Amalgamated Metal Trading Ltd. v City of London Police Financial Investigation Unit & Ors

The applications before the court have once again highlighted some of the practical problems faced by financial institutions in the light of the provisions dealing with money laundering and other offences introduced into the Criminal Justice Act 1988 Part VI by the Criminal Justice Act 1993 and the Proceeds of Crime Act 1995.

The Claimant, to which I will refer as “AMT,” is a ring dealing member of the London Metal Exchange. From about 1997 AMT provided metal trading services to the Second Defendant, a Dubai company to which I will refer as Wavesmetco.

Evidence before the court suggests that Wavesmetco is wholly beneficially owned and controlled by Mr Ravindra Rastogi. He himself so told Mr Latcham, AMT’s Managing Director, Trading, in the course of a telephone discussion on 28 March 2002. The Notes to the Accounts of Wavesmetco for the year ended 31 December 2001 prepared by independent auditors Messrs AGN MAK record that “ the management and control of the company is vested with (sic) Mr Ravindra Rastogi.” The same notes show that the share capital of Wavesmetco is owned as to 51% by an UAE national, Mr Abdul Rahman Mohammed Hassan and as to 49% by Mr Ravindra Rastogi. However yet further evidence before the court demonstrates that it is a requirement of the law of the United Arab Emirates that a majority of the shares in any limited liability company should be held by a citizen of the UAE, and that it is likely that Mr Hassan is merely a nominee with no direct interest in the management of the company or in its profits.

AMT has had concerns about the integrity of its customer Wavesmetco since at least April 2000. In particular amongst other matters there was concern about receipt of large sums of money from companies connected to Allied Deals Pty. Limited and RBG Resources PLC to which I will refer hereafter simply as “Allied Deals” and “RBG.” Allied Deals and RBG are groups of companies in which members of the Rastogi family have or had substantial interests. In particular Mr Virendra Rastogi, brother of Ravindra, was Chief Executive Officer of RBG, now in liquidation. A yet further brother Narendra was involved in Allied Deals. Both Virendra and Narendra Rastogi have as I understand it been arrested in the United States on suspicion of defrauding financial institutions. Ravindra Rastogi has been charged in India with offences involving substantial duty fraud against the Indian government. One of the earliest concerns of AMT concerned large margin calls being funded by Wavesmetco with money which had possibly been taken out of India.

The Allied Deals and RBG groups have collapsed with massive losses. Particulars of Claim served by the liquidators of RBG in an action brought against the former directors of that company, including Virendra Rastogi, allege that that came about as a result of a massive fraud. In brief summary, the fraud involved a worldwide network of bogus trading counterparties used to create bogus trades for the purpose of extracting funds from financiers. One of the counterparties identified by the liquidators is Wavesmetco. The benefit of the bogus deals, the receivables, was or were sold to the financiers in return for cash which was then misappropriated. Some US$440 million of receivables were sold/assigned in this way, of which, on the liquidators’ initial assessment, only US$40 million related to genuine trades.

So far as AMT were concerned, matters came to a head when PriceWaterhouse resigned as auditors of RBG in February 2002 and that fact was published to the London Metal Exchange in March of that year. That triggered questions to Wavesmetco from AMT about its current relationship with RBG and associated companies. AMT was not convinced as to the accuracy of the answer received. It may be that AMT would have been well advised to couch the question in terms not just of current but also past dealings with RBG. However that may be, the provisional liquidators’ investigations show that there has been very substantial trading or purported trading between RBG and Wavesmetco and in particular that between April 1999 and September 2000 RBG paid US$42 million to Wavesmetco. Documents unearthed by the liquidators evidence a mixing of funds from RBG to and between various counterparties, including Wavesmetco, which counterparties it is alleged were all involved in perpetrating or assisting in the fraud in respect of which the above-mentioned proceedings have been brought. It is the view of the liquidators that the trading funds or working capital of Wavesmetco are likely to be or to have been funds which can be traced back to RBG and the frauds alleged.

AMT having raised their suspicions with Wavesmetco, it was agreed between them that all remaining positions should be closed out. That was done on or about 17 May 2002 resulting in a credit balance in AMT’s books in favour of Wavesmetco in the sum of approximately US$450,000. The concerns of AMT were such that they sought the consent of the First Defendant, the City of London Police Financial Investigation Unit, to whom I shall refer hereafter as the “FIU” to their paying out this balance to Wavesmetco.

