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

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    43.  On 30 January 2001 the Commissioners obtained a similar freezing order against Doveblue with a limit of £3,928,130. It referred in particular to money in account numbered 10902284 at Barclays Bank, Hounslow. The Commissioners notified Barclays of the order at 11.38 am on 30 January but, again due to an error, at about 2 pm Barclays allowed £1,064,289 to be paid out of the Doveblue account. In due course the Commissioners obtained judgment in default against Doveblue for £3,944,095.85, none of which has been paid by Doveblue. The Commissioners again seek damages for the loss which they claim they suffered as a result of Barclays' negligence.

    44.  The preliminary issue in the case is whether, on these assumed facts, Barclays owed a duty of care to the Commissioners. Colman J held that they did not, but the Court of Appeal held that they did.

    45.  The assumed facts do not make any reference to the time when the freezing orders were actually served on Brightstar and Doveblue. More particularly, they do not spell out whether the orders were served on the companies after Barclays were notified. It would, however, be usual for the bank to be notified first, in order to minimise the risk that, once made aware of the orders, the companies would try to dispose of the funds in their accounts. I consider the position on that basis.

    46.  In opening the appeal on behalf of Barclays, Mr Brindle QC focused on the fact that at the relevant time both Brightstar and Doveblue were customers of Barclays. The Commissioners had obtained freezing orders against Barclays' customers and soon they would serve those orders on the bank's customers and commence adversarial proceedings to recover the VAT from them. The Commissioners were therefore the adversaries of Barclays' customers and in that fight Barclays were, in effect, on their customers' side. As the companies' bankers, Barclays were in a roughly similar position to the companies' solicitors or counsel and, like them, they did not owe a duty of care to those on the other side.

    47.  I do not find the analogy compelling. When parties embark on contested court proceedings, even under the rules of procedure in force today, they are entitled to treat the other side as opponents whom they wish to vanquish. So they do not owe them a duty of care: Business Computers International Ltd v Registrar of Companies [1988] Ch 229. Equally, when the parties employ solicitors and counsel to act for them in the proceedings, in general, those representatives owe no duty of care to the other side: Al-Kandari v J R Brown & Co [1988] QB 665, 675F-H per Bingham LJ. But, as the narrative of events shows, Barclays did not represent their customers in their dispute with the Commissioners. In reality, they were no more on the companies' side in that dispute than the companies' butchers, bakers or candlestick-makers.

    48.  Mr Brindle next argued that no-one owed a duty of care to avoid causing financial harm to another unless he had voluntarily undertaken responsibility towards that other person. Here Barclays had not undertaken any responsibility to the Commissioners for the way in which they would freeze the companies' accounts. They had just been required to act due to the notification of the order. Mr Sales argued in reply that assumption of responsibility was not the only criterion for holding that someone owed a duty of care. It was just one factor to be taken into account. The correct approach was to adopt the so-called "threefold test" and to ask whether the loss was reasonably foreseeable, whether the parties were in a relationship of proximity and whether it would be fair, just and reasonable that the defendant should owe a duty of care to the claimant. It is common ground that in this case the loss was reasonably foreseeable.

    49.  There is no doubt that some passages in speeches in your Lordships' House provide support for the view that voluntary assumption of responsibility is the touchstone of liability for pure economic loss. In the first and most famous case, Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, 528-529, Lord Devlin held that the categories of special relationships which might give rise to a duty of care in word as well as in deed are not limited to contractual relationships or to relationships of fiduciary duty,

    "but include also relationships which in the words of Lord Shaw in Nocton v Lord Ashburton are 'equivalent to contract' that is, where there is an assumption of responsibility in circumstances in which, but for the absence of consideration, there would be a contract."

He then continued in what was to become a famous passage, at p 529:

    "I have had the advantage of reading all the opinions prepared by your Lordships and of studying the terms which your Lordships have framed by way of definition of the sort of relationship which gives rise to a responsibility towards those who act upon information or advice and so creates a duty of care towards them. I do not understand any of your Lordships to hold that it is a responsibility imposed by law upon certain types of persons or in certain sorts of situations. It is a responsibility that is voluntarily accepted or undertaken, either generally where a general relationship, such as that of solicitor and client or banker and customer, is created, or specifically in relation to a particular transaction."

