Stanford International Bank Ltd ((in Liquidation)) v HSBC Bank Plc
| Jurisdiction | England & Wales |
| Judge | Mr Justice Nugee |
| Judgment Date | 31 July 2020 |
| Neutral Citation | [2020] EWHC 2232 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: BL-2018-002489 |
| Date | 31 July 2020 |
[2020] EWHC 2232 (Ch)
Mr Justice Nugee
Case No: BL-2018-002489
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Patricia Robertson QC, Louise Hutton and Christopher Langley (instructed by Eversheds Sutherlands (International) LLP) for the Defendant
Justin Fenwick QC, Andrew de Mestre QC and James Knott (instructed by Stewarts Law LLP) for the Claimant
Hearing dates: 30 and 31 July 2020
APPROVED JUDGMENT
Friday, 31 July 2020
( 4.26 pm)
Judgment by Mr Justice Nugee
I have before me an application by the defendant in this matter ( “HSBC”) to strike out, or obtain reverse summary judgment under CPR Part 24 on, two discrete aspects of the claim which between them, if they were both successful, would dispose of the claim.
The claim is brought by Stanford International Bank Ltd ( “SIB”), which is now in liquidation, by its joint liquidators. SIB was an Antiguan bank run by its ultimate beneficial owner, Mr Robert Allen Stanford, referred to in the pleadings and submissions as “RAS”, who has now been convicted in the United States and sentenced to a term of imprisonment far longer than the remainder of his natural life. The allegation in the claim is that the entire bank, SIB, was, from the start, a Ponzi scheme. It sold a large number of certificates of deposits to investors promising generous rates of interest and, like all Ponzi schemes, survived as long as it did by encouraging new, fresh investors to come in, and using their money to pay out those old ones who wanted to redeem their investments.
The allegations (with which I have not been troubled) are that the bank is heavily insolvent to the tune of some £5bn, I think, or more, that it was insolvent at all times, and that something over 80% of the monies contributed by investors were misappropriated in one way or another. It is, on any view, a scandalous history.
Although not formally admitted, as I understand it, in the Defence, it has not been suggested to me that there is any serious doubt that the liquidators' case in these respects is, at the very lowest, a credible one and very probably right.
The claim against HSBC – I will try and avoid saying “the bank” because both parties are banks – arises from the fact that HSBC operated as a correspondent bank for SIB from 2003 onwards and, in particular, operated four accounts, one sterling, one dollar, one euro and one Swiss franc account, for SIB, certainly the first three through its business in London and I think quite possibly the fourth as well.
The allegation is that HSBC failed in breach of its duty under Barclays Bank plc v Quincecare Ltd [1992] 4 AER 363 (“ the Quincecare duty”) to take sufficient care to see that the monies that were being paid out from accounts under its control were being properly paid out. For present purposes HSBC accept that there is a sufficiently arguable case of breach of duty.
The argument has concentrated under this head, the Quincecare head, on the question of loss. The pleaded facts are that the Quincecare duty required HSBC to have reached a conclusion by 1 August 2008 at the latest that there was something very wrong and to have frozen payments out of the accounts. Instead, the accounts ran on until a date some time in, I believe, February 2009, when Mr Stanford was charged by the US authorities.
During that period it is alleged that £118m, or thereabouts, was paid by HSBC out of the accounts and the claim is to recover that £118m on the footing that if HSBC had acted as it is said that it should have done, none of that money would have been paid out.
I have a doubt as to whether the claim really lies for the whole £118m on any footing, because the amount of money in the accounts on 1 August 2008, when it is said that the balloon should have gone up, was rather less. I was told by Mr Fenwick that an informal conversion of the various balances standing to the accounts amounted to just under £80m. But that is not a point which has been argued before me and I propose not to say any more about it. Whether it is £80m or £118m, the claim is in respect of the monies actually paid out in the period from 1 August 2008 until the accounts were frozen on, I think, 17 or 18 February 2009.
