IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Before: THE HON. MR JUSTICE LADDIE

B E T W E E N

The Bank

Claimants

- and -

(1) A LTD

(2) Mr B

(3) C Ltd

Defendants

- and -

The Serious Fraud Office

Interested Party

Miss Geraldine Andrews instructed by Underwood & Co for the Claimant
Mr Paul Downes instructed by Bower Cotton for the First Defendant
Mr Simon Cavender instructed by The Rosling Partnership on behalf of the Second Defendant and by Withers on behalf of the Third Defendant
Mr Malcolm Davis-White instructed by the Serious Fraud Office and the National Criminal Intelligence Service

Hearing dates: 17 – 19 May, 2000

JUDGMENT

DATED: 23 June, 2000

Mr Justice Laddie

I direct pursuant to CPR Part 39 P.D. 6 that no official shorthand note shall be taken of this judgment and that copies of this version as handed down may be treated as authentic.

Introduction

1.This application is brought by the defendants. In it they ask for the current proceedings to be struck out or stayed and that an order made in private and in their absence by the Chancery Division which froze certain bank accounts be discharged. In fact all the arguments before me have been directed at the last of these requests. It raises issues relating to (a) the steps which a financial institution, such as a bank, may take when it suspects there to be a risk that it is in receipt of moneys which are the proceeds of serious wrongdoing, (b) whether proceedings can be brought against a customer and others without their knowledge either that the proceedings have been commenced or the existence of any order made or the evidence used or arguments advanced against them and, (c) if any such order is made against the customer and others, what, if any, safeguards exist to protect their interests, particularly if they are innocent of any wrongdoing. The issues are said to arise out of, or to be a consequence of, the provisions of s.93D of the Criminal Justice Act, 1988 designed to prevent "tipping-off" when serious criminal wrongdoing is being investigated.

2.The claimant is a major bank. For the purpose of this judgment I will refer to it simply as "the Bank". The first defendant is a company which I will refer to as "A Ltd". In circumstances described below, it became a customer of the Bank in September 1999. The second defendant is an individual, to whom I shall refer as "Mr B". The third defendant is another company, to which I shall refer as "C. Ltd". Mr B and C Ltd are clients or associates of A Ltd and passed to it fairly large sums of money which were put into accounts in A Ltd's name at the Bank. Those accounts were frozen as a result of an order made in the Chancery Division on 16 November 1999. Bit by bit the full rigours of that order have been reduced as a result of various applications made mainly by the defendants. The most recent variation was made by consent just before the present application came on for hearing. It resulted in certain sums of money being unfrozen so that the defendants could pay some of their lawyers' bills. The present position is that virtually all of the sums originally covered by the freezing orders have now been released back to the defendants. However the Bank claims that it is entitled to its costs of the proceedings to date, hence a comparatively small sum remained effectively frozen so as to meet the Bank's expected claim for costs. The Bank also says that it should not be obliged to pay any of the costs of the defendants in securing the release of their money. Furthermore it says that the original freezing order was not subject to a cross-undertaking in damages and that, even if it were, it should not be implemented so as to compensate the defendants for any losses they may have suffered as a result of their having been kept out of their funds for the past six months or so. I should make it clear that, on the basis of the information now known to the Bank, it does not suggest that it can be proved that any of the defendants has done anything wrong which would justify the freezing of A Ltd's accounts.

3.Before considering the issues raised, it is necessary to set out the history of the proceedings to date.

(1) The events leading up to the application for the freezing order

4.In August 1999 an established and respectable third party approached the Bank with an introduction to a prospective new customer, A Ltd. There was correspondence with A Ltd's existing and proposed directors and A Ltd was invited to complete and submit an application form for a Business Current Account. It did so. The Bank carried out various pre-opening procedures. It sought and obtained confirmation of the identities of A Ltd's three directors from their respective bankers, C Hoare & Co, Abbey National Plc and Lloyds TSB Bank Plc. On about 21 September it agreed to open a sterling current account for A Ltd and later it agreed to open a US dollar current account for it. In October, the Bank received a letter from one of A Ltd's directors that it was expecting to receive Australian Dollar telegraphic transfers of sums equivalent to just under US$1M and US$226,000. That was followed by notification of the expected receipt of another sum of just over US$0.5M. On 29 October 1999 the sum of US$525,000 was received from a respectable foreign bank ("X Ltd") on behalf of C Ltd. On about 1 November, also via X Ltd, a transfer was received of a sum of just over US$600,000 on behalf of Mr B. Another transfer of US$144,675 on behalf of Mr B was received shortly thereafter.

5.The Bank says that it became alarmed by these substantial transfers. They raised immediate questions in its mind as to the propriety of the transactions. It put in hand enquiries. It sought reassurance from X Ltd as to the bona fides of the paying customers. Such reassurance was given in writing. The Bank also sought and held a meeting with the directors of A Ltd. The directors also forwarded certain further information. Mr Redfern, a solicitor acting on behalf of the Bank, says that the latter, although designed to set at rest the Bank' concerns, had the opposite effect. It suspected that the money might have been obtained through prime bank instrument fraud or something similar. In a witness statement of 12 January 2000, Mr Redfern says:

"The Bank also made certain other enquiries of various sources. In the light particularly of information received (perhaps better classified as merely intelligence) from those sources, the Bank was concerned that it might properly be regarded as a constructive trustee of the funds which it holds in [A Ltd's] accounts".

6.Those other enquiries included inquiries of the ICC Commercial Crime Bureau, the British Banking Association and the Metropolitan Police. The Metropolitan Police informed the Bank in confidence that it was investigating the activities of A Ltd and persons said to be behind it in relation to certain suspected financial frauds. In the light of this information, the Bank became concerned that if it allowed A Ltd to continue to operate its accounts and the contents of them were removed, and the Bank were a constructive trustee of the funds, it might be liable to the beneficiaries. On the other hand, were it to raise the issue with A Ltd it would be likely to fall foul of s.93D of the Criminal Justice Act, 1988 which, in general terms, makes it an offence to 'tip off' people and organisations which are under investigation for major financial crimes.

7.Because of the squeeze it felt itself in, the Bank applied without notice and in private to the Chancery Division. On 16 November 1999 it sought directions as to what it should do. It did not ask for any form of substantive relief. However the judge ultroneously made the suggestion that an order freezing the accounts would be the best way forward. This suggestion was accepted by the Bank. The order in issue was made.

(2) The freezing order

8.The order records that it was made as a result of an urgent application by counsel on behalf of the Bank. It proceeds as follows:

"The Application was made in private and without notice but in the presence of representatives of another interested party. The Judge read a skeleton argument prepared by Counsel for the Applicant, which the Judge has directed shall remain confidential and shall not be revealed to any party who was not present at the Application without the prior permission of the Court.

AS A RESULT OF THE APPLICATION IT IS ORDERED that until further Order of the Court:

1. the Applicant (whose identity shall remain confidential and be denoted by a symbol) shall be restrained from making any payment out of the trust funds the subject of this Order, whose identity is stated in Counsel's aforementioned skeleton argument, without the permission of the Court;

2. the fact that this Order has been granted, the information which was disclosed to the Court on the Application (including the skeleton argument) and the identity of the Applicant, of the other party who was represented at the hearing and of any other person concerned in or affected by the Application including the Respondent shall remain confidential and shall not be disclosed to anyone other than those represented at the hearing of the application or to a Judge without the prior permission of the Court;

3. any transcript of the Application shall be kept confidential to the parties who appeared and were represented at the hearing, of the Application and shall not be made available to the Respondent without the permission of the Court;

4. (1) the Applicant shall with all due expedition issue a Claim Form under Part 8 of the Civil Procedure Rules seeking the Directions of the Court under the Trustee Act 1925

(2) such Claim Form shall not be served upon the Respondent or upon any other interested party, unless and until the Court so directs,

(3) the Claim Form shall not reveal the identity of the Applicant or the Respondent or their addresses and their names shall be represented by a symbol; and

(4) the Applicant need not issue any Application Notice for the Application made to the Judge today;

5. this Order and the Claim Form and any Application Notice issued in connection with the matters the subject of this claim shall be kept under the supervision of the Court Manager and shall remain confidential;

6. the parties who were represented at the hearing of the Application shall co-operate with each other in endeavouring, to agree upon the nature and extent of any further information and materials which are to be disclosed to the Court on any further Applications in this matter; ..."

9.The order also contained a liberty to the Applicant to apply informally back to the judge for further directions. The 'interested party' referred to in the opening paragraph to this order was the Serious Fraud Office. It was represented at the hearing by its solicitor, Mr Lund. It was interested to observe how the application was made and its outcome and it also wanted to monitor what information, if any, was disclosed by the Bank to the court. Mr Lund addressed the court.

