UK Banking Litigation Update

So far this year we’ve seen a range of important cases and developments before the Courts in the UK affecting financial institutions. In a webinar this week, Anthea Bowater, Tom Clark, Miryam Farrelly, Rebecca Freedman, Emma Probyn, Sarah Robinson and Julia Schulman discussed recent English court decisions, emerging trends and cases to watch. 

Cross-border banking disputes in the English courts have involved parties grappling with complex jurisdictional issues and testing the scope of exclusive jurisdiction clauses, complicated further by geopolitical tensions and international sanctions. In a post-Brexit environment, we are seeing jurisdiction challenges using forum conveniens arguments now that the UK is no longer part of the Brussels jurisdiction regime (see, for example, Macquarie Bank Limited v Banque Cantonale Vaudoise). Outside of the EU context, we are seeing anti-suit and jurisdiction issues arise in disputes involving sanctioned persons.  Where proceedings are brought in Russia in breach of jurisdiction and arbitration clauses, the English court has generally applied established principles to enforce the parties’ bargains (see, for example, UniCredit v RusChemAlliance LLC). The English court has considered circumstances in which it may decline to stay English proceedings even where proceedings are brought in England in breach of an exclusive jurisdiction clause, on the basis that the claimant would be unlikely to receive a fair trial in the foreign jurisdiction (Zephyrus Capital v Fidelis Underwriting).

There has been an uptick in sanctions-related cases as financial institutions manage risk in the thorny world of international sanctions. Parties are seeking injunctive and declaratory relief from the English courts when contractual obligations conflict with sanctions regulations and countersanctions measures. The English courts have shown a willingness to grant relief in support of sanctions compliance. For example, anti-enforcement injunctions, previously considered a rare remedy, have become more frequent since the large-scale imposition of UK sanctions on Russia (see, for example, Barclays Bank Plc v PJSC Sovcombank).

We are also seeing welcome judicial guidance emerge on the interpretation of UK sanctions regulations. The obiter remarks of the Court of Appeal in Celestial Aviation Services v UniCredit Bank provide reassurance for firms relying on the defence in s.44 of the Sanctions and Anti-Money Laundering Act 2018 for acts (or omissions) taken in the reasonable belief that they were in compliance with UK sanctions. The Judge warned against setting the standard of “reasonable belief” under s.44 too high in particular where firms must make complex decisions in a fast-moving high-risk legislative landscape. There remains uncertainty on the interpretation of other key areas of UK sanctions regulations however, such as the test for whether an individual or entity is deemed to be controlled by a designated person such that they are subject to UK sanctions, with differing views from the English courts in Mints[1], Litasco[2] and Hellard[3]. Whilst UK government guidance provides useful clarification on the interpretation of “control”, we expect further clarity from the Supreme Court in the upcoming Mints appeal in March 2025.

Claimants are increasingly testing the scope of banks’ duties, including banks unknowingly involved in fraudulent transfers arising out of Authorised Push Payment (APP) fraud. While 2023 saw welcome clarification of the scope of the Quincecare duty in the high profile Supreme Court decision in Philipp v Barclays and the Payment Systems Regulator’s mandatory reimbursement scheme provides for both paying and receiving banks to pay compensation to victims of APP fraud in certain circumstances, those that cannot avail themselves of that scheme continue to look to the courts for compensation. A particular focus of 2024 has been on the obligations of a receiving bank. The prospect of receiving banks being under a duty to take reasonable steps to retrieve misappropriated funds remains live (the so-called ‘retrieval duty’ see CCP Graduate School v National Westminster Bank). Courts have also considered whether the misappropriated funds could be trust property, such that claims in knowing receipt or dishonest assistance could be brought against the receiving bank, with competing High Court decisions on that point (Larsson v Revolut and Tecnimont Arabia v National Westminster Bank). There is also competing High Court authority as to whether a claim in unjust enrichment may lie against receiving banks (see, for example, Terna Energy Trading v Revolut and Tecnimont Arabia v National Westminster Bank). Many of these decisions are interim decisions, some of which are on appeal, and so we can expect more developments in the coming months. 

Issues relating to state immunity and the way that banks conduct business in emerging markets are also a theme in recent litigation. English courts have generally resisted the attempted expansion of state immunity protections. None of the recent cases alter the need for particular care to be taken when banks contract with states and state-owned entities to ensure that full waivers of immunity are given (or waivers to the extent that the bank can negotiate). 

Finally, Mr Justice Robin Knowles made some comments recently in his judgment in what is known as the Tuna Bonds litigation, The Republic of Mozambique (acting through its Attorney General) v Credit Suisse and Others in the context of banks conducting business in emerging markets. All of the claims by and against the multiple banks involved had been settled by the time that judgment was handed down, but Mr Justice Knowles’ obiter comments about banking generally suggested that banks could be held to higher standards than what is required legally – which is certainly a point to watch.  

Overall in a banking context there is a theme of increasing regulatory and societal expectations against a more and more complex environment, giving rise to questions as to when it is that those expectations translate into legal requirements. 

A recording of the webinar is available on request. Please contact one of the speakers listed below or your usual Freshfields contact to discuss any of these topics and other financial services decisions in more detail. 

Anthea Bowater, Counsel (anthea.bowater@freshfields.com) 

Tom Clark, Partner (tom.clark@freshfields.com) 

Miryam Farrelly, Senior Associate (miryam.farrelly@freshfields.com) 

Rebecca Freedman, Associate (rebecca.freedman@freshfields.com) 

Emma Probyn, Partner (emma.probyn@freshfields.com) 

Sarah Robinson, Senior Associate (sarah.robinson@freshfields.com) 

Julia Schulman, Senior Associate (julia.schulman@freshfields.com) 

[1] PJSC National Bank Trust v Mints [2023] EWHC 118 (Comm); Mints & Ors v PJSC National Bank Trust & Anor [2023] EWCA 1332

[2] Litasco SA v. Der Mond Oil and Gas Africa SA and Locafrique Holding SA [2023] EWHC 2866 (Comm)

[3] Hellard & Others v. OJSC Rossiysky Kredit Bank (in Liquidation) & Others [2024] EWHC 1783 (Ch)