England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
MR JUSTICE LADDIE

		Royal Courts of Justice Strand, London, WC2A 2LL Thursday 18th January 2001

LORD WOOLF CJ:

This is the judgment of the Court:

1. This is an appeal by the Bank of Scotland against a decision of Laddie J dated 23 June 2000. Laddie J discharged an interim order made by Lightman J on 16 November 1999, as subsequently varied. He ordered the bank to pay the costs of all the defendants. Laddie J also determined that the order made by Lightman J was subject to an implied cross-undertaking as to damages but deferred his decision as to whether, in the particular circumstances of the case, an inquiry into the damages was appropriate.
2. The issues on this appeal arise out of and are the consequence of the provisions of s. 93A, 93B and 93C which are concerned with the money-laundering offence and s. 93D of the Criminal Justice Act 1988 ("the 1998 Act"), which is intended to prevent "tipping-off" when the police are investigating money-laundering.
3. Miss Geraldine Andrews, who represents the appellant bank on this appeal, contends that the appeal raises issues of considerable public importance as to the steps which are open to a bank to protect itself when, as a result of information which it has received from the criminal intelligence services, it has grounds for fearing that if it pays out money from a customer's account it will be exposed to claims for knowingly assisting a breach of trust. She submits the bank needs to be able to protect itself:

a) against the risk of being sued by its customer if it does not pay or by third parties if it does; and

b) against the potentially unjust operation of the provisions of s. 93A and s. 93D of the 1998 Act.

4. Before Laddie J the bank was merely described as a bank. The defendants to the proceedings were described as A Limited, Mr B and C Limited. The investigations by the authorities which contributed to these proceedings are no longer being pursued. However, the fact of those investigations having occurred could reflect adversely on the defendants and it is therefore reasonable that their identity should not be disclosed. For that reason we will describe them in the same way as Laddie J did. However, the actions of the bank did not reflect any discredit upon the bank and in those circumstances we do not consider there is any justification for the bank's identity not being disclosed. Miss Andrews submitted that equal treatment between the parties requires the bank's identity to not be disclosed but in our judgement any interference with the open and public administration of justice must be kept to a minimum and only allowed where it is fully justified.
5. The Serious Fraud Office ("SFO") is not a party to the proceedings. However, the SFO was represented by Mr Jonathan Crow and we are most grateful for his assistance.

Statutory Provisions

6. The statutory provisions with which we are mainly concerned are s. 93A and
   s. 93D of the 1988 Act.

"93A Assisting another to retain the benefits of criminal conduct

(1) Subject to subsection (3) below, if a person enters into or is otherwise concerned in an arrangement whereby –

(a) the retention or control by or on behalf of another ("A") of A's proceeds of criminal conduct is facilitated (whether by concealment, removal from the jurisdiction, transfer to nominees or otherwise); or

(b) A's proceeds of criminal conduct –

(i) are used to secure that funds are placed at A's disposal; or

(ii) are used for A's benefit to acquire property by way of investments knowing or suspecting that A is a person who is or has been engaged in criminal conduct or has benefited from criminal conduct, he is guilty of an offence.

(2) In this section, references to any person's proceeds of criminal conduct include a reference to any property which in whole or in part directly or indirectly represented in his hands his proceeds of criminal conduct.

(3) Where a person discloses to a constable a suspicion or belief that any funds or investments are derived from or used in connection with criminal conduct or discloses to a constable any matter on which such a suspicion or belief is based –

(a) the disclosure shall not be treated as a breach of any restriction upon the disclosure of information imposed by statute or otherwise; and

(b) if he does any act in contravention of subsection (1) above and the disclosure relates to the arrangement concerned, he does not commit an offence under this section if –

(i) the disclosure is made before he does the act concerned and the act is done with the consent of the constable; or

(ii) the disclosure is made after he does the act, but is made on his initiative and as soon as it is reasonable for him to make it.

(4) In proceedings against a person for an offence under this section, it is a defence to prove –

(a) that he did not know or suspect that the arrangement related to any person's proceeds of criminal conduct; or

(b) that he did not know or suspect that by the arrangement the retention or control by or on behalf of A of any property was facilitated or, as the case may be, that the arrangement any property was used, as mentioned in subsection (1) above; or

(c) that –

(i) he intended to disclose to a constable such a suspicion, belief or matter as is mentioned in subsection (3) above in relation to the arrangement; but

(ii) there is reasonable excuse for his failure to make disclosure in accordance with subsection (3) (b) above.

93D Tipping-off

(1) A person is guilty of an offence if –

(a) he knows or suspects that a constable is acting, or is proposing to act in connection with an investigation which is being, or is about to be conducted into money laundering; and

(b) he discloses to any other person information or any other matter which is likely to prejudice that investigation, or proposed investigation.

