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

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    12.  There was discussion in argument whether the relationship of the Commissioners and the Bank as a notified party, was adverse or antagonistic, like that of opposing parties to litigation. The Commissioners contended that it was not. The Bank carried on banking business, and it is now a routine feature of such business that freezing injunctions are notified to it and are given effect. The substantial relief the Commissioners were seeking was against the Bank's customers, not it. The Bank answered that this analysis did not fully reflect the reality of the situation.

    13.  In 1981 Robert Goff J observed that "the banks in this country have received numerous notices of [Mareva] injunctions which have been granted" (Searose Ltd v Seatrain UK Ltd [1981] 1 WLR 894, 895), and there is no reason to think that the pace has slackened since. Thus receiving notice of such injunctions is, literally, an everyday event. And the Commissioners are right that they were not claiming substantive relief against the Bank as a claimant seeks it against a defendant. But I think the Bank is right to say that that is not the whole story, for three main reasons. First, the effect of notification of the order is to override the ordinary contractual duties which govern the relationship of banker and customer. This is not something of which a bank can complain or of which the Bank does complain. A bank's relationship with its customers is subject to the law of the land, which provides for the grant of freezing injunctions. But the effect is nonetheless to oblige the bank to act in a way which but for the order would be a gross breach of contract. Such a situation must necessarily be very unwelcome to any bank which values its relationship with its customer. Secondly, the order exposes the bank to the risk that its employees may be imprisoned, the bank fined and its assets sequestrated. Of course, this is only a risk if the bank breaches the order in a sufficiently culpable way. But it is not a risk which exists independently of the order, and not a risk to which anyone would wish to be exposed. Thirdly, I think that the notice informing a bank of its right to set aside or discharge the order, addressed to both the customer and to the notified party, recognises its potentially prejudicial nature. If an order were neutral in its effect on the notified party, there would be no need to inform it of its right to vary or discharge it. While, therefore, the relationship of the Commissioners and the Bank was not, on notification of the order, that of hostile litigating parties, I think the Bank is right to describe the relationship as adverse.

    14.  I do not think that the notion of assumption of responsibility, even on an objective approach, can aptly be applied to the situation which arose between the Commissioners and the Bank on notification to it of the orders. Of course it was bound by law to comply. But it had no choice. It did not assume any responsibility towards the Commissioners as the giver of references in Hedley Byrne (but for the disclaimer) and Spring, the valuers in Smith v Bush, the solicitors in White v Jones and the agents in Henderson v Merrett may plausibly be said to have done towards the recipient or subject of the references, the purchasers, the beneficiaries and the Lloyd's Names. Save for the notification of the order (and treating as irrelevant the letters written by the Bank: see para 3 above) nothing crossed the line between the Commissioners and the Bank (see Williams v Natural Life Health Foods Ltd, p 835). Nor do I think that the Commissioners can be said in any meaningful sense to have relied on the Bank. The Commissioners, having obtained their orders and notified them to the Bank, were no doubt confident that the Bank would act promptly and effectively to comply. But reliance in the law is usually taken to mean that if A had not relied on B he would have acted differently. Here the Commissioners could not have acted differently, since they had availed themselves of the only remedy which the law provided. Mr Sales suggested, although only as a fall-back argument, that the relationship between the Commissioners and the Bank was, in Lord Shaw's words adopted by Lord Devlin in Hedley Byrne (p 529), "equivalent to contract". But the essence of any contract is voluntariness, and the Bank's position was wholly involuntary.

    15.  It is common ground that the foreseeability element of the threefold test is satisfied here. The Bank obviously appreciated that, since risk of dissipation has to be shown to obtain a freezing injunction, the Commissioners were liable to suffer loss if the injunction were not given effect. It was not contended otherwise. The concept of proximity in the context of pure economic loss is notoriously elusive. But it seems to me that the parties were proximate only in the sense that one served a court order on the other and that other appreciated the risk of loss to the first party if it was not obeyed. I think it is the third, policy, ingredient of the threefold test which must be determinative.

    16.  In urging that a duty of care should be imposed on the Bank the Commissioners submitted that the orders were made by the court and notified to the Bank to protect their interests; that recognition of a duty would in practical terms impose no new or burdensome obligation on the Bank; that the rule of public policy which has first claim on the loyalty of the law is that wrongs should be remedied (X (Minors) v Bedfordshire County Council [1995] 2 AC 633, 663, 749); that, since there are no facts here which would found a claim for effective redress in contempt, the Commissioners will otherwise be left without any remedy, that a duty of care to the Commissioners would not be inconsistent with the Bank's duty to the court; and that there would, in such a case, be no indeterminacy as to those to whom the duty would be owed. These are formidable arguments and I am not surprised that the Court of Appeal accepted them. But I have difficulty in doing so, for six main and closely associated reasons.

