Customs & Excise v Barclays Bank Plc

A bank that receives notice of a freezing injunction over its customer’s account owes the claimant a duty of care to take reasonable care to prevent funds covered by the order being dissipated in breach of it. The duty arises on service of the order. It does not depend on an express assumption of responsibility, a later acknowledgment by the bank, or reliance on that acknowledgment. A bank is not an adverse party to the litigation merely because its customer is the defendant. Contempt remedies do not displace the duty, since contempt is directed to securing obedience and may not compensate the claimant. The threefold, assumption-of-responsibility and incremental approaches should be used as mutually checking methods in a novel economic-loss case.

The Commissioners obtained freezing injunctions against Brightstar Systems Ltd and Doveblue Ltd in respect of unpaid VAT. The orders identified accounts held with Barclays Bank and were served on the Bank. Shortly afterwards, the Bank permitted substantial payments from both accounts.

The Commissioners later obtained judgments and garnishee orders but remained unable to recover the sums transferred. They brought negligence claims against the Bank, and the duty-of-care issue was tried as a preliminary issue on assumed facts. Colman J held that no duty arose at the relevant time, although the Bank’s letters might have amounted to an assumption of responsibility; there had been no reliance before the payments. The central issue on appeal was whether service of the freezing orders itself created a duty of care.

Appeal allowed unanimously. Longmore LJ gave the leading judgment; Lindsay J and Peter Gibson LJ agreed. The order on the preliminary issue was set aside, and a declaration was made that the Bank owed the Commissioners a duty of care when the alleged payments were made.

1. The Bank was not a party, or quasi-party, to the litigation between the Commissioners and the debtor companies. The rule concerning adverse litigants therefore did not prevent proximity. The customer’s mandate was revoked, in relation to the frozen funds, when the Bank received notice of the order. Z Ltd v A-Z and AA-LL [1982] QB 558 did not support treating the Bank as an adverse litigant.
2. Applying the threefold approach, loss was foreseeable. Notice of an order identifying the Bank’s accounts created a close relationship because the Bank knew that the Commissioners sought to preserve those funds. It was fair, reasonable and just to require reasonable care. The contempt jurisdiction did not provide an adequate compensatory remedy and did not exclude tortious liability.
3. The threefold test, assumption-of-responsibility approach and incremental approach should be considered in turn. Each provides a check on the others. The absence of an express assumption of responsibility is not conclusive. The law may recognise or impose responsibility objectively, as explained in Phelps v Hillingdon London Borough Council [2001] 2 AC 619 and Merrett v Babb [2001] QB 1174.
4. The present case was not simply a Hedley Byrne v Heller [1964] AC 465 claim concerning negligent statements or services. The Bank’s duty was to assist in monitoring compliance with a court order. The duty arose when notice was received, not when the Bank later acknowledged service, and no reliance on the acknowledgment was required.
5. The incremental approach also supported the result. Recognising liability involved only a small extension of established negligence principles and did not impose liabilities different in kind from those already familiar to banks. Lindsay J added that an express or implied disavowal of responsibility would remain relevant and could sometimes be conclusive, but the appeal did not require deciding the effect of a hypothetical disavowal.

1. Court of Appeal (Civil Division): Appeal allowed; the preliminary-issue order was set aside and a declaration made that the Bank owed the Commissioners a duty of care. [2004] EWCA Civ 1555.
2. High Court (Commercial Court): Colman J held that the Bank owed no duty at the relevant time, because any assumption arising from its letters was received after the payments and had not been relied upon. [2004] EWHC 122 (Comm).