10.The order obtained by the Bank therefore froze A Ltd's accounts but A Ltd was not to see anything which the Bank had put before the court in support of the application nor the order itself, nor be informed of its existence, nor the claim form which the Bank was to issue. Indeed the identity of the accounts to be frozen was itself to be kept secret. No application notice was to be issued. These are matters which have been the subject of criticism by Mr Downes who appears for A Ltd. There are a number of other points which should be noted at this stage. Although the order required the Bank to issue a claim form with all due expedition, it did not include a return date and did not require the Bank to return to court after a short period to obtain further directions. The Bank could retain the benefit of the order indefinitely, or at least for as long as it took A Ltd to find out what had happened. Secondly, although the order contained a liberty to apply it was expressed to be exercisable only by the Bank. This is consistent with the fact that A Ltd was not to know about the order so could hardly be in a position to apply to vary or discharge it. Finally, although the order was of indefinite duration and might inflict considerable damage on A Ltd, it was not expressed to be subject to any cross-undertaking in damages. The Bank says that this was not an accident. It was not, and is not, prepared to compensate A Ltd for any harm it has suffered as a result of the execution of the order even if, as is now the case, A Ltd is not asserted to be guilty of any wrongdoing. The Bank says that there are good reasons why any loss should be borne by the customer and its clients and not by the Bank.

(3) The period between the freezing order and the Queen's Bench proceedings

11.As Mr Redfern explains in his January statement, although, because of the terms of the freezing order, he was not in a position to notify A Ltd of why its accounts had been frozen, it was clearly important that it should be aware of the fact that they had been frozen. Accordingly, on 18 November he wrote to A Ltd. On the same day, the Bank also wrote to its customer. Mr Redfern's letter is in the following terms:

"We have been instructed by [the Bank] in connection with your accounts numbered .... Our client is unhappy about certain aspects of the transactions which have taken place on the accounts.

The Bank has therefore instructed us to investigate the matter and seek the Advice of Counsel before reporting. In the meantime, our client can allow no further transactions of any sort on the accounts. We apologise for any inconvenience or embarrassment that this may cause."

12.Of course the references to investigating the matter and taking the Advice of Counsel was designed to put the customer off the scent, but in the light of the order which the Bank had obtained, this type of response was inevitable. The Bank's own letters were less informative. They simply told the customer that the accounts were frozen, no further transactions would be allowed and directed the customer to address any queries to the Bank's solicitors, who were identified.

13.Not surprisingly, A Ltd was extremely disturbed by this sudden and unexpected turn of events. On 18 November, one of A Ltd's directors, Mr G, tried to contact both the director in charge of the A Ltd's accounts at the Bank and Mr Redfern. Neither was available to accept his calls and neither responded to his request to phone him back. On 22 November, Mr Redfern received a fax from Mr E, another director of A Ltd. He asked to be advised of the nature of the Bank' concerns and how long the enquiries were likely to take. He claimed that it was particularly important to know the answer quickly as the funds in the accounts were urgently required to meet a contractual obligation. Mr Redfern did not reply to that fax but, in any event, on the next day Mr E contacted him by telephone. Mr Redfern was asked how long the inquiries would take. A period of two weeks was mentioned. Mr E clearly was not happy with this. He asked whether it would help for A Ltd's solicitors to become involved. Mr Redfern says that he told Mr E that he did not think that would help although it was a matter which was entirely up to A Ltd.

14.On 4 December, having heard nothing from the Bank or its solicitors, a letter from Mr E was hand-delivered to Mr Redfern's firm, Underwood & Co. In it he protested that the two weeks mentioned in Mr E's telephone conversation with Mr Redfern had passed yet the accounts were still frozen and no reason or explanation had been supplied. He said that A Ltd knew of no cause for any investigation and asserted that the accounts had always been managed prudently and correctly. He asked for a response. None was forthcoming.

15.On 8 December, Mr E wrote again to Mr Redfern informing him that A Ltd had instructed its solicitors, Bower Cotton, to take action including, but not limited to, seeking a court order for the immediate return of A Ltd's funds. The letter went on as follows:

"Be advised that:

The Source of the Funds is known, the Use of the Funds is known, the Due Diligence documentation was prepared by the Bond Partnership, Chartered Accountants, our Money-laundering Consultants in the UK, who are known and approved by both the Bank of England and the NCIS and the business of our company is 100% legitimate and we can prove it."

16.On the following day Bower Cotton wrote to Mr Redfern. That letter included the following:

"Full documentation concerning the parties who have transferred funds and the origin of those funds is on file with our clients and we will gladly supply you or your clients with copies if they so require. The very greatest of care has been taken to ensure that the origin of the funds is entirely satisfactory.

... If you wish to see any of the documentation relating to the receipt of funds, please let us know immediately. Unless we have your confirmation that your clients will carry out our client's instructions to remit the funds in the accounts elsewhere by no later than close of business on Monday 13th December 1999, we have instructions to make an application to the Court for an order that the funds be released to our clients forthwith."

17.These letters were not responded to, nor was the offer to supply documentation to prove the legitimacy of the funds taken up. The assertion that A Ltd's business was 100% legitimate may be true. In any event it is not now challenged. Of course, since A Ltd and its solicitors did not know of the freezing order made in the Chancery Division, it considered that it would be initiating proceedings if it sought an order to release the funds. It should be noted that the course of conduct followed by the Bank had resulted in A Ltd concluding that a suspicion of serious wrongdoing was behind the freezing of its account. That is apparent from the passages quoted above from Mr E's letter.

18.On 21 December, A Ltd issued an application notice in the Commercial Court for an order requiring payment of the sums held by the Bank to A Ltd's solicitors. The application came on for hearing on 23 December. The hearing was attended by A Ltd and its counsel, Mr Downes, and by the Bank and its counsel. It appears that submissions and evidence relied on by A Ltd were put before the court and, of course, the Bank and its legal advisers were given copies of the documents being relied on. That evidence asserted that A Ltd was an impeccable company, full money-laundering checks had been carried out and that there was not a shred of evidence to suggest that the moneys were tainted in any way. It is to be noted that at this stage, because of the terms of the freezing order, the Bank could not, without leave, tell either A Ltd or its lawyers of the November order or the skeleton arguments used by it. After submissions had been made, A Ltd and its lawyers withdrew from court so that Mr Crookenden, who appeared for the Bank, could make submissions to the judge in private. Mr Crookenden relied on a skeleton argument he had prepared. The judge was informed of the freezing order and shown the November skeleton argument which had been used to obtain it. A Ltd and its counsel were then allowed to return to the hearing. At first, the judge said that he was minded to adjourn A Ltd's application for a short period though he could not tell Mr. Downes why. The judge's intention was to allow the Bank the opportunity to make an application to the Chancery Division for further directions. However, after hearing further submissions from Mr. Downes, and against the Bank's objections, the judge did not adjourn the application but made an order that unless an application were made by the Bank to the court before 17 January, the Bank would have to pay over to A Ltd's solicitors the sums held by it in A Ltd's accounts. It is hardly surprising that he made this order. The evidence before him was all from A Ltd. It was not answered by any evidence from the Bank. It should be noticed that by this time, the suspicions raised with A Ltd as a result of the Bank's actions had now become a virtual certainty. Mr Downes and his clients concluded that the reason the Commercial Court was invited to listen to counsel for the Bank in private was because of fear of tipping off contrary to s. 93D. The course of events set in motion by the Bank had therefore disclosed to A Ltd and its advisers that a serious criminal investigation was under way although not the details of it.

(4) The second application to the Chancery Division.

19.The result of all this was that there now existed two conflicting orders of the High Court. Accordingly, the Bank made another private application to the Chancery Division which was heard on 13 January. In relation to that Mr Redfern prepared his January witness statement referred to in paragraph 5 above. In that statement Mr Redfern accepted that the Bank's suspicions might be completely groundless. He also said that the Bank had serious grounds for suspicion that the money might not belong to A Ltd but that there was no hard evidence to support that. The Bank wanted the issues resolved in one court. It wanted its costs paid out of A Ltd's accounts if, as it thought was possible, the money was subject to a constructive trust. Mr Redfern said that the Bank was unwilling to go to the expense of defending what could be very difficult and expensive proceedings without some reassurance that it would not have to carry the costs of so doing. That continues to be its position. Whatever the Bank's costs of this litigation, they should be paid out of "the trust fund", that is to say A Ltd's accounts. So, if the proceedings proved difficult and expensive, as Mr Redfern anticipated, the costs of both sides would have to be paid by A Ltd, even if it had done nothing wrong.

20.The new application was made to the Chancery Division, again without notice to A Ltd and in the presence of the Serious Fraud Office ('SFO'), which made representations to the court through its counsel, Mr Crow. The freezing order was modified to some extent. It prohibited A Ltd or anyone else from commencing any further proceedings against the Bank in respect of the money in the A Ltd accounts. It directed the Bank to seek an order transferring the Queen's Bench proceedings to the Chancery Division. It ordered Mr B and C Ltd to be joined as defendants and it relaxed the freezing order to the extent that the Bank was permitted to disclose the existence of the Chancery proceedings, the existence of the freezing order and this new order of 13 January to each of the defendants. Mr Redfern's witness statement was also to be disclosed. It did not permit disclosure of the skeleton arguments which the Bank' lawyers had used for their various applications.

