Neutral Citation Number: [2009] EWCA Civ 296
Case No: 2008/0563
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
THE HONOURABLE MR JUSTICE WALKER
[2007] EWHC 2819 (Commercial Court)  
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 03/04/2009
Before :

Sir Anthony Clarke MR
Lord Justice Keene
and
Lord Justice Etherton
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Between :

	Kevin So
	Appellant	
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(1)	HSBC Bank plc
(2)	Lucy Yan Lu	
Respondents	
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(Transcript of the Handed Down Judgment of
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Mr E McQuater QC and Ms L Hutton (instructed by Allen & Overy LLP) for HSBC Bank plc
Mr I Milligan QC and Mr M Coburn (instructed by BrookStreet des Roches LLP) appeared on behalf of Kevin So

Hearing dates : 2, 3, 4, March 2009
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Judgment
Lord Justice Etherton : 

Introduction
1.	These proceedings arise out of a fraudulent high yield investment scheme.  Investors were lured by the prospect of high returns, but the reported returns and the trades on which they were based were fictitious.  The scheme (“the Scheme”) was operated by the 2nd Defendant, Michael Robert Alexander Brown (“Mr Brown”) and companies directly or indirectly under his control, including, in particular, the First Defendant, 5th Avenue Partners Limited (“5th Avenue”).  Investors’ money was paid into accounts of 5th Avenue with the Claimant, HSBC Bank plc (“HSBC”).
2.	On 20 April 2005 the Tenth Defendant, Mr Kevin So (“Mr So”), and the Eleventh Defendant, Mrs Yan Lucy Lu (“Mrs Lu”), jointly gave instructions for the transfer of US$ 30 million to HSBC for investment in the Scheme.  The money was credited to one of 5th Avenue’s accounts, from which it was subsequently withdrawn.  They have suffered financial loss in consequence.  They and other investors considered that HSBC was liable to them for their losses.
3.	HSBC commenced these proceedings claiming, among other things, a declaration that it was not liable to Mr So and Mrs Lu and two other investors, the Twelfth Defendant, Charles Martin Edwards (“Mr Edwards”), and the Thirteenth Defendant, Robert William Mann (“Mr Mann”), for payments out of those accounts.  Mr So, Mrs Lu, Mr Edwards and Mr Mann counterclaimed for their losses.  By his judgment dated 7 December 2007 Mr Justice Walker, among other things, granted the declaration claimed by HSBC and dismissed the Counterclaim.  Mr So appeals those parts of the order so far as they concern himself.
The factual background in more detail
4.	Walker J set out the facts, as he found them, in careful and comprehensive detail in his judgment.  The following summary is restricted to such of the facts as are strictly relevant to this appeal.  
5.	In August 2004 Mr Brown opened various accounts in the name of 5th Avenue with HSBC at its Moorgate branch in the City of London, including a sterling business current account, a euro account and a US dollar account.  The accounts were assigned a relationship manager, Mr Ian Leonard.  Mr Brown told officials of HSBC that he was a bonds and options trader, his clients included several well-known banks, and his turnover in the first year would be a minimum of £5 million.  
6.	From January 2005 two documents were prepared prior to any transfer funds by an investor in the Scheme.  The first was an agreement (“the Land Base Agreement”) between the investor and Land Base LLC (“Land Base”), a company registered in Nevada.  Mr Boris Lopatin was one of two people who ran Land Base.  The Land Base Agreement described the arrangement between the parties as a “Private Enterprise Assets Administration Benefit Participation Agreement”.  It provided for the payment of money by the investor, the purchase and trading by Land Base of highly rated “Fixed Income Instruments”, and the equal sharing of profit between the investor and Land Base.  The Land Base Agreement also provided for 5th Avenue to issue a letter of instruction, described as an “Irrevocable Bank Instruction”, which was in a form exhibited to the Land Base Agreement.  
7.	The second document was a letter of instruction, in the form exhibited to the Land Base Agreement, with 5th Avenue’s letterhead and addressed to Mrs Jacqueline Arnull (“Mrs Arnull”) at HSBC.  It was a three page document, with the words “Irrevocable Bank Instruction” at the top of the text.  The body of the letter of instruction purported to set out instructions from 5th Avenue to HSBC, naming the investor, directing the purchase and sale of “Fixed Income Instruments” and that funds be held in a “segregated account”, and limiting the circumstances in which the funds could be paid out of the account.  In each case, Mrs Arnull or another employee of HSBC placed date and address stamps of HSBC and their signature under the words “Receipt Acknowledgement (Bank)” on the third page.
8.	Mrs Arnull, who had worked for HSBC since leaving school, was a senior counsellor at HSBC’s Moorgate branch.  That was a clerical rather than a managerial role.  In February 2005 she was promoted to managerial rank, with the title “Premier Manager”.  That title reflected the fact that she dealt mostly with “premier customers”, those being customers whose annual income was £75,000 or more.
9.	  When Mrs Arnull was first asked to stamp and sign a letter of instruction she did so because she was told by Mr Brown that he wanted HSBC to keep a copy of the letter on file, and he wanted her to sign it to say that the bank had taken a copy.  When she asked him what it was, he responded that it was between him and his client, that he was not asking HSBC to do anything except to keep a copy on the file, and that he just wanted the bank to have a record of his business on the file.  When Mrs Arnull queried it with him he was adamant that HSBC did not need to do anything.  She told him that she would do as she was asked, but would send HSBC’s copy to Mr Leonard since he was the relationship manager for 5th Avenue.  Mr Brown told her that was fine, and she did indeed send a copy to Mr Leonard.  On each subsequent occasion that Mrs Arnull was asked to stamp and sign a letter of instruction she did so in the same belief as on the first occasion. 
10.	Mr So was 39 years old at the date of the trial.  He had been a registered Chinese resident of Hong Kong since 1994, and was the General Manager and Chief Executive Officer of a skin care and cosmetics manufacturing business, the annual gross revenue of which was the equivalent of about US$80 million.  He had limited knowledge of English.  Mrs Lu was 40 years old at the date of the trial.  Having graduated from university in Beijing, and worked as a teacher in Shenzhen University, she emigrated to Canada in 1995, where she married and had a family.  Her investment experience was limited to the purchase of some bank shares.  Save in respect of unusual or complicated words, her English was fairly good. In the course of relevant events, she was assisted by Jane Zhou, a friend of her parents also resident in Canada, and whose English was perfect. Mrs Lu’s family and that of Mr So had been associated at a business and personal level since the 1980s, and she had known Mr So all that time.
11.	In the course of 2004 Mr So and Mrs Lu agreed to find and invest in what she described as a “private placement investment”, offering a very high return in a relatively short period.  In anticipation of such an investment, Mr So transferred US$30 million to a term deposit with HSBC Hong Kong in the joint names of himself and Mrs Lu.  From at least late January 2005 Mrs Lu was in contact with a Mr Keith Millar by email in relation to Mr Brown’s Scheme.  She was told by Mr Millar that the funds to be invested by her and Mr So would quickly increase to US$100 million, whereupon they would be transferred into a “special investment program” in which the returns would be “the highest real returns in this business” and that “this is the best real deal in the world”. 
12.	It was arranged that Mrs Lu would come to London to meet “a director of the trade group and the bank trader”.   Mrs Lu and Ms Zhou arrived in London on Sunday 10 April 2005, where she met Mr Millar in the evening. The next morning, 11 April, Mrs Lu and Ms Zhou were taken by Mr Millar to meet Mr Brown.  Mr Lopatin arrived and explained the role of Land Base.  By this time, Mrs Lu and Mr So had concluded that they would not be content to transfer their money into an account solely in the name of 5th Avenue, and that the account should be a joint account in their names as well as that of 5th Avenue.  Mrs Lu was told that would be arranged.  On the afternoon of 11 April Mrs Lu went through the Land Base Agreement with Mr Lopatin.  She stressed to him the importance of the letter of instruction, and Mr Lopatin passed that message to Mr Brown by telephone.  
13.	Mrs Lu’s meeting reconvened in the afternoon of 12 April.  In the course of the meeting she was presented with a letter of instruction which bore a typed date 11 April 2005, had been stamped and signed by Mrs Arnull on the third page, and was in the standard form.  In addition to the standard three pages, a fourth page had been added, of which HSBC was unaware.  That page contained instructions for the transfer of funds to an account of 5th Avenue with HSBC.  Mrs Lu rejected that letter of instruction and the added fourth page because the account specified was not a joint account in the names of herself and Mr So as well as 5th Avenue.  
14.	In the morning of 13 April Mrs Lu again met with Mr Lopatin.  Mrs Lu wanted to meet Mrs Arnull.  Mr Lopatin told her that Mr Brown had tried to arrange a meeting, but Mrs Arnull was not available.  Mrs Lu said that she wanted a letter from Mrs Arnull.  Mr Lopatin said that he would pass a message to Mrs Arnull.  Mr Brown emailed Mrs Arnull, stating that he needed her help in connection with “the client that signed the agreement yesterday”, and that he wanted a letter from Mrs Arnull addressed to him, and set out its wording.  A letter containing that wording (“the Reference Letter”) was duly prepared by Mrs Arnull.  It was as follows:
“Dear Mr Brown
This is to confirm that you are a client of HSBC Bank in good standing and we are satisfied with the way your accounts are managed.
