House of Lords
|Session 2005 - 06|
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Her Majesty's Commissioners of Customs and Excise (Respondents) v. Barclays Bank plc (Appellants)
LORD BINGHAM OF CORNHILL
1. The important question raised by this appeal is whether a bank, notified by a third party of a freezing injunction granted to the third party against one of the bank's customers, affecting an account held by the customer with the bank, owes a duty to the third party to take reasonable care to comply with the terms of the injunction. The question arises in these proceedings brought by the Commissioners of Customs and Excise against Barclays Bank, and has been resolved as a preliminary issue on facts assumed to be true but not proved. Colman J at first instance resolved the issue in favour of the Bank:  EWHC 122 (Comm)  1 WLR 2027. The Court of Appeal (Peter Gibson and Longmore LJJ and Lindsay J) reversed his decision and ruled in favour of the Commissioners:  EWCA Civ 1555,  1 WLR 2082. The Bank challenges that ruling.
2. In January 2001 Brightstar Systems Limited and Doveblue Limited held current accounts with the Bank. Both accounts were substantially in credit, but both companies owed the Commissioners large sums of unpaid VAT. The Commissioners believed that both companies would dissipate their assets in order to defeat judgments which the Commissioners were likely to obtain. They accordingly applied for freezing injunctions against each of the companies, which were granted on 26 and 30 January 2001 respectively. The value of the assets restrained was £1,800,000 in the first case and £3,928,130 in the second. In each order a numbered account held by the company at the Bank was specified, and in the second order the branch also. The first order was served on the Bank by fax at about 12.33 p.m. on 29 January, the second (also by fax) at about 11.38 a.m. on 30 January 2001. At about 2.30 p.m. on 29 January 2001 the Bank authorised payments totalling £1,240,570 to be made out of the Brightstar account, and at about 2.0 p.m. on 30 January it permitted payments totalling £1,064,289 out of the Doveblue account. In due course the Commissioners entered judgment against Brightstar for £2,285,788.98 and against Doveblue for £3,944,095.85. Neither company paid any part of the judgment, although the Commissioners obtained and enforced garnishee orders absolute against residual sums remaining in the accounts of the companies. In these proceedings the Commissioners claim damages against the Bank in the sums paid out in breach of the respective injunctions plus interest for the appropriate periods. It is alleged (and for present purposes assumed) that the Bank was negligent to permit the payments to be made.
3. On being notified of each injunction the Bank sent to the Commissioners a standard letter confirming that the Bank would abide by the terms of the order and notifying the Commissioners of their duty to reimburse the Bank for its costs incurred in complying with the order. Neither letter reached the Commissioners before the respective payments were made, and neither influenced the conduct of the Commissioners in any way. Had the letters reached the Commissioners before release of the funds, the judge would have attached significance to them (paras 76-81 of his judgment). But in my respectful opinion they were of no significance. The Bank was bound to comply with the order of the court irrespective of any confirmation on its part. The letters did not affect the factual or the legal position. Their purpose was to pave the way to reimbursement of the costs of compliance incurred by the Bank.
The test of tortious liability in negligence for pure financial loss
4. The parties were agreed that the authorities disclose three tests which have been used in deciding whether a defendant sued as causing pure economic loss to a claimant owed him a duty of care in tort. The first is whether the defendant assumed responsibility for what he said and did vis-à-vis the claimant, or is to be treated by the law as having done so. The second is commonly known as the threefold test: whether loss to the claimant was a reasonably foreseeable consequence of what the defendant did or failed to do; whether the relationship between the parties was one of sufficient proximity; and whether in all the circumstances it is fair, just and reasonable to impose a duty of care on the defendant towards the claimant (what Kirby J in Perre v Apand Pty Ltd  HCA 36, (1999) 198 CLR 180, para 259, succinctly labelled "policy"). Third is the incremental test, based on the observation of Brennan J in Sutherland Shire Council v Heyman (1985) 157 CLR 424, 481, approved by Lord Bridge of Harwich in Caparo Industries Plc v Dickman  2 AC 605, 618, that
Mr Brindle QC for the Bank contended that the assumption of responsibility test was most appropriately applied to this case, and that if applied it showed that the Bank owed no duty of care to the Commissioners on the present facts. But if it was appropriate to apply either of the other tests the same result was achieved. Mr Sales for the Commissioners submitted that the threefold test was appropriate here, and that if applied it showed that a duty of care was owed. But if it was appropriate to apply either of the other tests they showed the same thing. In support of their competing submissions counsel made detailed reference to the leading authorities including Hedley Byrne & Co Ltd v Heller & Partners Ltd  AC 465; Ministry of Housing and Local Government v Sharp  2 QB 223; Smith v Eric S Bush  1 AC 831; Caparo Industries Plc v Dickman  2 AC 605; Henderson v Merrett Syndicates Ltd  2 AC 145; White v Jones  2 AC 207; Spring v Guardian Assurance Plc  2 AC 296; Williams v Natural Life Health Foods Ltd  1 WLR 830; and Phelps v Hillingdon London Borough Council  2 AC 619. These authorities yield many valuable insights, but they contain statements which cannot readily be reconciled. I intend no discourtesy to counsel in declining to embark on yet another exegesis of these well-known texts. I content myself at this stage with five general observations. First, there are cases in which one party can accurately be said to have assumed responsibility for what is said or done to another, the paradigm situation being a relationship having all the indicia of contract save consideration. Hedley Byrne would, but for the express disclaimer, have been such a case. White v Jones and Henderson v Merrett, although the relationship was more remote, can be seen as analogous. Thus, like Colman J (whose methodology was commended by Paul Mitchell and Charles Mitchell, "Negligence Liability for Pure Economic Loss (2005) 121 LQR 194, 199), I think it is correct to regard an assumption of responsibility as a sufficient but not a necessary condition of liability, a first test which, if answered positively, may obviate the need for further enquiry. If answered negatively, further consideration is called for.
