K Ltd v National Westminster Bank Plc & Ors

Introduction

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.

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.

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.

The Facts

The submissions

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.

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.

The Criminal Law

If the law of the land makes it a criminal offence to honour the customer’s mandate in these circumstances there can, in my judgment, be no breach of contract for the Bank to refuse to honour its mandate and there can, equally, be no invasion (or threat of an invasion) of a legal right on the part of the Bank such as is required before a claimant can apply for an injunction. If that is right, there would be no issue to be tried in any later legal proceedings and any application for an interlocutory mandatory injunction has to be dismissed.

It could be said that this puts the matter over-legalistically or over-dramatically in the sense that it is not usually a defence to a claim for a breach of contract that the contract-breaker would, by performing the contract, be in breach of the criminal law. That is not, however, correct. The conventional view is that, if a statute renders the performance of a contract illegal, the contract is frustrated and both sides are discharged from further performance. In a case, however, where a statute makes it temporarily illegal to perform the contract, the contract will only be suspended until the illegality is removed. That still means that, during the suspension, no legal right exists on which any claim to an injunction must depend.

Even if, for any reason, the above analysis is open to objection, the fact still remains that during the 7 working day or 31 day period, as the case may be, the Bank would be acting illegally by processing the cheque. It would be entirely inappropriate for the court, interlocutorily or otherwise, to require the performance of an act which would render the performer of the act criminally liable. As a matter of discretion any injunction should be refused.

On any view, therefore, a claim for an injunction in the present case must fail, unless the Customer can in some way attack the factual foundation on the basis of which the criminal liability will arise. Here it is “suspicion” on the part of the Bank. If the Bank asserts it is suspicious, can that be controverted in any way?

“Suspicion”

Mr Lissack and Mr Mitchell urged us not to yield to the blandishments of Ms Dohmann’s request to the court to give some guidance for the future as to the meaning of “suspect”. Any definition of what was an ordinary English word was, they said, likely to be unhelpful and only put a gloss on the statute. That is all very well but the problem has arisen in the Criminal Division of this court in appeals in cases where judges have tried to assist juries on the meaning of the concept of suspicion and it is important that both divisions of this court speak, so far as possible, with one voice. The problem is not made easier by the fact that Mr Mitchell, who in an authorial capacity has co-written the leading work on the topic, Mitchell, Taylor and Talbot on Confiscation and Proceeds of Crime, in his capacity as leading counsel for the Intervening parties before us expressed unease at the definition used in his important work which cites the Chambers’ Dictionary definition of the word suspicion and adds

“Thus any inkling or fleeting thought that the property might be [criminal property] will suffice”. See Volume II, section VIII 008-009.

In R v Da Silva [2006] EWCA Crim 1654 this court has said that for a defendant to be convicted of an offence under section 93A(1)(a) of the Criminal Justice Act 1988 (the earlier equivalent of section 328 of the 2002 Act), he or she must think that there is a possibility, which is more than fanciful, that the relevant facts exist. This is subject, in an appropriate case, to the further requirement that the suspicion so formed should be of a settled nature. If that definition is sufficient for criminal cases, so also should it be for civil cases.

That still leaves the question of how, in a civil case, evidence of suspicion is to be adduced and whether it can be cross-examined. This is an anxious and difficult matter.

Evidence of suspicion

It cannot be of any consequence whether the Bank’s solicitor made the disclosure to the court by way of letter or by way of formal witness statement since the solicitor will not himself have any suspicion; he will only be reporting the suspicion of the bank’s officers, whether that be the Nominated Officer of the bank or the manager of the account who may have been the first person to entertain the relevant suspicion. It would be a fruitless exercise to cross-examine the solicitor about the existence of the bank’s suspicion. There is, moreover, no mechanism whereby any officer of the bank can be required to attend for cross-examination since there is no provision enabling the relevant person to give evidence of his suspicion.

This is not surprising. It may well have been the intention of the statute to protect those having a suspicion and reporting that suspicion to the authorities from being identified, since it is notorious that those concerned in money laundering are no respecters of persons who report them to the authorities. This conclusion is bolstered by the further consideration that any cross-examination of a bank employee would, in fact, be almost as pointless as cross-examination of a bank’s solicitor. Once the employee confirmed that he had a suspicion, any judge would be highly likely to find that he did indeed have that suspicion. Any cross-examination would be bound to decline into an argument whether what the employee thought could amount in law to a suspicion, which is not a proper matter for cross-examination at all.