Without specifically mentioning it, AMT was seeking consent pursuant to s93 A (3)(b)(i) of the Criminal Justice Act 1988 as amended. s93 A provides :-

“ Money laundering and other offences

93A-(1) Subject to subsection (3) below, if a person enters into or is otherwise concerned in an arrangement whereby –

(a)

the retention or control by or on behalf of another (“A”) of A’s proceeds of criminal conduct is facilitated (whether by concealment, removal from the jurisdiction, transfer to nominees or otherwise); or

(b)

A’s proceeds of criminal conduct –

(i)

are used to secure that funds are placed at A’s disposal; or

(ii)

are used for A’s benefit to acquire property by way of investment,

knowing or suspecting that A is a person who is or has been engaged in criminal conduct or has benefited from criminal conduct, he is guilty of an offence.

(2)

In this section, references to any person’s proceeds of criminal conduct include a reference to any property which in whole or in part directly or indirectly represented in his hands his proceeds of criminal conduct.

(3)

Where a person discloses to a constable a suspicion or belief that any funds or investments are derived from or used in connection with criminal conduct or discloses to a constable any matter on which such a suspicion or belief is based –

(a)

the disclosure shall not be treated as a breach of any restriction upon the disclosure of information imposed by statute or otherwise; and

(b)

if he does any act in contravention of subsection (1) above and the disclosure relates to the arrangement concerned, he does not commit an offence under this section if –

(i)

the disclosure is made before he does the act concerned and the act is done with the consent of the constable; or

(ii)

the disclosure is made after he does the act, but is made on his initiative and as soon as it is reasonable for him to make it.

(4)

In proceedings against a person for an offence under this section, it is a defence to prove –

(a)

that he did not know or suspect that the arrangement related to any person’s proceeds of criminal conduct; or

(b)

that he did not know or suspect that by the arrangement the retention or control by or on behalf of A of any property was facilitated or, as the case may be, that by the arrangement any property was used, as mentioned in subsection (1) above; or

(c)

that –

(i)

he intended to disclose to a constable such a suspicion, belief or matter as is mentioned in subsection (3) above in relation to the arrangement; but

(ii)

there is reasonable excuse for his failure to make disclosure in accordance with subsection (3) (b) above.

(5)

In the case of a person who was in employment at the relevant time, subsections (3) and (4) above shall have effect in relation to disclosures, and intended disclosures, to the appropriate person in accordance with the procedure established by his employer for the making of such disclosures as they have effect in relation to disclosures, and intended disclosures, to a constable.

(6)

A person guilty of an offence under this section shall be liable –

(a)

on summary conviction, to imprisonment for a term not exceeding six months or a fine not exceeding the statutory maximum or to both; or

(b)

on conviction on indictment, to imprisonment for a term not exceeding fourteen years or a fine or to both.

(7)

In this Part of this Act “criminal conduct” means conduct which constitutes an offence to which this Part of this Act applies or would constitute such an offence if it had occurred in England and Wales or (as the case may be) Scotland. ”

I need not set out any further part of this group of sections. In particular I should emphasise that I am not, for obvious reasons, on the facts of this case, concerned with the “tipping off” provisions in s93 D of the Act as the FIU itself pointed out when responding to AMT declining to give its consent to the payment. The FIU said it had reasonable cause to believe that Wavesmetco had been involved in fraudulent actions with the RBG and Allied Deals Group companies.

The criminal investigation into the affairs of RBG is wide ranging, extensive, and in its early stages. The Serious Fraud Office, to which I will refer hereafter as the “SFO”, is working closely with the prosecuting authorities in the United States and with the provisional liquidators of RBG as well as with other investigating and prosecuting authorities elsewhere. The nature of that exercise, and the reasons why the SFO is concerned not to be required to take part in these proceedings, are set out in the following passages from a Witness Statement of Claire Louise Shaw, a Case Controller at the SFO:-

“ 6. The SFO is working closely with the prosecuting authorities in the United States of America and with the Provisional Liquidators of RBG, namely Malcolm Shierson and Kevin Mawer of Grant Thornton, as well as other investigating and prosecuting authorities elsewhere. The investigation will entail further substantial and extensive co-operation with overseas investigating and other authorities around the world. In order for such co-operation to exist, and in order for the SFO to obtain intelligence which can legally be used in the course of the investigation and which will result in admissible evidence at any subsequent trial, complex diplomatic protocols and procedures have to be followed.