Much of Lord Devlin's concern was to avoid the risk that people would be held liable for remarks made in a social or other informal context. Hence the emphasis on liability arising because the defendant himself assumes responsibility for what he says. None of the other members of the House analysed the basis of liability in quite this way, but nevertheless, to begin with at least, Lord Devlin's analysis was to prove influential. It fell out of favour, however, as a result of the criticisms of Lord Griffiths ("unlikely to be a helpful or realistic test in most cases") and Lord Jauncey in Smith v Eric S Bush [1990] 1 AC 831, 864-865, 870C-F, and of Lord Roskill and Lord Oliver of Aylmerton in Caparo Industries plc v Dickman [1990] 2 AC 605, 628F-G, 637E-G. But, in a trio of cases a few years later its fortunes revived when it found a powerful supporter in Lord Goff of Chieveley.

    50.  First, at the beginning of July 1994, in Spring v Guardian Assurance plc [1995] 2 AC 296, where counsel for the plaintiff had not put his case on the footing of Hedley Byrne and the other members of the majority were proposing to allow the appeal on a broader basis, Lord Goff set out the reasoning, based on a Hedley Byrne assumption of responsibility, which he preferred. Lord Lowry agreed with his interpretation, at p 325C. Next, towards the end of that same month, in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 178B Lord Goff returned to the point and identified voluntary assumption of responsibility as "the governing principle". He sought to defuse the criticisms of Lord Griffiths and others by saying, at p 181A, that, "at least in cases such as the present", in which there is no problem in keeping the number of persons owed a duty of care within reasonable bounds, "there seems to be no reason why recourse should not be had to the concept…." Where a case fell within the Hedley Byrne principle, "there should be no need to embark upon any further enquiry whether it is 'fair, just and reasonable'": 181D. Finally, in February 1995, in White v Jones [1995] 2 AC 207, where the plaintiff was an intended beneficiary under a will which the deceased's solicitors had negligently failed to prepare before his death, Lord Goff acknowledged, at p 268A-B, that the Hedley Byrne principle could not "in the absence of special circumstances, give rise on ordinary principles to an assumption of responsibility by the testator's solicitor towards an intended beneficiary." Nevertheless, in his opinion, the House

    "should in cases such as these extend to the intended beneficiary a remedy under the Hedley Byrne principle by holding that the assumption of responsibility by the solicitor towards his client should be held in law to extend to the intended beneficiary who (as the solicitor can reasonably foresee) may, as a result of the solicitor's negligence, be deprived of his intended legacy in circumstances in which neither the testator nor his estate will have a remedy against the solicitor."

    51.  Part of the function of appeal courts is to try to assist judges and practitioners by boiling down a mass of case law and distilling some shorter statement of the applicable law. The temptation to try to identify some compact underlying rule which can then be applied to solve all future cases is obvious. Mr Brindle submitted that in this area the House had identified such a rule in the need to find that the defendant had voluntarily assumed responsibility. But the unhappy experience with the rule so elegantly formulated by Lord Wilberforce in Anns v Merton London Borough Council [1978] AC 728, 751G-752A, suggests that appellate judges should follow the philosopher's advice to "Seek simplicity, and distrust it."

    52.  Therefore it is not surprising that there are cases in the books - notably Ministry of Housing and Local Government v Sharp [1970] 2 QB 223, approved by Lord Slynn of Hadley in Spring v Guardian Assurance plc [1995] 2 AC 296, 332F-G - which do not readily yield to analysis in terms of a voluntary assumption of responsibility, but where liability has none the less been held to exist. I see no reason to treat these cases as exceptions to some over-arching rule that there must be a voluntary assumption of responsibility before the law recognises a duty of care. Such a rule would inevitably lead to the concept of voluntary assumption of responsibility being stretched beyond its natural limits - which would in the long run undermine the very real value of the concept as a criterion of liability in the many cases where it is an appropriate guide. In any event, as the words which I have quoted from his speech in Merrett Syndicates make clear, Lord Goff himself recognised that, although it may be decisive in many situations, the presence or absence of a voluntary assumption of responsibility does not necessarily provide the answer in all cases. Indeed in Hedley Byrne Lord Reid saw it as only one possible basis, the other being where the defendant has "accepted a relationship with the inquirer which requires him to exercise such care as the circumstances require": [1964] AC 465, 486. So I would reject Mr Brindle's submission on this point.

