Her Majesty's Commissioners of Customs and Excise (Respondents) v. Barclays Bank plc (Appellants)

Notification of a freezing injunction does not of itself make a bank or other third party liable in negligence to the applicant for carelessly permitting the restrained assets to be dissipated. The notification imposes an obligation to respect the court's order, enforceable through contempt, rather than a private duty of care.

For pure economic loss, an objective assumption of responsibility is sufficient but not essential to liability. Where it is absent, the court must examine foreseeability, proximity and whether imposing a duty is fair, just and reasonable, with incremental analogy as a cross-check. It is not fair, just and reasonable to impose potentially substantial liability merely because an involuntary third party has received notice of an order.

The Commissioners obtained freezing injunctions against two companies which owed substantial VAT. Each order identified an account held by Barclays Bank plc. After the Bank had been notified, payments were mistakenly authorised from the accounts. The Commissioners obtained judgments against the companies but could not recover the sums paid away.

On a preliminary issue, Colman J held that the Bank owed no duty of care: [2004] EWHC 122 (Comm), [2004] 1 WLR 2027. The Court of Appeal reversed that decision: [2004] EWCA Civ 1555, [2005] 1 WLR 2082.

The central issue was whether notification of a freezing injunction created a tortious duty to take reasonable care to prevent payments from the restrained account, so that the applicant could recover pure economic loss caused by negligent non-compliance.

1. Appeal allowed unanimously. The House restored Colman J's order and dismissed the Commissioners' claim. All five Law Lords concluded that the Bank owed no duty of care to the Commissioners.

2. Lord Bingham, Lord Rodger and Lord Mance held that assumption of responsibility is a sufficient but not necessary basis for liability for pure economic loss. It is assessed objectively. If responsibility has not been assumed, the court must still consider reasonable foreseeability, proximity and whether a duty would be fair, just and reasonable. Incremental development by analogy is a useful cross-check, but not a self-sufficient test.

3. Lord Bingham, Lord Hoffmann, Lord Rodger and Lord Mance concluded that the Bank had not assumed responsibility to the Commissioners. Its involvement was compelled by the freezing orders. The Bank's confirmation that it would comply merely acknowledged its existing legal obligation. The Commissioners relied upon the court's power to enforce its order, rather than upon a voluntary undertaking by the Bank.

4. A freezing injunction restrains dealings with assets to prevent frustration of a prospective judgment. It does not give the applicant security or a proprietary interest. A notified third party must not knowingly frustrate the court's purpose and may be punished for contempt. That obligation is owed to the court. The order and its notification do not themselves create an additional private duty to the applicant.

5. Foreseeability was conceded. The Law Lords differed in emphasis concerning proximity: Lord Walker and Lord Mance considered the relationship sufficiently proximate, while Lord Bingham and Lord Rodger regarded proximity as weak or absent. The common and determinative conclusion was that imposing a duty was not fair, just and reasonable.

6. The proposed duty would apply not only to regulated banks but to any person notified of a freezing order and holding restrained property. It would expose an involuntary third party to potentially very large damages for negligence, in addition to the order's contempt regime. Lord Walker found the position of banks more arguable, but agreed that extending the duty to all notified third parties would produce unfair and unreasonable results.

1. House of Lords: In Her Majesty's Commissioners of Customs and Excise v Barclays Bank plc [2006] UKHL 28, the House unanimously allowed the Bank's appeal, restored Colman J's order and dismissed the claim.
2. Court of Appeal: In [2004] EWCA Civ 1555, [2005] 1 WLR 2082, the court reversed Colman J and held that the Bank owed the Commissioners a duty of care.
3. High Court: Colman J determined the preliminary issue in favour of the Bank, holding that no duty of care arose: [2004] EWHC 122 (Comm), [2004] 1 WLR 2027.