K Ltd v National Westminster Bank Plc (Revenue and Customs Commissioners and another intervening)

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Longmore,Lord Justice Laws,Lord Justice Ward
Judgment Date19 Jul 2006
Neutral Citation[2006] EWCA Civ 1039
Docket NumberCase No: 2005 2189 A3

[2006] EWCA Civ 1039

Before:

Lord Justice Ward

Lord Justice Laws and

Lord Justice Longmore

Case No: 2005 2189 A3

Between:
K Ltd
Appellant
and
National Westminster Bank Plc
Respondent
and
Hm Revenue and Customs
Serious Organised Crime Agency
Interveningparties

Ms BARBARA DOHMANN QC, DAVID BERKLEY Esq QC and PEPIN ASLETT Esq

(instructed by Blacks Solicitors LLP, LS2 8NG) for the Appellant

RICHARD LISSACK Esq QC and PAUL DOWNES Esq

(instructed by DLA Piper Rudnick Gray Cary, EC2V 7EE) for the Respondent

ANDREW MITCHELL Esq QC and PETER de VERNEUIL SMITH Esq

(instructed by The Solicitor's Office, HM Revenue and Customs, WC2R 1LB

and The Serious Organised Crime Agency, SE11 5EN) for the Intervenors

Lord Justice Longmore
1

Introduction

This appeal raises questions of construction in relation to the money-laundering provisions in part 7 of the Proceeds of Crime Act 2002 ("the 2002 Act") . Section 328 of that Act provides:-

" Arrangements

(1) A person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.

(2) But a person does not commit such an offence if –

(a) he makes an authorised disclosure under section 338 and (if the disclosure is made before he does the act mentioned in subsection (1)) he has the appropriate consent . . . . ."

2

In the present case the defendant Bank asserts that to comply with a payment request made on 22nd August 2005 by its customer to pay money out of its account would mean that it would become concerned in an arrangement which it suspected would facilitate the use of criminal property by its customer. In order to avoid committing a criminal offence it had therefore to make an authorised disclosure and obtain the appropriate consent.

3

Appropriate consent is defined in section 335 of the Act:-

"(1) The appropriate consent is –

(a) . . . .

(b) the consent of a constable to do a prohibited act if an authorised disclosure is made to a constable;

(c) the consent of a customs officer to do a prohibited act if an authorised disclosure is made to a customs officer.

(2) A person must be treated as having the appropriate consent if –

(a) he makes an authorised disclosure to a constable or a customs officer, and

(b) the condition in subsection (3) or the condition in subsection (4) is satisfied.

(3) The condition is that before the end of the notice period he does not receive notice from a constable or customs officer that the consent to the doing of the act is refused.

(4) The condition is that –

(a) before the end of the notice period he receives notice from a constable or customs officer that consent to the doing of the act is refused, and

(b) the moratorium period has expired.

(5) The notice period is the period of seven working days starting with the first working day after the person makes the disclosure.

(6) The moratorium period is the period of 31 days starting with the day on which the person receives notice that consent to the doing of the act is refused."

In the present case HM Revenue and Customs refused consent within the notice period of 7 working days but they granted consent before the moratorium period of 31 days expired.

4

The Customer (as I shall call the claimant) made a claim for an interim injunction requiring the Bank to comply with the Customer's instructions. That application was refused by HH Judge Gilliland on 9th September 2005. Since consent was granted on 15th September and the transaction was therefore performed, the appeal itself has been rendered redundant. Nevertheless costs are still in issue and this application gives rise to important questions under the 2002 Act.

5

The Facts

The Customer had a business account since July 2001. On 18th August 2005 it made two transactions:-

(1) a contract to purchase a consignment of mobile telephones from Fones Centre Ltd ("Fones") for £200,000 plus VAT (viz £235,000 in all) ;

(2) a contract to sell the same telephones to a Swiss company for £215,200. The VAT paid on the purchase would be reclaimable since the purchase was made for export. That meant that the Customer would make a profit of £20,000 on the transaction.

