Commissioners of Customs & Excise v Barclays Bank Plc [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Mr Justice Colman |
| Judgment Date | 03 February 2004 |
| Neutral Citation | [2004] EWHC 122 (Comm) |
| Docket Number | Case No: 2003 Folio No 145 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 03 February 2004 |
[2004] EWHC 122 (Comm)
The Honourable Mr Justice Colman
Case No: 2003 Folio No 145
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Philip Sales and Mr Daniel Stilitz (instructed by Solicitor's Office, HM Customs & Excise) for the Claimant
Mr Michael Brindle QC and Mr Richard Handyside (instructed by Messrs Lovells) for the Defendant
Hearing dates: 16–17 December 2003
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Colman J
Mr Justice Colman
Introduction
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.
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.
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.
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
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.
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."
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 29 January 2001.
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."
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".
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.
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.
At about 1400 on 30 January 2001 the Bank permitted payments out of the Doveblue account which with charges totalled £1,064,289.
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."
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
Before considering the question whether the Bank owed a duty of care to prevent these payments out of the two accounts...
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