(2) A person is guilty of an offence if –

(a) he knows or suspects that a disclosure ("the disclosure") has been made to a constable under section 93A or 93B above; and

(b) he discloses to any other person information or any other matter which is likely to prejudice any investigation which might be conducted following the disclosure.

(3) A person is guilty of an offence if –

(a) he knows of suspects that a disclosure of a kind mentioned in section 93A (5) or 93B (8) above ("the disclosure") has been made; and

(b) he discloses to any person information or any other matter which is likely to prejudice any investigation which might be conducted following the disclosure.

(4) Nothing in subsections (1) to (3) above makes it an offence for a professional legal adviser to disclose any information or other matter-

(a) to, or to a representative of, a client of his in connection with the giving by the adviser of legal advice to the client; or

(b) to any person –

(i) in contemplation of, or in connection with, legal proceedings; and

(ii) for the purpose of those proceedings.

(5) Subsection (4) above does not apply in relation to any information or other matter which is disclosed with a view to furthering any criminal purpose.

(6) In proceedings against a person for an offence under subsection (1), (2) or (3) above, it is a defence to prove that he did not know or suspect that the disclosure was likely to be prejudicial in the way mentioned in that subsection.

(7) In this section "money laundering" means doing any act which constitutes an offence under section 93A, 93B or 93C above or, in the case of an act done otherwise than in England and Wales or Scotland, would constitute such an offence if done in England and Wales or (as the case may be) Scotland."

7. During argument there was discussion as to the extent of the defence provided by s. 93D (4). Mr Crow helpfully drew our attention to the similarity between the language of s. 93D (4) and the scope of legal professional privilege. Based on this assistance, we conclude that the subsection broadly protects a legal adviser when that adviser is engaged in activities which attract legal professional privilege.

The Facts

8. It is neither necessary nor desirable to set out the factual background to this appeal in any detail. It is sufficient to state that A Limited was incorporated in March 1997. Having been introduced to the bank by an undoubtedly respectable third party, in September 1999 A Limited opened sterling and dollar accounts at the bank. Substantial sums of money were transferred to these accounts. The bank became increasingly alarmed as to the position. The bank received due diligence material which was designed to set the bank's concerns at rest, but in fact the material had the opposite effect. The bank considered that it might be regarded as a constructive trustee of the funds which it held in the accounts. It considered that the money could have been obtained through "Prime Bank Instrument Fraud or something similar". The bank communicated with the police. The bank also communicated with the ICC Commercial Crime Bureau and the British Bankers Association. As a result of this consultation process, the bank became aware that investigations were being conducted into activities closely associated with A Limited and in particular into the activities of one T. T appeared to be closely involved with A Ltd.
9. As a result the bank believed that it faced a dilemma. If it paid out the monies held in the account, it considered it could be liable to third parties as a constructive trustee. If it did not pay out the monies it held, an action could be brought and the bank would not be able to defend itself because the police objected to the bank revealing what they had told the bank and invoked s. 93D.
10. Because of the position in which it found itself, on 16 November 1999 the bank applied without notice in private to Lightman J. The bank sought directions as to what it should do. It did not ask for any form of substantive relief.
11. In an attempt to assist the bank, Lightman J suggested that he should grant an injunction against the bank, restraining the bank from making any payment from the accounts. The record of the order which he made was in these terms:

… until further Order of the Court: … the applicant (whose identity shall remain confidential and be denoted by a symbol) shall be restrained from making any payment out of the trust funds the subject of this Order, whose identity is stated in Counsel's aforementioned skeleton argument, without the permission of the Court…

12. The effect of the order was to freeze A Limited's accounts. As Laddie J pointed out:

"A Limited was not to see anything which the bank had put before the court in support of the application nor the order itself, nor be informed of its existence, nor the claim form which the bank was to issue. Indeed the identity of the accounts to be frozen was itself to be kept secret. No application notice was to be issued."

13. Laddie J also points out that since there was no return date requiring the bank to return to court after a short period, "the bank could retain the benefit of the order indefinitely". In addition, the order was not expressed to be subject to any cross-undertaking in damages. According to the bank this was not an accident. The bank was not and is not prepared to compensate A Limited for any harm it has suffered. The bank's position at that time and when the matter came before Laddie J was that it is the defendants who should be responsible for, not only their own costs, but the bank's costs as well. Mr B and C Limited were joined to the proceedings because they had been responsible for remitting the monies into A Limited's accounts and they might have claims against the bank in relation to those monies.
14. The bank was unwise to accept Lightman J's order. No doubt, at the time, the bank felt it should not look a gift horse in the mouth. However, if a litigant accepts a proposal made by a judge it is in exactly the same position as if it was the author of what the judge has proposed. In fact, the judge's order did not solve the bank's problems. It made them more acute. The bank became subject to a court order preventing it from making payments from the account and it could not tell its client why this had happened. On 18 November 1999 the bank's solicitors therefore wrote to A Limited:

"We have been instructed by (the bank) in connection with your accounts numbered . . . Our client is unhappy about certain aspects of the transactions which have taken place on the accounts.

