Stanford International Bank Ltd v HSBC Bank Plc

A company suffers no recoverable loss merely because its bank pays genuine creditors from its account. Payment reduces assets and liabilities by equal amounts, even where the company is already insolvent. The relevant distinction is between a trading company and one in liquidation, not between solvent and insolvent trading companies.

Corporate liability for dishonest assistance requires dishonesty attributable to one or more natural persons. Knowledge held by innocent employees cannot be aggregated to create corporate dishonesty. Blind-eye knowledge requires a firmly grounded suspicion of specific facts and a conscious decision to avoid confirmation. Gross negligence, deficient systems and failure to investigate an untargeted suspicion do not suffice.

Stanford International Bank Ltd, an insolvent company used for a Ponzi scheme, held accounts with HSBC Bank plc. Its liquidators alleged that HSBC had breached its banker’s duty by failing to freeze those accounts sooner. They claimed approximately £116.1 million paid to genuine creditors or another account belonging to the company, together with a separate claim concerning a £2.4 million payment.

The liquidators also alleged that HSBC had dishonestly assisted breaches of trust and fiduciary duty through systemic governance, compliance and due-diligence failures. Nugee J refused to strike out the £116.1 million loss claim but struck out the dishonest-assistance claim. HSBC appealed the first decision, and the company appealed the second.

The central issues were whether payment of genuine debts had caused loss to the company and whether corporate dishonesty could be pleaded without identifying any dishonest natural person or anyone possessing blind-eye knowledge.

1. Disposition. HSBC’s appeal was allowed and the £116.1 million loss claim was struck out. The company’s appeal concerning dishonest assistance was dismissed. Moylan and Arnold LJJ agreed with the judgment of Sir Geoffrey Vos MR.
2. Loss. Payment of genuine creditors and transfer to the company’s own account did not reduce the company’s net asset position. Each reduction in cash was matched by a reduction in liabilities or retention of the money in another account. This remained so although the company was heavily insolvent. The judge had wrongly treated the benefit that greater cash would eventually provide to creditors in liquidation as a benefit to the company while it was trading.
3. The relevant distinction was between a trading company and one subject to a winding-up process. Once winding up begins, the statutory process of collective execution requires assets to be collected and distributed under the Insolvency Act 1986. Before then, an insolvent trading company’s financial position includes both its assets and liabilities. HSBC’s duty was owed to its customer, not directly to the customer’s creditors. The claim also excluded consequential loss and any contention that earlier intervention would have produced an earlier winding up or a better overall net asset position.
4. Dishonest assistance. The applicable two-stage approach first identifies the defendant’s actual knowledge and belief concerning the relevant facts. The conduct is then appraised objectively by the standards of ordinary decent people. Blind-eye knowledge requires a firmly grounded and targeted suspicion of specific facts, followed by a conscious decision not to seek confirmation.
5. A corporation’s size creates no exception. Corporate dishonesty must be evidenced by the dishonesty or blind-eye knowledge of one or more natural persons. Innocent states of mind cannot be aggregated to create a dishonest corporate state of mind. Wholesale failures of governance, compliance or inquiry, however serious, amount at most to negligence where nobody is alleged to have suspected the fraud and deliberately avoided confirming it.
6. A corporate dishonesty claim may sometimes proceed before the responsible individual is identified where the pleaded facts clearly support fraud and disclosure is likely to identify the person concerned. That principle did not assist a claimant seeking to proceed even if no dishonest individual could ever be identified. The dishonest-assistance pleading therefore disclosed no viable case.

1. Court of Appeal (Civil Division): By [2021] EWCA Civ 535, unanimously allowed HSBC’s appeal and struck out the £116.1 million loss claim. It dismissed SIB’s appeal concerning the dishonest-assistance claim.
2. High Court of Justice, Business and Property Courts: Nugee J refused to strike out the loss claim but struck out the dishonest-assistance claim, while leaving open the possibility of a later application to restore it if sufficient material emerged.