Wolfe James v HSBC UK Bank: limitation, constructive trust and the boundaries of fraud claims

The Court of Appeal has dismissed an appeal against the striking out of a claim brought by Mr and Mrs James against HSBC UK Bank plc, holding that the couple had sufficient knowledge to plead fraud by 2013 — nearly a decade before proceedings were issued.

The case arose from a loan account opened in September 2004 in the name of Mrs James, apparently without her knowledge or authority, showing an initial debit of £49,000. Over the following years, £25,000 was transferred from the couple's joint property account to the loan account, along with smaller monthly sums from their joint current account. Mr and Mrs James say they knew nothing of these arrangements until 2010, when a registered default against Mrs James prevented them from remortgaging their home.

Following formal complaints to HSBC, a referral to the Financial Ombudsman Service (which did not uphold the complaint), two subject access requests, and an expert forensic banking report in 2018 concluding that the loan account had been set up fraudulently, proceedings were issued in October 2022.

HSBC applied to strike out the claim on the grounds that it disclosed no reasonable cause of action and was statute-barred. HHJ Blohm KC, sitting as a High Court judge, accepted HSBC's position, finding that Mrs James had sufficient knowledge to plead fraud by 2013 at the latest, and that the pleaded claims in deceit were legally deficient in any event.

The Court of Appeal upheld both conclusions. On deceit, Lord Justice Nugee confirmed that the tort requires a claimant to have acted in reliance on a false representation to their detriment. Because Mr and Mrs James denied the loan account from the outset and never acted upon it, the cause of action simply could not be established on the facts alleged.

The appeal centred instead on limitation, and specifically on whether the judge had made a reviewable error — under the jurisdiction confirmed in AIC Ltd v Federal Airports Authority of Nigeria [2022] UKSC 16 — in his analysis of a letter HSBC sent on 31 July 2013. That letter, which had been placed before the judge with its pages out of order, referred to repayment arrangements allegedly agreed in Mrs James's name. The judge treated this as a third significant fact pointing to fraud in 2013. Mr and Mrs James argued on appeal that the repayment arrangements related to a different account, and that when properly understood the letter did not support the judge's conclusion.

The Court of Appeal declined to treat this as a material error. Even assuming the repayment information related to the joint current account rather than the loan account, what mattered was that HSBC's records contained a documented history of Mrs James agreeing repayment terms and citing changed family circumstances — none of which had occurred. Combined with the unauthorised opening of the loan account and the unexplained transfer of £25,000, the Court held that the judge was fully entitled to find an inference of fraud more probable than an innocent explanation. Time ran from 2013, and the claim issued in 2022 was statute-barred.

The judgement is also of interest for the observations made, albeit obiter, on whether a constructive trust could arise in these circumstances. Lord Justice Nugee expressed considerable doubt: where the relationship between bank and customer is one of debtor and creditor, no specific asset passes when funds are transferred between accounts, leaving little for proprietary claims to attach to. The point was conceded below and not argued on appeal, but the Court's scepticism is significant.

The appeal was dismissed with costs.

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