7.

Some of the enquires are on a police to police basis and are intelligence led. Other assistance, requiring specific intervention by the appropriate judicial authority in the jurisdiction concerned is governed by a number of possible means. The model followed for co-operation between EU member states can be found in the European Convention on Mutual Assistance in Criminal Matters, 1959. Other mutual assistance is provided under the terms of the Criminal Justice (International Co-operation) Act 1990. Other assistance, usually with remoter jurisdictions, is often obtained by careful negotiation and diplomacy based on equal benefit to both authorities.

8.

Whichever route is pursued, it is a common factor that, as part of that co-operation, the Serious Fraud Office gives undertakings to those authorities that information divulged to the SFO will not be used for any purpose other than a criminal investigation and trial. There are therefore policy considerations to consider – if other jurisdictions thought that information obtained from them was being used for a purpose other than that for which it was provided, there is a real risk those authorities would be likely to be less forthcoming on future occasions.

9.

The SFO is very concerned not to do anything which would risk jeopardising actual or potential lines of enquiry. It is extremely difficult, and in some cases impossible, to be sure about whether disclosure of a particular matter would or might risk doing so. That is particularly so when the investigation is in its early stages. The disclosure of operational information to the Court in any hearing at which the Second Defendant is present or represented would potentially be extremely damaging and prejudicial to the SFO’s investigation, and indeed to investigations which are proceeding in other jurisdictions. As the Second Defendant is a company owned in no small part by one of the brothers of the main suspect in SFO’s enquiry, Virendra Rastogi, it is clear that there is a real risk of operational material finding its way to him.

10.

The SFO is concerned to complete its inquiry without delay. If the SFO were to be required to take part in these proceedings valuable time and resources would inevitably be taken up to the detriment of the efficient and effective progress of the criminal investigation. Each piece of material would need to be sifted and considered to see whether it was relevant, whether it could properly be disclosed and if so on what basis. ”

I should also record that Claire Louise Shaw makes the point that the SFO makes no claim to the funds or debt the subject of the action and that it could not at this stage seek to restrain them. She continues “ The SFO makes no positive case at this stage as to whether the obvious suspicion dealt with in DS Reeman’s statement is or is not fact.” DS Reeman is the officer from the FIU from whose Witness Statement I have taken most of the information which I have summarised above as to the source of the liquidators’ suspicions regarding RBG and Wavesmetco. DS Reeman has in turn relied heavily upon the information supplied to him by the liquidators.

On 31 May 2002 AMT launched this action by issuing a Claim Form which at that stage named only the FIU as the sole Defendant to the action. The relief claimed in the action was “a declaration that the sum of US$453,110.20 held by the Claimant is not the proceeds of criminal conduct.” I read that as an invitation to the court finally to determine, at trial, as between the parties to the action, that the credit balance is not the proceeds of criminal conduct. However on the same day AMT issued an Application Notice giving notice of their intention to apply, pursuant to CPR 25.2(1)(b) for an “interim declaration that the sum of US$453,110.20 held by the Claimant is not the proceeds of criminal conduct.” That application was supported by a Witness Statement from AMT’s Head of Compliance which stated: -

“ I can confirm that there are no facts within my knowledge that cause me to believe or suspect that the credit balance being held by AMT on behalf of Wavesmetco are the proceeds of crime.”

It is right to point out that that Witness Statement preceded service by the FIU of the Witness Statement of DS Reeman to which I have already referred. Presumably the intended reference in AMT’s Application Notice was to CPR 25.1(1)(b) which provides: -

“The court may grant the following interim remedies – .…

an interim declaration.”

It used to be the case that “interim declaratory relief is unknown to English law, and consequently the court has no jurisdiction to grant an interim declaratory order” – see the decision of the Court of Appeal in Riverside Mental NHS Trust v. Fox 1994 1 FLR 614. It remains to be worked out what are the circumstances in which it might be appropriate to resort to this new jurisdiction. For my part I find it difficult to conceive that the court would ever be prepared to grant an “ interim declaration” of the type here sought. Either the relevant sum is the proceeds of crime or it is not. Whilst the question could only be decided as between the parties before the court, and on the basis of such evidence as they chose to place before it, the court would surely only be prepared to pronounce upon the question, if at all, on a final basis, not upon the basis that whatever is the position today may by further or different evidence tomorrow be shown to be different.

