By Chrishmal Warnasuriya –

Chrishmal Warnasuriya

Refusal By Dubai Court To Freeze Brat-Pack Account; Where we may have gone wrong – the “Banker/Customer” Contract 

The Facts – As Reported at the Weekend Press

This was one of the headlines making last weekend’s Press – that a certain Bank in Dubai had refused a request by the Government of Sri Lanka (GOSL) to freeze foreign-held monies of a politician. Since these issues cut across commercial banking law and several aspects of the banker-customer contract (or relationship) I felt there was a public interest in the knowledge of at least the basics; hence these essays, with a prompt disclaimer that I am depending entirely on what was published as regards the facts of the matter and therefore the truth or not of what was reported is beyond my personal knowledge or comprehension.

The summary of what was reported was, inter alia that:

• Days before the August 17 election news had reached the GOSL of a secret account of a young politician, son of a former VVIP at the Emirates National Bank of Dubai (NBD);
• That in an attempt to expose this and bolster the joint UNF campaign of the SLFP under H.E. the President Maithripala Sirisena (MS) and UNP under the Hon. Prime Minister Ranil Wickremesinghe (RW) a process began to track down details of the account holder and pursue further action against him;
• However although a direct authority was issued by President MS in addition to an appeal to Sheikh Rashid Al Maktoum, the information was not forthcoming;
• A legal firm was hired to represent the GOSL in Dubai (presumably with knowledge of banking law – can’t differ much when it comes to international transactions) that assured to “recover and return” the monies, had it been obtained illegally;
• However months thereafter, the Dubai court has turned down the GOSL request to freeze these funds on the principle premise that the holder of the account/s had not been convicted in Sri Lanka, nor a case filed against him in any court.

This invites us to consider whether the Dubai court ruling can be sustained on the Law. To economize word-space only the fundamentals of this area in Commercial Banking Law will be discussed.

The Banker’s Duty of Care – “Tournier Duty”

We must first understand that any customer’s (VIP’s or otherwise) dealings with his/her bank are governed by a Contract, the Banker/Customer relationship which holds its own sanctity and privity; whether provided for expressly in the Mandate or implied by customary Banker’s usage. Therefore all others outside of that relationship, even the mighty GOSL are third parties to that contract and will not be entitled to any dealings with it; unless expressly sanctioned by the one party (customer) and accepted by the other (bank). These contract terms are further strengthened by the Banker’s Duty of Care at common law, which are generally accepted standards of conduct expected of a banker in its dealings with customers; confidentiality being at the pinnacle under both these considerations.

It should be expected therefore that to depart from such strictly enforceable duties of a banker, particularly in a fast developing commercial hub like Dubai where even the scent of such a breach would lead to disastrous consequences globally in their public perception, it would have taken a bit more than a communication by the MS/RW led GOSL nor a polite request to the Sheikh; to freeze the accounts of any customer, leave alone this particular politico! The underlying principle and the very limited exceptions which would allow a departure were set out in the case of Tournier v. National Provincial and Union Bank of England (hence the name) where it was accepted that there was an implied term in a contract between a banker and his customer that the banker will not divulge to third persons without consent either –

1. the state of the customer’s account, or
2. any transactions with the bank, or
3. any information acquired through the keeping of his account

The Rule which existed at common law and was implied into banker/customer contracts has since been also recognized and written into both the Business Banking Code as well as the Bankers Code (at Sections 8.3 & 11 in the UK), where funnily enough; it is almost an ad verbatim reproduction of the Tournier duties of confidentiality and its qualifications.

Every rule has an exception – Did we get it right

Of course the rule itself as indeed the exceptions are not without complication. Firstly on this implied duty of secrecy itself, there doesn’t appear to be a clear-cut authority but the developments of common law, read together with the Banking Codes will direct a prudent practitioner to the right approach in tackling the subject. As in every rule, the “Tournier duty” doesn’t appear to be an absolute brick wall, we can clearly identify at least four distinct qualifications, where:

• disclosure is under compulsion by law;
• there is a duty to the public to disclose;
• the interests of the bank require disclosure;
• disclosure is made under express or implied consent of customer

We may safely conclude in our instant case that (d) is completely out, this brat-pack would clearly not give such consent. Similarly both (b) and (c) would hardly hold any argument in a Dubai court as regards a Dubai bank (may very well have been different if it were a local bank here); unless we could show a “public duty” owed to us to disclose such information. It certainly would not have been “in the bank’s interest”; quite to the contrary they will suffer greatly in business confidence had such information leaked out, that they were a bank not to be trusted! As such we should have been ready with option (a) which was the only one open to us.

