B e f o r e :
THE HON. MR JUSTICE SUPPERSTONE
|| JAYESH SHAH
||- and -
||HSBC PRIVATE BANK (UK) LIMITED
Paul Downes QC and Joseph Sullivan
(instructed by Messrs Edwards Wildman Palmer UK LLP) for the Claimants
Richard Lissack QC and Nicholas Medcroft
(instructed by Messrs Berwin Leighton Paisner) for the Defendant
Hearing dates: 29 November-21 December 2011, 9-20 January,
6 & 7 February, 1 & 2 March 2012
HTML VERSION OF JUDGMENT
Crown Copyright ©
Mr Justice Supperstone :
- Mr and Mrs Shah, the Claimants, were account holders with the Defendant bank in London since 2002. The Defendant is the UK private banking arm of the HSBC Group. In these proceedings the Claimants claim damages in a sum in excess of US$300,000,000 arising out of delays by the Defendant in executing four transfers from the Claimants' account during the period September 2006 to March 2007 and the Defendant's failure to explain the reasons for such delays.
- Mr Shah conducts business in various countries mainly in central Africa. Since 1992 this has included doing business in Zimbabwe, the country in which he has been based for the duration of the events to which this claim relates. He owns two entities known as "Private Business Corporations" in Zimbabwe: Al Shams and Al Shams Global LLC. He also owns a BVI company called Al Shams Global Limited. He was the sole owner of all these entities.
- In July 2006 Mr Shah transferred a sum of about US$28,000,000 to the Defendant from an account he held with Crèdit Agricole Indosuez (Suisse) SA ("Crèdit Agricole"/"CAI") in Geneva. He explained to his account manager at the Defendant bank, Ms Shah (no relation), that he needed to do this because somebody was attempting to gain access to his correspondence from Crèdit Agricole, probably with a view to accessing his account and making unauthorised withdrawals from it. He told her there would only be a short time before he would wish to transfer the sum back to Crèdit Agricole. He agreed with Ms Shah that the money was to be held by the Defendant for a month and subsequently on a monthly rolling deposit. The first deposit matured on 21 August 2006 and was rolled over for a further month until 21 September 2006. In late August Mr Shah indicated that he wanted to return the money to Crèdit Agricole and enquired when he would be able to do so. On 20 September Ms Shah asked him to leave the money with the bank but Mr Shah replied that that would not be possible. He instructed the Defendant bank to remit the deposit back to Crèdit Agricole (together with the interest which had accrued) and he gave a further instruction to the Defendant to make a payment of US$850 from the same account. The Defendant accepted his instructions in relation to the smaller sum but on 21 September 2006 the Defendant bank informed Mr Shah that it could not effect the larger transaction because it was "complying with its UK statutory obligations".
- In fact the reason why the transfer was not made was because the Defendant suspected that the funds in Mr Shah's account were criminal property. The Defendant made a Suspicious Activity Report (sometimes called a "SAR") disclosing to the Serious Organised Crime Agency ("SOCA") that it suspected the money was criminal property and asking for permission to perform the transaction. Consent was given on 2 October 2006 and the transaction was carried out on 3 October 2006.
- Before that happened on 26 September 2006 Mr Shah gave another instruction to the Defendant to transfer the sum of US$7,282.50 to Mr Kabra, a former employee of his in Zimbabwe, to whom he owed that amount. The Defendant again declined to comply with his instructions, informing him that it was "complying with its statutory obligations". The Defendant had in fact made a further disclosure to SOCA and asked for consent to comply with Mr Shah's instructions. When Mr Shah failed to pay him the money he was owed Mr Kabra threatened to sell some of Mr Shah's goods of which he had custody. Mr Kabra also reported Mr Shah to the Zimbabwean police and told them that Mr Shah was suspected of money laundering. On 29 September 2006 Mr Shah cancelled his instruction to the Defendant with regard to this second sum, before any permission to perform it had been granted.
- On 5 October 2006 the Zimbabwean police served Mr Shah with a search warrant and conducted searches at his office and home.
- By the end of October Mr Shah was becoming increasingly concerned that the suspicions that had been aroused by the Defendant's actions in London would cause him permanent harm in Zimbabwe. On 1 November 2006 the Reserve Bank of Zimbabwe ("RBZ") asked him to explain what investigations into his affairs were being conducted. On the next day he met Ms Shah and Mr Roger Johnson, the head of the Defendant's Africa department. Mr Shah said that Mr Johnson told him that there had been investigations into his affairs but they were now at an end and that he would provide details of them on receipt of a request by a firm of UK solicitors (see B8/3008-3017 and para 204 below). Mr Shah was permitted to withdraw £680 in cash.
- On 4 November 2006 Mr Shah expressed his dissatisfaction with the Defendant bank and in particular with Mr Johnson personally. He stated:
"I am now of the firm view that it would be very difficult for me to deal with you henceforth whereas I have no complaints against Matt Stockwell or Kalpana Shah. Hope you will finally refer my account and my matter to somebody else now at your bank… Seeing that I have only expressed my displeasure to deal with you individually and having no confidence in your ability to answer my queries I am of the firm hope that you will now hand my account to somebody at your level or higher to deal with my account."
The Claimants suggest that this e-mail appears to have triggered a decision to close Mr Shah's account. Mr Johnson responded to Mr Shah by e-mail dated 10 November 2006 giving Mr Shah notice that his accounts with the Defendant would be closed when his fixed deposit matured on 26 December 2006. This date was later extended to 28 February 2007.
- Meanwhile the Metropolitan Police had become interested in Mr Shah's affairs and on 7 December 2006 had obtained an order requiring HSBC to produce information about Mr Shah's account.
- On 31 January 2007 Zimbabwe's anti-money laundering authority asked Mr Shah to explain why his account at the Defendant's bank had been frozen but he says he was unable to give any satisfactory answer.
- On 2 February 2007 Mr Shah asked the Defendant to transfer the sum of US$1,440 from his account in Geneva to another person to whom he owed money and the bank did so.
- When however on 6 February 2007 Mr Shah instructed the Defendant to transfer on the following day the sum of US$8,904,910.65 to his account with Crèdit Agricole in Geneva, the Defendant declined to do so, made another disclosure to SOCA and told Mr Shah that "statutory obligations" prevented compliance with his instructions. On 14 February 2007 SOCA gave permission for this transfer to Crèdit Agricole and it was effected on 15 February 2007.
- On 28 February 2007 Mr Shah instructed the Defendant to transfer the amount remaining in his account of £457,956.66 to Crèdit Agricole. The bank declined to do so, making a fourth disclosure to SOCA on that day. SOCA gave permission on 2 March 2007 and the transaction was effected on 5 March 2007.
- The overall position in relation to the four transactions which the Defendant bank had declined to effect until consent had been obtained is agreed to be as follows:
|Date of payment instruction
||Amount to be transferred
||Date of authorised disclosure (SAR)
||Date of consent
||Date transfer effected
|20th September 06
||21st September 06
||2nd October 06
||3rd October 06
|26th September 06
||28th September 06
||Not applicable (payment instructions were cancelled on 29th September 06)
|6th February 07
||7th February 07
||14th February 07
||15th February 07
|28th February 07
||28th February 07
||2nd March 07
||5th March 07
- On 19 March 2007 Mr Shah's solicitors asked the Defendant for an explanation of the investigations that had taken place but the Defendant declined to provide any information.
- On 12 June 2007 SOCA informed Mr Shah's solicitors that "SOCA has not been, and is not now, conducting a criminal investigation into your clients" (C5/1666, see para 190 below). Although his solicitors had asked the Defendant bank on 25 May 2007 to disclose details of the communications with SOCA, the Defendant still declined to reveal any details to Mr Shah; apparently, however, the bank did send to RBZ certain documents relating to Mr Shah's account.
- Mr Shah alleges that as a result of what Mr Kabra, his ex-employee, told the Zimbabwean authorities they themselves became suspicious. Because he was unable to give an explanation of the investigations that had been made into his affairs, the Zimbabwean authorities unilaterally moved his investments from their then current high-yield to low-yielding treasury bonds. First, they froze and then seized his investments (held through certain private companies) causing him losses of over US$300,000,000.
- Mr Shah denies any involvement in money laundering. He said, "I wish to state at the outset that I have not been, am not, and will never be involved in money laundering. I am not under investigation in the UK for money laundering and apart from the actions of HSBC would not be under any suspicion or investigation in Zimbabwe for money laundering". (First witness statement, para 2b at B2/508).
- Whilst the Claimants' Particulars of Claim advance a case on four payment instructions, it is clear that the first two are the most important; and the second was the main cause of the Claimants' loss. There was no independent suspicion in respect of the funds comprising either the third or fourth transactions. Mr Wigley, the Defendant's nominated officer (see para 65 below) said that the delays in payment and reports to SOCA in respect of both payment instructions resulted solely from the fact that the first two SARs had been made (Day 23/155-156).
- In reaching my conclusions I have had the benefit of hearing the oral evidence of witnesses and considering the opening and very detailed closing written submissions of Mr Paul Downes QC and Mr Joseph Sullivan, for the Claimants and Mr Richard Lissack QC and Mr Nicholas Medcroft, for the Defendant, for which I am grateful. In addition I have considered the closing written submissions of Mr Shah.
- The Claimants put their claims on two bases: first, that the Defendant was in breach of contract in failing to process their payment instructions; second, that the Defendant was in breach of contract in failing to provide them with information as to the facts that had caused it to fail to effect the first and second transactions, documentary evidence of the same, the name of the authority to which the Claimants had been reported and any reference numbers and dates of reports.
- As to the first basis of claim the Defendant admits that ordinarily it would be obliged to process payment instructions provided by the Claimants and that therefore that failure to do so would ordinarily amount to a breach of contract. However it defends this part of the claim on the ground that it was excused from processing the payment instructions because there was an implied term of the contract between the parties that it was entitled to refuse to process instructions in the absence of consent under the Proceeds of Crime Act 2002 ("POCA"), section 335 if it or its agent, suspected that the transactions constituted money laundering. As to the second basis of the claim, the Defendant denies that the Claimants have any right to disclosure of its dealings with SOCA or any other authority or the grounds on which it made authorised disclosures. Further or alternatively it argues that there was an implied term of the contract between the parties which permitted the Defendant and/or its servants or agents to refuse to provide information to the Claimants when to do so might break a legal or other duty, including sections 333 or 342 POCA.
- At the outset of the hearing the parties helpfully submitted a list of agreed issues. They are as follows:
"1. Did the bank suspect that the proposed First Transaction constituted money laundering (i.e. that the funds in the Claimants' account at that time constituted or represented a person's benefit from criminal conduct (in whole or in part, and whether directly or indirectly)?
2. Did the bank suspect that the proposed Second Transaction constituted money laundering?
3. Did the bank suspect that the proposed Third Transaction constituted money laundering?
4. Did the bank suspect that the proposed Fourth Transaction constituted money laundering?
5. Did the bank's delay in executing any of the payment instructions cause any loss either:
a. in fact? or
b. at law?
6. If the answers to 5(a) and 5(b) are both 'yes', are the Claimants entitled to recover such losses?
7. Was the bank (absent the POCA regime) under a duty to inform the Claimants of the details of any reports it made to SOCA (or any other authority) and/or the reasons for making the reports?
8. If so:
a. was it obliged/entitled under s.333 and/or s.342 POCA to withhold such information?
b. if so, until when?
c. was it obliged/entitled by some other factor to withhold such information?
d. if so, until when?
9. If the bank's refusal to provide such information was at any stage in breach of its duty towards the Claimants, did such breach cause any loss either:
a. in fact?
b. in law?
10. If the answers to 9(a) and 9(b) are both 'yes', are the Claimants entitled to recover the losses claimed?"
- Issues 1-6 relate to the Defendant's delays in executing the payment instructions. Issues 7-10 relate to the Defendant's refusal to provide the Claimants with the details of the reports they made to the SOCA.
- These issues, as I have noted, were presented to the court as agreed issues at the outset of the case. However in his closing submissions Mr Downes observed that "at the heart of the case lies a question of public policy: where an innocent customer suffers loss as a result of a failure by a bank to make a payment instruction: who bears the loss?" (Para 237; and also see paras 238-244). Mr Downes suggested that there were three issues: (a) Which party should bear the losses caused by the bank's compliance with the POCA regime? (b) If (which obviously the Claimants deny) the customer should bear the loss, should this apply in every case, even where the bank is at fault in some way? (c) If the bank is to escape liability based on a suspicion, should it not be a suspicion generated within the bank itself, as opposed to some other corporate entity with which the customer never chose to treat?" (Para 245). With respect to Mr Downes I do not find this formulation helpful. In addition Mr Downes offered what he described as "a more detailed agenda for the resolution of the case" and listed 28 issues. He said that the "agreed issues" are far too broad, and that all he has done in his closing written submissions is to break down those issues in more detail (Day 26/14). I consider there is no reason to depart from the list of "agreed issues" and I will proceed on that basis.
The legal framework
(A) The Proceeds of Crime Act 2002
- The relevant statutory provisions are contained in Part 7 of POCA. The summary I set out below is drawn from two earlier decisions of the Court of Appeal in this case; first, the judgment of Longmore LJ ( EWCA Civ 31 at paras 11-16), adopting the analysis of Hamblen J below; and second, the judgment of Lewison LJ ( EWCA Civ 1154 at paras 2-6):
- Section 327 creates offences of 'concealing, disguising, converting, transferring or removing criminal property from the jurisdiction'. Section 328 creates an offence of entering into or becoming concerned in an arrangement which the defendant knows or suspects facilitates by whatever means the acquisition, retention, use or control of criminal property by or on behalf of another person. Section 329 creates an offence of 'acquiring, using or possessing criminal property'. Together, these three offences are known as the principal money laundering offences.
- 'Criminal property' is defined in part in terms of a person's mens rea. Under section 340(3), property is criminal property if it constitutes a person's benefit from criminal conduct or it represents such a benefit (in whole or in part and whether directly or indirectly) and the alleged offender knows or suspects that it constitutes or represents such a benefit.
- A person does not commit any offence under the principal money laundering offences if he has made a disclosure to the relevant authorities under section 338 and has appropriate consent. So far as it is relevant, under s.338 an 'authorised disclosure' is defined as follows:
"(1) For the purposes of this Part a disclosure is authorised if—
(a) it is a disclosure to a constable, a customs officer or a nominated officer by the alleged offender that property is criminal property, and
(c) the first, second or third condition set out below is satisfied.
(2) The first condition is that the disclosure is made before the alleged offender does the prohibited act.
- A "nominated officer" is, in effect, a person nominated and employed by the bank to receive disclosures under POCA (s.335(9); s.336(11); s.337(5); s.338(5)). In practice this means the bank's Money Laundering Reporting Officer. Thus POCA envisages that a bank employee will not commit a money laundering offence if he or she discloses his or her suspicions internally within the bank.
- Under section 335(1) 'appropriate consent' is defined as the consent of a nominated officer to do a prohibited act if an authorised disclosure is made to the nominated officer. A person who makes an authorised disclosure, and who is not given notice of refusal within a 7 working day notice period, or, having received such notice, does not receive before the end of the 31 day moratorium period notice of an order freezing the account, is bound to act in accordance with the customer's instructions (see sections 335(2)-(6)). Conversely, if notice of refusal is given within a 7-day working period, then the customer's instructions may not be implemented until consent is given or, if consent is not given, until the end of the 31-day moratorium period.
- Section 333 creates an offence of 'tipping off'. A person commits an offence if he knows or suspects that an authorised or protected disclosure has been made and he makes a disclosure which is likely to prejudice any investigation which might be conducted following the original disclosure to the authorities (section 333 is the section which applied at the material time although it has since been repealed and replaced by sections 333A to 333E). In addition, section 342 creates an offence of 'prejudicing an investigation'. A person commits an offence if he knows or suspects that a money laundering investigation is being, or is about to be conducted and he makes a disclosure which is likely to prejudice the investigation.
- Sections 330 and 331 create two offences that apply to persons employed in "the regulated sector" (which includes banking).
- Section 330 applies to all bank employees. If a banker "knows or suspects or has reasonable grounds for knowing or suspecting, that another person is engaged in money laundering" where such knowledge came to him in the course of his business then he commits an offence if he does not make the required disclosure. The required disclosure is disclosure either to the bank's own nominated officer, or to SOCA. Section 331 applies to nominated officers only. If, in consequence of a disclosure made to him under s.330 (i.e. by a bank employee) a nominated officer knows or suspects or has reasonable grounds to suspect that another person is engaged in money laundering, he commits an offence if he does not make the required disclosure to SOCA. As Lewison LJ observed: "It is plain therefore that POCA envisages that bank employees will report their suspicions internally to the nominated officer; and that, based on what he has been told, the nominated officer may or may not form his own suspicion. If he does, it is he who will disclose his suspicion to SOCA". (Para 6).
- Each of the non-reporting offences carries a maximum sentence of five years' imprisonment on indictment.
- The Home Office has issued Circular 029/2008 which provides guidance on the operation of the consent regime. Paragraph 4 of the Circular states:
"The 'consent' provisions in sections 327-329 and section 335 POCA have two purposes: they offer law enforcement agencies an opportunity to gather intelligence or intervene in advance of potentially suspicious activity taking place; and they allow individuals and institutions who make reports seeking consent to proceed with a 'prohibited act' the opportunity to avoid liability in relation to the principal money laundering offences in the Act."
