Stanford International Bank Ltd ((in Liquidation)) v HSBC Bank Plc
| Jurisdiction | England & Wales |
| Judge | Lady Rose,Lord Hodge,Lord Kitchin,Lord Leggatt,Lord Sales |
| Judgment Date | 21 December 2022 |
| Neutral Citation | [2022] UKSC 34 |
| Court | Supreme Court |
[2022] UKSC 34
Lord Hodge, Deputy President
Lord Kitchin
Lord Sales
Lord Leggatt
Lady Rose
Appellant
Christopher Parker KC
James Knott
(Instructed by Stewarts Law LLP (London))
Respondent
Patricia Robertson KC
Louise Hutton KC
Christopher Langley
(Instructed by Eversheds Sutherland (International) LLP (London))
Heard on 19 January 2022
Lady Rose ( with whom Lord Hodge and Lord Kitchin agree):
Ponzi schemes continue to draw in large numbers of investors and so continue both to cause a great deal of misery and to generate complex litigation. This appeal arises out of one aspect of one of these schemes, operated by the claimant, Stanford International Bank Ltd (“SIB”) a company incorporated in Antigua and Barbuda and now in liquidation. Until its collapse in February 2009, SIB was ultimately beneficially owned and controlled by Robert Allen Stanford who was also a director and the chairman of the board of directors of SIB. The bulk of SIB's business was the sale to international customers of Certificates of Deposit which were sold as investment products offering a good rate of return. Those who invested in the certificates were led to believe that the funds they deposited would be invested by SIB in a diversified low risk portfolio of assets and securities.
In fact, during the entire period relevant to this claim, that is from about 2003 until SIB's collapse in February 2009, Mr Stanford and some of his close associates dishonestly caused SIB to be run as a large Ponzi scheme. When customers requested withdrawals of money from SIB or when their product supposedly matured, the payment would be made from capital invested by other customers. In 2008 an increasing number of SIB's customers requested withdrawals and there was a run on the company. In February 2009, the US Securities and Exchange Commission charged Mr Stanford in relation to the fraud and a receiver was appointed in the USA over the Stanford Financial Group.
In April 2009 liquidators were appointed over SIB by the Antiguan court and that liquidation was subsequently recognised by the English High Court as foreign main proceedings under the Cross Border Insolvency Regulations 2006 (SI 2006/1030). At the time of SIB's collapse, SIB held only a fraction of the funds required to repay creditors in full and it is expected that the deficit between SIB's assets and its liabilities may be measured in billions of US dollars. Mr Stanford is now serving a federal prison sentence of 110 years.
The respondent, HSBC, provided correspondent banking services for SIB. There were four accounts, denominated in sterling, Euros, US Dollars and Swiss Francs. Those accounts were frozen by HSBC on 17 February 2009 following news that Mr Stanford had been charged by the SEC. SIB's case in these proceedings is that over the years when SIB had operated the bank accounts, there were many warning signs that put HSBC on notice that SIB's business was a fraud. SIB asserts in its Amended Particulars of Claim that by 1 August 2008 at the latest, HSBC was under a duty of care, known as the Quincecare duty, to refuse to accept Mr Stanford's instructions as to what to do with the balance standing in SIB's bank accounts. If HSBC had complied with their Quincecare duty, payments from the accounts purportedly authorised by Mr Stanford would not have been made. The Quincecare duty takes its name from Barclays Bank plc v Quincecare Ltd and another [1992] 4 All ER 363. The application of the duty was recently considered by the Court of Appeal in Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd [2018] EWCA Civ 84; [2018] 1 WLR 2777. The precise scope and content of the Quincecare duty is not critical for this appeal, so for present purposes it is sufficient to say that the Quincecare duty is a duty on the bank to refuse to comply with a payment instruction given by the person mandated by the customer to give such an instruction when the bank is on notice that the instruction may be part of a fraud on the customer, unless and until the bank's inquiries satisfy it that the instruction is validly authorised by the customer. In its pleaded defence HSBC disputes the legal basis of the claim in its entirety. This appeal, however, focuses solely on the question of whether, even if HSBC did owe a relevant duty of care and was in breach of that duty, that breach has given rise to any recoverable loss on SIB's pleaded case. Nothing in this judgment therefore concerns the scope of the Quincecare duty or any other duty owed by a bank to its customer.