We also confirm that we hold in our files a copy of your instructions issued by yourself, on April 11 2005, pertaining to your clients Kevin and Lucy Yan Lu.
Should you need any further assistance please feel free to contact the undersigned.
Yours sincerely

Jackie Arnull
Premier Manager”
15.	Subsequently on 13 April Mrs Lu was given the Reference Letter and another letter of instruction, also bearing the typed date April 11 2005, and which had again been stamped and signed on the third page by Mrs Arnull on behalf of HSBC.  The three page letter of instruction was in the usual standard form.  It was on 5th Avenue paper, was headed “Irrevocable Bank Instruction”, and was addressed to Mrs Arnull at HSBC’s address.  5th Avenue was expressed to give irrevocable instructions “on behalf of our client, So Kevin and/or Lu Yan Lucy”.  Paragraph 1 provided for the purchase of “Fixed Income Instruments” and their resale “as directed by … 5th Avenue…”, and referred to an “approximate Principal Amount” of US$30 million.    Paragraph 2 provided for the “receipt and clearance of the payments for the Fixed Income Instruments… into the segregated account”, and the purchase and re-sale of further “Fixed Income Instruments” “as directed by … 5th Avenue…”.  Paragraphs 5 and 7 were as follows:
“5.	Under no circumstances shall Principal amount of funds deposited in the amount of Thirty Million United States Dollars ($30,000,000.00) be permitted to be withdrawn, unless as stated hereto and for the payment of wire charges (if any).
6…
7.	These Irrevocable Instructions shall be valid until the Instruction of Termination and Closing of said account.  At the time of Account closure please  remit the Principal amount of funds in the amount of Thirty Million United States Dollars ($30,000,000.00) with deduction of wire charges (if any) to” [a specified bank account in the name of Mrs Lu and Mr So with HSBC Hong Kong].”
16.	Under a signature for 5th Avenue on the third page, it said “CC: So Kevin and Lu Yan Lucy”.
17.	There was attached to that three page standard form letter of instruction (“the LoI”) a fourth page (“the Fourth Page”) containing SWIFT instructions for the transfer to a joint account “5th Avenue Partners Ltd/So Kevin/Lu Yan Lucy” at HSBC’s Moorgate branch, bearing the account number 58947833.  That numbered account was in fact 5th Avenue’s euro account, and not a joint account.   The Fourth Page was on 5th Avenue headed paper.  It was not endorsed with any stamp or signature on behalf of HSBC.  HSBC had no knowledge of it or its contents.    
18.	Mrs Lu then signed the Land Base Agreement, on behalf of herself and Mr So, before returning with Ms Zhou to Canada on 14 April. 
19.	Mrs Lu spoke to Mr So and they discussed the documentation.  The Judge found that, even with the Fourth Page, Mr So and Mrs Lu doubted whether HSBC had accepted or would accept any responsibility to monitor and control what 5th Avenue did with their money.  For that reason, Mr So and Mrs Lu drafted a letter from Mr So to Mrs Arnull (“Mr So’s Enquiry Letter”) which, so far as relevant, was as follows:
“As per Exhibit “HAS” Irrevocable Bank Instruction by 5th Avenue Partners Ltd., I understand that an account bearing the number of 58947833 in the name of 5th Avenue Partners Ltd/Kevin So/Lucy Yan Yu.
Please verify if such account is a segregated & non-depletion account that the beneficiary is Kevin So/Lucy Yan Lu & that under no circumstances shall the principal amount of Funds deposited in the Thirty Million USD ($30M USD) be permitted to be withdrawn as stated hereto & for payment of wire charges (if any).
Please verify the above & contact myself and my bank officer immediately”.
20.	The letter gave Mr So’s email address and the contact details of Janet Wong, his relationship manager at HSBC Hong Kong.  It was sent by email on 18 April (although it bears the date 15 April) to Mrs Arnull and to Ms Wong.
21.	Ms Wong forwarded Mr So’s Enquiry Letter to Mrs Arnull in London on 18 April saying "Jackie, Please take a look and call me back straight away". Mrs Arnull's response was to fax a copy of the LoI to HSBC Hong Kong. She emailed Ms Wong saying that, although she could “confirm that we have such an instruction which we have been told to hold in our files (copy faxed to you), as I am not the relationship manager for the 5th Avenue account, I have sent a copy of this to the RM Ian Leonard to reply". Mrs Arnull forwarded to Mr Leonard a copy of the incoming email from Hong Kong and her reply to Ms Wong, and asked Mr Leonard to reply to it.  Mr Leonard responded “Jackie Not in until tomorrow, can you send me their original email."   Following email exchanges between Mrs Arnull and Mr Brown on 18 and 19 April, Mr Brown asked Mrs Arnull to send him a copy of the email from HSBC Hong Kong, and to ask Mr Leonard not to reply until Mr Brown had seen the email.  Mrs Arnull sent Mr Brown a copy of Mr So’s Enquiry Letter, and passed on to Mr Leonard the request of Mr Brown not to reply.  Mr Brown then informed Mrs Arnull, with a copy to Mr Leonard, that he would reply to Mr So’s Enquiry Letter himself, and that Mr So and Mrs Lu “were not informed that the account was to be segregated in their favour”.  Mr Brown then emailed Mrs Lu, stating: “Regrettably, your banks communication to mine was unacceptable. I therefore have asked HSBC London to cease communication”.
22.	Mr Lopatin then reassured Mrs Lu in a telephone conversation.  In the words of Walker J:
“He said that Mr Brown had probably been annoyed at the direct approach and that Mr Brown would have expected the approach to have been via Mr Lopatin and Mr Brown to HSBC. Mr Lopatin said that if there had been any problem with the HSBC Letter of Instruction the HSBC fraud department should have contacted Mr So/Mrs Lu right away. Mr Lopatin emailed Mrs Lu to similar effect. Mrs Lu also asked Mr Lopatin about the lack of response to Mr So's Enquiry Letter emailed directly to Mrs Arnull. Again Mr Lopatin reassured her: he told her that HSBC legally received the enquiry but because it was not in legal bank verbiage they might not get a reply.” 

23.	Mrs Lu told Mr So that Mr Brown had threatened to block the deal.  She also told him that Mr Brown had been angry, and why. 
24.	Following the assurances of Mr Lopatin, in the afternoon of 20 April (in Hong Kong) Mr So and Mrs Lu gave instructions to HSBC Hong Kong, which itself gave SWIFT instructions in the terms of the Fourth Page; that is to say, for US$30m to go to account 58947833 of “5th Avenue Partners Ltd/So Kevin/Lu Yan Lucy”.  As I have said, no such joint account existed, the specified numbered account being a euro account in the sole name of 5th Avenue.  There never was any account in the joint names of Mr So, Mrs Lu and 5th Avenue in any currency. Subsequently, on 20 April, instructions were given to HSBC by, or on behalf of, Mr Brown for the money to be credited to 5th Avenue’s US dollar account 58947825 rather than 5th Avenue’s euro account.  HSBC acted on those instructions.
25.	Two tranches of US $10 million were removed from 5th Avenue’s dollar account within a short period of time after the transfer of the US$30 million, and still more was removed at a later stage.
26.	Mr Brown was in due course arrested in relation to his dealings with investors’ money.  He fled to Spain while on bail.  He was subsequently extradited under a European Arrest Warrant, was convicted of offences including perjury and served a custodial sentence.  More recently he was convicted of other offences following a trial in his absence.
The Proceedings
27.	In early October 2005 HSBC became concerned that Mr Brown had acted fraudulently.  It commenced these proceedings on 14 October 2005 against 5th Avenue, Mr Brown, and several of his companies.  HSBC obtained a worldwide freezing and tracing order against them, together with a search order. On 18 November 2005 Mr So, Mrs Lu, Mr Edwards and Mr Mann were added as the Tenth to Thirteenth Defendants.  They had all invested in the Scheme.  The claim was amended to seek declarations that HSBC had no liability to them.  Mr So, Mrs Lu, Mr Edwards and Mr Mann counterclaimed against 5th Avenue, Mr Brown, HSBC and Altus Investment Management Group Ltd (“Altus”), which was thought to have traceable assets.  They obtained summary judgment against Mr Brown and 5th Avenue for fraud.  They had ceased to seek any relief against Altus by the time of the trial.  
28.	Following the commencement of the proceedings, some US$17 million was recovered by HSBC, together with an executive jet.  Payments were made to investors out of those recoveries, but the recoveries fell well short of the amounts invested.  
29.	An agreement was reached between HSBC and Mr Edwards prior to trial.  The trial was confined to issues of liability between HSBC and Mr So, Mrs Lu and Mr Mann.  Apart from an application by Mr Brown’s counsel in the criminal proceedings for reporting restrictions, neither Mr Brown nor 5th Avenue took any part in the trial.  Mr Brown’s legal team stated that Mr Brown had insufficient resources to defend the summary judgment proceedings and was unable to take any further part in the civil proceedings.
