BANKING


Finance & civil procedure - criminal law - authorised disclosures - banker customer relationship - interim injunctions - money laundering - suspicion - bank declining to honour mandate

K Ltd (appellant) v National Westminster Bank plc (respondent) & (1) Revenue & Customs (2) Serious Organised Crime Agency (interveners): CA (Civ Div) (Lords Justice Ward, Laws, Longmore): 19 July 2006



The appellant company (K) appealed against the refusal of its application for an interim injunction requiring the respondent bank (N) to comply with payment instructions given by K.



K had entered into transactions to purchase a consignment of mobile telephones and to sell the same phones to a Swiss company. The Swiss purchaser had paid the agreed sale price into K's account with N from an account in the Netherlands Antilles, and on the same day K instructed N to pay the purchase price to the seller. N declined to make the payment on the ground that to do so would mean that it would become concerned in an arrangement that it suspected would facilitate the use of criminal property by K within section 328 of the Proceeds of Crime Act 2002.



To avoid committing a criminal offence, N had therefore made an authorised disclosure to Customs to obtain the appropriate consent. K applied for an interim injunction requiring N to comply with its instructions.



The judge refused the application on the basis that Parliament had laid down a statutory scheme to prevent money laundering and, once N stated that it suspected money in K's account was criminal property, that was an end of the matter. K submitted that if N was going to rely on a suspicion that the money in K's account was criminal property, it should have given admissible evidence to the court of any such suspicion on which it could be cross-examined, since otherwise a customer's account could be effectively frozen even if a suspicion had not been entertained, and that the court should give guidance on what in law could constitute suspicion.



Held, since the law made it a criminal offence to honour K's mandate in the circumstances, there could be no breach of contract for N to refuse to honour its mandate and there could, equally, be no invasion or threat of invasion of a legal right by N such as was required before K could apply for an injunction. There would be no issue to be tried in any later legal proceedings, and any application for an interlocutory mandatory injunction had to be dismissed.



In a case where a statute made it temporarily illegal to perform a contract, the contract would be suspended until the illegality was removed, but during the suspension no legal right existed on which any claim to an injunction could depend. Even if that was wrong, the fact remained that during the period for making disclosure and obtaining consent, N would be acting illegally by processing the cheque. It would be inappropriate for the court to require the performance of an act that would render the performer of the act criminally liable, and as a matter of discretion any injunction should be refused.



The definition of suspicion for criminal cases applied also to civil cases, namely that the person must think that there is a possibility, which was more than fanciful, that the relevant facts existed (R v Da Silva (Hilda Gondwe) (2006) EWCA Crim 1654 applied). The existence of suspicion was a subjective fact. There was no legal requirement that there should be reasonable grounds for the suspicion. The relevant bank employee either suspected or he did not. If he did suspect, he had to inform the authorities either himself or through the bank's nominated officer. The provisions of section 333 of the Act permitting only the bank's professional legal adviser to make a disclosure on its behalf, and then only for the purpose of court proceedings, could not be side-stepped. Parliament had struck a precise and workable balance of conflicting interests in the Act.



The limited interference under the Act with K's contractual rights against its banker did not impair the right of access to the courts under article 6 of the European Convention on Human Rights in anything more than a short suspensory manner, and was in any event a legitimate aim pursued in a proportionate manner. There was no breach of protocol 1, article 1 to the convention.



Appeal dismissed.



Barbara Dohmann QC, David Berkley QC, Pepin Aslett (instructed by Blacks) for the appellant; Richard Lissack QC, Paul Downes (instructed by DLA Piper Rudnick Gray Cary) for the respondent; Andrew Mitchell QC, Peter de Verneuil Smith (instructed by the solicitor for Revenue & Customs and the Serious Organised Crime Agency) for the interveners.





COSTS



Civil procedure - addition of parties - joint and several liability - non-parties - non-party costs orders - controlling, funding and benefiting from litigation - security for costs

Petromec Inc v Petroleo Brasileiro SA Petrobras: CA (Civ Div) (Lords Justice Ward, Laws, Longmore): 19 July 2006



The appellant (E) appealed against a decision ((2005) EWHC 2430 (Comm)) adding him as a party to the proceedings, and making him jointly and severally liable for the costs that the claimant (C) had been ordered to pay to the successful defendants (P).