The Bank has therefore instructed us to investigate the matter and seek the advice of counsel before reporting. In the meantime, out client can allow no further transactions of any sort on the accounts. We apologise for any inconvenience or embarrassment that this may cause."

15. If this was the course which the bank wished to take, it did not need to be subject to an injunction. While it may not be politic to freeze an account, a bank always has the power to do so. However if a bank acts in this way without justification, it will almost inevitably be subject to proceedings and when this happens it will be in an acutely difficult position if it is subject to an order such as that made by Lightman J.
16. Initially A Limited held its hand. It was no doubt advised by its solicitors that the situation was sufficiently unusual for the bank to wish to make enquiries. However, by 21 December 1999 A Limited's patience ran out and on that date it issued an application to the Commercial Court. A Limited sought an order that the sums held by the bank should be paid to A Limited's solicitors. Two days later the application was heard by Gray J. The evidence of A Limited was to the effect that the company deserved an impeccable reputation. Money laundering checks had been carried out and there was not a shred of evidence to suggest that the monies were tainted in any way. It followed, according to A Limited, they were entitled to the order they were seeking. A Limited and its lawyers at that time were still in total ignorance of the order made by Lightman J. However, Gray J could not be left in ignorance of the position and counsel, Mr Crookenden QC, who was then appearing on behalf of the bank, made submissions to the judge in private after A Limited and its lawyers had withdrawn. Mr Crookenden informed the judge of the freezing order and showed the judge the skeleton argument which had been relied upon before Lightman J. There had been no formal evidence prepared for the hearing. Initially Gray J was minded to adjourn A Limited's application for a short period though he could not tell Mr Downes, A Limited's counsel, the reason for this. However, having heard further submissions of Mr Downes and against the bank's objections, the hearing was not adjourned but the judge made an order that unless an application was made by the bank to the court before 17 January 2000, the bank would have to pay over to A Limited's solicitors the sum held by it in A Limited's account.
17. The consequences of the hearing before Gray J, not surprisingly, achieved the objective which the bank and the SFO wanted to avoid. It made A Limited aware that the reason for the hearings in private was a fear of tipping-off by the bank contrary to s. 93D. This meant that A Limited and its advisors became aware that a serious criminal investigation was underway although they did not have any details as to the nature of the investigations.
18. The bank then made another application in private in the Chancery Division. The application was heard on 13 January by Neuberger J. A statement had been prepared for that hearing by Mr Redfern, the solicitor acting for the bank. In that statement he accepted that the bank's suspicions might be completely without justification. But he indicated that the bank had serious grounds for suspicion. The bank asked for the issues to be resolved in a single court and for its costs to be debited to A Limited's account if, as was contended, the money in that account was subject to a constructive trust. Mr Redfern indicated the bank was unwilling to go to the expense of defending what could be very difficult and expensive proceedings without some reassurance that it would not have to carry the costs of so doing.
19. Before Neuberger J, the SFO was represented by Mr Crow. Neuberger J varied the order of Lightman J so that the existence of the Chancery proceedings could be disclosed. The Commercial Court proceedings were stayed by consent. The action in the Chancery Division continued. Mr B and C Limited were joined as defendants.
20. Between the hearing before Neuberger J and the hearing before Laddie J, a number of applications were made to the court, as a result of which the contents of the bank's skeleton arguments were disclosed as were the transcripts of the private hearings in the Chancery division and in the Queen's Bench division. Furthermore, the bank released the money which it held to the credit of A Limited's account, apart from a comparatively small sum which was to remain frozen with the consent of the defendants because the bank wished to safeguard its ability to recover the costs which it had incurred. This meant that on 17 May  2000, when the hearing before Laddie J took place, there was no longer any issue as to the payment of the sums credited to A Limited's account. The issues were as to costs and as to what guidance the courts could give banks as to the proper practice to adopt in the future in these circumstances.

The Judgment of Laddie J

21. In his judgment, which was handed down on 23 June 2000, Laddie J took a strong line. The bank stated that in making the application to the court for directions, it was following the guidance given by this Court in C v S [1999] 1 WLR 1551. That case involved the tipping-off legislation but the facts were different from this case. In C v S an order for disclosure had been made in civil proceedings. If disclosure had been given, this could have resulted in disclosure which could prejudice investigations being carried on by the National Criminal Intelligence Service . In C v S, as in this case, a court (the Court of Appeal) had held a hearing in private without a party concerned being aware that this was happening. In its general guidance, this Court emphasised that:

". . . the degree to which the applicant can be involved and the extent that it is possible for the issues to be resolved in open court, again will depend on the circumstances, but the general approach must be to comply with the ordinary principles to the extent that this is possible. If necessary the stratagems which were deployed in this case will have to be used. Where these sort of arrangements are necessary there should always be a transcript prepared and the institution should be required to provide a copy to the applicant when it is informed by the N.C.I.S. that there is no longer any requirement for secrecy."

