclosure and appropriate consent — Bank not carrying out customer’s instructions promptly — Whether claim lying in breach of contract or duty — Proceeds of Crime Act 2002, ss 333, 335, 338

Shah and another v HSBC Private Bank (UK) Ltd

[2010] EWCA Civ 31; [2010] WLR (D) 27

CA: Ward, Longmore, Lloyd LJJ: 4 February 2010

Where a bank claimed, for the purposes of the Proceeds of Crime Act 2002, to entertain “suspicion” about money-laundering concerning a proposed transaction on a customer’s account, and had failed to carry out instructions promptly, a customer might be entitled to proceed with a claim in breach of contract or duty.

The Court of Appeal so stated when allowing the appeal of the claimants, Jayesh Shah and Shaleetha Mahabeer, from a decision of Hamblen J, sitting in the Queen’s Bench Division on 26 January 2009 [2009] EWHC 79 (QB); [2009] 1 Lloyd’s Rep 328, giving summary judgment in favour of the defendant, HSBC Private Bank (UK) Ltd, in proceedings founded on an assertion that the bank had failed to carry out the claimants’ instructions. The bank asserted that it had suspected that certain transactions constituted money-laundering for the purposes of the applicable provisions of the 2002 Act; that it had made an “authorised disclosure” seeking consent to effect them under s 338 of the Act; and that it would have been illegal for it to effect the transactions any earlier than it did. In reply, the claimants put the bank to proof as to the claimed suspicion.

LONGMORE LJ said that most of the Court of Appeal’s previous decisions had dealt with complaints about the conduct of either banks or the Serious Organised Crime Agency during the period within which authorisation under the 2002 Act could be refused, viz seven days in the first instance and a further 31 days if notified, before the authorities had either to authorise a transaction or apply to the court for a restraint order: see K Ltd v National Westminster Bank plc (Revenue and Customs Comrs intervening) [2007] 1 WLR 311, and R (UBMS Online Ltd) v Serious Organised Crime Agency [2007] Bus LR 1317. The present case however raised the question whether the same considerations as applied during the early period also applied to the more leisurely process of an action for damages for breach of contract or duty which fell to be resolved well after the time within which authorisation had to be allowed or a restraint order applied for. Although the judge had rightly held that claims in the case which were founded on irrationality, or negligently self-induced suspicion, or mistake had no reasonable prospect of success (see R v Da Silva [2007] 1 WLR 303; and the K case), he had erred in finding that the claimants were only left with a bad faith assertion, which they disavowed. Two contentions for the bank were rejected: (i) for the bank to obtain summary judgment it was not sufficient to put in evidence the facts attested to by the bank’s solicitor; and (ii) the K case did not sustain a finding that no court would ever expect, let alone require, a bank’s employees to give evidence, so that there was no point in requiring a trial since any such trial could only ever result in a decision in favour of the bank. As to the first submission: the instant case was not one of the type referred to by Brooke LJ in Equitable Life Assurance v Ernst & Young [2003] 2 BCLC 603, para 38, as “fanciful or contradicted by all the documentary material on which it is founded”; and there was no reason why the bank should not be required to prove the important fact of suspicion in the ordinary way at trial by first making relevant disclosure and then calling either primary or secondary evidence from relevant witnesses. The K case, in which summary relief was sought by the claimant, but refused, was not surprising; but it did not follow that if a customer instituted ordinary non-summary proceedings against a bank then the bank should be able to obtain for itself summary relief against that customer merely by authorising its solicitor to make a witness statement that various unidentified people in the bank entertained a suspicion; and it would simply be too strong to say that the bank would be bound to win any trial. As to the second submission: to accept the bank’s submission at this stage would be to give carte blanche to every bank to decline to execute its customer’s instructions without any court investigation. It was true that a bank was in an invidious position: it risked criminal prosecution if it entertained suspicions but did not report them, or, if it reported them, it nevertheless carried out the customer’s instructions without authorisation; and, on the other hand, if the bank acted as instructed its customers were liable to initiate litigation. However, it could not be right that proper litigation should be dismissed without any appropriate inquiry of any kind. The normal procedures of the court were not to be side-stepped merely because Parliament had enacted stringent measures to inhibit the evil of money-laundering unless there was express statutory provision to that effect; and this was not a “region of executive action free of judicial oversight”, per Sedley LJ in the UBMS Online Ltd case, at para 58. Accordingly, summary judgment should not have been granted where this aspect of the claim was triable, as indeed was a claim of breach of agency duty.

LLOYD and WARD LJJ agreed.

Appearances: Michael Brindle QC and Paul Downes (instructed by Zaiwalla & Co) for the claimants; Richard Lissack QC and Nicholas Medcroft (instructed by DLA Piper) for the defendant.

Reported by: Matthew Brotherton, barrister