The application for an interim declaration came before the Vacation Judge, Ouseley J, on 7 June 2002. Unsurprisingly, as I think, he rejected it. He pointed out that “it is not enough in order to persuade a court to exercise its discretionary jurisdiction for AMT to say that it has no evidence to the effect that Wavesmetco has been engaged in criminal conduct and to contend that the suspicions of the police have not yet ripened into firm evidence. The absence of criminality must be proved by positive evidence, rather than by the absence of evidence from Wavesmetco dealing with obvious suspicions being used alone to justify an assertion that criminality has been disproved.” However Ouseley J was also concerned that the court should, so far as possible, afford to AMT some degree of pragmatic protection. He pointed out that one possible course of action was simply to dismiss the proceedings and leave Wavesmetco to sue AMT. On balance he concluded that the interests of justice and the affording of protection to AMT were best served and achieved by allowing the proceedings to continue and by permitting Wavesmetco to be joined as a Second Defendant. Accordingly although there were strictly speaking no relevant applications before him he granted permission both for the joinder of Wavesmetco and for service upon it out of the jurisdiction. Finally Ouseley J indicated his own view that the issue was going to have to be tried, by which he meant I think determined at trial rather than on an interlocutory application. He also observed that he for his part would decline to grant the declaration sought without a very clear explanation from directors from Wavesmetco as to the source of their funds, in the absence of which an order for cross examination of the directors or a stay of the proceedings might be ordered. Plainly, Ouseley J did not envisage that the court would be prepared to exercise its discretionary jurisdiction simply upon the basis of an absence of evidence proving that the money is the proceeds of criminal conduct. With that approach I respectfully agree.

Wavesmetco was duly joined and Particulars of Claim served. The Particulars of Claim seek the same declaratory relief as in the Claim Form together with a declaration that the Claimant, i.e. AMT is entitled to deduct its reasonable costs and expenses from the credit balance.

Wavesmetco, on being joined, issued an application that the City Police provide full particulars of its suspicion or belief that the US$450,000 was the proceeds of crime, and that the money be paid into court. This was supported by a Witness Statement from Wavesmetco’s solicitor. Since the solicitor’s source of knowledge was said to be his conduct of “this dispute” on Wavesmetco’s behalf, rather than information supplied by any natural person it is not surprising that his Witness Statement contains argument but little if any evidence, at any rate none that takes matters forward.

On 10 September 2002 Mr Abdul Rahman Ahmed Mohammed Hassan made a Witness Statement. I have already referred at paragraph 3 above to his likely role and status in relation to Wavesmetco. In his Witness Statement he says that he is a major shareholder and partner in Wavesmetco. He says that “ the facts and matters which I set out [in] this Witness Statement are derived from my work at Wavesmetco” although he does not say what that work is. I cannot give any very substantial weight to this evidence but in any event Mr Hassan gives no adequate explanation as to the source of Wavesmetco’s working capital used to fund the trading through AMT.

On 18 September 2002 the matter came back before Andrew Smith J on Wavesmetco’s application for provision of particulars and payment in. On being told by FIU that the investigation had been taken over by the SFO and at the suggestion of both AMT and FIU he stayed the proceedings against the City Police and ordered the joinder of the SFO in their place. The judge was not told that the SFO had been given no notice of either the hearing or the suggestion that they should be joined. Andrew Smith J also set out a future timetable as follows: (a) AMT was to serve on the SFO and Wavesmetco within 14 days a schedule of sums received by AMT from Wavesmetco; (b) within 28 days of the service of that schedule Wavesmetco and the SFO were to set out particulars of their cases as to the source of the funds and any facts relied on by the SFO in support of the allegation that the funds were the proceeds of crime, beyond those set out in a letter of 6 June 2002 from Messrs Lovells acting for the provisional liquidators of RBG; (c) Messrs Lovells were to be informed of the order and told that the SFO had leave to include in their particulars any observations which RBG wished to draw to the attention of the court. Finally, Andrew Smith J directed that the application was to be restored before the Commercial Court for further directions on the first available date after 4 November 2002, if possible to be listed before himself.

AMT provided a schedule setting out receipts from and payments to Wavesmetco.