. . . (7) It will be for the N.C.I.S., or other investigating authority, to persuade the court that were disclosure to be made, there would be a real likelihood of the investigation being prejudiced. If the N.C.I.S. did not co-operate with the institution (and with any requirements of the court) in advancing such a case, the court could properly draw the inference that no such prejudice was likely to occur and could accordingly make the disclosure order sought without offending the principle in Rowell v Pratt [1938] A.C.101 and without putting the institution at risk of prosecution.

(8) Especially when the applicant cannot be heard, it is important that the court recognises its responsibility to protect the applicant's interests. The court must have material on which to act if it is to deprive an applicant of his normal rights. The one criticism which can be made in this case of what occurred in the courts below is that they did not have that material. The court should bear in mind that a partial order may be better than no order. It should also consider the desirability of adjourning the issue in whole or in part since the expiry of a relatively short period of time may remove any risk of the investigation being prejudiced. The N.C.I.S. will no doubt wish to co-operate with the courts in achieving speedy progress as this will be the most productive way of avoiding prejudicing an investigation and protecting the interests of litigants."

The principle applied in Rowell v Pratt, to which reference was made, is that the courts will not make an order if it would result in a person being required to commit a criminal offence.

22. Laddie J correctly states that C v S provides no justification for the order which was made by Lightman J. The SFO in this case accept that there had never been any investigation as to what material could or could not be disclosed without prejudicing the investigation. The bank was not at fault for this because the skeleton argument relied on by the bank stated that the police did not wish information resulting from the bank's enquiries to be revealed even to the court. This was an approach on the part of the police which cannot be justified. However, it did make the bank's position very difficult. Laddie J was unhappy about the absence of any formal statements or affidavits but it is important in this situation that so far as possible the incurring of any costs greater than necessary should be avoided.
23. We do, however, agree with Laddie J that Lightman J was wrong to grant the injunction. It served no useful purpose and although we are in favour of a flexible approach in relation to the deployment of the orders which a court can make, we cannot envisage any circumstances when it is appropriate to grant an injunction against the only party who is seeking relief. Although we do not agree with all the reasoning of Laddie J, we do accept that he was entitled to discharge the injunction which had been granted by Lightman J as a matter of principle, as well as because the injunction could no longer serve any useful purpose.
24. In opening the appeal Miss Andrews described her client, the bank, as having been in a uniquely difficult situation. She submitted that one of the main causes of the problem was to be found in the law of trusts (the other being s. 93D of the 1988Act). She also submitted that the solution to the problem was to be found in the law of trusts, and in particular in the court's inherent and statutory jurisdiction to guide and direct trustees as to the administration of their trusts.
25. These submissions call for some explanation since on the face of it the relationship between a bank and its customer is not a fiduciary relationship. It is a commercial relationship founded in contract into which the intrusion of equitable doctrines such as constructive notice may result in the well-known words of Lindley LJ in Manchester Trust v Furness [1895] 2 QB 539, 545, in "doing infinite mischief and paralysing the trade of the country". The need for certainty in commercial transactions underpinned many of the submissions which Mr Downes made on behalf of the respondents.
26. Nevertheless, it is clear that a bank may become subject in equity to an accessory liability if it dishonestly assists in a breach of trust committed either by its customer or by others. When a bank account is in credit the bank's relationship to the customer is that of debtor, not trustee (Foley v Hill (1842) 2 HLC 28). But if the debt owed to the customer is affected by any equitable interest or claim of a third party the bank may become accountable in equity if it dishonestly assists in any course of action which disregards the third party's interest or claim.
27. This potential accountability in equity is sometimes referred to as a liability as a constructive trustee, but that expression is ambiguous and may be misleading (see generally the explanation by Millett LJ in Paragon Finance v Thackerar & Co [1999] 1 All ER 400, 408-10). The essentials of this type of liability were very clearly expressed by Ungoed-Thomas J in Selangor United Rubber Estates v Cradock (No 3) [1968] 1 WLR 1555, 1582:

"It seems to me imperative to grasp and keep constantly in mind that the second category of constructive trusteeship (which is the only category with which we are concerned) is nothing more than a formula for equitable relief. The court of equity says that the defendant shall be liable in equity, as though he were a trustee. He is made liable in equity as trustee by the imposition or construction of the court of equity. This is done because in accordance with equitable principles applied by the court of equity it is equitable that he should be held liable as though he were a trustee."