(5) The period leading up to this application

21.As a result of a number of applications made by the defendants to the Chancery Division since 13 January, they have managed to get sight of the skeleton arguments used from time to time by the Bank and have been allowed to obtain transcripts of the private hearings in the Chancery Division in November and in the Queen's Bench Division in January. Further, as noted above, they have had released to them most of the money held in the accounts. Only a comparatively small sum remains frozen. This was insisted on by the Bank to safeguard some of the costs which it hopes to obtain from A Ltd. A Ltd was prepared to allow this money to remain frozen but only if there was a cross-undertaking in damages in respect of it. The Bank resisted. It had never intended to compensate A Ltd or anyone else for any loss caused by these proceedings. Under some pressure from the court, it relented. The result is that an express cross-undertaking in damages exists but only in respect of the sum of US$180,000 and only from 23 March. There was one further order of note. It was made by consent on 10 May. It allowed the remaining US$180,000 to be paid out, inter alia, to meet some of the legal bills presented by A Ltd's lawyers.

22.It is against that background and the above-mentioned orders that the current application came on for hearing before me.

The nature of this application

23.The objections raised by the defendants fall under a number of heads. They say that on the material, or lack of it, before the court in November, it should not have made the freezing order. They say that even if the court had been shown all the material as it was in January of this year, no injunction would have been appropriate. Thirdly they say that, at any stage, this order was so unfair and one-sided that it should not have been made. To some extent this last objection blends into the others. Some of the defendants' arguments raise a particular problem. In substance I am being asked to review the decision of another High Court judge and to decide that he erred. That is particularly so here because, as I was reminded by the Bank on more than one occasion, the idea of making a freezing order and its terms came from the court, not the Bank. It might be thought that the better course would be to appeal the November order directly to the Court of Appeal. Unfortunately that way of ducking the problem appears to have been cut off by the Court of Appeal's decision in WEA Records Ltd v. Visions Channel 4 Ltd [1983] 1 WLR 721 which states that any such appeal would be an abuse of process. None of the parties suggested that I could avoid deciding these issues. In doing so, it must be remembered that I have had the benefit of detailed submissions of high quality from all sides and, in particular, from Miss Andrews for the Bank and Mr Downes. Those submissions were not only supported by extensive citation of authority but took just over two days which is some indication not only of the care taken by the parties but the importance of the issues which this case raises. By contrast the hearing in November appears to have come on urgently and to have been dealt with very briefly. The transcript is just over 6 pages long. Even the private hearing in January appears to have been very short.

The anti tip-off legislation

24.The concerns which triggered the Bank's application arose out of the intelligence which was passed to it by the Metropolitan Police. The Bank considered that its freedom to react to that intelligence was compromised by the anti tip-off legislation contained in s. 93D of the Criminal Justice Act 1988. The relevant provisions read as follows:

"93D Tipping-off

(1) A person is guilty of an offence if-

(a) he knows or suspects that a constable is acting, or is proposing to act, in connection with an investigation which is being, or is about to be, conducted into money-laundering; and

(b) he discloses to any other person information or any other matter which is likely to prejudice that investigation, or proposed investigation.

(2) A person is guilty of an offence if-

(a) he knows or suspects that a disclosure ("the disclosure") has been made to a constable under section 93A or 93B above; and

(b) he discloses to any other person information or any other matter which is likely to prejudice any investigation which might be conducted following the disclosure.

(6) In proceedings against a person for an offence under subsection (1), (2) or (3) above, it is a defence to prove that he did not know or suspect that the disclosure was likely to be prejudicial in the way mentioned in that subsection."

25.There is little doubt as to the purpose of ss. (1) and (2). They are designed to prevent anything getting to the subject of an existing or proposed money-laundering inquiry which may harm that inquiry. The use of the words "information or any other matter" emphasises the width of the provisions. All counsel who appear before me, including Mr Davis-White for the SFO, agree that disclosing the fact that an inquiry is underway to the target of that inquiry would fall within s. 93D(1), at least if the disclosee did not know that already. Telling a suspected money-launderer that law enforcement authorities are on his tail could seriously prejudice their inquiries. I understand it to be accepted, and in any event it must be the case, that an offence can be committed whatever the method of disclosure used. Someone who whispers in a suspected money-launderer's ear "the police are after you" would commit an offence. So too would someone who conveys the same warning by signs or deeds. All the parties also agree that the offence is one which involves mens rea.

26.During the course of argument, the Bank also drew my attention to s. 93A which provides, so far as material, as follows:

"93A Assisting another to retain the benefit of criminal conduct

(1) Subject to subsection (3) below, if a person enters into or is otherwise concerned in an arrangement whereby -

(a) the retention or control by or on behalf of another ("A") of A's proceeds of criminal conduct is facilitated (whether by concealment, removal from the jurisdiction, transfer to nominees or otherwise); or

(b) A's proceeds of criminal conduct -

(i) are used to secure that funds are placed at A's disposal; or

(ii) are used for A's benefit to acquire property by way of investment,

knowing or suspecting that A is a person who is or has been engaged in criminal conduct or has benefited from criminal conduct, he is guilty of an offence.

(2) In this section, references to any person's proceeds of criminal conduct include a reference to any property which in whole or in part directly or indirectly represented in his hands his proceeds of criminal conduct.

(3) Where a person discloses to a constable a suspicion or belief that any funds or investments are derived from or used in connection with criminal conduct or discloses to a constable any matter on which such a suspicion or belief is based -

(a) the disclosure shall not be treated as a breach of any restriction upon the disclosure of information imposed by statute or otherwise; and

(b) if he does any act in contravention of subsection (1) above and the disclosure relates to the arrangement concerned, he does not commit an offence under this section if -

(i) the disclosure is made before he does the act concerned and the act is done with the consent of the constable; or

(ii) the disclosure is made after he does the act, but is made on his initiative and as soon as it is reasonable for him to make it."

27.Miss Andrews says that had the Bank simply continued to operate A Ltd's account and paid out sums on A Ltd's instructions, it might have been guilty of a criminal offence under these provisions. I will consider that suggestion later in this judgment. However at this stage it should be noted that the fear of contravening this section was not raised at any earlier stage nor does it appear that it was ever considered. The possibility of a breach of s. 93A was not advanced as a reason for refusing to pay sums out of the accounts. Consistent with this, the Bank never asked the investigating authorities for permission under s. 93A(3)(b)(i) to make payments to A Ltd. Obtaining permission would have avoided the impact of s. 93A, but this was not what the Bank was interested in doing. Rather it wanted to have a reason for not making payments out of the accounts. On the assumption that its fear of civil liability was justified, if the constable had given permission to make the payments and the Bank had done so, it might still have been liable. Therefore obtaining permission under s. 93A(3)(b)(i) would have left the Bank open to the same commercial risk which it has sought by these proceedings to avoid.

Hearings in private

28.It is a fundamental principle of our system of justice that no one should be tried or deprived of his property without being told of the claims made against him and being given the opportunity to be heard in his own defence. This is but one facet of a much broader principle namely that the court must do everything in its power to be fair to both parties. It holds the ring between claimant and defendant. This broader principle is found at work when the court is persuaded to grant inter partes interlocutory injunctions. These are normally granted at the end of a speedy hearing at which not all the evidence is available to the court, what is available has not been tested by cross-examination and the parties have no opportunity to deploy their full arguments. Further, as a result of American Cyanamid, frequently courts say that they are not assessing the merits of the parties' respective cases. In such circumstances, the grant of the injunction might be found at the trial to have been unjustified. The cross-undertaking in damages is required so that injustice caused to the defendant at the interlocutory stage can be set right, so far as money is an adequate compensation, by an order for damages at the trial. In other words, even at the interlocutory stage the court is ensuring that the interests of the respondent are protected against the possibility that the order has been made in error.

29.The necessity to be fair to all the parties has particular importance where one of them is not present before the court. Notwithstanding the fundamental principle of audi alteram partem, in exceptional circumstances the courts have been persuaded to hear applications and grant orders in the absence of the party against whom the order is directed. Until now, such cases have been of two major types. The first consists of cases in which the need for relief is very urgent and there is insufficient time to give the respondent notice of the application to the court. With current means of instant communication this may be a shrinking category. Because the court is being asked to grant relief in the absence of the intended target, it goes out of its way to protect his interests as far a possible. An order will only be made if the applicant can show that he has a strong case and that the damage which will be caused to him by delay is likely to be considerable and irreparable. The order should always contain an early return date so that the court can revisit the issue with the benefit of evidence and submissions from both sides.