(B) The effect of POCA on the relationship between banker and customer
- Banks are at risk of criminal prosecution if they entertain suspicions but do not report them or, if they report them, and then nevertheless carry out the customer's instructions without authorisation. In Squirrell Ltd v National Westminster Bank plc  1 WLR 637 Laddie J observed, with regard to the consent regime, that
"…the combined effect of these provisions is to force a party in NatWest's position to report its suspicions to the relevant authorities and not to move suspect funds or property either for seven working days or, if a notice of refusal is sent by the relevant authority, for a maximum of seven working plus 31 calendar days. Furthermore the anti-tipoff provisions of s.338 of POCA prohibit the party from making any disclosure which is likely to prejudice any investigation which might be conducted following an authorised disclosure under s.338.
The way these provisions work can be illustrated by the facts of this case. Once NatWest suspected that Squirrell's account contained the proceeds of crime it was obliged to report that to the relevant authority, in this case HMCE. It was also obliged not to carry out any transaction in relation to that account. That remains the position unless and until consent to the transactions is given by HMCE or, if it is not, the relevant time limits under s.335 have expired. In the meantime it is not allowed to make any disclosure to Squirrell which could affect any inquiries HMCE might make. Obviously telling Squirrell why it had blocked its account would constitute a prohibited disclosure."
- It follows that the reporting regime under POCA, necessarily in my view, makes inroads into the contractual duty of bankers to comply with a customer's payment instructions. It is plain that POCA has intervened in the contractual relationship between banker and customer in a way which may cause the customer prejudice. This has been recognised by the courts. However the courts also recognise that it is a price Parliament has deemed worth paying in the fight against money laundering. In K Limited v National Westminster Bank plc  1 WLR 311 Longmore LJ said at paragraph 22:
"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 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 seven working days in what we are told is 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 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 section 93A to 93D of the Criminal Justice Act 1988 where no time limits were incorporated), and discussed in Bank of Scotland v A Ltd  1 WLR 751 and Amalgamated Metal Trading Ltd v City of London Police Financial Investigation Unit  1 WLR 2711."
Issues 1-4: did the Defendant suspect money laundering?
(i) The implied term
- It is the Defendant's case that it has a good defence to the failure to execute payment instructions if it can show it had a suspicion that the transaction involved criminal property. The reason for this, on the Defendant's pleaded case, is that the existence of an obvious and/or necessary implied term permitted the bank to refuse to execute the payment instructions in the absence of "appropriate consent" under s.335 POCA where it suspected the transaction constituted money laundering (Re-Amended Defence, paras 10, 16d, 17c, 18c and 19c).
- There is no issue between the parties as to the law on the implication of terms in a contract. In Crema v Cenkos Securities plc  1 WLR 2066 Aikens LJ summarised the principles by reference to the authoritative statement by Lord Hoffmann in his judgment in A-G of Belize v Belize Telecom  1 WLR 1988 as follows:
"38. The principles are: (1) a court cannot improve the instrument it has to construe to make it fairer or more reasonable. It is concerned only to discover what the instrument means. (2) The meaning is that which the instrument would convey to the legal anthropomorphism called the 'reasonable person', or the 'reasonable addressee'. That 'person' will have all the background information which would reasonably be available to the audience to whom the instrument is addressed. The objective meaning of the instrument is what is conventionally called the intention of 'the parties' or the intention of whoever is the deemed author of the instrument. (3) The question of implication of terms only arises when the instrument does not expressly provide for what is to happen when some particular (often unforeseen) event occurs. (4) The default position is that nothing is to be implied in the instrument. In that case, if that particular event has caused loss, then the loss lies where it falls. (5) However, if the 'reasonable addressee' would understand the instrument, against the other terms and the relevant background, to mean something more, i.e. that something is to happen in that particular event which is not expressly dealt with in the instrument's terms, then it is said that the court implies a term as to what would happen if the event in question occurs. (6) Nevertheless, that process does not add another term to the instrument; it only spells out what the instrument means. It is an exercise in the construction of the instrument as a whole. In the case of all written instruments, this obviously means that term is there from the outset, i.e. from the moment the contract was agreed, or the articles of association were adopted or the statute was passed into law.
39. Lord Hoffmann went on to make two further points, at paras 21-27. The first is that the phrases which courts have used as 'tests' to decide whether a term should be implied (e.g. that the term is necessary to give 'business efficacy' to the contract, or that the term is one that was 'obvious') can detract from the task that the court has to undertake. That is to see whether the proposed implication spells out what the instrument would reasonably be understood to mean. Lord Hoffmann emphasised that those tests are not free standing. Secondly, the oft-expressed requirement that an implied term must not just be reasonable but be 'necessary' simply reflects the requirement that the court has to be satisfied that the term must be implied because that is what the contract must mean."
- Mr Downes submits that both implied terms advanced by the Defendant (see para 22 above) are "ridiculously wide" (closing written submissions, para 13). In any event, he says, there is no precedent for the court developing implied terms to insulate a banker from the potentially harsh consequences of carrying on business as a banker. The court should not assume that were Parliament to provide protection it would not require the bank to act "without negligence". A clause which would have the effect of absolving the bank from liability where the bank has acted negligently, or in breach of a statutory duty, must, he submits, be express (Canada Steamship v The King  1 AC 192 at 208).
- Further, Mr Downes submits that the implied terms advanced by the Defendant do not fulfil the requirements set out in Crema for the following reasons: first, they were not obvious to the bank at the outset of the case and only appear by way of a late amendment advanced in the lead up to the trial. Second, a customer would not regard the terms as obvious. Third, terms which seek to insulate the bank from the consequences of its own wrongdoing (in this case admitted breaches of the Money Laundering Regulations and very, very poor decision making/reporting) cannot be described as equitable and reasonable. Fourth, if reformulated to take account of these difficulties it would become clear that the terms are not capable of clear expression. Fifth, why should a bank be absolved from liability where it cannot prove an actual suspicion on the part of its relationship team? That is not the sort of provision that a customer would find obvious. Sixth, some banks do have express terms to cater for this situation (as was the case in N2J Limited v Carter Allen (Case No. HQ06X00440, 21 February 2006)).
- I am informed by counsel that there is no precedent for the implied term (para 39 above), but I find persuasive the observations of Hamblen J in the present case. The basis for such an implied term was set out by Hamblen J at paragraph 39 of his judgment:
"In K Ltd the Court of Appeal stated that where POCA had made it temporarily illegal to perform the contract, no legal rights exist upon which the parties may rely. However, as pointed out by the Claimants, if the property in question is not in fact 'criminal property' then no offence is committed. For the purpose of the present applications it should be assumed that it was not criminal property, as the Claimants aver and HSBC does not seek to dispute. On that basis, it would not therefore have been illegal for HSBC to execute the payment instructions and the rights under the contract cannot have been suspended by illegality. On the other hand, the Claimants rightly recognise that where the bank has a relevant suspicion that the property is criminal property it has no alternative but to seek appropriate consent under POCA. The bank is most unlikely to be in a position to know whether or not the property is criminal property, but, if it suspected that it is, then in order to avoid potential criminal liability under POCA it must make a disclosure and seek appropriate consent. Analytically this may be legally permissible as the result of an obvious and/or necessarily implied restriction on or qualification of the bank's duties rather than on grounds of illegality, but the end result is the same."
- As Mr Lissack submits such an implied term maps or mirrors the statutory duty under the regime.
- Having regard to the principles outlined in Crema, and in particular to the second principle, I am led to the conclusion that the term for which the Defendant contends is to be implied by reason of the statutory provisions. In my judgment the "precise and workable balance of conflicting interests" in POCA that Longmore LJ noted in K Limited Parliament has struck (see para 38 above), requires the implication of this term in the contract between a banker and his customer.
- Mr Lissack does not pursue the illegality defence argument. He does not formally abandon it, but he accepts that it is not illegal to make a payment where only a suspicion as to money laundering exists since it is a constituent element of the offence for the account in question to have in fact represented the benefit of criminal conduct: see s.340(3). As it is common ground that the Claimants' accounts did not constitute criminal property, the illegality defence must in my view fail (see judgment of Hamblen J at para 39).
(ii) The attribution question
- An important matter in dispute between the parties is what has been described as the attribution question: which natural person or persons constitutes the Defendant for the purpose of the Defendant having the relevant suspicion?
- In Tesco v Nattrass  AC 153 Lord Reid said at 171:
"Normally the board of directors, the managing director and perhaps other superior officers of a company carry out the functions of management and speak and act as the company. Their subordinates do not. They carry out orders from above and it can make no difference that they are given some measure of discretion. But the board of directors may delegate some part of their functions of management giving to their delegate full discretion to act independently of instructions from them. I see no difficulty in holding that they thereby put such a delegate in their place so that within the scope of the delegation he can act as the company."
- In El Ajou v Dollar Holdings  2 All ER 685 Hoffmann LJ, as he then was, said at 706:
"The authorities show clearly that different persons may for different purposes satisfy the requirements of being the company's directing mind and will."
Mr Lissack submits that in accordance with the doctrine of identification in Tesco v Nattrass Mr Wigley, qua Nominated Officer is the "directing mind and will" of the Defendant for the relevant acts and omissions. Accordingly in the context of the present claim Mr Wigley's state of mind can be attributed to the Defendant and is necessary and sufficient for the purpose of establishing that the Defendant held a suspicion. The fact that Mr Wigley was employed by HSBC Bank plc and he was not the employee of the Defendant is not material. The structure of the reporting regime is such that it is the Defendant's nominated officer that forms a suspicion and, if appropriate, discloses it to SOCA. The Court of Appeal made it clear that in order to prove the fact of suspicion it is necessary and sufficient for the defendant to call its nominated officer only. Referring to the observations made by Ward LJ in the course of argument in the first appeal ( EWCA Civ 31), Lewison LJ in the second appeal ( EWCA Civ 1154) stated in his judgment at paragraph 47:
"Despite Mr Brindle's attempt to argue to the contrary, it is clear to me that what Ward LJ envisaged was that the bank would call its nominated officer only, since he is the person who makes the report to SOCA. … Ward LJ was not, in my judgment, envisaging that the bank would call employees further down the reporting chain. By disclosing a witness statement made by Mr Wigley the bank has done exactly what Ward LJ suggested it should do."
- Mr Lissack submits there are three ways in which the actions and suspicion of Mr Wigley are those of the Defendant. First, through the doctrine of identification. That is the approach taken by the court in Tesco v Nattrass and El Ajou. Second, through the theory of attribution that can be found in the law of agency (per Hoffmann LJ in El Ajou). Third, through the implied term that the state of mind of the nominated officer would be imputed to the bank.
- The Claimants submit that applying Nourse LJ's test in El Ajou (at pp 695-696) the court must identify the person who had "management and control" in relation to the decision not to honour the payment instruction. Mr Downes submits there is no evidence that Mr Wigley had any management control over the operation of the Claimants' accounts.
- There is no document in evidence bearing on the appointment of Mr Wigley as the Defendant's nominated officer. The only document (C1/40) is a job description of Mr Wigley produced by his employer HSBC Bank plc, stating his job title as "Manager, Money Laundering Reporting Office". It states that he reports to "Senior Manager, Money Laundering Control", who is Mr Brownlee. The purpose of the job is stated to be "to handle the internal and external reporting required by the Money Laundering Regulations in the Proceeds of Crime Act for all HSBC operations in the UK". The jobholder is stated to have "a key role in the Group's Money Laundering Deterrence Function as set out in the Money Laundering Deterrence Programme – Global Policy and Procedures (GPPs)". Box 3 is headed "Guidance and authority". It states:
"The role of the 'appointed person'/'nominated officer' is required and recognised by law.
Authority is through the Money Laundering Deterrence Programme – Global Policies and Procedures (GPPs) and the Group Standard for Money Laundering (GSM 5.7).
Delegated authority from the Money Laundering Reporting Officer appointed in accordance with the FSA Sourcebook."
Box 4, headed "Quantitative dimensions of the job", states:
"The jobholder's responsibilities extend to all HSBC Group operations within the UK.
The scope of the role is determined by the 1993 Money Laundering Regulations, the Proceeds of Crime Act 2002, the FSA Sourcebook and the Group's Compliance Officer handbook.
The jobholder is responsible for a team which comprises one Manager and three clerical staff.
The job with the team principally entails:
1 Receiving internal money laundering suspicion reports;
2 Taking reasonable steps to access any relevant know your business information; and
3 Making external reports to the Serious Organised Crime Agency."
- The job description is unsigned and undated, but it is clear from the dates that appear on the document that it did not come into existence before 2006. Mr Wigley was appointed to his position in March 2005. Mr Wigley said that the document at C1/40 "is a template from the job description that would have been in force at the time, i.e. 2005/2006" (Day 14/122). He could not say that the document at C1/40 was the document that he signed.
- Mr Wigley's evidence was that he was not directly appointed nominated officer by the Defendant. (Day 18/2). He thought that the responsibility was delegated to him by Mr Brownlee and it covered all the UK entities. In his first witness statement at paragraph 6 Mr Wigley said:
"I am nominated by HSBC Bank's Money Laundering Reporting Officer [that is Mr Brownlee] to receive authorised disclosures (within the meaning of section 338(5) of the Proceeds of Crime Act 2002 ("POCA") on behalf of any entity within the HSBC Group based in the United Kingdom, including the Defendant. In other words, I am a person nominated to receive authorised disclosures relating to money laundering offences under section 327(1), 328(1) or 329(1). I have the delegated authority of, and report to, HSBC Bank's Money Laundering Reporting Officer." (See also Mr Wigley's second witness statement at paragraph 8 at B8/28/3057-3058).
- Mr Wigley's principal responsibilities as stated in the job description (C1/42) included:
"1. Consider suspicious activity reports and requests for consent to undertake pre-advised transactions submitted by HSBC Group operations in the UK and ensure that suspicious activity is reported to the authorities in accordance with regulatory requirements and that consent is given where appropriate
5. Ensure good relations are maintained with the relevant anti-money laundering authorities principally SOCA and the police Investigation Units"
- Mr Brownlee was the Money Laundering Reporting Officer ("MLRO") for all the HSBC Group entities including the Defendant. As Head of Compliance Policy, Financial Crime for HSBC Bank Plc (the "Bank"), he became the Money Laundering Reporting Officer ("MLRO") for the Bank (and its related UK regulated entities, including the Defendant) on 1 July 2002. He was also registered as a "CF11" with the Financial Services Authority ("FSA") for each of these entities. CF11 is the money laundering reporting controlled function. FSA-regulated firms are required to appoint approved persons to perform this controlled function. Mr Brownlee was Mr Wigley's immediate superior at the time of the events to which this claim relates. In his evidence Mr Brownlee said (witness statement, para 8 at B8/37/3191):
"As both MLRO and a CF11 for all related UK regulated entities, I had an oversight role in ensuring that these businesses maintained appropriate anti-money laundering, terrorist financing and sanction systems and controls compliant with all relevant rules and regulations. This included ensuring that all regulated businesses had the appropriate anti-money laundering systems to identify and report suspicious transactions to the Serious Organised Crime Agency ("SOCA") pursuant to the Proceeds of Crime Act 2002 ("POCA"). It is a legal requirement for these purposes to have a person fulfilling the role of nominated officer pursuant to section 338(5) of POCA i.e. a person responsible for receiving authorised disclosures relating to money laundering offences under sections 327(1), 328(1) or 329(1) of POCA. Given the size of the group and my extensive oversight functions, it was not practical for me also to fulfil the role of nominated officer for the Bank and its related UK regulated entities. I therefore delegated this role to Mr Michael Wigley …"
- At paragraph 11 of his witness statement Mr Brownlee said:
"In particular, Mr Wigley was responsible for, amongst other things, deciding (a) whether to make a SAR to SOCA and (b) what information could be provided to customers after a SAR had been submitted to SOCA, having regard to the risks of tipping-off and prejudicing an investigation. Mr Wigley exercised management and control over these matters and had autonomy when making these decisions." (See also Mr Brownlee's evidence: Day 13, pp57-58 and Day 14, p74).
- Mr Brownlee, however, agreed with Mr Downes that "technically" Mr Wigley was not the nominated officer as he was not nominated by the entity, but by Mr Brownlee himself (Day 13/120-121).
- He also agreed that the Defendant's appointment of Mr Wigley as a nominated officer should be documented somewhere (Day 14: p86, line 6-19). Mr Downes understandably makes the point that no such document has been produced and that must cast doubt on whether Mr Wigley was in fact the nominated officer.
- Mr Downes submits that there is no evidence that HSBC Bank plc had authority from the Defendant to appoint its nominated officer. He observes that a confusing picture emerged from the evidence of Mr Brownlee and Mr Wigley. Certainly I would have expected HSBC Bank plc and the Defendant to have properly documented the appointment of Mr Wigley as the Defendant's nominated officer. However I am left in no doubt from the evidence that Mr Wigley was the Defendant's nominated officer.
- Plainly Mr Wigley understood he was the Nominated Officer for the Defendant, and the Defendant, and its employees, understood him to be performing that role (see Mr Wigley's two witness statements at B7/20 and B8/28). In his evidence Mr Wigley said:
"The point of contact for the Private Bank is me… The small volumes (of internal SARs) we receive from Private Bank do not need to be shared. So they are dealt with by me; I am the point of contact, I am the one they deal with, except in my absence." (Day 15, pp70-71; and also see Day 16, p24, lines 5-25; and Day 18, p13, lines 11-16).