On 3 November 2002 Mr Hassan made a second Witness Statement in which he states: -

“ To the best of my knowledge and belief, the sums paid into the accounts by Westmetco (as described above) are NOT the source of criminal conduct. All such sums were remitted out of our trading proceeds which is part of our working capital. To the best of my knowledge our trading proceeds and working capital are entirely legitimate and are not at all the proceeds of criminal conduct.

Unless someone puts forward a positive case identifying the alleged crime and the funds said to be generated by that crime, it is difficult for me to be more specific.”

Again, no proper source of knowledge and belief is put forward, nor is any evidence as to the actual source of Wavesmetco’s working capital.

On 23 December 2002 the SFO, rather than comply with the order of Andrew Smith J made in their absence, issued an application seeking an order that the proceedings against them be stayed. As Mr Eadie put it on their behalf, in reliance in part upon the Witness Statement of Claire Shaw, the SFO have carefully considered whether they are in any position to add to the information currently before the court, including in particular the information and material in and exhibited to the statement of DS Reeman, and the latest information from the liquidator of RBG, represented by Messrs Lovells, which was provided on 10 January 2003. They have concluded that they are not. The reference to the further material from the liquidator is to a further report from Mr Mawer, one of the joint liquidators, dated 10 January 2003. That was circulated to all parties in advance of the hearing which took place before me on Thursday 16 January 2003.

The hearing before me was the restored hearing for directions, to which was added the application of the SFO for the proceedings against them to be stayed. However Mr Eadie for the SFO also suggested that the proper course was in any event that the proceedings, however cast, should be stayed in their entirety pending the outcome of any criminal prosecution or of the civil proceedings brought by the liquidators of RBG.

Mr Downes, for AMT, was neutral on the SFO’s application that the proceedings as against them should be stayed and neutral as regards the suggestion that the entire proceedings should be stayed. He submitted that it would be unfair should the court simply dismiss the proceedings as misconceived, as I indicated I was considering, since he suggested that the court had already gone down the road of giving directions which were aimed towards allowing the action to proceed to a final trial. He emphasised however that AMT was no longer pursuing its claim for interim declaratory relief. It was also his position that AMT, who had nothing to say on the issue whether the money is the proceeds of crime, would “ welcome a direction that it be permitted to take no further part in the proceedings until after the issue of whether the balance represents the proceeds of crime has been determined.” He also added that “the Claimant would expect its costs to be paid by the losing party.”

Mr Swaroop for Wavesmetco, although he had no application before the court, asked for a final declaration that the monies do not represent the proceeds of crime. He pointed out that that is an order sought by two of the parties before the court, the Claimant and Second Defendants. He also suggested that the FIU and/or the SFO should pay Wavesmetco’s costs of the action on the ground that they had acted unreasonably. In the alternative he submitted that it would be unsatisfactory to stay the action and he sought leave to serve a Defence and Counterclaim, a draft of which was placed before the court.

The suggestion that the FIU should pay the costs of the action caused them also to be represented before me, notwithstanding the action against them stood stayed.

Finally the liquidators of RBG also attended by Counsel as a matter of courtesy to the court in case further assistance might be provided. I am grateful to them for the very considerable assistance which they have given to the court.

Naturally I understand the dilemma in which AMT, a reputable financial institution has found itself. It is axiomatic that the court will do everything which it properly can to assist. With the best will in the world however I cannot regard as appropriate the course which AMT has adopted, and I do not consider that it has been sanctioned by the decision of the Court of Appeal in Bank of Scotland v. A Ltd 2001 1 WLR 751. That was a case concerned with the tipping off provisions. The dilemma which the bank there faced, anticipating as it did the proceedings which could be expected if it refused to honour the instructions of its customer, was as to the extent of the information upon which it could properly rely. It is true that at p.766 Lord Woolf CJ spoke of cases where there is a dispute as to whether a payment can be made or disclosure made by the bank as being those which could be the subject of an application for interim declaratory relief in the way the court had earlier suggested. But the earlier discussion, at paragraph 40 at p.765, in fact related only to a declaration setting out upon what information it would be proper for the bank to rely. Moreover it was stressed that “the life of the interim declaration would probably be short since in the majority of cases it would only be necessary to conceal the existence of the investigations for a fairly limited period.” Furthermore Lord Woolf continued: “The issue as to what information could be disclosed having been resolved, the bank could then decide what course it wished to adopt.” (Emphasis supplied.) In paragraph 43 of his judgment, at p.766 Lord Woolf observed: “If proceedings are brought by a customer of the bank, the bank will have to take a commercial decision as to whether to contest the proceedings or not.” Finally, I note that at paragraph 46 of his judgment, p.768, Lord Woolf said this: -

