Stanford International Bank Ltd v HSBC Bank PLC

Compensatory damages for breach of contract or negligence are recoverable only for the claimant’s net pecuniary loss. Losses and benefits caused by the breach must be balanced.

Payment of a valid debt does not ordinarily diminish the payer’s wealth because the reduction in assets is matched by an equal reduction in liabilities. The payer’s insolvency does not alter that analysis. Where retained funds would have increased the dividend payable to all creditors, the supposed saving from paying particular creditors less is offset by the increased payments to others.

Trustee-like remedies against a misfeasant director cannot be imported into a common law damages claim against an external party. The nature and scope of any Quincecare duty were not decided.

Stanford International Bank Ltd (“SIB”), an Antiguan company in liquidation, had operated a Ponzi scheme. HSBC provided its correspondent bank accounts. SIB alleged that HSBC should have stopped executing payment instructions under the Quincecare duty. About £116m was paid directly or indirectly to customers in satisfaction of genuine debts before the accounts were frozen.

Nugee J refused to strike out the Quincecare claim: [2020] EWHC 2232 (Ch). The Court of Appeal reversed that decision and struck out the claim because the reduction in SIB’s assets was matched by an equal reduction in its liabilities: [2021] EWCA Civ 535; [2021] 1 WLR 3507.

The appeal proceeded on the assumptions that HSBC owed and breached the duty. The sole issue was whether SIB’s pleaded case disclosed recoverable loss, including a loss of the chance to discharge the relevant debts for less through liquidation.

1. Appeal dismissed by a majority. Lady Rose, with whom Lord Hodge and Lord Kitchin agreed, held that the claim disclosed no recoverable pecuniary loss. Lord Leggatt concurred. Lord Sales dissented.

2. The payments discharged valid debts of the same amount. SIB therefore accepted that the payments did not worsen its net asset position. Recasting the claim as a lost chance to discharge those debts for a small liquidation dividend did not produce a loss. In the counterfactual liquidation there would have been one pool of customers. The retained £116m would have increased the dividend payable to them all. Any saving achieved by paying the former early customers less would have been matched exactly by the additional amount payable to the other customers. SIB had lost only the opportunity to distribute its assets more equally, which was not a pecuniary loss suffered by the company: paras 23–31.

3. Lord Leggatt reached the same conclusion through the net loss rule. Compensatory damages in contract and tort require all losses and gains resulting from the breach to be balanced. Paying a valid debt does not reduce the payer’s wealth. The distinction between loss to an insolvent company and loss to its creditors must be maintained: paras 54–57, 78 and 81–85.

4. Lord Leggatt further explained that there is no general rule requiring loss to be assessed at the date of breach. The appropriate date depends on when loss occurs and on rules such as market mitigation. This point did not determine the appeal because the subsequent liquidation could be taken into account without invoking loss-of-chance principles: paras 42–46.

5. The director-liability decision in West Mercia did not establish that an external tortfeasor is liable where the claimant suffered no pecuniary loss. Fiduciary duties, insolvency policy and the equitable or statutory remedies available against directors differ from a bank’s common law duty. The court did not decide whether the remedial approach in that line of cases survived later equitable-compensation authority: paras 33–34 and 58–78.

6. The judgment decided neither the scope of the Quincecare duty nor questions concerning remoteness or the scope of duty. Lord Sales would have allowed the appeal. He considered that, once insolvent liquidation was inevitable, SIB’s interests were aligned with those of its creditors as a class and that diversion of the £116m impaired the company’s proper function and constituted loss: paras 86–137.

1. United Kingdom Supreme Court: By a 4–1 majority, dismissed SIB’s appeal and affirmed the striking out of its Quincecare claim: [2022] UKSC 34.
2. Court of Appeal: Allowed HSBC’s appeal and struck out the Quincecare claim because the payments produced an equal reduction in SIB’s liabilities: [2021] EWCA Civ 535; [2021] 1 WLR 3507.
3. High Court, Chancery Division: Nugee J refused to strike out or grant summary judgment on the Quincecare claim, although he struck out the dishonest-assistance claim: [2020] EWHC 2232 (Ch).