- As a matter of conduct and practice, Mr Wigley acted as nominated officer for the Defendant. The absence of a formal appointment is not, in my view, fatal. Mr Wigley was the only person who reported suspicious transactions emanating from the Defendant to the law enforcement agency. Mr Lissack submits, and I agree, that it is perfectly clear that Mr Wigley was appointed nominated officer "de facto" (Day 26/65). The Defendant knew he was appointed as their nominated officer. It matters not which one of the legal routes one adopts, he was, I am satisfied, the Defendant's nominated officer. He alone fulfilled the role of nominated officer.
- Mr Downes submits that Mr Wigley did not have management control over the decisions not to make the first and second transactions. The relevant person with management control over the decision whether to honour a payment instruction was, he contends, the relationship/compliance team at the Defendant. Further, in relation to the second transaction he submits that the documents show that Compliance had already taken the view that it could not be made (C3/818). I reject this submission. It was Mr Wigley who was given responsibility for taking the decision as to whether an external SAR should be made to SOCA. I accept Mr Wigley's evidence that he authorised the submission of the four SARs to SOCA and that in each case the submission was made after he formed his own independent suspicion based on the factual information known to him, as he was required to do.
- Further I reject Mr Downes' submission that someone else had made the decision to stop the payment before Mr Wigley made the decision to refer the matter to SOCA. I agree with Mr Lissack that the proper analysis is that a person at Relationship level had a suspicion and sought advice up the line through Compliance to the nominated officer as to whether or not the instruction could proceed or whether those higher up, responsible for the decision, would report the matter to SOCA.
- In my judgment the evidence establishes that Mr Wigley was the Defendant's nominated officer within the meaning of ss.338(5) and 340(12) and he submitted or caused to be submitted each of the relevant authorised disclosures seeking consent from SOCA on behalf of the Defendant to execute the Claimants' payment instructions. Further Mr Wigley exercised management and control over these decisions, had autonomy when making these decisions, and, finally exercised his judgment independently.
(iii) The suspicion issue
- The central issue in this case (at least in respect of the first part of the claim) is whether the Defendant suspected money laundering (or to be more accurate, whether the Defendant suspected the funds in the Claimants' account constituted or represented a person's benefit from criminal conduct (in whole or in part, and whether directly or indirectly)).
The test for "suspicion"
- The meaning of suspicion in this context is clear from the authorities. In R v Da Silva  1 WLR 303 Longmore LJ stated:
"16. It seems to us that the essential element in the word 'suspect' and its affiliates, in this context is that the defendant must think that there is a possibility, which is more than fanciful, that the relevant facts exist. A vague feeling of unease would not suffice. But the statute does not require the suspicion to be 'clear' or 'firmly grounded'. To require the prosecution to satisfy such criteria would, in our view, be putting a gloss on the section…
17. The only possible qualification to this conclusion, is whether, in an appropriate case, a jury should also be directed that the suspicion must be of a settled nature; a case might, for example, arise in which a defendant did entertain a suspicion in the above sense but, on further thought, honestly dismissed it from his or her mind as being unworthy or as contrary to such evidence as existed or as being outweighed by other considerations. In such a case, a careful direction to the jury might be required. But in our view, before such a direction was necessary there would have to be some reason to suppose that the defendant went through some thought process as set out above."
- In K Limited Longmore LJ adopted this definition in the context of facts not dissimilar to those in the present case. At paragraph 21 he said:
"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."
- In the first appeal in these proceedings  EWCA Civ 31 Longmore LJ stated at paragraph 21:
"I need not set out again the reasoning in Da Silva on which this court founded its conclusion that the relevant suspicion need not be based on reasonable grounds. We are, in any event, bound by both it and K Ltd. To allow a claim based on rationality (even in the Wednesbury sense) or negligently self-induced suspicion would be to subvert those decisions…"
Evidence as to suspicion
- There was, the Claimants contend, no evidence that could properly have led Mr Wigley to suspect Mr Shah of money laundering.
- In his second witness statement Mr Shah sets out why in his view this is so:
"87. To summarise, since 19 July 2006 HSBC was aware that:
87.1 I was a Zimbabwe resident with substantial assets;
87.2 I also banked with CAI in Switzerland;
87.3 There was an attempted fraud on my Crèdit Agricole Geneva account;
87.4 I would be transferring a very substantial sum to it, for a fixed term; and
87.5 I would want the funds transferred back to Crèdit Agricole when that term had ended.
88. Those facts and matters were not in the least bit suspicious: and indeed the following points all indicate that HSBC was not suspicious:
88.1 Its agreement on 14 July 2006 to receive the USD 28 million into my account on 19 July 2006 without seeking SOCA's consent which would otherwise presumably have been a money laundering offence under POCA if it had been genuinely suspicious or had genuine ongoing 'concerns'. I do not understand how my Zimbabwean residency could have aroused suspicion at the time of the transfer out of the USD 28 million when it did not arouse any suspicion at the time that the money was paid in. I do not accept that my residing in Zimbabwe caused a suspicion;
88.2 Its agreement to renew the deposit on 21 August 2006: if it had suspected the funds were criminal property this would also have been a money laundering offence under POCA;
88.3 Its request as to whether the deposit could be 'maintained here' by email timed at 11:01am on 29 August 2006 which would also have been a money laundering offence under POCA;
88.4 On 29 August 2006 HSBC asked for authority to make a payment of USD 850 on 21 September 2006 by way of annual fee which payment was made on 19 September 2006 to Trident Trust regarding the affairs of Al Shams Global Ltd. If HSBC suspected my account was criminal property this payment would have amounted to money laundering under POCA;
88.5 On 31 August 2006 HSBC was seeking to retain the funds by persuading me to use the USD 28 million to invest in other currencies/funds with it, which would have been a further offence under POCA. It if genuinely held a suspicion that the funds were criminal property, I cannot see why it would have done this;
88.6 The fact that it was not suspicious about the USD 3.4 million which it was content to roll over on 21 September 2006;
88.7 The fact that the SAR is stated to be an 'update' to C2004120555, which I assume from the numbering was prepared in 2004:
88.7.1 As mentioned above, C2004120555 was compiled by someone who was unaware that my wealth had been specifically found by the Bank not to be suspicious in 2003;
88.7.2 C2004120555 was triggered by my receipt of GBP 3,500 from Mr Bhagat on 11 November 2004, and HSBC's concerns about the origin of those funds. However, there was no link whatsoever between that GBP 3,500 and the USD 28 million which was the trigger to the 21 September 2006 SAR;
88.7.3 The fact that it was not suspicious about the 2003 transaction involving the USD 19 million transfer to Zimbabwe and back again."
- Mr Wigley in his evidence said that there were seven factors which gave rise to his suspicion and led to his decision to send the SAR to SOCA in September 2006. First, that someone within the Relationship Team had formed a suspicion which had been independently considered and confirmed by the Compliance Department. He said that he is not influenced by the existence of suspicion lower down the chain without knowing the primary facts for those suspicions (Day 15, p50, lines 19-23). With regard to the First Transaction Mr Wigley said that he knew that an individual within the Relationship Team had formed a suspicion in respect of it and this was a fact which he took into consideration; there existed primary facts giving rise to suspicion. He explained: "It assisted my decision because it came from somebody within the Relationship Team who had knowledge of the customer as opposed to perhaps a clerk who would not have knowledge of the customer" (Day 23, p75, lines 16-19). However the decision was his and his alone (Day 15, p45, lines 17-25 and p46 lines 1-6).
- The second and third factors were the movement of funds and Mr Shah's explanation for the movement. Mr Wigley's evidence is that he considered the movement of funds to be "highly suspicious". An enormous sum of money had been moved from CAI to the Defendant, only then to be returned to CAI after a matter of a few months. He said, "I consider this to be indicative of layering" (B8/28/3063, para 37). Mr Wigley admitted under cross-examination that now Mr Shah's explanation for the movement has been explained to him his suspicion "does not hold as much water as perhaps I thought it did at the time" (Day 23, p80-82). Nevertheless Mr Wigley still expressed reservations about the explanation for the movement of funds. He said: "My experience is that if there is a fraud on somebody's number one account, should we say, because of the identification fraud, to protect those funds they can merely be moved to a number two account if you like to protect those funds. I didn't understand why it needed to be moved from the bank to a UK bank to be … while the account is being restructured." (Day 18, p146; and see Day 23, p84, lines 20-25). In re-examination Mr Wrigley said: "… I do not think there is a need to move funds out of a bank account if there has been an attempted fraud with a view to something happening during that period that has been removed, added security, etc. In my opinion, and in my experience there is nothing more that a bank can do to a bank account to make it more secure than it already has. So you can understand perhaps a client losing faith in that bank and moving the funds out but I do not understand moving them out for a short period of time whilst something happens to that bank account whilst they are with somebody else." (Day 24, p.118).
- The fourth factor considered by Mr Wigley was the size of the transaction which was something which gave cause for concern at the time. He said the size of this first transaction was highly unusual: "It was the largest sum of money that I have been asked to seek consent for and an STR for" (Day 23, p86, lines 18-19). The Compliance Department had forwarded to Mr Wigley the original e-mail from the Relationship Team, which recorded the view of the Relationship Team that "the size of funds is a cause of concern" (C3/735). The internal SAR completed by the Relationship Team notes that "amount of funds appear abnormal for client resident in Zimbabwe, although in line with client's own declaration of assets" (C3/733). The significance which Mr Wigley attached to the size of the transaction is not mentioned in his external SAR to SOCA. However the size of the transaction is recorded there.
- The fifth factor was previous concerns about activity on Mr Shah's account. The September 2006 SAR which Mr Wigley submitted to SOCA refers to "previous concerns regarding the customer's activities" and expressly refers to the December 2004 SAR. The e-mail from the Compliance Department to Mr Wigley which accompanied the internal SAR, referred to the existence of a previous SAR. Mr Wigley said that he did not attach very much weight to the internal SAR dated 17 November 2003 which did not lead to an external SAR, but he took the material into consideration.
- Further, in December 2004 the bank sent an external SAR to SOCA. In cross-examination Mr Wigley accepted that there was nothing about this SAR which could give rise to suspicion and nothing to suggest money laundering by Mr Shah (Day 18, pp82-83). However later in his cross-examination Mr Wigley said, "we submitted a SAR in 2004 because monies into Mr Shah's account we suspected were criminal property" and "the fact he benefitted from criminal property, my obligation is to report to SOCA". (Day 23, pp90-92).
- The sixth factor was uncertainty as to the original sources of the funds. Mr Wigley's evidence was that he did not know where the funds originated from prior to Crèdit Agricole (see C3/717).
- The seventh factor was Mr Shah's connections with Zimbabwe. Mr Wigley agreed that the Zimbabwean connection would not, in itself, be sufficient. However the internal SAR states: "amount of funds abnormal for client resident in Zimbabwe" (C3/733). Mr Wigley said: "There is a list of what are considered high risk countries" (Day 18, p44, lines 20-21). He believes Zimbabwe is on the list (Day 18, p45, line 4). He understands the countries on the list are high risk, possibly with poor money laundering regulations (Day 18, p45, lines 12-14); some are on the list because of a reputation for financial crime or corruption (Day 18, p50, lines 9-22).
- In a response dated 18 February 2011 to the Claimants' request for further information, the Defendant had said that Mr Wigley's suspicion rested upon nine factors (A1/318-319). Mr Downes cross-examined Mr Wigley on each of these factors.
- The first two factors were (1) the existence of a suspicion on the part of an individual in the Relationship Team, and (2) the existence of a suspicion on the part of an individual in the Compliance Department. Mr Downes asked him, "you would not and should not be influenced by the existence of suspicions lower down without knowing the reason for them", and he answered, "Yes" (Day 15/55). However later in his evidence Mr Downes returned to the point:
"Q. Was the suspicion of Relationship and Compliance a reason that you suspected money laundering?
A. It helped with my decision, yes.
Q. So it did influence you?
A. It was a fact that I took into consideration.
Q. And did it influence you?
A. Yes." (Day 23/79).
- Mr Downes suggests that if Mr Wigley had been following his normal practice, factors (1) and (2) would not have influenced his decision-making (Day 23/99). He says Mr Wigley provided no explanation for why he thought he could recollect adopting a different practice in respect of Mr Shah's SAR on 21 September 2006 to his normal practice.
- The third factor was that Mr Wigley considered that the movement of funds from Crèdit Agricole to HSBC and then back to Crèdit Agricole within a short period was indicative of layering. Mr Downes comments this suggestion did not appear in any of the contemporaneous documentation. In cross-examination Mr Wigley said that if he had known that the explanation for the transfer had been verified, then the movement of the funds could not amount to layering (Day 23/83).
- The fourth factor was that Mr Wigley considered Mr Shah's explanation for the transfer to be implausible. This point did not appear on the report to SOCA. Mr Wigley accepted that if he had spoken to Ms Shah he would have known that in fact Mr Shah's explanation was true and the reason would have fallen away (Day 23/85-86).
- The fifth factor was the size of the transaction. In considering the significance of the size Mr Wigley accepted that he would have wanted to look at the account history, but he could not recall whether he did so or not; there was no evidence that he did.
- The sixth factor was previous concerns held by employees of the Defendant set out in an internal STR dated 17 November 2003 and an internal STR dated 19 November 2003. Mr Wigley accepted that nothing in the November 2003 STR suggested any suspicion of money laundering and agreed that this factor was not, in fact, a reason for his suspicion (Day 23/89-90).
- The seventh factor was previous concerns about Mr Shah recorded in a SAR in December 2004. Mr Wigley said that, "We submitted a SAR to SOCA because we suspected that funds into his account were criminal property" (Day 23/91). There then followed the following exchange:
"Q. I know that, but you did not believe that he was guilty of money laundering. You did not think he was implicated in any way, did you?
A. The fact that he benefitted from criminal property, my obligation is to report to SOCA. In 2006 that had not changed." (Day 23/91-92).
- The eighth factor was uncertainty as to the provenance of the funds. Mr Wigley accepted Mr Downes' suggestion that it could not be a matter on its own that could lead to him being suspicious of money laundering, but he said that "the fact of the matter is I did not know where the funds originated from prior to Crèdit Agricole". It was put to him that is "virtually" always going to be the case; he responded, "in most cases". (Day 23/99).
- The ninth factor was Mr Shah's connections with Zimbabwe. Mr Wigley accepted that this factor "is hardly relevant on its own" (Day 23/99). Mr Downes asked, "If the connection with Zimbabwe has always been there, doesn't it follow that the bank were comfortable with that connection for a long period of time?" Mr Wigley replied, "I am not suggesting that is not the case, I just can't remember whether I knew or not". (Day 18/26).
- Mr Downes submits that only three of the reasons set out in the Response to the Request for Further Information were recorded in the SAR, namely reasons 6, 7 and 8, and that the SAR is the best evidence of Mr Wigley's actual thought process on 21 September 2006. Mr Wigley accepted that if the only reasons he was actually focusing on when he came to decide whether to make a report on 21 September 2006 were reasons 6, 7 and 8, then he would probably not actually have suspected money laundering at the time. (Day 24/82-83).
- However that was not the case. Mr Wigley's evidence was that "there were other things that were brought to my attention that I considered" (Day 24/84/lines 2-4).
- Both Mr Brownlee (Day 13/42-44) and Mr Wigley (Day 15/23-26) said that they would expect enhanced due diligence to be undertaken when the bank was considering accepting as a customer a person from a "red flag" country, that is a country which is considered to imply a heightened risk of money laundering. Zimbabwe was such a country. Mr Wigley said that if a customer from a red flag country was taken on, and retained over many years, then he could assume that no suspicion of money laundering had arisen.
- Mr Downes submits that "Mr Wigley's oral evidence clearly indicated that he did not have the settled suspicion that any of Mr Shah's funds were the proceeds of crime" (Closing Submissions, para 162). Mr Downes suggested that the height of Mr Wigley's evidence is that any such suspicion he had (whether settled or unsettled) was directed solely at the sum of approximately US$28m which had arrived from Crèdit Agricole in July 2006 and was the subject of Mr Shah's payment instruction of 20 September 2006. Mr Wigley was not suspicious regarding any other of Mr Shah's funds held by the Defendant, provided they had not been merged with the funds he was suspicious about (Day 23/124-125).
- Mr Downes, commenting on Mr Wigley's evidence, says that his first account was that his decision as to whether he was suspicious (and therefore whether he would make a report to SOCA) only took place once he had received the completed SAR form from one of his clerks (Day 18/126). His second account was that the process should work as follows (Day 24/46). First he receives a telephone call from the Defendant's Compliance Department, informing him of the facts on which the STR, which was shortly to be sent to him, was based. Second, he conducts initial discussions with his staff, including telling them to conduct initial investigations. Third, he has a further conversation with his staff once they have conducted their initial investigations. Fourth, the written STR arrives from the Defendant's Compliance Department. Fifth, the SCION database is created. Sixth, the clerk finishes drafting the SAR which is to be submitted to SOCA. Seventh, the SAR, prepared by the clerk, is sent to him for his review. Eighth, he decides to "push the button" and send the SAR to SOCA.
- Mr Brownlee described Mr Wigley as "a very experienced manager, who has been in the task for a long time" (Day 13, p118, lines 3-4). Mr Wigley said that at the material time there were approximately 10,000 internal SARs each year which were submitted to his Money Laundering Reporting Office, about 4,500 of which were sent on to SOCA. However there were generally only about two, maybe three, consent SARs that he dealt with each year on behalf of the Defendant (Day 15, p12, lines 13-14). Mr Wigley said that he recalled what was in his mind in September 2006 when he originally spoke to the bank's solicitors in 2007 (Day 23, p101, lines 6-9).
