So v HSBC Bank Plc & Anor

In a claim for pure economic loss caused by negligent statements, a bank may owe a duty where it knows that its confirmation will be shown to investors and concerns the bank’s own acceptance and intended conduct. The possibility that investors might obtain advice about a complex transaction does not defeat that duty where the bank alone can verify the representation. Vicarious liability for an employee’s negligence is governed by the ordinary close-connection and course-of-employment approach; actual or apparent authority is not a separate requirement for negligent statements. Causation remains fact-sensitive: loss must result from actual reliance on the defendant’s statement, even if a third party also contributed. A new case generally will not be introduced on appeal where it could have been tried below and would require further evidence.

HSBC brought proceedings arising from a fraudulent high-yield investment scheme and sought declarations that it was not liable to investors, including Kevin So. Walker J granted the declaration and dismissed the counterclaim in the Commercial Court judgment reported at [2007] EWHC 2819 (Commercial Court).

On limited permission to appeal, Mr So challenged findings concerning negligent misstatement, HSBC’s failure to respond to his enquiry, the circulation of allegedly dangerous documents, and the handling of a SWIFT transfer. He also sought permission to raise new allegations on appeal. The central issues were duty of care, vicarious liability, causation, and the fairness of introducing new claims at the appellate stage.

Lord Justice Etherton gave the leading judgment. Sir Anthony Clarke MR and Lord Justice Keene agreed.

1. Disposition. The appeal was dismissed. Permission to amend was granted for the dangerous-documents allegation, but refused for the proposed new Enquiry Letter and SWIFT allegations.
2. Representations and duty of care. The combined effect of stamping, signing and returning the letter of instruction, together with sending the reference letter, represented that HSBC had accepted the instructions and intended to comply with them. The applicable approach to a duty of care for pure economic loss was the threefold test of foreseeability, proximity, and whether it was fair, just and reasonable to impose a duty. The fact that investors might seek advice about how the investment arrangements operated did not defeat the duty. The representations concerned HSBC’s own acceptance and intentions, matters uniquely within HSBC’s knowledge.
3. Breach and vicarious liability. The employee acted carelessly by failing to read the instruction and by failing to clarify that HSBC had not accepted it. Applying Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48, the relevant question was whether the wrongful conduct was sufficiently closely connected with authorised acts to be fairly regarded as occurring in the course of employment. Actual or apparent authority was not a separate, stricter test for negligent statements. HSBC was therefore vicariously liable.
4. Causation. Where the duty is not defined by reference to third-party events, causation is principally factual. In a negligent-statement case followed by a third party’s dishonest or negligent conduct, the question is whether the claimant actually relied on the statement, even if the third party’s conduct also contributed. On the facts, the investors relied on the new joint-account arrangement in the additional page and on the third party’s assurances, not on the stamped instruction and reference letter. The loss was therefore not caused by HSBC’s breaches.
5. Enquiry and dangerous documents. HSBC owed no separate duty to respond to the enquiry in the particular circumstances, including the absence of any relationship concerning the new account and the customer’s request that its own representative deal with the matter. There was no special category of negligence concerning dangerous documents; the ordinary threefold test applied. Although a duty not to circulate the documents could arise, the claim failed for lack of causation.
6. New points on appeal. The court refused new allegations that could have been advanced at trial where HSBC had lost the opportunity to adduce relevant evidence and conduct cross-examination. The SWIFT allegation was refused for those reasons. A late argument based on claimant recklessness was also not entertained because it had not been pleaded or properly raised.

• Court of Appeal (Civil Division): Dismissed Mr So’s appeal. It granted permission to amend in relation to dangerous documents, but refused the proposed amendments concerning the Enquiry Letter and SWIFT transfer.
• Queen’s Bench Division (Commercial Court): Walker J granted HSBC a declaration of non-liability and dismissed the investors’ counterclaim in [2007] EWHC 2819 (Commercial Court). Permission to appeal was refused.