So v HSBC Bank Plc
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rix,Lord Justice Toulson,Lord Justice Etherton,Lord Justice Keene,Sir Anthony Clarke MR |
| Judgment Date | 03 April 2009 |
| Neutral Citation | [2008] EWCA Civ 851,[2009] EWCA Civ 296 |
| Docket Number | Case No: 2008/0563,Case No: A3/2008/0563 |
| Court | Court of Appeal (Civil Division) |
| Date | 03 April 2009 |
[2008] EWCA Civ 851
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
COMMERCIAL COURT
(MR JUSTICE WALKER)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Rix and
Lord Justice Toulson
Case No: A3/2008/0563
Mr I Milligan QC and Mr M Coburn (instructed by Bevan Brittan) appeared on behalf of the Appellant.
Mr E McQuater QC and Ms L Hutton (instructed by Allen & Overy) appeared on behalf of the Respondent.
This is an adjourned application for permission to appeal from a trial conducted by Walker J in the Commercial Court, a trial which took six weeks and was rich in fact, incident and evidence.
At this stage, the dispute is essentially between two investors, a Mr So and a Mrs Lu, and HSBC Bank plc, to whom they transferred $30 million for deposit in an account in the name of 5 th Avenue Partners Ltd and themselves. There was no such account, although the account number which they used in their transfer instructions identified a euro account in the name of 5 th Avenue (to shorten the name of that company) by itself. 5 th Avenue was the creature of a Mr Brown, and I should state straightaway that as Mr Brown is still facing a trial alleging fraud on his part there must continue to be, as there was at the judge's judgment below, reporting restrictions, any breach of which may be treated as a contempt of court, pending at least the outcome of that trial. For the purposes of the trial and for the purposes of today, it is simply assumed that Mr Brown was fraudulent in his dealings with the investors, Mr So and Mrs Lu.
The background to this transfer is very much a part of the richness of the facts of this case but in essence it included the bringing into existence by Mr Brown of a document which became known as the Letter of Instruction (“LOI”) and which Mr Brown got his bank, HSBC, to acknowledge as having been received from him. The Letter of Instruction is headed “Irrevocable Bank Instruction”. It refers to instructions given by 5 th Avenue on behalf of its clients, named as Mr So and Mrs Lu; went on to give instructions to the bank in relation to bond trading with the monies in the account in question, which was described in the document as a segregated account; and included instructions that under no circumstances should the principal amount be permitted to be withdrawn, save as stated within: that is to say, for the purposes of bond trading, as they are described, or for the payment of charges. The document also stated that these irrevocable instructions would be valid until instruction of termination and closing of the account was given.
That document was received by the bank, stamped as acknowledged as being received by the bank and permitted by the bank to be sent to Mr So and Mrs Lu. The essential case made at trial, amongst other cases, by Mr So and Mrs Lu (the “investors”) was that in permitting these documents to be acknowledged by the bank before being put into the hands of the investors, the bank was being negligent in misrepresenting to the investors that such irrevocable instructions had been given to the bank and accepted by them. As the bank itself pleaded in paragraph 23 of its Particulars of Claim:
“The 5 th Avenue letters [that is to say, the LOIs] are not genuine documents, in that they refer to instructions having been given by 5 th Avenue to HSBC which had not, in fact, been given by 5 th Avenue and/or accepted by HSBC. They can only have been created for the purpose of giving a misleading impression that such instructions had been given by 5 th Avenue and accepted by HSBC.”
That pleading by HSBC was, in effect, the case made by the investors in their counterclaim against HSBC, visiting the misrepresentation begun by Mr Brown on the bank itself. That case, therefore, depended upon showing a duty of care, possibly created by an assumption of responsibility within a special relationship, owed by the bank to the investors in respect of a misrepresentation relied upon by the investors to their detriment.
Oddly enough, at any rate as the case is now presented to this court on the investors' application for permission to appeal, a straightforward case was not made at the trial below to the effect that the investors had given transfer instructions through their bank, HSBC in Hong Kong, to HSBC, the party in this case, to transfer the $30 million to an account to which they were parties as account holders, an account which did not exist. That is now a case which the investors would seek to make on appeal if given permission to do so and if they have the necessary permission to amend their pleadings to do so. That is a case that they wish to add to their case in negligence but also, I think, to have as a free-standing element of such a case in negligence. The investors also seek to present their case in negligence by reference to the description of the LOI as “a dangerous document” which the bank put into circulation and thereby negligently allowed Mr Brown to misuse.
There was another document, apart from the LOI, of which complaint was made by the investors, and that was described below as the “Letter of Reference”. That is tied in, however, with the LOI because it is a letter which, albeit sent to Mr Brown, was known to be intended for the investors, in which the bank:
“…also confirm that we hold in our files a copy of the instructions issued by yourself on April 11, 2005, pertaining to your clients, Kevin So and Lucy Yan Lu.”
