Denaro (UK) Limited v Bracken: Barclays fails to strike out £37.8m Ponzi scheme claims

Barclays has failed in its bid to strike out claims worth approximately £37.8 million brought by the liquidators of a company alleged to have run a Ponzi scheme through one of its former relationship managers, after the High Court permitted amended particulars of claim to proceed to trial.

Denaro (UK) Limited, now in liquidation, and an associated limited liability partnership held banking relationships with Barclays from 2013, initially managed by relationship manager Andrew Wileman. The liquidators allege that the company's two directors operated a Ponzi scheme through the company and the partnership from 2013 onwards, and bring claims against Barclays for dishonest assistance in the directors' alleged breaches of fiduciary duty and for breach of the so-called Quincecare duty, the obligation on a bank to make inquiries before executing a payment instruction where it has reasonable grounds to suspect misappropriation.

Barclays applied to strike out both claims as originally pleaded, arguing they lacked the necessary detail to disclose reasonable grounds for the claims. The liquidators separately applied to amend their particulars, having initially resisted doing so before eventually producing draft amended pleadings. HHJ Cadwallader determined both applications together, on the basis that assessing whether the amended claim disclosed a reasonable cause of action would in any event be necessary to resolve costs.

On the original pleading, the judge found the dishonest assistance claim did not disclose reasonable grounds, since although it alleged in general terms that Mr Wileman's representations to the bank during periodic risk reviews were knowingly false, it failed in several instances to identify the specific facts said to establish his actual knowledge that particular statements were untrue, a requirement the judge described as essential given that corporate dishonesty must be evidenced through the dishonesty of an identified natural person, following the Court of Appeal and Supreme Court decisions in Stanford International Bank v HSBC. By contrast, the judge found the Quincecare claim as originally pleaded did disclose reasonable grounds, subject to a narrower defect concerning reliance on unspecified circumstances.

Turning to the proposed amendments, the judge was critical of the draft's repeated formulation attributing knowledge to "the Bank and/or Mr Wileman," a phrase capable of improperly attributing corporate rather than individual dishonesty to found the dishonest assistance claim. Although accepting the liquidators' explanation, given in submissions, that the formulation was intended to distinguish between knowledge relevant to the Quincecare claim and knowledge underpinning Mr Wileman's personal state of mind, the judge held that this needed to be stated clearly within the pleading itself rather than left to be inferred, and directed a clarifying paragraph be added.

The judge otherwise rejected Barclays's wider submissions that the amended pleadings remained incoherent or failed to tilt the balance towards an inference of dishonesty rather than negligence, finding that the cumulative effect of the numerous alleged false entries and omissions was capable, if proved, of supporting the claim, and that assessing the significance of internal bank documents said to undermine the allegations was properly a matter for trial rather than a summary determination. A similar objection to open-ended wording in the Quincecare pleading was upheld and required a minor amendment confining reliance to specifically particularised circumstances.

In his judgement, having granted permission to amend subject to those two changes, HHJ Cadwallader dismissed the strike-out application in its entirety. Barclays Bank PLC was removed as a defendant by consent, leaving Barclays Bank UK PLC, along with the two former directors, to face the claims at trial.