- With regard to the second transaction, Ms Shah on 26 September 2006 referred Mr Shah's payment instruction to someone in the Compliance Department, asking, "As we requested approval for the payment of USD28M+, do we also need approval for this payment?" She received a reply which stated, "We will require approval on any/all transactions on this account since we have submitted an STR. Mick, please can you confirm". Mr Wigley replied later that afternoon, "I can confirm, that now we have formed a suspicion, we have an obligation to request consent for this payment".
- Mr Downes points to Mr Wigley's evidence that he did not have familiarity with how the Defendant's accounting systems worked. Mr Downes commented that Mr Wigley was badly under-resourced and he had a lack of training and a lack of guidance as to his role. When referred to the STRs following the 21 September 2006 STR Mr Wigley said that he assumed they referred to funds in the same account as the US$28m because the STRs each referred to the same account number: 244970-MC-USD-01. Mr Downes contends that Mr Wigley was mistaken about this. Mr Shah had separate fixed deposits with HSBC, including a fixed deposit, which as of 21 September 2006, had a ledger balance of US$1,045,438.07 and was due to mature on 26 September 2006. Mr Wigley did not have any suspicion that these funds were criminal property. Accordingly, Mr Downes submits the Defendant could have made the payment of US$7,282.50 and has no defence to the claim in respect of this transaction.
- Mr Downes submits that what Mr Wigley did not appreciate was that the $7,282.50 payment was not to come out of the account holding the $28m; it was to come from the fixed deposit account holding the $1m. Mr Wigley accepted that there was no difficulty in a payment being made from an account in respect of which there was no suspicion as to criminal property (Day 16/45). However Mr Wigley's evidence was, "I thought it was coming from the same account. That must have been the information I was provided with" (Day 23/116). Whether or not the $7,282.50 payment was coming out of the same account, Mr Wigley believed it was and genuinely and honestly suspected "that the whole account was tainted once a suspicion had been raised" (B8/28/3068). The account number on the top of the two STRs was the same (see C3/716, 850). Mr Downes may be correct for the reasons he puts forward in paragraph 324 of his closing submissions that the monies in fact were in different accounts. However that is not a matter I have to decide. I reject Mr Downes' submission that if they were "it therefore follows that Mr Wigley cannot have been suspicious that the $7k constituted money laundering" (Closing Submissions, para 327). That is, in my view, a non sequetor.
- Mr Wigley's evidence was that he proceeded on the basis that the same account was involved. That was the position at the time he formed his suspicion. It matters not whether Mr Downes is correct that different accounts were involved or Mr Lissack is correct, that it was in fact the same account. For the reasons given by Mr Lissack it appears to me that in fact Mr Wigley was not mistaken about this.
Findings of fact in relation to Mr Wigley's evidence
- Mr Downes invites me to reject Mr Wigley's evidence that he was suspicious without, in any sense, saying he was being untruthful or dishonest. Mr Wigley created no document to record why he was reporting the matter to SOCA. Mr Brownlee thought he was doing that. All that we have is a document produced by one of Mr Wigley's clerks. That being so, Mr Downes submits, Mr Wigley cannot give evidence beyond that which is in that contemporaneous document, the SAR.
- Mr Wigley gave evidence spread over six days. He was cross-examined at length and in great detail as to his evidence on these matters. I am satisfied that whatever discrepancies may be identified in the detail of his evidence, he himself took the decision, when he was present in the office, to make a report to SOCA in the case of a consent STR emanating from the Defendant.
- I am left in no doubt that Mr Wigley honestly and genuinely suspected that the funds were criminal property when he submitted his report to SOCA on 21 September 2006.
- The Claimants do not suggest Mr Wigley acted in bad faith. He was a patently honest witness.
- Mr Wigley accepted the wording of the SAR he sent to SOCA on 21 September 2006 was very poor and that the document did not contain the information that perhaps it should (Day 23, p45, lines 17-20). However I am satisfied that whilst a considerable time has passed since the events of 2006 and 2007 and Mr Wigley was heavily dependent on contemporaneous records, nevertheless the seven factors that he said he took into account when he sent the SAR in September 2006 were taken into account by him.
- Mr Wigley considered the transaction to be unusual and in reaching his decision to submit an external SAR to SOCA took into account that someone within the Relationship Team, who was going to be more familiar with the operation of the account, had formed a suspicion and he took into account that that suspicion had been considered and confirmed by the Compliance Department, whose role is to comment on the internal SAR. However I accept that Mr Wigley approached the decision to report as his and his alone.
- Mr Wigley's view of Mr Shah's explanation for the movement of funds is not included in the SAR to SOCA. However I accept Mr Wigley's evidence that this was a factor that he took into account. The movement of funds, and Mr Shah's explanation for it, is referred to in the internal SAR from the Relationship Team, under the heading "Details of suspicion/transaction" (C3/727). Mr Wigley said that the explanation would not have been included in the internal SAR if it was not a ground for suspicion (Day 18, p19, lines 20-24). Mr Wigley said: "The fact that that explanation was on the STR led to a SAR to SOCA. So clearly, in my mind, I found that explanation improbable and that is why it led to an STR. And I accept that it does not explain that in this SAR to SOCA. I accept that, and perhaps it should have done, but the fact that that STR with that explanation led to a SAR to SOCA leads me to believe that that was my thoughts at the time" (Day 18, p177, lines 5-12).
- The Claimants understandably attach significance to the fact that Ms Shah checked the explanation with CAI. The transcript of the telephone conversation between Ms Shah and someone in Relationship at 13:37 on 21 September 2006 records Ms Shah saying: "I agree with you, but I know exactly where it comes from, I know exactly why it happened, because I even checked with Crèdit Agricole themselves". (C3/729). Mr Wigley said in evidence that he did not know of this conversation at the time he made his decision. If he had it may have affected his view on the explanation given by Mr Shah for the movement of funds. Nevertheless I accept Mr Lissack's submission that it rather suggests that Ms Shah was herself suspicious about the movement of funds and had sought reassurance herself.
- The size of the transaction was not a matter mentioned in Mr Wigley's report, but his evidence, which I accept, was that the size of the transaction was a cause of suspicion (Day 23, p86-87 and pp100-102).
- Mr Wigley's evidence as to whether he took into account previous concerns about activities on the account was inconsistent. The internal SAR dated 17 November 2003 and the memorandum dated 19 November 2003 could not have given rise to suspicion. The e-mail from the Compliance Department to Mr Wigley, which accompanied the internal SAR, referred to the existence of a previous SAR. When cross-examined on Day 18 Mr Wigley admitted that there was nothing about the December 2004 SAR which could give rise to suspicion and nothing to suggest money laundering by Mr Shah (Day 18, pp82-83). However on Day 23 Mr Wigley gave different evidence. The fact that Mr Wigley referred to the December 2004 SAR in the September 2006 SAR which he submitted to SOCA leads me to the conclusion that it was in all probability a factor that he took into account when he made his decision to submit the SAR to SOCA. Whether he in fact gave it much weight is another matter, but not material for present purposes.
- The Claimants accept that uncertainty as to the background of the funds was one of the factors which Mr Wigley took into account and which contributed to his state of suspicion.
- I accept that Mr Shah's connection with Zimbabwe was one of the factors which contributed to Mr Wigley's state of mind when he submitted the September 2006 SAR. Mr Wigley's evidence, which I accept, is that he "took into consideration and… noted the comments that were made by the Relationship Team" (Day 18, pp73). In their e-mail, which was forwarded to Mr Wigley, the Relationship Team stated: "Given the political circumstances and lack of funds generally in Zimbabwe, the size of the funds is a cause for concern". (C3/735). The internal SAR states: "Amount of funds abnormal for client resident in Zimbabwe" (C3/733).
- I am satisfied that Mr Wigley's suspicion subsisted throughout the period of his involvement in this matter (see para 170 below). In his witness statement he said he took the view that the whole account (the US$ account) was tainted once a suspicion had been raised (B8/28/3068, para 63). On 26 September 2006, in response to Ms Shah's query as to whether consent was needed for the US$7,200 transaction, Mr Wigley replied: "I can confirm that now we have formed suspicion, we have an obligation to request consent for this payment" (C3/819). On 1 December 2006 he was informed that the Metropolitan Police were investigating Mr Shah's activities and that a production order would be served on the Defendant (B8/28/3072, para 85). On 6 December 2006 he was informed that he had to seek further consent when he had disposal instructions (C4/1120). In June 2007 he knew that the Defendant had been asked by the Metropolitan Police not to disclose any information to the Claimants (C5/1664).
- In my judgment no issue of whether the suspicion needs to be of a settled nature (see R v Da Silva, para 67 above) arises in the present case. However even if it did it is clear from the evidence that Mr Wigley's suspicion was of a settled nature. He said that his usual practice amounted to a three-stage process: he would absorb the information sent to him; he would investigate it; and he would reflect and decide. That, I find, is what he did.
Issue 5: Causation
- In this section I shall consider Issue 5A (Factual Causation) and Issue 5B (Causation at law). These issues deal with those losses which are said to be attributable to the Defendant's breach of duty in delaying to execute payment instructions.
Issue 5A: Factual Causation
- Mr Shah, in his witness statement, stated: "Mr Kabra has now confirmed in his witness statement that he reported me to the Zimbabwean Police and informed them that my accounts with HSBC were under investigation in the UK, and that, as a result, I could not effect any payments. This caused the Zimbabwean authorities to be suspicious and to commence an investigation against me. This resulted in a search warrant being executed against my premises and my documents being seized. In particular, RBZ, with whom I held substantial investments in Zimbabwe was informed of the suspicion and, as Mr M.E. Chiremba, Director, Financial Intelligence, Inspectorate, Evaluation and Security Division ('FIIES') at RBZ confirms in his witness statement, this caused it to become suspicious as to my activities in the UK". (B8/27/2963, para 4.6.5).
- In his evidence Mr Shah stated that, had the Defendant executed his second payment instruction for US$7,200, RBZ would never have found out about the difficulties he had with HSBC in England (Day 5, p51, lines 1-6). Mr Shah agreed that Mr Kabra "sits as a vital link between the bank's conduct and RBZ's reaction" (Day 5, p51, lines 7-9). He said "It was HSBC's refusal to pay which caused Mr Kabra to be upset and go to the police". (Day 5, p85, lines 12-13).
- It is the Defendant's case that the predominant cause of RBZ's actions was (i) pre-existing and/or independent concerns held by RBZ about Mr Shah's activities, for which it cannot be said the Defendant was responsible; and/or (ii) bad faith/capricious conduct on the part of RBZ.
- RBZ's actions included the following: on or around 6 December 2006 Mr Chiremba compelled Mr Shah to invest in government securities. On 28 February 2007 Mr Chiremba played a prominent role in the sudden termination of a loan which RBZ had only entered into 28 days earlier. On 20 April 2007 Mr Chiremba was concerned in the seizure of Mr Shah's assets (i.e. those government securities which, on or around 6 December 2006, he had compelled Mr Shah to purchase). Thereafter interest on the sums held was withheld. On 20 July 2007 RBZ imposed terms on Mr Shah's purchase of bonds: 31 bonds with a range of due dates 19 July 2010 to 19 January 2015, none of which have been paid out on.
Pre-existing and/or independent concerns held by RBZ
(a) Mr Chiremba's evidence
- Mr Chiremba gave evidence. He said that FIIES works very closely with other law enforcement agencies in Zimbabwe to investigate money laundering offences. There is within the RBZ, a unit called the Bank Use Promotion and Suppression of Money Laundering Unit, established by section 3 of the Bank Use Promotion and Suppression of Money Laundering Act 2004.
- Mr Chiremba said to the best of his knowledge prior to September 2006 there were no investigations conducted into the affairs of the Claimants or their associated companies and other business entities by RBZ or any of its units, though Mr Shah's activities were monitored, as were the activities of various wealthy individuals and big corporate entities holding substantial interests in Zimbabwe.
- On or about 3 October 2006 his unit was consulted by the police on the basis that an employee/former employee of Mr Shah had reported that Mr Shah was involved in money laundering. It was reported that Mr Shah's accounts in the UK had been frozen as he was being investigated. Mr Shah was said to have failed to meet his local obligations by reason of the investigations in the UK and his unit considered this was worthy of being investigated.
- A warrant was obtained on 5 October 2006. A search and entry in terms of the warrant was effected at both Mr Shah's house and offices. The police recovered documents relating to foreign bank accounts, transactions in gold, computers and cash. The police interrogated Mr Shah and took a statement from him. Mr Shah attended the unit's office on various occasions following the search to explain various queries which had emerged following the review of the seized documents. He answered all the questions to their satisfaction except the reason as to why he was being investigated by the UK authorities.
- In his witness statement Mr Chiremba said that:
"29. As an investigation unit we were concerned by the contradicting statements made by Shah. Shah told us (1) HSBC had agreed to provide information following his lawyers' letter to HSBC but subsequently he said that HSBC had refused to provide this information. (2) He told us that he had been cleared in the UK, USA and Switzerland but on the other hand he said that he was not entitled to any information or written confirmation that he had been cleared. (3) Further he informed us that HSBC had decided to close his account as they did not want to maintain any further business relationships with him even though he said they knew he had done nothing wrong. We were concerned with the fact that HSBC themselves were unwilling to assist Shah, with whom they had a long relationship and HSBC wanted to terminate their business relationship with Shah.
30. In view of the above, towards the end of November 2006, we decided to seize Shah's local investments and to prohibit him from trading currency on the Zimbabwean money markets. Shah pleaded with us not to seize his funds but give him reasonable time as in any event he said he would be eligible for all the information once his account with HSBC was closed. He advised that the time for closing his account had been extended from 26 December 2006 to 28 February 2007.
31. After considering his views, we thought that as a temporary measure it would be best to instruct him that the money should be invested where RBZ had direct control and access to the funds. …" (B8/2949).
- Mr Chiremba said that Mr Shah wrote to him on 1 December 2006 asking him to contact the relevant authorities in the UK. He said Mr Shah was subsequently regularly asking him by e-mail and telephone whether or not he had contacted the relevant authorities in the UK. On 9 January 2007 Mr Shah wrote to Mr Chiremba stating that HSBC were not providing information to him or his solicitors due to section 333 POCA. On 15 January 2007 Mr Chiremba wrote directly to SOCA seeking their assistance on this matter. He said a copy of the letter was sent through a diplomatic bag using the British Embassy in Harare.
- Mr Chiremba said that by 5 April 2007 it became clear that both Mr Shah and his bank were unable/unwilling to provide RBZ with any information regarding the UK investigations. They had also failed to obtain any information of the investigations from SOCA by this stage. Thereafter, Mr Chiremba said that he did speak to Mr Woodhall at SOCA and enquired when he could expect a response to their letter of 15 January 2007. He said Mr Woodhall promised that he would check and get back to him on whether they had any information on Mr Shah. He said Mr Woodhall subsequently called him and asked for the SOCA reference number and/or the date of the disclosure. He said he was unable to provide the information that Mr Woodhall required. As a result Mr Woodhall was unable to assist. Mr Chiremba said, "if we had been given this basic information, we could have obtained all the necessary information from SOCA and it would not have become necessary to seize Shah's assets" (B8/2951 at para 42).
- On 25 April 2007 Mr Chiremba wrote to the Head of Compliance at the Bank of England:
"The Reserve Bank of Zimbabwe, through its Financial Intelligence, Inspectorate, Evaluation and Security Division (FIIES), has for some time, been monitoring the activities of Mr Shah and his companies in Zimbabwe, in relation to money laundering and other criminal offences.
The surveillance led to the Director of the FIIES writing to the Serious Organised Crime Agency (SOCA), in your jurisdiction, on 15 January 2007, soliciting for information on Mr Shah's dealings with HSBC Bank.
Up to this day the FIIES has not received an official reply to the enquiry despite follow ups by telephone and through Mr Robert Harrison of the British Embassy through whom another copy of the original letter was sent.
I would like to assure you that we remain fully committed to the collective war against the twin evils of laundering and terror financing, and, should Mr Shah be found wanting, the case will be dealt with accordingly.
I also take this opportunity to advise your office that on 20 April 2007, the Reserve Bank of Zimbabwe, through the FIIES, seized Mr Shah's invested funds amounting to Z$76,880,720 which converts to US$307,522,882.79. The funds shall be held until the current investigations stated in our letter to SOCA are completed.
Your assistance and guidance is sought in our endeavour to get the necessary co-operation from the relevant authorities in your jurisdiction on these issues, which have a strong bearing to money laundering and terrorist financing." (C5/1421-1423).
- Mr Chiremba said that on or around 29 May 2007 he called SOCA's office in London and spoke to Mr Williamson. He said he requested him to provide information regarding Mr Shah and enquired why RBZ had not received any response to their letter dated 15 January 2007. Mr Williamson said he would need time to check his records and get back to him.
- Mr Chiremba confirmed that on 13 June 2007 he received a letter from SOCA stating that they have "not been and is not now conducting a criminal investigation into Mr Shah". On 19 June 2007 Mr Shah wrote to Mr Chiremba and asked for the release of his investments. Mr Chiremba said that Mr Shah provided him with letters which were exchanged between his solicitors and SOCA in relation to Mr Shah's affairs. Mr Chiremba said that
"Prima facie we were satisfied that Shah had done nothing wrong in UK and thus we decided to release the monies which were seized on 20 April 2011 (without interest) to Shah. By our letter 22 June 2007 our decision to release the sum of Z$76,880,720,697.28 was communicated to Shah. … If confirmation that Shah was not under investigation in the UK had been provided at any time prior to 6 December 2006 there would have been no need to take any action against Mr Shah." (B8/2953 at para 55).
