High Court decision suggests damages may be calculated differently where claimant is hopelessly insolvent

In a recent decision, the High Court declined to strike out a claim against a bank for alleged breach of a Quincecare duty on the ground that the claimant had suffered no loss: Stanford International Bank Ltd v HSBC Bank plc [2020] EWHC 2232 (Ch).

The claimant (SIB) was an insolvent Ponzi scheme. Its liquidators brought proceedings against the defendant Bank, which operated various accounts for the claimant, arguing that the Quincecare duty required the Bank to have recognised the red flags by 1 August 2008 (at the latest) and to have “sent the balloon up”, freezing payments to investors out of the accounts and thereby exposing the fraud. The liquidators claim the amount of the monies paid out from that date until the accounts were actually frozen in February 2009.

The Bank argued that SIB suffered no loss because its net asset position remained the same during the relevant period: the payments out to investors reduced SIB’s assets, but equally discharged SIB’s liabilities to investors by the same amount.

While the court accepted that the net asset position of a solvent company may remain the same in these circumstances, it found that the position may very well be different for an insolvent individual or company (such as SIB). In such circumstances, the reduction in the claimant's liabilities resulting from a payment out does not necessarily represent a corresponding benefit which must be taken into account in determining whether the payment caused the claimant to suffer loss.

The present decision does not decide that there was in fact a loss, as the court merely found that the point is sufficiently arguable to avoid the claim being struck out, and of course each case will turn on its facts. However, the suggestion that damages may be assessed differently where an individual or company is hopelessly insolvent is an interesting one which may have implications well beyond the context of Quincecare claims.

For more information, see this post on our Banking Litigation Notes blog.

Note: Overturned on appeal. See our post here.