HSBC Bank Plc v 5th Avenue Partners Ltd & Ors, Court of Appeal - Commercial Court, December 07, 2007, [2007] EWHC 2819 (Comm)

Resolution Date:December 07, 2007
Issuing Organization:Commercial Court
Actores:HSBC Bank Plc v 5th Avenue Partners Ltd & Ors

Under an order dated 8 October 2007 there were restrictions on the reporting of this case, including the present judgment. However on 28 November 2008 those restrictions were removed by a ``permission order'' made by HHJ Wadsworth QC in the criminal proceedings against Michael Brown at Southwark Crown Court. Accordingly there are no restrictions on reporting other than those restrictions which are applicable to all cases without specific order of the court.

Neutral Citation Number: [2007] EWHC 2819 (Comm)

Case No: 2005 Folio 841




Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 7 December 2007

Before :


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Between :

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Mr Ewan McQuater QC & Ms Louise Hutton (instructed by Allen & Overy) for the claimant

The 1st and 2nd defendants did not appear and were not represented.

Mr Nicholas Vineall QC & Mr James Bowling (instructed by Bivonas Ltd) for the 10th, 11th and 13th defendants

Hearing dates: 4, 8,9,10,11,15,16,17,18,22,23,24,25,29,30,31 October 2007

1,2,5,6,7, 20, 22 November 2007

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JudgmentMr Justice Walker :

Introduction and Reporting Restrictions

  1. This judgment sets out my conclusions following the trial of civil claims between individuals on the one hand and a leading international bank on the other. The individuals say that an alleged fraudster induced them to pay money into an account opened by one of his companies with the bank, and that the bank's conduct entitles them to claim against it in contract, in equity for dishonest assistance in breach of trust, and in tort for negligence. The bank, while accepting that the alleged fraudster was indeed a fraudster, denies that the individuals' claims are well established either in fact or in law. At the start of the trial a question arose as to the relationship between the present civil proceedings and criminal proceedings against the alleged fraudster, in which the alleged fraudster denies that he acted fraudulently. At his request, made with the support of the prosecution in those proceedings, I made an order on 7 October 2007 under s 4(2) of the Contempt of Court Act 1981 postponing reporting of the present proceedings. Note: the restrictions in the order dated 8.10.07 were removed by a ``permission order'' made on 28.11.08 by HHJ Wadsworth QC in the criminal proceedings against Michael Brown at Southwark Crown Court. Accordingly there are no restrictions on reporting other than those restrictions which are applicable to all cases without specific order of the court.


  2. The Claimant (``HSBC'') is an international bank with its headquarters in London. In 2004 and 2005 it had dealings with the second defendant, Mr Michael Brown (``Mr Brown''), and his companies. One of those companies was the first defendant (``5th Avenue''). During the period up to October 2005 Mr Brown arranged for investors to transfer funds to accounts held by 5th Avenue with HSBC at its Moorgate branch in the City of London. The accounts were in various currencies including United States dollars (``$''). From January 2005 onwards in each case at least two documents were prepared prior to the transfer. The first was an agreement (``the Land Base Agreement'' or ``LBA'') between the investor and Land Base LLC (``Land Base'' or ``LB''), a company registered in Nevada. Land Base was run by Mr Boris Lopatin and Mr Charles W Woodhead. The second was a document on 5th Avenue letterhead, addressed to Mrs Arnull at HSBC, and entitled ``Exhibit HSA1'' or ``Exhibit HAS.'' Below that title were the words ``Irrevocable Bank Instruction'', and after giving Mrs Arnull's address the text of the document purported to set out instructions from 5th Avenue to HSBC, naming the investor, directing that the funds be held in a segregated account, and limiting the circumstances in which funds could be paid out of the account. The extent to which this document had legal effect is in dispute. Without pre-empting the resolution of that dispute I shall refer to it for convenience only as a ``Letter of Instruction'' (or ``LOI''). In each case an employee of HSBC applied HSBC's stamp to the LOI and signed it. These investors included the 10th Defendant (``Mr So'') and the 11th Defendant (``Mrs Lu''), who apparently acted jointly. HSBC raise an issue in that regard. Without pre-determining that issue I shall, unless separate treatment is called for, refer to them together as ``Mr So and Mrs Lu.'' The investors also included the 12th Defendant (``Mr Edwards'') and the 13th Defendant (``Mr Mann''). Mr So and Mrs Lu, Mr Edwards, and Mr Mann were in each case given a stamped and signed LOI. Large sums were transferred to accounts of 5th Avenue held with HSBC - $10m by Mr Edwards, $5m by Mr Mann and $30 million by Mr So and Mrs Lu. Mr Brown pretended that these funds enabled him to make substantial profits for the investors, but the trades he reported were fictions. Meanwhile he made transfers out of the accounts into which the funds had been transferred. The extent to which those transfers out were inconsistent with the LOIs is in issue between the parties.