(b) The evidence considered
- The search warrant dated 5 October 2006 (C3/926) states that there existed "reasonable grounds" which it was "believed may afford evidence of the commission of suspected" offences. The offences listed are: "externalisation of funds and dealing with foreign currency, dealing in precious stones (gold) and fraud". The material which appears to be sought by the police comprises foreign currency, bank statements (foreign and local accounts), gold and any other documents which are relevant to the matters under investigation.
- There is no reference in the search warrant to Mr Kabra or to Mr Shah's failure to pay the sum of US$7,200. There is also no reference in the search warrant to "UK statutory obligations", to the Defendant's actions, to the freezing or seizure of Mr Shah's assets, to money laundering or tax evasion.
- Mr Kabra's evidence as to what he said to the police when asked why Mr Shah was not paying the US$7,200 was that "he is being investigated for some UK statutory obligations, it might be money laundering or tax evasion which I also do not know". (Day 7, pp64-65).
- Mr Shah in his witness statement said, "I explained the position to Mr Kabra on 27 September 2006. I explained to him that HSBC has frozen my account. At this stage I did not know about the SARs or about the involvement of SOCA, just that the bank had told me that it was "complying with its statutory obligations" (B8/27/2963, para 4.7.5). There was no suggestion in Mr Shah's witness statement that he had told Mr Kabra that he was under investigation, for money laundering, tax evasion or otherwise. However in his evidence he said that he called Mr Kabra on 28 September (he may have meant 27 September) 2006 and said, "The payment has not been done because I'm under some investigations in the UK". He added, "I told him the bank has not paid the money because my account is seized or blocked, something to that effect. HSBC London has seized or blocked my accounts and no payment will be made… He [Kabra] asked for an explanation and the only explanation I could give him is what I was told by the bank: the bank were complying with statutory obligations". (Day 5, pp61-62; p63, lines 7-9).
- In his letter to the Director of SOCA dated 15 January 2007 (C4/1171-1178) Mr Chiremba wrote:
The Reserve Bank of Zimbabwe has, for some time, been monitoring the activities of Mr Jayesh Hasmukh Shah and his group of companies. …
Our preliminary investigations have revealed that he has over Z$25 Billion whose origin is not clear. …
We intend to charge him for operating as an unauthorised dealer but it is possible that Mr Shah will get away with a nominal monetary fine.
The accused has also been investigated in Zambia for Money Laundering offences in the year 1999 and a total of almost USD6 million was seized by the authorities in that jurisdiction. …
It is pertinent to mention that the Financial Intelligence Inspectorate, Evaluation and Security Unit (FIIES) is fully aware of the kind of person it is dealing with and has ensured close monitoring of all his activities in conjunction with other investing and law enforcement agencies in Zimbabwe. … During the course of the investigations in Zimbabwe it transpired that the suspect has relationships with the following banks in the United Kingdom:
(i) HSBC Private Bank – 78 St James Street, London. …
During the course of the investigations our Inspectors came across documents showing huge transactions which were handled by HSBC Private Bank - London.
The amounts we seek your assistance and detailed explanation on, relate to the following:
A. On 19 July an amount of USD28,541,718-92 appears to have been transferred from Crèdit Agricole Indosuez Bank – Geneva to HSBC Private Bank – London…
B. On 21 September 2006 it was noted that an amount of USD28,857,639.75 was transferred from HSBC Private Bank London to Crèdit Agricole Indosuez Bank – Geneva VIA Calyon Bank, New York on the instructions of the person under investigations. …
In our opinion we must mention, at the outset, that we find it extremely difficult to believe or comprehend Mr Shah's explanation of these events, particularly in so far as they do not satisfy the provisions of our Exchange Control and Anti Money Laundering Acts and regulations, and also, the fact that the individual informed us that he was under similar investigations in your jurisdiction, the substantiation of which he failed to avail us citing that HSBC Bank 'was complying with its Statutory Obligations'.
C. We also noted that on 26 September, 2006 an amount of USD7,252 appears to have been transacted. The explanation provided to us was that it related to a payment to an employee resigning from Mr Shah's company, GIFT Investments (PVT) Ltd in Zimbabwe.
Our investigations revealed that no such application was received by our exchange control departments seeking authority to pay the employee an amount of USD7,252.
We accordingly intend to charge Mr Shah for Money Laundering and also violation of the Exchange Control Act.
Again, we need to state that this could just result in a monetary fine.
We have carried out an Analysis of the Information in his computer, which is in our custody, and came across several foreign currency 'Forward Contracts' and also some contracts for the forward sell of Precious Metals.
The contracts were entered into with HSBC Private Bank – London and also with Crèdit Agricole Indosuez Bank – Geneva.
Any assistance rendered in establishing whether Mr Shah was actually delivering the physical Gold to HSBC Bank in London, UK would facilitate our current investigations. …
Since the accused is handling such substantial amounts of monies we do believe he could be involved in the illegal trade in gold (e-gold) with external parties.
The accused has already confessed to giving USD cash rewards meant to soil the hands of influential people in Zimbabwe as a way of getting his improper deals sail through the established counter mechanisms and some of these matters are being dealt with through the Legal Channels. …
We have instructed Mr Shah to give us a comprehensive account of all these events in order for us to draw a meaningful conclusion to this case, failure to which stern and punitive measures will be undertaken in line with international and local requirements to deal with all those individual and corporates transacting out of line with the established KYC/CDD principles and the governing statutes.
Any assistance rendered in our efforts to obtain a successful conviction against Mr Shah would be highly appreciated.
We are confident that he can be forced the answer many such questions which remain a mystery to us as he has been clearly abusing the provisions of our Exchange Control Act and Anti Money Laundering Act to conceal his illegal foreign currency dealings under the pretext that these are 'free funds'."
- On 20 April 2007, the day of the seizure by RBZ of his assets, Mr Shah sent an e-mail to Mr Chiremba which stated:
"5. I promise at the opportune time I will challenge your SEIZURE of my ZWD and promise to fight your decision through the legal channels.
6. To me it's unclear as to whatever I have or may have done in the UK or elsewhere how would it affect my monies in Zimbabwe.
7. It is you that has been responsible for the termination of the USD22 million loan that we advanced to RBZ again CD1's as security – it's once again you that has been responsible after this purported seizure of our ZWD investments – it's once again you that has been making threats of having me locked up and I hereby challenge you to go ahead and Lock me up.
8. I know your efforts are aimed at frustrating me to leave Zimbabwe and then you can seize all our ZWD – but this will not happen – I will remain in Zimbabwe and promise to fight you." (See C/1408).
Findings of fact
- Mr Downes submits the question is would RBZ have acted as they did without anything happening with HSBC? First, the timing of the arrest. Mr Downes says it is beyond coincidence that the timing of the arrest and Mr Kabra going to the police being so close in time were not connected. Second, the questioning of Mr Shah. He says that he was able to satisfy RBZ on everything he was questioned about except for what happened at HSBC. Third, the RBZ letter of 1 November 2006 which Mr Downes says only refers to the HSBC situation. Fourth, all the subsequent letters (8 January 2007, 28 February 2007, and 28 April 2007) all referring to the HSBC situation. Fifth, Mr Chiremba's evidence about speaking to Mr Woodhall in April 2007 to obtain more information. Sixth, that when SOCA say there is no investigation, RBZ "unlock the money". So Mr Downes submits that but for HSBC's actions the loss would not have been suffered.
- I do not accept this submission. In my judgment the probability is that RBZ were investigating Mr Shah prior to September 2006 and it was their pre-existing concerns that led to the seizure of Mr Shah's assets.
- Mr Chiremba gave his evidence by video link. He started his evidence in Zimbabwe where the link at times was very poor, but then he travelled to South Africa to continue his evidence where the connection was good. Making every allowance for the difficulties of giving evidence by video and appreciating that English is not Mr Chiremba's first language, nevertheless I found his evidence as to RBZ's pre-existing interest in Mr Shah to be unsatisfactory. He had considerable difficulty in answering questions as to why his letters of 15 January 2007 and 25 April 2007 were written in the terms they were if Mr Shah was not suspected of money laundering and other offences in Zimbabwe before September 2006. The likelihood is that RBZ did have the pre-existing interest and concern indicated by those letters and it was because of that that they wanted to obtain as much information as they could from the UK authorities when they were told by Mr Kabra that Mr Shah was suspected of money laundering offences in the UK.
- In my view the predominant cause of RBZ's actions was the independent concerns held by RBZ about Mr Shah's activities. There is no reference in the search warrant to HSBC, money laundering, tax evasion, or Mr Shah's bank accounts having been frozen.
- It is clear from RBZ's letter to SOCA dated 15 January 2007 that RBZ had long-standing concerns about Mr Shah and had been monitoring the activities of Mr Shah and his companies in Zimbabwe in relation to money laundering and other criminal activities for some considerable time. There are no references in the letter to Mr Kabra's complaint or to Mr Shah's bank accounts having been frozen by HSBC in the UK. Mr Shah's failure to pay Mr Kabra US$7,200 could not have given rise to "reasonable grounds" (in the words of the warrant) to suspect Mr Shah of the commission of the offences of "externalisation of funds and dealing with foreign currency, dealing in precious stones (gold) and fraud".
Issue 5B: Causation at law
- Mr Lissack submits that there are intervening acts which break the chain of causation: first, the conduct of Mr Shah himself; second, the conduct of Mr Kabra; third, the conduct of RBZ.
The conduct of Mr Shah
- There are three aspects of the conduct of Mr Shah which, the Defendant contends, independently or cumulatively render his conduct so wholly unreasonable and/or of such overwhelming impact that it eclipses any wrongdoing on the part of the Defendant and constitutes a novus actus (in any event, such conduct should result in a reduction in damages on grounds of contributory negligence or a failure in his duty to mitigate damages, see below). The first aspect is Mr Shah's failure to pay Mr Kabra from other funds. By his own admission Mr Shah was a "very wealthy individual" with "substantial assets in Zimbabwe" (B8/27). Mr Shah said that he understood, as a result of the telephone conversation between Mr Kilpin and Ms Shah on 23 September 2006 that: "all his accounts were being monitored. He should not make any payments." (Day 5, p66, lines 7-13). However Mr Kilpin in his evidence said that "she [Ms Shah] was saying that Mr Shah should be aware that all of his HSBC accounts were being monitored or watched" (Day 7, p13, lines 4-15). I prefer Mr Kilpin's evidence on this issue. It was consistent with his written statement (B8/23/2936, para 10).
- I have difficulty in understanding Mr Shah's suggestion that he wished to keep his accounts with CAI, Citi Bank etc beneath "the radar". Either they were on the radar as all his accounts were being monitored or they were not; if they were not, then as Mr Lissack submits his desire to keep some of his bank accounts beneath "the radar" is more consistent with the notion that he had something to hide from the authorities (for example, the existence of other funds).
- Mr Kabra was employed by Mr Shah from 15 March 2005 to 30 September 2006 as an accountant/auditor to maintain his personal and companies' books of accounts (B8/2939, para 1). His evidence was that Mr Shah had access to other sources of cash, including friends and his brother. Mr Kabra said that 7,000 dollars odd was "a very very small amount for [Mr Shah] to pay" (Day 7/34) and a sum that "it was easy for him to raise" (Day 7/34-35), although because of exchange control it was difficult to obtain foreign currency. Mr Kabra said,
"… my concern was that I get paid my money, so he can either use a different bank account to pay me or he can ask his friends, like, if required at times, as I told you earlier, that, you know, at times if he required money or if he is, you know, travelling somewhere if he is short of money, so he could have some from his friends, or ask his brother to pay my brother in India. Well, he was not agreeing to any of these, that he was going to pay me through either of these sources. So it made me more concerned." (Day 7, p.48, line 25- p.49, line 9).
In my view the probability is that Mr Shah could have paid Mr Kabra from other funds or sources, if he had wished to do so.
- The second aspect of the conduct of Mr Shah which the Defendant relies upon is his disclosure to Mr Kabra that he was being investigated for money laundering. However I do not accept Mr Kabra's evidence that Mr Shah told him that he was "being investigated for some UK statutory obligations, it might be money laundering or tax evasion which I also do not know". I prefer Mr Shah's evidence that he explained to Mr Kabra on 27 September 2006 that HSBC had frozen his accounts. At its highest Mr Shah may have given Mr Kabra the impression that he was under investigation which investigations resulted in his accounts being blocked or seized (Day 5, pp63-64). Critically in my view, Mr Shah did not say that he told Mr Kabra that he was being investigated for money laundering or tax evasion. Mr Shah knew his account had not been "seized". I consider it unlikely that Mr Shah told Mr Kabra that he was being investigated for money laundering.
- Mr Lissack submits, in relation to the conduct of Mr Kabra, that his conduct was wholly unreasonable and unforeseeable. On the basis that I do not accept the evidence of Mr Kabra as to what Mr Shah told him, it was, in my view, not foreseeable that Mr Kabra would spread "rumours" that Mr Shah was "caught up in a money laundering scandal" (B2/6/535) and report him to the police on that basis.
- Further I do not consider Mr Shah's failure to challenge RBZ's conduct as constituting a novus actus. I have found the actions taken by RBZ pursuant to the Directive to be arguably unlawful for the reasons I have given (see para 159-161 below) and I shall consider this matter further when considering mitigation of loss (see para 234 below).
The conduct of Mr Kabra
- Mr Kabra's evidence was that he lodged a complaint with the police that Mr Shah was not paying him his money (Day 7/63), but when he was asked why he was not paying he said that "he's being investigated for some UK statutory obligations, it might be money-laundering or tax evasion which I also do not know" (Day 7/64-65). He added: "That is what Mr Shah has told me" (Day 7/65).
- As I have said I prefer Mr Shah's evidence to that of Mr Kabra as to what Mr Shah told Mr Kabra about why he had failed to pay him the sum of US$7,200 (see para 143 above). It follows that I do not accept that Mr Shah told Mr Kabra that he was being investigated for money laundering. In my judgment the conduct of Mr Kabra in reporting to the police that Mr Shah was being investigated for money laundering was not foreseeable.
The conduct of RBZ
- The matters I have considered concerning the conduct of RBZ in relation to issue 5A are material in relation to this issue.
- I also consider it significant that the first action taken by RBZ against Mr Shah in relation to his assets was in early December 2006 before Mr Chiremba had made any attempt to contact the UK authorities to enquire as to whether Mr Shah was in fact being investigated on suspicion of money laundering. Further action was then taken against Mr Shah on 28 February 2007 and on 20 April 2007 before any reply was received by Mr Chiremba to his letter to SOCA of 15 January 2007.
- Mr Chiremba said that he did not know of the existence of SOCA until January 2007 (Day 11/30). I find it difficult to accept that Mr Chiremba did not in 2006 know the name of the corresponding agency in the UK to the agency in Zimbabwe for anti-money laundering processes or at the very least that he could not have obtained the name of the agency and contacted it, if he had wished to do so. Mr Shah had written to Mr Chiremba on 15 November 2006, "I hereby request yourselves to contact your counterparts in UK and obtain such details of investigations in the UK regarding my account at HSBC which I am very sure you can get through the Interpol or other sources". (C3/989). Mr Shah repeated this request that Mr Chiremba contact "your counterparts in the UK" on 7 December 2006 (C4/1127). Mr Shah also suggested that Mr Chiremba contact the British Embassy in Harare. On 25 December 2006 Mr Shah wrote again to Mr Chiremba and asked if he had received a response "from either your counterpart in UK or from the British Embassy" (C4/1144). The fact is that Mr Chiremba made no attempts to contact his counterpart agency in the UK or the British Embassy in Harare, despite Mr Shah's repeated requests that he do so, until January 2007.
- It was Mr Chiremba's assumption as of October 2006 that Mr Shah's account in London had been frozen because of the intervention of a government agency which caused the account to be frozen (Day 9/16, line 25-9/17, line 5). That being so if Mr Chiremba's concern had been with finding out why the government agency had so acted, in my view he would have taken steps to contact his corresponding agency in the UK.
- What is clear, Mr Lissack submits, is that in fact RBZ misunderstood what had happened in the UK. In a letter to Mr Shah dated 20 April 2007 (C5/1569) Mr Chiremba writes of the need "to determine [Mr Shah's] compliance with the United Kingdom statutory obligations" (see also C5/1570 para 3). It is, of course, the Defendant that was complying with its UK statutory obligations; it was not a matter as to whether Mr Shah was complying with any statutory obligations in the UK. Mr Chiremba's letter to Mr Shah dated 22 June 2007 evidences the same mistaken understanding (C6/1692).
- Mr Chiremba said that in April 2007 when he spoke on the telephone with Mr Woodhall of SOCA and was advised that he could not assist with the reference number and the date of the report, "It then became apparent to us that we were not making any headway and we moved on to seize the funds, because we now believed that (inaudible) different body and not SOCA" (Day 12/75). However as Mr Chiremba accepted "the effective seizure [of Mr Shah's assets] started around 6 December 2006 and then the physical seizure of assets was on 20 April 2007" (Day 12/1, lines 24-25).
Whether the conduct of RBZ was unlawful
- Mr Lissack submits that the conduct of RBZ in forcing Mr Shah to invest in government securities, in seizing those assets and then withholding interest was unlawful.