With the exception of one payment, it does not seem to be disputed that all of those payments were made either to individual investors holding certificates of deposit who had claims on SIB for the return of their capital and interest, or to another bank used by SIB, the Toronto Dominion Bank in Canada, which was the bank I was told that SIB used for at any rate its US customers; the pleading is that monies paid to Toronto Dominion Bank were then paid out again to depositors so that, whether directly or indirectly, all the money was paid out to the investors with the exception, as I have said, of one payment.
I will deal with that one payment now. It was a payment of $3m, then worth about £2.4m, to the England and Wales Cricket Board ( “the ECB”), and it is not suggested that SIB was under any contractual liability to make that payment. It is suggested, indeed, that Mr Stanford may have promised money to the ECB and may – I do not know – have been contractually liable to pay it, but it is not suggested that SIB, as opposed to Mr Stanford personally, was under any obligation, contractual or otherwise, to make the payment and it is pleaded as a misappropriation by Mr Stanford. HSBC indeed does not seek to say on this hearing that the payment of the $3m discharged any contractual or other liability of SIB and, to that extent, that one payment stands rather apart from the rest.
I will deal with that payment now because it seems to me, as I made clear in argument, that there is no basis for striking out the claim for the $3m.
The argument that was advanced in written submissions by Ms Patricia Robertson QC, who appears for HSBC, was that the pleading did not suggest that there was any particular reason for HSBC to be alerted to something suspicious about SIB paying $3m to the ECB, it being entirely credible that a flourishing Antiguan enterprise might wish to sponsor a sporting endeavour in order to gain the reputational advantages that such corporate sponsorship can bring and that, there being no reason to suspect that payment, the claim in respect of the payment to ECB was unsustainable.
But in oral argument Ms Robertson accepted the force of a point I put to her as follows: the allegation you are facing, which you do not seek to say is not a triable allegation, is that you should have pulled the plug on 1 August 2008. Had you pulled the plug on 1 August 2008, the payment of $3m to the ECB would not have happened.
There is, it seems to me, no answer to that point and Ms Robertson, to her credit, did not suggest that really, in the final analysis, there was one. She of course made the point that if the claim only continues as a claim for about £2.4m, as opposed to a claim for £118m, that will very much affect the economics of the litigation as a whole and may lead to some practical consequences, but that, as she accepted, is not something that I am concerned with today.
On any view, therefore, I will allow that claim to go forward, that is the allegation that by failing, as it is said it should have done, to have frozen the accounts on 1 August 2008, HSBC has caused loss to SIB of at least £2.4m or whatever the equivalent of the payment to the ECB was.
That, by itself, means that the stay that I imposed at an earlier stage on the action, (and in particular a stay of disclosure which is the next major part of the proceedings) should come to an end, although I will of course give counsel an opportunity to address me on that. It does seem to me that there is no good reason why that should not now continue in the usual way.
Of far more significance is Ms Robertson's point for the balance of the £118m. This is a simple and beguilingly attractive point, which is that the claim for breach of the Quincecare duty is a common law claim for damages for breach of a tortious duty (or of an implied contractual duty, there being, in this respect, no difference between them). It is, as she was at pains to point out, not a claim for misappropriation by a director, not an equitable claim, not a statutory claim, not a discretionary claim; it is a common law claim for breach of a contractual duty (effectively a duty of care) or breach of a tortious duty of care and, like all such common law claims, the remedy sounds in damages. And it is the very first principle of damages that damages are compensatory and damages are only awarded (save in certain exceptional circumstances which do not apply here) to compensate for loss.
The point that is taken is that it is not disputed, and cannot now be disputed, as I will explain in a moment, that the monies which were paid out discharged proper contractual liabilities of SIB. That actually is a bit of an oversimplification. Where monies were paid direct to the holders of certificates of deposit, it is true that they discharged a contractual liability of SIB to them. Where monies were paid to the Toronto Dominion Bank, the point is a slightly different one, which is that transferring SIB's assets from one bank to another bank, where it had a credit balance, so that it could be paid on to certificate of deposit holders, was not a loss to SIB either, because the first stage of that, which was payment to Toronto Dominion Bank, did not in any way diminish SIB's assets, and the second stage of that, which did diminish SIB's assets, diminished the liability of SIB by a corresponding...
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