    17.  First, as already shown, the Mareva jurisdiction has developed as one exercised by court order enforceable only by the court's power to punish those who break its orders. The documentation issued by the court does not hint at the existence of any other remedy. This regime makes perfect sense on the assumption that the only duty owed by a notified party is to the court.

    18.  Secondly, it cannot be suggested that the customer owes a duty to the party which obtains an order, since they are opposing parties in litigation and no duty is owed by a litigating party to its opponent: Digital Equipment Corporation v Darkcrest Ltd [1984] Ch 512; Business Computers International Ltd v Registrar of Companies [1988] Ch 229; Al-Kandari v J R Brown & Co [1988] QB 665. It would be a strange and anomalous outcome if an action in negligence lay against a notified party who allowed the horse to escape from the stable but not against the owner who rode it out.

    19.  It is clear, thirdly, that a duty of care in tort may co-exist with a similar duty in contract or a statutory duty, and I would accept in principle that a tortious duty of care to the Commissioners could co-exist with a duty of compliance owed to the court. But I know of no instance in which a non-consensual court order, without more, has been held to give rise to a duty of care owed to the party obtaining the order, and one would have to ask whether a similar duty is owed by the subject of a search order, or a Norwich Pharmacal order, or a witness summons, in any case where economic loss is a foreseeable consequence of breach. It would seem that the Commissioners' argument involves a radical innovation.

    20.  Fourthly, it is a notable feature of this appeal that the Commissioners adduce no comparative jurisprudence to support their argument. The House was referred to no material from any Commonwealth jurisdiction to show recognition of a duty such as that for which the Commissioners contend. One learned author has ventilated the suggestion that a third party with knowledge of a Mareva order may owe a duty of care to the party in whose favour the order is made (see Mark Hoyle, The Mareva Injunction and Related Orders, 3rd edn (1997), pp 138-139), but the same author recognises (ibid, p 131) that there is no right to sue a contemnor for the contempt alone and acknowledges that there is no civil right to damages and no power for the court to award compensation to the other party for the contemnor's actions, citing Re Hudson, Hudson v Hudson [1966] Ch 209 and Chapman v Honig [1963] 2 QB 502.

    21.  Fifthly, the cases relied on by the Commissioners as providing the closest analogy with the present case do not in my opinion, on examination, reveal any real similarity. The first case relied on is Al-Kandari v J R Brown & Co [1988] QB 665. A defendant husband had on a previous occasion kidnapped two children whose custody was the subject of proceedings before the English court. The plaintiff mother was anxious that the same thing should not happen again. To reassure her the husband deposited his passport (on which the children were entered) with his solicitor, who negligently allowed him to regain possession of the passport and again remove the children. The wife sued her husband's solicitor in negligence, and it was held at first instance ([1987] QB 514) and on appeal that the solicitor owed the wife a duty of care. The judge (p 523) found that the solicitor had given the wife an implied undertaking. The Court of Appeal held that the solicitor had accepted responsibilities towards the wife (pp 672, 675) and had acted as an independent custodian of the passport subject to the joint directions of both parties as well as the court (pp 676, 675). There was in that case a very clear and entirely voluntary assumption of responsibility by the solicitor towards the wife.

    22.  The facts of the second case relied on, Dean v Allin & Watts [2001] EWCA Civ 758, [2001] 2 Lloyd's Rep 249, are a little more complicated. An unsophisticated lender running the business of a car mechanic wanted to lend money to borrowers on the security of real property owned by an associate of the borrowers. The borrowers instructed the defendant solicitors to give effect to this transaction. The solicitors knew that the lender had no solicitor of his own, and there was a meeting between the solicitors and the lender. The solicitors' instructions from the borrower were to provide the lender with effective security, which was for his benefit and was fundamental to the transaction (para 40 of the judgment of Lightman J giving the leading judgment in the Court of Appeal). There was, as the solicitors at all times knew, an identity of interest between borrower and lender. In this situation there was, again, a voluntary assumption of responsibility by the solicitors towards the lender and the trial judge's decision that no duty arose was, I respectfully think, rightly reversed. But I do not think this authority bears any close analogy with the present case.

