Shah & Anor v HSBC Private Bank (UK) Ltd

A bank may have an implied contractual term permitting it to refuse a payment instruction where it suspects money laundering and lacks appropriate consent under the Proceeds of Crime Act 2002 (POCA). The relevant suspicion is subjective: there must be more than a fanciful possibility, but reasonable grounds are not required. The nominated officer’s suspicion may be attributed to the bank where that officer has responsibility and autonomy under the statutory reporting regime.

A bank may also refuse information about suspicious activity reports where disclosure could amount to tipping off or prejudice an investigation under POCA. Loss caused by independent action of a foreign authority was not foreseeable, and the claimants failed on causation, remoteness and mitigation.

The claimants, account holders with the defendant private bank, claimed more than US$300 million in damages. They alleged that the bank had breached contract by delaying four transfers and by refusing to explain the reports made to the Serious Organised Crime Agency.

The bank relied on the POCA consent regime and on implied contractual qualifications protecting it from liability where compliance with the claimants’ instructions or disclosure of information might constitute a criminal offence. The central issues were whether the bank suspected money laundering, whether that suspicion could be attributed to the bank, whether information had to be provided, and whether the alleged breaches caused recoverable loss.

1. Payment instructions. The bank’s contract contained an implied term permitting it to refuse payment instructions while it lacked appropriate consent under section 335 of the Proceeds of Crime Act 2002, where it suspected that the transaction involved criminal property. The implication was required to reflect the statutory regime and the balance struck by Parliament.
2. Attribution and suspicion. The defendant’s nominated officer, Mr Wigley, was appointed de facto and exercised management and control over the relevant decisions. His suspicion was therefore attributable to the defendant. The applicable test was whether he thought there was a possibility, more than fanciful, that the funds were criminal property. The legislation did not require reasonable grounds or a firmly grounded suspicion.
3. The court accepted that Mr Wigley honestly and genuinely suspected that the funds were criminal property in relation to all four transactions. The implied term therefore excused the bank’s refusal or delay in executing them.
4. Information about reports. There was no implied duty requiring the bank to disclose the identity of reporting authorities, reference numbers, consents, or the facts underlying the reports. Such a term would be unworkable and would undermine the statutory reporting regime. Alternatively, the bank was entitled to withhold the information where disclosure might contravene sections 333 or 342 POCA. Disclosure would have been likely to prejudice an investigation, and the bank was obliged to withhold the information until July 2007.
5. Loss. The predominant cause of the Zimbabwean authorities’ actions was their pre-existing and independent concern about the claimants’ activities. The conduct of Mr Kabra and the Zimbabwean authorities also constituted intervening acts. The claimed losses were not foreseeable within the applicable contractual test and the claimants failed to mitigate their loss.
6. The exemption clauses relied on by the bank were not enforceable because the bank had not proved their reasonableness under the Unfair Contract Terms Act 1977. That did not affect the outcome. The claimants failed on liability, causation, remoteness and mitigation. The claim was dismissed.

This was a first-instance trial. The judgment referred to two earlier Court of Appeal decisions in the same litigation: [2010] EWCA Civ 31 and [2011] EWCA Civ 1154. Those decisions were not decisions under appeal in this judgment.