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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> IFTIKHAR, RECLAIMING MOTION AGAINST CIP PROPERTY (AIPT) LIMITED [2018] ScotCS CSIH_44 (03 July 2018)
URL: http://www.bailii.org/scot/cases/ScotCS/2018/[2018]_CSIH_44.html
Cite as: [2018] CSIH 44, 2018 GWD 24-301, [2018] ScotCS CSIH_44, 2019 SCLR 118
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FIRST DIVISION, INNER HOUSE, COURT OF SESSION
Lord President
Lord Malcolm
Lord Glennie
[2018] CSIH 44
CA45/17
OPINION OF THE COURT
delivered by LORD CARLOWAY, the LORD PRESIDENT
in the Reclaiming Motion by
MUHAMMAD ASAD IFTIKHAR
Pursuer and Reclaimer
against
CIP PROPERTY (AIPT) LTD
Defenders and Respondents
Pursuer and Reclaimer: McIlvride QC; Balfour & Manson LLP (for Austin Lafferty, East Kilbride)
Defenders and Respondents: G Walker QC; Dentons UK MEA LLP
3 July 2018
Introduction
[1] This is a reclaiming motion against an interlocutor of the commercial judge
assoilzing the defenders from the conclusions of the summons. These sought: (1) a
declarator that the defenders were bound by a contract for the sale of subjects at 35 Argyle
Street, Glasgow and that the defenders’ purported rescission was of no effect; and (2) an
order for implement by delivering a disposition of the subjects in exchange for the price.
The essence of the dispute concerns the information, which the pursuer was required to, and
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that which he did, produce in relation to his identity and the source of his funds. The
pursuer contended that the commercial judge erred in holding, as the defenders had
maintained, that the defenders were entitled to resile from the contract and that, even if they
had not been entitled to do so, to proceed with the contract would have been illegal because
of the operation of the Money Laundering Regulations 2007.
Facts
[2] According to the affidavit of the defenders’ solicitor, the defenders are a subsidiary
of “Aviva” whom his firm represented. Information gleaned from a detailed statement from
the defenders’ expert (Julian Korek; incorporated into the unchallenged evidence of Antony
Christie, a senior director of Aviva Investors Global Services Ltd (AIGSL)) suggests that the
defenders are a subsidiary of Citibank Europe plc, part of the global Citigroup Inc, who are
the trustees of the Aviva Investors Property Trust (a unit trust scheme) established by
Citibank Europe and Aviva Investors UK Fund Services Ltd, part of Aviva plc. Aviva
Investors UK Fund Services Ltd were the managers of the scheme, although portfolio
management has been delegated to AIGSL. The defenders act as the nominees of the Trust
in holding title to the Trust’s property portfolio.
[3] The defenders own commercial property at 35 Argyle Street. It was auctioned in
London on 8 December 2016. The pursuer was the successful bidder at £500,000. The
subjects were sold according to, amongst other things, articles of roup. These provided:
“2.6.3 ... The purchaser ... shall ... pay a deposit representing 10% of the purchase
price ... if the purchaser fails to pay such a deposit the vendor may treat such ...
failure as a repudiation of the contract ... The purchaser shall be obliged to provide
to the vendor’s solicitor the KYC information at (sic) that on or before 15 December
2016. Further, the vendor shall be entitled at their sole discretion to deem that the
deposit has not been paid until such time as the vendor’s solicitor receives the KYC
information ...
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2.6.6 Settlement shall be subject to the purchaser procuring that the purchaser ...
supply to the vendor ... the KYC information (with the applicable information and/or
documentation specified in the initial due diligence form aftermentioned) to the
vendor’s satisfaction no later than 15 December 2016 ... ”.
The KYC (know your customer) information was earlier defined (clause 1.9) as:
“Such information as the vendor ... require[s] in relation to the identity of the
purchaser and the source of funds utilised in respect of payment of the balance of the
price and/or the deposit including, but not limited to, the verification certificate and
initial due diligence form aftermentioned”.
