Stanford International Bank Ltd v HSBC Bank PLC

The Supreme Court assumed, for the purposes of the appeal, that HSBC breached the bank’s Quincecare duty to its customer, Stanford International Bank Ltd (“SIB”), by executing payment instructions when on notice of background fraud. The only issue before the Court was whether that assumed breach caused recoverable loss to SIB.

The Court held that the disputed payments, which discharged liabilities owed by SIB to investors (the "early customers"), did not produce any pecuniary loss to SIB on its pleaded case. The Court applied the basic compensatory principle and the netting-off rule: where a payment reduces both an asset and a corresponding liability, there is no net loss to the payor company. The appellant’s alternative case based on a loss of a chance (that the payments deprived SIB of the chance of having the debts discharged only pro rata in liquidation) was rejected as not giving rise to a distinct pecuniary loss to the company.

The Court considered related equitable and insolvency authorities (including West Mercia and AIB) and noted limits to any analogy with remedies against fiduciaries: equitable reconstitution or restitutionary remedies differ from common law damages and cannot be imported to defeat the basic compensatory analysis in a tort/contract damages claim.

Background and facts

• SIB operated as a bank issuing Certificates of Deposit under the control of Robert Allen Stanford and was run as a Ponzi scheme. It collapsed in 2009 and went into liquidation in Antigua; that liquidation was recognised in England under the Cross Border Insolvency Regulations 2006.
• HSBC provided correspondent banking services and, between 1 August 2008 and 17 February 2009, made payments from SIB’s HSBC accounts totalling about £116m to certain customers (directly or via Toronto Dominion Bank). Those recipients were later held by the Privy Council to have been bona fide recipients who could not be compelled to repay.

Procedural posture

• SIB sued HSBC in England for breach of the Quincecare duty and for dishonest or reckless assistance. Nugee J struck out the dishonest assistance claim but refused to strike out the Quincecare claim: [2020] EWHC 2232 (Ch). The Court of Appeal allowed HSBC’s appeal on the Quincecare claim and struck out both claims: [2021] EWCA Civ 535. SIB appealed to the Supreme Court.

Nature of the claim and issues

• Nature of claim: common law damages for breach of a bank’s duty of care (the Quincecare duty) to its customer; SIB sought to recover the £116m paid out.
• Principal issue before the Supreme Court: even assuming breach, did the breach cause recoverable pecuniary loss to SIB on the pleaded case?
• Subsidiary issues considered: whether the loss could be characterised as a "loss of a chance" (valued taking account of subsequent liquidation), the interaction with insolvency rules on preferences and pari passu distribution, and the relevance of equitable remedies and fiduciary duties (West Mercia, AIB, and Sequana were discussed).

Court’s reasoning

• The majority treated the question as one of basic compensatory principle and causation: damages in tort/contract are intended to compensate net loss. The payments reduced SIB’s cash but also reduced SIB’s liabilities by an equal amount, leaving its net asset position unchanged; consequently there was no net pecuniary loss to compensate.
• The appellant’s loss-of-a-chance argument failed because, in the counterfactual where HSBC had not paid, the early and late customers would have formed a single creditor class in liquidation and any uplift in dividend would benefit all creditors proportionately; any saving as to some creditors would be offset by corresponding increased liabilities to others, producing no net gain to the company itself.
• The Court noted the distinction between equitable remedies directed at restoring a trust fund or reversing unlawful preferences and common-law damages measured by compensatory principles; the Supreme Court declined to import equitable reconstitution principles into a common-law claim for damages.
• Because no recoverable loss was established on SIB’s pleaded case, the Court did not need to resolve how Golden Victory would affect valuation or the causation/proximity questions relating to the Toronto Dominion transfers.

Outcome The appeal was dismissed. The Court concluded there was no recoverable pecuniary loss to SIB on the pleaded case even assuming breach of the Quincecare duty.

The appeal is dismissed. The majority concluded that, even assuming HSBC breached the Quincecare duty, SIB’s pleaded case disclosed no recoverable pecuniary loss: the disputed payments merely discharged liabilities owed by SIB and caused no net diminution of SIB’s net assets. A loss-of-a-chance argument based on a subsequent liquidation was rejected as producing no distinct pecuniary loss to the company. The Court emphasised the compensatory/netting-off principle and the limits of importing equitable reconstitution remedies into common-law damages claims.

First instance: High Court (Chancery Division), Nugee J, [2020] EWHC 2232 (Ch) — dishonest assistance struck out, Quincecare claim not struck out. Court of Appeal: [2021] EWCA Civ 535 — allowed HSBC’s appeal on the Quincecare claim and struck out the claims. Supreme Court: appeal dismissed [2022] UKSC 34.