28. The Selangor case was not cited to the court, but it is well known. It is an instructive case because the defendants included two banks which had been involved in different episodes of dishonest corporate manipulation. One bank was held liable as an accessory to breach of trust. The other escaped liability. The test which Ungoed-Thomas J applied (at p. 1590) was as follows:

"The knowledge required to hold a stranger liable as constructive trustee in a dishonest and fraudulent design, is knowledge of circumstances which would indicate to an honest, reasonable man that such a design was being committed or would put him on inquiry, which the stranger failed to make, whether it was being committed."

29. Since the Selangor case the ever-rising volume of commercial fraud has led the court to revisit the test of guilty knowledge on many occasions. It is not necessary for the purposes of this appeal to review all the authorities. The most recent and clearest guidance is in the decisions of the Privy Council in Royal Brunei Airlines v Tan [1995] 2 AC 378 and of this court in Jyske Bank (Gibraltar) v Heinl [1999] Lloyds Rep. (B) 511. The whole of the opinion of the Privy Council (delivered by Lord Nicholls) merits careful study. For present purposes it is sufficient to note one short passage (at p. 390; the reference to a solicitor can equally aptly apply to a banker):

"The analysis of the position of the accessory, such as the solicitor who carries through the transaction for [a trustee], does not lead to such a simple, clear-cut answer in every case. He is required to act honestly; but what is required of an honest person in these circumstances? An honest person knows there is doubt. What does honesty require him to do?

The only answer to these questions lies in keeping in mind that honesty is an objective standard. The individual is expected to attain the standard which would be observed by an honest person placed in those circumstances. It is impossible to be more specific. Knox J captured the flavour of this, in a case with a commercial setting, when he referred to a person who is "guilty of commercially unacceptable conduct in the particular context involved:" see Cowan de Groot Properties Ltd v Eagle Trust Plc [1992] 4 All ER 700, 761. Acting in reckless disregard of others' rights or possible rights can be a tell-tale sign of dishonesty."

30. Mr Downes accepted that a bank may become subject to fiduciary obligations in this way, but only if there is a pre-existing fiduciary relationship. He referred to El Ajou v Dollar Land Holdings [1993] 3 All ER 717, 734, where Millett J described this as a "precondition for equity's intervention". In doing so Millett J was showing obedience to the doctrine of precedent, since in Agip (Africa) v Jackson [1991] Ch 547, 566 this court had restated the principle which Millett J (at first instance in Agip [1990] Ch 265, 291) had doubted, describing it as based on authority rather than principle. The House of Lords has recently indicated that Millett J's doubts were well founded, so far as the process of tracing is concerned: see Foskett v McKeown [2000] 2 WLR 1299. But these points were not fully argued in this court and they are not necessary to the disposal of this appeal.
31. In brief, Miss Andrews' position was that the bank had a reasonable apprehension that it might be held liable as a constructive trustee, and that it had acted reasonably in invoking the court's jurisdiction to give guidance and directions to trustees. Miss Andrews relied on the decision of this Court in Finers v Miro [1991] 1 WLR 35. That was a case in which Mr Stein, a partner in a London firm of solicitors, had acted for Mr Miro in setting up an elaborate structure of offshore companies and trusts, which Dillon LJ described as follows:

"Some moneys are indeed held in the firm's client account but the bulk are held through complex chains, with all the trimmings often found in the more sophisticated tax avoidance schemes. The powers expressed to be conferred by the documents on one nominal party can only be exercised on the direction of another who in turn holds his power to give directions as bare trustee for a third and so on. The end result is that all assets are held to the order of Mr Stein on behalf of the defendant [Mr Miro].

The object of the exercise was unquestionably secrecy. The defendant did not want anyone to know who owned these various moneys and other assets, and he relied on the duty of confidentiality owed him by Mr Stein and the firm, and predecessor firms. There is no reason to doubt that when Mr Stein set up all these elaborate arrangements for the defendant he honestly believed that all the moneys and assets belonged to the defendant as a result of inheritance and success in business and that the defendant wanted to conceal his wealth from fear of political expropriation. There are, however, now grounds for suspecting that very much of this wealth may have been achieved by the defendant by fraud on [an American] insurance company."

32. In Finers v Miro this court upheld the order of Mummery J refusing to direct the release to Mr Miro of the assets controlled by Mr Stein, and directing the dispatch of a letter to the liquidator of the American insurance company. They rejected the argument that there was no jurisdiction to make such an order, since no trust for the liquidator had yet been established. As to that Dillon LJ said at pp. 39-40:

" . . . if there has been fraud, the corollary must be that the schemes set up by Mr Stein were, although he did not know it, set up to conceal the traces of fraud, and in such circumstances there is no difficulty in piercing the corporate veil. The plaintiffs have fiduciary powers in respect of the underlying assets either directly or through their control of the scheme companies and trusts; they claim no interest for themselves in those assets or the scheme companies or trusts, save for the proper professional costs of the firm as solicitors acting for the defendant. In my judgment the court has jurisdiction under RSC, Ord.85, and should be prepared, to give directions in the dilemma in which the plaintiffs now find themselves, if there is indeed any basis on which such directions could serve a useful purpose."

