Corporate Dishonesty: Getting Your Pleadings Right

• Published date: 19 August 2021
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Litigation, Mediation & Arbitration, Financial Services, Corporate and Company Law, Directors and Officers, Trials & Appeals & Compensation, Professional Negligence
• Law Firm: Gatehouse Chambers
• Author: Ms Emily Betts

What must be pleaded when dishonest assistance is alleged against a company? Is there a special rule for large companies that differs from the rules applicable to individual natural persons?

This issue arose recently in Stanford International Bank Ltd v HSBC Bank Plc, when the Court of Appeal considered two claims by the liquidators of the claimant (SIB), a vehicle used for one of the "largest and most prolonged Ponzi schemes in history", against HSBC, the defendant bank with which it held various accounts. One of those claims was for an account or equitable compensation in respect of HSBC's alleged dishonest and/or reckless assistance in breaches of trust and fiduciary duty undertaken by SIB's owner.

Principles of dishonesty

The parties were agreed as to the basic principles relating to accessory liability. Dishonesty is the touchstone (Royal Brunei Airways v Tan) and can take two forms.

First, actual dishonesty, governed by the two-stage test restated in Ivey v Genting Casinos (UK) Ltd:

• Ascertaining the defendant's subjective (that is, actual state of) knowledge and belief as to relevant facts.
• Applying an objective standard of appraisal to determine whether the defendant's conduct was dishonest according to the standards of ordinary decent people.

Second, "blind eye knowledge", which is imputed according to a two-stage test, as set out in Manifest Shipping v Uni-Polaris Insurance Co Ltd:

• There must be a firmly grounded suspicion targeted on specific facts.
• There must be a deliberate decision not to ask questions in order to avoid obtaining confirmation of facts of which the defendant has good reason to believe exist.

This case raised the interesting question of whether recklessness, amounting to gross negligence, can form the basis for a finding of dishonesty. Where the defendant is a natural person, the answer seems an easy "no". Where, however, the defendant is a large company, such as HSBC, with a vast range of natural persons representing the company at various times, should the answer differ?

Corporate attribution: a recap

The doctrine of corporate attribution recognises that, because "a corporation is an abstraction, its active and directing will must consequently be sought in the person of somebody ... who is really the directing mind and will of the corporation" (Lennard's Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd).

The "directing mind and will" of a company will often be the Board of Directors, but the real task is: "identifying those...