The Supreme Court has granted permission to appeal in respect of the Court of Appeal's April 2021 decision in Stanford International Bank Ltd v HSBC Bank plc [1].
In that case, the Court of Appeal dismissed Quincecare duty and dishonest assistance claims brought by liquidators for Stanford International Bank ("SIB") against HSBC. In doing so, the Court of Appeal determined that the scope of the Quincecare duty, arising in the context of a financial institution processing client payments, is limited to protecting customers of the financial institution, and does not extend to protect the customer's creditors.
The Court of Appeal decision was reassuring for financial institutions faced with Quincecare and dishonest assistance claims, and so news that these issues are likely to be considered further by the Supreme Court may be a cause for concern.
What is the Quincecare duty?
Put simply, it is the duty of care that banks owe to their customers to refrain from executing an order where they have reasonable grounds to believe that the order is an attempt to misappropriate the customer's funds.
The duty was established in the 1992 High Court case of Barclays Bank Plc v Quincecare Ltd [2] in which the Court held that the relationship between a bank and its customer was that of agent and principal and that a bank therefore owed fiduciary duties to its customers.
The Quincecare duty has been increasingly in the spotlight in recent years:
- In 2019 the Supreme Court upheld the first successful claim for breach of the Quincecare duty. [3]
- In the same year the Court of Appeal expanded the scope of the duty, confirming that Quincecare was not just a negative duty to refrain from executing a payment instruction where there are reasonable grounds to suspect fraud, but also a positive duty to investigate suspicions. [4]
- Earlier this year, in Stanford International Bank Ltd v HSBC Bank plc, the Court of Appeal sought to limit the scope of the duty owed by financial institutions.
What happened in Stanford International Bank Ltd v HSBC Bank plc?
SIB had been used as a vehicle for a substantial Ponzi scheme fraud and went into insolvent liquidation in April 2009. Liquidators brought a loss claim against HSBC in respect of £116.1 million which had been paid out of SIB's accounts held with HSBC between August 2008 (when the liquidators considered that HSBC should have frozen the accounts) and February 2009 (when HSBC did freeze them).
The payments made during this period were made to individual investors holding certificates of deposit who had claims on SIB for the return of their capital and interest. SIB alleged that HSBC had made those payments in breach of its Quincecare duty.
HSBC applied to strike out the claim on the ground that SIB had suffered no loss because on a net asset basis it was no worse off as a result of HSBC's actions. The argument was that while payments out reduced SIB's assets, they equally discharged SIB's liabilities by the same amount because monies paid out by HSBC ultimately went to deposit-holders in satisfaction of their contractual rights against SIB.
The High Court dismissed HSBC's application, finding that, absent the HSBC's breach of its Quincecare duty, the funds held in SIB's accounts as at 1 August 2008 would have been available to pay creditors when insolvency supervened. The payments out had reduced SIB's assets but did not discharge SIB's liabilities, because SIB was insolvent and had no assets on any view, but only a net liability.
The High Court did strike out the allegation of dishonest assistance against HSBC, finding that the plea of dishonesty against HSBC was insufficient.
What did the Court of Appeal say?
The Bank appealed against the High Court's refusal to strike out the Quincecare loss and SIB appealed against the High Court's strike out of the allegation of dishonest assistance.
On appeal HSBC's appeal was allowed and SIB's appeal was dismissed.
The Court of Appeal found that HSBC had not owed any duty to SIB's creditors, only to SIB itself and that SIB had not itself lost anything as a result of the payment made. The decision therefore limited the scope of the Quincecare duty.
What's next?
The Supreme Court's publication of permission to appeal decisions on 16 September 2021 confirms that SIB has sought permission to appeal the Court of Appeal's decision and that permission was granted on 13 July 2021.
Details at this stage, however, are very limited. It's not yet clear precisely which issues will be considered further and on what grounds. One thing is for sure, both liquidators and financial institutions will be keen to hear more in due course.
[1] Stanford International Bank Ltd (In Liquidation) v HSBC Bank Plc [2021] EWCA Civ 535
[2] Barclays Bank v Quincecare [1992] 4 All ER 363
[3] Singularis Holdings Ltd (in liquidation) v Daiwa Capital Markets Europe Ltd [2019] UKSC 50
[4] JP Morgan Chase Bank NA v Federal Republic of Nigeria [2019] EWCA Civ 1641
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