33. Similarly Balcombe LJ said at p. 45,

"What gives the court jurisdiction is the fact that the plaintiffs undoubtedly hold assets on trust for the defendant and are also potentially liable as constructive trustees at the suit of the insurance company. English law has always imposed strict liabilities on trustees but in return has been ready to allow trustees to come and seek the directions of the court if they need to do so. A procedure for seeking such relief is provided by R.S.C., Ord. 85 but that rule of itself merely provides a summary way of proceeding."

34. Mr Downes submitted that Finers v Miro was clearly distinguishable, since it was a case where the solicitor was (on any possible view of the facts) formally constituted as a fiduciary, and subject to fiduciary obligations. In the present case, by contrast, the bank was not formally constituted as a fiduciary, nor was there any identifiable trust property as to which the court could give directions. He drew attention to the process by which references to 'trust funds' had worked their way into the proceedings before Lightman J and Neuberger J, and described that as a fundamental error. The true view, he said, was that the bank was not a trustee and it held no trust property.
35. There is a sharp theoretical distinction between property rights and merely personal rights (see generally Sir Roy Goode, "Ownership and Obligation in Commercial Transactions", (1987) 103 LQR 433). The distinction between ownership and obligation tends to become blurred in the case of a credit balance on a current account with a bank of undoubted financial standing. The natural tendency to speak of 'money at the bank' is hard to resist, even for counsel who is concerned to expose that as a heresy. The bank has a personal, unsecured obligation to pay its customer, but the benefit of that obligation is rightly regarded as an asset into which trust property may be traced. (It is unnecessary to consider the difficult case of Space Investments v Canadian Imperial Bank of Commerce Trust Co (Bahamas) [1986] 1 WLR 1072, in which a bank which also acted as a trustee deposited trust money with itself, and then became insolvent.)
36. The facts of Finers v Miro are distinguishable from those of the present case. Mr Stein was on any view a trustee holding or controlling identifiable assets in trust for someone. Miss Andrews did not submit that A Limited was on any view not the beneficial owner of the credit balance on its account, although the evidence of Mr G (whose witness statements referred without much further explanation to a 'joint venture' and to 'investment funds') might possibly have provided a basis for such a submission.
37. Nevertheless we are inclined to the view that it was open to the bank to seek directions on the footing that it was at least a putative fiduciary. If A Limited had been the recipient of funds which were the proceeds of fraud (something which is not now contended for) and if the bank had such strong grounds for doubting its customer's honesty that it would itself have been dishonest to turn a blind eye to its doubts, then there was a clear risk of the bank incurring liability in equity as an accessory to breach of trust. A bank placed in that dilemma ought to be able to invoke equity's assistance. The fact that the bank was not formally constituted as a trustee and that a tracing process would attach, not to any assets of the bank, but to the chose in action representing the bank's obligation to its customer, ought not to be an insuperable obstacle. (The terms of Neuberger J's order, requiring the credit balance to be treated as if it had been paid into court, may provide a technique for surmounting the obstacle, although we would not wish to encourage that sort of technical expedient.)
38. However we do not find it necessary to express a final view on these points, which were not fully explored in argument, since with the development of the court's powers to grant declaratory relief in appropriate cases it is no longer necessary for the bank to establish the status of a trustee in order to obtain relief.
39. On this part of the case we would add one footnote. There is a line of authority showing equity's attitude to one type of putative trustee, that is those who believe that they have been constituted as trustees, but whose belief is proved wrong because the trust is set aside on the ground of undue influence or on some similar ground. The trustees may have unsuccessfully defended the claim but can still hope to get their costs out of the fund, if they have acted reasonably. Sir Robert Megarry V-C described this principle in Re Dallaway [1982] 1 WLR 756, 759-60:

"Executors who have an estate which is held to consist of nothing can have nothing out of which they could take their costs. However, in the parallel case of trustees the courts have tempered this icy logic. It has been held that where a settlement is set aside and so there is no property out of which the trustees can take their costs as of right, the court nevertheless has a discretion to allow the trustees to take their costs out of the fund before handing it over to the successful litigants. It has also been held that in exercising this discretion, trustees who have acted properly ought to be allowed their costs: see Merry v Pownall [1898] 1 Ch 306, 310, 311.

Furthermore, although the trustees may not be strictly trustees for the successful litigants (a point on which the views of Kekewich J in Merry v Pownall, at p. 312, and in Ideal Bedding Co Ltd v Holland [1907] 2 Ch 157, 174, do not appear to be entirely in accord), they are sufficiently trustees of the fund for them not to be confined to party and party costs."