    23.  Lastly, it seems to me in the final analysis unjust and unreasonable that the Bank should, on being notified of an order which it had no opportunity to resist, become exposed to a liability which was in this case for a few million pounds only, but might in another case be for very much more. For this exposure it had not been in any way rewarded, its only protection being the Commissioners' undertaking to make good (if ordered to do so) any loss which the order might cause it, protection scarcely consistent with a duty of care owed to the Commissioners but in any event valueless in a situation such as this.

    24.  I would allow the appeal and dismiss the Commissioners' claim with costs in the House and below.

LORD HOFFMANN

My Lords,

    25.  The question in this case is whether a bank served with a freezing order (ci-devant Mareva injunction) upon a customer's account owes a duty to the claimant to take reasonable care to ensure that no payments are made out of the account. The Court of Appeal held that it did but in my opinion it does not.

    26.  The claimants are the Commissioners for Revenue and Customs, who, in one of their former incarnations as the Commissioners of Customs and Excise, were owed a total of over £6m of VAT by two companies called Brightstar Systems Ltd ("Brightstar") and Doveblue Ltd ("Doveblue"). How these debts were allowed to accumulate is unknown, but the Commissioners, apprehensive that the companies might remove their assets from the jurisdiction, applied for freezing orders against Brightstar on 26 January 2001 and against Doveblue on 30 January 2001. In both cases the orders restrained the companies from dealing with their assets and in particular with specified accounts with Barclays Bank.

    27.  The Brightstar order was served on Barclays by fax at 12:33 pm on 29 January. At 2:30 pm Brightstar made an application by fax to transfer £1,240,570 out of the account and although Barclays had taken routine steps to freeze the account, by an "operator error" the payment was authorised and made. The Doveblue order was served on Barclays by fax at 11:38 am on 30 January but a payment of £1,064,289 out of the account was authorised at 2:00 pm, before the arrangements to freeze the account had taken effect. In both cases, the money paid out of the accounts has not been recovered and the judgments subsequently obtained by the Commissioners remain unsatisfied.

    28.  On these facts, alleged by the Commissioners and assumed to be true, a preliminary issue in the nature of a demurrer was tried by Colman J. Barclays submitted that the action was bound to fail because they owed the Commissioners no duty of care. The judge agreed but the Court of Appeal reversed his decision and allowed the action to proceed. Barclays appeal to your Lordships' House.

    29.  A freezing order is an injunction made against the putative debtor to which the bank is not a party. But the existence of the injunction may have an effect upon third parties in two ways. First, it is a contempt of court to aid and abet a breach of an injunction by the party against whom the order was made. Secondly, it is an independent contempt of court to do an act which deliberately interferes with the course of justice by frustrating the purpose for which the order was made: see Attorney General v Times Newspapers Ltd [1992] 1 AC 191 and Attorney General v Punch Ltd [2003] 1 AC 1046 for the general principle and Z Ltd v A-Z and AA-LL [1982] QB 558, 578 for an explanation by Eveleigh LJ of its application to Mareva injunctions. The purpose of serving the bank with the order is therefore to give the bank notice that payment out of the account will frustrate its purpose and, if done deliberately, will be a contempt of court. However, as Lord Hope of Craighead said in Attorney General v Punch Ltd [2003] 1 AC 1046, for the third party to be liable for contempt

    "it has…to be shown there was an intention on his part to interfere with or impede the administration of justice. This is an essential ingredient, and it has to be established to the criminal standard of proof."

    30.  In the present case, there is no suggestion that anyone at Barclays intended deliberately to flout the order. The allegation is that they failed to take reasonable care to ensure that money was not paid out of the account.

    31.  How does one determine whether a duty of care is owed? In cases of pure economic loss such as this, it is not sufficient that the bank ought reasonably to have foreseen that unless they had proper systems in place and their employees took reasonable care to give effect to any freezing orders which came along, the beneficiaries of those orders might suffer loss. In the case of personal or physical injury, reasonable foreseeability of harm is usually enough, in accordance with the principle in Donoghue v Stevenson [1932] AC 562, to generate a duty of care. In the case of economic loss, something more is needed.

