Commissioners of Customs and Excise v Barclays Bank Plc
|England & Wales
|Lord Justice Longmore,Mr Justice Lindsay,Lord Justice Peter Gibson
|22 November 2004
| EWCA Civ 1555
|Case No: 2004 0312 A3
|Court of Appeal (Civil Division)
|22 November 2004
 EWCA Civ 1555
Lord Justice Peter Gibson
Lord Justice Longmore and
Mr Justice Lindsay
Case No: 2004 0312 A3
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE (Commercial Court)
HON MR JUSTICE COLMAN
Royal Courts of Justice
Strand, London, WC2A 2LL
PHILIP SALES Esq and DANIEL STILITZ Esq (instructed by HM Customs & Excise Solicitors Office) for the Appellant
MICHAEL BRINDLE Esq QC and RICHARD HANDYSIDE Esq (instructed by Lovells) for the Respondent
In the first edition of his invaluable Practice and Procedure of the Commercial Court (1983), Mr Anthony Colman QC said (page 70) "since 1975 a major part of the work of the Commercial Court has been the hearing of the applications for Mareva injunctions", cf 5th ed page 109. He recorded that there were then about 20 applications per month. It has now fallen to Colman J (as he has become) to decide whether a bank, served with notice of a freezing injunction (as, since the advent of CPR, it is now called), owes any duty of care to a claimant not to allow sums to be paid out of an account which is subject to such injunction. He correctly called it an unexplored and undecided point which "goes to the very heart of the law of negligence".
The claimant Commissioners of Customs and Excise 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.
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 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.
It appears that the withdrawals may have been 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 able to bypass the Bank's control facility. The Bank, however, denies that it owed any duty of care to the claimants to prevent these payments. That issue was ordered to be tried as a preliminary issue on the assumption that the facts alleged in the Particulars of Claim were true.
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. The judge has summarised the essential facts to be assumed so neatly and comprehensively that I can adopt his account of them as my own.
Assumed facts in relation to Brightstar
On 26th 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."
Under the heading GUIDANCE NOTES there appeared the following:
"1. Effect of this 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."
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."
The claimants served a copy of the Brightstar order on the Bank by fax at 12.33 on 29th January 2001.
In an apparently standard form letter to the claimants dated 29th January 2001, but bearing a "Letter Opened" stamp dated 31st 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 28th 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."
At about 14.30 on 29th January 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 31st January 2001, which explained these three substantial payments by reference to "operator error".
On 8th May 2001 the claimants obtained judgment in default against Brightstar for £2,285,788.98. On 30th 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 itself 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.
Assumed facts in relation to Doveblue
On 30th 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 6–10 above. It was served on the bank by fax at about 11.38 on 30th January 2001.
At about 1400 on 30th January 2001 the Bank permitted payments out of the Doveblue account which with charges totalled £1,064,289.
By letter dated 31st 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 30th 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."
On 23rd February 2001...
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