The Court of Appeal has today handed down judgment striking out all but £2.4 million of an £118.5 million claim against HSBC which is listed for a 5-week trial in October 2021 (and has been identified by The Lawyer as one of its ‘Top 20 Cases’ for 2021): Stanford International Bank Plc (in liquidation) v HSBC Bank plc  EWCA Civ 535. Patricia Robertson QC and Christopher Langley acted for HSBC (with Louise Hutton QC) and were instructed by David Flack and Oliver Shipway at Eversheds Sutherland (International) LLP.
Stanford International Bank Limited (“SIB”) was incorporated in Antigua and owned by Robert Allen Stanford (“Mr Stanford”) from 1990 until its collapse into insolvent liquidation on 15 April 2009 with debts in excess of US$5 billion. SIB had purportedly sold investors certificates of deposit with impressive yields but turned out to be the vehicle for one of the largest and most prolonged Ponzi schemes in history. SIB’s case is that only Mr Stanford and a handful of co-conspirators knew of the Ponzi scheme, and that they kept the rest of SIB’s board and management in ignorance of the fact SIB’s business was fraudulent.
Through its liquidators, SIB made two claims against HSBC Bank plc (“HSBC”), which had operated correspondent bank accounts for SIB until the accounts were frozen in February 2009, when Mr Stanford was charged by the SEC:
- A claim for damages for alleged breach of the “Quincecare” duty (first recognised in Barclays Bank plc v. Quincecare Ltd  4 All ER 363) advanced on the basis that HSBC negligently failed to spot signs that SIB was being run as a Ponzi scheme and that but for that breach the accounts would have been frozen several months earlier, preventing some £118.5 million from being paid out.
- A claim for equitable compensation based on alleged dishonest assistance of Mr Stanford’s breaches of fiduciary duty, advanced on the basis of “corporate recklessness”.
HSBC applied for summary judgment or strike out. HSBC’s application raised two points of principle. The first related to the correct application of the net loss principle when calculating damages for breach of the Quincecare duty and whether, on that basis, SIB was no worse off as a result of the alleged breach. The second related to whether SIB’s pleadings disclosed a viable claim based on dishonesty, and in particular whether SIB’s claim to be able to aggregate the knowledge of different individuals within HSBC for that purpose was plainly bad in law.
Before Mr Justice Nugee in July 2020, HSBC succeeded as regards SIB’s dishonest assistance claim but SIB’s Quincecare claim survived. The Court of Appeal today dismissed SIB’s appeal, upholding the decision to strike out the dishonest assistance claim, and granted HSBC’s appeal in respect of the Quincecare claim. The lead judgment was given by The Master of the Rolls (with whom Lord Justice Moylan and Lord Justice Arnold agreed).
- As regards the Quincecare claim, the Court of Appeal accepted HSBC’s argument that, as to £116.1 million of the £118.5 million that was paid out of the accounts during the period of the claim, SIB had suffered no loss that was capable of sounding in damages for breach of the Quincecare duty. This was on the basis that, on SIB’s own case, that £116.1 million had gone either to discharge SIB’s liabilities to innocent investors in its certificates of deposit or had been transferred to other accounts of SIB. Either way, SIB itself had suffered no loss. Whilst the effect of the payments was that SIB was left with fewer assets from which to make a pari passu distribution to its remaining investors in its insolvency, that was a loss to those investors, to whom HSBC owed no duty, rather than a loss to SIB itself. Nugee J had erred in holding that the sheer depth of SIB’s insolvency made it a matter of “indifference” to SIB what its liabilities were and justified an approach which disregarded the benefit to SIB of the discharge of its liabilities to investors. That reasoning confused the position before and after SIB had entered liquidation. At the time the payments were made from the accounts, SIB was trading and was not in any formal insolvency process. The investors who were paid had received no more than their contractual entitlement at that time, as the Privy Council had confirmed in Re Stanford International Bank Limited  UKPC 45 at .
- In relation to dishonest assistance, the Court of Appeal agreed with HSBC that SIB could not advance a case of dishonest assistance against HSBC based on “corporate recklessness”, in the absence of there being at least one individual who was alleged to have behaved dishonestly and whose dishonesty was said to be attributable to HSBC, and nor could SIB aggregate the knowledge of different individuals within HSBC in order to attribute to HSBC a “guilty mind”. The Court of Appeal rejected SIB’s submission that the law could and should, as a matter of policy, adopt a fundamentally different approach to finding dishonesty against a corporate body than that which applies when finding dishonesty against an individual. As the Master of the Rolls stated, if a plea of dishonesty were to be permitted in these circumstances, it would be to allow blind eye knowledge to be constituted by a decision not to enquire into an untargeted or speculative suspicion rather than a targeted and specific one; and it would be to allow gross negligence to be the basis for a finding of dishonesty, which can never be the case.
SIB’s Quincecare claim survives as regards a single payment of £2.4 million made from the accounts at HSBC to the English Cricket Board, which SIB alleges amounted to a misappropriation of SIB’s assets by Mr Stanford. HSBC denies any liability, saying it is wholly unrealistic to contend that HSBC should have unmasked the Ponzi scheme when on SIB’s own case none of its own innocent directors or employees did so.
A copy of the judgment can be found here.