HSBC Bank Plc v 5th Avenue Partners Ltd & Ors

A bank’s acknowledgment of receipt of a customer’s unusual instructions does not, without contractual intention, vary the existing banking contract or create a direct contract with an investor. The objective test does not override the parties’ known absence of an intention to contract.

A duty of care based on misstatement requires an actionable representation and a special relationship. A wider duty requires an assumption of responsibility and a fair, just and reasonable basis for imposing it. Apparent authority depends on the employee’s apparent role and the circumstances of the communication; ordinary branch or relationship-management roles do not ordinarily extend to sophisticated bond-trading commitments.

HSBC sought declarations that it was not liable to investors who had transferred substantial sums into accounts operated by 5th Avenue Partners Ltd, a company controlled by Michael Brown. The investors alleged contractual liability, dishonest assistance in breach of trust and negligence, relying principally on letters of instruction stamped and signed by an HSBC employee.

The investors also brought Part 20 claims against 5th Avenue and Mr Brown, obtaining summary judgment from Cooke J on fraud and trustee-related liability. Those proceedings were separate from the issues tried against HSBC. The central questions were whether the letters varied HSBC’s banking contract, created direct contractual rights, established dishonest assistance, or gave rise to duties of care.

1. Contractual variation. The investors could not rely on the Contracts (Rights of Third Parties) Act 1999 because they failed at the first stage: the letters of instruction did not vary the existing banking contract between HSBC and 5th Avenue. Mrs Arnull believed she was merely acknowledging that HSBC held copies on file, and 5th Avenue, through Mr Brown, knew that was her understanding. The objective contractual analysis therefore did not arise. Even if it applied, the dealings as a whole, or the unusual wording of the letters alone, disclosed no final and unequivocal assent.
2. Direct contract. The letters did not constitute contractual offers by HSBC. A claimant relying on acceptance by transferring funds had to show both that HSBC’s words or conduct would induce a reasonable person to believe that HSBC intended to be bound and that the claimant did not know of HSBC’s contrary intention. Mr Mann satisfied neither requirement. Mr So and Mrs Lu satisfied neither the first requirement nor, in substance, the evidential foundation for a binding undertaking.
3. Dishonest assistance. The court accepted the principles stated in Royal Brunei v Tan: liability requires assistance in a breach of trust and dishonesty judged by ordinary standards, with knowledge of the relevant features of the transaction. Wilful blindness may suffice, but a vague unease does not. On the facts, Mr Leonard’s conduct before April 2005 did not establish the necessary dishonesty, and the claim failed.
4. Negligence. No alleged representation arose merely from stamping and signing the letters. HSBC’s failure to answer Mr So’s enquiry did not indicate an assumption of responsibility. No special relationship or other basis for a duty of care was established.
5. Authority and ratification. The investors’ submissions on actual and apparent authority were rejected. Mrs Arnull’s and Mr Leonard’s roles did not extend to committing HSBC to bond-trading obligations. The proposed corporate ratification argument disclosed no legal basis because ratification required action by someone with authority to adopt the contract.
6. The investors’ claims against HSBC failed. HSBC’s deceit claim against Mr Mann also failed. The court’s observations concerning title to sue, contributory negligence, settlement and HSBC’s claims over were academic or provisional.

First-instance judgment. The judgment records prior Part 20 summary judgment proceedings before Cooke J against 5th Avenue Partners Ltd and Michael Brown, but the present judgment determined the separate liability issues between HSBC and the investors.