On
Back in 2018, BOV froze the applicant company's deposit monies, amounting to €99,080.57, in consideration of the fact that WWFL was listed as one of the sanctioned entities in the OFAC sanctions list and the respective guidance note (the "Guidance Note") issued by the Malta Sanctions Monitoring Board ("SMB"). To this effect, the Company petitioned the Court to compel the Bank to release said funds, claiming that sanctions issued by
In its replies, BOV hammered home the point that for it to be able to maintain its international banking operations, particularly its relationships with foreign correspondent credit institutions operating in the US dollar market, it is obliged to abide by inter alia the economic sanctions and guidance issued by OFAC. Furthermore, BOV alluded to the potential grave consequences which it could itself end up facing (together with the Maltese banking system in generally) if it refuses to cooperate with OFAC.
In examining the facts and in analysing whether BOV's actions were justified and grounded in law or in contract, the Court delved into two legal points
- the applicability of the National Interest (Enabling Powers) Act, Chapter 365 of the laws of
Malta (the "Act"), in the context of this case; and - independently of point (a) above, whether BOV was justified to freeze the applicant's assets in light of international banking practice and contract law.
Primarily, the Court made reference to the Guidance Note issued by the Sanctioning Monitoring Board, which board is established ipso jure through Article 7 of the Act, and outlined that at no point in time does the SMB, through its Guidance Note, order the freezing of assets - conversely, the board merely recommends that institutions should be on the lookout when dealing with such entities. The Court highlighted the SMB strongly recommended that all economic operators and financial institutions in
Secondly, in assessing BOV's argument that its actions where rooted in international practice, the Court noted that the bank's risk in ending up as a sanctioned entity itself and denied access to the American Dollar, if it allowed the withdrawal of the applicant's deposits. In its considerations, the Court revisited the principles behind the nature of the bank-customer relationship and outlined that the relationship is contractual and is regulated by express and implied and unwritten terms. In such context, it emanates that there was no express condition on the bank account terms and conditions which states that deposits can be blocked or frozen as a consequence of OFAC sanctions. Had the applicant company been made aware of such a condition upon the opening of the bank account, there would be no issue with the imposition of any freezing order as the principle of pacta sunt servanda would kick in. Refering to
- is necessary to give business efficacy to the contract,
- was so obviously a stipulation in the agreement that it goes without saying that the parties must have intended it to form part of their contract,
- has become standardised in a particular type of contract, and
- is implied by the custom is a locality of the usage of a particular trade.
The Court further cites caselaw which provide that usage of bankers becomes an implied term in a banker-customer contract (whether or not the customer is aware of it) when it is certain, notorious and reasonable and which does not derogate from the customer's substantial rights. Furthermore, reference was made to directives issued by the
In light of the facts of the case and the evidence produced by the parties, the Court held that BOV's actions were not tantamount to international banking practice or usage and therefore cannot be implied in the banker-customer contract. WWFL was never made aware that its assets can be frozen as a result of OFAC sanctions and had no means of knowing, unless such action was clearly and specifically stipulated in the contact. Consequently, the Court held that since BOV had no legal basis for its actions, the defendant bank had to release the funds to WWFL, together with any interest applicable at law.
This judgement is notable particularly because it sheds on the difference between express and implied terms in a bank-customer agreement. Service providers in the financial services sector, ought to ensure that any terms and conditions which they have in place with their clients, are clear, unambiguous and most importantly which do not assume or imply any equivocal terms, thereby tilting further an imbalance between the commercial strength of the service provider and that of the customer. Comprehensive framework contracts would ensure fairness and transparency in the relationship between the parties, and would be essential in avoiding contentious consequences, akin to the one at hand.
Mr
Ganado Advocates
VLT1455
Tel: 2123 5406
Fax: 2123 23 72
E-mail: rmizzi@ganado.com
URL: www.ganado.com/
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