Supreme Court strikes out Quinecare claim brought against Bank by Stanford’s liquidators

The Quinecare duty is a duty on a bank to refuse to comply with a payment instruction given by the person mandated by the customer to give such an instruction when the bank is on notice that the instruction may be part of a fraud on the customer.

It was accepted by the liquidators that the customers who had been paid out were ignorant of the fraud and the Privy Council had earlier held there was no possibility of recovery from such customers (Antiguan statutory law having no provision for the avoidance of wrongful preference and the criteria for such a claim at common law not having been met.)

The bank sought strike out of the liquidators’ claim in the instant case on the ground that, even assuming a Quinecare duty had arisen on the facts (which was assumed for the purpose of the strike out application), the company had suffered no loss in making payment to the early customers since in effect the loss to the company caused by the payment out (loss of asset) was matched by a benefit in an equal amount (being the concomitant reduction in the debt owed to the early customer).

By a majority of 4:1 the Supreme Court held that the claim should be struck on the basis that the company had suffered no loss, rejecting an argument around loss of chance put forward by counsel for the liquidators.

In his concurring majority judgment Lord Leggatt rejected an argument from the company’s counsel that West Mercia showed that a payment can cause loss to an insolvent company even though it discharges a debt owed by the company. Lord Leggatt reasoned that it was consistent with a policy of redistribution to require a director who in breach of fiduciary duty had caused a company to give an unlawful preference to restore the company‘s position to what it would have been had that transaction not taken place but that that rationale would not apply where the payment was not an unlawful preference under the rules of the applicable insolvency regimen (eg because the payment had been made outside the applicable clawback period). The judge went on to state however that no concluded view needed to be reached on that point as this was not a fiduciary claim against a director but a claim against a bank for common law damages.

Lord Sales dissented in essence on the ground that, where (as here) a company was hopelessly insolvent, the interests of the company were equated with its creditors as a general body so that the company had suffered a loss in paying some creditors at the expense of others. Lord Sales referred to the West Mercia case holding that the principle applied in that case was not limited to fiduciaries but could also apply where there had been a breach of the common law duty of care including by a bank under the Quinecare duty. He also reasoned that the absence of statutory provisions for the reversal of wrongful preferences under Antiguan law was not relevant to the issue of whether the company had suffered a loss when making payment to the early customers.

The liquidators had not alleged that, if the money had been retained, the company’s overall net asset position would have been better on going into liquidation. Future claims against banks around the Quinecare duty might be framed in such a way to circumvent the decision in this case therefore.

Stanford International Bank v HSBC Bank, Supreme Court, 21 December 2022