dentons.com Insights and Commentary from Dentons On March 31, 2013, three pre-eminent law firms—Salans, Fraser Milner Casgrain, and SNR Denton—combined to form Dentons, a Top 10 global law firm with more than 2,500 lawyers and professionals worldwide. This document was authored by representatives of one of the founding firms prior to our combination launch, and it continues to be oered to provide our clientsG withro thewing information with they need to do business in an increasingly complex, interconnected and competitive marketplace. The role of government has never been more critical IFI Update - London August 2006 Salans is a full service international law firm with offices in Almaty, Baku, Berlin1, Bratislava, Bucharest, Budapest2, Istanbul, Kyiv, London, Moscow, New York, Paris, Prague, Shanghai, St. Petersburg and Warsaw. Contents may exist in the tort of negligence in a claim In this issue, we examine the following topics: for pure economic loss. A bank’s duty of care concerning an asset freezing order 1 A bank operating in England may be served with notice of an asset freezing order (which Insolvency: transactions at an undervalue and used to be called a Mareva injunction) that transactions to defraud creditors 8 has been issued at the behest of a claimant Cross-border insolvencies: S. 426 of the in litigation against a customer of the bank. Insolvency Act 1986 11 In fact it happens quite frequently. The order is intended to prevent the defendant from Conflict of laws rules for tortious issues 16 dissipating its assets or removing them from Conflict of laws: the quantification of damages the jurisdiction before the claim against it in tort 21 has been heard. Such an order will usually be intended to freeze the customer’s Conflict of laws: reform of the law concerning account at the bank, along with its other claims in tort 23 assets. If the litigation is successful then the claimant will be able to enforce its judgment by taking execution proceedings against the frozen assets. It should be noted, however, A BANK’S DUTY OF CARE CONCERNING that the freeze on the assets achieved by AN ASSET FREEZING ORDER the order does not, of itself, confer a security In the December 2004 edition of this Update right in favour of the claimant which obtained we reported upon the decision of the Court the freezing order: see Edwards & Smith v. of Appeal in Commissioners of Customs and Flightline Ltd; Re Swissair Schweizerische Excise v. Barclays Bank PLC [2004] EWCA Luftverkehr AG [2003] EWCA Civ 63; [2003] Civ 1555, [2005] 1 WLR 2082. The case 1 WLR 1200, Jack J in Technocrats was taken on appeal to the House of Lords, International Inc v. Fredic Ltd [2004] EWHC which has now handed down its decision 2674 (QB), [2005] 1 BCLC 467 and the and overturned the result in the Court of comments of Arden LJ in Dadourian Group Appeal. Apart from the immediate relevance International Inc. v. Simms [2006] EWCA to banks in relation to their responsibilities Civ 399, [2006] 3 All ER 48. when they are served with notice of an asset freezing order, the judgments in the House The jurisdiction of the court to issue such an of Lords are of more general importance on order was established in Nippon Yusen the wider issue of the approaches to be Kaisha v. Karageorgis [1975] 1 WLR 1093 taken when determining if a duty of care and Mareva Cia Naviera SA v. International 1 Bulkcarriers SA [1975] 2 Lloyd’s Rep 509 received the notice and written the letter of and was also considered, in relation to a acknowledgement, but before it was bank that has received notice of such an received by the claimants. In the other case, order relevant to a customer’s account, in Z the failure occurred after the bank had Ltd v. A-Z and AA-LL [1982] QB 558. The received the notice but before it wrote the effect of the order, once it has been notified letter. The claimants subsequently to the bank, is to require that the bank recovered judgments against the debtor should freeze the account (either absolutely companies, which remained largely or, if otherwise so stated, up to the amount unsatisfied. The claimants sued the bank for specified in the order) so that the customer the amounts that would have been cannot transfer funds out of the account in recovered from the accounts had the bank breach of the order. There will usually be an prevented the withdrawals from taking place. exception which allows the bank to debit the Presumably, the computation of the account for transactions effected before it recoverable loss would eventually have received notice of the order, such as for re- taken into account the claims of other imbursement of credit card payments. The creditors as well. The bank challenged the order will also permit the bank to charge the claim on a