[4] Clause 2.39 provided that the purchaser was to deliver to the vendor a completed
verification certificate and an initial due diligence form, each of which was set out in drafts
annexed to the articles. The verification certificate was a document which was to be
completed by the buyer’s solicitor. The solicitor was required to certify that, in accordance
with the UK Money Laundering Regulations 2007, they have verified the identity of the
buyer. Notes attached to the certificate stated that the sellers were required, in terms of the
Regulations, to obtain satisfactory evidence to verify the buyer’s identity. The certificate
was said to be an assurance that the solicitors have complied with the Regulations “with
respect to” the buyer. The initial due diligence form contained a tick box form which, in
relation to a “private individual”, required “certified copy of passport ... and country of
domicile”.
[5] The deposit of £50,000 was paid by Robinco (Scot) Ltd; the balance being due at
settlement on 13 January 2017.
[6] On 12 December 2016, the defenders’ solicitors emailed the pursuer’s solicitors
requesting the following anti-money laundering documentation:
“1. Certified true copy passport for Muhammad Asad Iftikhar ...
2. Certified copy utility bill for Muhammad Asad Iftikhar ...
3. Completed initial due diligence form – form attached.
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4. Completed verification certificate – certificate attached”.
On 15 December, the pursuer’s solicitors replied by email and attaching:
“Certified ID
Certified proof of address
Completed due diligence form ...
Completed certificate.”
The email stated that signed copies were in the post. The documents attached and enclosed
were a United Kingdom passport and a driving licence, both of which were in the pursuer’s
name and the latter specified his address. Each was certified by his solicitor as a “true copy
of original document”. The address on the driving licence corresponded to that in a copy
utility bill in the name of Mohammad Iftikhar and Mrs Shaista Chafoor, dated 6 May 2016.
The verification certificate was signed by the pursuer’s solicitors and confirmed that the
solicitors had verified the identity of the pursuer. The initial due diligence form confirmed
that the pursuer was a private individual.
[7] On 19 December 2016, the defenders’ solicitors advised the pursuer’s solicitors that
the defenders wished to proceed with a sale to the pursuer, rather than a nominee, which
had been belatedly proposed by the pursuer. They also stated that, for the defenders to
complete their anti-money laundering checks, they requested that the pursuer’s solicitors:
“... provide a brief explanation as to [the pursuer’s] source of wealth (how has he
built up his funds to make the purchase), source of income etc. all of which could be
supported by bank statements/annual accounts (if source of wealth is reflected in
company accounts?) – personal accounts if not?”
The pursuer’s solicitors replied, rather oddly, that the pursuer might be obtaining finance, so
they were not sure if this would be possible, but they would check.
[8] On 22 December 2016, the defenders’ solicitors wrote to the pursuer’s solicitors
giving notice that:
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“Due to your failure to fulfil your obligations in terms of condition 2.6.3 of the ...
articles of roup, our clients have now exercised their right to resile from the contract
and will not be proceeding with the sale of the property”.
In a further email, they added:
“Per the articles of roup your client was to provide source of funds information (as
stated within the definition of KYC information) on or prior to 15 December 2016.
This has not been provided.
Furthermore, the articles of roup confirm that our clients can treat the deposit as
unpaid until such time as [they have] received the required KYC information. On
this basis the deposit has not been paid, and our clients are fully entitled to rescind
on that basis.”
[9] Although this was not known to the pursuer, the defenders had meantime been
carrying out various checks on the pursuer’s name and had come up with certain “adverse
media reports” relating to individuals with the same or similar names. Anthony Besford-
Land, who was a senior financial crime analyst with Aviva, had carried out the “due
diligence measures” specified in the 2007 Regulations, which he considered to be mandatory
in relation to the sale. These included establishing the identity of the buyer and the purpose
of the transaction, discovering the source of funds, and, for “medium and high risk cases”,
how the wealth had been generated. A private individual was always at least a medium
risk.
[10] Once contacted by the defenders’ solicitors (on 14 December 2016) Mr Besford-Land
had said to them that he would be able to advise only when the documents requested by the
solicitors on 12 December (supra) were forthcoming. On receipt of the documents, he noted
what he regarded as an inconsistency between the spelling of the name “Muhammed” on
the passport and “Mohammed” on the utility bill, which was 7 months old. The prospect of
a nominee company becoming involved caused him concern, because last minute changes of
this nature were a common feature of money laundering transactions. Mr Besford-Land had
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been concerned that it had been said (as it is in the summons) that the buyer was the current
occupier of the subjects, yet the defenders’ tenant was Wickton Ltd, whose sole director was
not the pursuer. It was Mr Besford-Land who, on 19 December, decided that an explanation
of the pursuer’s source of wealth was required.