30.	The trial proceeded between the active protaganists on the agreed basis that Mr Brown had been operating a high yield investment fraud.  The Counterclaim against HSBC (“the Counterclaim”) was in contract, in equity for dishonest assistance in breach of trust, and in tort for negligence.  It was a complex case, with over 88 issues, some with sub-issues, identified by the parties.  The trial lasted over six weeks.  There were six witnesses of fact, including Mr Leonard, Mrs Arnull, Mr So, Mrs Lu and Mr Mann.  There were two expert witnesses.  Mr Stephen Hiscock FCIB gave expert evidence, on behalf of the investors, in relation to banking practice and procedure.  Dr M Desmond Fitzgerald gave expert evidence, on behalf of HSBC, in relation to bond trading.  As will appear subsequently in my judgment, it is material to this appeal to note the assessment by Walker J of the credibility of Mr So, Mrs Lu, Mr Mann and Mr Leonard.  He considered that none of them had told the whole truth, and that each had lied at stages of their evidence.  He said that he approached everything they said with caution.  His reasons were set out in careful detail in Annex B to his judgment.
31.	In particular, he accepted the contention of HSBC that Mr So was often deliberately evasive and obtuse, requiring questions to be put many times before he would offer any response.  Awkward or difficult questions would eventually be met with the reply that he did not remember, or that he had not thought about the issue, or that Mrs Lu had not told him about the matter in question.  He was not actually trying to assist the court with an honest account of events as he saw them at the time; rather, he was trying to reveal as little as possible, and was prepared simply to lie when questioning became inconvenient.
32.	With regard to Mrs Lu, the Judge said that she lied about several matters, including her motives for making the investment, the reason for Mr So’s Enquiry Letter, and that she considered the LoI was an agreement between herself, on the one hand, and Mr Brown, on the other hand.   He described her oral evidence in this latter regard as “a blatant attempt to concoct a new analysis in order to repair a perceived deficiency in Mr So’s evidence”, and that it demonstrated “cynicism and contempt for the truth”. 
33.	The Judge reviewed and rejected various aspects of Mr Leonard’s evidence in Annex B to the judgment.  He said that the vast majority of points put to Mr Leonard were points which he was sure must have stuck in his mind, and he lied when he denied this.
34.	In a carefully reasoned judgment handed down on 7 December 2007, and running to more than 80 pages, Walker J dismissed the Counterclaim on all the grounds advanced.  He refused permission to appeal.
35.	On 6 June 2008 Mr So obtained limited permission to appeal from the Court of Appeal.  Neither Mrs Lu nor Mr Mann made any application.
36.	Mr So’s permission to appeal was restricted to four heads of claim in negligence:  misstatement, arising from the LoI and the Reference Letter, that HSBC had accepted the instructions in the LoI and intended to implement them; failing to correct that wrong impression by not responding to Mr So’s Enquiry Letter; releasing into circulation “dangerous documents”, that is the LoI and the Reference Letter, liable to be used to mislead Mr So and Mrs Lu; and crediting the US$30 million to an account other than that specified in the SWIFT transfer instruction.  Other grounds of appeal, namely dishonest assistance, payment by mistake, purpose trust and knowing receipt, were either abandoned or refused. The grounds of appeal based on “dangerous documents” and the SWIFT transfer instruction were new.  Permission for them was granted subject to the qualification that it would be for the court hearing the appeal to determine whether in all the circumstances it would be right to permit them to be raised at this stage in the proceedings, and whether permission should be granted for amendments to be made to the Counterclaim.  At the hearing of the appeal Mr So also sought permission to amend the Counterclaim in two other respects in relation to Mr So’s Enquiry Letter, including advancing a new case of negligence that HSBC ought not to have left it to Mr Brown alone to respond, so giving Mr Lopatin the opportunity to give his misleading assurances to Mrs Lu.
37.	Mrs Lu has been added as a respondent to Mr So’s appeal in case some technical difficulty arises if she was a joint owner of US $30 million transferred to HSBC.
Negligent statement
38.	It is alleged in the Counterclaim that, by signing and stamping the LoI, Mrs Arnull represented to Mr So and Mrs Lu that HSBC intended to adhere to the instructions in the LoI and had accepted them, and those representations were repeated when Mrs Arnull provided the Reference Letter.  It is alleged that Mr So and Mrs Lu transferred the US$30 million in reliance on those representations, including in particular that their money would be held “in a segregated non-depletion account for them as beneficiaries”.  It is alleged that the representations were false, and were made negligently; and HSBC is vicariously liable for them, and was, by virtue of them, in breach of a duty of care to Mr So and Mrs Lu.  Walker J rejected all those allegations.
Misrepresentation
39.	The Judge accepted HSBC’s submission that the wording “Receipt Acknowledgement: (Bank)” on the third page of the LoI amounted to no more than acknowledgement of receipt of the LoI.  He considered that stamping and signing the LoI, on behalf of HSBC, took the matter no further.  So far as concerns the Fourth Page, it was neither stamped nor signed by HSBC, which  was at all times unaware of its existence and contents.  Walker J further held that the confirmation in the Reference Letter - “a copy of your instructions issued by yourself, on April 11 2005, pertaining to your clients Kevin So and Lucy Yan Lu” was held by HSBC in its files - did not constitute any sort of representation by HSBC that it had accepted and would act on the instructions in the LoI.  He considered that, on reading the Reference Letter, a reasonable observer would have asked whether the Reference Letter remedied the key deficiencies from the investor’s point of view, in the signed and stamped LoI, particularly that the LoI was not addressed to Mr So or Mrs Lu, and nowhere said it had been accepted by HSBC, and nowhere contained any undertaking by HSBC.  The Judge said that, on the contrary, the wording - “we hold on our files a copy of  your instructions” [emphasis added by the Judge] – was inapt to indicate acceptance of instructions.
40.	Whether the stamping, dating and handing over of the LoI and the sending of the Reference Letter gave rise to the alleged representations is a matter of law.  I do not agree with Walker J that the alleged representations were not made.  In my judgment, whether or not Mr So and Mrs Lu might reasonably have been expected to seek advice, the stamping, signing and returning of the LoI by Mrs Arnull, in conjunction with the sending of the Reference Letter, represented to Mrs So and Mrs Lu that HSBC intended to carry out and had accepted the instructions in the LoI.  The LoI was expressed to be given “on behalf of our client, So Kevin and/ Lu Yan Lucy”, and was endorsed at the end “cc:  So Kevin and Lu Yan Lucy”.  Both the heading and the LoI refer to the instructions being irrevocable.  Whatever ambiguity might have remained about the status of those instructions, and in particular whether they had been accepted by HSBC, would have been removed by the Reference Letter.  Mrs Arnull was aware that the Reference Letter was required by Mr Brown specifically for the purpose of being shown to the relevant investor.  Bearing in mind the particular features of the LoI to which I have referred, the express confirmation in the Reference Letter that HSBC held in its files a copy of the LoI would reasonably have given Mr So and Mrs Lu the clear impression that the LoI had been accepted by HSBC.  Indeed, that is presumably the very purpose for which the Reference Letter was obtained by Mr Brown.  It is difficult to see what other purpose there could possibly have been for giving the confirmation in the Reference Letter.  A confirmation merely to the effect that the LoI had been received, but without any indication of acceptance, would have been a pointless exercise.  
41.	The representations were not negatived by any expectation on the part of HSBC that Mr So and Mrs Lu would seek professional advice before investing the US$30 million mentioned in the LoI.   The representations made by the combination of the LoI and the Reference Letter were not themselves either complicated or obscure, and required no advice.  They related to HSBC’s own state of mind, that is to say its intentions, and its past conduct, that is to say its acceptance of the LoI.   The fact that advice might be sought by Mr So and Mrs Lu on the substance of the arrangements contained in the LoI and how those arrangements would operate in practice does not impinge at all on the existence of the representations.  
Duty of Care
42.	The Judge, having rejected the alleged representations, declined to rule whether, if they had been made, HSBC would have been under a duty of care in respect of them.  Mr McQuater, on behalf of HSBC, submitted in a careful analysis of the law that no duty of care arose.  He contended that key to this issue is the Judge’s finding that there was no reasonable expectation of reliance by Mr So and Mrs Lu on the LoI and the Reference Letter without taking professional advice.  He said that, whichever of the various tests for establishing a duty of care is appropriate, that finding of the Judge is fatal to the existence of a duty on HSBC in the present case.
43.	There is little, if any, dispute as the legal principles to be applied for establishing whether or not there was a duty of care.  Mr McQuater referred to the three different tests which have been used in deciding whether a defendant, sued as causing pure economic loss, owed the claimant a duty of care in tort.  They were summarised by Lord Bingham in Customs and Excise Commissioners v Barclays Bank plc [2006] UKHL 28, [2007] 1 AC 181, at para [4] as follows:
“The first is whether the defendant assumed responsibility for what he said and did vis-à-vis the claimant, or is to be treated by the law as having done so.  The second is commonly known as the threefold test: whether loss to the claimant was a reasonably foreseeable consequence of what the defendant did or failed to do; whether the relationship between the parties was one of sufficient proximity; and whether in all the circumstances it is fair, just and reasonable to impose a duty of care on the defendant towards the claimant (what Kirby J in Perre v Apand Pty Ltd (1999) 198 CLR 180, para 259, succinctly labelled “policy”).  Third is the incremental test, based on the observation of Brennan J in  Sutherland Shire Council v Heyman (1985) 157 CLR 424, 481, approved by Lord Bridge of Harwich in Caparo Industries plc v Dickman [1990] 2 AC 605, 618, that:
“It is preferable, in my view, that the law should develop novel categories of negligence incrementally and by analogy with established categories, rather than by a massive extension of a prima facie duty of care restrained only by indefinable ‘considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed’.” 
