A recent English decision highlights the danger that even a
well-intentioned financial institution may face if it fails to
strictly obey a Mareva injunction order freezing the accounts
of one of its clients: R. (Revenue & Customs
Prosecution Office) v. Lloyds TSB Plc  EWHC
The Plaintiff obtained an order freezing the accounts of a
Lloyds Bank client. The order prohibited the client and all
recipients from "dealing" in any way with the frozen
funds, but the order permitted the client withdrawals for
living expenses. The well-meaning bank manager, seeking to
protect the bulk of the frozen funds from withdrawal by the
client, and to avoid monitoring the accounts, proposed to the
client that those funds, totalling some £2 million, be
transferred to another Lloyds account. The client agreed.
Neither the client nor the bank informed or obtained consent
from the prosecutor or the court for this arrangement.
The Court condemned the bank's transfer of the funds as
a "clear breach" of the order, and expressed surprise
that the bank would do so without consultation with the crown
prosecutor or the court. Despite the bank's good
intentions, the transfer of the funds was a deliberate act, in
knowing breach of the terms of the order. The court found the
bank in contempt of court.
Given the bank's intentions, and given that no harm
arose as a result of the transfer, the court declined to impose
a costs sanction on the bank. The Court indicated, however,
that future mishandling of frozen accounts by banks would
likely attract severe sanctions, given the clarification
provided in the Lloyds judgment.
Unfortunately, there is no standard Mareva injunction order
wording throughout Canada, and so each order must be carefully
reviewed to ensure compliance. Generally, where an order
permits the client to withdraw living (or other stipulated)
expenses, the prudent course is to:
Confirm proper service and then freeze all accounts
identified in the order, and consider whether the order
impedes or affects the bank's lending status with the
client and ability to access accounts to apply to client
indebtedness to the bank;
Have the client provide a summary of necessary living
expenses, based on the wording of the order, and seek
instructions and consent from the client to deal with the
funds in such manner as most appropriate to manage the
account during the term of the freeze, including obtaining
written consent from the client to discuss such with counsel
for the party as obtained the order;
Propose to counsel for the party that obtained the order
that funds be deposited on a monthly basis into a new account
for the client's permitted use; and
Do not move or release the funds until and unless the
party that obtained the order provides written consent in
accord with the order (if permitted by its terms), or the
court approves such an arrangement.
The Lloyds decision makes clear that any
institution receiving a freezing order must not just
unilaterally implement what it believes to be a practical way
of dealing with that order, but must ensure that the proposed
mechanism is approved of by the party that acquired the order,
or, if that party refuses, the court.
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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