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.

Privy Council finds loss of profits under separate contract not too remote to be recoverable

On an appeal from the Court of Appeal of the British Virgin Islands, the Privy Council has considered the damages that should have been awarded to a contractor as a result of the BVI Government’s breach of contract in failing to provide a prepared project site to enable the contractor to install a water reclamation treatment plant: Attorney General of the Virgin Islands v Global Water Associates Ltd [2020] UKPC 18.

The Privy Council held that the contractor was entitled to claim damages for the loss of profits it would have earned under a separate 12 year contract to operate the plant on behalf of the Government. The breach had resulted in the plant not being built, and therefore the contractor being unable to earn profits in operating the plant. That type of loss was not too remote to be recoverable, as it was within the reasonable contemplation of the parties when they entered into the construction contract. It fell within the second limb of the classic Hadley v Baxendale test for recoverability of damages in contract, based on special circumstances known to the parties, rather than losses arising naturally from the breach.

As well as illustrating that, in some circumstances, a loss of profits under one contract may be recoverable for breach of another contract, the decision is of interest as a relatively rare example of a higher court considering the principles of remoteness of damage in contract. Continue reading