- It is common ground between the parties that the principles of public law and statutory interpretation in Zimbabwe mirror English law.
- The experts (Dr Magaisa, instructed by the Defendant's solicitors and Mr Uriri, instructed by the Claimants' solicitors) agree
"that the administrative conduct of the RBZ must satisfy the administrative and constitutional safeguards (namely, the principles of natural justice and the protection of the law under section 18 of the Constitution) before the administrative conduct complained of can be saved by any of the exceptions under the private property protection clause in section 16 of the Constitution. There is agreement that every person has a right to administrative action that is in accordance with the Constitution and the rule of law, namely that it is lawful, rational, proportionate and procedurally fair and reasonable." (Joint Report at para 7.2).
- Mr Uriri concluded that RBZ had acted lawfully in this case. However on his own evidence the Serious Offences (Confiscation of Profits) Act (1990) (as amended) ("Serious Offences Act") cannot apply to justify RBZ's actions in this case. This is because those actions could only be lawful under Part VI of the Serious Offences Act if Mr Shah had consented to them (s.25(1)(a)). When the assets were seized in April 2007 there was no consent (Day 17, p157, lines 11-14 and 18-19); nor, in my view, is there any evidence that Mr Shah consented to switching his investments. That being so the only issue is whether the January 2005 Directive ("the Directive"), made under section 4(h) of the Bank Use Promotion and Suppression of Money Laundering Act 2004 ("BUPSMLA") (and read together with RBZ's incidental powers under section 24(2) of the Interpretation Act) enabled RBZ to act as it did.
- Mr Lissack submits that there are four independent reasons why RBZ's purported use of the Directive was unlawful: first, because the BUPSMLA does not apply to this case; second, the Directive is ultra vires; third, the Directive was not published; and fourth, the application of the Directive to Mr Shah was unconstitutional and/or otherwise unlawful.
- The experts agree that this case involves property other than currency (as defined in BUPSMLA, s.2). S.41 of BUPSMLA provides "If a person suspected of committing a serious offence is in possession of tainted property (b) consisting exclusively of property other than currency, the Serious Offences (Confiscation of Profits) Act… shall apply to the exclusion of this Act". Accordingly the applicable statutory regime is the Serious Offences Act (Day 17, p141, line 24 – page142, line 1 and p142, lines 15-22).
- It is Mr Uriri's opinion that the Directive does apply to this case because it "makes reference to funds or assets. In other words, the Directive is broader than section 41(b)…" (Day 17, p145, lines 6-10 and p158, lines 3-7). In my view this cannot be correct. As Mr Uriri accepted the Directive "cannot confer greater power [than] the Act confers itself" (Day 17, p143, line 25 and p144, line 2). Bennion section 58, entitled "Ultra vires delegated legislation", sets out the legal position as follows:
"Any provisions of an instrument constituting delegated legislation is ineffective if the provision goes beyond the totality of the legislative power which (expressly or by implication) is conferred on the delegate by the enabling act or acts. The provision is then said to be ultra vires (beyond the powers)."
It follows that the Directive made under s.4(h) BUPSMLA cannot apply to property that the Act, as a whole, does not apply to. Accordingly, it is difficult to understand how RBZ could have acted lawfully.
- On the basis of the evidence before me and the submissions I have heard I consider it strongly arguable that the actions of RBZ, in so far as they relied on the Directive, were unlawful for the reasons I have given. However I am conscious of the fact that the legality of RBZ's conduct is only one of many issues in this trial and that the evidence and submissions I have heard on the issue have been limited. There was evidence of the existence of a later directive, the 2006 Directive, that purported to extend the effect of the earlier directive in that specific persons and corporate entities are named in it. However that 2006 Directive was not published and it appears it has not been disclosed to Mr Shah, although Mr Uriri, his expert witness, has seen it. The evidence in relation to the 2006 Directive was unsatisfactory and the submissions made in relation to it were necessarily incomplete. This is a matter that in my view requires further investigation and consideration before a final conclusion can be reached as to the legality of RBZ's actions, although this later Directive, as with the earlier Directive, cannot confer any greater power than the Act itself. Nevertheless in the circumstances I refrain from making a finding that the actions taken by RBZ were unlawful.
- I am not satisfied on the basis of the limited submissions that have been addressed to me that the Directive is, as the Defendant contends, ultra vires the enabling statute or that RBZ acted unlawfully because the Directive was not published or that the application of the Directive to Mr Shah was unconstitutional (for a reason other than that BUPSMLA does not apply to this case).
- Finally Mr Lissack submits that RBZ took action against Mr Shah in bad faith. Mr Chiremba was cross-examined on that basis. Mr Downes accepts that his evidence was "guarded", but suggests this is entirely understandable given the circumstances.
- In my view Mr Chiremba's evidence was unsatisfactory in certain material respects, as I have indicated, but I reject the allegation that he and RBZ acted in bad faith. The evidence falls short of making out that serious claim.
Issue 7: was the Defendant under a duty to provide the information sought?
- The Claimants' case is that the Defendant was in breach of the banking contract in refusing to provide the information as to the Defendant's communications with SOCA (see section D of Re-Re-Amended Particulars of Claim, paras 16A-C, 17, 18, 20 and 22); and further the Claimants contend that the Defendant was negligent and in breach of the banking contract in failing to seek permission from SOCA to provide the information sought (Re-Re-Amended Particulars of Claim, paras 16D, 17A, 18A and 20A). Mr Downes submits that the duty to provide the information sought arises from a duty to be implied into the banking contract: "there is a contractual duty, an implied duty to provide information, because the bank acts as our agent in certain circumstances and that is an implied duty of any agent". (Opening submissions, Day 3, p48, lines 15-19). Mr Lissack submits there is no basis in law for the Claimants to imply any such term.
- The information the Claimants were seeking was, in summary: (i) the name of the authority or agency to whom the disclosure was made; (ii) SOCA reference numbers; (iii) copies of the consent; and (iv) the primary facts that had caused the Defendant to make the disclosure, and documentary evidence of the same. The prayer for relief in the final version of the Particulars of Claim (A2/44A/790.62) seeks a declaration to the effect that the Claimants are entitled to receive from the Defendant the following information with regard to the SARs: "(i) the government agency to whom disclosures were made; (ii) the reference numbers of those disclosures; (iii) copies of the consents received from that agency; and (iv) the facts that had caused the Defendant to fail to effect the first and second transactions and documentary evidence of the same". (The evidence relating to what the Claimants actually asked for is summarised at paragraph 207 of the Defendant's closing submissions).
- Mr Downes submits that it was part and parcel of the bank's duty as an agent that it would keep the customer informed of the reasons why its instructions could not be complied with (Bowstead & Reynolds on Agency, 19th Ed. at para 6-019; Barclays Bank v O'Brien  1 AC 180; and evidence of Mr Brownlee at Day 14/27).
- Mr Lissack submits that the primary relationship of bank and customer is that of debtor and creditor. It is only in relation to the drawing and payment of cheques against money in the bank's hands that the relationship of principal and agent arises (Foley v Hill (1848) 2 HL Case 28; and see Royal Products Ltd v Midland Bank Ltd  2 Lloyd's Rep. 194 at 198). In that limited context, he contends, the paying bank acts as its customer's agent and is required to observe reasonable care and skill in carrying out payment instructions. This does not, he submits, give rise to a free-standing duty on banks to provide information to its customer, still less to a duty to provide information of the type sought.
- In my judgment the principal argument against the imposition of the implied term Mr Downes contends for is that it is most unlikely that banks will be in a position to know whether their disclosure has triggered an investigation, or might lead to an investigation in the future and therefore whether the provision of the information sought might constitute a tipping-off offence. The term would be unworkable. Further the practical effect of the implied term would be to require banks regularly to reveal the factual basis of their suspicion.
- The evidence of Mr Wigley, which I accept, illustrates the problem with the implied term contended for by the Claimants:
"102. …from the time I made the authorised disclosure on 21 September 2006 until around 6 December 2006, I was of the view that an investigation might be conducted following the disclosures made by my office to SOCA. The whole purpose of the reporting regime is to enable the Law Enforcement agencies to investigate possible criminal activity. The subject of these investigations may not necessarily be the account holder. Law Enforcement may wish to follow the monies in a transaction or to investigate a third party or to investigate a third party who is connected to the person making the payment. The Defendant will rarely be in a position to know whether its suspicions are shared by Law Enforcement and/or whether any investigations might be conducted following the disclosures. … In light of this, and given the likelihood that revealing information about the SARs will prejudice any investigation which might be conducted, the Defendant does not generally disclose such information.
103. From around 6 December 2006 when I was informed that a production order would be served on the Defendant, I formed the firm view that there was in fact an investigation. I was not aware of anything throughout the period of my involvement (until around July 2007) during which I was advising the Defendant about this matter or being copied into advice from HSBC Bank's legal department to suggest that an investigation was no longer continuing. I therefore remained of the view that the investigation may be continuing throughout the period of any involvement.
104. I believe that providing to the First Claimant the information which he requested… would have been tantamount to admitting to him that the Defendant had submitted a SAR to SOCA (and therefore constituted a disclosure within the meaning of section 333 of POCA). This in turn may have alerted the Claimants (and possibly others) to the possibility of an investigation by Law Enforcement agencies and was, in my view, likely to prejudice that investigation, giving rise [to] offences of tipping-off under section 333 of POCA and/or prejudicing an investigation under section 342 of POCA." (B8/28/3074-3075).
- I agree with Mr Lissack that the likelihood is that the implied term contended for would cut across the statutory regime, operate as a disincentive to report suspicious activity and undermine the integrity of the reporting regime. Further any implied term that required banks to take steps to obtain this information from SOCA would, in my view, be unreasonable in the light of the number of SARs the banking sector makes.
- I am satisfied that the implied term for which the Defendant contends is in accordance with the Crema principles. I agree with Hamblen J that the Defendant cannot be in breach of duty in refusing to make a requested disclosure if it would be at risk of criminal liability under section 333 if such disclosure was made. There has, in my view, to be an implied term that permits the Defendant to refuse to provide information where the Defendant, its servants or agents, in providing that information might contravene duties under ss.333 and 342 POCA. Accordingly the Defendant was not under a duty to provide the information sought.
- However Mr Lissack submits that if, contrary to the Defendant's primary submission, the Defendant was under a contractual duty to provide the information sought, that duty is qualified and, in the circumstances of this case, the Defendant was obliged to withhold the information. This is for two reasons: first, because disclosure of the material would have exposed the Defendant, its servants or agents, to criminal liability and therefore the contract was suspended on grounds of illegality; alternatively, second, because of the existence of a qualification to the bank's duties which obliged the Defendant to refuse to provide the information where the Defendant, or its servants or agents, might otherwise have contravened ss.333 or 342 POCA.
- Mr Lissack relies on the analysis of Hamblen J at paragraph 82 of his judgment (E2/29): "The Claimants accept that HSBC could not be in breach of duty in making an authorised disclosure if it would otherwise be at risk of criminal liability under section 328. The same applies to section 333, as they had to acknowledge. HSBC could not be in breach of duty in refusing to make a requested disclosure if it would be at risk of criminal liability under section 333 if such disclosure was made. If so, then the Claimants' claim has no real prospects of success".
- Mr Downes submits that a clause which would have the effect of absolving the Defendant from liability where a defendant has acted negligently, or in breach of statutory duty, must be express. He asks why should the term implied absolve the bank in a situation where the bank has been negligent, not acted unimpeachably? Mr Lissack offers four reasons: (1) the mens rea of suspicion lies behind the regime; (2) the shape of the implied term must mirror POCA; (3) there are safeguards for the customer in relation to a bank who acts in bad faith; and (4) the Claimants misapply the requirement of 'settled suspicion'.
- As Mr Downes observes points (1) and (2) are effectively the same point: the mental element as to suspicion is to be taken from the Act and duplicated in the implied term. Mr Downes submits with regard to point (3) that where the line is drawn is a matter of policy. If this were to be a matter that were to be legislated on the following matters would have to be considered. First, the amount of resources that banks could reasonably be expected to devote to their money laundering function; second, whether banks can adequately protect themselves with reasonable express terms dealing with the situation; third, the availability of insurance on both sides as a means of spreading risk; fourth, the likely exposure of banks to claims and the quantum of those sorts of claims; fifth, whether there should be a price for greater protection for bankers, for example in tightening the procedure under section 335 (Day 27/57-58). That is an issue of policy, not an issue that can be addressed by means of an implied term, submits Mr Downes.
- Mr Downes suggests that there is no need for the Defendant's implied term because the request for information by the customer has to be a reasonable one. He submits the only issue is: was Mr Johnson reasonable in refusing the request and that depends on what he thought at the time and he has not given evidence. In my view, irrespective of what Mr Johnson said to Mr Shah at the meeting on 2 November 2006 about making a request through his solicitor, the probability is that Mr Johnson would not have provided the information that Mr Shah was requesting without first seeking advice from Mr Wigley and/or SOCA and that, having received their advice, the Defendant would have refused to provide the information sought (see paras 187-190, 199-200, 203 and 208 below). In so refusing the Defendant would in my view have acted on reasonable grounds.
Issue 8: was the Defendant obliged/entitled to withhold that information?
- Mr Walters, formerly a Detective Inspector in the Metropolitan Police Service ("MPS") who retired from that position in December 2009 gave evidence as to the material investigations into Mr Shah's affairs. Mr Walters said that the decision as to what a person under investigation is told (in this case Mr Shah) lay with him, and that it is not for the bank to decide itself what information is given to an account holder (Day 21, p84, lines 1-20). He said, "I confirm that between 1 December 2006 and 30 June 2007 there was an ongoing Metropolitan Police Investigation into, amongst other things, the First Claimant's affairs. Those dates are not specifically the start and end dates of any investigation but are provided to cover the period I understand may be in issue". (B2/7/938 of his first witness statement). In his third witness statement (B6/17/2231 at para 6) Mr Walters said: "I am now being asked whether this investigation had commenced by 1 November 2006. I can confirm that the investigation had commenced by that date. The investigation into the First Claimant was triggered by, and commenced shortly after, the submission of a Suspicious Activity Report ('SAR') by the Defendant in September 2006."
- Mr Downes cross-examined Mr Walters as to the "start" and "end" date of his investigation and the contents of the police file (F2) that was disclosed during the course of the hearing. When he first gave evidence Mr Walters expressed surprise that the contemporaneous materials that he recalled the investigation generating were not in the trial bundle. As a result of this evidence the Claimants' legal advisers obtained inspection of the police file and the file was obtained (F2). Included within the file was a document entitled "Log of Events" (F2/5-6). As to the Log of Events Mr Walters said: "For me, the investigation began when we were investigating the consent issue… Gathering evidence, if there was a point at which – I don't say that there is actually a point at which it became an investigation as opposed to an enquiry or any other term or intelligence investigation, whatever terminology is used. But we would always try and make a note of when – because to go and get an order there must be a money laundering investigation. So we would be cognisant of saying, 'Look, we need to make sure we have a note that that's a money laundering investigation'." (Day 25, p37, lines 13-25).
- Consent was given to execute the four payment instructions. Mr Downes does not however suggest that there was therefore no investigation or no prospect of an investigation. Mr Walters stated: "… I could give consent and still plan to take action. I may not take immediate action against that particular amount of money or that particular transaction. I can consent to a transaction and still launch, sometimes, major inquiries into all sorts of other transactions and activity… Not taking action at that stage doesn't preclude other action". (Day 20, p93, lines 1-9). Mr Walters added, "I was also mindful that the delay in moving it [the First Transaction] would both alert people and also it would cause attention for all the parties involved". (Day 20, p121, lines 4-6).
- Between 25 September and 2 October 2006 the Metropolitan Police made enquiries with DI Kalbfell of the City of London Police and the Intelligence Services (F2/13-15 and F2/110-113). The Metropolitan Police were provided with a report into the activities of Mr Shah which Mr Walters said "certainly indicated that this merited inquiries to be made and that an investigation should be opened". (Day 25, p22, lines 23-24). On 10 October 2006 Detective Superintendent Day advised that "this SAR requires further research… I believe it necessary in the first instance to involve MLIT [Money Laundering Investigation Team]. I have discussed this report with Detective Superintendent Shepherd and he asked that DI Gary Walters be informed and involved in the next steps". (F2/113).
- Mr Walters gave evidence that in October and November 2006 "it was an ongoing matter and I personally was trying to get engagement with a number of different agencies and government departments to try and progress the matter". (Day 20, p162, lines 2-13). He said he discussed the case with SOCA, the FSA and with the City of London Police. (Day 20, p125, lines 1-4).
- On 4 December 2006 the log of events records: "Meeting with Gary Walters. Agreed that DS Simpson would conduct a money laundering investigation in relation to JS Shah and that he would obtain production orders under POCA. Review and decide upon an investigative strategy." (F2/4). Mr Walters said that his investigation was an investigation into "the potential of overseas corruption with monies being laundered into the UK" (Day 20, p113, lines 14-17). On 7 December 2006 the Metropolitan Police served on the Defendant a Production Order obtained under section ss.345(4)(a) and 346 POCA in relation to all accounts held by the Claimants (C4/1121).
- In his closing submissions Mr Downes says that it is clear that the information that the Claimants were seeking included, inter alia, "a 'proper explanation' for the failure to remit the sum of $28m and full details of the investigation" (para 328). The documents referred to by Mr Downes in support of this statement include the letter dated 1 November 2006 from Mr Chiremba to Mr Shah which was handed to HSBC by Mr Shah on 2 November 2006. Mr Chiremba writes:
"It has come to our attention that you and your group of companies are being investigated for certain anti-money laundering activities overseas.
