Rahman Ravelli
Rahman Ravelli Solicitors Logo
Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539

About Us Expertise PEOPLE International Legal Articles News Events Contact Us toggle button for phone toggle button for search
Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539
search
Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539
search

HSBC Successfully Defend a £1.3 Billion Fraud Claim

Author: Nicola Sharp  3 May 2024
2 min read

On Friday 26 April, Judge Robert Bright handed down judgment in a £1.3 billion fraud claim, after an eight week long trial, which started in February (see Christopher Bernard Upham and others v HSBC UK Bank plc [2024] EWHC 849 (Comm))

Ultimately, all of the claims against the bank were dismissed. Mr Justice Bright found that there was no fraud or dishonesty, no breach of trust and no conspiracy. Not only that, he held that the claims were time barred and that the claimants had failed to prove their losses.

Background facts

Eclipse Partnerships (‘Eclipse’) was a film investment scheme. In the late 1990s the government boosted tax credits for investment in the film industry, and such investment schemes became attractive propositions, allowing people to cut their personal tax bills. Changes were introduced to the rules in 2007, when questions were raised over the legitimacy of some of the productions.

Eclipse was open to investors between 2006 and 2008. HSBC marketed the scheme, which financed Disney films including Pirates of the Caribbean 2 and 3, Enchanted, and others. The scheme was challenged by the tax authorities, and on further investigation it turned out to be worthless. None of the film rights were ever actively traded. The investment scheme collapsed and there was a Supreme Court ruling in 2016 that found that the Eclipse scheme amounted to tax avoidance. 

Investors faced demands from the HMRC for millions, and some investors entered bankruptcy as a consequence. 

In June 2020, the investors launched a claim against HSBC alleging that they were induced by “false promises” to invest in the scheme. In March 2022, the High Court combined two separate group claims against the bank so that the claims of both groups of investors were heard together. 

During the trial in February and March 2024, a group of 177 investors settled its claim against HSBC. Mr Justice Bright’s judgment relates to the claim from the other group of 371 investors, who accused HSBC of conspiring with Eclipse to persuade them to buy the film rights to these blockbuster films. The investors alleged that HSBC misrepresented the true nature of the business activities of the investment vehicle. 

The group brought claims in deceit, conspiracy, joint tortfeasance, dishonest assistance, and breach of obligations under the Financial Services and Markets Act 2000. 

‘Great sympathy for the claimants’,  but that is not enough to have a claim

Mr Justice Bright said that he had “great sympathy for the Claimants.” He recognised that the investors’ losses were significant, and that had “every right to feel aggrieved… they were badly let down.”

Nevertheless, that was not enough for them to have a good claim against HSBC.

HSBC did not act fraudulently or dishonestly because it genuinely believed that the scheme was legitimate. Further, the judge held that the claimants failed to analyse properly the legal significance of the statements made to them before they invested in Eclipse. 

Bright J also had sympathy for HSBC, and specifically for Mr Bowman, the accountant at HSBC who was tasked with creating tax-advantageous structures for high net worth individuals. The judge said that Mr Bowman  “should not have had to deal with proceedings or the allegations of dishonesty that were central to them.”

The impact of alleging dishonesty

Bright J had a word of caution about alleging dishonesty. It is a long-standing ethical principal that dishonesty should not be alleged without proper grounds.

 Mr Justice Bright reiterated the importance of that standard: “This obviously matters to prospective defendants, who are entitled not to have their reputations unfairly traduced. However, it also matters to the prospective claimants, who should not be given false hope.”

In this instance, the claimants were ordered to pay indemnity costs to reflect that.

Nicola Sharp C 09983

Nicola Sharp

Partner

nicola.sharp@rahmanravelli.co.uk
+44 (0)203 910 4567 vCard

Download Profile PDF

View Profile

Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

Share this page on