Option (a) – When compelled by Law

The Press reports that the Dubai Court rejected our application on the singular premise that there was no order issued by our courts, nor indeed any likelihood of same; as such the Dubai bank could not have reasonably been placed under such a compulsion. Had we been armed with such an order, we may have been able to rely on the following:

• A Protective Breach – In the case of Parry Jones v Law Society Lord Justice Diplock discusses how a contractual duty of confidence may be overridden by the duty of a party to comply with the law. Where a bank knows (or reasonably suspects) of an offence being committed and discloses information, such a breach of its duty of confidentiality is referred to as committing a “protective breach”; on all other occasions the bank must be ordered by law to disclosure such information.
• Notice to Customer – It has been established that where the breach is sanctioned by law the Bank is not under any additional duty to oppose such orders of court or even to notify the client. However in Robertson v Canadian IBC the Privy Council departed from this somewhat and left it open to the bank (as an implied duty) to either notify the customer or inform Court of having attempted to do so.

“Shapira” Injunctions

The Court of Appeal (UK) findings in the case of Banker’s Trust Co Vs Shapira is an authority on the issuance of freezing orders to banks to suspend and hold transactions on a customer’s assets held with the bank, known in common parlance amongst practitioners as “Shapira orders” (replacing what was previously known as Mareva injunctions); which is what the GOSL appears to have been seeking in Dubai, in addition to the information of transactions. The Dubai Court too appears to have been led by this authority in refusing the orders we sought. In Shapira it was held that –

The court will order disclosures of confidential banker/customer information even at the early interlocutory stages of an action –

• Where the Plaintiff (in this case GOSL) seeks to trace funds which might be dissipated as a result of delay;
• if there is strong evidence that the monies had been fraudulently deprived;

So clearly for the Dubai court to hold so, we should have been able to at least show a prima facie case that we were attempting to trace these funds which had been the subject of fraudulent dealings. Also in order to be successful in obtaining a Shapira order, as it was held in the case of Arab Monetary Fund v Hashim the claimant must show a real prospect of making a proprietary claim to those assets asked to be frozen; thus a note from President MS nor a message to the Sheikh will hardly come up to these expectations of the law!

Public Duty to disclose – Libyan Arab Bank Case

Although we could hardly impose such a public duty obligation on the State of Dubai (or indeed the UAE to which it belongs) domestically, it may have been an argument to try and come under the law established in this case; that for its protection of banking business it was under a higher public duty to disclose such information to the GOSL to assist in its investigations. This qualification though is more a defense for a bank to rely on, as opposed to the more positive nature of the above first exception.

In Libyan Arab Foreign Bank v. Bankers Trust Co the facts were briefly that a banker was said to have made a statement to the Federal Reserve Bank of New York to the context that “it looked like the Libyans were taking their funds out of the various accounts “. There was no mention of Libyan Arab Bank by name, nor was this information given under compulsion of law (as above). Upon being sued the Bankers Trust assumed three of the above four exceptions, that they were entitled to act as they did, including that of a “higher public duty” to disclose. In delivering judgment however the other two qualifications were rejected, but this public duty component accepted, on the premise inter alia that –

• There was a statutory power at s. 4(3) of the Bank of England Act, 1946 and s. 16 of the Banking Act, 1979 to obtain information from banks
• There was a presumption that New York law on this point was the same as English law
• Therefore the Federal Reserve Board, as the central banking system in the United States, may have a public duty to perform in obtaining information from other banks.

The Press does not report whether we attempted to run this line of argument, however even to do so, we may still have been asked to show evidence of such an investigation being conducted here locally; which it is reported we did not have.

A request by Sri Lankan courts – the Law

Although clearly there has been none made on this occasion by our courts, other than this reported “communication” by President MS, perhaps this too was an angle open to the GOSL to explore; to go armed with an order from our courts seeking such disclosure and freezing of funds. This should have been looked at prior to filing an application that has now been rejected by the Dubai court. Banking Law permits such requests generally, when made by a foreign court of competent jurisdiction making such inquiries, in so far as they are –

• Not being a simple fishing expedition
• Not a denial of a privilege (of the account holder) in the banker’s country

In the case of Westinghouse Electric Corp it was held that the High Court (in UK) will accede to such a request of a foreign tribunal for the production of specific documents, provided that those proceedings were not penal and that such person will be entitled to claim privilege against self-incrimination if the evidence is likely to render such person liable to financial sanctions. A similar line of thinking was followed in the case of Pharaon v Bank of Credit and Commerce International SA, where in determining competing public interests in the matter, the English court held that –

• the duty of confidentiality was subject to the demands of any greater public interest;
• the role of the court was to weigh the competing public interests of assisting the US courts in ensuring that justice was done in a case involving allegations of serious wrongdoing

The People’s mandate of 8th January

We formed part of a joint-voice that rallied the absolutely sovereign citizens of this Republic to make that historical change in January this year, a major component of which was bringing perpetrators to justice and vesting corrupt and ill gotten gains of all these brat-packs back in the coffers of the People. This battle cry was once again raised during the August 17th election, to which the People again responded.

Almost 10 months have elapsed in the year and I do hope we will not wait for the next election to rush into such ill-advised and hurried actions without seeking proper counsel and advise, but think carefully, strategize the initiatives and do the job that the People of this country empowered their government to do; we the People will remain in the presently “silent Opposition” (as there doesn’t appear to be one in the Legislature) and keep watch!