    53.  In the absence of any single touchstone, the House finds itself in the familiar position, envisaged by Lord Bridge of Harwich in Caparo Industries plc v Dickman [1990] 2 AC 605, 618B-C, where a court faced with a novel situation must apply the threefold test, while recognising that

    "the concepts of proximity and fairness embodied in these additional ingredients are not susceptible of any such precise definition as would be necessary to give them utility as practical tests, but amount in effect to little more than convenient labels to attach to the features of different specific situations which, on a detailed examination of all the circumstances, the law recognises pragmatically as giving rise to a duty of care of a given scope."

    54.  For his part, Mr Sales was, of course, anxious to portray Barclays as being in a relationship with the Commissioners which would give rise to a duty of care on the part of the bank if the threefold test were applied. The Commissioners notified Barclays of the freezing order. This alerted them to the existence of the proceedings in which the Commissioners were claiming large amounts of VAT from the companies. They knew that the Commissioners had felt it necessary to protect their position by obtaining a freezing order. Barclays could easily foresee that, if they did not duly freeze the accounts and the companies transferred the funds, the Commissioners might well be unable to enforce any judgment against them. So Barclays would realise that the Commissioners were relying on them to freeze the accounts. In these circumstances Barclays owed a duty of care to the Commissioners.

    55.  Essentially, Mr Sales was simply describing the consequences which he said flowed from the notification of the freezing order. This can be seen by supposing that, before applying for any order, the Commissioners had approached Barclays, had told them about their claims for VAT, had explained the risk that the companies might defeat those claims by transferring the funds in their accounts and had asked for Barclays' help. Knowing all that, the bank would have been under no obligation to help the Commissioners. For one thing, you do not come under a duty in tort to prevent someone causing me financial harm just because I tell you what is likely to happen to me if you do not take steps to prevent it. In addition, of course, Barclays would have been contractually bound to transfer the funds if their customers so instructed and even if they knew that this was likely to cause the Commissioners financial harm. So they could have done nothing to help, even if they had wanted to.

    56.  The position changed when Barclays were notified of the freezing order. In Z Ltd v A-Z and AA-LL [1982] QB 558, 578D-E Eveleigh LJ stated the consequences which ensue when there are acts or omissions which are contrary to the terms of an injunction:

    "(1) The person against whom the order is made will be liable for contempt of court if he acts in breach of the order after having notice of it. (2) A third party will also be liable if he knowingly assists in the breach, that is to say if knowing the terms of the injunction he wilfully assists the person to whom it was directed to disobey it. This will be so whether or not the person enjoined has had notice of the injunction."

Eveleigh LJ went on, at p 578G-H, to deal with the argument that the liability of a third party arose because he was treated as aiding and abetting the defendant (ie as an accessory) and that, since the defendant could himself not be in breach unless he had notice, it followed that there was no offence to which the third party could be an accessory:

    "In my opinion this argument misunderstands the true nature of the liability of the third party. He is liable for contempt of court committed by himself. It is true that his conduct may very often be seen as possessing a dual character of contempt of court by himself and aiding and abetting the contempt by another, but the conduct will always amount to contempt of court by himself. It will be conduct which knowingly interferes with the administration of justice by causing the order of the court to be thwarted."

    For Lord Denning MR, [1982] 1 QB 558, 574D-E, the juristic principle was:

    "As soon as the bank is given notice of the Mareva injunction, it must freeze the defendant's bank account. It must not allow any drawings to be made on it, neither by cheques drawn before the injunction nor by those drawn after it. The reason is because, if it allowed any such drawings, it would be obstructing the course of justice - as prescribed by the court which granted the injunction - and it would be guilty of a contempt of court."

    57.  In Attorney General v Times Newspapers Ltd [1992] 1 AC 191, the House applied Eveleigh LJ's analysis of the position of a third party. Lord Oliver of Aylmerton noted, at p 222C-D, that

    "Once the conclusion is reached that the fact that the alleged contemnor is not party to or personally bound by the court's order then, given the intention on his part to interfere with or obstruct the course of justice, the sole remaining question is whether what he has done has that effect in the particular circumstances of the case."