    32.  The Court of Appeal applied what it called the "three-fold test" proposed by Lord Bridge of Harwich in Caparo Industries plc v Dickman [1990] 2 AC 605, 617-618:

    "In addition to foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care are that there should exist between the party owing the duty and the party to whom it is owed a relationship characterised by the law as one of 'proximity' or 'neighbourhood' and that the situation should be one in which the court considers it fair, just and reasonable that the court should impose a duty of a given scope upon the one party for the benefit of the other."

    33.  Longmore LJ held that this test was satisfied. Foreseeability was conceded; service of the order created proximity (even though the bank "may not be particularly willing to have a relationship to the commissioners": see paragraph 30) and it was "eminently fair, reasonable and just" that a bank should take care not to allow a defendant to flout the order. The order placed a burden on the bank but provided for the bank to be paid its reasonable charges for compliance. Peter Gibson LJ agreed: "practical justice requires the recognition of such a duty" (paragraph 63). So did Lindsay J.

    34.  Mr Brindle QC, who appeared for the bank, said that this was the wrong approach. One should ask whether the bank had assumed responsibility for monitoring the account. As authority for applying this test, he relied upon Lord Goff of Chieveley's analysis in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 180-181. In this case, he said, the bank never assumed responsibility. If anything, it had responsibility thrust upon it.

    35.  There is a tendency, which has been remarked upon by many judges, for phrases like "proximate", "fair, just and reasonable" and "assumption of responsibility" to be used as slogans rather than practical guides to whether a duty should exist or not. These phrases are often illuminating but discrimination is needed to identify the factual situations in which they provide useful guidance. For example, in a case in which A provides information to C which he knows will be relied upon by D, it is useful to ask whether A assumed responsibility to D: Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465: Smith v Eric S Bush [1990] 1 AC 831. Likewise, in a case in which A provides information on behalf of B to C for the purpose of being relied upon by C, it is useful to ask whether A assumed responsibility to C for the information or was only discharging his duty to B: Williams v Natural Life Health Foods Ltd [1998] AC 830. Or in a case in which A provided information to B for the purpose of enabling him to make one kind of decision, it may be useful to ask whether he assumed responsibility for its use for a different kind of decision: Caparo Industries plc v Dickman [1990] 2 AC 605. In these cases in which the loss has been caused by the claimant's reliance on information provided by the defendant, it is critical to decide whether the defendant (rather than someone else) assumed responsibility for the accuracy of the information to the claimant (rather than to someone else) or for its use by the claimant for one purpose (rather than another). The answer does not depend upon what the defendant intended but, as in the case of contractual liability, upon what would reasonably be inferred from his conduct against the background of all the circumstances of the case. The purpose of the inquiry is to establish whether there was, in relation to the loss in question, the necessary relationship (or "proximity") between the parties and, as Lord Goff of Chieveley pointed out in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 181, the existence of that relationship and the foreseeability of economic loss will make it unnecessary to undertake any further inquiry into whether it would be fair, just and reasonable to impose liability. In truth, the case is one in which, but for the alleged absence of the necessary relationship, there would be no dispute that a duty to take care existed and the relationship is what makes it fair, just and reasonable to impose the duty.

    36.  It is equally true to say that a sufficient relationship will be held to exist when it is fair, just and reasonable to do so. Because the question of whether a defendant has assumed responsibility is a legal inference to be drawn from his conduct against the background of all the circumstances of the case, it is by no means a simple question of fact. Questions of fairness and policy will enter into the decision and it may be more useful to try to identify these questions than simply to bandy terms like "assumption of responsibility" and "fair, just and reasonable." In Morgan Crucible Co plc v Hill Samuel & Co Ltd [1991] Ch 295, 300-303 I tried to identify some of these considerations in order to encourage the evolution of lower-level principles which could be more useful than the high abstractions commonly used in such debates.

    37.  In Henderson v Merrett Syndicates Ltd itself, the House used the concept of assumption of responsibility in a situation which did not involve reliance upon information but where, once again, the issue was whether the necessary relationship between claimant and defendant existed. The issues in that case were whether the managing agents of a Lloyd's syndicate owed a duty of care in respect of their underwriting to Names with whom they had no contractual relationship and whether they owed a separate duty in tort to Names with whom they did have a contractual relationship. In fact, the arguments in Henderson's case were a re-run of Donoghue v Stevenson in a claim for economic loss. In that case, as it seems to me, the use of the concept of assumption of responsibility, while perfectly legitimate, was less illuminating. The question was not whether the defendant had assumed responsibility for the accuracy of a particular statement but a much more general responsibility for the consequences of their conduct of the underwriting. To say that the managing agents assumed a responsibility to the Names to take care not to accept unreasonable risks is little different from saying that a manufacturer of ginger beer assumes a responsibility to consumers to take care to keep snails out of his bottles.