44.	The first of those tests is closely associated with Hedley Byrne & Co. Ltd v Heller & Partners Ltd [1964] AC 465.  The second is based on the reasoning of the House of Lords in Caparo Industries plc v Dickman [1990] 2 AC 605.  The authorities show that foreseeability of harm to the defendant is essential, but not sufficient: see, most recently, Mitchell v Glasgow City Council [2009] UKHL 11.  What is required is “proximity” between the parties, a notoriously elusive concept denoting the circumstances from which the courts conclude that a duty of care existed.  In seeking to ascertain whether it did, the court approaches the matter objectively, determining what a reasonable person placed in the defendant’s position would have known and expected.  Mr McQuater rightly emphasised that, whichever test is used, the particular circumstances of each case will be critical to ascertaining whether or not a duty of care existed, but the issue is not simply a question of fact.  As Lord Hoffmann said in Customs and Excise Commissioners at para [36]:
“the question whether a defendant has assumed responsibility  is a legal inference to be drawn from his conduct against the background of all the circumstances of the case …. Questions of fairness and policy will enter into the decision …”
45.	As I have said, Mr McQuater submitted that in the present case it is a critical fact, as found by the Judge, that the LoI was couched in terms so tortuous, wordy and out of the ordinary that an investor would not rely on it without seeking legal advice.  He contended that, in the case of a misstatement, neither the “assumption of responsibility” test nor the “threefold test” can be met if there was, objectively, no reasonable expectation on the part of the defendant that the statement would be relied upon by the claimant.  He referred, in support, to the view of Lord Morris in Hedley Byrne at p. 503, that:
“… if in a sphere in which a person is so placed that others could reasonably rely upon his judgment or skill or upon his ability to make careful inquiry, a person takes it upon himself to give information or advice to, or allows his information or advice to be passed on to, another person who, as he knows or should know, will place reliance upon it, then a duty of care will arise.”
46.	He also referred to Lord Bridge’s view in Caparo at p. 621E/F that he would expect to find, in a case where a duty of care in respect of negligent statements has been held to exist, 
“as an essential ingredient of the “proximity” between the plaintiff and the defendant, that the defendant knew that his statement would be communicated to the plaintiff, either as an individual or as a member of an identifiable class, specifically in connection with a particular transaction or transactions of a particular kind … and that the plaintiff would be very likely to rely on it for the purpose of deciding whether or not to enter upon that transaction or upon a transaction of that kind.”
47.	Lord Oliver in Caparo, when describing (at p. 638C-E) the various factors that will typically give rise to a duty of care, included that “it is known either actually or inferentially, that the advice so communicated is likely to be acted upon by the advisee ….. without independent advice”.
48.	In James McNaughton Paper Group Ltd v Hicks Anderson & Co [1991] 2 QB 113 the Court of Appeal held that the defendant accountants did not owe the plaintiff a duty of care in relation to the draft accounts of a company, which had been prepared by the defendants and supplied to the plaintiff in the course of negotiations for the take-over of the company by the plaintiff, and on which the plaintiff relied in undertaking the take-over.  Neill LJ, with whom the other two judges of the Court agreed, summarised the law on duty of care under a number of headings.  Under the heading “The state of knowledge of the adviser”, he said, at p. 126F, that it is necessary to consider whether the adviser knew that the advisee would rely on the statement without obtaining independent advice.  Under the heading “Reliance by the advisee” , he said at p.126H-127A:
“In cases where the existence of a duty of care is in issue …[o]ne should … consider whether and to what extent the advisee was entitled to rely on the statement to take the action that he did take.  It is also necessary to consider whether he did in fact rely on the statement, whether he did use or should have used his own judgment and whether he did seek or should have sought independent advice.  In business transactions conducted at arms’ length it may sometimes be difficult for an advisee to prove that he was entitled to act on a statement without taking any independent advice or to prove that the adviser knew, actually or inferentially, that he would act without taking such advice”.
49.	In holding that the existence of the duty of care had not been made out, Neill LJ said that he had been impressed by, among other things, the fact that the transaction was between experienced business men, and that it was to be anticipated that the plaintiff would have access to and would consult with its own accountancy advisers.  Mr. McQuater relies upon the analysis and conclusion of Neill LJ.
50.	Notwithstanding those submissions and the view of Walker J, HSBC was, in my judgment, under a duty of care to Mr So and Mrs Lu in respect of the representations relied upon by them arising from the stamping, signing and returning of the LoI and the sending of the Reference Letter.  I agree with the criticism of the Judge of the drafting of the LoI.  Much of it is written in obscure language, and makes little practical or commercial sense.  It appears to provide for the transfer of the US$30 million into a “segregated account”, without any explanation of that term, and for its withdrawal only at “the time of Account Closure” when it was to be transferred back in its entirety (subject only to deduction of any wire charges) to Mr So and Mrs Lu.  There is no obvious means by which the purchase and sale of the “Fixed Income Instruments”, whether or not conducted at a loss, were to proceed without any recourse to the US$30 million. 
51.	Nevertheless, HSBC knew that both the LoI and the Reference Letter were to be shown to Mr So and Mrs Lu for the purpose of a proposed investment of US$30 million.  Looking at the matter objectively, it was likely that Mr So and Mrs Lu would be concerned to know, and would rely upon, HSBC’s representation that HSBC intended to adhere to the instructions in the LoI and had accepted those instructions.  HSBC did not know whether or not they were sophisticated investors.  Even if it be correct that a reasonably prudent investor would have sought advice on how the arrangements in the LoI would work in practice, there was no reason for an investor to seek advice on the truthfulness and reliability of HSBC’s own representation that it had accepted the LoI and intended to comply with its terms.  None of the cases relied upon by Mr McQuater are authority to the contrary.  Unlike the contents of the draft accounts in James McNaughton, the truth of the representations in the present case, being representations about HSBC’s own intentions and beliefs, were uniquely within the knowledge of, and could only be verified by, HSBC itself.  They were not verifiable by some independent expert.  For all those reasons, the threefold test, which is the appropriate test in the present case for the existence of a duty of care, was satisfied.
Breach of duty
52.	Mrs Arnull acted carelessly in the stamping of the LoI and in sending the Reference Letter.  HSBC admitted in its Defence to the Counterclaim that Mrs Arnull ought to have read the LoI before stamping and signing it.  She failed to do so.  She failed to make any attempt to understand its contents.  She ought to have made it clear, by an endorsement of the LoI, before returning it, or at any event in the Reference Letter, that the LoI had not been accepted by HSBC even though a copy was retained on HSBC’s files.

Vicarious liability
53.	The Judge held that HSBC was not, in any event, vicariously liable for Mrs Arnull’s negligence.  His conclusion rested on the evidence that she did not have any authority to make arrangements for bond trading generally or to accept the terms of the LoI in particular.  He said that the difference between bond trading on behalf of a client and what she was authorised to do was so great that her wrongful conduct was not to be regarded as done in the ordinary course of employment.
54.	 Mr McQuater supported the Judge’s decision on the application in the present case of the usual “ordinary course of employment” test for an employer’s vicarious liability.  He submitted, further, that the proper test to be applied in the case of a negligent statement by an employee is the even stricter one of whether the dealings of the employee fell within the employee’s actual or apparent authority.  He contended that, under that test, there can be no question that HSBC is vicariously liable for Mrs Arnull’s careless conduct.  I do not accept those submissions or the conclusion of Walker J on this issue.  In my judgment, HSBC is vicariously responsible for Mrs. Arnull’s carelessness in making the representations as to HSBC’s intention to carry out the terms of the LoI and that it had accepted them.
55.	The House of Lords considered the appropriate test for vicarious tortious liability in Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48, [2003] 2 AC 366.  That case concerned the liability of a firm for the fraudulent conduct of one of the partners.  Under s.10 of the Partnership Act 1890, where a person suffers loss due to the wrongful act or omission of a partner acting in the ordinary course of the business of the firm, the firm is liable to the same extent as the partner so acting.  Both Lord Nicholls and Lord Millett, with whom the other members of the Committee agreed on the point, equated the position of partners under s. 10 of the 1890 Act with that of employers.  They both emphasised that vicarious liability rests on an underlying legal policy which recognises that carrying on a business enterprise necessarily involves risks to others.  In Lord Millett’s words: “Vicarious liability is a loss distribution device based on social and economic policy”.  Lord Nicholls, with whom three of the other members of the Committee agreed, emphasised that, for that reason, liability for agents should not be strictly confined to acts done with the employer’s authority.  He said that, authority not being the touchstone, the best general test is that the wrongful conduct must be so closely connected with acts the employee was authorised to do that the wrongful conduct may fairly and properly be regarded as done by the employee in the course of the employee’s employment: para [23].  
