High Court refuses customer's interim mandatory injunction application to unfreeze bank account

In the context of a breach of contract claim brought by a customer against a bank for freezing their account on the basis of suspected fraud or criminal activity, the High Court has dismissed an application by the claimant for an interim mandatory injunction to compel the defendant to unfreeze their bank account: Harvey v Santander UK plc [2023] EWHC 2947 (KB).

This decision will be of interest to financial institutions as it continues the trend that the court will uphold a bank's decision to exercise its contractual rights to freeze a customer's account without notice in circumstances where it suspects fraud or criminal activity (see our previous blog posts here and here).

The decision considers the common law principles that the court will take into account in considering whether to grant an interim mandatory injunction application brought under CPR Part 25 by a customer against a bank. The court will generally approach these injunctions with caution and they are typically granted only in clear-cut cases where the court has a high degree of assurance that the party seeking the injunction will succeed at trial. This is because mandatory injunctions can significantly alter the status quo and may impose substantial burdens or obligations on the party against whom they are issued.

In the present case, the court was not satisfied that this was a case in which an interlocutory mandatory injunction should be granted because it did not feel a high degree of assurance that the customer would succeed in satisfying a court at trial that the bank had not been exercising its contractual rights to freeze the account, to close it and to decline to execute the customer's instructions. Further, the court was concerned that if it were to grant the injunction and at trial it was proved that it was wrong to do so, then damages would be an inadequate remedy for the bank because it may face regulatory and/or criminal sanctions and/or potential actions from third parties who might claim the funds were misapplied.

We consider the decision in more detail below.

Background

The claimant customer had a business account with the defendant bank, which was subject to the bank's general terms and conditions (the T&Cs). These provided that the bank could refuse any withdrawal or payment from the customer's account if: (a) it may place the bank in breach of any legislation or law or the bank reasonably suspected it may result in any regulatory action against it in any jurisdiction; or (b) the bank reasonably suspected it related to fraud or any other criminal act. The T&Cs also contained conditions that the customer must not misuse their account or act in any way which gave rise to a reasonable suspicion of fraud or other criminal activities, and that if the customer breached these conditions that the bank could suspend or close the customer's account immediately without prior notice.

In 2022, a large payment into the customer's account created an alert on one of the bank's monitoring systems. Discussions with the claimant and subsequent investigations led to the bank suspect the payments related to fraud or another criminal act because of their origin, stated purpose and amount. The bank concluded that the account ought to be closed and immediately froze the account. The customer discovered that the account had been frozen and asked the bank for an explanation, but was not satisfied with the lack of information provided by the bank.

The customer subsequently brought a breach of contract claim against the bank and applied for an interim mandatory injunction to compel the bank to unfreeze their bank account. The bank opposed this application on the basis that it was contractually entitled to act as it did given its suspicions that the bank account was being used for potential fraud or criminal activity, and the need to guard against any potential regulatory and legal risks.

Decision

The High Court found in favour of the bank and dismissed the customer's application.

The court rejected the bank's suggestion that the application should be refused because it was not an urgent matter, emphasising that while ongoing police inquiries (which cannot be revealed to their customers under criminal legislation) may put banks in a difficult position, banks should explain to their customers the contractual reasons for their conduct.

The bank submitted that, in any event, it was not appropriate to grant an interim mandatory injunction, relying in particular on the following bases:

• It was highly inappropriate for a mandatory injunction to be granted which would render a bank at risk of committing a criminal offence, thus an injunction should be refused as a matter of discretion, as per K Ltd v National Westminster Bank Plc [2006] EWCA Civ 1039.
• A bank must be entitled to rely on its contractual rights to refuse to carry out a transaction if it reasonably thinks that one or more of its conditions to do so is satisfied, as per Becker & Fellowes v Lloyds TSB Bank Plc [2013] EWHC 3000.
• For an interim mandatory injunction to be granted, which would have the practical effect of putting an end to the action, a court is required to factor-in the degree of likelihood of the claimant succeeding in the action if it had gone to trial, as per NWL Ltd v Woods [1979] 1 WLR 1294.
• For a mandatory injunction a court must feel a high degree of assurance that at trial it will appear that the injunction was rightly granted – a higher standard than for a probatory injunction, as per Shepherd Holmes Ltd v Sandham [1971] 1 Ch 340.
• An application for an interlocutory mandatory injunction should be approached with caution and the relief granted only in a clear case, as per Locabail International Finance Ltd v Agroexport [1986] 1 WLR 657.

The court was not satisfied that this was a case in which an interlocutory mandatory injunction should be granted because it did not feel a high degree of assurance that the customer would succeed in satisfying a court at trial that the bank had not been exercising its contractual rights under the T&Cs to freeze the account, to close it and to decline to execute the customer's instructions.

This was due to the lack of any documentary evidential support provided by the customer to provide any assurance that the deposited monies were not the proceeds of crime and that certain proposed transactions were not an attempt to money-launder them. Also, none of the customer's own explanations satisfactorily dealt with the legitimacy of the source of the monies, nor provided any evidential support for it.

The court emphasised that if it were to grant the injunction and at trial it was proved that it was wrong to do so, then damages would be an inadequate remedy for the bank because it may face regulatory and/or criminal sanctions and/or potential actions from third parties who might claim the funds were misapplied. In the court's view, the customer was not someone who would have the resources to meet those damages. Also, the court said that the customer's limited means were such that cross-undertaking in damages would not be of any value.

Further, the court believed the balance of convenience favoured the maintenance of the status quo at this stage of the proceedings.

Finally, the court commented that a court should be cautious in granting the discretionary remedy of an interim mandatory injunction in anything other than a clear-cut case. The court said it found itself unable to conclude that it had the necessary high degree of assurance that this was such a case.

Accordingly, the court found in favour of the bank and dismissed the customer's application for an interim mandatory injunction.