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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> K Ltd v National Westminster Bank Plc & Ors  EWCA Civ 1039 (19 July 2006)
Cite as:  CP Rep 4,  4 All ER 907,  EWCA Civ 1039,  2 All ER (Comm) 65,  Bus LR 26,  2 Lloyd's Rep 569,  WLR 311,  1 WLR 311
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MANCHESTER DISTRICT REGISTRY: MERCANTILE COURT
His Honour Judge Gilliland QC
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE LAWS
LORD JUSTICE LONGMORE
| K Ltd
|- and -
|NATIONAL WESTMINSTER BANK Plc
|- and -
HM REVENUE AND CUSTOMS
SERIOUS ORGANISED CRIME AGENCY
(instructed by Blacks Solicitors LLP, LS2 8NG) for the Appellant
RICHARD LISSACK Esq QC and PAUL DOWNES Esq
(instructed by DLA Piper Rudnick Gray Cary, EC2V 7EE) for the Respondent
ANDREW MITCHELL Esq QC and PETER de VERNEUIL SMITH Esq
(instructed by The Solicitor's Office, HM Revenue and Customs, WC2R 1LB
and The Serious Organised Crime Agency, SE11 5EN)for the Intervenors
Hearing date : 7th June 2006
Crown Copyright ©
Lord Justice Longmore :
This appeal raises questions of construction in relation to the money-laundering provisions in part 7 of the Proceeds of Crime Act 2002 ("the 2002 Act"). Section 328 of that Act provides:-
(1) A person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.
(2) But a person does not commit such an offence if –
(a) he makes an authorised disclosure under section 338 and (if the disclosure is made before he does the act mentioned in subsection (1)) he has the appropriate consent . . . . ."
"(1) The appropriate consent is –
(a) . . . .
(b) the consent of a constable to do a prohibited act if an authorised disclosure is made to a constable;
(c) the consent of a customs officer to do a prohibited act if an authorised disclosure is made to a customs officer.
(2) A person must be treated as having the appropriate consent if –
(a) he makes an authorised disclosure to a constable or a customs officer, and
(b) the condition in subsection (3) or the condition in subsection (4) is satisfied.
(3) The condition is that before the end of the notice period he does not receive notice from a constable or customs officer that the consent to the doing of the act is refused.
(4) The condition is that –
(a) before the end of the notice period he receives notice from a constable or customs officer that consent to the doing of the act is refused, and
(b) the moratorium period has expired.
(5) The notice period is the period of seven working days starting with the first working day after the person makes the disclosure.
(6) The moratorium period is the period of 31 days starting with the day on which the person receives notice that consent to the doing of the act is refused."
In the present case HM Revenue and Customs refused consent within the notice period of 7 working days but they granted consent before the moratorium period of 31 days expired.
The Customer had a business account since July 2001. On 18th August 2005 it made two transactions:-
(1) a contract to purchase a consignment of mobile telephones from Fones Centre Ltd ("Fones") for £200,000 plus VAT (viz £235,000 in all);
(2) a contract to sell the same telephones to a Swiss company for £215,200. The VAT paid on the purchase would be reclaimable since the purchase was made for export. That meant that the Customer would make a profit of £20,000 on the transaction.
About the same time the Customer's director, Mr H explained to the Manager (Mr Gibson) who was responsible for his account that he would need to make a substantial payment to Fones. On 22nd August the Swiss purchaser paid £215,200 into the Customer's account at the Bank from an account in the Netherlands Antilles and on the same day Mr H instructed the Bank by fax to pay Fones £235,000. On 23rd August Mr Gibson wrote to Mr H saying that the Bank could not currently comply with his instructions and could not enter into any further discussion of the matter. The Customer immediately put the matter in the hands of its solicitors who, after letters before action, applied to the court for an injunction on 6th September. The court adjourned the application until 9th September and a formal notice of application was issued by the Customer on the following day. Meanwhile the Bank (after consultation with Revenue and Customs) caused a letter of 6th September to be sent by its solicitors to the effect that it had made a disclosure to the Customs. On 9th September the judge refused the application on the basis that Parliament had laid down a statutory scheme to prevent money laundering and, once the Bank stated that it suspected money in the Customer's account was criminal property, that was an end of the matter.