5. Secondly, however, it is clear that the assumption of responsibility test is to be applied objectively (Henderson v Merrett, p 181) and is not answered by consideration of what the defendant thought or intended. Thus Lord Griffiths said in Smith v Bush, p 862, that
Lord Oliver of Aylmerton, in Caparo v Dickman, p 637, thought "voluntary assumption of responsibility"
In similar vein, Lord Slynn of Hadley in Phelps v Hillingdon, p 654, observed:
The problem here is, as I see it, that the further this test is removed from the actions and intentions of the actual defendant, and the more notional the assumption of responsibility becomes, the less difference there is between this test and the threefold test.
6. Thirdly, the threefold test itself provides no straightforward answer to the vexed question whether or not, in a novel situation, a party owes a duty of care. In Caparo v Dickman, p 618, Lord Bridge, having set out the ingredients of the threefold test, acknowledged as much:
Lord Roskill made the same point in the same case at p 628:
7. Fourthly, I incline to agree with the view expressed by the Messrs Mitchell in their article cited above, p 199, that the incremental test is of little value as a test in itself, and is only helpful when used in combination with a test or principle which identifies the legally significant features of a situation. The closer the facts of the case in issue to those of a case in which a duty of care has been held to exist, the readier a court will be, on the approach of Brennan J adopted in Caparo v Dickman, to find that there has been an assumption of responsibility or that the proximity and policy conditions of the threefold test are satisfied. The converse is also true.
8. Fifthly, it seems to me that the outcomes (or majority outcomes) of the leading cases cited above are in every or almost every instance sensible and just, irrespective of the test applied to achieve that outcome. This is not to disparage the value of and need for a test of liability in tortious negligence, which any law of tort must propound if it is not to become a morass of single instances. But it does in my opinion concentrate attention on the detailed circumstances of the particular case and the particular relationship between the parties in the context of their legal and factual situation as a whole.
9. The jurisdiction to grant Mareva injunctions, to give freezing injunctions their original and better known name, was developed by judicial decision from the late 1970s onwards. It was recognised in section 37(3) of the Supreme Court Act 1981, and is now governed by CPR Part 25.1(f) as an order which may be made
A standard form of injunction (which may be modified to meet the needs of the particular case) is annexed to the Practice Direction on Interim Injunctions (25PD.10). The prescribed standard form contains a penal notice:
The first of these warnings is addressed to the subject of the order, the second to any party (such as a bank) who knows of it. The form provides that anyone served with or notified of the order may apply to the court to vary or discharge it on notice to the applicant's solicitor. The effect of the order as it affects parties other than the applicant and the subject of the order is again stated:
The form records an undertaking by the applicant to pay the reasonable costs of any person other than the subject of the order
In the present case, the second sentence of the penal notice (addressed to notified parties) was not included, but the effect of the notice was stated as in the standard form (subject to an immaterial change of wording) and both the notice concerning variation or discharge and the Commissioners' undertaking as to costs of notified parties followed the text quoted.
10. It is very well-established that the purpose of a freezing injunction is to restrain a defendant or prospective defendant from disposing of or dealing with assets so as to defeat, wholly or in part, a likely judgment against it. The purpose is not to give a claimant security for his claim or give him any proprietary interest in the assets restrained: Gangway Ltd v Caledonian Park Investments (Jersey) Ltd  2 Lloyd's Rep 715, para 14, per Colman J. The ownership of the assets does not change. All that changes is the right to deal with them.
11. The court will punish a party who breaches one of its orders if the breach is sufficiently serious and the required standard of knowledge and intention is sufficiently proved. This rule applies to freezing injunctions, as the prescribed form and the notices given to the Bank in this case make clear. The leading authority on Mareva injunctions leaves no room for doubt. In Z Ltd v A-Z and AA-LL  QB 558, 572, Lord Denning MR said:
He repeated this point at pp 573-574 and 575. Eveleigh LJ devoted his judgment in the case wholly to the requirements of contempt in this context. That the power to punish for contempt is not a mere paper tiger is well illustrated by the judgment of Colman J in Z Bank v D1 and Others  1 Lloyd's Rep 656.