30.The second consists of cases in which giving notice to the respondent of the intention to apply for relief could itself defeat the ends of justice. These are cases in which the applicant is seeking what used to be called Anton Piller and Mareva orders. In this category not only is the respondent not present before the court but also the application is conducted in secret - the secrecy being necessary so as not to warn the respondent that an order is being sought. However it is the application which is conducted in secret. There is no secrecy surrounding the order or the evidence used to obtain it. Once the order is obtained, both it and the supporting evidence is served on the defendant – quite unlike the order made here. Even so, Anton Piller and Mareva orders have rightly been described as the nuclear weapons in the court's armoury and as being at the very extremity of the court's powers. To reduce the risk of abuse, stringent safeguards have been put in place to protect, as far as possible, the interests of the absent respondent. It is worth remembering what some of those safeguards are. First, an order will not be made unless the applicant produces evidence which shows that he has a very strong case. Second, the evidence must be served on the respondent with the order. Third, the order always includes a cross-undertaking in damages. Fourth, the order includes an express right to the respondent to apply to discharge on short notice. Fifth, the order must included a return date so that the issue can be brought back for review inter partes as soon as possible. Sixth, in Mareva orders there is an explicit provision allowing the respondent access to sufficient of his funds to pay his reasonable legal expenses - a provision which ensures that he has the financial resources available to fight for the discharge or modification of the order. All of these are intended to offer some, albeit imperfect, protection to the respondent.

31.Not one of these safeguards was expressly included in this freezing order. The responsibility for putting in place, in an ex parte order, sufficient safeguards for the absent respondent lies predominantly with the applicant. Here the Bank has not discharged that responsibility. Miss Andrews says that the order should be looked at as an interpleader rather than a freezing order, but it does not matter what the order is called. It is draconian and designed to prevent the defendants from accessing their own property. It appears to me that no regard was paid at all to the interests of the defendants nor to the possibility - which is now conceded to be the fact - that the defendants might not be shown to have done anything wrong. It may be that this failure itself would justify setting the order aside, but it is not necessary to the case on this basis.

32.In my view there are other and more pressing grounds which justify setting this order aside. The one-sidedness of the order is a reflection of underlying problems in the way in which it was obtained and its scope. As I have already said, in all cases where the court is asked to grant an injunction in the absence of the respondent, great care is taken to ensure so far as is possible that the court is in a position to determine that the applicant has the strong case which is an essential prerequisite of the grant of the order. This is reinforced by the strict obligation which rests on an applicant for an ex parte order to make full and frank disclosure of all facts and matters which may affect the court's decision on whether to grant relief or not. So strict is this obligation that courts will set aside ex parte orders if the applicant failed to disclose all relevant material to the court, even if the omitted material probably would not have prevented the court from granting the order had it been disclosed initially. This has been well established for many years, see for example R. v Kensington Income Tax Commrs, Ex parte de Polignac [1917] 1 K.B. 486, 504 and Boyce v Gill (1891) 64 L.T. 824. It has been repeated more recently, the subject being considered in detail in Lloyds Bowmaker Ltd v Britannia Arrow Holdings Plc [1988] 1 WLR 1337. The importance of this principle to the proper administration of justice was expressed as follows by Donaldson LJ in Eastglen International v Monpare SA (1987) 137 NLJ Rep 56:

"I stand by everything I said in the Bank Mellat case about the importance of full and frank disclosure, and I would support any policy of the courts which was designed to buttress that by declining to give anybody any advantage from a failure to comply with that obligation. I would go further and say that it is no answer that if full and frank disclosure had been made you might have arrived at the same answer and obtained the same benefit. This is the most important duty of all in the context of ex parte applications."

33.This is a discipline imposed on applicants. Insisting on all the evidence being put before the court is one way of limiting the inevitable lack of balance and fairness of an application in which only one side is present. However no evidence whatsoever was put before the court in November. The only material put before the court was a three-page skeleton argument which said that in the light of the information the Bank then had, it and its advisers had concluded that it was more likely than not to be a constructive trustee of the funds in A Ltd's accounts. The skeleton went on to say:

"10 The Bank is hampered in making such an application because the Metropolitan Police have indicated to the Bank in strong terms that they do not wish the information resulting from the Bank's inquiries ... even to be revealed to the Court. They do not wish it to be put in any Affidavit even if the Court directs that it should only be placed before the Judge. It is said that to reveal this information to the Court would impede their investigations, even though some of that information came from organizations other than the police themselves and those organizations have not raised any similar objections to its use.

11. The Bank does not wish to do anything which would impede the due administration of justice. On the other hand, it feels that it cannot properly ask the Court to consider its position and what should be done about it without giving the Court a full explanation of the basis on which it has concluded that it is probably a constructive trustee. Without that information before it, it is difficult to see how the Court can fairly evaluate the Bank's position." (emphasis as in the original)

34.In my view the contents of the second of these paragraphs does not go far enough. Without the information before it, it was impossible for the court to evaluate fairly or at all the Bank's or A Ltd's position. As these passages in the skeleton demonstrate, the Bank thought it was prohibited from telling the court anything. That might not have been a problem if all the court had done was give directions, which was all that the Bank had come to court to ask for. But I cannot see how a court in any circumstances could be justified in freezing in secret the assets of, or granting an injunction against, a party not before it if it had no material before it with which to assess the strength of either the applicant's or the respondent's case. Miss Andrews says that on its application to the court the Bank drew attention to and relied on C v S [1999] 1 W.L.R. 1551, a case concerned with the impact of anti tip-off legislation on civil litigation. She says the application in November and the freezing order made complied with the guidance given by the Court of Appeal in that case, subject to necessary modifications to meet the special circumstances here. I do not agree. In C v S one party, "the applicant", had sought and obtained an order for disclosure of documents against the other party, "the institution". However compliance with that order would result in information being disclosed to the applicant which might render the institution liable to proceedings for tipping off. It was therefore caught between being in contempt of an existing court order or committing a criminal offence. It applied in secret to the court for the existing order for discovery to be lifted. The differences between what happened there and what is in issue here are important and I will return to them later, but some of what the Court of Appeal said has direct application. In particular it said:

"(7) It will be for the [investigating authority] to persuade the court that, were disclosure to be made, there would be a real likelihood of the investigation being prejudiced. If the [investigating authority] did not co-operate with the institution (and with any requirements of the court) in advancing such a case, the court could properly draw the inference that no such prejudice would be likely to occur and could accordingly make the disclosure order sought without offending the principle in Rowell v. Pratt [1938] A.C. 101 and without putting the institution at risk of prosecution.

(8) Especially when the applicant cannot be heard it is important that the court recognises its responsibility to protect the applicant's interests. The court must have material on which to act if it is to deprive an applicant of his normal rights. The one criticism which can be made in this case of what occurred in the courts below is that they did not have that material." ([1999] 1 W.L.R. 1556 F- G)

35.Two things come out of this passage. First, it would have been for the SFO to justify refusing to allow disclosure. Any such refusal would only be acceptable if it persuaded the court that the disclosure sought created a real likelihood of the investigation being prejudiced. Assuming for the moment that it would have been proper for the court to look at information which was not to be shown to A Ltd, I cannot see how showing that material to the court alone – which is all that the Bank said it wanted to do – could have created a real likelihood of prejudicing the SFO's investigation. Having looked at the transcript of 16 November, it is apparent that no attempt was made to persuade the court that any such prejudice would exist and the judge does not seem to have considered the matter. One can understand how this state of affairs arose. The Bank came to court to ask for directions only. It was not making an application which would have required the SFO at that hearing to justify its refusal of permission to disclose. So neither the Bank nor the SFO attended before the court prepared to argue that issue and the judge did not ask the SFO to justify its refusal. Secondly, C v S reiterates that the court has a responsibility to protect the absent party's interests and, in particular, that it must have material upon which to act before depriving that party of its rights. The only matter put before the court on 16 November was the fact that the Bank had suspicions and worries. No evidence of any sort was produced showing that A Ltd or its backers had done anything wrong. The absence of such evidence was expressly acknowledged by Miss Andrews during the November hearing.

36.Assuming for the moment that the SFO's refusal to allow it to put any information before the court created difficulties for the Bank, that is no justification for the court to grant an order of the kind granted here. This might cause hardship for the Bank, but that does not give the court the right to remove it by imposing what might prove to be a completely unjustified hardship on the respondent. The point was made unwittingly by Mr Redfern himself in a witness statement made in March of this year in the Commercial Court proceedings. In response to a complaint in evidence filed by one of the directors of A Ltd on learning of the grant of the freezing order, Mr Redfern said:

"I can quite understand [the director's] anger and frustration but respectfully suggest that he is in no position to comment on the seriousness or otherwise of the totality of the matters which concerned the Bank."