  3. At HSBC there were four individuals who were involved in its handling of the LOIs:

    (1) Mrs Jacqueline Arnull stamped and signed most of the LOIs. She had been employed in branches of HSBC since leaving school. By the time that she came to deal with Mr Brown she was a senior counsellor, a clerical rather than a managerial role, at the Moorgate branch of HSBC. In February 2005 she was promoted to managerial rank, with the title ``premier manager''. This title reflected the fact that she dealt mostly with ``premier'' customers, these being customers whose annual income was £75,000 or more. I shall explain later in this judgment the course of events on the first occasion when Mrs Arnull came to be involved with LOIs, and how on subsequent occasions she repeated what she did on the first occasion.

    (2) Ms Joanne Mather was a counsellor at the Moorgate branch of HSBC. When Mr Brown first sought to open accounts for 5th Avenue in the late summer of 2004 it was Ms Mather who, with the help of Mrs Arnull, completed the appropriate procedures. As part of those procedures Mr Ian Leonard was appointed the relationship manager for Mr Brown's accounts. Ms Mather continued to see Mr Brown occasionally when he came to the branch, describing him as someone who was ``very smooth and friendly and made a big effort to chat to staff when he came into the branch.'' She thought he was a bit too full of himself and liked to show off how rich he was. Mr Brown's chauffeur was Mr Sonny Patel, known as ``Sonny.'' Ms Mather saw him on occasions when he came to the branch. She described him as ``always quite pushy, demanding instant attention and trying to jump the queue.'' Early in 2005 Sonny came to the Moorgate branch and asked Ms Mather to give to Mrs Arnull two documents to be stamped and signed. Ms Mather did not read them, and so was unaware what they were. In fact they were on 5th Avenue headed paper and entitled ``Exhibit ``HSA1'' above the words ``Irrevocable Bank Instruction'', were dated 22 February, and, after stating that they were addressed to Mrs Arnull at HSBC, they said that 5th Avenue ``on behalf of our client, Robert William Mann'' irrevocably instructed the bank to proceed with 7 numbered tasks - before concluding in the bottom right hand corner with the words ``Receipt Acknowledgment (Bank)''. Ms Mather took the documents to Mrs Arnull who was busy on something else, glanced at the first page but did not read it, said it was okay and that she had seen these documents before, and instructed Ms Mather to stamp and sign confirming that the document was a copy of the original. Mrs Arnull also told her to take a copy of the stamped and signed document and send it in the internal post to Mr Leonard with a compliments slip saying words to the effect of ``for file'' or ``to Ian for file''. Ms Mather duly stamped and signed one, or possibly both, of the documents and gave them, or possibly just one of them, back to Sonny, sending a photocopy of the stamped and signed LOI with a compliments slip to Mr Leonard.

    (3) Ms Emma Walker was also a counsellor at the Moorgate branch. In early 2005 a man whom she described as ``very pushy'' jumped the queue at reception and came straight into the counselling area. He said he was ``Sonny'' and asked to see Mrs Arnull, saying that it was urgent. He said he had two documents which he needed Mrs Arnull to stamp or certify and sign. Ms Walker found Mrs Arnull working on another matter. Mrs Arnull looked at the documents, but Ms Walker does not recall if she looked at them in detail. Mrs Arnull said something like, ``Oh yeah, that's fine.'' Ms Walker accordingly took the documents and put on both of them a branch stamp saying, ``We certify this to be a true copy of the original''. She signed both documents where she had stamped them, but did not read either document or notice what they said. She gave one of the documents back to Sonny, and took the other to Mrs Arnull. It may be, Ms Walker was not sure, that on Mrs Arnull's instruction she then put it in the internal post to Mr Leonard. The document which Ms Walker stamped and signed was, although she was unaware of this, a Letter of Instruction which referred to funds to be transferred by a company called ``Fastgain Investment Limited'' (``Fastgain'').

    (4) Mr Leonard had, by the time of relevant events, been employed by HSBC for more than 17 years, and had been a manager for more than 5 years. He had become a commercial relationship manager in 2003, and his focus was entirely on business customers. He was based at the Eastcheap branch of HSBC, where he dealt with business customers at a number of branches, including the...

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