Court Refuses Interim Injunction in Santander Account Freezing Case: Legal Principles, AML Regulations, and Contractual Obligations Explored

Citation: [2023] EWHC 2947 (KB)
Judgment on

Introduction

In the High Court case of Michael John Harvey v Santander UK PLC [2023] EWHC 2947 (KB), the court examined the propriety of a bank’s decision to freeze a client’s account amidst allegations of potential involvement in fraudulent transactions. The case delves into the interplay between customer-bank contractual obligations, due diligence under AML (Anti-Money Laundering) regulations, and the principles governing the issuance of interim mandatory injunctions. This article aims to clarify the legal principles applied and link them to the key facets of the judgment.

Key Facts

Michael John Harvey, having a history of being struck off as a solicitor, used his account for business entailing legal services not requiring a regulated lawyer. Large sums of money had been deposited into his Santander account from various overseas sources, which triggered an investigation by the bank. The inquiry led to the account being frozen, prompting Harvey to seek an interim mandatory injunction to compel Santander to unfreeze the account. Santander defended their actions by referring to their General Terms and Conditions that permitted such measures under suspicion of fraud or other criminal activities.

Interim Mandatory Injunction

The court considered the principles relating to interim mandatory injunctions, particularly their appropriateness and the standard of proof required. Citing NWL Ltd v Woods [1979] 1 WLR 1294 and Shepherd Holmes Ltd v Sandham [1971] Ch 340, the judge noted that a high degree of assurance that the claimant will succeed at trial is needed before granting such an injunction. They must be clear cases as they effectively determine the outcome in advance of a trial.

Balance of convenience

The ‘balance of convenience’ test was applied in accordance with Locabail International Finance Ltd v Agroexport [1986] 1 WLR 657. The test evaluates the consequences for respective parties of granting or withholding the injunction, tilting in favor of maintaining the status quo when uncertainty exists regarding the claim’s likelihood to succeed.

Contractual Rights and Obligations

The court examined the bank’s contractual rights and obligations as per their General Terms and Conditions. The clauses enabled the bank to refuse transactions that might lead to regulatory action or are suspected to relate to fraud or other criminal acts (Becker & Fellowes v Lloyds TSB Bank PLC [2013] EWHC 3000).

AML Regulations and Due Diligence

The case underscores the responsibility of banks under AML regulations to perform due diligence and monitor for suspicious activities, with potential criminal consequences for breach (K Ltd v National Westminster Bank PLC [2007] 1 WLR 311).

Proof and Evidential Support

The burden of proof on the claimant to substantiate the legitimacy of funds was central. Without adequate evidence, the claimant’s case fails to provide the necessary assurance of success at trial.

Remedies and Adequacy of Damages

This aspect explores whether damages could be an adequate remedy if the injunction was not granted, affecting the decision to grant such an injunction. The court assessed the potential inability of the claimant to pay damages compared to the bank’s ability to do so.

Outcomes

An interim mandatory injunction was not granted, as the court did not have high assurance of the claimant likely succeeding at trial. The judgment highlighted the absence of clear evidential support for the legitimacy of deposited funds. Additionally, the possible regulatory and criminal repercussions for the bank could not be remedied by damages. Costs were summarily assessed in favor of the defendant, reflecting a proportionate sum for the work done.

Conclusion

The court’s refusal to grant the interim mandatory injunction demonstrates a rigorous application of principles pertaining to injunctive relief, the burden of proof, and the protection of financial institutions under AML regulations. Significantly, it reinforces the dilemma faced by banks in ensuring compliance while respecting contractual obligations to clients, especially in the context of potential financial crime. This case serves as a pertinent reminder for legal practitioners regarding the evidential thresholds and the cautious approach courts take when interim relief could determine the outcome of the main action preemptively.