About the same time the Customer's director, Mr H explained to the Manager (Mr Gibson) who was responsible for his account that he would need to make a substantial payment to Fones. On 22nd August the Swiss purchaser paid £215,200 into the Customer's account at the Bank from an account in the Netherlands Antilles and on the same day Mr H instructed the Bank by fax to pay Fones £235,000. On 23rd August Mr Gibson wrote to Mr H saying that the Bank could not currently comply with his instructions and could not enter into any further discussion of the matter. The Customer immediately put the matter in the hands of its solicitors who, after letters before action, applied to the court for an injunction on 6th September. The court adjourned the application until 9th September and a formal notice of application was issued by the Customer on the following day. Meanwhile the Bank (after consultation with Revenue and Customs) caused a letter of 6th September to be sent by its solicitors to the effect that it had made a disclosure to the Customs. On 9th September the judge refused the application on the basis that Parliament had laid down a statutory scheme to prevent money laundering and, once the Bank stated that it suspected money in the Customer's account was criminal property, that was an end of the matter.

6

The submissions

Ms Barbara Dohmann QC appeared to argue the appeal for the Customer. She submitted:-

(1) the Bank by refusing to honour its customer's instructions, was acting in breach of the contract of mandate whereby the Bank had agreed to honour its Customer's instructions;

(2) that the judge should have restrained the Bank from continuing to act in breach of contract and should have granted the injunction sought;

(3) that if the Bank was going to rely on any suspicion that the money in the Customer's account was criminal property, it should have given admissible evidence to the court of any such suspicion. A solicitor's letter which baldly stated that the Bank had made a disclosure was insufficient because

(a) it did not identify the fact that the Bank entertained any suspicion on the matter;

(b) it did not identify who in the Bank had had any such suspicion;

(4) if there had been admissible evidence before the court, the maker of the statement could be cross-examined on the question whether he did actually entertain a suspicion and (perhaps) whether there were any grounds for such suspicion. Otherwise, a customer's account could be effectively frozen even if a suspicion had not been entertained; the Court's guidance was sought on what in law could constitute suspicion;

(5) if the judge was right that the court was powerless to question whether the Bank did have any suspicion, the customer was deprived of access to a court which was his right under Article 6 of the European Convention on Human Rights ("the Convention") , or deprived of his possessions under Article 1 of the First Protocol of the Convention and therefore the statutory provision should be interpreted (or read down) to avoid such a result.

7

Mr Richard Lissack QC for the Bank submitted:-

(1) it had been agreed that the solicitors' letter of 6th September could be treated as evidence;

(2) on that basis it was clear that the Bank did entertain a relevant suspicion;

(3) once the Bank did entertain such a suspicion, it would be a criminal offence for them to perform the required transaction; no court should grant an injunction which required a defendant to act illegally;

(4) it was not contemplated by Parliament that a banker (or anyone else) should be cross-examined as to whether a suspicion was entertained; suspicion was an ordinary English word on which no guidance was needed from the court; in any event a moratorium of 7 working days +31 ordinary days (= 40 days in all) was too short a time for any meaningful investigation to take place;

(5) the Human Rights Convention had no part to play.

8

By permission of the court, Her Majesty's Revenue and Customs ("Revenue and Customs") and The Serious Organised Crime Agency ("SOCA") intervened in the appeal. Mr Andrew Mitchell QC on their behalf supported the Bank's submissions and informed the court that institutions to which the money-laundering provisions in the 2002 Act applied would normally have Nominated Officers pursuant to sections 330 and 331 of the Act and it was those officers who would be in contact with SOCA or the investigating authority to whom SOCA would have referred the disclosure, would be making any authorised disclosure to SOCA or any other relevant authority and would be seeking the relevant consent from them to process any transactions. It would also be such persons who would be making disclosure to the court for the purpose of the tipping off provisions of the Act whereby no disclosure could be made to the customer save for the purpose of legal proceedings pursuant to section 333(2) (c) and (3) (b) of the Act. It would scarcely be feasible to cross-examine any such person since he or she would not be the person who originally entertained the suspicion.

9

The Criminal Law

There can be no doubt that, if a banker knows or suspects that money in a customer's account...

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