Introduction To Yoga, A Bounce Back Loan and Judicial Recusal
A judge’s 50% interest in a yoga company featured in the matter of Ryan & Anor v HSBC UK Bank Plc & Anor [2023] EWHC 90 (Ch).
Grounds For Recusal Advanced
There were three broad grounds for recusal advanced:
- The judge’s business association. (“Business Association”)
- Alleged disclosure issue of the business association and reaction to the issue being raised. (“Enquiry Ground”)
- Suggested unfair process during a court hearing. (“Unfair Process”)
The judgment of Mr Hugh Sims KC (“the Recusal Judge”) is quite lengthy so this post picks out a few of the highlights rather than looking at all of the facts and all the grounds addressed by the Recusal Judge.
Bias
The matter of the law on bias was recited as follows:
The starting point is to ask, what does bias mean? Bias exists where the judge may unfairly regard with favour, or disfavour, the case of a party to the issue under consideration; see R v Gough [1993] AC 646, at 670 (Lord Goff), quoted in Porter v Magill at [99] (Lord Hope). However, this description may be said to still beg the question, when will it be unfair? In Locabail (UK) Ltd v Bayfield Properties Ltd [2000] QB 451, in a judgment of the court (Lord Bingham CJ, Lord Woolf MR and Sir Richard Scott V-C), it was stated at [2] (bold emphasis added by me):
“In determination of their rights and liabilities, civil or criminal, everyone is entitled to a fair hearing by an impartial tribunal. That right, guaranteed by the European Convention for the Protection of Human Rights and Fundamental Freedoms, is properly described as fundamental. The reason is obvious. All legal arbiters are bound to apply the law as they understand it to the facts of individual cases as they find them. They must do so without fear or favour, affection or ill-will, that is, without partiality or prejudice. Justice is portrayed as blind not because she ignores the facts and circumstances of individual cases but because she shuts her eyes to all considerations extraneous to the particular case.”
The HSBC Relationship
A relationship between the Ryans who were shareholders in the Second Defendant (Mar City Plc) and HSBC deteriorated following the provision of some additional finance to the property development business Mar City Plc. This subsequently culminated in a derivative action against HSBC UK Bank Plc along with a personal action by the Ryans.
A letter to the judge on 1 July 2022 after a hearing in which the judge had declined to afford the Ryans permission to continue the derivative claim against HSBC, highlighted the judge having a 50% shareholding in a yoga company Hot Yoga Brixton Limited (“HYBL”) that had a fixed and floating charge over its assets in favour of HSBC.
At a hearing on 8 July 2020, the court referred to the following disclosure by the judge in respect of the yoga business and HSBC:
I have read the transcript of the hearing on 8 July 2022 and it is apparent from reading it that the judge had not received the letter of 1 July 2022 before the hearing, due to the fact that the email address it had been sent to was not an email address which was in use. But he had picked up on the reference to bias at the end of the Ryans’ skeleton, and this was addressed at the outset of the hearing. After it became apparent the judge had not received the email sending the 1 July 2022 letter, a hard copy was handed up to the judge. After reading it the judge stated as follows: “Well, I think most of what is said there is accurate but, to be completely frank, it had not even crossed my mind but I think you will have to make whatever application you want to make in relation to that”. In the course of further exchanges with counsel as to how the matter might proceed he went on to state: “Yes, but it did not cross my mind because, I mean, it is—- My wife and I, we own a small yoga Brixton — a yoga business in Brixton whose bankers have been HSBC since 2014 and there was, from memory, a bounce back loan and then a recovery loan and the recovery loan has a charge over the premises or over whatever it is. No, not over the premises. Over the business, I think it is, a floating charge, I think, but all of that is done electronically. There is—- Most of it was done by the studio manager. So I do not personally think that a reasonable or objective observer would reach the conclusion that the mere fact that a judge has an interest in a business which banks with HSBC is something which should be disclosed. That is my view but — and it is a bit like my personal bank is Lloyds Bank and if this case involved Lloyds, it would not cross my mind to disclose that. Now, if the business or me personally, using that as a parallel example, had been involved in some sort of restructuring problems/issues possibly with the same individuals, then obviously that would have to be disclosed and, in fact, I probably would have just recused myself and said, “Well, actually, I know Mr Quinn,” for example, and it would be obviously quite improper for me to continue.”
…
After the hearing on 8 July the judge concluded he would provide formal confirmation of the oral disclosure he had already given on the 8 July, and a response to the questions raised in the 1 July letter, and to do so before the adjourned hearing. Thus, on 12 July 2022 the judge provided a statement which was circulated to the parties and stated (materially) as follows:
Having now had an opportunity to consider Claimants’ 1st July 2022 letter (received by the court on 8th July 2022) setting out certain matters of public record, I felt it might be of assistance to confirm the position.
My wife and I each own 50% of the shares in HYBL, a small single-premises yoga studio based in Brixton run by a full-time manager serving the local community.
From inception, its bankers have been HSBC. There were no bank borrowings until during the pandemic when a £50,000 Bounce Back Loan was applied for on-line with automatic offer generated by HSBC. It has been fully drawn-down.
Latterly, a £75,000 Recovery Loan was similarly applied for on-line, HSBC responding by email offer to the manager conditional on grant of a charge over HYBL’s assets which has been provided. It has been fully drawn-down.