The payments made by HSBC which are identified in SIB's claim as made between 1 August 2008 (being the date on which it asserts HSBC should have frozen the bank accounts) and 17 February 2009 (being the date on which HSBC in fact froze the bank accounts) are claimed in three tranches. Expressed in sterling, the first is about £80m paid directly from SIB's accounts with HSBC to scheme customers in redemption payments and interest. The second is approximately £36m which was transferred to accounts held by SIB at the Toronto Dominion Bank and thereafter paid out by that bank to SIB's customers in redemption payments and interest. The third is about £2.4m paid from the HSBC account to the English and Welsh Cricket Board.
The £2.4m can be put to one side because the issues raised in this appeal do not apply to that payment. The appeal concerns the £116m paid to customers by monies in or derived from the HSBC bank accounts. There is no consequential loss claimed by SIB arising from the payment out of the money; the claim is simply for the loss of the payments made from the HSBC accounts.
It is accepted by SIB that those customers who initiated redemption requests and those SIB employees who processed the requests did so in ignorance of the fact that the whole investment scheme was a fraud. It was held in previous proceedings brought by the liquidators in Antigua and pursued on appeal to the Privy Council that there was no possibility of recovering the money from the customers who had been wise or lucky enough to redeem their investment and be paid out in full: see In re Stanford International Bank Ltd [2019] UKPC 45; [2020] 1 BCLC 446 (“the earlier Stanford appeal”). Lord Briggs (with whom Lord Wilson and Sir Andrew Longmore agreed) quoted from the judgment of Lord Sumption giving the advice of the Board in Fairfield Sentry Ltd (in liquidation) v Migani [2014] UKPC 9; [2014] 1 CLC 611, para 3 where Lord Sumption said:
“It is inherent in a Ponzi scheme that those who withdraw their funds before the scheme collapses escape without loss, and quite possibly with substantial fictitious profits. The loss falls entirely on those investors whose funds are still invested when the money runs out and the scheme fails.”
In this judgment I shall refer to the customers who withdrew their funds in full and escaped without loss as the “early customers” and the investors who did not withdraw their funds before collapse and who now risk losing almost all their money as the “late customers”.
Lord Briggs recognised at the outset of his judgment in the earlier Stanford appeal that this uneven distribution of loss among investors in the fraudulent scheme might be described as “capricious”. Anxious consideration was needed as to whether the liquidators of SIB could achieve through the Antiguan insolvency regime a readjustment of that loss in a way which would accord with the liquidators' perception of fairness, justice and equity: para 2. The Board decided, broadly, that they could not. Antiguan insolvency law contained no statutory provision for the avoidance of fraudulent or wrongful preference. The common law doctrine of fraudulent preference applied but there was no prospect of such an allegation succeeding on the facts of the present case: para 23. The Board rejected the liquidators' attempt to rely instead on section 204 of the Antiguan International Business Corporations Act, concerning oppression and unfair prejudice, in order to fill what they perceived as an unsatisfactory gap in their armoury. Lord Briggs said, at para 40:
“It is simply not the liquidator's job to seek to achieve some other outcome which he may perceive to be more equitable than that which is prescribed by the applicable insolvency scheme, still less to act as the standard bearer for creditors who have been the victims of oppression, in seeking to obtain for their benefit property, and in particular property clawed back from other creditors, which could never have been the company's property, save where the applicable insolvency code otherwise provides, as it may do in relation to preferences.”
SIB's claim against HSBC in the English courts was served on 14 March 2019. SIB originally advanced two claims, one alleging breach of HSBC's Quincecare duty and one alleging dishonest or reckless assistance by HSBC in Mr Stanford's breaches of duty. On 9 April 2020, HSBC applied to strike out the claim, alternatively for summary judgment on both claims, on the grounds first that, as regards the Quincecare claims, SIB had suffered no loss either because the payments from the HSBC accounts had been made to other accounts held by SIB (that is as regards the £36m transferred to the Toronto Dominion bank) and/or because the payments made to the early customers discharged their debts and reduced pro-tanto the amount of SIB's liabilities. Secondly, as regards the dishonest assistance claim, HSBC asserted that there was no viable plea of dishonest assistance in circumstances where SIB accepted that it could not allege that any single individual in HSBC acted dishonestly to the necessary degree.
HSBC's strike out application...
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