K Ltd v National Westminster Bank Plc & Ors

Where performance of a bank’s mandate would itself be a criminal offence under Proceeds of Crime Act 2002, the mandate is temporarily suspended. The customer has no enforceable right to compel the payment during that period, and the court should not order conduct that would expose the bank to criminal liability.

For money-laundering purposes, a person suspects a fact where he thinks there is a possibility, more than fanciful, that it exists. The suspicion is subjective and need not rest on reasonable grounds. The statutory disclosure and consent regime permissibly restricts a customer’s ability to require payment and is compatible with Convention rights.

The customer instructed its bank to pay £235,000 to a supplier after funds from the resale of mobile telephones had entered its account. The bank suspected that making the payment would facilitate the use or control of criminal property. It made an authorised disclosure and, after consent was initially refused, withheld payment.

His Honour Judge Gilliland QC, sitting in the Mercantile Court, refused the customer an interim mandatory injunction on 9 September 2005. Consent was granted on 15 September and the payment was made, so the substantive appeal became academic. Costs nevertheless remained in issue.

The appeal concerned whether the bank could lawfully suspend performance of its mandate, the meaning and proof of suspicion, and whether the statutory scheme was compatible with Articles 6 and Article 1 of the First Protocol of the Convention.

1. Appeal dismissed. Longmore LJ, with whom Laws and Ward LJJ agreed, held that a bank which knows or suspects that a customer’s funds are criminal property commits an offence under section 328 if, without authorised disclosure and appropriate consent, it processes a payment which facilitates their use or control. A contractual duty to honour the customer’s mandate is no defence.

2. Where the statute temporarily makes performance unlawful, the mandate contract is suspended rather than breached. During the suspension the customer has no legal right capable of supporting a mandatory injunction. Independently, it would be inappropriate to compel conduct which would render the bank criminally liable.

3. Suspect means that the relevant person thinks there is a possibility, more than fanciful, that the relevant facts exist. In an appropriate case the suspicion must also be settled. The existence of suspicion is subjective: there is no additional requirement for objectively reasonable grounds.

4. The disclosure regime in sections 333 and 338 did not require the bank to identify or call for cross-examination the employee who formed the suspicion. A solicitor could disclose the bank’s position to the court in connection with proceedings. Cross-examining the solicitor would be fruitless, and the statutory protection against tipping off could not be bypassed.

5. The short statutory periods for notice and moratorium strike a proportionate balance between the customer’s freedom to trade and the prevention of money laundering. They neither impair the essence of access to a court under Article 6 nor infringe Article 1 of the First Protocol. The court also rejected, as unsuitable and inconsistent with open justice, a suggested procedure for confidential communication from an investigating authority to the court.

• Court of Appeal (Civil Division): dismissed the customer’s appeal in [2006] EWCA Civ 1039.
• High Court, Queen’s Bench Division, Manchester District Registry, Mercantile Court: His Honour Judge Gilliland QC refused an interim mandatory injunction on 9 September 2005.