56.	The formulation “may fairly and properly be regarded” reflects a value judgement by the court.  The conclusion is a conclusion of law, based on primary facts, rather than a simple question of fact: para [24].   Both Lord Nicholls and Lord Millett endorsed, as a useful general approach, the “Salmond” test, which was described as follows by Lord Nicholls at para [30]:
“Take a case where an employee does an act of a type for which he is employed but, perhaps through a misplaced excess of zeal, he does so dishonestly.  He seeks to promote his employer’s interests, in the sphere in which he is employed, but using dishonest means.  Not surprisingly, the courts have held that in such a case the employer may be liable to the injured third party just as much as in a case where the employee acted negligently.  Whether done negligently or dishonestly the wrongful act comprised a wrongful and unauthorised mode of doing an act authorised by the employer, in the oft repeated language of the “Salmond” formulation: see Salmond, Law of Torts, 1st ed (1907), p83.  As Willes J said, in Barwick v English Joint Stock Bank (1867) LR 2 EX 259, 266:
“It is true, [the master] has not authorised the particular act, but he has put the agent in his place to do that class of acts, and he must be answerable for the manner in which the agent has conducted himself in doing the business which it was the act of his master to place him in.””
57.	Both Lord Nicholls and Lord Millett stressed that the Salmond test has its limits, and that, even if it is satisfied, the facts, taken as a whole, may nevertheless show that the employee was not acting in the course of his employment.  Lord Nicholls, for example, drew a distinction between cases in which the employee was engaged, however misguidedly, in furthering his employer’s business, and cases where the employee was engaged solely in pursuing his own interests in a “frolic of his own”.  In the former type of case, it may well be appropriate to attribute responsibility for the employee’s act to the employer, even though the manner of performance was not authorised or, indeed, was prohibited.  Where, however, the employee was engaged only in furthering his own interests, as distinct from those of his employer, the mere fact that the act was of a kind the employee was authorised to do will not, of itself, fasten liability on the employer: para [32].
58.	In the present case, Mrs Arnull, in stamping, signing and returning the LoI and sending the Reference Letter, and in making the representations arising from those acts, was not acting for her own benefit.  She was authorised to stamp and sign documents and to write letters, but the method she applied in the present case was a careless one.  Had she read the LoI, and made clear on the LoI and in writing the Reference Letter that the LoI had not been accepted, no loss would have been suffered and it seems that she would have been regarded as acting fully within her authority.  In my judgment, having regard to the policy underlying vicarious liability, her careless conduct can fairly and properly be regarded as falling within the ordinary course of her employment.  The Judge, in holding otherwise, placed undue weight on the fact that she was not authorised to open accounts concerned with bond trading or to make arrangements for bond trading.  Her wrongful act was not to purport to do those acts, or to represent that she had done so, but carelessly to represent in the Reference Letter, when combined with the LoI, that HSBC had accepted (not necessarily by her) the LoI and intended to carry out its terms.
59.	As I have said, Mr McQuater’s case on vicarious liability was that the proper test in the case of negligent statements is not the “ordinary course of employment” test but actual or apparent authority.  No such distinction was made in Dubai Aluminium between negligent statements and other heads of tortious liability.  Mr McQuater relies on the following passage in Bowstead and Reynolds on Agency (18th ed):
“Torts of misrepresentation involve reliance by the plaintiff.  This suggests that the principal should not be liable for the mispresentations of his agent which is also a servant unless the third party was justified in relying on them, viz.  unless they were made within the agent’s actual or apparent authority, which of course they may be.  This viewpoint has been adopted by the House of Lords, at least as regards the tort of deceit.  It is arguable that it puts limits on “the course of employment” test which would otherwise be applied in a tort case, for an agent authorised to make a contract who makes false representations outside his actual or apparent authority in connection with it can be said to be doing an act within the scope of his duties in a wrongful manner; or such a representation may be sufficiently related to his duties to justify vicarious liability.  The preferable view is however that the suggested rule sets true limits on the scope of employment in respect of torts of misrepresentation: the dealings which the servant is employed to enter into are in this respect to be identified with reference to his authority.  The third party should not have relied on statements neither actually nor apparently authorised at all and hence should not be able to sue in tort on the basis of course of employment reasoning.  Liability for other wrongs committed in connection with authorised activities (e.g. assault, negligent driving) remains; in this respect the course of employment test is wider than “authority” reasoning.”
60.	No authority is cited in support of the view expressed there, other than Armagas Ltd v Mundogas SA [1986] 1 AC 717 in connection with the tort of deceit.  That case concerned a fraudulent representation by an employee that he had authority to commit his employer to the sale of a ship and a three year charter back to the employer.  The representation was made as part of a fraudulent conspiracy for the personal financial benefit of the employee.  It was held that employer was not vicariously liable. The case is no support for the general proposition about vicarious liability for negligent statements for which the authors and Mr McQuater contend.
61.	Lord Keith, with whom the other members of the Committee agreed, emphasised that the case was concerned with vicarious liability in the field of intentional wrongdoing by an employee, particularly by way of dishonest conduct, and that the development of the basis of vicarious liability in relation to torts such as negligence had followed a different route.  He said at p. 780B:
“Dishonest conduct perpetrated with no intention of benefiting the employer but solely with that of procuring a personal gain or advantage to the employee is governed, in the field of vicarious liability, by a set of principles and a line of authority of peculiar application.”
62.	That approach fits the analysis in Dubai Aluminium in relation to the limits of the Salmond  test in such circumstances.  The short answer to Mr McQuater’s point is that the distinction he seeks to make between negligent statements and other torts in relation to vicarious liability is not one for which there is any reported authority, and was not made by the House of Lords in either Armagas or  Dubai Aluminium, and is contrary to the analysis in the latter which laid down the principles applicable across the field of tortious wrongdoing in the light of the applicable principles of public policy.
63.	I would finally add on this aspect of the case that, even if actual or apparent authority were the test, it was sufficient to establish the vicarious liability of HSBC in the present case that Mrs. Arnull had authority to write the Reference Letter, which impliedly represented that the LoI had been accepted by HSBC (not necessarily acting by her), and that representation was, in all the circumstances, carelessly made by her.    
Causation
64.	The Judge held that Mr So and Mrs Lu had failed to show that, even if HSBC was in breach of its duty of care to them, their losses were caused by that breach of duty.  The Judge’s reasoning on causation is summarised in Annex B to the Judgment as follows:
“I consider that the true course of events was that [Mr So] and Mrs Lu grasped at Mr Lopatin’s explanations about banking practice, nonsensical though they were, and allowed themselves to be persuaded that all was well.  Thus at the time that they transferred funds I am willing to accept that they believed that HSBC intended to comply with the instructions in the LoI.  The basis of that belief, however, was not anything said or done by HSBC - what HSBC had said and done, and not said and not done, had led them to doubt whether they had the assurances that they wanted.  When they transferred the funds they were relying on what Mr Lopatin had told Mrs Lu”
65.	Mr Milligan, on behalf of Mr So, submitted that the Judge was wrong both as a matter of fact and as a matter of law in holding that, at the time of the transfer of the US$30 million to HSBC, the belief of Mr So and Mrs Lu that HSBC intended to comply with the instructions in the LoI was not attributable to anything said or done by HSBC.  So far as concerns the facts, Mr. Milligan emphasised the following.  Mr. So had effectively appointed Mrs Lu to act on his behalf in the transaction, and so her knowledge and beliefs are also to be attributed to him.   She kept in touch with him at all relevant stages, both before and after her visit to London in April 2005.  There is no suggestion that at any time she misrepresented the relevant documents, including the LoI and the Reference Letter.  The references in Mr So’s Enquiry Letter to the “Irrevocable Bank Instruction” and to “a segregated & non-depletion account”  were references to the contents of the LoI.  He submitted that the evidence of Mrs Lu and Mr So supported the conclusion that the fact that HSBC had passed Mr So’s Enquiry Letter to Mr Brown, and left Mr Brown to deal with it, gave Mrs Lu and Mr So the impression that the LoI had been accepted and that Mr Brown and Mr Lopatin were authorised by HSBC to give an explanation of the arrangements. 
66.	So far as concerns the law, Mr So’s case is that it is sufficient for liability in tort that HSBC’s negligent statements were an effective cause of his loss, even if it was not the effective cause or the proximate cause.  It is sufficient that it was one of several causes, provided it was real and effective: see Edgington v Fitzmaurice (1885) 29 Ch.D.459; JEB Fasteners Ltd v Marks Bloom & Co [1983] 1 All ER 587 (affecting “in any material degree”) (Sir Sebag Shaw), 589 (playing a “real and substantial part”) (Stephenson LJ); County Ltd v Girozentrale Securities [1996] 3 All ER 834.  In the latter case, Hobhouse LJ said, at p. 857 (e) –(g):
“In the present case, the conduct of the plaintiffs was at all material times within the contemplation of the defendants and was, in so far as the defendants were intending that the plaintiffs should act in any particular way, in accordance with the defendants’ intentions.  The plaintiffs’ acts would not have given rise to any need to refresh if it had not been for the defendants’ earlier breaches of contract of which the plaintiffs were unaware.  In my judgment it was the defendants’ breaches which were the cause of the plaintiffs’ loss.  If it were to be suggested, contrary to my view, that this conclusion was too favourable to the plaintiffs, it is inescapably correct that the defendants’ breaches were an effective cause of the plaintiffs’ loss.  It follows that the judgment in favour of the defendants cannot be upheld and the appeal must succeed.”