37.Precisely the same thing could be said about the court in November of last year. It was in no position to make any assessment of the rights or wrongs in this case or the need or otherwise for any type of injunctive relief, let alone the relief granted. It is not an answer for the Bank to say that it did not ask for the injunction, but merely accepted one offered by the court. Although I have considerable sympathy for the Bank for the position it has found itself in, it accepted the offer made and must bear the consequences if the order is set aside. At any time it could have come back to court to ask for it to be discharged or varied. In fact it did ask for variation, to a limited extent, in January but even then it sought to retain the freezing injunction in its full width. Even now it says that it was justified. In my view, since in November the court had no material on which to justify the making of the freezing order, it should not have been made and should now be set aside.

38.Miss Andrews says that even if the court should not have made the order it did in November without any evidence, that was rectified in January when the Bank returned to the Chancery Division in private to seek variation of it. At least at that time some evidence was put before the court. In my view this argument fails for three reasons. First, in January the court was not invited to consider de novo the order which had been made in November. It was only asked to vary some of the provisions. The unqualified freezing of A Ltd's accounts was to stay in place. So the propriety of the November order was not in issue. It is unrealistic to think that one High Court judge will, of his own motion, set aside an order of another High Court judge when no one is asking for that to be done. Secondly, if, as I have concluded, the order should never have been made in the first place, it ought to be set aside in toto. Just as the court will set aside orders made where the applicant failed to make full and frank disclosure even if subsequent events prove the respondent to be a wrongdoer, so too it should set them aside if the applicant failed to make any disclosure at all. Thirdly, I do not accept that the material before the court in January would have justified the grant of a normal freezing order, let alone the form of order made here. On the contrary, in January, had the court been invited to consider the merits of the application, it ought to have refused the order sought even had it been limited to one of the normal Mareva type. At that hearing the Bank knew, and stated in its skeleton argument, that A Ltd and various individuals linked with it were under investigation for alleged investment fraud but not in respect of the particular transactions which led to the funds being in A Ltd's accounts. Whatever wrongs A Ltd and others might have been thought to have committed they did not relate to the sums frozen by the November order. This was confirmed by Mr Crow of the SFO during the oral hearing. He said:

"I cannot assist your Lordship at all on whether these funds are in fact the proceeds of any particular crime."

39.It has not been explained to me how, in those circumstances, the Bank could have been a constructive trustee of the funds or on what basis they should have been frozen. Furthermore, the Bank's skeleton for that hearing states:

"The transactions with [C Ltd and Mr B] ... may be entirely above board, and the Bank's suspicions ill-founded: but the Bank feels itself to be sufficiently on enquiry to require the assistance of the Court. As a result of the information which it has received (including, in particular, the sensitive information) the Bank is concerned that [C Ltd and Mr B], or other unidentified and unknown persons who may have put [C Ltd and Mr B] in funds, may be the victims of a prime bank instrument fraud or something similar." (emphasis as in original)

40.This goes nowhere near supporting the freezing order made. As Mr Crow made clear to the court, there was no intelligence at all which indicated that Mr B and C Ltd were in any way involved in wrongdoing, yet the freezing order prevented A Ltd from paying the moneys in the account back to the sources of it, i.e. to Mr B and C Ltd.

41.There is another reason why I think this order should be set aside. I have discussed the two types of ex parte order with which practitioners are familiar. In each case, the order, once made, is served on the respondent. It is true that sometimes service may take some time, for example where the respondent is being evasive. Occasionally the court will allow a party not to serve an order while further inquiries are being made. But in all these cases the order remains ineffective until served. That is quite different to what happened here. Here the order was intended to be, and was, immediately effective against the defendants' assets but they were not to know of it. I know of no case in which a court has granted an injunction against a respondent depriving him of his property and has imposed a blanket of secrecy so that he neither knows of the order nor, if he finds out, is allowed to know of the material used to obtain it. None of the counsel who appeared before me suggested it has ever been done before. It strikes me as a most unfair and unwarranted development and should be rejected. I think it is beyond the legitimate use of a court's powers. If, as the Bank says, the anti tip-off legislation prevents an order such as that made in November or any of the skeletons, witness statements or transcripts being disclosed to the respondent, then I do not think that the court should make the order. If, as a result, this legislation causes significant difficulties for parties in the Bank's position, then Parliament should provide the cure.

42.Further, neither at the hearing in November nor at any time thereafter has there existed any evidence known to the Bank, whether shown to the court or not, which justified any ex parte injunction against the defendants. The only basis advanced by the Bank for interference by the courts is that it fears that it might be a constructive trustee in respect of the US$1.2M in A's accounts. However, examination of the material now accumulated by the Bank shows that its fears, though no doubt genuine, were misplaced. At no time has there been any evidence that the particular sums in A Ltd's accounts were derived from some wrongful activity. As mentioned above, that was expressly conceded by January of this year. At the most, the intelligence passed to the Bank was that A Ltd or one or more persons behind it may have been involved in a prime bank fraud. Secondly, at its highest, the intelligence passed to the Bank should have made it suspicious that A Ltd and some of its backers had been involved or might become involved in some type of wrongdoing. I cannot see how that could make the Bank a constructive trustee of the sums in the accounts. Banks do not become constructive trustees merely because they entertain suspicions as to the provenance of money deposited with them.

43.This was an issue which accounted for a significant part of Mr Downes' skeleton argument and oral submissions and in support of it he relied on extensive authority. Miss Andrews did not really dispute the matter. On the contrary, she appeared to argue that the Bank had not suggested it was a constructive trustee but only asserted that it might be liable for knowing assistance if it paid money out of the account on A Ltd's instruction. This does not appear to be the way in which the case was advanced either in November of last year or at the hearing in February. In any event, it is difficult to see how, on the basis of the intelligence passed to the Bank, it could have been held liable for knowing assistance. As the Privy Council made clear in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, dishonesty is a necessary and sufficient ingredient to accessory liability. Here it could never have been said that operation of A Ltd's accounts would have involved dishonesty on the Bank's part. All it had were suspicions.

44.Finally, it appears that there has never been any evidence or information indicating that Mr B or C Ltd have done anything improper. Once again, as mentioned above, that was conceded in the January hearing. I can not see any basis upon which it would have been proper at any time to prevent A Ltd from paying the money back to either of these defendants.

45.There is one additional ground on which I would discharge this order. The courts have frequently emphasised that ex parte orders should not be made which go further than is necessary to meet the immediate needs of the applicant and that no order will be made unless the applicant demonstrates that he will suffer serious harm if no relief is granted. These two principles go together. Inherent within them is the concept that the order made must bestow some significant benefit on the applicant. A court should not make an order of such strength which does little good or is pointless. In my view, the order made here was always more or less pointless. The Bank could have decided, without the benefit of a court order, that the intelligence passed to it was of such gravity that it was not free to operate A Ltd's accounts. If it refused to do so, inevitably A Ltd would bring proceedings to force it to return the funds. In such proceedings the Bank would defend itself relying on such information, if any, as it was free to disclose to the court. The court would have to decide whether A Ltd's application should succeed on the basis of all the material put before it. If the Bank wanted to rely on secret information, no doubt the court would have to employ the procedures sanctioned by the courts, including the guidance given by the Court of Appeal in C v. S. At least then it would have all the parties before it. The course adopted by the Bank here has hardly improved its position. The result of the freezing order is that it did not operate the accounts. The inevitable and predictable effect of that was that A Ltd brought proceedings to force repayment of its funds. Those are the Commercial Court proceedings. That court then had to decide, on the basis of the material before it, whether to order repayment. It did so. The pre-emptive private Chancery order did not prevent the Commercial Court from making the order it did nor did it secure any substantial benefit to the Bank. If the Bank had valid and disclosable grounds for refusing to pay its customer, that would have been effective to defeat the application before the Commercial Court. No pre-emptive freezing order was necessary. If, on the other hand, it did not have such grounds, the pre-emptive order would not, and did not, improve its position.

46.Discharging the November order could be criticized as an empty gesture. As a practical matter, by reason of the serial modifications made to it since February, the order is now more or less dead. In some cases the courts have declined to discharge on the basis that it is pointless. An example is Columbia Picture Industries Inc. v. Robinson [1987] 1 Ch 38. However there is no general rule or settled practice in this area. The court has a discretion whether to discharge even an expired order. In the circumstances of this case, I have no doubt that I should discharge. That is not an empty gesture. It is consistent with the reasoning set out above and confirms that this order should not have been made.