“ The “tipping-off” legislation which was the source of the problem with which this appeals deals, gave extensive powers to the Police. Properly used they were beneficial. Misused they could create unintended consequences. It is of the greatest importance that use of those powers is confined to situations where it is appropriate. Institutions such as banks need to be able to ensure that they are not affected adversely unnecessarily because of the existence of the Police’s powers. The ability of the court to grant interim advisory declarations achieves this purpose. The fact that the courts now have these powers, must not, however, be regarded as a substitute for financial institutions taking the decisions which should be their commercial responsibility. The court’s powers are discretionary and only to be used where there is a real dilemma which requires their intervention. 47. The use of the court’s power to grant interim declarations in proceedings involving the SFO will protect a bank from criminal proceedings but it will not automatically provide protection for the bank against actions by customers or third parties.”

When read as a whole, rather than focusing on individual passages without regard to the context, I do not detect in Lord Woolf’s judgment in the Bank of Scotland case any support for the approach which AMT has here adopted. On the contrary, in a case like this where tipping-off was never an issue, it is implicit in what Lord Woolf said that a bank or other financial institution will have to take a commercial decision as to whether to contest proceedings if they are brought.

The essential futility of AMT’s proceedings is underscored by the position which it has now adopted. These are proceedings in which AMT seeks declaratory relief, yet it seeks to drop out of the proceedings, unprepared to place before the court material upon the basis of which the court might be able to consider granting the relief claimed. Furthermore AMT no longer seeks interim relief. Once the pursuit of interim relief against the police is out of the picture, it is axiomatic that the proceedings as originally constituted against the police alone can have no further purpose. They can be saved only by joinder of other parties. That does not mean that they were not misconceived when launched.

As to that, it was never in my judgment appropriate for AMT to seek as against the police a declaration that the monies are not the proceeds of criminal conduct. It was never an issue between those parties whether the monies were such proceeds, and there was and is no occasion for the creation of a lis between them directed to determination of that point. The only question which the police (“the constable” in the language of the statute) were asked was whether they consented to the payment being made. Had they given their consent, AMT would have a defence under s93A. The Act is however silent as to the basis upon which consent is to be given or refused. The provision would manifestly be unworkable if the constable could only justify the withholding of consent if he could demonstrate his satisfaction, to whatever might be the appropriate standard, that the funds are in fact derived from or used in connection with criminal conduct. It seems clear from the section as a whole that the existence of a suspicion is sufficient to ground a proper refusal of consent. It is important to note that there has here been no public law challenge to the propriety of the exercise by the constable of his discretion. It would surely be odd if a legitimate withholding of consent which can be justified on grounds of suspicion were to lead to the situation in which the police must defend (and perhaps pay the costs of) proceedings directed towards determination of a question wholly different from that which they were asked, viz the ultimate question whether the funds are in fact derived from or used in criminal conduct. I cannot think that either Parliament or the Court of Appeal envisaged that this would be the procedure to be followed consequent upon a proper withholding of consent. Such a procedure places an undue and inappropriate burden upon the police, effectively requiring them to litigate at public expense what are in truth private disputes between financial institutions and their customers. The arising of such disputes is one of the ordinary commercial risks which any financial institution faces. I also think it most unlikely that the Court of Appeal can have had in mind that the court would in such circumstances grant interim declaratory relief on the ultimate substantive question whether the funds are derived from criminal conduct. Such a question only permits of a final answer, not a temporary answer, and it is only appropriate to answer it as and when it arises, and then as between the parties between whom it arises. Then it is decided, if it is necessary so to do, upon the basis of such evidence as the parties place before the court, and having regard to the incidence of the burden of proof. Finally the granting of declaratory relief on this ultimate question as against the police whether on an interim or a final basis could prejudice future criminal prosecutions.

For all these reasons therefore the action against the SFO must in my judgment be stayed. It fulfils no useful or legitimate purpose.