The proceedings arose out of a complex series of contractual relationships in relation to the purchase, upgrading and subsequent total loss of a semi-submersible oil production platform. The platform was to be used by P. The upgrading was to be performed by C. C had been set up for that purpose by another company (M), which had a long history of successful trading with P.



M was 60% owned by E and 40% by another company (S) in which E was interested. The proceedings had resulted in substantial orders for costs against C, which had not been discharged.



On P's application, the judge found that E had controlled the proceedings brought by C, funded those proceedings and would have benefited from them if they had been successful. He therefore thought it right that E should pay P's costs as the successful defendants.



Following the loss of the platform, C had received the proceeds of insurance out of which it had retained money to fund the litigation. The judge held that when that money was exhausted, C had borrowed money from sources controlled by E. E submitted that there was no evidence to support the judge's conclusion that the funds made available to C to fund the litigation had been made available at the request of E to meet his personal and business requirements; it was a prerequisite for the exercise of the court's jurisdiction under section 51 of the Supreme Court Act 1981 that E should have himself funded the litigation; the judge should not have made an order for costs against E because P had obtained an order for security for costs.



Held, the judge had been correct to hold that E controlled the proceedings brought by C, that funds for those proceedings were made available out of sums available to E, and that any recovery from the proceedings would benefit E. In those circumstances, it was a short and correct further step to hold, if it was necessary to hold, that E had funded the proceedings.



Actual funding was not a jurisdictional prerequisite to the exercise of the court's discretion under section 51. If the evidence was that a person, whether director or shareholder or controller of a relevant company, had effectively controlled the proceedings and had sought to derive potential benefit from them, that would be enough to establish the jurisdiction. Whether the jurisdiction should be exercised was another matter and the extent to which a person had, in fact, funded any proceedings might be relevant to the exercise of discretion. In any event, in this case E had funded the proceedings throughout (Dymocks Franchise Systems(NSW) Pty Ltd v Todd (2004) UKPC 39, (2004) 1 WLR 2807, and Goodwood Properties Ltd v Breen (2005) EWCA Civ 414, (2006) 2 All ER 533 considered).



The ability to obtain an order for security for costs and the existence of any security put up as a result of such an order were matters that a judge had to take into consideration - and the judge had had those factors clearly in mind. The fact that in the course of the proceedings a judge had ordered security that, in the event, had turned out to be inadequate was not any reason for declining to exercise jurisdiction in an otherwise appropriate case. This case was not one of a liquidator or director bringing proceedings for the benefit of the company (Metalloy Supplies Ltd (In Liquidation) v MA (UK) Ltd (1997) 1 WLR 1613 distinguished).



Appeal dismissed.



Andrew Neish (instructed by Barlow Lyde & Gilbert) for the appellant; Christopher Hancock QC, Malcolm Jarvis (instructed by Linklaters) for the respondent.





LEGAL PROFESSION



Legal advice and funding - breach - conditional fee agreements - disclosure - investigations - legal expenses insurance - prejudice - solicitors' powers and duties

Deborah Garrett v Halton Borough Council; David Myatt & Ors v National Coal Board: CA (Civ Div) (Lords Justice Brooke, Dyson, Lloyd, Senior Costs Judge Peter Hurst): 18 July 2006



The appellant (G) appealed against a decision upholding the disallowance of her solicitors' costs by reason of their failure, when recommending the after-the-event (ATE) insurance that they had, to inform her whether they had an interest in doing so, in breach of regulation 4(2)(e)(ii) of the Conditional Fee Agreements Regulations 2000.



The appellant in a joined case (M) appealed against a decision that the conditional fee agreement (CFA) he had entered into was unenforceable by reason of his solicitors' failure, in breach of regulation 4(2)(c) of the 2000 regulations, to inform him whether they had considered that he had relevant before-the-event (BTE) insurance cover.