According to the speeches in Attorney General v Leveller Magazine Ltd [1979] AC 440, the gravamen of the offence of contempt of court would be that the contemnor's act "frustrates, thwarts, or subverts the purpose of the court's order and thereby interferes with the due administration of justice in the particular action." Lord Oliver added, [1992] 1 AC 191, 223A-B:

    "'Purpose', in this context, refers, of course, not to the litigant's purpose in obtaining the order or in fighting the action but to the purpose which, in seeking to administer justice between the parties in the particular litigation of which it had become seized, the court was intending to fulfil."

    58.  In Attorney General v Punch Ltd [2003] 1 AC 1046, 1056, Lord Nicholls of Birkenhead quoted this passage with approval and went on, at para 43, to explain the position of a third party in this way:

    "When proceedings come before a court the plaintiff typically asserts that he has a legal right which has been or is about to be infringed by the defendant. The claim having come before the court, it is then for the court, not the parties to the proceedings or third parties, to determine the way justice is best administered in the proceedings. It is for the court to decide whether the plaintiff's asserted right needs and should have any, and if so, what interim protection. If the court orders that pending the trial the defendant shall not do certain acts the court thereby determines the manner in which, in this respect, the proceedings shall be conducted. This is the court's determination on what interim protection is needed and is appropriate. Third parties are required to respect this determination, as expressed in the court's order. The reason why the court grants interim protection is to protect the plaintiff's asserted right. But the manner in which this protection is afforded depends upon the terms of the interlocutory injunction. The purpose the court seeks to achieve by granting the interlocutory injunction is that, pending a decision by the court on the claims in the proceedings, the restrained acts shall not be done. Third parties are in contempt of court if they wilfully interfere with the administration of justice by thwarting the achievement of this purpose in those proceedings."

    59.  As these authorities show, when the court granted the Commissioners' application for a freezing order, its purpose was to protect the Commissioners by preventing the companies from parting with their assets pending the conclusion of the Commissioners' action for the payment of the VAT. Unlike, say, an arrestment on the dependence in Scots law, the freezing orders were directed at the two companies, not at the bank. But, if the bank had deliberately ignored the orders and set about assisting the companies to transfer their assets, that would have thwarted the court's purpose in granting the orders and the bank would have been in contempt of court, even if the companies themselves had still been unaware of the relevant order. So Barclays had to freeze the companies' assets, not out of any consideration for the Commissioners but because to do otherwise would thwart the purpose of the court and obstruct the course of justice.

    60.  The courts make quite extensive use of freezing orders. So, in practice, banks like Barclays can be expected to have in place a system for freezing accounts when they are notified of an order - and to take care when they have to operate the system. But, of itself, this does not mean that if they fail to take care they are liable to the applicant who obtained the order. For instance, as I pointed out in Brooks v Commissioner of Police of the Metropolis [2005] 1 WLR 1495, 1511-1512, para 38, a prosecutor is under a professional and ethical duty to take care in preparing and presenting the case against a defendant whom he is prosecuting. If he fails to take the necessary care, any conviction may be unsafe and he himself may be subject to some disciplinary sanction. Nevertheless, the prosecutor does not assume a responsibility to the defendant to act carefully and owes him no duty of care in the law of tort: Elguzouli-Daf v Commissioner of Police of the Metropolis [1995] QB 335, 349A-B per Steyn LJ.

    61.  In most cases the third party will be a bank or similar institution. But sometimes a private individual who happens, for example, to be looking after the addressee's car will be startled to receive notification of a freezing order. This puts him in essentially the same position as a bank which is notified of an order. Usually, he will do his best to respect the order and to hold on to the car. Should the law add to his burdens, however, by exposing him to an uninsured liability in damages if he fails to take the care which is ultimately considered to be reasonable and the addressee makes off with the car?

    62.  Punishment for contempt of court is the remedy which the law provides for the addressee's failure to comply with an injunction such as a freezing order. Liability is strict and so he may be guilty of contempt even where he did not deliberately flout the order, the degree of his fault being relevant in determining the appropriate punishment: Attorney General v Times Newspapers Ltd [1992] 1 AC 191, 217G-H per Lord Oliver of Aylmerton.

    63.  By contrast, a third party who is notified of an injunction is guilty of contempt of court only if he knowingly takes a step which will frustrate the court's purpose in granting the order. So a bank will be in contempt only if it knowingly fails to freeze a customer's account and pays away sums in the account after being notified of an order. Mr Sales argued that this was not a sufficient sanction: the law of tort could usefully supplement the law of contempt by imposing on the bank a duty of care in favour of the party who obtained the freezing order. I would reject that argument.