[11] The pursuer’s solicitors’ statement of uncertainty regarding the pursuer’s source of
wealth, in his email of 19 December 2016, had operated as a “red flag” to Mr Besford-Land
as it suggested that the relevant information and vouching was not available. The adverse
media reports about a person with the pursuer’s name (or a variant thereof) “could not be
negated”. Mr Besford-Land had reported to the defenders that the transaction carried a
“significant degree of risk”. The defenders determined that they should not proceed with it.
[12] On 17 February 2017 the pursuer’s solicitors wrote to the defenders’ solicitors stating
that the pursuer remained willing to perform, which failing he intended to take legal action.
By letter dated 24 March 2017 the defenders’ solicitors stated that the defenders were willing
to provide the pursuer with a further opportunity to furnish the “KYC information to [their]
satisfaction” within seven days. This included: (1) an explanation of why, if the pursuer was
to be the purchaser, the deposit had been paid by Robinco; (2) an account of the relationship
between the pursuer and Robinco’s former and current director; (3) clarification of
Wickton’s involvement; and (4) evidence of where the funds, which were required to meet
the balance of the price, were to come from.
[13] On 31 March 2017 the pursuer’s solicitors explained, in a manner not readily
understandable, that Robinco was “our client’s trading company”. He was to share the
profits from Wickton with the then other director of Robinco, who remained its sole
shareholder. The pursuer had “an interest in both the property and Wickton”. A bridging
loan through Together Commercial Finance Ltd and a re-mortgage of the house owned by
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the pursuer and his wife and a loan from his wife were to provide the balance, with any
shortfall coming from Robinco. Some vouching from Together and the Nationwide was
provided.
[14] By letter dated 7 April 2017, the defenders’ solicitors stated (in bold) that “The
contract is at an end” and, in any event, the pursuer had still failed to provide the
information as the defenders remained (again in bold) “dissatisfied with the KYC
information provided”. A detailed response to the letter of 31 March was provided. This
stated that the Together and Nationwide vouching was inadequate to support the existence
of a source of funds; the loan from the pursuer’s wife was not vouched; no adequate
vouching of Robinco’s finances was available; the suggestion that the pursuer was deriving
funds from Wickton lacked transparency; and the media results had not been negated (ie
that it had not been demonstrated that the pursuer was not a “person of interest”). The
defenders were not prepared to continue with the negotiations.
Legislation
[15] In terms of the Proceeds of Crime Act 2002, a person commits an offence if: (1) he
converts or transfers criminal property (s 327). Property is criminal property if it constitutes
a person’s benefit from criminal conduct, or represents such a benefit, and the alleged
offender knows or suspects that it constitutes or represents such a benefit (ibid s 340(3)); (2)
he enters into an arrangement which he knows or suspects facilitates (by whatever means)
the use or control of criminal property by or on behalf of another person (s 328); (3) he
acquires, uses or possesses criminal property (s 329).
[16] The Money Laundering Regulations 2007 (now repealed, but having continuing
effect) apply to “relevant persons” who are defined as, inter alios, financial institutions,
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including lenders, financial lessors, insurance companies and independent legal
professionals, eg solicitors, acting in the course of their business (reg 3(1), (3), Sch 1 Annex
1). Relevant persons must “apply due diligence measures” when they “establish a business
relationship”, carry out an occasional transaction, suspect money laundering or doubt the
veracity of documents or information provided for the purposes of identification or
verification (reg 7). Customer due diligence measures include verifying the customer’s
identity on the basis of documents, data or reliable and independent information (reg 5).
The word “customer” is not generally defined, but it is elsewhere said to mean a “third
party” (reg 3(3)).
[17] Regulation 11 provides that if a relevant person is unable to apply customer due
diligence measures in relation to “any customer” he must: (a) not carry out a transaction
with the customer through a bank account; (b) not establish a business relationship or carry
out an occasional transaction with the customer; and (c) terminate any existing business
relationship with the customer. A relevant person is entitled to rely on an independent legal
professional to apply any customer due diligence measures (reg 17(1) and (2)). A person
who fails to comply with the regulations is guilty of an offence (reg 45).
