Stanford International Bank Ltd v HSBC Bank Plc

The Court of Appeal considered two claims by the liquidators of Stanford International Bank Limited (SIB) against HSBC: (1) damages for breach of the banker’s duty to its customer under the Quincecare principle; and (2) equitable relief (an account or compensation) for alleged dishonest and/or reckless assistance by HSBC in Mr Stanford’s breaches of trust and fiduciary duty. The court applied established authorities on the Quincecare duty and on accessory liability for breach of trust, including the need to identify the subjective state of mind of the defendant and the limits to imputing a corporate dishonesty by aggregation of innocent minds.

The court held that the judge at first instance was wrong to refuse striking out SIB’s claim for losses said to have been caused by HSBC’s failure to freeze SIB’s accounts between 1 August 2008 and 17 February 2009: payments to genuine creditors and to SIB’s own account did not reduce SIB’s net asset position while it was trading and therefore did not amount to the specific loss pleaded. The court therefore struck out that loss claim. The court also upheld the judge’s decision to strike out the dishonest assistance claim because the pleaded case did not identify any individual within HSBC with the requisite dishonesty or targeted blind-eye knowledge; wide corporate negligence or ‘‘corporate recklessness’’ could not be converted into dishonest assistance without allegations that a natural person had the necessary state of mind.

Background and parties: Stanford International Bank Limited (in liquidation) (SIB) brought claims against HSBC Bank plc arising from the operation of several correspondent accounts held by SIB with HSBC. SIB alleged (i) breach of the Quincecare duty by HSBC in failing to freeze the accounts in time, causing payments out of some £118.5 million, and (ii) dishonest and/or reckless assistance by HSBC in Mr Stanford’s breaches of trust and fiduciary duty.

Procedural posture: The matter came before the Court of Appeal on appeals from the High Court (Nugee J), which had refused to strike out the loss claim but struck out the dishonest assistance claim (with leave to re-plead in some circumstances after disclosure). HSBC appealed the refusal to strike out the loss claim; SIB appealed the striking out of the dishonest assistance claim.

Nature of the claims and relief sought:

• SIB sought damages under the Quincecare duty for payments made from its accounts between 1 August 2008 and 17 February 2009 (the loss claim), asserting that had HSBC frozen the accounts earlier approximately £80 million would have remained available on insolvency.
• SIB sought equitable relief (an account or compensation) for HSBC’s alleged dishonest and/or reckless assistance in Mr Stanford’s breaches of trust and fiduciary duty (the dishonest assistance claim), pleaded against HSBC as a corporate entity, including by reference to alleged corporate recklessness and systemic failures.

Issues framed:

• Whether the loss claimed by SIB (payments discharging genuine debts and transfers to an account in SIB’s own name) constituted compensable loss for breach of the Quincecare duty given SIB’s insolvency context.
• Whether the pleading of dishonest assistance against HSBC as a corporate entity could survive strike out without identifying individuals within HSBC with subjective dishonesty or targeted blind-eye knowledge, and whether alleged corporate recklessness could amount to dishonesty.

Court’s reasoning and conclusions:

• On the loss claim, the court distinguished the position of a company trading (even if insolvent) from that of a company on which winding up has commenced. Payments that reduce assets and reduce liabilities pound for pound do not, while the company is trading, give rise to a compensable loss to the company itself merely because a subsequent liquidation dividend might have differed. The Quincecare duty is owed to the bank’s customer, not to the customer’s creditors; SIB disavowed consequential loss claims and did not assert a different net asset position as at the later date. Accordingly the pleaded loss could not succeed and the claim was struck out.
• On the dishonest assistance claim, the court reaffirmed established law: accessory liability requires dishonesty, which involves ascertaining the defendant’s subjective state of knowledge and then applying an objective standard of honesty; blind-eye knowledge requires a targeted and firmly grounded suspicion and a deliberate decision not to inquire. It is not permissible to aggregate innocent states of mind across individuals to create corporate dishonesty. SIB’s pleading, which relied on wide allegations of corporate recklessness and an inability to identify particular individuals said to have been dishonest, amounted to gross negligence rather than the requisite dishonesty. The judge had been right to strike out the claim.

Wider context: The court emphasised that existing authorities firmly constrain attempts to convert systemic corporate failings into accessory liability absent allegations identifying natural persons with the requisite state of mind. The court distinguished Sofer as a factually different instance where disclosure could be expected to identify relevant individuals.

The Court of Appeal allowed HSBC’s appeal in respect of the loss claim and struck out SIB’s claim for the payments made between 1 August 2008 and 17 February 2009 because those payments did not cause the specific loss pleaded. The Court of Appeal dismissed SIB’s appeal against the striking out of the dishonest assistance claim, holding that the pleaded case did not identify any individual within HSBC with the necessary subjective dishonesty or targeted blind-eye knowledge and that corporate negligence or ‘‘corporate recklessness’’ cannot be converted into dishonesty absent such identification.

On appeal from the High Court of Justice, Business and Property Courts (Nugee J) (Case No: BL-2018-002489). The Court of Appeal heard appeals arising from the High Court decision and delivered judgment allowing HSBC’s appeal on the loss claim and dismissing SIB’s appeal on dishonest assistance. Neutral citation: [2021] EWCA Civ 535.