Ms Barbara Dohmann QC appeared to argue the appeal for the Customer. She submitted:-
(1) the Bank by refusing to honour its customer's instructions, was acting in breach of the contract of mandate whereby the Bank had agreed to honour its Customer's instructions;
(2) that the judge should have restrained the Bank from continuing to act in breach of contract and should have granted the injunction sought;
(3) that if the Bank was going to rely on any suspicion that the money in the Customer's account was criminal property, it should have given admissible evidence to the court of any such suspicion. A solicitor's letter which baldly stated that the Bank had made a disclosure was insufficient because
(a) it did not identify the fact that the Bank entertained any suspicion on the matter;
(b) it did not identify who in the Bank had had any such suspicion;
(4) if there had been admissible evidence before the court, the maker of the statement could be cross-examined on the question whether he did actually entertain a suspicion and (perhaps) whether there were any grounds for such suspicion. Otherwise, a customer's account could be effectively frozen even if a suspicion had not been entertained; the Court's guidance was sought on what in law could constitute suspicion;
(5) if the judge was right that the court was powerless to question whether the Bank did have any suspicion, the customer was deprived of access to a court which was his right under Article 6 of the European Convention on Human Rights ("the Convention"), or deprived of his possessions under Article 1 of the First Protocol of the Convention and therefore the statutory provision should be interpreted (or read down) to avoid such a result.
(1) it had been agreed that the solicitors' letter of 6th September could be treated as evidence;
(2) on that basis it was clear that the Bank did entertain a relevant suspicion;
(3) once the Bank did entertain such a suspicion, it would be a criminal offence for them to perform the required transaction; no court should grant an injunction which required a defendant to act illegally;
(4) it was not contemplated by Parliament that a banker (or anyone else) should be cross-examined as to whether a suspicion was entertained; suspicion was an ordinary English word on which no guidance was needed from the court; in any event a moratorium of 7 working days + 31 ordinary days (= 40 days in all) was too short a time for any meaningful investigation to take place;
(5) the Human Rights Convention had no part to play.
There can be no doubt that, if a banker knows or suspects that money in a customer's account is criminal property and, without making disclosure or without authorised consent (if disclosure is made), he processes a customer's cheque in such a way as to transfer that money into the account of another person, he facilitates the use or control of that criminal property and thus commits an offence under section 328 of the 2002 Act. It would be no defence to a charge under that section that the Bank was contractually obliged to obey its customer's instructions.
The Customer forcefully submits that it cannot be enough merely for the Bank to say that it suspects that processing a cheque will facilitate the use or control of criminal property. It must say so in a properly admissible form, stating who in the Bank has formed the suspicion, and be prepared to be cross-examined on that question. The fact that the Bank's solicitors letter was agreed to be received in the evidence in the present case does not conclude this question since the letter did not identify the person in the Bank who had the relevant suspicion and was not in a form amenable to render any Bank official liable to be cross-examined as to whether he had the relevant suspicion or not. It is in this context that the definition of "suspicion" or "suspect" arises because, in the absence of any legal definition, it is unclear whether a bank official had a true suspicion or not.
"Thus any inkling or fleeting thought that the property might be [criminal property] will suffice". See Volume II, section VIII 008-009.
A disclosure by a banker to the authorities that he suspects he is being asked to facilitate the use or control of criminal property is an authorised disclosure pursuant to section 338 of the 2002 Act. Thereafter the tipping-off provision contained in section 333 of that Act comes into effect. That section provides:-
"(1) A person commits an offence if –
(a) he knows or suspects that a disclosure falling within section . . . . 338 has been made, and
(b) he makes a disclosure which is likely to prejudice any investigation which might be conducted following the disclosure referred to in paragraph (a).