The commercial judge’s Opinion
[18] The commercial judge held, first, that it was not a matter of dispute that as at
15 December the pursuer had not supplied “certified true copies” of the passport or utility
bill. The original completed due diligence form and verification certificate had also not been
produced on time. These conclusions flowed from the fact that the documents had only
been emailed (and presumably posted) on 15 December 2016. On that basis the pursuer was
in breach of contract and the defenders had been entitled to resile. The utility bill was not in
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the pursuer’s name and on this basis also there was a breach of contract entitling the
defenders to resile. That was sufficient to dispose of the “whole matter”, but the commercial
judge correctly went on to address a number of the other arguments which had been
advanced.
[19] The commercial judge held that the articles of roup fell to be construed in light of the
2007 Regulations. It did not matter whether the regulations were applicable to the
transaction as a matter of law. The parties’ intention was that they should be. The word
“require” in Article 1.9 (supra) did not mean, as the pursuer maintained, demanded by the
defenders. Rather, it meant that the pursuer had to provide:
“what the defender needs in order to satisfy itself that it can comply with its
obligations in terms of the 2007 Regulations. The defender ... is given an absolute
unfettered discretion with respect to this issue. If information to its satisfaction is not
provided then in its sole discretion it can repudiate ... [I]t is for the pursuer to
produce such information as to satisfy the defender from an [anti-money laundering]
perspective.”
The onus was on the pursuer to produce evidence of his identity and his source of funds. It
was not for the defenders to list the specific items that it required.
[20] The defenders had been entitled not to be satisfied with the KYC information
because it was not certified as required and the utility bill was not in the name of the buyer,
as required. There was no need for the defenders to go through any form of ultimatum
process. In any event, the defenders could not be obliged to transact with the pursuer when
they had been unable to apply their due diligence measures. A term ought to be implied
into the contract to that effect.
[21] The commercial judge held that the 2007 Regulations applied to the transaction.
Since the defenders were “relevant persons” and the transaction was an “occasional” one
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within Regulation 7(1)(b), progression of the transaction would have been illegal and
therefore, for this reason also, the defenders were not obliged to proceed.
Submissions
Pursuer
[22] The pursuer contended that the commercial judge erred in holding that the
transaction was subject to the 2007 Regulations. The defenders were not a relevant person
and the pursuer was not a customer. AIGSL’s internal procedures did not alter that. The
pursuer could not be classified as a customer of the defenders by entering into an arm’s
length transaction to buy property. The purchaser of heritable property cannot reasonably
be described as the customer of the seller. Even if the regulations did apply, the transaction
could have been proceeded with without illegality, since the defenders were entitled to rely
on the pursuer’s solicitors having applied the requisite due diligence measures (reg 17). In
any event, the defenders had done all that was required in terms of customer due diligence.
The measure was identifying the customer on the basis of information from a reliable and
independent source. The defenders had been provided with certified copies of the pursuer’s
passport and driving licence. The other measures were not applicable. The regulations did
not impose an obligation to obtain evidence of the source of funds.
[23] The commercial judge erred in holding that the defenders had validly resiled from
the contract. The proper construction of clause 1.9 was that the KYC information was that
which the defenders had requested the pursuer to provide. It extended only to facts or data
and not documentary evidence. By 15 December 2016 the pursuer had provided the
defenders with all the information which had been requested by the defenders’ solicitors,
including the completed verification certificate and an initial due diligence form. The clause
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had to be construed in the context of the contract as a whole. If it had been intended that the
pursuer had to provide by 15 December all information that the defenders were under a
legal obligation to obtain, then a clause to that effect could have been framed. That is not
how the reasonable person would have understood the expression. It was for the defenders
to decide and to intimate what information they considered necessary. The commercial
judge erroneously excluded documentation in electronic form. Unless the information had
been required before 15 December, the defenders could not rely on any failure to provide it.
No dissatisfaction with what had been provided by them had been expressed. Mr Besford-
Land’s concerns had no contractual significance.
[24] There was no request for the source of wealth information before 15 December, and
no obligation to provide this, other than as contained in the due diligence form.