In G's case, her solicitors had recommended that she enter into an insurance policy that was dictated by their membership of the panel of a claims management company. In the CFA, it was stated that 'we do not have an interest in recommending this particular insurance agreement'. However, the solicitors asserted that they had orally informed G that they were on the relevant panel. The district judge and, on appeal, the judge held that the solicitors had breached regulation 4(2)(e)(ii).



In M's case, the master held that when telephoning him to ascertain whether he had BTE cover, his solicitors had asked him the wrong questions.



The Law Society, intervening, argued that Hollins v Russell (2003) EWCA Civ 718, (2003) 1 WLR 2487 required the court to consider whether the client had suffered actual prejudice as a result of an alleged failure to satisfy the conditions referred to in section 58(3) of the Courts and Legal Services Act 1990 and the 2000 regulations. It also argued that the unusual features of the statutory scheme were such that the enforceability of a CFA was to be judged by reference to the circumstances known to exist at the time when the question arose for decision, not by reference to the circumstances existing at the time when the CFA was entered into.



In respect of G's case, it argued that the word 'interest' in regulation 4(2)(e)(ii) should be construed narrowly so as to mean only a direct financial interest such as commission. M argued that in his case the master had misunderstood the evidence.



Held, the question of whether or not the client had suffered actual prejudice as a result of a failure to comply with a condition had not been decided in Hollins (Hollins explained). As to that question, the starting point had to be the clear and uncompromising language of sections 58(1) and 58(3) of the 1990 Act. If one or more of the applicable conditions was not satisfied, the CFA would be unenforceable. Parliament had to be taken to have deliberately decided not to distinguish between cases of non-compliance that were innocent and those that were negligent or committed in bad faith, or between those that caused prejudice and those that did not. The conditions stated in section 58(3)(c), and in particular the requirements prescribed in the regulations, were for the protection of solicitors' clients. Parliament had considered that the need to safeguard the interests of clients was so important that it should be secured by providing that, if any of the conditions were not satisfied, the CFA would be unenforceable and the solicitor would not be paid.



Accordingly, the question of whether the client had suffered actual prejudice as a result of a failure to comply with a condition was not relevant to the question of whether the solicitor had breached a condition (Wilson v Secretary of State for Trade and Industry (2003) UKHL 40, (2003) 3 WLR 568, Smith (Administrator of Cosslett (Contractors) Ltd) v Bridgend County Council (2001) UKHL 58, (2002) AC 336, and Jones v Caradon Catnic Ltd (2005) EWCA Civ 1821 applied).



The enforceability of a CFA was to be judged by reference to the circumstances existing at the time it was entered into.



The word 'interest' in regulation 4(2)(e)(ii) was not ambiguous. The regulations should be construed by giving the plain language in which they were expressed its normal and natural meaning. The word 'interest' included membership of a panel such as the one to which G's solicitors belonged. Her solicitors had had an interest in recommending the policy that they had recommended, since a failure to do so would have resulted in the termination of their panel membership, and they had not sufficiently disclosed that interest by merely informing G that they were on the relevant panel.



In M's case, the master had been correct to conclude that his solicitors had asked him the wrong questions. The steps that a solicitor should take to discharge his obligation under regulation 4(2)(c), to enquire into the availability of insurance cover would depend on all the circumstances of the case. While it was not possible to give rigid guidance as to the questions that a solicitor should ask in every case, the following factors would be relevant: the nature of the client, the circumstances in which the solicitor was instructed, the nature of the claim, the cost of the ATE premium, and, if the claim had been referred to solicitors who were on a panel, the fact that the referring body had already investigated the question of the availability of BTE.



Appeals dismissed.



Nicholas Bacon (instructed by Websters) for the appellant Garrett; Donald McCue (instructed by Ollerenshaws) for the appellants in Myatt; Jeremy Morgan QC, Benjamin Williams (instructed by Keoghs) for the respondent Halton BC; Jeremy Morgan QC, Judith Ayling (instructed by Nabarro Nathanson) for the respondent National Coal Board; Richard Drabble QC, David Holland for the intervener.