In a helpful precedent for banks, concerns that an authorised payment institution's customer sub-accounts were vulnerable to being used for fraud and money laundering has been held to constitute "exceptional circumstances" entitling a bank under the terms of its customer contract to terminate the banking relationship without notice.


In the High Court claim of N v Royal Bank of Scotland PLC1 the claimant (“N”), an authorised payment institution that provides foreign exchange and payment services (sometimes referred to as ‘money service businesses’),2 held around 60 accounts with the Royal Bank of Scotland (the “Bank”); these comprised of four main accounts and separate client sub-accounts in sterling and various foreign currencies. One of these accounts was a ‘pooled client account’ for N’s customers.3

The contract between the parties provided that the Bank would give N not less than 60 days' written notice to close an account, unless the Bank considered that there were exceptional circumstances, in which case it could terminate without notice.4


As a result of concerns that several of N’s sub-accounts might contain the proceeds of crime, on 29 September 2015 the Bank froze those sub-accounts. Then, on 9 October 2015, the Bank froze the main accounts held with it by N and terminated the banking relationship without notice. N subsequently brought a claim against the Bank for breach of contract and, in the alternative, negligence.

Under the Proceeds of Crime Act 2002, banks have obligations to report suspicions of money-laundering by their clients to the National Crime Agency; but the legislation expressly protects banks from civil liability in this regard: “Where an authorised disclosure is made in good faith, no civil liability arises in respect of the disclosure on the part of the person by or on whose behalf it is made” (PoCA s 338(4A)).

However, there is nothing to suggest that this statutory protection extends to protecting the bank against claims in breach of contract or negligence for other actions it may choose to take as a result of its suspicions, such as closing the customer's accounts and terminating the customer relationship. The bank terminated the relationship because it became concerned that N’s systems and controls were inadequate and were vulnerable to being used for money laundering and fraud and because the Bank’s original approach of freezing targeted sub-accounts was being circumvented. Several aspects of N’s behaviour prior to this led to such a conclusion, for example:

  • N’s on-boarding of new clients was essentially left to individual account managers, who were remunerated by reference to revenue from those clients;
  • the Bank’s internal investigation showed that there was commingling of funds between N’s client sub-accounts and main accounts; and
  • crucially, on 8 October N attempted to make a £500,000 payment using a main account in order to evade the freeze placed on the sub-accounts.

The Bank considered that there were exceptional circumstances such that it could terminate the relationship without notice in accordance with the terms of its contract with N. 

N’s response

N’s claim largely revolved around the following arguments:

  • the Bank did not need to resort to freezing the accounts, there were alternative actions it could have taken (for example, preventing further credits to N’s accounts);
  • N was not suspected of being involved in the evasion in relation to the attempted £500,000 payment;5
  • the Bank took no steps to investigate the commingling issue, which it was obliged to do;6
  • the Bank did not consider the effect of termination on N’s business;
  • the Bank’s decision to terminate proceeded on the mistaken assumption that the main accounts and the suspect sub-accounts consisted of the totality of the relationship with N; and
  • the Bank could not rationally terminate N’s account without notice unless fraud or complicity in fraud was proven.

High Court’s decision

The High Court dismissed the claim. Addressing each of N’s arguments, it came to the following conclusions7 :

  • it did not consider any of N’s suggested alternatives to terminating the relationship to be sufficient;
  • the fact that N had not been suspected of being involved in evasion did not assist it: the evasion itself, and the Bank's belief that the customer had a poor control environment, was the problem;
  • the Bank had taken steps to investigate the commingling issue and had been a relevant circumstance for the Bank to take into account when deciding to terminate without notice;
  • there was evidence from the Bank that it had considered the potential for significant impact to the business, and also that, had it believed there was a risk of destruction, it would not have done things differently. The Court believed this was a realistic assessment of the situation and its seriousness. Furthermore, the Court believed the impact of not freezing and terminating also had to be taken into consideration, the Bank could not be expected tolerate the risk that it would be laundering money;
  • evidence indicated that the Bank had appreciated that the main and sub-accounts were not the totality of their relationship with N, although the most material accounts had been the main accounts; and
  • the Bank could rationally close the accounts without notice despite a lack of complicity or fraud by the customer. The contract provided for a right to close an account without notice where the Bank considered there were ‘exceptional circumstances’, not where there is complicity or proven fraud; in this instance the Court deemed those circumstances were present.

Ultimately, although the Court recognised that different decisions could have been taken, and taken honestly, rationally and reasonably, that did not negate the fact that the decision that the Bank had actually taken was also honest, rational and reasonable. The Bank had considered, rationally and in good faith, that there had been exceptional circumstances for closing the accounts without notice.

N's secondary case framed in negligence also failed for the same reasons.


Although this case turned specifically on the interpretation of express contractual terms allowing the Bank to terminate the customer relationship without notice where it considered there were exceptional circumstances, this judgment sets a helpful precedent for consideration of what duties, if any, a bank may owe to a customer whose accounts are suspected of being tainted by proceeds of crime. It clarifies that where a range of options are available to the bank regarding how to proceed with the banking relationship in such circumstances, all of which may be reasonable and rational, the fact that the bank chooses in good faith to take one course of action (here closing the account) rather than another does not create a cause of action for the customer. 

1 [2019] EWHC 1770 (Comm).

2 [2019] EWHC 1770 (Comm) at 6

3 [2019] EWHC 1770 (Comm) at 8

4 [2019] EWHC 1770 (Comm) at 10

5 [2019] EWHC 1770 (Comm) at 73(b)

6 [2019] EWHC 1770 (Comm) at 73(c)

7 [2019] EWHC 1770 (Comm) at 84-95