40. The bank was, however, in a genuinely difficult situation. There was a dilemma as to what it should do. The mistake it made was not to recognise that there was no point in obtaining relief against A Limited. It was reasonable to try to anticipate the proceedings which could be expected if it refused to honour instructions of A Limited as to the monies which stood to its credit in its accounts. However the appropriate defendant to any application for directions was not A Limited but the SFO. The question of the information which could properly be disclosed should have been capable of being resolved between the SFO and the bank, but if they could not reach agreement, then the court would have to resolve the dispute. The hearing could have been held in private and there would have been no question of A Limited having to be served since it would not have been a party. If it was necessary for any order to be made, in proceedings against the SFO, then the appropriate order would have been an interim declaration under Part 25.1 (1) (b) of the CPR. The declaration could set out what information it would be proper for the bank to rely on. In determining the terms of any declaration which could be granted, the court would pay most careful attention to the views of the SFO as to what would or would not prejudice the SFO's investigation. With the assistance of the court, in the great majority of cases there is unlikely to be any difficulty in determining the terms of an interim declaration. The life of the interim declaration would probably be short since in the majority of cases it will only be necessary to conceal the existence of the investigations for a fairly limited period.
41. The issue as to what information could be disclosed, having been resolved, the bank could then decide what course it wished to adopt. In this case its primary concern appears to have been the danger of it being held a constructive trustee. If the bank chose not to honour A Limited's instructions because of this concern, then the only course open to A Limited was to commence proceedings as it did. The commencement of proceedings would no doubt be closely followed by an application for Summary Judgement under Part 24.2. Under Part 24.2, the court will only give judgment to a claimant if the bank has no real prospect of successfully defending the claim or issue and there is no other reason why the case or issue should be disposed of at a trial. Where the circumstances are as suspicious as they were in this case they could well provide very good reason for the court not being prepared to grant summary judgement. To oppose an application for summary judgment, the bank would have to draft its evidence with particular care. Here any advisory interim declaration would assist the bank. Miss Andrews contends she was seeking to follow the course outlined above. It is not clear that this was the position.
42. Laddie J was firmly of the view that if a judge heard in private an application of the class we envisage, then it would rarely be right for that judge to deal with inter-parties issues between the bank and its customer. It is obviously undesirable that a judge should be aware of information which is not known to a party appearing before the judge. Despite this concern there can be circumstances where in the public interest this course is necessary. Section 93D is an exceptional statutory provision to deal with an exceptional public interest. Money laundering is an increasingly common problem of large-scale crime. It is of the greatest importance, in the public interest, that the police should be supported by financial institutions in their attempts to prevent money laundering and to detect it when it happens. When a financial institution co-operates with the authorities, then the courts should be sympathetic to an application for their assistance, if assistance is really necessary. In this case, there being no helpful precedent, the bank went about obtaining assistance in the wrong way. Then, having obtained an injunction to which they were not entitled, the bank sought to benefit from that injunction. The unfortunate consequence is that in this case a great deal of costs have been incurred. It is hard on the bank that under the order of Laddie J they have not only had to bear their own costs, but they have also had to bear the costs of the parties against whom they brought their proceedings as well. But Laddie J was perfectly entitled to make the order which he did. As was not known at the time but is now known, there is no ground on which the bank could properly refuse to make payments of the sums due to A Limited on their accounts. Mr Downes submitted this was a situation where the bank could not possibly be a constructive trustee. Its position could not be other than that of a mere debtor. He based himself upon the speech of Lord Cottenham in Foley v Hill (1848) 2 HLC 28. As we have explained, he put his case too high. But although A Limited may have contributed to these proceedings becoming so complex and expensive, the fact remains that as between the bank and A Limited, because of the nature of the bank's business, it is more appropriate that the bank should pay the costs of A Limited and the other defendants than vice-versa.
43. Having given judgment in the defendants' favour, Laddie J provided in his judgment standard directions with the admirable objective of avoiding problems of the sort with which the bank was faced occurring in the future. He divided his directions under two heads: directions which would apply if the institution wants to make payment, and directions which would apply if the institution does not want to make payment. The guidelines may be of assistance to parties in the future but we prefer not to endorse them. Laddie J's two heads may not be a helpful starting point since usually the bank will have no preference of its own and it will simply want to do what is right and proper so as to extricate itself from embarrassment. Moreover the situations which can arise are so varied that it is extremely difficult to anticipate what will be the best course to adopt in a particular case. We would prefer to confine our guidance to what is self-evident from our judgment in this case. First of all, there should be no question of an injunction being granted in the circumstances in which it was granted in this case. If there is a dispute as to whether a payment can be made or disclosure made by the bank, the SFO on behalf of the police and the bank should try to resolve it between