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Kevin So v HSBC Bank PLC


A bank had acted in breach of a duty of care by putting into circulation a letter of instruction and a reference letter and representing that it had accepted the instructions and intended to adhere to them, but the breach had not caused loss to defrauded investors because they had not relied on the representations when parting with their money but on the assurances of the fraudsters.


The appellant (S) appealed against a decision ((2007) EWHC 2819 (Comm), (2008) 2 CLC 770) that the respondent bank (H) was not liable to defrauded investors, including S, in respect of payments out of accounts with H. The second defendant (B) operated a fraudulent high yield investment scheme through companies he controlled including the first defendant (F). Investors' money was paid into accounts of F with H. S and another investor (L) jointly transferred US$30 million into one of F's accounts from which most of the money was subsequently withdrawn and lost. H commenced proceedings claiming a declaration that it was not liable to S and other investors for payments out of the accounts. The investors counterclaimed for their losses. The agreements under which the investors invested in the scheme provided for F to issue an "irrevocable bank instruction" and H's employee (M) stamped and signed various letters of instruction put forward by F and B. S and L were not satisfied with the relevant letter of instruction and a further reference letter given by M, and they asked H to verify that the relevant account was a segregated, joint account. Following B's intervention and further discussions S and L transferred the money into an account of F which was not a joint account. S contended that the judge had been wrong to hold that the letter of instruction and reference letter did not amount to representations which were false and made negligently and for which H was vicariously liable, and wrong to hold that when S and L transferred the money they were not relying on anything said or done by H but on the assurances given to them by the fraudsters.


(1) The stamping, signing and returning of the letter of instruction by M, in conjunction with the sending of the reference letter, represented to S and L that H intended to carry out and had accepted the instructions. Any ambiguity about whether the instructions had been accepted, would have been removed by the reference letter. M was aware that the reference letter was required by B specifically for the purpose of being shown to the relevant investor. The representations were not negatived by any expectation on the part of H that S and L would seek professional advice before investing. The truth of the representations, being representations about H's own intentions and beliefs, could only be verified by H itself, James McNaughton Paper Group Ltd v Hicks Anderson & Co (1991) 2 QB 113 CA (Civ Div) distinguished. (2) H was under a duty of care to S and L in respect of the representations arising from the letter of instruction and reference letter. The letter of instruction was written in obscure language but, objectively, S and L were likely to rely on H's representation that it had accepted the instructions and intended to adhere to them. The threefold test, which was the appropriate test in the instant case for the existence of a duty of care, was satisfied, Caparo Industries Plc v Dickman (1990) 2 AC 605 HL and Customs and Excise Commissioners v Barclays Bank Plc (2006) UKHL 28, (2007) 1 AC 181 followed. (3) M acted carelessly in stamping the letter of instruction and in sending the reference letter. (4) H was vicariously responsible for M's carelessness in making the representations as to H's intention to carry out the terms of the letter of instruction and that it had accepted them. The test in a case of negligent misstatement was not actual or apparent authority, Armagas Ltd v Mundogas SA (The Ocean Frost) (1986) AC 717 HL considered. The test was whether the wrongful conduct could fairly and properly be regarded as done by the employee in the course of the employee's employment, Dubai Aluminium Co Ltd v Salaam (2002) UKHL 48, (2003) 2 AC 366 followed. That test was satisfied in the instant case. M had not been acting for her own benefit. She was authorised to stamp and sign documents and to write letters, but the method she applied in the instant case was a careless one. (5) The judge found as a fact that neither S nor L regarded the letter of instruction or the reference letter to be acceptable for their purposes. They therefore insisted on an account in the joint names of themselves and F. They enquired directly from H about the joint account. However, in the absence of any response from H, S and L were content to rely on the assurances of the fraudsters, which were misleading and dishonest. The judge had been entitled to find that the loss suffered was not the result of H's breach of duty. (6) The judge had also been entitled to hold that there was no duty on H to respond to S's enquiry letter. (7) Reliance on the letter of instruction and reference letter as "dangerous documents" did not advance S's case, Gator Shipping Corp v Trans-Asiatic Oil SA (The Odenfeld) (1978) 2 Lloyd's Rep 357 QBD (Comm) considered. On the ordinary application of the threefold test, there was a duty of care on H not to put those letters into circulation but the claim for breach of that duty failed because of the same absence of a causal link between the breach of duty and the losses suffered.

Appeal dismissed

Court of Appeal
Sir Anthony Clarke MR, Keene LJ, Etherton LJ
Judgment date
3 April 2009

LTL 6/4/2009 â€‹