Cross-undertaking in damages

47.As already noted, neither the freezing order nor the variation of it in February of this year contained an express cross-undertaking in damages. The only cross-undertaking was given in the order of March, by which time only a comparatively trivial sum remained frozen. Miss Andrews accepts that the issue of whether a cross-undertaking should be given was not raised during the arguments before the court on the private hearings of November and February. This was not an accident. She says that before a cross-undertaking can be extracted from an applicant for interlocutory relief, it must know that such a cross-undertaking is being demanded of it and it must give informed instructions to offer it. After all, depending on the facts of the case, a party's exposure on a cross-undertaking may be considerable. She reinforces that submission by reference to the particular circumstances here. When she applied to the court in November, the only relief sought was directions from the court as to what future steps to take in view of the Bank's suspicions and the SFO's refusal to allow it to disclose any information to the defendants and to the court. There was no intention to apply for an injunction or freezing order at that hearing. The result was that the Bank had not been asked whether it was prepared to offer a cross-undertaking in damages, let alone given instructions to do so. Further, because the application was intended to be low-key and without any request for an order having an immediate adverse effect on A Ltd, Miss Andrews attended with solicitors only. There was no official of the Bank present. Miss Andrews was not in a position to take immediate instructions on this topic. Had she been told that a cross-undertaking was being demanded she would have declined to accept the injunction at least until after she had contacted her lay clients. Further she argues that it is for the court to demand a cross-undertaking, not for the applicant to offer it. All High Court judges must be aware of the need to require a cross-undertaking. The absence of any discussion of cross-undertakings during the argument in November and the absence of it from the order made should be taken as an indication that the judge was not minded to impose one here. It is put this way in one of her skeletons:

"The Judge was right not to require any cross-undertakings to be given by the Bank. The Bank had not applied for an injunction: it was the Court which, of its own motion, decided to make the order in the terms which it did."

Similar arguments apply to the hearing in February of this year. Once again the defendants were not present and had no notice that the hearing was taking place. There was no discussion of cross-undertakings with the judge. Although he modified in some respects the freezing order, he did not do so in this respect. Again, Miss Andrews says that is an indication that no cross-undertaking was being required.

48.Mr Downes suggest that this issue should be looked at in a quite different way. He says that, save in respect of orders obtained by the Crown, the invariable rule is that a cross-undertaking is a quid pro quo of the grant of an interlocutory injunction. The reason that the issue was not raised by either of the judges who heard the November and February applications was that this was an issue which did not need to be mentioned. It went without saying that a cross-undertaking was demanded of the Bank. It was implicit. He goes further and says that if it was not an inevitable and automatic concomitant of the orders made, then it was the duty of the Bank to draw this issue to the attention of the court and to ask it to rule on the issue. Failure to do so was equivalent to failure to make full and frank disclosure and is an additional ground for setting the freezing order aside. From a practical point of view, the latter point would achieve little. Setting aside the order on this ground could not put a cross-undertaking in place retrospectively.

49.The justification for a cross-undertaking is well known. When the court grants interim relief, it has not heard all the arguments and evidence which will be available at the trial. It is seeking to hold the ring pending final resolution of the dispute. That is particularly so if, as is frequently said, American Cyanamid prohibits the court at an interlocutory stage from looking too deeply at the merits. The applicant may fail at the trial. The interlocutory injunction will then be seen to have been based on an unsound claim. It may have inflicted substantial damage on the respondent. Fairness demands that the court be in a position, if it determines it to be just, to order the applicant to compensate the injured respondent. It is not in doubt that for these reasons a cross-undertaking in damages is now demanded as of course.

50.The principles are accurately set out in Mareva Injunctions and Anton Piller Relief by Steven Gee QC (4th Ed):

"Whenever the court grants an Anton Piller order or an interlocutory injunction, unless the contrary is expressly said, the plaintiff will be taken to have given the usual undertaking in damages by implication. In the Queen's Bench Division it is usually the responsibility of the plaintiff to provide a draft order to the court. That order ought to contain the usual undertaking in damages. If, through inadvertence, it is not included, the plaintiff could not resist an application by the defendant to rectify the order either under RSC Ord 20 r 11 or under the inherent jurisdiction of the court." (p. 155)

51.One of the authorities cited by the author in support of that paragraph is Colledge v. Crossley The Times, 18 March 1975, which reports the Master of the Rolls saying:

"...that it was unfortunate that the undertaking in damages was not put into the original order. It was an automatic undertaking which was invariably inserted when an interim injunction was granted. If afterwards at the trial there was shown to be no right to the injunction the plaintiff would have to pay damages as the price of getting the interim injunction. Undoubtedly the failure to include the undertaking came within the slip rule. The undertaking should be inserted."

52.The implication of a cross-undertaking is even more necessary where ex parte orders are concerned. It is much easier for an applicant to persuade a court where he is not opposed. The court is only presented with one side of the story and one side of the arguments. Unlike inter partes applications, where the court can balance the parties' respective arguments, it has much less ability to do so where only one party is represented before it. It normally has no way of knowing whether the evidence put before it is full, frank or even honest. There is a heightened risk of an unjustified injunction being granted. Furthermore there is no one present on behalf of the respondent to demand a cross-undertaking. It cannot be right that the protection of his interests should depend upon whether the judge, who frequently is presented with the papers at the last moment and is deciding the application under considerable time pressure, remembers to demand the specific insertion of the cross-undertaking in the order.

53.When an ex parte injunction or order is made other than against the Crown, it is automatically subject to a cross-undertaking in damages. So that the parties are made fully aware of their respective rights and liabilities, that cross-undertaking should be set out in terms in the order, but if it is not, it is to be implied none the less. It is difficult to imagine any circumstances in which it would be appropriate for a court to refuse to impose a cross-undertaking when it is making an order in the absence and without the knowledge of the target of the injunction, not least because the imposition of such a cross-undertaking does not mean that the court will inevitably enforce it against the claimant if he fails at the trial. The cross-undertaking only requires the claimant to compensate the defendant if, in its discretion, the court decides that such compensation is appropriate. In the unlikely event that a court, after argument from the claimant, decides not to impose a cross-undertaking, that should be stated expressly. The failure of the court to expressly deal with this issue in the November and January orders was not because of an unwillingness to impose a cross-undertaking but because the necessity of such an undertaking was so obvious that it did not need to be stated.

54.In coming to this conclusion, I have necessarily rejected Miss Andrew's arguments. Any party who seeks interlocutory relief must be taken to know and appreciate that a cross-undertaking in damages will be the price it is expected to pay and the advocate appearing on his behalf will be taken to have authority to give the undertaking. Even in a case like this, where the November order was offered by the court rather than asked for by the party, acceptance of the offer subjects the party to exactly the same conditions and obligations as if he had asked for it in the first place. He has to pay the same price. The need to protect the interests of the absent party are the same wherever the idea for the injunction came from. If the offer of more than was asked for places the party's advisers in difficulties they should either ask for a short adjournment to seek instructions or decline the offer. If neither of these courses are adopted and the offered injunction is accepted, the automatic obligation to submit to a cross-undertaking must be explained to the client as soon as possible. If he is not prepared to pay that price, he must return to court at the earliest opportunity - particularly before the order is served or executed - to ask for it to be modified either by expressly excluding the cross-undertaking or removing the injunction. In this case, the difficulties in obtaining instructions could only have been of the shortest possible duration. Either on 16 November or the next day, instructions should have been obtained.

55.Since I have come to the conclusion that the orders obtained by the Bank in this case should be set aside, the cross-undertaking in damages comes into play. However that does not mean that I will automatically order an inquiry to be held. The money paid to the Bank has been held in an interest bearing account since November last year. Before I will make any order for an inquiry, I will require the parties to address me, either at the end of this judgment or at a later time on the issue whether ordering an inquiry in the particular circumstances of this case is appropriate.

The difficulties in which the Bank finds itself.

56.Throughout this application and during the applications in November and January, the Bank has been at pains to point out that it may be placed in difficulties by the anti tip-off legislation. It is obliged to report to the relevant investigating authorities any suspicious financial transactions of which it learns but the combined effect of ss. 93A and 93D is to restrict its ability to deal with funds deposited with it or to raise its concern with its customer. Furthermore there may be cases in which the information supplied by the investigating authority is so extensive and clear that the Bank may become a constructive trustee of sums in an account. Were that to occur and it complies with the customer's instructions to make payments, it might be liable to the beneficiaries of the trust. The courts should therefore provide it with the means by which to protect itself against such an undesirable and potentially expensive result. Consistent with these considerations, the Bank has maintained throughout that the costs of applying to the court for relief should be borne by the customer and that if an order is granted but subsequently discharged it should not be obliged to compensate the customer for any damage suffered.

57.Looked at from the point of view of the Bank that would be a satisfactory outcome. However that is not the only viewpoint. Consider the position of a customer who is honest and has deposited clean money in an account at a Bank. Unbeknown to him, a third party makes false allegations of money-laundering to the police. They commence an investigation and inform the Bank accordingly. If the Bank is right it can obtain a court order against the customer and he has to bear the costs of it doing so even though he has done nothing wrong and he must accept any loss that the freezing of his account has caused him.

