Judge recused due to company insolvency

Ryan & Anor v HSBC UK Bank Plc & Anor [2023] EWHC 90 (Ch)Is a judge’s ownership of an insolvent company relevant to a recusal application involving an unrelated company with the same bankers?

Overview

In this case, the Court ordered that a judge be recused from hearing a derivative application based on his ownership of an unrelated insolvent company with the same bankers as the company involved in the derivative application.

Background

The claimants, Mr and Mrs Ryan, who were shareholders in Mar City Plc, brought an application for permission to continue a derivative claim on behalf of Mar City against HSBC UK Bank Plc, following the breakdown of the relationship between Mar City and HSBC.

After HHJ Gerald handed down a judgment dismissing the application, the Ryans raised the issue of perceived bias based on the judge’s “business association with HSBC”, and requested disclosure from the judge. In response, the judge provided a judicial statement advising that he and his wife each own 50% of the shares of a company called Hot Yoga Brixton Limited, whose bankers are HSBC. The company had received a £50,000 Bounce Back Loan and a £75,000 Recovery Loan to address the adverse impacts of the pandemic on the business.

When the Ryans requested further information, the judge warned counsel not to seek to cross-examine him, suggesting that the course the Ryans’ counsel was indicating might be “abusive” if it amounted to an attempt to cross-examine.

The Ryans then brought an application seeking an order that the judge be recused on the grounds of apparent bias, and that the judgment dismissing the Ryans’ derivative claim application be set aside. They alleged that the judge’s business relationship with HSBC may have affected his impartiality in ruling on the Ryans’ claim against HSBC. They also complained of his alleged failure to disclose the fact of the business association before the hearing commenced before him, as well as his reaction to the issue when it was raised before him, and the alleged incomplete picture arrived at following the judicial statement.

HSBC opposed the application, arguing that the judge was right not to disclose the association involving HSBC, and the current situation was far removed from ones where recusal might be required.

The Court’s Decision

The Court ruled in favour of the Ryans, ordering that the judge be recused and that the judgment be set aside. The Court focussed on whether the circumstances of the case would lead the fair-minded informed observer (the “FMIO“) to conclude that there was a real possibility of bias in the case, and found that they would.

The Court stated that, if the extent of the business association between the judge and HSBC was that Hot Yoga Brixton, a small company of which the judge was a 50% shareholder with his wife, was a solvent business which had obtained routine lending and which was being serviced without any difficulty, then the Court would not consider that a FMIO would view this as an association which suggested a real possibility of bias.

However, because the judge’s company was insolvent, the Court found that a FMIO would view this situation somewhat differently, given that the company’s financial difficulty could result in him or his family suffering substantial financial detriment, even though the nature of the business relationship with the bank was impersonal. In this situation, the Court found that the FMIO would begin to have some doubts as to whether or not the business association could result in a real possibility of bias.

The Court focussed on the following considerations, among others:

  1. The company had obtained a Bounce Back Loan of £50,000, and the bank could have recourse against the company irrespective of the fact it was supported by a government guarantee.

  2. The Bounce Back Loan did not solve the company’s cash flow problems, hence the need for the Recovery Loan of £75,000, secured by way of a debenture over the business.

  3. Based on Hot Yoga Brixton’s latest reported accounts, it was clear that the company was insolvent, and increasingly insolvent, meaning that it was plausible that the company could shortly be in a position of default, or might have been close to a position of default by the time of the hearing and the judgment being handed down. The FMIO would be concerned about the proximity in timing of those events with this case, and the lack of further detailed and up to date information on the matter.

  4. While a FMIO might still be somewhat sceptical that the fact that Hot Yoga Brixton might be in financial difficulty necessarily suggested that this financial difficulty would overspill onto the judge or his immediate family, the FMIO would want more full disclosure, and the lack of a complete picture in this respect, overall, would be likely to begin to colour the FMIO’s view.

  5. A FMIO would consider that Hot Yoga Brixton’s survival was of some “considerable importance to the judge”.

  6. A FMIO may also consider that Hot Yoga Brixton’s own positive experience of financial support from HSBC in times of difficulty, for something which was important to him, might subconsciously render the judge more hostile to the notion that a bank might provide loan support for improper purposes, and have some feelings of gratitude for the support rendered, even if subconscious.

As a result of these and other factors, the Court concluded that a fair-minded informed observer, having considered all the facts, would conclude there was a real possibility that the judge was biased. It ordered that the judge be recused and that the judgment be set aside.

 

Judge: Mr Hugh Sims KC (sitting as a Deputy Judge of the High Court)

Counsel: Mr Stephen Davies KC of Enterprise Chambers (instructed by Horwich Farrelly Limited) for the Ryans; Ms Bridget Lucas KC of Fountain Court Chambers (instructed by Eversheds Sutherland (International) LLP) for HSBC Bank