Alternatively, having made the request, rescission would only have been lawful if time was
made of the essence in relation to that request (East Dunbartonshire Council v Bett Homes
(1994) 1996 SC 556). This was an arm’s length, single transaction, for the purchase of
heritable property. There was nothing which would alert the purchaser to the defenders
being a relevant person in terms of the regulations. The defenders’ construction was
inconsistent with the terms of the contract as a whole. The commercial judge erred in
implying a term that the defenders could require further information. This was not
necessary for business efficacy (Marks & Spencer v BNP Paribas Securities Services Trust Co
(Jersey) [2016] AC 742).
Defenders
[25] The defenders maintained that the 2007 Regulations applied to the transaction. The
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defenders were bound by the regulations. There was unchallenged evidence that the
defenders were a financial institution; being part of AIGSL which had a £4.5 billion property
portfolio including the Aviva Investors Property Trust, who conducted their business
through nominees, namely the defenders. The group as a whole had to be considered;
otherwise compliance could be avoided through the use of nominees, which would be
absurd and hence a construction not to be preferred (Inland Revenue v Luke 1963 SC (HL) 65
at 80). The pursuer was a customer, in the ordinary and natural sense of that word. The
defenders could not absolve themselves from compliance by relying on the pursuer’s
solicitors. The commercial judge accepted that the defenders’ due diligence measures had
failed to satisfy them that the transaction was not being used to launder the proceeds of
crime. In these circumstances the defenders required to “cease transacting” (reg 11). To
continue to do so would have been to commit a criminal offence. In these circumstances the
the Regulations did not apply, the parties had intended that they should and the contract
had to be interpreted on that basis. The verification certificate stated that the vendor was
subject to the Regulations and the Joint Money Laundering Steering Group’s guidance.
[26] The word “require” did not mean demand. The onus was on the pursuer to produce
evidence of identity and source of funds. The defenders had an unfettered discretion on
whether they were satisfied with what the pursuer chose to provide. It was not for the
defenders to provide a list of requirements. This involved no hardship to a buyer, who
would be best placed to know where the funds were to come from and how he could prove
their legitimacy and his own identity. The pursuer was required to produce original
certification and not copy documents with copied certification. The defenders had been
entitled not to be satisfied about the information provided by the deadline of 15 December.
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[27] The commercial judge had not said that a term should be implied. He had held that
none was required. However, if the contract was construed differently, such a term would
be needed (Marks & Spencer v BNP Paribas etc (supra)) to allow the seller to request further
KYC information once it had received the first instalment. The defenders had still been
dissatisfied at the date of the proof, which was when the matter fell to be tested.
Decision
Rescission
[28] The central issue is the proper interpretation of the articles of roup (auction) which, it
is not disputed, governed the transaction. The court must ascertain the intention of the
parties in agreeing to the articles by, put shortly, determining what a reasonable person,
having the background knowledge of the parties, would have understood from the
language used in the articles (Midlothian Council v Bracewell Stirling Architects [2018] CSIH
para 15).
[29] The critical words are those in Article 2.6.3 which require the buyer to provide the
“KYC information … on or before 15 December 2016”; that being “Such information as the
vendor… require[s] in relation to the identity of the purchaser and the source of funds …
including … the verification certificate and initial due diligence form”. The reasonable man,
with the parties’ background knowledge, would interpret those words to mean what they
say; that the buyer has to supply the seller with such information in relation to the stipulated
matters as the seller requires. In order for this article to operate, the seller has to make the
requirement by stipulating what he wants. Although the buyer may be able to make an
educated guess about what the seller may require, he cannot know what that might be.
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Contrary to the commercial judge’s view, the buyer cannot be expected to do this in
circumstances in which, for the purposes of the contract as distinct from those of the seller’s
or those of their agents, it is a matter for the seller to decide what type of information is
likely to satisfy his requirements.
[30] Subject to overall considerations of reasonableness in the timing of any request, had
the defenders required certain information prior to 15 December and had that information
not been provided by then, it may have been open to the defenders to resile from the
bargain. That may be so because it was expressly provided that a failure to pay the deposit
amounted to a repudiation of contract and the defenders were entitled to deem that the
deposit had not been paid until they had received the information. Failure to provide the
information by a stipulated date allowed the sellers to treat this as a repudiation and thus
may have allowed them to resile. However, it is not necessary to decide this point.
