Shah & Anor v HSBC Private Bank (UK) Ltd

A bank relying on the money-laundering provisions to refuse a customer’s payment instruction must prove the relevant suspicion if challenged. The statutory test requires a possibility, greater than fanciful, that the relevant facts exist. It does not require reasonable grounds or a clear, firmly grounded suspicion. Where suspicion is a disputed primary fact, the bank will not ordinarily obtain summary judgment merely through a solicitor’s evidence. The anti-tipping-off provisions do not make subsequent litigation non-justiciable. A negligence claim based on delay may be dismissed summarily where disclosure was prompt, but an arguable agency duty to keep the customer informed may require a trial.

The appellants claimed damages from their bank for refusing or delaying several payment instructions after the bank made suspicious activity reports under the Proceeds of Crime Act 2002. They also alleged failures to provide information and delay in making disclosures. Hamblen J granted the bank summary judgment in the High Court, reported at (2009) EWHC 79 (QB). The appeal concerned whether the bank had to prove its alleged suspicion at trial, whether the statutory scheme prevented ordinary disclosure and evidence, whether disclosures had been delayed negligently, and whether the bank had breached an agency duty to keep its customer informed.

Longmore LJ delivered the leading judgment. Ward LJ and Lloyd LJ agreed.

1. The bank had to prove that it held the relevant suspicion before it could rely on the statutory money-laundering defence. The test adopted in R v Da Silva [2007] 1 WLR 303 and followed in K Ltd v National Westminster Bank Ltd [2007] 1 WLR 311 required only a possibility, more than fanciful, that the relevant facts existed. Reasonable grounds, clarity, firm grounding and targeting on specific facts were unnecessary. The challenges based on irrationality, negligent self-inducement and mistake had no reasonable prospect of success. Mechanically generated suspicion was theoretically less clear but was unsupported on the evidence.
2. The rejection of those challenges did not mean that the customer had to allege bad faith. The customer remained entitled to require the bank to prove the primary fact of suspicion. Summary judgment was therefore inappropriate where that fact was genuinely in issue and the bank relied only on a solicitor’s statement concerning unidentified employees.
3. The approach to summary judgment under Part 24 of the Civil Procedure Rules required a plain case and caution where disclosure, oral evidence and cross-examination were material. Swain v Hillman [2001] 1 WLR and Equitable Life Assurance v Ernst & Young [2003] EWCA Civ 1114 supported that approach.
4. K Ltd concerned a summary application for an immediate injunction during the moratorium period. Its reasoning did not entitle a bank to reverse summary judgment in later ordinary proceedings. Tipping-off risks could be managed through protective measures, in-chambers decisions and other case-management steps. The statutory scheme did not make the dispute non-justiciable or displace ordinary court procedures without express provision. Summary judgment was set aside on the claim concerning the refusal to execute instructions.
5. The negligence claim failed summarily. The Act did not wholly exclude a banker’s duty of care, but all relevant disclosures had been made within two days of the instructions. Advance consent before any instruction, or disclosure when the funds were deposited, was not seriously arguable.
6. The agency-duty claim was sufficiently arguable for trial. An agent may have to keep the principal informed, especially after a request for information. The tipping-off prohibition applied only while disclosure was likely to prejudice an investigation. Whether information should have been provided in November 2006 or later, and whether this could have avoided the claimed loss, required further inquiry.

The appeal was allowed to those limited extents. Counsel were directed to draw the appropriate order.

• Court of Appeal (Civil Division): Allowed the appeal in limited respects. The claims concerning refusal to execute payment instructions and the agency duty were allowed to proceed to trial. Summary judgment was retained on the negligence claim.
• High Court (Queen’s Bench Division): Hamblen J granted HSBC summary judgment on 26 January 2009, reported at (2009) EWHC 79 (QB).