Following our last article on whether banks owe a duty of care to third parties who serve a freezing order, we thought a follow up article on whether a bank can be in contempt of court for permitting a breach of a freezing order would be of interest.
When served with a freezing order made against one or more of its customers, a bank could find itself in the invidious position of having to refuse to act on its customer’s instructions to transact on their account when to do so would permit a breach of the freezing order.
When a bank is not a party to a proceeding and therefore not an addressee of the freezing order, there is no doubt that once the bank is put on notice of the freezing order, the bank is required to abide by the terms of the freezing order.
However, if the bank permits its customer to breach the terms of the freezing order, will the bank be in contempt of court?
When will a bank be in contempt of court?
The authorities make it clear that a third party can be held liable for contempt of court. In Customs and Excise Commissioners v Barclays Bank Plc [2007] 1 AC 181 (Barclays Bank)1, the House of Lords clearly upheld the proposition that contempt of court was the only sanction that could be imposed on a bank served with notice of a freezing order, where the bank failed to comply with the terms of the order.
In Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, the majority of the High Court of Australia stated that, ‘the contempt power extends to third parties who, while not themselves bound by an order, so conduct themselves as to obstruct the course of justice’.2
Further, in Ferguson v Eakin [1997] NSWCA 106, Powell JA said that ‘it is a contempt of court for anyone with notice of an order of the court so to act as to interfere with, or otherwise obstruct, the course of justice’.3
However, when a bank is not a party to the proceeding and therefore not an addressee of the freezing order, the bank will only be liable for contempt of court where it knowingly acts contrary to the terms of the freezing order.
As explained by Eveleigh LJ in Z Ltd v A [1982] QB 5584, ‘(1) The person against whom the order is made will be liable for contempt of court if he acts in breach of the order after having notice of it. (2) A third party will also be liable if he knowingly assists in the breach, that is to say if, knowing the terms of the injunction, he wilfully assists the person to whom it was directed to disobey it. This will be so whether or not the person enjoined has had notice of the injunction’ (approved in Australia as good law).5
Specifically in the context of a third party bank being served with notice of a freezing order, Eveleigh LJ stated that, ‘If it were the duty of the bank to ensure compliance, it would have to make sometimes extensive inquiries to ascertain the existence of an account or whether or not it held property on behalf of the defendant and then, in the case of a maximum order injunction, to make inquiries and to liaise between different accounts and possibly with other banks in order to avoid making a payment or releasing property in contravention of the order. It is an impossible situation. Carelessness or even recklessness on the part of the banks ought not in my opinion to make them liable for contempt unless it can be shown that there was indifference to such a degree that was contumacious.’6
In A-G v Punch Ltd [2003] 1 All ER 289, Lord Hope of Craighead stated that for a third party to be liable for contempt, ‘it has to be shown there was an intention on his part to interfere with or impede the administration of justice. This is an essential ingredient, and it has to be established to the criminal standard of proof’.7
In A-G v Leveller Magazine Ltd [1979] AC 440, the Court held that the gravamen of the offence of contempt of court would be that the contemnor’s act ‘frustrates, thwarts, or subverts the purpose of the court’s order and thereby interferes with the due administration of justice in the particular action’.8
To give this proposition more context, in Barclays Bank, the House of Lords held that ‘if the bank [Barclays Bank] had deliberately ignored the [freezing] orders and set about assisting the companies to transfer their assets, that would have thwarted the court’s purpose in granting the orders and the bank would have been in contempt of court, even if the companies themselves had still been unaware of the relevant order. So Barclays had to freeze the companies’ assets, not out of any consideration for the commissioners but because to do otherwise would thwart the purpose of the court and obstruct the course of justice’.9
However, there is authority in Australia (albeit only in obiter) which provides that even if a bank were to be guilty of contempt of court in such circumstances, it does not follow that ‘the applicant for the freezing order, let alone any other party, thereby gains a cause of action against the bank for any loss that party may suffer as a result of the bank’s conduct’.10
If a bank has difficulty in complying with a freezing order, it should be proactive and contact the party who obtained the freezing order and try and agree changes to the order that accommodate the bank’s difficulties. In our next article we will explore what steps a bank can take to deal with the practical difficulties it can often face complying with a freezing order.
This article was written by Simon Crawford, Partner and Laura Limone, Solicitor.
| Simon Crawford
P: +61 3 8644 3404 E: scrawford@hwle.com.au |
1 at [63]; approved in the Fitzsimons case [2012] NSWSC 660.
2 at [80].
3 at 3.
4 approved by the Fitzsimons case.
5 at 578; approved in A-G v Times Newspapers Ltd [1992] 1 AC 191 – approved in the Fitzsimons case.
6 Z Ltd v A [1982] QB 558 at 583.
7 at [87]; see also A-G v Times Newspapers Ltd [1992] 1 AC 191 at 222.
8 approved in Customs and Excise Commissioners v Barclays Bank Plc [2007] 1 AC 181 at [57].
9 at [59].
10 the Fitzsimons case [2012] NSWSC 660.