Linklaters (a firm) v HSBC Bank Plc & Anor

An agent bank collecting a cheque for a correspondent bank may be entitled to an implied indemnity where it acts on the correspondent’s instructions and its liability to the true owner arises from carrying out those instructions, rather than from a breach of duty owed to the correspondent. The correspondent may also give an implied warranty that its customer is entitled to the proceeds. Those principles applied even though the collecting agent was also the paying bank. A bank must nevertheless exercise objective reasonable care when suspicious circumstances put it on inquiry. In contribution proceedings, responsibility is assessed qualitatively by reference to blameworthiness and causative potency.

Linklaters’ cheque for legal fees was stolen and collected through Banco Popular Espanol’s Las Palmas branch for a Puerto Rican company. HSBC, the English paying bank and BPE’s agent for collection, credited the proceeds to BPE, which credited them to the customer’s account. The funds were rapidly withdrawn.

HSBC and BPE settled Linklaters’ conversion claim and disputed responsibility between themselves. HSBC claimed an indemnity or damages for breach of warranty, relying on Middle Temple v Lloyds Bank [1999] 1 All ER (Comm) 193. Alternatively, each bank claimed contribution under the Civil Liability (Contribution) Act 1978.

1. Indemnity and warranty. The court followed Middle Temple v Lloyds Bank [1999] 1 All ER (Comm) 193. An agent for collection may rely on an implied indemnity where it has acted on its correspondent’s instructions, has not breached a duty owed to that correspondent, and its liability to the true owner is the natural consequence of carrying out those instructions. The collecting bank’s primary responsibility is to ensure that it is collecting for the right customer and true owner.
2. The correspondent also gives an implied warranty that its customer is entitled to the cheque proceeds. This warranty is distinct from a warranty as to the genuineness of the cheque or attached documents. Article 13 of the Uniform Rules for the Collection of Commercial Paper excluded responsibility for genuineness and legal effect, but did not exclude the warranty of entitlement to proceeds.
3. HSBC’s additional capacity as paying bank did not distinguish the case from Middle Temple v Lloyds Bank. Its liability arose when, as BPE’s agent for collection, it credited BPE’s account with the proceeds. HSBC owed BPE no advisory duty, absent an express request, to explain the effect of an account-payee-only crossing.
4. The claim based on BPE’s stamp guaranteeing prior endorsements failed. In the context of Spanish banking law and practice, the stamp verified the regularity of the endorsement chain and the identity of the final signatory, but did not create an express indemnity. The court expressed no concluded view on the wider construction of article 11(c) of the URC.
5. Contribution. Although the contribution issues did not strictly arise, both banks were causatively negligent. HSBC should have investigated the cheque because it was a special presentation, collected abroad, and a high-value cheque presented after delay. BPE was negligent in opening the account without further inquiries, collecting the cheque without further inquiry, and permitting highly suspicious withdrawals. Under the Civil Liability (Contribution) Act 1978, responsibility includes blameworthiness and causative potency. Had contribution been required, BPE would have borne two-thirds and HSBC one-third. HSBC was instead entitled to a complete indemnity from BPE.