preliminary issue that, even if the claimant for its reasonable costs in facts were proved, it would not be liable to complying with the order. Once it has been the claimants because it would not have notified of the order, a bank will be in owed them a duty of care. The judge at first contempt of court if it knowingly breaches, or instance, Colman J, found in favour of the knowingly participates in a breach of, the bank. The Court of Appeal reversed his order. decision and found that a bank would have a duty of care in the tort of negligence to a The claimants in the case were HM claimant which had obtained such a freezing Commissioners of Customs and Excise order. Accordingly, the bank could be liable (since renamed the HM Commissioners for in damages to such a claimant where the Revenue and Customs), who had obtained bank permitted its customer to withdraw freezing orders against the assets of two funds from the account after the bank had companies that they were pursuing for received notice of the order. The House of unpaid VAT. The orders specifically referred Lords reversed that decision. to the companies’ accounts with the bank, by name and number. The claimants faxed The House of Lords took the view that, in copies of the orders to the bank, which the circumstances, it was not fair, just or wrote to the claimants acknowledging reasonable to impose a duty of care on the receipt of the notifications, confirming that it bank, which was placed in an involuntary would observe the terms of the orders and position upon being notified of the court’s requesting payment of its charges for order and should not, simply because of compliance with them. By an oversight, the such a notification, be taken to have bank failed to prevent its customers from accepted a responsibility towards the withdrawing funds from the accounts. In one claimants or be considered to be in a case the failure occurred after the bank had sufficiently close or proximate relationship 2 with the claimants. Each of the five Law in three cases: Spring v. Guardian Lords who sat on the appeal delivered his Assurance plc [1995] 2 AC 296, Henderson own separate opinion and there is some v. Merrett Syndicates Ltd [1995] 2 AC 145, variation in the analysis contained in their at 178 and White v. Jones [1995] 2 AC 207, opinions. There have been divergent at 268. Lord Goff based it, in particular, on approaches in the case law over the years, Lord Devlin’s speech in Hedley Byrne & Co. particularly in the House of Lords, in Ltd v. Heller & Partners Ltd [1964] AC 465, determining the circumstances under which at 528 to 529. The second test is the a duty of care may arise in cases involving a “threefold” test, which was outlined by Lord new situation where the claim has been for Bridge of Harwich in Caparo Industries plc v. pure economic loss. The divergence of Dickman [1990] 2 AC 605, at 617 to 618. approach in the case law is acknowledged The three elements of the test are, (a) by Lord Bingham of Cornhill, the Senior Law whether the loss to the claimant was a Lord, in his own opinion (at [4]) and is reasonably foreseeable consequence of echoed in the opinions of the other Law what the defendant did or failed to do, (b) Lords who heard the appeal (Lords whether the relationship between the Hoffmann, Rodger of Earlsferry, Walker of defendant and the claimant was one of Gestingthorpe and Mance). It is unfortunate sufficient proximity and (c) whether in all the that the opportunity was not taken in this circumstances it was fair, just and case for the House, speaking with one reasonable to impose a duty of care on the voice, to provide some much needed clarity defendant towards the claimant (which, Lord and precision in an important area of the Bingham noted, Kirby J had labelled as law. “policy” in Perre v. Apand Pty Ltd [1999] HCA 26, (1999) 198 CLR 180 at para. 259). In an attempt to make sense of the The third test is the “incremental” test and is approaches that were taken in the case, based upon the observation of Brennan J in what follows will set out the views expressed Sutherland Shire Council v. Heyman (1985) by Lord Bingham, with cross-references to 157 CLR 424, at 481 (which was approved the opinions of the other Lord Lords on the by Lord Bridge in Caparo Industries plc v. various issues that were raised. Dickman [1990] 2 AC 605, at 618), to the effect that the law should develop new Lord Bingham began (at [4]) by outlining the categories of negligence incrementally and three possible tests that had been put by analogy with established categories and forward in the case law to determine if a not by extending the categories in a massive duty of care exists in a situation that is not manner with only limited and ill-defined covered by existing authority.