The report concludes that the current consumer protection system in the UK is ‘incoherent and fragmented’, and that many of the rogue traders fall between the gaps between local authority enforcement bodies. The recommendations include:

-      listing strict obligations and responsibilities for consumer protection bodies to ensure a clear framework of accountability;

-      ensure funding is spread appropriately between local authorities to avoid gaps in protection;

-      ensure that enforcement bodies have sufficient awareness of new forms of consumer harm; and

clear enforcement obligations and support for large scale investigations and court proceedings.

A law firm committed a fraud by collecting in 27 mortgage advances totalling £5,779,1666 from lenders none of which was applied in completion of transactions for which the advance had been made.  The Law Society intervened in the law firm’s practice and ascertained that £450,150 was paid out of its client account to a company, Habitable Concepts Ltd (“Habitable”) whose sole shareholder and director was Mr Onuiri.   

As the law firm paid out of its client account in breach of trust, the Law Society had the right to recover this money.  The Law Society made various claims against Habitable and Mr Onuiri for the return of this money. Although Habitable and Mr Onuiri served a defence, they did not appear at a trial, but it was still for the Law Society to prove its case.

The Law Society claimed for knowing receipt.  In order to establish a claim for knowing receipt, the Law Society had to prove: 

• that the receipt by Habitable was beneficial; and
• that Habitable received the payment with the requisite knowledge.

 As no direct evidence of these matters was available, the court had to assess what inferences might be properly drawn from the proved facts.

The court held that the inherently implausible nature of Habitable’s pleaded case was such to cry out for testing by cross-examination and in the absence of this, the Judge was prepared to accept the Law Society’s case.  Accordingly, Habitable knowingly received money by the law firm in breach of trust and must account as constructive trustee for the money received and the Law Society could trace into the proceeds of the payment.

Although the Law Society submitted that it could pierce the corporate veil, the court disagreed.  It needed to be proved that receipt by Habitable was a façade or device to facilitate or conceal receipt by Mr Onuiri.  Although the whole arrangement seemed deeply suspect, suspicion is not a substitute for proof. 

The court, however, held that although Mr Onuiri did not receive property in breach of trust, he nonetheless dishonestly assisted in a breach of trust.  It had to be established that Mr Onuiri’s knowledge about the payment by the law firm had to be such as to render his participation contrary to normal and acceptable standards of honest conduct.  This involved looking at his state of knowledge and then measuring his conduct in the light of that knowledge by reference to the objective standards of honest conduct. The court noted that:

•  Mr Onuiri had provided Habitable’s banking details to the law firm.
• He knew that the money was not at the free disposal of the law firm.
• He knew there was no commercial relationship between the law firm and Habitable.
• He received no explanation as to the reason for the payment.
• He made no enquiry as to the reason for the payment.
• He chose to deal with the payment for the benefit of Habitable.

The proper inference was that he was assisting the law firm to dispose of money which did not belong to it in an unauthorised manner.

This case is interesting as it confirms that where a defence has been filed, but the defendant does not appear at trial, it is still for the claimant to prove its case.  It also highlights the requirements necessary to establish a claim for knowing receipt, when it is possible to pierce the corporate veil and the necessary ingredients to establish a claim for dishonestly assisting in a breach of trust.

The Law Society of England and Wales v Habitable Concepts Limited and Mr Onuiri [2010] EWCH 1449

See my previous blogs on the new Act and what it means for businesses.

As the Court of Appeal noted, a bank is in the unenviable position that if they entertain suspicions but do not report them or, if they report them, but carry out the instructions without authorisations they are at risk of criminal prosecution.  If, on the other hand, the bank acts on the authorisation the customer is likely to become incensed and may begin litigation. 

The claim

Mr Shah, who was a customer of the bank, issued proceedings against the bank primarily on the ground that the bank failed to promptly carry out his instructions.  As a result of the delay Mr Shah claimed he suffered losses in the sum of $300 million.  The bank’s response was that it suspected that the transactions constituted money laundering and that if it had carried out his instructions then the bank would be committing a criminal offence. 

At first instance, the bank successfully sought summary judgment in respect of the whole claim.  Mr Shah appealed. 

The Court of Appeal

•  Mr Shah made a number of assertions, which the Court of Appeal were not prepared to entertain.  However, on the question of whether the bank suspected Mr Shah of money laundering, the Court of Appeal held that a bank could be required to prove its case that it had the relevant suspicion.
• There was no reason why the bank should not be required to prove the facts of suspicion in the ordinary way at trial by first making relevant disclosure and then calling either primary or secondary evidence from relevant witnesses.
• If the bank at the time of the pre-trial review genuinely takes the view that it will be dangerous for a witness to give evidence then the court can take steps to protect the witness or otherwise ensure that the gist of the evidence is available while still ensuring a fair trial.
• The bank also submitted that no court would or should order disclosure of any relevant documents particularly the documents reporting the suspicions to Serious Organised Crime Agency, but the Court of Appeal stated that there may be good grounds for concealing part of any relevant documents.
• As the bank acted promptly in making disclosure within two days of receiving the relevant payment instruction, the bank was not in breach of a duty of care.
• The court also decided that there must (arguably) come a time when Mr Shah is entitled to have more information about the conduct of his affairs than he has yet been given.

 Impact

The question of whether the bank, in fact, suspected Mr Shah of money laundering and the entitlement to have more information will now have to go to trial. 

This decision means that potentially a bank’s internal records and its reports to the relevant authorities may be discloseable in any claim by a dissatisfied customer and the bank officials could be cross-examined on their belief that there may be money laundering although a court may be able to impose restrictions to protect the bank’s procedures and witnesses. 

Shah v HSBC [2010] EWCA Civ 31