Stanford International Bank (SIB) was a bank which, it transpired, was being used as a large Ponzi scheme. SIB held accounts with HSBC. Following Mr Stanford’s arrest, the accounts were frozen but not before £116 million was transferred out to some of SIB’s customers (the “Early Customers”; “Late Customers” received only a fraction in the liquidation). The liquidators argued that HSBC had breached the Quincecare duty in transferring the sums out in the circumstances. HSBC’s strike out application against the liquidators’ Quincecare claim was refused by the High Court ( EWHC 2232 (Ch)) but was successful on appeal ( EWCA Civ 535).
On SIB’s appeal to the Supreme Court, the question was: even if HSBC did owe SIB the Quincecare duty and was in breach of this duty, did the breach give rise to any recoverable loss by SIB?
The answer was no, with the Supreme Court dismissing the appeal by a majority ( UKSC 34). Whilst the liquidators had argued that they had suffered a loss of chance to settle the Early Customers’ claims for less than the 100% those customers had received, had the £116m not been paid out but had instead been placed in the liquidation pot, the liquidators would then have owed money to the entire customer pool. As Lady Rose put it, giving the lead judgment: “the “chance” of being able to discharge a debt owed to an early customer by paying them 12 pence instead of the 100 they were in fact paid, is matched by the “risk” of having to pay the late customers 12 instead of five to “discharge” the debt owed to them on dissolution. The chance must, in the circumstances, be quantified as exactly the same amount as that risk.” As such, there was no pecuniary loss to SIB even if HSBC had breached the Quincecare duty. Whilst this result appears unfair to the Late Customers, fairness is “not a matter that the court can investigate or assess.”
Lord Sales dissented, however, finding that SIB had suffered a loss. Treating SIB as a corporate entity that had been defrauded by Mr Stanford, if HSBC had not paid out the sums to the Early Customers in breach of the alleged Quincecare duty, the funds would have entered the liquidation pot and SIB would not have had to have paid 100% to the Early Customers. Had SIB been aware of its inevitable insolvency, it would not have chosen to make the payments when it did. The liquidators would also have had a larger fund to pursue third party claims to increase the pot. Therefore, there was a loss from HSBC’s alleged breach of the Quincecare duty.
A more detailed briefing on this case will follow.