67.	Mr McQuater, while not disagreeing with those propositions of law, submitted that, in the context of a claim in tort for negligent statements, the causation mechanism is reliance, and the issue is whether the loss was the consequence of the defendant’s actual reliance on the misstatement even if he or she also relied on other matters.  Mr Milligan was content to accept that proposition.  Mr  Milligan further submitted that a finding on causation is not merely one of fact, but is or involves an issue of law.  He referred in that connection to a lecture -“Common Sense and Causing Loss”- given by Lord Hoffmann to the Chancery Bar Association on 15 June 1999.  Lord Hoffmann there said that causation is indeed a question of fact, but the courts have too often not sufficiently identified what the question is.  He said that the question must be formulated by looking at the rule of law which requires the question to be asked, that is to say, one must ask what is the extent of the responsibility which the rule was intended to impose.  He suggested that the reason why courts get the wrong answer on questions of causation is because they have got the law wrong; and argument over causation is almost always an argument over the law, that is to say the scope of the rule which imposes liability.  He said that once the grounds upon which the rule imposes liability have been identified, and the kind of loss for which it provides compensation has been identified, the question of causation does indeed become a question of fact and usually a pretty obvious one at that.
68.	Mr Milligan submitted that, in the light of those principles and the evidence, Walker J was wrong to find, and was not entitled as a matter of law to hold,  that at the date of the transfer of the US$30 million Mr. So and Mrs Lu were not relying on anything said or done by HSBC.  He submitted that the Judge ought to have held that HSBC’s negligent misrepresentations were an effective cause of the transfer of the money by Mr So and Mrs Lu, and so actually relied upon by them, even if Mr Lopatin’s misleading assurances in response to Mr So’s Enquiry Letter were also an effective cause.  Those assurances did not break the chain of causation since HSBC’s duty was not carelessly to mislead Mr. So and Mrs Lu about HSBC’s intentions as to adherence to the LoI.  They were so misled by HSBC’s negligent representations, and the fact that Mr. Lopatin was able to reinforce their misunderstanding did not take the loss out of the scope and foreseeable consequences of the duty of care and its breach.  In short, the negligent statements of HSBC by the stamping, signing and returning of the LoI and the sending of the Reference letter were not the mere opportunity for Mr Lopatins’s assurances and the loss, but were an effective cause of both.
69.	Those are powerful submissions, but I do not accept them.  In my judgment, the Judge’s decision on causation was a finding of fact, to which he was entitled to come on the evidence. Lord Hoffmann’s views in his lecture were to some extent refined in his article "Causation" in [2005] 121 Law Quarterly Review 592. His valuable contribution has been to highlight the close connection between defining the duty, causation and the extent of the consequences for which the defendant is liable. So, in cases of negligence causing economic loss, the definition of the duty of care, as a result of the application of the threefold test in Caparo, will automatically exclude certain kinds of consequences and loss, and may automatically make certain losses recoverable notwithstanding, for example, the supervening acts of a third party or the intervention of natural occurrences.  An obvious example is a situation where, contrary to the normal rule that a person is not responsible for harm intentionally inflicted by someone else, the defendant was on the particular facts under a duty of care to prevent loss arising from the deliberate or negligent actions of others: Mitchell, especially at paras [15] and [23].  In such a case, the occurrence of the deliberate or negligent acts of others resulting in loss to the claimant will not break the chain of causation. The losses, provided they are not too remote, will be recoverable.
70.	Where the duty is not defined with regard to third party events or occurrences in that way, and the definition of the duty does not, on the other hand, automatically exclude a causal connection between the defendant’s breach of the duty and the claimant’s loss, then, subject again to questions of remoteness, it is essentially a matter of fact whether the defendant’s breach of duty was an effective cause of the loss.  In a case of a negligent statement, for example, where the defendant’s breach of duty is followed by the negligent or dishonest act of a third party, the factual question will be whether the claimant’s losses resulted from the claimant’s actual reliance on the defendant’s statement, even though he or she also relied on the third party’s act.
71.	In the present case, it is not, and could not be, alleged that HSBC was under a duty of care to prevent Mr So and Mrs Lu suffering losses as a result of the kind of fraud perpetrated by Mr Brown.  The alleged duty of care of HSBC  was to avoid making misleading representations to Mr. So and Mrs Lu that it had accepted the LoI and intended to carry out its terms.  That duty of care was, of course, in relation to the three page LoI that was stamped, signed and returned by Mrs. Arnull.  The Judge found as a fact, however, that neither Mr So nor Mrs Lu regarded the LoI or the Reference Letter to be acceptable for their purposes.  They were not acceptable because Mr So and Mrs Lu had no confidence that the arrangements in the LoI would protect and keep intact their US$30 million.  They had correctly identified the problem that under the LoI  they had no relationship with HSBC and would be unable to monitor and prevent recourse by 5th Avenue to their money, and they had no confidence that HSBC would monitor and control what happened to it.  They therefore insisted on something new, an account in the joint names of themselves and 5th Avenue.  Nothing less would do.  That was the reason why the Fourth Page was added to the LoI when Mrs. Lu was in London, and why she rejected the first version of it as inadequate since it only identified an account in the name of 5th Avenue.  HSBC did not know anything about the existence of the Fourth Page or its contents.  It was an invention of Mr. Brown and his associates.  Although there were textual links to the LoI in Mr. So’s Enquiry Letter, the plain purpose of that Letter was to seek reassurance direct from HSBC about the joint account specified in the Fourth Page.  In the absence of any response from HSBC, Mr So and Mrs Lu were content to rely on the assurances of Mr Lopatin, which were misleading and dishonest.    
72.	In reaching his findings of fact relevant to this issue, it is to be borne in mind that the Judge heard the witnesses over many days, and rejected significant parts of the evidence of Mr. So and Mrs Lu, including, for example, that they considered the failure of HSBC to reply to Mr So’s Enquiry Letter showed that Mr Brown was highly regarded by HSBC and for that reason they had confidence in the investment.  Mr Milligan particularly criticised that finding of the Judge. I am satisfied, however, that, in the light of the evidence as a whole, and the Judge’s view of the credibility of the witnesses, he was entitled to make the findings of fact which he did.   
73.	Returning, then, to the scope of HSBC’s duty of care to Mr So and Mrs Lu in relation to the stamped and signed LoI, and the Reference Letter which referred to it, and the harm likely to result from breach of it, the Judge was bound, or at the very least entitled, to conclude on his findings of fact that the harm suffered by Mr So and Mrs Lu was not the result of breach of that duty.  It was not the belief in the arrangements in the LoI which caused Mr So and Mrs Lu to pay the US$30 million, but their belief in new and different arrangements for the joint account in the Fourth Page, about which HSBC knew nothing and about which HSBC made no representations.  The losses of Mr So and Mrs Lu did not arise because the LoI was not binding or treated as binding on HSBC, but because there was no joint account giving Mr So and Mrs Lu direct control over their money with HSBC.
74.	Walker J considered that, when Mr So and Mrs Lu became aware that HSBC did not intend to answer Mr So’s Enquiry Letter, a reasonable person would have thought that something was terribly wrong with the transaction. It is common ground that the chain of causation for liability in tort can be broken by a claimant’s recklessness: County Bank v Girozentrale at p. 857d-e.  Although HSBC did not argue the issue of causation at trial on the ground of recklessness on the part of Mr So and Mrs Lu, and the Judge did not analyse it in that way, Mr McQuater asked us to do so at a very late state in the hearing of the appeal.  In my judgment, it was far too late to take that course, bearing in mind that it was not raised in the Statements of Case, nor addressed in a Respondent’s Notice, nor in the skeleton arguments, nor the subject of any application to amend.
The original case on Mr So’s Enquiry Letter
75.	At the trial Mr So and Mrs Lu advanced a case that HSBC was under a duty to respond to Mr So’s Enquiry Letter and, in breach of duty, failed to do so.  That claim was dealt with by the Judge briefly.  He held that HSBC’s failure to respond to Mr So’s Enquiry Letter was the reverse of what could be expected if HSBC was assuming any responsibility in the matter; and, accordingly, there was nothing to indicate any assumption of responsibility by HSBC, and no basis on which any duty of care on the part of HSBC could have arisen by reason of HSBC’s receipt of Mr So’s Enquiry Letter.
