Supreme Court strikes out Quincecare claim where no loss suffered by insolvent Ponzi scheme

The Supreme Court has upheld the Court of Appeal's decision to strike out a claim brought by the liquidators of a Ponzi scheme against its correspondent bank, alleging that the bank breached its so-called Quincecare duty to take sufficient care that monies paid out from the accounts under its control were being paid out properly: Stanford International Bank Ltd (In Liquidation) v HSBC Bank PLC [2022] UKSC 34.

The appeal concerned £116m paid to genuine investors (directly or indirectly) from the bank's account, in the period between when the claimants said the bank should have recognised the “red flags” and stopped processing its customer’s payments (thereby exposing the fraud), and the date upon which the accounts were eventually frozen by the bank. The precise scope and content of the Quincecare duty was not critical for the present appeal. Assuming (for the purpose of the strike out application) that the bank owed and breached the duty, the appeal considered whether that breach gave rise to any recoverable loss suffered by the claimant. The claimant argued that it had lost the chance of discharging the debts owed to investors who were wise or lucky enough to redeem their investment early, for a few pence in the pound, rather than those investors being paid out in full.

By a majority of 4:1 (Lord Sales dissenting), the Supreme Court held that the claimant had no claim in damages because it suffered no loss. The Supreme Court considered the nature of the chance that the claimant had lost. In the counterfactual scenario where the bank had complied with its Quincecare duty and disobeyed the claimant's instructions, the claimant would have had an extra £116m to its credit. However, even if this meant that all the customers received the same dividend (i.e. there was no longer any distinction between those investors who redeemed their investment early and those who did not), no additional customer indebtedness would be paid off.

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