    64.  The policy of the law is that a third party, such as a bank, which is notified of a freezing order, must not knowingly undermine the court's purpose in granting the order. If this is all that the court which makes the order can demand, it would be inconsistent to hold that, by reason of the selfsame notification, the applicant could simultaneously demand a higher standard of performance from the bank - and then claim damages for the bank's failure to achieve it. Notification imposes a duty on the bank to respect the order of the court; it does not of itself generate a duty of care to the applicant. And here the Commissioners can point to nothing more than the order and Barclays' negligent failure to respond to it.

    65.  Mr Sales submitted that, as the bank must know, the applicant relies on it to comply with the order - and this means that the third party must take reasonable care for the applicant's interests. In my view, that is to stretch the concept of reliance too far. If a party wishes to freeze his opponent's bank account, he cannot do so without the intervention of the court. Having obtained a freezing order and notified the bank, the applicant can expect that any responsible bank will respect the order. But he does not rely on the bank doing so. Rather, like anyone else who obtains a court order, he relies on the court being able to enforce its orders. So the applicant relies on the court ensuring that the bank does not flout its order and punishing the bank for contempt if it does. That is, after all, the assistance which the law provides to someone who shows that his opponent's assets should be frozen. In any such proceedings the applicant and the bank are very much at arm's length, even though the applicant has to reimburse the bank's costs. There is nothing which could be regarded as a voluntary assumption of responsibility by the bank for the way in which it would go about freezing the companies' accounts. Similarly, there is nothing which involves the bank in entering into any kind of relationship with the applicant that requires it to exercise such care as the circumstances require. Indeed the bank and the applicant are about as far from being in a relationship "equivalent to contract" as they could be. The bank has to act, but merely because the court order compels it to do so - ultimately on pain of punishment. It gets its reasonable costs, but makes no profit out of performing its duty. Moreover, its duty to respect the order and to act accordingly does not arise out of any relationship with the applicant. If anything, it arises out of the bank's relationship with its customers under which it holds funds that it may be instructed to transfer. Clearly, this relationship - which may well be damaged by the bank having to freeze the funds - cannot give rise to a duty of care to the applicant.

    66.  Having regard to all these circumstances, in my view, not only is there not the necessary proximity between the applicant and a third party, such as a bank, who is notified of a freezing order, but it would not be fair, just and reasonable to hold that the third party owes a duty of care to the applicant.

    67.  For these reasons I would hold that in this case Barclays did not owe a duty of care to the Commissioners. I would accordingly allow the appeal and dismiss the claim.

LORD WALKER OF GESTINGTHORPE

My Lords,

    68.  I have had the great advantage of reading in draft the opinions of all your Lordships. Not without some hesitation, I agree with their conclusion that this appeal should be allowed. I will explain briefly what are the points on which I have no hesitation in concurring in my Lords' views, and what are the points on which I have found it more difficult to concur.

    69.  Your Lordships are, I think, largely at one as to what I might call the basic approach to the problem. The development of the tort of negligence since the seminal case of Donoghue v Stevenson [1932] AC 562 has not been one of steady advance along a broad front. It has been a much more confused series of engagements with salients and beachheads, and retreats as well as advances. It has sometimes been only long after the event that it has been possible to assess the true significance of some clash of arms. That may be the case with the decision of this House in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 564, as has been suggested in an important article, criticising what she calls the "pockets of case law" approach, by Professor Jane Stapleton (Duty of Care and Economic Loss: a Wider Agenda (1991) 107 LQR 249, especially at pp259-263). The whole article, although published fifteen years ago (that is, soon after the revision or displacement of Anns v Merton London Borough Council [1978] AC 728) contains much that is still very relevant.

    70.  The complicating factors are not limited to the distinction between pure economic loss and personal injury or physical damage to property. Other factors are the interface with breach of statutory duty and the position of public authorities, especially local authorities in discharging their statutory functions in relation to social services, education and highways; special rules relating to defective premises, product liability and marine transport; the distinction (elusive though it sometimes is) between acts and omissions; and the recognition of the need for particular caution in imposing duties of care in tort (other than lawyers' duties to their own clients) in the context of hostile litigation.

 
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