76.	Mr Milligan attacked that decision of the Judge on grounds of fact and law.  His starting point was that the Judge himself referred to the “alarming” nature of Mr So’s Enquiry Letter and found that Mr Leonard had been “seriously negligent” in the way he handled that Letter.  Mr Milligan referred us to Mr Leonard’s witness statement and the transcript of his answers in cross-examination as showing that Mr Leonard’s own evidence was that he could and should have responded to Mr So’s Enquiry Letter by telling Mr So and Mrs Lu not to send the US$30 million.  The Judge was wrong, Mr Milligan submitted, to reject that evidence.  In any event, the Judge himself concluded that “the obvious reply” to Mr So’s Enquiry Letter was that HSBC could not verify the matters on which the Letter sought assurance.  Mr Milligan submitted that, whichever of those responses was the correct one, the fact that one of them should have been given was sufficient, in all the circumstances, to establish a duty of care and that such duty was broken by the absence of any reply to the Letter.  Those circumstances include, contrary to the decision of the Judge, that HSBC was negligent in representing that it had accepted and intended to adhere to the LoI.
77.	The Judge was right, in my judgment, to reject that allegation of breach of duty.  There was some debate before us as to the precise duty which was pleaded at the date of the trial.  A careful reading of the Counterclaim, and the successive amendments to it, shows that the allegation was that HSBC was under a duty to correct the misrepresentation that HSBC intended to adhere to the LoI and had accepted its terms and to remove the impression that such a misrepresentation had created in the minds of Mr So and Mrs Lu.  It is clear from Walker J’s judgment that this was his view.  We were informed by Mr McQuater that the alleged duty was described in that way in the agreed list of issues at the trial.  Accordingly, no duty of care was alleged at the trial that HSBC, through Mr Leonard, ought to have responded to Mr So’s Enquiry Letter by informing Mr So and Mrs Lu that they ought not to send the US$30 million (the response suggested by Mr Leonard in his evidence).  Nor was the allegation that HSBC was under a duty to respond to Mr So’s Enquiry Letter that it was unable to verify the matters in Mr So’s Enquiry Letter on which assurance was sought (the Judge’s finding of the “obvious reply”).
78.	In any event, there are no proper grounds for criticising the Judge’s rejection of Mr Leonard’s evidence that, if he had seen the relevant correspondence, he would have told HSBC Hong Kong not to send the money.  That evidence was given on the basis that he had not in fact seen Mr So’s Enquiry Letter.  The Judge found, however, that he had been lying on that point, as on other topics, and that his evidence was unreliable. 
79.	So far as concerns the Judge’s observation that the obvious reply to Mr So’s Enquiry Letter was that HSBC could not verify the matters raised in that Letter, it is to be observed that, if such an allegation had been pleaded, it would have required careful consideration of what would have been the reaction of Mr So and Mrs Lu to such a response.  One possibility is that they would have approached Mr Lopatin, in whom they placed great trust, to provide an explanation, and he would have provided exactly the same explanation as he did in relation to HSBC’s lack of response to Mr So’s Enquiry Letter, and with the same consequences.  That is a matter on which Mr McQuater fairly submitted that HSBC would have wished to obtain more evidence, whether by cross-examination or otherwise, and a matter on which the Judge would have had to come to a conclusion.  I am satisfied that those  matters were not pursued because, on the allegations current at the date of trial, they did not arise.
80.	It is also important to place in its context the Judge’s statement, in Annex B to the judgment, that “at best… Mr Leonard had been seriously negligent in the way he handled Mr So’s enquiry letter”.  That comment was not made in the context of the alleged breach of duty of care resulting from HSBC’s receipt of Mr So’s Enquiry Letter, for the Judge rejected any such duty.  It was made in the context of considering the credibility of Mr Leonard’s evidence generally, and particularly in relation to the allegation that Mr Leonard had been dishonest and was dishonestly involved in Mr Brown’s fraud.
81.	Turning from those preliminary observations to the question of law whether the pleaded duty existed as a result of HSBC’s receipt of Mr So’s Enquiry Letter, Mr McQuater rightly observed that the general principle is that the law of negligence does not impose liability for mere omissions: Mitchell at para [39], Customs and Excise Commissioners at para [38].  That, however, does not properly characterise the situation under consideration here, bearing in mind my finding that the stamping, signing and returning of the LoI by Mrs Arnull and the sending of the Reference Letter were in breach of HSBC’s duty of care not to misrepresent HSBC’s acceptance of, and intention to adhere to, the LoI.  Nevertheless, that finding does not lead to the conclusion that the Judge came to the wrong decision in rejecting a duty of care on HSBC to respond to Mr So’s  Enquiry Letter.  The factual context is critical.  
82.	As I have said earlier in this judgment, Mr So’s Enquiry Letter was directed to the critical matter, without which Mr So and Mrs Lu were not prepared to proceed, namely a joint account with HSBC in the names of themselves and 5th Avenue.  Prior to receipt of Mr So’s Enquiry Letter HSBC knew nothing about any such account and had made no representations in relation to it.  The Letter was seeking reassurance about the details in the Fourth Page, which was composed and added by Mr Brown and his associates without the knowledge or authority of HSBC, in order to meet the concern of Mr So and Mrs Lu that the existing LoI failed to protect them sufficiently.  Mr So’s Enquiry Letter was received by HSBC from a person with whom HSBC had no contractual or other relationship.  HSBC’s actual customer, acting by Mr Brown, reported to HSBC that there had been a misunderstanding, and requested HSBC to let Mr Brown deal with it, in circumstances where, as the Judge found, HSBC did not suspect fraud or other wrong doing on the part of Mr Brown or 5th Avenue and Mr. Leonard genuinely believed that Mr Brown intended to clarify the misunderstanding with Mr So. Further, as the Judge found, Mr Leonard believed Mr Brown’s subsequent assurance that he had done so and that Mr. So understood the position.  In those particular circumstances, the Judge was correct to find that there was no duty on HSBC to act, contrary to the instructions on its customer, by responding that the LoI had not been accepted by HSBC.
The new case on Mr So’s Enquiry Letter
83.	Mr So seeks permission to amend the Counterclaim to raise a new allegation of breach of duty of care.  The new allegation is that, having given Mr Brown the opportunity to reply to Mr So’s Enquiry Letter, HSBC owed Mr So and Mrs Lu a duty not to leave it to Mr Brown alone to do so.  HSBC was in breach of that duty, and it was that breach which put Mr Lopatin in a position to give his misleading assurances to Mrs Lu, in reliance on which she and Mr So sent the US$30 million to HSBC.
84.	I would refuse permission to amend to raise this new allegation.  Nothing has occurred since the trial, other than a change of Mr So’s legal team, to explain or excuse the failure to pursue this allegation at the trial.  The general policy considerations against the introduction at the appeal stage of new claims which could have been advanced at the trial were summarised as follows by May LJ in Jones v MBNA International Bank (20 June 2000) (CA) at para [52]:
“Civil trials are conducted on the basis that the court decides the factual and legal issues which the parties bring before the court.  Normally each party should bring before the court the whole relevant case that he wishes to advance… the court will decide issues which are raised and normally will not decide issues which are not raised… a party cannot, in my judgment, normally seek to appeal a trial judge’s decision on the the basis that a claim, which could have been brought before the trial judge but was not, would have succeeded if it had been so brought.  The justice of this as a general principle is, in my view, obvious.  It is not merely a matter of efficiency, expediency and costs but of substantial justice.  Parties to litigation are entitled to know where they stand.  The parties are entitled, and the court requires, to know what the issues are.  Upon this depends a variety of decisions, including, by the parties, what evidence to call, how much effort and money it is appropriate to invest in the case, and generally how to conduct the case… it is not, generally speaking, just if a party who successfully contested a case advanced on one basis should be expected to face on appeal, not a challenge to the original decision, but a new case advanced on a different basis.”
Peter Gibson LJ said similarly at para [38]:
“It is not in dispute that to withdraw a concession or take a point not argued in the lower court requires the leave of this court.  In general the court expects each party to advance his whole case at the trial.  In the interests of fairness to the other party this court should be slow to allow new points, which  were available to be taken at the trial but were not taken, to be advanced for the first time in this court.  That consideration is the weightier if further evidence might have been adduced at the trial, had the point been taken then, or if the decision on the point requires an evaluation of all the evidence and could be affected by the impression which the trial judge received from seeing and hearing the witnesses.  Indeed, it is hard to see how, if those circumstances obtained, this court, having regard to the overriding objective of dealing with cases justly, could allow that new point to be taken”.
85.	In support of the new case, Mr So again relies on the Judge’s statement that Mr Leonard was negligent in failing to reply to Mr So’s Enquiry Letter, and  the Judge’s observation that the obvious reply to Mr So was that HSBC could not verify the matters in that Letter.  I have already explained why I reject Mr Milligan’s submission that the Judge was not entitled, and was wrong, to reject Mr Leonard’s evidence that, if he had known of the relevant exchange of communications, he would have warned Mr So and Mrs Lu not to send the US$30 million.  Mr So’s case is that, even if HSBC, through Mr Leonard or otherwise, had responded to Mr So’s Enquiry Letter only with a statement that HSBC could not verify the matters in that Letter, Mr So and Mrs Lu would not have transferred the US$30 million. Mr Milligan conceded, for the purpose of the application to amend (even though he did not accept the point), that HSBC had no choice in the circumstances other than to inform Mr Brown of the terms of Mr So’s Enquiry Letter.  
