Margaret Anne Ryan & Anor v HSBC UK Bank Plc & Anor

This judgment determines an application for recusal (apparent bias) of HHJ Gerald from deciding a permission application for a derivative claim under s.261 Companies Act 2006 and consequentially whether that judge’s permission judgment should be set aside. The court applied the two-stage apparent bias test (identify all relevant circumstances and then ask whether a fair-minded informed observer would conclude there was a real possibility of bias) as derived from Porter v Magill and In re Medicaments. The judge considered three main strands of complaint: (1) a business association between the judge (via Hot Yoga Brixton Limited) and HSBC which may overlap with the subject-matter of the derivative claim; (2) the adequacy of the judge’s stage 1 disclosure and his reactions when the association was raised; and (3) manifestations of unfair process and departures from accepted judicial method during the permission hearing and in the hand-down judgment.

Having reviewed the evidence, the hearing transcripts and the two judgments given by HHJ Gerald, the court concluded that a fair-minded informed observer would consider there was a real possibility of bias. The court found the combination of (i) the judge’s undisclosed connection to a company that had recently obtained recovery/rescue finance from HSBC while showing signs of insolvency, (ii) the manner in which the judge dealt with the stage 1 disclosure process (including inaccuracies in a sealed order and an unsatisfactory statement), and (iii) multiple indicators in the hearing process and judgment suggesting an unfavourable and potentially pre-judging approach to the claim, cumulatively gave rise to a real possibility of apparent bias. The judge was directed not to continue to hear the permission application and his earlier permission judgment was set aside.

Background and nature of the application

The claimants, Mr and Mrs Ryan, brought a combined personal and derivative action (the derivative action on behalf of Mar City Plc) against HSBC and others, issued 3 September 2021. The derivative claim sought relief arising from alleged breaches by HSBC (including alleged shadow directorship and pursuit of an alleged LMU Purpose) and relied on ss.261 and 263 Companies Act 2006. A permission application under s.261/263 CA 2006 was heard by HHJ Gerald on 21 and 22 June 2022 and dismissed in an oral judgment handed down 24 June 2022 ([2022] EWHC 1874 (Ch)).

The Ryans later discovered public material showing that the judge and his wife were 50/50 shareholders of Hot Yoga Brixton Limited (HYB), which had taken government-backed Covid-era loans and subsequently a recovery loan secured to HSBC and which, on its latest filed accounts, showed balance-sheet insolvency. The Ryans served a letter and asked for disclosure and then applied for recusal of HHJ Gerald on grounds of apparent bias and that his earlier judgment should be set aside.

Issues framed

• Whether the judge had a disclosable business association with HSBC (via HYB) such that a fair-minded informed observer (FMIO) would see a real possibility of bias.
• Whether the judge’s stage 1 handling of the disclosure issue (including the form and content of a sealed order and his subsequent judicial statement) and his reactions when the matter was raised exacerbated any perceived impartiality problem.
• Whether the manner in which the permission hearing was conducted, and the content and manner of the judge’s permission judgment and the oral hand-down, contained indicators of unfair process or departures from accepted judicial method sufficient to persuade the FMIO there was a real possibility of bias.

Court’s reasoning and conclusions

The court conducted a careful review of legal principles on apparent bias (Porter v Magill; In re Medicaments; Locabail; Helow and related authorities) and applied the FMIO test. On the first issue the judge’s connection to HYB would not, in isolation, normally require recusal where the banking relationship was an impersonal, routine banker–customer relationship. But the court found the factual matrix here was not so neutral: HYB had taken Bounce Back and Recovery Loans, the latest accounts showed balance-sheet insolvency (increasing liabilities), and the recovery loan was secured to HSBC; those features, together with proximity of timing to the permission hearing, meant the FMIO would have legitimate doubts whether the judge’s interests might be affected (including by potential subconscious bias) and would wish more disclosure.

On the stage 1 disclosure process the court identified material shortcomings: the judge had not received the initial letter, there were inaccuracies in a sealed order (recitals and operative terms later acknowledged to be incorrect), and his oral reactions and language at the 8 July hearing gave rise to concerns in the eyes of the FMIO. The judicial statement of 12 July did not resolve all material questions and the judge’s attitude at the 15 July hearing (including resistance to expanded enquiry into his personal affairs) reinforced concerns about the adequacy of disclosure.

On the unfair process complaints, the court examined the permission judgment and the hearing conduct. It found a number of features that would trouble the FMIO: assertions in the judgment that the claim was "incredible" or "ungrounded in reality" without adequate procedural safeguards (cross-examination), apparent misdescriptions or omission of parts of the claimants’ evidence (notably their reliance on internal HSBC credit memoranda and the claimants’ relationship with senior HSBC personnel), the judge taking points of his own motion against the claimants that had not been advanced by HSBC, and a willingness to draw adverse inferences on funding and good faith matters without fully engaging the evidence or procedural avenues offered by the claimants. Taken together these matters, the court held, formed a sufficient and cumulative basis for a FMIO to conclude there was a real possibility of bias.

Remedy ordered

The court ordered that HHJ Gerald should not continue to hear the permission application and that his permission judgment of 24 June 2022 should be set aside. The judge indicated further consequential orders would be considered after supplementary submissions.

The court allowed the recusal application. The judge (HHJ Gerald) was disqualified from continuing to hear the permission application for the derivative claim and his earlier permission judgment was set aside. The court’s rationale was that a fair-minded informed observer, having regard to (i) the judge’s undisclosed 50% interest in Hot Yoga Brixton Limited which had taken Covid-era recovery finance from HSBC and which showed balance-sheet insolvency, (ii) shortcomings and inaccuracies in the stage 1 disclosure process and the judge’s handling when the association was raised, and (iii) multiple indicators in the hearing and judgment demonstrating an unfair process or predisposition against the claimants, would conclude there was a real possibility of apparent bias (applying the Porter v Magill / In re Medicaments test).