58.I do not accept the Bank's view. The purpose of the Bank's application is to protect itself against the risk that in some cases it might be liable as a constructive trustee or for knowing assistance. It is not an exercise designed to support or further the SFO's inquiries. If anything, it does the opposite. Miss Andrews explained succinctly the prosecuting authority's concerns in her skeleton used before the Commercial Court in December:

"The [Metropolitan Police] have informed [the Bank] that their investigations are continuing and that they consider it most important that those connected with [A Ltd] do not become aware of the existence of the investigations or of the involvement of the MP. The MP have been unable to indicate to [the Bank] how long this state of affairs is likely to last." (my emphasis)

59.The best way to further those investigations and that important objective would be for the Bank to continue operating suspect accounts as if there were no suspicions as to the probity of the customer or the origin of the funds. The obtaining of an order of the sort obtained here, or just freezing the account without an order, will inform the customer that he is under investigation. If anything, they tip him off by deed rather than by word. That is what happened here. Orders of the type granted here are to protect the Bank's commercial interests. To secure that protection it wants the courts to give it freezing orders against its own customers, innocent and otherwise, against whom it has what it regards as grounds for suspicion and on terms that the customers always bear the cost. In substance that means that the customers end up paying to protect the Bank from the risks it runs in carrying on its banking business. Needless to say, there is every reason why the wrongdoing customer should bear the cost of any court procedures which the Bank has to take to protect itself against the consequences of that customer's wrongdoing. But I can see no reason why innocent customers should bear the costs which the Bank incurs to restrict its exposure to risk. There are no public policy considerations which justifies the court sanctioning such a transfer of risk from the Bank to customers who are not proved to have done any wrong.

60.I should mention one other argument advanced by Miss Andrews. She says that even if one has some sympathy for an innocent customer who is caught by an order of the type granted in November, that sympathy should not automatically extend to A Ltd. As she puts it, there is a difference between an innocent customer and one who is not provably guilty. She says A Ltd falls into the latter category. So, even if the November order is discharged, that should be done in a way which recognises the Bank's honesty and the cloud of suspicion hanging over A Ltd's head. The Bank should not be penalised either in costs or under a cross-undertaking in damages. In support of this submission, Miss Andrews has taken me to various passages in the evidence, not to demonstrate that A Ltd is guilty of any relevant wrongdoing, but to show that there are reasonable grounds for being suspicious that all is not right. I reject that approach.

61.It is a hallmark of any civilised system of justice that the courts protect the interests and rights not only of those who are innocent but also those who are not proved to be guilty. Were this not so, those who are suspected of wrongdoing could be deprived of rights or property merely on the basis of unprovable suspicions. A system of law which allowed that to happen would end up penalising some who have done no wrong – which may be the reason why suspicions directed at them cannot be proved. Of course the corollary is that sometimes those who are guilty of wrongdoing will profit because their guilt is unproved. The clever and most devious wrongdoers are more likely to escape than the fumbling and incompetent, but that price, offensive as it may appear, is what we pay to ensure that only those proven to be guilty by due and fair process are penalised. That approach applies as much to civil proceedings as to criminal ones. A Ltd has not been shown to have done anything wrong either generally or in relation to the funds contained in these accounts. It did not invite the November order. It has no lesser right than others to have its assets left undisturbed. Its interest in having its costs reimbursed and loss compensated is as deserving of recognition as that of any other innocent party. It must be remembered that even now A Ltd does not know the details of any allegation which has been made against it. Its desire to clear its name is frustrated because it does not know what charges were made against it. Nor do I. Nothing in this judgment should be construed as a sotto voce finding or indication that any of the defendants have done anything wrong.

What should the Bank do in the future?

62.Although I have come to the conclusion that the Bank cannot simply safeguard its commercial interests by passing the risk to customers whether innocent or not, there is no doubt that the provisions of s. 93A and 93D could operate to put it in a difficult position. If a financial institution is told that one of its customers is under suspicion for money-laundering and that sums it holds on the customer's behalf may be the proceeds of crime, what can it do? It may commit a criminal offence if it pays or if it refuses to pay. If it pays it may be guilty of an offence under s. 93A. On the other hand if it decides to refuse to pay it can be argued that it will commit an offence under s. 93D in one of two ways. First, if it informs the customer of the reasons for the refusal to pay – namely that the customer is under criminal investigation – this will amount to tipping off by word, whereas refusing to explain the reason for the refusal could amount to tipping off by deed. If a court orders the institution to pay, it might be argued that it commits an offence under s. 93A if it complies and is in contempt of court if it does not. It is unthinkable that our law should put an honest institution in such a position. Before considering what steps appear to be open to the Bank and other institutions in similar situations, I should mention two cases.

63.WEA Records Ltd v. Visions Channel 4 Ltd. [1983] 1 W.L.R. 721 was a case in which the claimants obtained Anton Piller relief against alleged video pirates. In support of their application the claimants' counsel gave the judge, Mervyn Davies J., certain information which it was said was so sensitive that it could not and would not be disclosed to the defendants. Although it does not appear in the report, that evidence consisted of information supplied by a third party who had reason to believe that he would suffer severe physical harm were he identified as the claimants' source. The claimants believed there was no way in which the court could be supplied with evidence showing that the defendants were video pirates without disclosing facts which would have identified the informant. The judge granted the order which was executed and complied with. However at a later date the defendants applied to set it aside. That application failed for reasons which are not germane to this case, but in the Court of Appeal, Donaldson M.R. said:

"I do not know what [the information before Mervyn Davies J] was, but I cannot at the moment visualise any circumstances in which it would be right to give a judge information in an ex parte application which cannot at a later stage be revealed to the party affected by the result of the application. Of course there may be occasions when it is necessary, for example, to conceal the identity of informants, but the judge should then be told that this information cannot be given to him and the judge will then have to make up his mind to what extent he is prepared to rely upon information coming from anonymous and unidentifiable sources." (p. 724)

and later:

"I fully appreciate the problem which faced Peter Gibson J. when he learned that the original order had been granted after Mervyn Davis J. had been given confidential information which could not be disclosed to the defendants. I have already said that such a situation should never be allowed to arise." (p.726)

64.Notwithstanding the absolute terms in which Donaldson M.R. spoke, there are circumstances where the court is forced to receive evidence which one of the parties is not allowed to see. This happens, for example, in cases where public interest immunity is being claimed. However, what was said in WEA Records must surely represent the proper approach in all but the most exceptional cases. If one of the parties, particularly the one most directly adversely affected by a piece of evidence, is not told what it is, how can the court assess its reliability or accuracy? The absent party may have a compelling answer, but the court will never see it. Receiving evidence in such circumstances is both unfair to the absent party and embarrassing to the court which may feel compelled to act on the information without knowing whether it is right to do so.

65.In WEA Records, Donaldson M.R. also said:

"Understandably Mervyn Davies J. felt difficulty in dealing with the matter further if this information could not be passed to the defendants. Clearly the matter has to be considered solely on the basis of evidence which is known to both parties, and in so far as any judge concerned has other evidence or information he must ignore it. This is a difficult exercise and in the circumstances it may be thought better that some judge other than [the judges who had learned of the secret information] be seized of the action for the future." (p. 728)

66.This also provides some guidance as to the course which should be adopted when a court is presented with material which it cannot make known to one of the parties. In most cases the court which has to decide the parties' rights should not look at or have regard to material which cannot be shown to both sides. In such cases the best course is for the judge not to see the non-disclosable material at all. However the decision as to what material is to be disclosed may involve judicial intervention. If that is needed, the decision on disclosure is best made by a judge other the one who will determine the parties' respective rights.

67.The only reported case in which guidance has been given in relation to the impact of s. 93D on civil proceedings is C v S. As mentioned above, C had obtained an order for disclosure against a financial institution which had made a money-laundering report to an investigating authority. Compliance with the order would have resulted in it breaching the anti tip off legislation whereas failure to comply would result in it being in contempt. The court which made the order for disclosure appears not to have known of the tip off problem. There appeared to be no way out. Some way of getting C off the hook had to be found. C claimed that vast sums of money had been misappropriated by parties other than the financial institution. It wanted the disclosure to help it in its case against those other parties. There was no suggestion that C had done anything wrong. Presumably the information which the institution felt it was unable to disclose related to the activities of those other parties. It should be noted that the facts were very different to the present case. None of the parties before me suggested that it offered guidance which was directly applicable to this case. There are, however, a number of points which seem to me to be relevant to the issues here.

68.First, it will be recalled that at the hearing in November the Bank felt that its hands were tied because the SFO had decided that it did not want any information to be disclosed to the court, let alone A Ltd. In C v S, the Court of Appeal said:

"... if a financial institution has made a disclosure in compliance with an order of the court, after placing all the relevant facts of which it was aware before the court, as happened in this case, it would be, absent exceptional circumstances which are difficult to envisage, an abuse of process to prosecute the institution for making that disclosure.

The fact that the statutory provisions made it an offence to tip off in the specified circumstances provides considerable, but not unqualified, protection of investigations into money-laundering from the adverse consequences of order of the court which could interfere with the investigation." (p. 1554)

and

"... it is for the courts to decide how conflicts between [the interests of the individual and the interests of the public] are to be reconciled. In performing this task the courts are entitled to receive the assistance of those involved. In particular, in cases involving investigations into money-laundering, this includes the co-operation of the N.C.I.S. or other agency conducting the investigation." (p 1555)

As noted already, the Court of Appeal also said it is for the investigating authority to persuade the court that, were disclosure made, there would be a real likelihood of the investigation being prejudiced.

