Stanford International Bank Ltd v HSBC Bank Plc

For a claim in damages arising from the wrongful payment of an insolvent company’s money, the discharge of corresponding liabilities does not necessarily eliminate loss. The court must examine the counterfactual position and the company’s insolvency. Where the company would still have had no net assets, reducing the creditor pool may provide no corresponding benefit to the company, while the lost cash remains a real loss. The position may differ for a solvent company and may require adjustment where the payments increased the dividend available to other creditors.

Dishonest assistance requires dishonesty by an individual or the company. Knowledge held by several people cannot be aggregated if none was personally dishonest. Gross negligence, poor systems and corporate recklessness do not suffice. Blind-eye dishonesty requires a firmly grounded and targeted suspicion, coupled with a deliberate decision not to investigate.

Stanford International Bank Ltd, in liquidation, claimed against HSBC Bank Plc in relation to HSBC’s operation of correspondent accounts. It alleged breach of the Barclays Bank plc v Quincecare Ltd duty in allowing payments to continue after HSBC should have frozen the accounts, and dishonest assistance in breaches of fiduciary duty by Robert Allen Stanford.

HSBC applied to strike out or obtain reverse summary judgment on two parts of the claim. It argued that payments to depositors discharged SIB’s contractual liabilities and therefore caused no loss, and that the pleading did not adequately allege dishonesty. The central issues were whether the Quincecare loss claim was legally hopeless and whether the pleaded facts amounted to dishonesty.

1. Quincecare loss claim. The application was dismissed insofar as it challenged the claim for loss caused by payments made after HSBC allegedly should have frozen the accounts. The $3m payment to the England and Wales Cricket Board plainly raised a triable loss claim because it was not alleged to discharge a liability of SIB. The remaining payments also could not be treated as causing no loss as a matter of law.
2. Damages are compensatory, and a solvent company will ordinarily have to give credit for the benefit of liabilities discharged by the wrongful payment of its money. That does not resolve the position of a wholly and irretrievably insolvent company. On the pleaded counterfactual, SIB would have retained approximately £80m in actual assets when its accounts were frozen. Reducing liabilities did not provide an equivalent benefit because SIB remained unable to pay all creditors and had no net assets. The loss claim was therefore not so obviously hopeless as to justify strike-out or summary judgment.
3. The court distinguished National Employers’ Mutual General Insurance Association Ltd v AGF Holdings (UK) Ltd [1997] 2 BCLC 191. That case concerned the loss of an opportunity to receive indemnity money where the same arrangement relieved the company of the liability for which the indemnity was due. It did not concern money already belonging to the company being paid away. A possible adjustment reflecting any increased dividend to non-preferred creditors remained open for trial.
4. Dishonest assistance. The allegation of dishonesty was struck out, but summary judgment was refused. Dishonesty is essential to dishonest assistance. The court applied the principle that separate innocent minds cannot be combined to create corporate dishonesty. It rejected aggregation of knowledge held by individuals who were not themselves dishonest.
5. Corporate recklessness, failure to follow policies, an ingrained culture of poor inquiries, or gross negligence do not alone establish dishonesty. Blind-eye knowledge requires a firmly grounded and targeted suspicion of specific facts and a deliberate decision to avoid confirming them. The pleading did not allege that any HSBC individual had such a suspicion and deliberately failed to investigate.
6. The pleading was removed to prevent legally inadequate allegations remaining in a complex case, while preserving the possibility of a properly supported amendment after disclosure. The stay was lifted, subject to submissions on consequential case management.