The Privy Council has confirmed the test for determining whether a recipient bank had constructive notice of a proprietary right, where the bank should have inquired about the likely existence of the right.
The case concerned the proceeds of a sale of antiques paid into the bank. The antiques belonged to the respondent, and had been sold fraudulently by a third party using a network of corporate entities. The respondent had a proprietary claim to the proceeds of sale.
The Privy Council held as follows:
- The test had been set out in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] EWCA Civ 347: on the facts known to the bank at the time it received the payment, did it have notice of the proprietary right? To determine this, the court had to consider whether a reasonable person with the bank’s attributes should either have appreciated that a proprietary claim probably existed or should have made inquiries which would have revealed the probable existence of such a claim.
- The bank should make inquiries if there was a serious possibility of a third party having such a right (i.e. if the facts known to the bank would give a reasonable banker in the position of the particular banker serious cause to question the propriety of the transaction).
- If there were features of the transaction such that, if left unexplained, they were indicative of wrongdoing, then an explanation should be sought before it could be assumed that there was no such wrongdoing. In the present case, on the facts actually known to the bank, there was no apparent explanation of the structure of the transactions (unless it was to conceal the origin of the funds).
Credit Agricole Corporation and Investment Bank v Papadimitriou (Gibraltar) [2015] UKPC 13, 24 March 2015