(2) But a person does not commit an offence under subsection (1) if –
(a) he did not know or suspect that the disclosure was likely to be prejudicial as mentioned in subsection (1);
(b) the disclosure is made in carrying out a function he has relating to the enforcement of any provision of this Act or of any other enactment relating to criminal conduct or benefit from criminal conduct;
(c) he is a professional legal adviser and the disclosure falls within subsection (3).
(3) A disclosure falls within this subsection if it is a disclosure –
(a) to (or to a representative of) a client of the professional legal adviser in connection with the giving by the adviser of legal advice to the client, or
(b) to any person in connection with legal proceedings or contemplated legal proceedings.
(4) But a disclosure does not fall within subsection (3) if it is made with the intention of furthering a criminal purpose."
This section makes it clear that a banker who makes a disclosure which he knows or suspects is likely to prejudice any investigation commits a criminal offence. The only sure way in which such an offence can be avoided is if the banker avails himself of sub-section 2(c) and procures his professional legal adviser to make the relevant disclosure and then only to a person in connection with legal proceedings pursuant to sub-section 3(b). The Bank in the present case correctly followed this statutory route of disclosure and procured its solicitors to make the relevant disclosure to the court by the letter of 6th September 2005, when they were sued by the claimant for an injunction.
(1) The existence of suspicion is a subjective fact. There is no legal requirement that there should be reasonable grounds for the suspicion. The relevant bank employee either suspects or he does not. If he does suspect, he must (either himself or through the Bank's Nominated Officer) inform the authorities;
(2) The provisions of the statute permitting only the bank's professional legal adviser to make a disclosure on its behalf and then only for the purpose of court proceedings cannot be side-stepped.
"to provide for some procedure whereby the arbitrary and capricious exercise of power should be prevented by the court being told, in confidence by the relevant authority, whether or not an investigation is in progress and the general nature of that investigation, so that the court could form a view – a view as to the likely success of the applicant at trial in obtaining the relief he seeks or the Bank committing an offence if it makes the transfer without the relevant consent."
I fear that I do not think it would be satisfactory or acceptable for SOCA to communicate privately to the court without the court being able to communicate to the claimant. That would not be open justice. Insofar as Judge Norris was concerned about arbitrary or capricious exercise of power by SOCA (or any other relevant authority) that can be catered for by judicial review. I did not understand Mr Mitchell to assert that SOCA (or any other authority) were not amenable to judicial review on ordinary principles. That is not a matter with which this court is concerned on this application. The only matter with which this court is presently dealing is whether the Bank had a suspicion that the money in its customer's account was criminal property. But again for the Bank to communicate its suspicion to a judge in private would not be right either. Quite apart from the elementary principle of open justice, the court might be put in a position where its own view was that the Bank did not hold a suspicion (perhaps because it thought that any suspicion could not reasonably be held) but the SOCA took a contrary view. An expression of view by the court in the absence of SOCA could not bind them; it would also be a misuse of resources for them to have to instruct counsel in every case in order that they could be bound by the result. For all these reasons I do not think it right for the judge to be drawn into dealing with these matters in the absence of the claimant. It is quite unlike debates about privileged documents when the judge sometimes sees the documents and makes up his own mind whether privilege is rightly claimed. In such cases the litigation is well developed and the issues can be debated, at any rate in outline, with all parties present.
Quite correctly Ms Dohmann did not press her arguments on the Convention very hard in the course of oral argument. In relation to Article 6 she relied on Ashingdane 14/1983/70/106 paragraph 57 for the uncontroversial proposition that, while national courts are entitled to regulate the right of access to their courts, such regulation must not impair the essence of that right and must pursue a legitimate aim in a proportionate manner. However, the limited interference with the claimant's common law rights to require its banker to perform its contract (which is constituted by the Proceeds of Crime Act) does not in my view impair the right of access to the courts in anything more than a short suspensory manner and, for the reasons given in paragraph 22 above, is in any event, a legitimate aim pursued in a proportionate manner.
For these reasons I would hold with Judge Gilliland QC that Parliament has laid down the relevant procedure with which the Bank has lawfully and properly complied and I would dismiss this appeal.
Lord Justice Laws:
Lord Justice Ward: