In 2000 Mr Robin Symes, an art dealer, sold for US$15m a collection of art deco furniture belonging to the respondent. The respondent did not give her consent to the sale, and Mr Symes had no right to sell the collection. US$10.4m of the sale price was paid to a Panamanian company, Tradesk Limited. Of this, US$10.3m was then paid into an account at the appellant bank through a Liechtenstein foundation called Pataco Foundation. The monies were deposited in the Gibraltar branch of the appellant and credited to the account of Lombardi Corporation, which was a British Virgin Islands company incorporated at the request of Mr Symes. With the deposit in Gibraltar serving as a guarantee, the appellant’s London branch gave another Symes Company, Robin Symes Limited, a facility for US$10.3m. The facility was drawn down for the purposes of repaying an existing facility with Citibank, and thereafter repaid in full in the sum of US$9,860,278.78 from the guarantee deposit held by Lombardi in Gibraltar.
Upon discovering that part of the proceeds of sale had been deposited with the appellant in Gibraltar, the respondent commenced proceedings in Gibraltar against the appellant seeking payment of the amount deposited.
At first instance the Chief Justice dismissed the respondent’s claims based upon alleged dishonest assistance and knowing receipt. Those decisions were not appealed against. The respondent also brought a proprietary claim. It was common ground that she could trace the proceeds of sale into the hands of the appellant unless the appellant established that it was a bona fide purchaser for value without notice. The Chief Justice held that the appellant could establish the defence, and that the proprietary claim would therefore fail.
The Court of Appeal of Gibraltar allowed the respondent’s appeal against the Chief Justice’s conclusion that the appellant did not have notice of the respondent’s rights. The appellant appealed to the Privy Council.
Held (dismissing the appeal)
- 1) The parties accepted that the relevant test was that stated by Lord Neuberger MR in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd  WTLR 1043: ‘… the issue is simply whether on the facts known to the [bank] at the time at which they received the payments in question they had notice of [the] proprietary right to the money so paid.’
- 2) It is important to distinguish between three different circumstances. The first is where the bank in fact appreciates that a proprietary right in the property probably exists, so that the bank has actual notice of the right. The second is where a reasonable person with attributes of the bank should have appreciated based on facts already available to it that the right probably existed, in which case the bank has constructive notice of the existence of the right. The third is where the bank should have made inquiries or sought advice which would have revealed the probable existence of such a right. Here too, the bank would have constructive notice of the right.
- 3) In the third circumstance, the bank’s knowledge of facts indicating the mere possibility of a third party having a proprietary right would not be enough to put the bank on inquiry but, on the other hand, it is not necessary for the bank to conclude that the third party probably had such a right. The test is somewhere in between. The bank must make inquiries if there is a serious possibility of a third party having such a right or, to put it another way, 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.
- 4) The Chief Justice had considered the correct questions, namely what further inquiries, if any, should have been made by the appellant and whether, following such inquiries, it would have become apparent that the transaction was improper. However, the Chief Justice wrongly held that the most serious failing of the appellant was its failure to make full inquiry as to the source of the funds (which inquiry would not have disclosed anything material so as to put it on notice that the transaction was probably improper). The focus of the inquiry should not have been confined to the source of the funds but should have extended, in particular, to the commercial purpose of the transaction.
5) If the appellant had considered the arrangement, it must have concluded that it was improper. The arrangement could not have any commercial purpose other than money laundering. No doubt it was arranged to repay Mr Symes’ debt to Citibank, but the use of a web of legal entities and the cost would have alerted a reasonable bank to the improper motive, namely to launder money. The appellant could not therefore establish that it lacked constructive notice of the impropriety of the arrangement and the absence of any right or entitlement on Mr Symes’ part to deal with the fund in question.