Although rescission may have been an option open to the defenders, it was not one that they
were bound to adopt. The bargain did not come to an end automatically because of any
failure to produce certain documents or to do so by a particular date.
[31] Apart from the completed forms, what the defenders had requested were copies of
the pursuer’s passport and a utility bill; the latter presumably intended to constitute proof of
domicile. The request would be expected to have involved the production of an original
certification by the pursuer’s solicitor of these copy documents, having been duly compared
by him with the original passport and bill, together with completed due diligence form and
verification certificate. Not unreasonably, the defenders’ solicitors did not complain about
the fact that all that they had received on 15 December were emailed versions; given that
they had been assured by the pursuer’s solicitors that the originals had been posted. After
all, there was no reason not to rely on the pursuer’s solicitors when they said that they were
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emailing copies of the true (copy) documents and not forged materials. The originals were,
presumably, received in early course. In the absence of objection being taken to what was
provided at the time, the commercial judge’s decision, which is essentially based on the
provision of emailed copies, cannot be sustained.
[32] Similar considerations apply to the faults, which were later said to exist, in relation to
the pursuer’s name on the utility bill and its date. Whatever AIGSL may have thought,
these apparently minor faults did not render the provision of the requested bill disconform
in substance to what had been requested. The pursuer had produced additional proof of
both his identity and his domicile (address) in the form of his driving licence. In these
circumstances, the discrepancy in the pursuer’s name on the utility bill was de minimis and
the date limit was a matter internal to AIGSL and not one contained in the request made
under the contract. In short, therefore, as at 15 December 2016 the pursuer had complied
with the defenders’ requirement for KYC information. The defenders had made no
complaint about what had been provided to them. They had not elected to resile on this
basis, even had they been entitled to do so.
[33] What did happen was that the defenders sought further information. Looking at the
contract terms as a whole, this was a legitimate request which could be made within the
confines of the existing articles. No additional term required to be implied. Since, on any
view, in terms of clause 2.6.6 settlement on 13 January 2017 remained dependent upon the
KYC information having been provided, it was open to the defenders to seek more
information, having first studied, and not been satisfied with, that initially supplied. The
pursuer’s contention to the contrary, and his argument that the clause did not permit a
request for the production of vouching materials, falls to be rejected. The defenders did
request further information in the email of 19 December 2016, having confirmed that they
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wished to proceed with the bargain (and hence not to resile on account of what had been
provided to date), but needed “a brief explanation as to [the pursuer’s] source of wealth …
source of income etc”.
[34] As a generality, given the money laundering requirements imposed upon solicitors
by both statute and non-statutory guidance, a request of this nature cannot have been
regarded as unexpected or unusual. This is especially so given the terms of clause 1.9,
although it is confined to proof of the source of the purchase price and not the pursuer’s
wealth. A sellers’ solicitors, conscience of their own position, might reasonably expect a
buyer’s solicitors to be aware already of not only the true identity of their client, as the
pursuer’s solicitors appeared to be, but also the method by which the client intended to fund
the purchase of a £500,000 property. The pursuer’s solicitors’ response in their email of
19 December, that they might not be able to do this, may well have raised legitimate
concerns. In that set of circumstances, the defenders would have been entitled to fix a
reasonable deadline for the production of the relevant information. That deadline could
have been relatively short. That, however, was not what was done. The defenders had
sought “a brief explanation”, but imposed no ultimatum in relation to when it had to be
produced. They did not make the time for the production of the brief explanation (which
was all that was asked for) an essential element in the bargain (see generally East
circumstances, they were not entitled to rescind the bargain suddenly and without warning
only three days later. Doing so without warning and on the stated basis, which concerned
only the absence of the source of funds information, amounted to an unlawful repudiation
of the contract. That would, in normal circumstances entitle the pursuers to decree in terms
of the first conclusion; that is a declarator that the defenders are still bound by the contract
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and the purported rescission of 22 December was of no effect. The additional feature which
arises is the issue of whether a decree for implement on payment of the price is appropriate
where performance by the defenders is said to be illegal.
