AMLCTF – Customers’ Claims against Banks

In an interesting recent case, Pa Sam Nang v HSBC Ltd [2016] HKEC 573, HCA 1020/2015, the Court of First Instance refused to grant summary judgment in favour of a customer against a bank, following the customer’s claim that the bank had wrongfully blocked his account pending the outcome of its internal due diligence review.

That internal review was undertaken by the bank as part of its compliance obligations and was provided for in the bank’s general terms of business for operating customer accounts. By the time of the summary judgment hearing the block on the plaintiff’s account had been in place for almost a year. The customer considered that this was unreasonable.

It is important to stress that the judgment in Pa Sam Nang is an interlocutory one and it does not consider the merits of the bank’s defence in detail. It was enough that the bank raised a credible defence, based on its general terms of business, entitling it to (among other things) review a customer’s account and transactions and suspend the account in the meantime. In the absence of a specific contractual provision, the court was unwilling (at an interlocutory stage) to determine whether the period of the bank’s ongoing review was unreasonable or, indeed, what a reasonable time frame was. These were matters for trial.

The sorts of general terms of business considered in Pa Sam Nang have a wide ambit and are common place in the banking industry; particularly, as more FATF anti-money laundering and counter-terrorist financing (“AMLCTF”) norms take hold and become more stringent.

What is particularly interesting in these sorts of disputes is the caution required on the part of a bank in condescending to details of the reasons for suspending a customer’s account. This can put a bank in a somewhat difficult situation, mindful of its duties to a customer and its responsibility not to do anything that might prejudice its compliance obligations. Indeed, in Pa Sam Nang, a major cause of the plaintiff’s grievance appears to have been the period of the suspension of his account and the bank’s inability to give more explanation for its actions.

The bank has been given unconditional permission to defend its position at trial (although, interestingly, the court refused to dismiss outright the plaintiff’s application for summary judgment). At the time of writing, in a further rather bold move, the plaintiff has applied for permission to appeal*. The plaintiff apparently has deep pockets; for example, he used three counsel at the summary judgment hearing. The bank is equally well-equipped. Should the case proceed to trial it will be one to watch, as will be the case if the plaintiff (in the meantime) obtains permission to appeal.

* At the time of writing, listed for hearing for thirty minutes on 28 April 2016.


Partner, RPC

Senior Consultant, RPC