High Court refuses banks’ bid to knock out Arena Television and Sentinel claims in ABL fraud litigation

The High Court has refused major parts of attempts by Bank of Scotland and Lloyds to shut down sprawling claims connected to the Arena Television asset-based lending scandal, ruling that key questions about whether directors can ever have actual authority to commit fraud must be tested at trial.

In a detailed decision handed down by Justice Butcher on November 19, the Commercial Court declined to summarily dismiss either Arena Television’s or Sentinel Broadcast’s claims that the banks should have questioned payment instructions issued in the course of an alleged long-running scheme that raised more than £1 billion through non-existent broadcast equipment.

The banks had argued that Arena’s and Sentinel’s directors did have actual authority to give most payment instructions, even though those instructions were part of an alleged fraud, so long as the payments were “frauds by the company” rather than “frauds on the company”. Arena and Sentinel argued the contrary position—that directors cannot have actual authority to act in breach of duty, harm the company, or facilitate a scheme that renders the company insolvent.

The Court found that this was an issue requiring a full factual and legal examination, stating that the position advanced by Arena and Sentinel (that actual authority is limited by the duty to act honestly in the company’s interests) was arguable, but so was the banks’ wider approach, which certain cases also may support. Because this is an unsettled area, the issue must go to trial and cannot be resolved summarily.

The Court accepted that the banks had a real prospect of defending narrower categories of payments that were plainly for the personal benefit of former directors, but held that it would be inappropriate to resolve the broader authority issues without a full examination of facts, particularly in light of the Supreme Court’s recent clarification of the Quincecare line in Philipp v Barclays.

While Justice Butcher left Arena’s core claims intact, he struck out Arena’s separate claim for losses tied to the continuation of the fraud, finding that such losses fall outside the scope of a bank’s duty to protect customers from unauthorised payments.

On the opposite side of the equation, Justice Butcher also refused to summarily dismiss the banks’ conspiracy and deceit counterclaims. The banks allege that Arena (through its directors) made fraudulent misrepresentations that induced the banks to act, and that Arena is liable for those deceitful statements. The Court ruled that it is premature to decide attribution issues on a summary basis, and that the issue must go to trial.

Read the decision here.

Lance Ashworth KC of Serle Court and William Day of 3VB (instructed by Stewarts Law) represented Arena, while Joseph Curl KC and Jon Colclough of South Square (instructed by Isadore Goldman) represented Sentinel. Simon Salzedo KC, Joanne Box and Mohammud Jaamae Hafeez-Baig (instructed by Eversheds Sutherland) acted for Bank of Scotland and Lloyds.