T&Cs vs AML

The Royal Court of Guernsey recently ruled (unreported judgement – http://bit.ly/2ahQ9zg) in Jakob International Inc v HSBC Private Bank (CI) Limited on an application by HSBC to strike out a claim brought by its customer, Jakob.

Although this was decided without a substantive hearing of all facts, the Court’s decision provides some guidance on terms and conditions (T&Cs) and their interpretation in the light of AML obligations.

Background

1. Jakob opened an account with HSBC in April 2013.
2. About a month later HSBC made a suspicious activity report to the FIU. The suspicion was based on information which HSBC became aware of concerning an authorised representative of Jakob.
3. In 2015, Jakob through one of its directors, instructed HSBC to close its account and transfer the funds to a third party.
4. HSBC refused due to its “statutory obligations which [the bank] cannot discuss with [Jakob]”.
5. HSBC later wrote to Jakob stating that on “legal and regulatory grounds outside the Bank’s control the Bank is not able to correspond with [Jakob] at present”.
6. HSBC kept the FIU informed. The FIU notified HSBC that it was not authorised to end its relationship with Jakob. HSBC therefore argued that under the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) law, 1999, it was prohibited from transferring or otherwise disposing of the funds in Jakob’s account.
7. HSBC claimed that Guernsey’s AML regime intervened in the contractual relationship between a bank and its customer. Therefore HSBC’s compliance with the regulatory and criminal law regimes provided HSBC with a defence against Jakob’s claims.
8. HSBC insisted that its terms and conditions stated that regulatory and AML requirements overrode its contractual obligations to its customers to comply with instructions in such circumstances.

Legal Proceedings

9. Jakob commenced proceedings claiming damages and the amount standing to the credit of its account and/or an order that HSBC transfer the monies held in the account to Jakob or to Jakob’s order.

HSBC’s terms and conditions

10. When Jakob opened its account in 2013, HSBC’s then standard T&Cs were applicable. New terms were introduced by HSBC from 1 January 2014.
11. HSBC claimed that the new T&Cs were sent to Jakob but it was not able to provide any evidence. In the absence of any clarity as to which T&Cs were applicable the Judge had to consider both sets.

Judge Found

12. The Judge found that the 2013 T&Cs were not sufficiently widely drafted to exclude liability for claims brought by its own customer.
13. He also found that the 2014 T&Cs, if applicable, would not necessarily have achieved a different result.

Lessons

14. This case was about whether or not Jakob’s claim had any prospects of success.
15. The Court found that Jakob had a realistic chance. For institutions, the following points are key:
    1. Firms should take greater care when changing their T&Cs and repapering their clients.
    2. Attention was drawn to the inconsistency between the changes pointed out to customers in an appendix to a mailshot from HSBC and the actual changes in the T&Cs.
16. This ruling raises a number of questions,
    1. one of which is how claims should be framed by an aggrieved customer against his bank for refusing to comply with his instructions.
17. For banks however, it is a reminder that
    1. T&Cs should be reviewed regularly to ensure that they keep up with the latest judicial interpretation.
18. In this case, the question seems to be –
    1. are the T&Cs sufficiently widely drafted to deal with claims by customers for the return of their own monies?

Extracted from Collas Crill newsletter:  http://bit.ly/2aLPBXq