Ms Dohmann submitted that, if this was the position, it would be all too easy for banks to assert a suspicion which was in fact groundless. She instanced this very case, saying that the only reasons for the transaction to be suspect was that it concerned mobile telephones and that the payment by the Swiss purchaser came from an off shore account. That she said was just not enough to amount to a proper suspicion in law. The answer to this submission is two-fold:-

(1)

The existence of suspicion is a subjective fact. There is no legal requirement that there should be reasonable grounds for the suspicion. The relevant bank employee either suspects or he does not. If he does suspect, he must (either himself or through the Bank’s Nominated Officer) inform the authorities;

(2)

The provisions of the statute permitting only the bank’s professional legal adviser to make a disclosure on its behalf and then only for the purpose of court proceedings cannot be side-stepped.

The truth is that Parliament has struck a precise and workable balance of conflicting interests in the 2002 Act. It is, of course, true that to intervene between a banker and his customer in the performance of the contract of mandate is a serious interference with the free flow of trade. But Parliament has considered that a limited interference is to be tolerated in preference to allowing the undoubted evil of money-laundering to run rife in the commercial community. The fact that the interference lasts only for 7 working days in what we were told were the majority of cases and a further 31 days only, unless the relevant authority goes to the length of applying to the court for a Restraint Order when all cards will have to be on the table in any event, shows that the interference with freedom of trade is limited. Many people would think that a reasonable balance has been struck. That reasonable balance avoids the difficulties, raised by the previous statutory provisions (contained in sections 93A–93D of the Criminal Justice Act 1988 where no time limits were incorporated) and discussed in Bank of Scotland v A Ltd [2001] EWCA Civ 52, [2001] 1 WLR 751 and Amalgamated Metal Trading Ltd v City of London Police Financial Investigation Unit [2003] EWHC 703 (Comm), [2003] 1 WLR 2711.

Even so the terms of the Act have, not surprisingly, given rise to concern. Judge Norris QC in New Bridge Holdings v Barclays Bank in Birmingham 10th February 2006, paragraph 26, has suggested that one way forward might be:-

“to provide for some procedure whereby the arbitrary and capricious exercise of power should be prevented by the court being told, in confidence by the relevant authority, whether or not an investigation is in progress and the general nature of that investigation, so that the court could form a view – a view as to the likely success of the applicant at trial in obtaining the relief he seeks or the Bank committing an offence if it makes the transfer without the relevant consent.”

I fear that I do not think it would be satisfactory or acceptable for SOCA to communicate privately to the court without the court being able to communicate to the claimant. That would not be open justice. Insofar as Judge Norris was concerned about arbitrary or capricious exercise of power by SOCA (or any other relevant authority) that can be catered for by judicial review. I did not understand Mr Mitchell to assert that SOCA (or any other authority) were not amenable to judicial review on ordinary principles. That is not a matter with which this court is concerned on this application. The only matter with which this court is presently dealing is whether the Bank had a suspicion that the money in its customer’s account was criminal property. But again for the Bank to communicate its suspicion to a judge in private would not be right either. Quite apart from the elementary principle of open justice, the court might be put in a position where its own view was that the Bank did not hold a suspicion (perhaps because it thought that any suspicion could not reasonably be held) but the SOCA took a contrary view. An expression of view by the court in the absence of SOCA could not bind them; it would also be a misuse of resources for them to have to instruct counsel in every case in order that they could be bound by the result. For all these reasons I do not think it right for the judge to be drawn into dealing with these matters in the absence of the claimant. It is quite unlike debates about privileged documents when the judge sometimes sees the documents and makes up his own mind whether privilege is rightly claimed. In such cases the litigation is well developed and the issues can be debated, at any rate in outline, with all parties present.

ECHR Convention

As far as Article 1 of the First Protocol is concerned, it must be doubtful whether a right to have a contract of mandate performed is the kind of possession which Article 1 contemplates will be peacefully enjoyed. It is not as if the debt constituted by the account with the Bank has been cancelled or otherwise done away with. All that has happened is that performance of the mandate contract has been deferred by a number of days (7 or 38 as the case may be). But in any event for the reasons I have attempted to give, any such interference with peaceful enjoyment as there may have been was in the public interest and subject to the conditions provided for in the 2002 Act. There is therefore no breach of Article 1 of the Protocol.

Conclusion

I agree.

I also agree.