Illegality
[35] It was not suggested that the agreement for the sale of the subjects under the articles
of roup was itself illegal. When the defenders’ pleadings are examined, there is no plea-in-
law raising the issue of illegality. The matter appears, and then only by way of brief
averment, as an esto position, on the hypothesis that the articles are construed in favour of
the pursuer, as follows:
“2.9 … such a construction would inevitably require the defender to proceed with a
contract which they knew to be illegal, in that they had been unable to satisfy their
obligations in terms of AML legislation. Any subsisting contract would therefore be
unenforceable on the grounds of illegality.”
Exactly what provision of the legislation was not specified. In due course, it was not
suggested during argument that, were they to proceed with the bargain, the defenders
would be in breach of the primary legislation (Proceeds of Crime Act 2002 (supra)), by, for
example, suspecting that the purchase price was criminal property. Rather, the contention
was limited to a potential breach of the Money Laundering Regulations 2007.
[36] Whether or not the Regulations were in some way incorporated into the bargain is
not relevant to the question of illegality. That could only arise if they actually did apply to
the performance of the bargain. Although the matter did not pose a difficulty for the
commercial judge, it is by no means clear why the defenders, as a nominee company
holding property for a unit trust, should be regarded as a financial institution carrying out
one of the defined activities referred to in Regulation 3. It is even less clear how the pursuer
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falls within the description of a “customer” of the defenders or the unit trust. They were
certainly not customers of AIGSL.
[37] The Regulations are designed to apply to persons who are the customers of, inter
alios, financial institutions, accountants, solicitors and other similar persons. They are
designed to strike at persons investing, or otherwise dealing as (using a similar term) clients
of these institutions. The pursuer is neither a customer nor a client of the nominee company
(the defenders) or their principals (the unit trust). He is simply an arms-length purchaser of
a property owned by them; that is all.
[38] In any event, even if the defenders were a relevant person and the pursuer was a
customer, the parties had already entered into a bargain for the sale and purchase of the
subjects, which was not itself said to be illegal. The defenders were content to proceed with
that bargain, provided that they could be satisfied with the KYC information, including the
pursuer’s explanation of his source of funds. It is only if the relevant person is unable to
apply customer due diligence measures to the customer that he must “terminate any
existing business relationship” (reg 11). The defenders were able to carry out “customer due
diligence”, as defined in regulation 5, by verifying the pursuer’s identity on the basis of
documents and information obtained from a reliable and independent source. They
required to do no more than that. They had copies of the pursuer’s passport and driving
licence duly certified by a solicitor as true copies. They were entitled to rely on the
solicitor’s representation (reg 17). In these circumstances, proceeding with this transaction
would not have amounted to a breach of the regulations and hence be deemed illegal. In
short, the contract does not force the defenders to act unlawfully and the court is not
requiring them to do so.
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Conclusion
[39] The effect of this is that the pursuer is entitled to decree in terms of the first
conclusion. It does not follow that he is entitled to decree ordering the defenders to
implement the contract simply by delivering a disposition in exchange for the purchase
price (the deposit having been returned). The decree could only be for implement: (1) on
production of such KYC information as has been, and may be, requested by the defenders
and in the event of the defenders’ reasonable satisfaction in that regard; and (2) in exchange
for payment of the price. Although it was a matter of concession at the proof that the
defenders were entitled to be dissatisfied with the information produced as at the date of the
purported rescission, and it was established that they remained dissatisfied by that
produced after that date, the pursuer must, in light of the court’s determination, be afforded
a reasonable time in which to provide it now, in the current circumstances in which that
rescission has been deemed unlawful. Whether the information is satisfactory may be a
matter for the defenders’ initial assessment, but it must also be subject to overall
considerations of objective reasonableness. If the pursuer produces information which
meets the request, and any subsequent questions, it will not be open to the defenders to
resile, based on an unreasonable assessment of what has been provided.
[40] The court should accordingly: recall the interlocutors of the commercial judge dated
7 December 2017; repel the defenders’ first plea-in-law and their third plea-in-law in so far
as relating to the first conclusion; sustain the pursuer’s second plea-in-law; and pronounce
decree in terms of the first conclusion. The court will remit the cause to the commercial
judge to proceed as accords; that will, in effect, be to await the outcome of the provision and
consideration of the further KYC information. Whether decree ought hereafter to be granted
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in terms of the second conclusion will be a matter for further consideration by the
commercial judge after such procedure as is thought appropriate.