The matter was then complicated by the fact that the investors sought a more direct means of assurance from the bank as to the account in question and its operation in a letter which they sent to Ms Arnull at the bank, who was responsible under Mr Leonard for the management of Mr Brown's account, in which they refer to the LOI and ask for verification that the account, which they identify by the number in question and by the name of it —that is to say, an account in the name of the three parties concerned, 5 th Avenue and the two investors —was a segregated and non-depletion account. Mr Brown persuaded the bank, through Ms Arnull, not to respond to that so-called Enquiry Letter, and, in the absence of a response from the bank, Mr Brown had an associate of his, a Mr Lopatin, to speak to Mrs Lu and reassure her that she could continue to rely upon the LOI, in the absence of a response from the bank, which was not to be expected because things, he assured them, did not work in that way. As the judge found at paragraph 89 of his judgment:
“Mr Lopatin said that if there had been any problem with the HSBC Letter of Instruction, the HSBC Fraud Department should have contacted Mr So/Mrs Lu right away. Mr Lopatin emailed Mrs Lu to similar effect. Mrs Lu also asked Mr Lopatin about the lack of response to Mr So's Enquiry Letter emailed directly to Mrs Arnull. Again Mr Lopatin reassured her: he told her that HSBC legally received the enquiry, but because it was not in legal bank verbiage they might not get a reply.”
The judge also found, at paragraph 11 of Annex B to his judgment, as follows:
“I consider that the true course of events was that he [that is, Mr So] and Mrs Lu grasped at Mr Lopatin's explanations about banking practice, nonsensical though they were, and allowed themselves to be persuaded that all was well. Thus at the time that they transferred funds I am willing to accept that they believed that HSBC intended to comply with the instructions in the LOI. The basis of that belief, however, was not anything said or done by HSBC —what HSBC had said and done, and not said and not done, had led them to doubt whether they had the assurances that they wanted. When they transferred the funds they were relying on what Mr Lopatin had told Mrs Lu.”
There was also a claim against the bank in dishonest assistance. It was said originally that Mrs Arnull and Mr Leonard, the two managers of Mr Brown's account, had dishonestly assisted Mr Brown to defraud the investors. However, at trial the case of dishonesty against Mrs Arnull was abandoned and the judge found in his judgment that Mr Leonard, although seriously at fault in a dishonest cover-up of his own ineptitude in failing to look properly at, digest and deal with the significance of the LOI, had nevertheless not originally been dishonest until, when the balloon went up somewhat later in relation to Mr Brown's affairs, this led Mr Leonard to take dishonest steps, including destruction of the documents within his files, to cover his position within the bank.
The investors lost on both their points of negligence in Hedley Byrne v Heller & Partners Ltd ([1963] 2 All ER 575) and dishonest assistance. They lost in dishonest assistance because the judge found that Mr Leonard had not been dishonest; they lost in negligence because the judge did not accept that the LOI or the Letter of Reference contained any misrepresentations at all or any misrepresentations that were reasonably there to be relied upon and that in any event there was no assumption of responsibility within a special relationship.
As for duty of care, however, the judge said that he need not decide that issue. He said that he need not decide reliance, but he decided it obiter against the investors. He said that he need not decide a defence run by the bank in relation to the absence of vicarious liability, but expressed his opinion briefly that there was no vicarious liability.
On this application, the investors wish to revisit those two main issues. In respect of the first of them, that of...
To continue reading
Request your trial
-
Playboy Club London Ltd and Others v Banca Nazionale Del Lavoro Spa
...deceit on the issue of vicarious liability, and that the "course of employment" test applies to an action in negligent misstatement [ So v HSBC Bank Plc [2009] EWCA Civ 296]. This conclusion is currently authoritative. However, it is not obvious why deceit should be treated differently to n......
-
Chudley & Others v Clydesdale Bank Plc (Trading as Yorkshire Bank)
...Bros & Co v Cheney Eggar & Co [1896] 2 QB 59. HSBC Bank plc v 5th Avenue Partners Ltd [2007] EWHC 2819 (Comm); [2008] 2 CLC 770; [2009] EWCA Civ 296; [2009] 1 CLC 503. Hughes-Holland v BPE Solicitors [2017] UKSC 21; [2018] AC 599. Laemthong International Lines Co Ltd v Abdullah Mohammed Fah......
-
Skandinaviska Enskilda Banken AB (Publ), Singapore Branch v Asia Pacific Breweries (Singapore) Pte Ltd and another and another appeal
...an employee who was allegedly harassed by his employer’s departmental manager to go to trial; Kevin So v HSBC Bank plc and Lucy Yan Lu [2009] EWCA Civ 296, where the English CA held a bank responsible for the negligent representations made by one of its employees; Maga v Archbishop of Birmi......
-
Healy v Ulster Bank Ireland Ltd
...conventional channel in circumstances which would not have put a third party on enquiry. As Etherton LJ put it in So [v. HSBC Bank Plc [2009] EWCA Civ 296], after referring to the observation of Lord Nicholls in Dubai Aluminium [Co Ltd v. Salaam [2002] UKHL 48] that "liability for agents s......
-
IFI Update, June 2009 - Part 1
...bank did not owe a duty of care to pay the money only to the payee mentioned in the sender's instructions. Kevin So v. HSBC Bank PLC [2009] EWCA Civ 296 (3/4/2009). Appropriation of security over The Privy Council has considered the steps that must be taken to constitute a sufficient "appro......
-
Pure Economic Loss in Negligence: Has England got it wrong? Does Australia have it right?
...It remains to be seen how the Customs & Excise will be used in future cases. The Australian Approach The theory behind the approach 140[2009] EWCA Civ 296, [2009] 1 CLC 503 141[2009] 1 CLC 503, 516, [43] (Etherton LJ) 142Witting, C, „So v HSBC Bank Plc: banks, dangerous documents and other ......