    38.  Even in this context, however, the notion of assumption of responsibility serves a different, weaker, but nevertheless useful purpose in drawing attention to the fact that a duty of care is ordinarily generated by something which the defendant has decided to do: giving a reference, supplying a report, managing a syndicate, making ginger beer. It does not much matter why he decided to do it; it may be that he thought it would be profitable or it may be that he was providing a service pursuant to some statutory duty, as in Phelps v Hillingdon London Borough Council [2001] 2 AC 619 and Ministry of Housing and Local Government v Sharp [1970] 2 QB 223. In the present case, however, the duty is not alleged to arise from anything which the bank was doing. It is true that the bank was carrying on the business of banking, handling money on behalf of its customers. But that is not alleged to have been either necessary or sufficient to generate the duty in this case. Not necessary, because if such a duty is created by notice of the freezing order, it must apply to anyone who has possession or control of the defendant's assets: the garage holding his car, the stockbroker nominee company holding his shares, his grandmother holding a drawer-full of his bank notes. On being given notice of the order, they would all be under an obligation to take reasonable care to ensure that the defendant did not get his hands on the assets. Not sufficient, because there is no suggestion that, apart from the freezing order, the bank in carrying on its ordinary business would be under any duty to protect the position of the Commissioners.

    39.  There is, in my opinion, a compelling analogy with the general principle that, for the reasons which I discussed in Stovin v Wise [1996] AC 923, 943-944, the law of negligence does not impose liability for mere omissions. It is true that the complaint is that the bank did something: it paid away the money. But the payment is alleged to be the breach of the duty and not the conduct which generated the duty. The duty was generated ab extra, by service of the order. The question of whether the order can have generated a duty of care is comparable with the question of whether a statutory duty can generate a common law duty of care. The answer is that it cannot: see Gorringe v Calderdale Metropolitan Borough Council [2004] 1 WLR 1057. The statute either creates a statutory duty or it does not. (That is not to say, as I have already mentioned, that conduct undertaken pursuant to a statutory duty cannot generate a duty of care in the same way as the same conduct undertaken voluntarily.) But you cannot derive a common law duty of care directly from a statutory duty. Likewise, as it seems to me, you cannot derive one from an order of court. The order carries its own remedies and its reach does not extend any further.

    40.  Colman J relied upon the fact that the advisers of one party to litigation owe no duty to the other party and for this purpose treated a party's bank as being in much the same position as his lawyers. For my part I prefer to place no particular weight upon this factor. The freezing order suspended the bank's duty to its client and compliance would therefore have created no conflict of interest. The Court of Appeal relied upon the fact that the order provided for payment to the bank of its reasonable costs incurred as a result of this order. I do not regard this as a material factor either. It is one thing to have to do some paper work and another to be put on risk for millions of pounds.

    41.  I would therefore allow the appeal and restore the judgment of Colman J.

LORD RODGER OF EARLSFERRY

My Lords,

    42.  The presumed facts giving rise to this appeal are of the simplest. In January 2001 the Commissioners of Customs and Excise intended to raise proceedings for payment of very large sums which they alleged that two companies, Brightstar Systems Ltd and Doveblue Ltd, owed them in respect of Value Added Tax. On 26 January the Commissioners obtained a freezing order (familiarly known as a Mareva injunction) against Brightstar. The order was in the usual terms, prohibiting Brightstar from removing from England and Wales or in any way disposing of or dealing with or diminishing any of its assets in England and Wales, including, in particular, any money in account number 70845302 at Barclays Bank plc ("Barclays"). The limit was £1,800,000 (though it was subsequently increased). The Commissioners undertook to pay any reasonable costs which the bank incurred as a result of the order. At about 12.33 pm on 29 January the Commissioners notified Barclays of the order. Despite this, at about 2.30 pm on the same day, due to an error, Barclays authorised payments totalling £1,240,570 to be made out of the Brightstar account. In their proceedings against Brightstar the Commissioners obtained judgment in default for £2,285,788.98, but Brightstar have paid nothing. In the present action the Commissioners seek damages for the loss which they claim to have suffered as a result of Barclays' negligence in authorising the payments after being notified of the order.

 
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