86.	Notwithstanding that concession, it is clear that, if permission was given to amend the Counterclaim at this stage, there are at least some matters of evidence which would be relevant, but which HSBC would have been deprived of the opportunity to pursue.  As I have already said, in relation to the appeal on the original claim based on HSBC’s failure to respond to Mr So’s Enquiry Letter, it would be relevant, for the purposes of causation, to establish what would have been the reaction of Mr So and Mrs Lu to a simple communication from HSBC that it was unable to verify the details in Mr So’s Enquiry Letter. That is a matter on which HSBC would have been entitled, and doubtless would have wished, to adduce further evidence and pursue different and new lines of cross-examination at the trial.
87.	For that reason, as well as the general policy considerations mentioned by May LJ and Peter Gibson LJ in Jones, I consider that it would be inappropriate and unfair to HSBC to permit the proposed amendment at this stage.  I would therefore refuse that application. 
88.	I would add that, on the information presently before this court, substantially for the reasons I have already given for rejecting Mr So’s appeal from the Judge’s rejection of his original case on the alleged duty of care arising from HSBC’s receipt of his Enquiry Letter, I would have rejected the new claim.  I do not consider that, in all the circumstances, there was a duty on HSBC, in opposition to the express request from its customer, to respond to Mr So’s Enquiry Letter even in the brief manner suggested by the Judge.  

Dangerous documents
89.	Mr So wishes to raise on this appeal a new allegation that, in stamping and signing the LoI and issuing the Reference Letter, HSBC owed or assumed a duty to Mr So and Mrs Lu to take care not to release “dangerous documents” liable to be used to mislead them, and that, in breach of that duty, HSBC failed to do so.  No objection was taken by HSBC to the proposed amendments to the Counterclaim in respect of this new allegation.  I would, therefore, give permission to make those amendments.
90.	The LoI and the Reference Letter are said by Mr So to have been “dangerous” because they were misleading.  Mr Milligan submitted that the danger was created as a result of the failure of Mrs Arnull to record clearly in them the effect of what Mr Brown had told her, namely that the stamping and signing of the LoI on behalf of HSBC were for the innocuous purposes Mr Brown mentioned, and that HSBC was not taking any responsibility for the contents of the LoI.  He further submitted that, on any view, the carelessness of Mrs Arnull and of Mr Leonard in causing the distribution of the LoI and the Reference Letter was an effective cause of the loss suffered by Mr So and Mrs Lu. 
91.	Mr Milligan relied on the The Odenfeld [1978] 2 Lloyds Rep 357 as authority for the duty of care not to put into circulation dangerous documents.  The facts in that case were that the defendants entered into arrangements with a shipowner under which they would charter a ship from the owner, and the documentation would be structured to assist the owner to raise a loan on the security of the charter.  The charter was for a basic period of ten years, for the first two years of which there was a specified fixed hire and for each successive two year period a rate to be assessed by the London Tanker Broker Panel, subject to a minimum.  There was a side letter from the owners to the defendants containing a “funding arrangement” under which, if the hire fixed by the Panel was less than the minimum hire specified in the charter, the owners would pay the difference.  The defendants were aware that the documents had been prepared with the intention of the owner to raise a loan and that it was at least highly likely that the owner would not disclose to the lender the side letter.  After the charter had been made, the owner approached the plaintiffs for a loan, disclosing only the charter and not the side letter.  The plaintiffs made a loan of $6,660,000 repayable with interest in 16 instalments over eight years on the security of an assignment of the money due under the charter.  They believed that the charter contained all the terms of the bargain.  The freight market collapsed, and the Panel fixed a rate below the minimum level in the charter.  The owner did not observe the funding arrangement, and the defendants said that they treated the charter as at an end due to the owner’s wrongful repudiation.  On the hearing of preliminary issues, Kerr J held that the defendants were not entitled to determine the charter because the funding arrangement was a separate matter, and that the owner and the plaintiffs were not precluded or estopped from denying that the side letter and the charter represented one transaction.  He further held that, if that was wrong, then the defendants were estopped from denying that the charter represented the only material bargain between them and the owner which could affect the obligation to pay hire.  
92.	Kerr J held (at p. 376) that “the defendants’ conduct was at least careless, i.e. negligent in law if they were under a duty to potential lenders not to act in relation to the documents as they did”.  He held that in the circumstances the law provided a remedy by the doctrine of estoppel, and that the authorities also showed that the plaintiffs would have a remedy in damages for negligence.
93.	Mr So’s new allegation and The Odenfeld do not advance Mr So’s case.  The facts in that case were quite different from those of the present case.  There is nothing in The Odenfeld to suggest that the circulation of “dangerous documents” is a special and distinct category of actionable negligence.  The expression “dangerous documents” was not used in the judgment.  On the particular facts of the case, the observations of Kerr J on the issue of negligence can be justified on the ordinary threefold test in Caparo.
94.	 For substantially the same reasons as I gave for holding that HSBC was in breach of a duty of care not to misrepresent whether it had accepted and intended to adhere to the LoI, I would agree, on the ordinary application of the threefold test to the particular facts of the present case, that there was a duty of care on HSBC not to put into circulation the LoI and the Reference Letter.  The claim for damages for breach of that duty fails, however, because of the same absence of a causal link between the breach of duty and the losses suffered as I have mentioned in relation to the claim based on negligent misstatement and for the same reasons.  In short, on the findings of Walker J, the stamping, signing and return of the LoI and the sending of the Reference Letter were not effective causes of the decision to transfer to HSBC the US$30 million.  
The SWIFT instruction
95.	Mr So seeks permission to amend the Counterclaim to raise a new allegation that HSBC was in breach of a duty of care not to deal with the US$30 million transferred by the SWIFT instruction inconsistently with that instruction and, if (as was the case) the instruction could not be complied with, to return the funds or seek clarification from Mr So and Mrs Lu.   The SWIFT transfer was disclosed during the trial, after the evidence had closed.  No application to amend to raise a case based on the SWIFT instruction was advanced at that stage.
96.	Although the SWIFT instruction did not appear until after the evidence had closed in the trial, the substance of the new claim is that HSBC, knowing that no such joint dollar account as was specified in the transfer instructions existed, failed properly to safeguard or return the US$30 million or at any event to seek clarification from Mr So and Mrs Lu.  Mr So was fully aware of those matters very shortly after the transfer had been made, and certainly well before the trial.  
97.	Further, if the proposed amendments were permitted at this stage, HSBC would be deprived of the opportunity to adduce further expert and factual evidence, including pursuing new lines of cross-examination which would be relevant.
98.	In Abou-Rahmah v Abacha [2005] EWHC 2662 (QB), [2006] 1 Lloyd’s Rep 484, Treacy J rejected the contention that a receiving bank is under a duty of care to pay the money only to the beneficiary identified in the payer’s instructions.  That is the only English authority on the point.  In the course of his analysis, he considered several Canadian cases.  An appeal from his judgment on other matters was dismissed: [2006] EWCA Civ 1492, [2007] 1 Lloyd’s Rep. 115.  Mr Milligan submitted that Treacy J was wrong on this point, and that he misunderstood the Canadian authorities.  That is, of course, a point of law.
99.	Mr Milligan submitted that no further factual or expert evidence would be necessary fairly to decide this new point.  He submitted that, by virtue of all that had gone before, in particular the stamping, signing and returning of the LoI, the sending of the Reference Letter and the receipt of Mr So’s Enquiry Letter, the threefold test in Caparo was plainly satisfied and there was a duty of care.  It is equally clear, he submitted, that there was carelessness in the way HSBC dealt with the transfer of the US$30 million.  I do not agree that no further evidence would be relevant.    
100.	In para [68] Treacy J identified six matters which he considered to be of particular relevance.  The fifth was that: “A bank has a huge number of potential payers who can remit monies without significant control by the bank”.  The sixth was that:  “The imposition of a duty of care in relation to such persons (in the absence of special circumstances) would in practice impose very heavy burdens on banks and significantly hamper their efficiency.”  Those are matters on which HSBC may well have wished to adduce expert evidence, for example in relation to the number of SWIFT transfers processed every day, the ability of the receiving bank to control the process of who sends the money, and what the payment instructions might be.  Expert evidence might also be relevant to the systems that banks usually have or should have when dealing with SWIFT transfers.  Furthermore it is not clear that the implications of any judgment would be limited to SWIFT instructions.  A judgment in favour of Mr So on the point might have implications, by analogy, to other methods of payment and other forms of instruction.  Expert evidence might be relevant to that consideration.
101.	Mr McQuater also fairly submitted that, if HSBC had sought clarification from Mr So and Mrs Lu before crediting the account specified by Mr Brown, it is not obvious precisely what they would have decided to do.  They were in fact sent documentation that identified the account to which the monies had been credited soon after the transfer, but they do not appear to have taken any action at all on the basis of that information.
102.	It would be inappropriate and unfair to HSBC to permit this new allegation to be raised without HSBC having had the opportunity to adduce expert and factual evidence on those matters and to pursue relevant lines of cross-examination at the trial.  For that reason, as well as the general policy considerations mentioned in Jones, I would refuse permission to amend. 
Conclusion
103.	For the reasons I have given, I would dismiss this appeal.
Lord Justice Keene
104.	I agree.
Sir Anthony Clarke MR
105.	I also agree.