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Facts and background

Squirrell Limited (“Squirrell”) is a company formed in 2002 and changed to its current name in January 2003. Since May of the same year, it has been operating the business of buying and selling things, especially mobile phones. Squirrel holds an account in the books of National Westminster Bank plc (“Natwest”), respondent to this application. On the 15th March 2005, the respondent froze Squirrell’s account on which a sum of about 200,000 pounds was deposited without providing any explanation as to the reason for this action. The managing director of Squirrell tried to discuss with the manager to no avail. On the 18th March, Natwest sent a letter to Mr. Khan, managing director of Squirrell, to inform him that the account frozen would not be unblocked without providing any explanation to justify this decision.

On March 24, Squirrell launched this application on 24 March and brought the following points to the appreciation of the Court to have the Court issue an order requiring Natwest to unblock the account because:

– The respondent gave the applicant no notice to its actions

– The applicant was denied access to the bank by the respondent

– To request an order requiring the defendant to disclose the reasons of his actions.

Mr. Khan appeared on behalf of Squirrell, stating that the freezing of the account deprived the company of the financial resources needed to pay a lawyer and were not able to do so with funds available in a foreign account for reasons best known to the company.

Natwest, on the other hand, said it would have acted according to Squirrel’s request if that would not be a violation of s. 328(1) of the Proceeds of Crime Act 2002 (“POCA”). Moreover, Natwest explained that the anti-tip off provisions of that legislation also prevented it from explaining to Squirrell the reasons behind the blocking of the account.

Questions to be examined by the court

The court, therefore, had to determine the scope and effect of s 328(1), POCA.

The intervention of HM Customs and Excise (“HMCE”) at the beginning of the hearing made it known to Squirrel that the account had been blocked because Natwest acted in pursuance of its alleged duties under POCA. Natwest further stated that those duties arise out of or in relation to an investigation that HMCE says it is conducting into possible VAT offenses.

Nevertheless, at this point, Mr. Khan’s prior concern is to have the account unblocked so that the company could carry on with its regular course of activities, whereas Natwest insists that it would be committing a criminal offense if it did so.

What are the scope and effect of s 328(1) of POCA?

Before looking into the statutory provisions, Justice Laddie made some observations as to the hardship Squirrell could suffer from the freezing of its accounts. However, it might not be able to grant damages if Natwest acted in strict compliance with the applicable laws governing such matters. Squirrell might thus, end suffering damages without being entitled to compensation from Natwest. He proceeds to state that “the legislation contains some, albeit restricted, provisions intended to limit the harm that these provisions can inflict on innocent parties. It is not for the courts to substitute their judgment for that of the legislature as to where the balance should be drawn.” As a result, the Court will not be able to require a party to act against the law when it is clear and obviously applicable to the facts.

Examining the provisions of the legislation, Justice Laddie notes that:  328(1) of POCA provides that:

“A person commits an offense if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.”

After a definition of the terms “criminal property,” “benefit” and an appreciation of the required level of suspicion, Justice Laddie states that the rationale behind these provisions is not to turn innocent parties like Natwest into criminals, but to put pressure over them so that they are eager and prompt to disclose any potential criminal operation they might witness.

Also, the law prevents the operators from disclosing any facts that may hinder the course of the investigations unless there is an “authorized disclosure” under s. 338, which includes disclosure to a constable or a customs officer. Such authorization must be given within 7 working days and, if it is denied, no information can be disclosed at all.

The combined effect of these provisions is to force a party in Natwest’s position to report its suspicions to the relevant authorities and not to move suspect funds or property either for 7 working days or, if a notice of refusal is sent by the relevant authority, for a maximum of 7 working plus 31 calendar days. Furthermore, the anti-tip off provisions of s 338 of POCA prohibit the party from making any disclosure, which is likely to prejudice any investigation which might be conducted following an authorized disclosure under s 338.

Justice Laddie, therefore, concludes that the position adopted by Natwest was unimpeachable.  According to the facts of the case, it did exactly what it was legally required to do by the legislation. As a consequence, the Court has no jurisdiction in ordering Natwest to operate the account in accordance with Squirrell’s instructions because doing so be requiring Natwest to commit a criminal offense. The Court, therefore, dismissed the application.

Justice Laddie also dismissed a subsidiary request brought by Squirrell, stating that the authorization was not denied in the statutory notice period. This request was quashed by the Court, who held that Squirrell made a wrong calculation and included public holidays to its count when the law expressly states that the notice period is 7 working days.

What is the consequence of this ruling?

This ruling guarantees companies that they cannot be held liable for damages incurred by their customers as long as they strictly abide by the applicable laws. Courts will not require a company to breach statutory provisions that would lead to the commission of a criminal offense. In this case, though Squirrell suffered hardship due to Natwest’s actions, it could be allocated damages because Natwest didn’t act out of bad faith but, instead, in the application of enforceable statutory provisions.