It is plain to me from the transcript of the proceedings before Andrew Smith J that he like me had difficulty in seeing how the court could conduct a trial in order to resolve whether AMT should have the declaration which it seeks – see for example the discussion at p.46 AB, a difficulty which is magnified by the suggestion now made by AMT that they themselves have no desire to be involved in such a trial. As the FIU was able to point out that it was no longer involved in the investigation Andrew Smith J did not have the benefit of submissions of the sort which have been placed before me by Mr Eadie for the SFO. By the time the matter came before Andrew Smith J Wavesmetco was before the court, seeking interlocutory orders, although seeking no relief in the action. Andrew Smith J conducted essentially a holding exercise to discover how precisely the battle lines were drawn before giving further directions. As Mr Downes aptly put it, he ordered the next round of pleadings.

The situation is now however transformed by Wavesmetco’s application to introduce a counterclaim seeking payment of the money by AMT. If I grant permission for that counterclaim to be introduced then at last issue will be joined between the two parties in contention. As matters stand AMT is simply seeking declaratory relief against Wavesmetco which Wavesmetco has no interest in opposing. Indeed, for obvious reasons it supports the granting of such relief. Mr Downes did not resist the application to introduce the counterclaim, although he would wish to address me further on the steps which AMT may wish to take before serving a Defence to Counterclaim. Accordingly I grant permission to Wavesmetco to serve a Defence and Counterclaim substantially in the form of a draft which was placed before the court. It seems to me that that in fact renders wholly redundant AMT’s claim and indeed its Particulars of Claim save insofar as they contain an admitted recital of events. If asked to do so, I would consider permitting AMT to withdraw its claim entirely, directing that henceforth Wavesmetco shall be the Claimant in this action and AMT the sole Defendant. If there is any procedural advantage in being Defendant rather than Claimant, it should be enjoyed by AMT rather than by Wavesmetco. The natural order should be restored.

I should indicate, insofar as it is not already apparent, that I reject as wholly inappropriate Wavesmetco’s suggestion that I should now make a final declaration to the effect that the monies are not the proceeds of criminal conduct. For the reasons I have already given that is an order of a type which the court could only consider making after trial of the issue. Furthermore Wavesmetco has done nothing whatever to rebut the inferences which can be drawn from the material placed before the court by the liquidators. If anything, its conspicuous failure to grapple with the issues has made the inferences more compelling. In any event the issue now is not whether there should be made a declaration that the monies are not the proceeds of criminal conduct but rather whether Wavesmetco has an enforceable claim to payment by AMT. In that regard I would merely remind Wavesmetco of Lord Woolf’s observations at paragraph 14 of his judgment in the Bank of Scotland case. He there observed:-

“ The commencement of proceedings [against the bank] would no doubt be closely followed by an application for summary judgment under rule 24.2. Under rule 24.2, the court will only give judgment to a claimant if the bank has no real prospect of successfully defending the claim or issue and there is no other compelling reason why the case or issue should be disposed of at a trial. Where the circumstances are as suspicious as they were in this case they could well provide very good reason for the court not being prepared to grant summary judgment.”

As I have indicated above I am not unsympathetic to the dilemma in which AMT finds itself. I recognise that financial institutions do not wish to have judgments entered against them. There are also increasing regulatory constraints upon their action. However there will be circumstances, as envisaged by the Court of Appeal in the Bank of Scotland case, in which the court simply cannot assist, and the bank will have to take a commercial decision whether to contest proceedings or not. It is to my mind inconceivable that there could be criminal proceedings brought under s93A against a bank or other financial institution which has taken such steps as are reasonable in all the circumstances to resist proceedings but has nonetheless been ordered by the court to pay over money which subsequently is proved to be the proceeds of criminal conduct. Consultation and liaison with the police is obviously always prudent. Every case will depend upon its own facts, but I cannot think that the court will require financial institutions to run defences which in the view of their responsible legal advisers are unsustainable on the basis of the evidence reasonably available to them.

In the course of the argument I was told by Mr Downes that in two cases, both heard in private, Commercial Court judges had made “show cause” orders against the police which had ultimately resulted in payment being made to the customer. The first of those two cases undoubtedly involved a “tipping off” issue – as Mr Downes pointed out a refusal to comply with a customer’s instruction may itself tip off the customer as to the existence of an investigation. I was myself the judge in the second case. I suspect that it too involved a tipping off problem, which is no doubt why it was held in private. Cases such as these raise considerations different from those which obtain in this case.