69.There are two points which appear to me to be inherent in these passages. First, the investigating authority must be prepared to disclose sufficient information to the court to allow it to decide whether there is a real risk of prejudice to the investigation. It is not open to the SFO or any similar authority to refuse to allow the court to know what is going on, which is what it tried to do, and partially succeeded in doing, here. The suggestion that disclosure to the court could itself amount to tipping off is fanciful. Disclosure of the relevant information to the judge alone, for example in a sealed envelope produced at the hearing, rather as discretion statements used to be produced during divorce proceedings, is not "likely to prejudice any investigation" - a pre-requisite to the commission of an offence under s. 93D. Therefore the legislation cannot be used to justify keeping the court in the dark. Secondly, once the court has been put in possession of all the facts, it may decide that some information should be disclosed and can make an order accordingly. A party which complies with such an order is not exposed to risk of prosecution because any such prosecution would be an abuse of process.

70.Most of the hearings in C v S were conducted in camera and in the absence of C. This also was something which was addressed by the Court of Appeal:

"[The money-laundering] investigation created a conflict between the interests of the state in combating crime on behalf of the public and the entitlement of a private body to obtain redress from the courts. It was also in conflict with the principles to which the courts attach the greatest importance; namely that justice should be administered in public, that a party should know the case which is being advanced by another party and should have the opportunity to reply to it. Finally it produced a conflict with the principle that a party who comes before the courts is entitled to know the reasons for the courts' decisions.

Without seeking to diminish the importance of these principles and the interests of the individual that they are designed to protect, it has to be accepted that their importance cannot always be paramount. There are situations where the interests of the individual have to give way to the interests of the public." (p. 1555)

71.This passage also contains two significant points. First, it confirms that absent an overwhelming necessity to the contrary, a party to litigation must know the case he has to meet and the reasons why a court has come to a decision, particularly a decision which affects him adversely. This is a slightly qualified version of what was said in WEA Records. Second, it puts forward one exception to that, namely where there is a conflict between private rights and the interests of the public. Although it does not say so, I assume that a question of balance is involved. Not all public interests, no matter how trivial, will override a party's fundamental right to know and respond to his adversary's case. In the case of money-laundering and similar investigations, it is likely that the balance will nearly always come down in favour of the public interest.

72.With those cases in mind, I can turn to the question of what steps may reasonably be taken to reduce the adverse impact of this money-laundering legislation in civil proceedings. The suggestions made below are put forward to hold the position until such time as these issues can be considered by the Court of Appeal.

Making payments from suspect accounts

73.In the light of the foregoing authorities, and in the absence of further guidance at a higher level, it appears that the following procedure ought to be effective when a customer wants money out of his account but the institution which holds the funds believes there are grounds for suspecting that the money is tainted as the possible proceeds of crime so that payment out would be an offence:

A. If the institution wants to make the payments -

(1) The constable should be asked for permission to do so. This can be a request either for permission to make a specific payment or all payments until notified to the contrary by the constable. The constable should be notified that if permission is refused, it is likely that this will result in proceedings being commenced by the customer (assuming it to be the case) and that if such proceedings materialise;

(a) the refusal of the institution to pay, whether made with or without the sanction of the court, will be likely to convey to the customer that a serious criminal investigation is under way which involves the customer or his funds. The result will be that failure to pay will, to some extent, disclose to the target the likely existence of an investigation which should have been protected by the anti tip-off provisions of s. 93D. The refusal to consent may therefore undermine the investigation,

(b) the court may well ask the constable to attend before it to justify his position if he refuses permission (cf C v S),

(c) if the institution is refused permission to pay and the court either is shown no relevant material justifying non payment or refuses to act upon evidence which is not to be made available to the customer, the court is likely to make an order for payment, so that the refusal will be ineffective to prevent the transfer of funds.

(2) If, in the light of that information, the constable gives permission to pay, s. 93A(3)(b) operates and making the payment is not an offence. Since in these circumstances no information or intelligence of any form relating to the suspect nature of the deposits has been communicated to the customer or anyone else, no question of a breach of the anti tip off provisions of s. 93D arises either.

(3) If the constable refuses permission and the institution still wants to make the payments, it should make an application to the court in private, inviting the constable to attend to justify its refusal and to explain what information, if any, it is prepared to allow the institution to disclose to the court and the customer in the almost certain event that proceedings are brought by the customer to force the institution to make payments out of the accounts.

(4) At the end of the hearing the judge should be invited to decide what information, if any, is free to be disclosed by the institution to the customer if any such proceedings are commenced. Who has to bear the costs of that application is likely to depend on how reasonably or otherwise the institution and the constable have been in trying to come to a workable compromise. (see the reference to saving N.C.I.S. costs at p. 1555H of C v S).

(5) If the constable maintains his refusal to give permission, the institution should not make payment because to do so might constitute a criminal offence.

(6) In such circumstances, the institution can expect to be sued by the customer. If that happens, the proceedings should preferably be heard by a judge other than the one who heard the application and gave the directions referred to in (3) above (save in the unlikely event that the judge directs that all the evidence shown to him should be disclosed to the customer).

(7) In those proceedings the institution can rely on, and disclose to the customer, any information sanctioned for disclosure by the judge who gave the directions referred to in (3) above together with any material the constable consents to being disclosed. If, on the basis of the evidence before the court (all of which should be available to be seen by both parties), the court orders the institution to pay, it must comply with that order. The institution should forthwith send a copy of the order made to the constable. Neither compliance with the directions of the judge pursuant to the application at (3) above allowing disclosure of certain information nor compliance with the order to pay should constitute an offence. In each case the institution of criminal proceedings against the institution would constitute an abuse of process (as per C v S) or be defeated by extension of the defence of necessity at common law. Furthermore payment under court order in such circumstances could not constitute knowing assistance.

(8) Refusal to pay, particularly if it is done in circumstances where it becomes apparent to the customer that there are undisclosed reasons for the refusal, may result in the customer being alerted to the likelihood that a criminal investigation is on foot or about to be commenced. If that is so, the refusal might amount to the disclosure to that customer of information or other matter which is likely to prejudice the investigation or proposed investigation. However this would not expose the institution to criminal proceedings under s. 93D because such refusal would have been caused by the constable's refusal to allow payment and it would therefore also be an abuse of process to prosecute in those circumstances.

B. If the institution does not want to make the payments -

It is assumed here that the reason for wanting not to pay is either a fear of prosecution under s 93A or a fear that a constructive trust exists and beneficiary could subsequently sue the institution for restitution of any sums paid out by it. The procedure to be followed would, in large part, follow that set out above.

(9) The institution should notify the constable of its desire not to make payment and its fear that the customer is likely to call on it to pay or has already done so. It should ask the constable to identify any information which it is prepared to allow the institution to disclose to the court and the customer in any proceedings brought by the customer to enforce payment. The constable should be informed that:

(a) the court may well ask the constable to attend before it to justify his position if he refuses to consent to adequate disclosure and

(b) the refusal to allow adequate disclosure is likely to make it apparent to the customer that its reasons for refusing payment is due to a serious crime inquiry.

(10) If the constable consents to the disclosure of adequate information for the purpose of the institution defending any proceedings brought by the customer, that information may be shown to the court and the customer and no breach of s. 93D will occur.

(11) If the constable refuses to consent to the disclosure of adequate information, the institution should make an application to the court in private inviting the constable to attend to justify its position.

(12) At the end of the hearing the judge should be invited to decide what information, if any, the institution is free to disclose to the customer if any such proceedings are commenced. Who has to bear the costs of that application is likely to depend on how reasonably or otherwise the institution and the constable have been in trying to come to a workable compromise.

(13) If the institution is sued, the proceedings preferably should be heard by a judge other than the one who heard the application and gave the directions referred to in (11) above.

(14) In such proceedings, the institution may only disclose to the court and the other side such information as has either been consented to by the constable or the judge on the application referred to in (10) above.

(15) The institution should not commence private pre-emptive proceedings seeking to freeze the customer's account. However, if any such proceedings are commenced, they should be brought before a judge other than the one who heard the application referred to in (11) above and he should only be shown material which the institution is in a position to disclose to the customer on any subsequent inter partes hearing.

(16) If, in proceedings brought by the customer and on the basis of the evidence before the court (all of which should be available to be seen by both parties), the court orders the institution to pay, it must comply with that order. The institution should forthwith send a copy of the order made to the constable. Neither compliance with the directions of the judge pursuant to the application at (11) above allowing disclosure of certain information nor compliance with the order to pay should constitute an offence. In each case the institution of criminal proceedings would constitute an abuse of process or be defeated by extension of the defence of necessity at common law.

(17) Payment under compulsion from the court should not constitute either breach of any constructive trust subsequently held to exist or knowing assistance in any breach of trust committed by the customer.