Governor and Co of the Bank of Scotland v A Ltd

A bank facing a genuine conflict between its contractual duties, possible accessory liability for breach of trust and the statutory prohibition on tipping off may seek an interim advisory declaration against the investigating authority. Judicial intervention is discretionary and requires a real dilemma.

The bank and investigating authority should first try to agree what information may lawfully be disclosed. Any customer proceedings should then be conducted as openly as possible. An injunction should not be granted against the bank itself merely to prevent it operating the customer’s account.

The bank suspected that money credited to a customer’s accounts might be connected with fraud. It feared liability to the customer if it withheld payment, accessory liability to third parties if it paid, and criminal liability under sections 93A and 93D of the Criminal Justice Act 1988 if it disclosed information concerning the investigation.

On a private application without notice, Lightman J restrained the bank itself from making payments. Laddie J later discharged that injunction, ordered the bank to pay the defendants’ costs and held that the injunction carried an implied cross-undertaking in damages, while deferring whether an inquiry should be ordered.

The bank appealed. The central issues were whether its application and the injunction were justified, what relief is available to a financial institution facing such a dilemma, and whether Laddie J’s costs order should stand.

1. The appeal was dismissed. Lightman J should not have granted an injunction against the bank, which was the only party seeking relief. The order served no useful purpose, intensified the bank’s difficulties and departed unjustifiably from ordinary procedural safeguards. Laddie J was entitled to discharge it and to order the bank to pay the defendants’ costs.

2. A bank account in credit creates a debtor-creditor relationship, not a trust. Nevertheless, a bank may incur equitable accessory liability where it dishonestly assists conduct disregarding a third party’s equitable interest or claim. Liability described as that of a constructive trustee is a formula for equitable relief and does not necessarily mean that the bank is a trustee holding identifiable trust property.

3. The court was inclined to accept that a bank exposed to a genuine risk of accessory liability could seek equitable assistance as a putative fiduciary. It expressed no final view because the point had not been fully argued and modern declaratory jurisdiction made trustee status unnecessary.

4. Where the bank and the investigating authority cannot agree what information may be disclosed consistently with section 93D of the Criminal Justice Act 1988, the appropriate course is an application against the authority for an interim declaration under Part 25.1(1)(b) of the Civil Procedure Rules 1998. The court should give careful weight to the authority’s assessment of prejudice to the investigation. The declaration may identify the information on which the bank may rely and will ordinarily be short-lived.

5. The declaration protects the bank against criminal proceedings if it follows the court’s guidance, but does not automatically defeat claims by customers or third parties. Customer litigation should be conducted as openly as possible. A bank must still make its own commercial decision whether to withhold payment and defend any resulting claim.

6. The power to grant advisory declarations is discretionary. It should be exercised only where a real dilemma requires judicial intervention and must not replace decisions belonging to the financial institution. Section 93D(4) broadly protects a legal adviser when undertaking activities attracting legal professional privilege.

1. Court of Appeal: The appeal was dismissed by joint judgment. Laddie J’s discharge of the injunction and costs order were upheld. Outstanding issues were referred back to him absent agreement.

2. Chancery Division: Laddie J discharged the interim injunction previously granted by Lightman J, ordered the bank to pay the defendants’ costs and held that the order was subject to an implied cross-undertaking in damages. He deferred whether an inquiry into damages should be ordered.

3. Earlier interlocutory proceedings: Lightman J had privately restrained the bank from making payments from the customer’s accounts. Neuberger J later varied that order so the existence of the Chancery proceedings could be disclosed.