N v The Royal Bank of Scotland Plc

A contractual right to close an account without notice may be exercised where the bank considers that exceptional circumstances exist. Established customer complicity or proven fraud is not required. A bank may reasonably act on suspicions of criminal property, commingling, attempted circumvention of an account freeze and the practical impossibility of manually checking transactions. The decision must be taken honestly, rationally and reasonably, after consideration of material circumstances, and with regard to the adverse impact on the customer. The availability of other decisions within the range of reasonable responses does not make the decision unlawful. A contractual payment-processing discretion may likewise be exercised where the bank reasonably considers refusal prudent for crime prevention. On the facts, the contractual and negligence claims failed.

N, an authorised payment institution providing foreign exchange and payment services, maintained numerous accounts with the Bank. In October 2015 the Bank froze accounts associated with suspected investment fraud, then froze N’s main accounts and terminated the banking relationship without notice.

N challenged those decisions in contract and negligence. Earlier interim proceedings had taken place before Burton J and in the Court of Appeal, where the National Crime Agency participated because of the money-laundering context. The trial concerned whether the Bank had lawfully exercised its contractual powers, including the power to close accounts in exceptional circumstances and the power to delay or refuse payments for crime-prevention purposes.

1. Outcome. The claim was dismissed. The Bank’s decision to freeze the main accounts and terminate the relationship without notice was lawful, and the negligence claim failed.
2. Contractual closure power. Clause 9.4 of the Bank’s Account Terms permitted closure without the usual 60 days’ notice where the Bank considered that exceptional circumstances existed. The clause did not require established complicity by N or proven fraud. The relevant decision was the Bank’s decision-maker’s honest, rational and reasonable assessment of the circumstances.
3. Relevant circumstances. The Bank was entitled to consider serious deficiencies in N’s anti-money-laundering systems, suspicions concerning client accounts, commingling between suspect sub-accounts and main accounts, an attempted payment apparently designed to circumvent the freeze, the risk of further dissipation and the impracticality of assessing approximately 150 transactions daily. The Bank also had to consider the impact on N and its clients, but that impact had to be balanced against the risk of facilitating money laundering and further victim harm.
4. Range of reasonable decisions. The existence of other decisions that could honestly, rationally and reasonably have been taken did not place the Bank’s decision outside the range of decisions properly open to it. The Bank was not required to investigate commingling further once the fact of commingling had been identified, nor was it required to adopt proposed alternatives such as manual operation, further ring-fencing or an omnibus suspicious activity report where those options were impractical or ineffective.
5. Payment-processing discretion. The Bank held a reasonable opinion that refusing or delaying payments was prudent in the interests of crime prevention. The opinion was reached after consideration of the material circumstances and, even applying the more demanding standards advanced by N, those standards were satisfied.
6. Negligence. N’s negligence case relied on the same facts and therefore failed on the findings made in relation to the contractual claim. The court did not need to determine the wider effect of Proceeds of Crime Act 2002, section 338(4A), because the Bank succeeded without relying on the statutory protection.

• Court of Appeal: Earlier interim proceedings were considered on appeal in [2017] EWCA Civ 253. The present judgment followed the subsequent trial.
• High Court (Commercial Court): The contractual and negligence claims were dismissed.