themselves. If they can not do so, that can be the subject of an application for interim declaratory relief in the way we have suggested. Unless the SFO acts unreasonably, it is likely that the parties to the application will have to pay their own costs. If proceedings are brought by a customer of the bank, the bank will have to take a commercial decision as to whether to contest the proceedings or not. If the proceedings are to be contested, then they should be conducted as openly as possible. Consideration should be given as to whether it is desirable for the judge who hears any proceedings against the bank to be different from the judge from whom guidance is sought. The answer will depend upon the circumstances of the particular case. It is possible, however, to envisage circumstances where the best method of achieving justice will be for the same judge to hear both sets of proceedings. If there are proceedings of which a bank's customer is unaware, then at least if the bank acts in accordance with guidance given by the court, there will be no question of it being subject to criminal proceedings.
44. The emphasis both in the courts below and before this court by the bank as to whether the bank could be liable as a constructive trustee is understandable and, although we consider that it gave rise to unnecessary complications, we do not criticise the bank for its attempts to rely upon this possible liability. The bank initially had grounds for being genuinely concerned that it might be liable as a constructive trustee. The law in this area has been developing and is continuing to develop. Secondly, as this litigation is primarily concerned with the issue of costs from the bank's point of view, establishing the existence of a constructive trust became increasingly attractive. This was because if there was a trust fund, that fund could be used for recouping the bank's ever increasing expenditure on costs. But the prospect of achieving this wholly desirable end, from the bank's point of view, was a mirage. It disappeared into the horizon as it became increasingly clear that the funds remitted to the bank for the credit of A Limited's account could not be shown to be tainted in any way. The third reason for the bank's enthusiasm for trying to establish a constructive trust was that it brought with it the court's administrative responsibilities in relation to trusts under Order 86. Invoking the court's powers in relation to trusts provided what was hoped would be a solid foundation for the court exercising its administrative or advisory jurisdiction in relation to the dilemma with which the bank was faced.
45. The wide power of the courts to give guidance to trustees is undoubted. However the court's ability to resolve disputes which could give rise to undesirable legal consequences is no longer restricted, if it ever was, to situations involving trusts. In his first Hamlyn lecture given in 1949, "Freedom Under the Law", Sir Alfred Denning, as he then was, identified the challenge facing the court as being to develop "new and up-to-date machinery" (p. 116). The first element of the machinery identified in the lecture was the remedy of declaratory relief. The court's power to make a declarion (or 'declaration of right') was derived from the Court of Chancery and was originally supposed to be restricted to declaratory judgments as to existing private rights (see Guaranty Trust Company of New York v Hannay [1915] 1 KB 536, which sets out the early history). Sir Alfred Denning saw the need to develop its scope in order to control the abuse of executive power, and over the half-century which has elapsed since his lecture it has performed a crucial function in the emergence of the modern law of judicial review. The development of declaratory relief has not however been confined to judicial review. Doctors and hospitals have increasingly been assisted by the ability of the courts to grant advisory declarations. It was at one time thought, that an interim declaration could have no practical purpose. The developments in other jurisdictions showed this was not the situation. Now the CPR acknowledges that just as interim injunctions can be granted so can interim declarations. Order 15 Rule 16 still remains part of the CPR. Its transitional life is about to come to an end. The Rules Committee has approved a new rule, part 40.20 of the CPR which omits any mention of "rights". It merely states "the court may make binding declarations whether or not any other remedy is claimed".
46. The courts have responded to the need identified by Sir Alfred so many years ago. The facts of this appeal confirm the need to do so. The "tipping-off" legislation which was the source of the problem with which this appeal deals, gave extensive powers to the police. Properly used they were beneficial. Misused they could create unintended consequences. It is of the greatest importance that use of those powers is confined to situations where it is appropriate. Institutions such as banks need to be able to ensure that they are not affected adversely unnecessarily because of the existence of the police's powers. The ability of the courts to grant interim advisory declarations achieves this purpose. The fact that the courts now have these powers, must not, however, be regarded as a substitute for financial institutions taking the decisions which should be their commercial responsibility. The court's powers are discretionary and only to be used where there is a real dilemma which requires their intervention.
47. The use of the court's power to grant interim declarations in proceedings involving the SFO will protect a bank from criminal proceedings but it will not automatically provide protection for the bank against actions by customers or third parties. However it seems almost inconceivable that a bank which takes the initiative in seeking the court's guidance should subsequently be held to have acted dishonestly so as to incur accessory liability. The involvement of the court should however enable, in the great majority of cases, a practical solution to be determined which protects the interests of the public but allows the interests of a bank to be safeguarded. In this case although the bank's motives are not open to criticism we consider Laddie J was entitled to make the orders which he did and we cannot interfere with his decision.

The appeal is dismissed.

ORDER: Appeal Dismissed with costs to be assessed if not agreed; all outstanding issues to be referred back to Mr Justice Laddie in the absence of agreement.