Can you please provide us with full details on this investigation, as a matter of urgency, as it is likely to affect your relationship with the Central Bank." (C3/952).
- Mr Downes submits that it was reasonable in the circumstances for Mr Shah to make the request and reasonable for the Defendant to have answered the request. He suggests that the provision of the information sought, as at 2 November 2006, would not have been likely to prejudice any investigation that might have been conducted. He submits that "at this stage there was no investigation of any sort underway. This was because the information provided at the outset was not sufficiently strong to merit further investigation". (Closing Submissions, para 333a).
- Alternatively Mr Downes submits that by 2 November 2006 there was at the very least a contemplation of legal proceedings that would permit disclosure (POCA, s.333(3)). In support of this submission Mr Downes relies upon Mr Johnson's note at C3/843 ("If the client seeks legal advice this must be at his cost"), and Mr Shah's statement at the meeting on 2 November 2006 ("I then told him that if I was forced to go to court in connection with this case…" (B8/27/3016, Mr Shah's second witness statement at para 173). In my view this evidence falls short of establishing that there were "contemplated legal proceedings" within s.333(3) that would permit the disclosure of the information Mr Shah was seeking at that time.
- In his third witness statement (B6/17/2232) Mr Walters said:
"7. In paragraph 14 of my First Witness Statement, I confirmed that the disclosure of the information requested by the Claimants in correspondence throughout 2007 would have enabled those who were the subject of the investigation to frustrate it and would therefore have been likely to prejudice the investigation referred to above and any other investigation which might have been conducted following the authorised disclosures made by the Defendant. I can confirm that, had this information been requested in November 2006, the same considerations would have applied and its disclosure would therefore have been likely to prejudice the investigation referred to above and any other investigation which might have been conducted following the authorised disclosures made by the Defendant.
8. I understand from the Defendant's solicitors that it is alleged by the Claimants that on 2 November 2006 the Defendant was asked to disclose the following:
(a) the facts that had caused the Defendant to fail to effect two payment instructions in September 2006 and documentary evidence of the same; and
(b) the name of any authority to which the Claimants had been reported with any reference numbers and the dates of any reports.
9. For the same reasons given above and in my First Witness Statement, I consider that the disclosure of this information at the time it was requested would have been likely to prejudice the investigation referred to above and any other investigation which might have been conducted following the authorised disclosures made by the Defendant."
- Mr Downes cross-examined Mr Walters as to prejudice to the investigation that might result from disclosure of the information requested by Mr Shah. Mr Walters said "my thinking at the time was that any and all of the four items of information Mr Shah was seeking were likely to prejudice this investigation" (Day 21, p30, lines 5-19). Later in his evidence Mr Walters said, "Much of the material, as I say, was sensitive in itself. We didn't know how close Mr Shah was to political figures in Zimbabwe and other powerful individuals. We had not got sufficient information to make an assessment of who it would be safe to speak with". (Day 25, p34-35). Mr Walters said, "Principally our concern I think would have been where the money had come from in the first place… the source of those funds". Day 25, p51, lines 3-6). Mr Walters explained, "It was a very discreet operation and we didn't want people to know that it was going on. This was a common way that we would work at that time. We would try and do an investigation with nobody knowing that we were doing it, … so we could track money movements, we could on occasions, not in this case, follow people, use other techniques until we decided that we would need to be overt about it and then we would put—we would change out tactics accordingly". (Day 25, p54, lines 11-21).
- On 23 May 2007 Mr Williamson, Head of SAR Control and Consent at SOCA wrote to former solicitors for the Claimants in response to their request for confirmation as to whether or not any SARs had been made to SOCA in respect of their clients and, in the event that such SARs had been made, for the details of those SARs, as follows:
"Having given careful consideration to your request SOCA has concluded that it is not in a position to disclose whether or not SARs have been made regarding your clients.
Whilst SOCA will always carefully consider the representations made by the subjects of SARs and any third parties, such consideration will be informed, amongst other things, by the duty of confidentiality that it owes to reporters. Home Office Circular 53/2005 'Money Laundering: the confidentiality and sensitivity of Suspicious Activity Reports (SARs) and the identity of those whom make them' ('the Circular') applies to SOCA.
SOCA accepts that there may be some rare circumstances in which the fact of a SAR will be disclosed. However, save for in exceptional cases, SOCA will neither confirm nor deny that any SARs have been made.
We note that your request is made with a view to any information received being provided to an overseas financial authority. Your clients may wish to suggest to the overseas financial authority that it contact SOCA directly for the information it requires. SOCA would consider any requests for information from an overseas financial authority by reference to a number of factors including the nature of that authority, the information requested, the purposes of the request and the provision of any undertaking to keep information provided confidential. SOCA cannot, however, provide any guarantee that it would provide the information requested to the overseas financial authority." (C5/1610).
- On 12 June 2007 Mr Williamson wrote to Kendall Freeman, the Claimants' then solicitors, stating, inter alia, as follows:
"(i) Ordinarily SOCA would neither confirm nor deny that investigation had commenced following the making of a Suspicious Activity Report. There are a number of reasons for this, not least of which is that where an investigation is covert then it would not normally be appropriate, for obvious reasons, to reveal the existence of that investigation. Further, if, as a matter of routine SOCA, when asked, confirmed that there was no investigation into a particular individual this may prejudice SOCA's position in cases where there is an investigation and SOCA responds by making no comment.
(ii) However, in light of the correspondence from RBZ which I have now seen…, and in all the circumstances of this case, I am prepared to confirm to you that SOCA has not been, and is not now, conducting a criminal investigation into your clients." (C5/166).
- As for the "end" date of the investigation Mr Walters was cross-examined in particular in relation to the period between 15 March and July 2007. A Metropolitan Police Service Proactive Assessment and Tasking Proforma (PATP) Closing Report was made on 15 March 2007 by DS Simpson which stated "The financial material that I have reviewed does not take the investigation any further, and the only other means of establishing how SHAH generated his wealth would be to submit a Letter of Request to access his Swiss bank accounts. There are insufficient grounds to do this at this time, and no other viable lines of enquiry with which to progress the investigation." The Report further states that "The papers relating to this investigation will be retained at General Registry". Mr Walters said that he was unaware of the existence of this Report; and that if the file had been archived in General Registry, "it would have had to come by me to be put away… and it didn't". (Day 25, p67, lines 2-6). In fact the Log of Events shows that in June and July 2007 entries were added (Day 25, p163-164). Mr Walter's evidence is that "the investigation was still ongoing". (Day 25, p59, lines 13-18. Also see entries on 16 March, 5 June and 7 June 2007 at F2/6).
- The entry in the Log of Events for 14 June 2007 (F2/6) states: "Sight of letter sent by SOCA to Kendall Freeman, dated 12/06/2007. SOCA state that they have not been and are not investigating SHAH. No information provided as to whether SAR had been made. MPS DLS acting for our interests have confirmed to SOCA that we maintain an interest in SHAH's activities and if asked we would neither confirm nor deny the same." Mr Walters said that what was meant by the phrase "we maintain an interest in Shah's activities" was "That we haven't stopped investigating him. That it's a live case and not one that we have no interest in". (Day 25, p72, lines 20-24). Commenting further on SOCA's letter of 12 June 2007, Mr Walters said that SOCA were aware of his activities (Day 20, p125, lines 23-25). On 18 December 2006 DS Simpson sent request forms to SOCA which outlined a research/operational plan as including, inter alia, "To conduct a money laundering investigation in respect of Jayesh Shah, identify the source of monies being received into his account, and if sufficient evidence, arrest and charge with money laundering/other offences." (F2/187). A "SOCA:Interpol Enquiry Form" (dated 21 December 2006) records that "A covert money laundering investigation is now being conducted (by the Metropolitan Police Service) in relation to SHAH…" (F2/7-8).
Findings of fact in relation to the evidence of Mr Walters
- At the conclusion of his cross-examination Mr Downes put to Mr Walters that he had given deliberately false evidence (1) that the investigation had started by November 2006, (2) that the investigation was continuing in November 2006, and (3) that the investigation was continuing into June 2007. (Day 25, p142, lines 4-16). I reject these allegations.
- In his first witness statement made on 21 December 2008 Mr Walters said at paragraph 13 that the disclosure of the information requested by the Claimants "at the time it was requested by the Claimants (in correspondence throughout 2007 and now) would have risked prejudicing an investigation into the Claimants". Mr Downes submits that was a false statement in December 2008 seeking to assist the Defendant in its case as to the sensitivity of the investigation at that stage. Mr Walters agreed that a line should be put through the words "throughout 2007 and now" (Day 21/34). By July 2007 there was no longer any such risk.
- In assessing Mr Walters' evidence I consider it as a whole. In so doing I reject the suggestion that he was an unsatisfactory witness. In my view Mr Walters was an honest and truthful witness who was doing his best to recall events that took place a number of years ago without the assistance of contemporaneous documentation, much of which was only produced, through no fault of his, at a late stage in the hearing. No motive has been suggested as to why Mr Walters, who has now retired from the Metropolitan Police Service, should attend court to give perjured evidence.
- It is clear from the evidence that the investigation into Mr Shah's affairs commenced very shortly after receipt by the Metropolitan Police of the SAR on 22 September 2006 and continued (at least) until 15 March 2007. The statement in SOCA's letter of 12 June 2007 that "SOCA has not been, and is not now, conducting a criminal investigation into [the Claimants]" (C5/1666) is misleading. (As Mr Lissack observes the letter is not necessarily inaccurate: SOCA do conduct their own investigations (Day 21, p6, lines 7-15); this investigation was being conducted by the MPS).
- The evidence as to whether a criminal investigation was being conducted between 15 March and July 2007 is less clear. The PATP Closing Report suggests that the investigation had come to an end. However the fact that entries were added to the Log of Events in June and July 2007 indicates that the file was not archived in General Registry as the report stated it would be. On 14 June 2006 the Metropolitan Police solicitors advised SOCA that the MPS "maintained an interest in SHAH's activities and if asked we would neither confirm nor deny the same" (F2/6). I accept that Mr Walters was of the view that they had not stopped investigating Mr Shah, however I am not satisfied that there was an ongoing investigation within the meaning of s.342 POCA. The evidence shows that the MPS and other Law Enforcement Agencies continued to have an active interest in Mr Shah's activities and consideration would be given to re-opening the investigation if further evidence was forthcoming.
- Mr Downes submits that there was no risk of prejudice in disclosing the information sought since Ms Shah had revealed to Mr Shah, in the course of her telephone conversation with Mr Kilpin on 23 September 2006, that the US$28million transfer had raised a suspicion and he was under investigation by Law Enforcement. It is contended that by 2 November 2006 Mr Shah was "well and truly tipped off". It is further suggested that in so far as Mr Shah is "wholly innocent" there is no risk of prejudice.
- However whilst no doubt Mr Shah had an "inkling" (C3/A32) of what had happened, his e-mails to Mr Johnson dated 4 November 2006 (C3/963-964) and 16 November 2006 (C3/981-984) do not suggest that he knew the basis on which any disclosure had been made by the bank. Further even if Mr Shah is "wholly innocent", it does not follow that an investigation may not be prejudiced. I accept Mr Walters' evidence that the investigation into Mr Shah extended to third parties and the source of the money. (Day 21, p44, lines 4-11).
- In my judgment the disclosure by the Defendant to Mr Shah would on the evidence of Mr Walters, which I accept, have been likely to have prejudiced the investigation that was being conducted between 25 September 2006 and 15 March 2007 and any investigation that might be conducted during the material period thereafter from 15 March to July 2007.
- The likelihood of prejudice to an investigation has to be judged by reference to the facts available to a bank at the time of the request. Banks will not necessarily know whether a SAR has led to an investigation and, even when they do, they will be unlikely to know the scope of that investigation and whether it extends to third parties (and if so, which third parties). Equally, banks will almost never know whether the customer seeking the information is wholly innocent. But if, on the facts available to the bank at the time of the request, there is a risk of "tipping off", then to avoid potential criminal liability it must refuse the request.
- I am satisfied that on the facts available to the Defendant at the material time the Defendant was at risk of criminal liability for "tipping off" and the Defendant was therefore entitled to refuse the request. On 25 September 2006 SOCA advised Mr Wigley that the Metropolitan Police were "still undertaking their investigation" (C3/791). On 4 December 2006 the Metropolitan Police informed the Defendant that they were conducting an investigation, including a money laundering investigation, into Mr Shah's affairs (see Mr Walters' first witness statement, para 7 [B2/7/937] and his third witness statement, para 6 [B6/17/2231-2232]). On 6 December 2006 SOCA and the Metropolitan Police instructed the Defendant to seek consent for any transaction on any account, including the specific transaction relating to the closure of the account (C4/1117 and 1120). On 7 December 2006 a production order was served on the Defendant in respect of Mr Shah's accounts. On 8 June 2007 the Metropolitan Police advised the Defendant not to disclose any of the information requested by the Claimants (Mr Walters' 3rd witness statement, para 10, at B6/17/2232).
- I reject Mr Downes' submission that if Mr Johnson was in any doubt as to what he could tell Mr Shah he ought to have sought consent from Mr Wigley who would have taken advice and would, no doubt, have in turn sought consent from SOCA. Mr Wigley's view as to whether disclosure could be made is clear from his evidence (see para 170 above). I am satisfied that SOCA would not have given Mr Johnson or the Defendant permission to disclose the information requested by Mr Shah.
Issue 9: did the failure to provide the information cause any loss?
- Mr Shah's evidence with regard to his meeting with Mr Johnson and Ms Shah on 2 November 2006 is set out in his second witness statement at paragraphs 143-177 (B8/3008-3017) where Mr Shah stated, inter alia, as follows:
"158. The letter from RBZ dated 1 November 2006 had made clear that they wanted to know the reason for the concerns that had arisen in the UK stating:
'Can you please provide us with full details of this investigation, as a matter of urgency, as it is likely to affect your relationship with the Central Bank'.
I wanted to use this letter as a means of persuading HSBC to give me full information with regard to the bank's actions so that I could clear my name.
163. I then showed Mr Johnson the RBZ letter of 1 November 2006 and asked him to assist me in helping RBZ understand why HSBC had acted in the way that it had. Mr Johnson then went on to go into a little detail about my position. He told me that I had been the subject of money laundering investigations in the UK, the USA and Switzerland but that I should be glad that I had been cleared and going forward everything should be fine. I asked Mr Johnson for documentary evidence of the bank's 'statutory obligations' in relation to my account but Mr Johnson said that I had to trust him. He did say however that I might ask RBZ to contact their counterparts in the UK and then HSBC would provide the information by this route. He did say that I should tell RBZ that I had been investigated and cleared.
165. I told Mr Johnson that during the course of the investigations at RBZ I had been asked for some explanation as to HSBC's actions but that I had no answer to give. I told him that RBZ wanted to know who I had been reported to and why but again I had no answer. I asked Mr Johnson to provide me with some documentary evidence that I had been investigated and cleared. I tried to explain that it would help greatly if he could provide me with a simple letter stating that on 21 September 2006 I was reported to a certain authority (stating which authority) and that I was investigated and then stating the date I was eventually cleared, confirming that HSBC was satisfied with the clearance received and was continuing to operate my account. This suggestion was immediately turned down by Mr Johnson who said that the bank could not issue such letters.
166. I then proposed that he at least provided me with the name of the authority to whom I was reported with any reference numbers and the dates of the report and that I would, on my own, undertake to go and meet the authority and explain to them the reason I needed the letter of clearance.
171. … Mr Johnson seemed to suggest that in spite of his statement that I had been investigated and cleared there was nevertheless a possibility that investigations were continuing. He said that they were yet to establish if the authorities had finally concluded all their investigations. I remember querying this and making reference to the fact that payment had in fact been made. I said that if investigations were continuing then why was HSBC given the clearance to make the payment on 2 October 2006? He gave no answer. I therefore asked if indeed two reports had been made against me."
- Later in his second witness statement at paragraph 296 (B8/27/3044) Mr Shah stated that in one telephone conversation he had with Ms Shah on 27 April 2007 he "pleaded with her again to release further information to RBZ so that [he] could clear [his] name".
- Mr Shah appears to have taken the view, no doubt realistically, that he needed to satisfy RBZ that he had been cleared of any wrongdoing in the UK. In my view the probability is that the provision of the information he sought (see para 166 above) would not have achieved this objective.
- In any event Mr Shah knew or could have obtained from information in the public domain the identity of the relevant authorities to whom authorised disclosures were made. By 30 October 2006 Mr Shah had come to the conclusion that the action taken by the Defendant may have been under POCA (see e-mail at C3/942). On 2 November 2006 Mr Shah met with Mr Joseph of Kendall Freeman. On 4 November 2006 Mr Shah wrote to Mr Johnson stating, "After having read the provisions of the Proceeds of Crime Act 2002… I am now of the firm view and belief that a full explanation (disclosure as mentioned in the Act) is due to me… thereby confirming that the relevant authorities (which I presume are National Criminal Intelligence Services) to whom HSBC could have made a report were satisfied with my account". The National Criminal Intelligence Services was the forerunner to SOCA.
