Clarification For Banks On The Quincecare Duty And Dishonest Assistance

• Published date: 08 February 2022
• Subject Matter: Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Trials & Appeals & Compensation, Professional Negligence
• Law Firm: Linklaters
• Author: Ms Christa Band and Glenys Newall

Summary.

In Stanford International Bank Ltd (In Liquidation) v HSBC Bank Plc [2021] EWCA Civ 535, the English Court of Appeal allowed an appeal by HSBC resulting in the strike out of two claims brought by Stanford International Bank Ltd (SIB) against HSBC, first, for losses associated with an alleged breach of the bank's "Quincecare" duty; and secondly based on allegations of dishonest assistance. This is a welcome judgment, clarifying the scope of the 'Quincecare' duty owed by banks to their customers, and providing guidance on 'collective' dishonest assistance against a corporate entity.

One of the largest and most prolonged Ponzi schemes in history. SIB was a bank based in the Caribbean and owned by Mr. Robert Allen Stanford from 1990 until its collapse into insolvent liquidation on 15 April 2009, with debts in excess of US$5 billion. Mr. Stanford was convicted of fraud in the United States in 2012 and is currently serving a 110-year sentence for using SIB as a vehicle for the Ponzi scheme by misappropriating over 80% of the monies contributed by investors. SIB sold a large number of certificates of deposits (CDs) to investors, promising generous rates of interest. The scheme continued by using the money of new investors to pay out those who wanted to redeem their investments.

SIB alleged breach of the Quincecare duty and dishonest assistance against HSBC. SIB held various accounts with HSBC from 2003 onwards. It emerged that approximately '118 million was paid out of SIB's accounts in a period during which SIB claimed that the Quincecare duty required HSBC to have identified issues with SIB's accounts and to have frozen payments out of them. SIB contended that if HSBC had done so, approximately '80 million would have remained in the accounts rather than having been paid out to the holders of CDs.

SIB also alleged that HSBC had dishonestly assisted Mr Stanford in his breaches of fiduciary duty. This was based on allegations of corporate recklessness and/or by reference to the aggregated knowledge held by the individuals within HSBC.

At first instance, the dishonest assistance claim was struck out.

Since SIB could not plead dishonesty against at least one relevant individual, it had no foundation for a claim in dishonest assistance. This was a necessary element of the cause of action and could not be avoided by attempts to aggregate the knowledge of a number of employees none of whom were themselves alleged to be dishonest.

The Quincecare duty point...