Supreme Court judgment in Stanford/HSBC case looks at recoverable losses

The Supreme Court has held that, where HSBC actioned instructions that may have been part of a fraud, but which resulted in creditors being repaid, then regardless of whether it had a Quincecare duty and, if it did, had breached it, the fact that the appellant (Stanford International Bank) was in liquidation and that the relevant funds would still have been due to creditors, meant that SIB had no recoverable loss to claim.

SIB, a company incorporated in Antigua and Barbuda and ultimately owned and controlled by Robert Stanford, went into liquidation in 2009. For some years before its liquidation, it was being run as a large Ponzi scheme by Mr Stanford and his associates.  Its customers started asking for their money back in 2008. SIB had 4 accounts with HSBC in the UK, which HSBC froze in February 2009 after Mr Stanford was charged by the SEC.  Before the freezing, Mr Stanford purportedly authorised various payments, including payments totalling £116m which were used to pay SIB’s customers, either directly or through a SIB account with a bank in Toronto.

SIB claimed that HSBC was on notice that the instructions to make these payments may have been part of a fraud, and therefore was under a Quincecare duty to refuse to accept them. HSBC had applied for summary judgement to strike out this claim, which was refused, but it was successful on appeal. The Supreme Court was therefore asked to consider whether, even if HSBC did owe the duty and had breached it, did this give rise to any recoverable loss by SIB. It did not look at whether HSBC did have the duty, or whether it had breached it.

The Court dismissed the appeal by majority. It looked at 2 sets of customers – Set A escaped without loss because they withdrew their funds before the scheme collapse and were paid out of the disputed payments and Set B did not withdraw funds in time and so risk losing almost all their money. The Court found, on majority, that even if HSBC had not made the payments, the monies would have been discharged in paying the customers, albeit that Sets A and B would have got the same proportion of their monies back instead of Set A getting all their money and Set B very little. This meant SIB had no recoverable loss.

Emma Radmore