- Neither SOCA nor the Metropolitan Police would have agreed to the Defendant disclosing the information sought by the Claimants. I accept Mr Walter's evidence to this effect. On 8 June 2007 the Metropolitan Police specifically asked the Defendant not to disclose any of the information requested by the Claimants. By letter dated 23 May 2007 SOCA refused the Claimants' solicitors request for details of the SARs (C5/1610). Subsequently on 12 June 2007, in response to a letter sent by the Claimants' solicitors, SOCA wrote to the Claimants' solicitors refusing to disclose the facts which gave rise to suspicions (C5/1667, para 2).
- Further the fact that SOCA responded to RBZ's letter of 13 January 2007 suggests that the absence of SOCA reference numbers did not prevent SOCA from responding. Mr Shah and the Claimants' solicitors were also able to make contact with SOCA despite the fact that no information was provided by the Defendant (C5/1612-1613, and C5/1610).
- I accept Mr Lissack's submission that in so far as RBZ was troubled by the absence of information from the relevant authorities in the UK, this was not as a result of a failure by the Defendant to provide such information (which it was not in a position to provide for the reasons set out above), but because of SOCA not receiving or responding to RBZ's letter of 15 January 2007 and/or SOCA's refusal to provide the information sought on 23 May 2007.
- I conclude, for all these reasons, that the failure by the Defendant to provide the information requested by the Claimants did not cause the Claimants the losses claimed.
Issues 6 and 10: are such losses recoverable?
- Having concluded that the Claimants fail at each hurdle on liability, I propose to deal with these issues shortly.
(1) Exemption clauses
- First, the Defendant relies on exemption clauses which exclude or restrict liability: (i) for any loss, damage or delay caused in whole or in part by the action of any government or government agency or anything beyond the reasonable control of the Defendant (see clause 13.4 in the March 2004 Conditions (C1/290)); (ii) for any indirect or consequential loss or damage, however arising, whether or not that damage was foreseeable (save as expressly stated in the contract) (see clause 13.5 in the March 2004 Conditions (C1/290)).
- Mr Shah's evidence (Day 4/88-92) is that he was not handed any terms and conditions by Ms Shah in 2002 when he opened the account, and indeed did not see and was not provided with any terms and conditions until 3 November 2006. There was no evidence to the contrary.
- I accept Mr Shah's evidence that he signed the request form to open the account. That raises the question as to which document he signed.
- The Claimants put the Defendant to proof as to the method and date by which the terms were incorporated and how and when they were brought to the attention of the Claimants. The Claimants signed the account opening forms (C1/124-129) which included the statement that "I/We have received a copy of the HSBC Republic terms and conditions and agree that my/our account shall be subject to them" (C1/126). The Claimants signed the retain mail mandate (C1/130-131) which included the following:
"Until you are given notice to the contrary in writing, signed by me/us, you are instructed to retain all mail relating to the above account that you would normally send to me/us (including statements, notices, telexes or facsimile messages), until such a time as I/we present myself/ourselves at your offices to collect such mail. I/we understand that all mail pursuant to the above paragraph is deemed to have been delivered to me/us."
Thereafter the terms and conditions were varied from time to time. On 22 May 2007, following the closure of the account, the retained mail held by the Defendant was returned to him. Mr Shah confirmed in evidence that this contained all the relevant terms and conditions.
- Mr Downes submits that the Defendant has failed to prove that the document in the bundles at C1/94 is the same document as that described at C1/126 as "HSBC Republic terms and conditions". The terms and conditions relied on at C1/94 are described as "Banking Services Terms and Conditions HSBC Investment Bank plc" and not "HSBC Republic terms and conditions". However, I accept Mr Lissack's submission that the fact that the agreement is with HSBC Investment Bank plc is not relevant. On 30 November 2002, the private banking arm of HSBC Investment Bank plc was transferred to HSBC Republic Bank (UK) Ltd (C1/210) in accordance with the HSBC Investment Banking Act 2002. The name was changed to HSBC Private Bank on 8 March 2004 (C1/268).
- Mr Shah is a very sophisticated businessman who has considerable experience of dealing with banks and opening accounts. He gave evidence about his approach to banking contracts. He said: "They are just formalities. They are standard documents. They are formalities, we just sign them. I've always been signing. I've always signed … I didn't bother reading it" (Day 4/94-95). As for the particular banking contract, he said it was his signature but stated that he did not understand that he was accepting the general terms and conditions for the bank (Day 4/109, lines 1-16). He said that he did not take the trouble to read the detail of what he signed and to establish the detail of what the terms and conditions said as they change down the years (Day 4/116, lines 1-5). It was Mr Shah's choice not to read the terms and conditions when he signed the account opening forms. I do not accept that Mr Shah did not understand he was accepting the general terms and conditions.
- In my view Mr Downes is incorrect in contending that the terms and conditions that accompany the account opening forms are those that begin at C1/94. The account opening form is at C1/124 and the terms and conditions that accompanied it begin at C1/150 dated February 2002 (C1/157). They are headed "HSBC Republic Banking Services Terms and Conditions". I am satisfied on the balance of probabilities by reference to the padlock at page 156, next to clause 19 and the corresponding padlock symbol at page 127 that these are the terms and conditions that apply. Under the padlock at page 127 are the words "By signing this agreement you are confirming that you have read and accepted the terms set out next to the padlock symbol in Section 19 of the HSBC Republic Banking Services Terms and Conditions. Section 19 entitled 'Personal Data and Confidentiality' covers your rights when we hold and process personal information." Those words, in my view, in all probability relate to Section 19 "Personal Data – Confidentiality" at page 156. Clause 1.4 (p.151) gives the bank discretion to change the terms and conditions on the specified notice. The two exemption clauses on which the Defendant rely are clause 8.6 (page 152) and clause 20.3 (page 157). Those clauses were varied (see clause 13.4 at page 290) and 13.5 (page 290). By a letter dated 2 February 2004 Ms Shah wrote to the Claimants and said "I have also enclosed amended Terms and Conditions effective from 8 March 2004".
- Mr Downes submits, by reference to the terms of the Retained Mail Mandate (C1/130), that the Defendant can only say that the amended terms and conditions are deemed delivered, not deemed accepted. Mr Downes submits that "if the bank's argument is right it would mean that a customer signing a retain mail mandate was agreeing that the bank could at any time, without notice or warning, unilaterally amend the banking contract and the customer would be bound by the amendment" (closing submissions, para 268a). I reject this submission. The bank is giving notice but by reason of the operation of the retain mail mandate the customer agrees that the notice in this case of the amended terms and conditions, should not be sent to the customer. In those circumstances, in my view, the customer is deemed to have accepted the amended terms and conditions.
- The Claimants appear to suggest that there was an implied qualification to the term in the retained mail mandate which required notice to have been given by another medium (for example by e-mail) if and when reasonably practicable. Mr Downes submits the retained mandate is directed at, for example, material such as bank statements. It cannot, he contends, be read so broadly as to mean that any clause, any variation by the bank becomes binding, knowing full well that the customer does not know about it. In my view there is no reason it should be so limited. Such a qualification contradicts the express term of the contract and there is no basis, in my view, to imply into the contract such an implied qualification.
- Next Mr Downes submits that the exemption clauses were unreasonable under the Unfair Contract Terms Act 1977 ("UCTA"). The burden of proof lies with the bank to displace the statutory presumption of the invalidity of its standard terms (section 11(5)). The evidence to be adduced has to be directed at the matters in schedule 2 of the Act (section 11(2)). This was a matter of substance that Mr Downes submits should not have been ignored by the Defendant. Mr Downes contends that the first four sub-paragraphs in schedule 2 to the Act are matters upon which a bank could be expected to call evidence. The Defendant has not done so. In AEG (UK) v Logic Resource Ltd  CLC 265 at 278, Hobhouse LJ said: "If a party wishes to rely upon clauses, which are caught by the Act and in respect of which he has to discharge a burden of proof of reasonableness, he has to make a positive case and prove whatever is necessary by way of factual background and other commercial considerations that he says suffice to establish the reasonableness of the clause".
- Hobhouse LJ continued at 279:
"What the Unfair Contract Terms Act is concerned with, and in particular Sch.2 para (a) and (c), is among other aspects of reasonableness, the actuality or the reality of the consent of the party that it is sought to bind by the particular clause. Paragraph (c), 'whether the customer knew or ought reasonably to have known of the existence and extent of the term (having regard to, among other things, any custom of the trade and any previous course of dealing between the parties)' presupposes that the clause has already been incorporated in the contract; otherwise the point does not arise. It is necessary in order to assess reasonableness to consider to what extent the party has actually consented to the clause."
- Mr Shah is a highly intelligent, sophisticated businessman with considerable experience of international finance and dealing with banks and financial intuitions. He displays a deep understanding of financial matters. This is not a classic case of inequality of bargaining power between a bank and a customer. Mr Shah said that since 1994 banks have been keen to have his business (Day 4, p.80, lines 12-13). Further I do not accept that Mr Shah did not understand he was accepting the general terms and conditions of the bank (Day 4, p.109, lines 1-16). Mr Lissack submits that the exemption clauses are standard terms and conditions and not unusual; that Mr Shah should reasonably have expected to find in the general conditions some limitation on liability by the bank to its customers; and given his historic difficulties in Zambia, it might reasonably be supposed that he would have appreciated the risk of losses arising from the actions of Governments and agreed terms accordingly. However the fact is that the Defendant did not call evidence directed to establishing the reasonableness of the terms. The bank has not made out a positive case. In the circumstances I am not satisfied that the Defendant has established the reasonableness of the clauses on which they seek to rely.
- For these reasons, in my view, the exemption clauses are not enforceable.
(2) Remoteness of damage
- The next matter to consider is remoteness of damage. The claim is made up of three heads of loss: (i) RBZ forced the Claimants to invest in Zimbabwean government securities. These government securities accrued interest at the rate of 300% to 350% per annum, generating interest payments, between 6 December 2006 and 20 April 2007, of Zim$36,062,985,415. Had the Claimants been allowed to invest in the "open market" during this period, it is said that they would have accrued interest at the rate of 450%, generating interest payments of Zim$47,146,382,419. The Claimants claim the difference of Zim$11,083,397,004.30 as lost interest. (ii) On 28 February 2007 RBZ terminated a loan agreement between Al Shams Global Ltd (a BVI company owned by Mr Shah) and RBZ and deducted US$4,180,000 from the sums due to Al Shams Global Ltd under that agreement. The Claimants claim US$4,180,000 in their claim for damages. (iii) On 20 April 2007 RBZ seized the Claimants' investments in Zimbabwean government securities (which Mr Shah had been required to purchase). On 22 June 2007, RBZ returned the seized investments but without all accrued interest during the period 20 April to 22 June 2007. If the funds had been invested in the open market during that period, it is alleged that they would have accrued interest at the rate of 450% (for the period from 20 April 2007 until 26 April 2007) and at the rate of 550% (from 26 April to 22 June 2007) generating total interest payments for the period of Zim$71,720,233,965. The Claimants claim this amount has lost interest. There is, in addition, a claim for general damages for loss of reputation.
- The test for remoteness is not in issue between the parties. It is whether the loss is of a type that was within the contemplation of the parties as a "not unlikely" result of the breach in question (the Heron II  1 AC 350). Mr Downes submits that it is obviously foreseeable that the actions of banks and the authorities under POCA can have very serious adverse financial consequences for customers, as both Mr Brownlee and Mr Wigley accepted. This was recognised by Ward LJ in UMBS Online v Serious Organised Crime Agency  EWCA Civ 406 at para 8. In Christopher Hill v Ashington Piggeries  3 All ER 1496 at 1524 Davies LJ said:
"… the party who has suffered damage does not have to show that the contract breaker ought to have contemplated as being not unlikely, the precise detail of the damage or the precise manner of its happening. It is enough if he should have contemplated damage of that kind as not unlikely."
In Sylvia Shipping Co. Ltd v Progress Bulk Carriers Ltd  2 Lloyd's LR 81 Hamblen J reviewed the law on remoteness of damages in contract in the light of the House of Lords decision in Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas)  1 AC 61. At paragraph 40 Hamblen J said:
"In my judgment, the decision in The Achilleas results in an amalgam of the orthodox and the broader approach. The orthodox approach remains the general test of remoteness applicable in the great majority of cases. However, there may be 'unusual cases', such as The Achilleas itself, in which the context, surrounding circumstances or general understanding in the relevant market make it necessary specifically to consider whether there has been an assumption of responsibility. This is most likely to be in those relatively rare cases where the application of the general test leads or may lead to an unquantifiable, unpredictable, uncontrollable or disproportionate liability or where there is clear evidence that such a liability would be contrary to market understanding and expectations."
- Mr Downes submits that Mr Shah's evidence as to the scope of Ms Shah's knowledge when he opened the account was unchallenged. Mr Shah said that he "had substantial assets in Zimbabwe and it must have been obvious that the value of those assets would or could be substantially affected if my accounts in the UK were frozen by reason of irrational suspicions of money laundering. Ms Kalpana Shah of HSBC also knew very well that I was engaged in currency dealing in Zimbabwe including lending to banks in Zimbabwe". (Mr Shah's second witness statement, para 19).
- Mr Shah said that the Defendant holds itself out as providing a specialised service aimed at wealthy, highly successful individuals with account facilities in different jurisdictions. He said that Ms Shah knew that as a wealthy Zimbabwean he earned significant sums from trading on the currency exchange markets. She knew that he was well connected in Zimbabwe having close relationships with many senior government officials, including ministers. She also knew that in order to trade on the currency markets in Zimbabwe it is essential to have the blessing of the relevant government agencies, in this case RBZ. Mr Shah refers to RBZ as not only being the central bank of Zimbabwe but also the government's financial investigation unit. He said, "It would be the UK equivalent of the Bank of England and the Serious Organised Crime Agency rolled into one" (first witness statement at para 2c).
- Mr Downes submits that the type of loss claimed here is the disruption to Mr Shah's business (lending monies to banks and other institutions in Zimbabwe) because word got out that he had been reported as a suspected money launderer in the UK.
- However the material breaches of contract are (1) the Defendant's failure to process the Claimants' payment instructions in relation to the four transactions, and (2) the Defendant's failure to provide the Claimants with information as to the facts that had caused it to fail to effect the transactions. The first and second transactions were the critical ones for present purposes. In both cases (as in relation to the third and fourth transactions) the Defendant's stated reason for not effecting the transactions was because it was "complying with his UK statutory obligations". In the case of the first transaction consent was given within seven working days; in the case of the second transaction, Mr Shah cancelled his instructions one day after giving them.
- In my judgment the losses sustained by Mr Shah through RBZ seizing his assets were not foreseeable. It was not foreseeable that if RBZ, or any other third party, was informed that the Defendant bank had not carried out these two instructions given by Mr Shah because they were complying with their UK statutory obligations that RBZ would seize his assets in Zimbabwe and take the action that they did (see para 226 above). I am not satisfied that the losses that it is claimed resulted from these breaches are of a kind that was within the contemplation of the parties as not unlikely to occur. Further in my view this is an "unusual" case where a consideration of the circumstances surrounding the actions of RBZ lead me to the conclusion that there has been no assumption of responsibility by the Defendant for the losses that occurred.
(3) Mitigation of loss
- Finally, in my judgment Mr Shah was able to, but did not, take reasonable steps to mitigate or avoid his loss. The findings I made in respect of Mr Shah's failure to pay Mr Kabra from other funds or sources (see para 142 above) leads me to the conclusion that Mr Shah failed to take reasonable steps to mitigate or avoid his loss. Further Mr Shah did not challenge RBZ's actions through the Zimbabwean courts, as he threatened to do in his letter to Mr Chiremba of 20 April 2007 (see para 133 above). In their Joint Report, Dr Magaisa and Mr Uriri agreed "that since this was administrative action on the part of the RBZ, it was always open to the Claimants to challenge the lawfulness and reasonableness of the so-called 'Directives' depending on whether they were aware of their existence" (para 6.7). No explanation has been given as to why he did not do so. It is strongly arguable in my view that the actions of RBZ, in so far as they relied on the Directive were unlawful for the reasons I have given (see paras 159-161 above).
- In light of the conclusions I have reached on remoteness and mitigation of loss, there is no need to consider quantum.
- In summary my conclusions on the issues to be determined are as follows:
- There is an implied term in the contract that permitted the Defendant to refuse to execute payment instructions in the absence of "appropriate consent" under s.335 POCA where it suspected a transaction constituted money laundering. Mr Wigley constituted the Defendant for the purpose of the Defendant having the relevant suspicion. The Defendant did suspect that the proposed four transactions constituted money laundering.
- The Defendant's delay in executing the payment instructions did not cause any loss. The predominant cause of RBZ's actions was pre-existing and/or independent concerns held by RBZ about Mr Shah's activities, for which the Defendant was not responsible. Further the conduct of Mr Kabra and the conduct of RBZ amount to intervening acts which break the chain of causation.
It is strongly arguable that the actions of RBZ, in so far as they relied on the Directive, were unlawful, but I make no finding that the actions of RBZ were unlawful for the reasons set out at para 161 above.
- The Defendant was not under a duty to provide the Claimants with the information sought. Further or alternatively the Defendant was obliged to refuse to provide the information where the Defendant, its servants or agents, in providing that information might contravene duties under ss.333 and/or 342 POCA.
- The Defendant was obliged to withhold the information sought at all material times until July 2007.
- The failure by the Defendant to provide the information requested by the Claimants did not cause the Claimants any loss.
Issues 6 and 10
- The Claimants are not entitled to recover the losses claimed. The exemption clauses are not enforceable. However the losses that occurred were not foreseeable. Further Mr Shah failed to take reasonable steps to mitigate or avoid his loss.
- Accordingly, for the reasons that I have given, this claim fails.