The High Court has considered a bank's liability for a customer's losses where the customer's accounts were frozen following a money laundering review. The case arose in the context of a dispute between HSBC and its customer Kopp Ltd and we describe the details below.
Money laundering rules impose various obligations on HSBC and other institutions, and to comply with them, HSBC carries out what it calls a “safeguard review” of its commercial customers. After carrying out the review of Kopp Ltd, it suspended two accounts Kopp held with it. This meant that payments could not be made to the accounts. Kopp claimed that HSBC carried out the safeguard review in a unreasonable, arbitrary and haphazard way. The suspension resulted in Kopp Ltd being denied access to its funds at a time when it needed them to pay an invoice.
As a result, Kopp Ltd claimed damages for breach of contract and/or breach of duty of care, regarding HSBC's provision of financial services. Kopp Ltd claimed to have suffered loss and damage valued at US$1,680,406.42 (or the £ sterling equivalent) because of HSBC’s alleged breaches.
HSBC applied for summary judgment against Kopp Ltd or for the claim to be struck out. It rejected the idea that Kopp had suffered any loss, but said that if it had, such loss was expressly excluded by clause 32 of HSBC's standard business banking terms and conditions, which exclude indirect loss of profit.
Not altogether surprisingly, Kopp argued that clause 32 is unreasonable and, as a result, unenforceable under section 3 of the Unfair Contract Terms Act 1977 (UCTA) or rule 1.1.6 of the FCA's Banking Conduct of Business sourcebook (or both).
The High Court dismissed HSBC's strike out application. In addition, the court said that there is a triable issue with a real prospect of success: that clause 32 fails to satisfy the reasonableness requirement in section 3 of UCTA. This was because there were various factors which need to be considered to decide if the exclusion clause is unreasonable. These included the bargaining position between the parties, and the fact clause 32 was hidden on page 26 of the terms and conditions, which are over 30 pages. In addition, the court needs to review if HSBC's competitors have similar exclusion clauses and consider HSBC's knowledge of Kopp Ltd's business.
The decision follows other case law where the courts have been reluctant to issue summary judgment about whether an exclusion clause is unreasonable under UCTA. It remains to be seen if the case will proceed to trial, but it illustrates there is a balancing act between complying with the AML regime and providing good customer care.
in the present case, I am satisfied that there are obvious matters that require further investigation which can only be undertaken at trial
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