AF Kopp Limited v HSBC UK Bank PLC

A claim should not be struck out merely because the defendant relies on an exclusion clause as a defence; that issue is ordinarily suitable for summary judgment, not strike out. Summary judgment may determine a short construction point where the evidence is complete, but a challenge under Unfair Contract Terms Act 1977 s 3 is fact-sensitive and will rarely be suitable for summary determination. The party relying on the term bears the burden of proving reasonableness. Where litigation is brought substantially for the benefit of third parties, their ability and willingness to fund security for costs may be relevant to whether the claim would be stifled.

The claimant, an import agent for two United States companies, sued its bank for losses said to arise from the suspension of its accounts during a safeguard review. It claimed liability under a settlement agreement with the two companies for their lost profits. The bank relied on a standard-term exclusion of indirect or consequential loss and applied for strike out or summary judgment. It also sought security for costs.

The issues were whether the claimed loss was excluded by the banking terms, whether the exclusion satisfied the reasonableness requirement under ss 3 and 11 of the Unfair Contract Terms Act 1977, and whether security would stifle the claim.

1. Strike out. The strike-out application was dismissed. The particulars disclosed an arguable claim. The bank’s case depended on an exclusion clause operating as a defence, and the merits of that defence were unsuitable for determination under CPR 3.4(2)(a).
2. Summary judgment principles. The court applied the principles in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch). The court must consider whether the claim has a realistic, rather than fanciful, prospect of success, avoid a mini-trial, and consider both the evidence available on the application and evidence reasonably expected at trial. A short point of construction may be determined summarily where the evidence is complete and the parties have had a proper opportunity to address it.
3. Loss and clause 32. The court considered the claimant’s evidence that the bank knew of its agency relationship with the two United States companies. The claimant was not required to anticipate an unpleaded exclusion or remoteness defence. Applying Armstead v Royal & Sun Alliance Insurance Company Ltd [2024] UKSC 6, the court held that the defendant bore the burden of pleading and proving remoteness, and that the same approach could apply to reliance on an exemption clause. The judge provisionally considered that the claimed liability for the third parties’ lost profits fell within the second limb of Hadley v Baxendale (1854) 9 Ex 341, and therefore might fall within “indirect or consequential loss”. However, the judge expressly declined to give a definitive construction of clause 32.
4. Reasonableness. Under ss 3 and 11 of the Unfair Contract Terms Act 1977, the bank bore the burden of proving that the exclusion was fair and reasonable in the circumstances known or contemplated when the contract was made. The issue was fact-sensitive. Matters requiring investigation included bargaining strength, incorporation and prominence, market alternatives, insurance, and the bank’s knowledge of the claimant’s business. Following the approach in Last Bus Ltd v Dawson Group Bus & Coach Ltd [2023] EWCA Civ 1297, the court held that there was a real prospect of the claimant establishing unreasonableness and that the issue required trial.
5. Security for costs. The gateway under CPR 25.13(2)(c) was satisfied. The court ordered security because the litigation was brought entirely for the benefit of the two United States companies, whose financial standing had not been evidenced and who had not been asked to fund the claim. Their direct interest in the litigation meant that refusal by them to fund security would not establish that the order itself stifled the claim.
6. The claimant was ordered to provide security for costs in the VAT-exclusive sum of £40,000. The strike-out and summary judgment applications were dismissed.