Banks' obligations in relation to freezing injunctions

The Court of Appeal has held that a bank owes a duty of care to a claimant to take care that funds in an account subject to a freezing injunction should not be dissipated in breach of that injunction.

Details of the judgment

This decision overturns the earlier first instance decision in Customs & Excise Commissioners v Barclays Bank Plc in February 2004. It had been held that a duty of care would arise only where the bank had in some way assumed responsibility to the claimant.

The Court of Appeal did not accept that an assumption of responsibility by the bank was required for a duty of care to arise. In determining whether the bank owed a duty of care, the Court of Appeal applied the "threefold test". It held that there were sufficient elements of both foreseeability and proximity and that it was fair, reasonable and just to impose a duty of care.

In this case, the claimants had obtained a freezing injunction in relation to, inter alia, certain accounts held by the bank. Some 2 hours after the bank had received notice of the freezing injunction, it transferred large sums of money pursuant to instructions made directly to the bank's payment centre, rather than the bank's branch. The claimants claimed damages on the grounds of the bank's negligence.

It was considered that the bank's duty of care arose at the point when the bank received notice of the freezing injunction; from that time the customer's mandate was revoked with regard to the amount frozen. It is noted in the judgment that a bank is entitled to charge the claimant a reasonable sum for its co-operation and this is partly recognition of the burdens and problems for banks in dealing with freezing injunctions.

What does this decision mean for banks?

It is well-established law that a third party may be held in contempt of court if it assists in the disposal of any assets subject to a freezing injunction. This decision indicates that a bank may also be liable if it negligently allows a disposal of assets. Banks are now obliged to take "reasonable care" to ensure that sums of money subject to freezing injunctions are preserved.

Care must be taken to ensure that proper procedures are implemented. Banks may wish to review their usual charges for handling freezing injunctions to ensure that they accurately reflect the cost of the procedures required.

Notice of a freezing injunction should be distributed to all parts of the bank which may be involved in processing payments. This must be done as a matter of urgency as this case shows that a delay of just 2 hours may render the bank liable. It should be noted, however, that this applies only to payment instructions received after notice of the freezing injunction; it does not preclude the debiting of an account in respect of transactions (e.g. cheques and credit cards) effected prior to service.

Should you have any questions concerning the issues referred to above, please contact Duncan Aldred on +44(0) 207 367 2709 or at [email protected] or Janet Currier on +44(0) 207 367 2326 or at [email protected].