The HSBC relationship is essentially transactional i.e. the provision of current and deposit accounts to process payments and receipts without provision of other banking services apart from the BBL and RL. As far as I am aware, there is not and never has been any relationship or assigned account manager.
There are no personal guarantees from myself or my wife, and no security has been provided by either of us. No other security has been provided by HYBL.
I have no personal or other HSBC bank accounts. I have no idea if my wife does.
The Adjourned Hearing On 15 July 2022
The Court hearing the recusal application noted that the judge did not welcome the review of his personal affairs:
From reading the transcript of the hearing on 15 July 2022 it is apparent the judge, quite understandably, did not appreciate the intrusion into his personal affairs. He warned counsel at one stage not to seek to cross-examine him, when it was suggested that there was further relevant information that the Ryans would wish to know about, suggesting that the course the Ryans’ counsel was indicating might be “abusive” if it amounted to an attempt to cross-examine. There was also some confusion at this hearing as to whether or not the judge would proceed to deal with all of the recusal application himself, at that hearing, or whether he should just give a ruling on stage 1 of the enquiry. Ultimately, after some prevarication, the Ryans requested he rule on stage 1 first. The judge did so, and ultimately he decided to withdraw himself from being involved further in the recusal application process thereafter, other than providing for directions for the application to be issued and heard by another judge.
As for his decision on stage 1 of the recusal application, as set out in the second judgment, the judge refused to give further information. That notwithstanding, the second judgment contains some further discussion about the business association at [26]-[31]. The judge seeks to contrast the HYB business and association with HSBC against the position the Ryans faced with HSBC. He points to: the amounts involved in relation to the Ryans’ case as compared with HYB; and the personalised nature of the dispute the Ryans had with HSBC, and contrasts that against the impersonal and Covid-19 driven nature of the transactions HYB had with HSBC. In response to the suggestion that further information should be provided he stated at [40]-[43] as follows, indicating HYB’s survival was of some considerable importance to him:
“40 It seems to me, on the basis of the information which has been provided and the nature of small family businesses serving the local community, a reasonably-informed fair-minded observer would properly infer and conclude that its survival was of some considerable importance to the judge (and his wife), particularly given that the company had gone to the trouble of getting a Bounce Back Loan and then a Recovery Loan; that seems to be a statement of the obvious. It is not necessary or material for the judge to start saying what his or her personal position or views are in relation to particular matters because if that were so, the judge would get sucked into something which would be or begin to resemble an informal type of cross-examination which, in my judgment, crosses the line.
41 That was brought into harsh relief when, as part of Mr Davies’ oral submissions about two or three hours ago, it was identified that the correspondence address of my wife stated in the published records is [home address redacted], which apparently (if I may say correctly, there being nothing to hide), is said to be registered in my sole name and has been re-mortgaged according to public (HMLR) records sometime last year, I think. That indicates that further enquiries have been made by the claimants’ solicitors, albeit that these submissions were made orally and not referred to in the skeleton or elsewhere.
42 From that it was submitted that it would be in the mind of the reasonably-informed fair-minded observer that that charge was or might be linked to raising funds for HYBL. If, it was submitted, the address is the present address of myself, therefore it is my home, and it is my home that is at risk in the event of HYBL default and, therefore, the claimants, and the reasonably-informed fair-minded observer, would not know but would want to know if there was a family interest in the business.
43 What that is doing is inviting the court down a perilous path in which an aggrieved party embarks upon investigations of public records and speculates without any foundation at all as to what might or might not be the situation, and then invites the court to engage in that speculative exercise to in effect elicit further information from the judge which becomes or is tantamount to a form of cross-examination or disclosure request. In my judgment, that sort of thing, particularly when it is said on the hoof during oral submissions, is a bridge too far or possibly more than one bridge too far.”
Business Association Ground For Judicial Recusal
The Court said that a solvent business trading without difficulty with a judge being a 50% shareholder (not a Director) only, would not likely result in suggestions of bias if assessed by the Fair Minded Informed Observer (“FMIO”). However, the context appeared different here:
… the Bounce Back loan evidently did not solve HYB’s cash flow problems, hence the need for the Recovery Loan of £75,000, in April 2022, secured by way of a debenture over the business of HYB. … it is apparent from its latest reported accounts that it is insolvent, and increasingly insolvent. Its trading losses have increased over the last year, and it is now balance sheet insolvent in the sum of £70,508 as at 28 February 2022. The liabilities to creditors appear to be growing, and to sums which are not insubstantial: in the accounts to the end of February 2022, creditors falling due within one year are showing at £114,389 and creditors falling due after more than one year at £44,510, a total of £158,899 … 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;
d. Fourth, I consider that a FMIO might still be somewhat sceptical that the fact that HYB might be in financial difficulty necessarily suggested this also meant that this financial difficulty would overspill onto the judge or his immediate family, after all there is a reason for the use of limited liability corporate vehicles. However, I do not consider the FMIO would necessarily be complacent, and would be interested to know more about the precise extent and nature of those connections and how significant any of this would be to the judge’s financial and wider concerns – to have full disclosure – so that any potential doubts in this respect could be laid to rest. The fact that the judge may in the recent past have been involved in granting security over property owned by him, including potentially his own home, in order to support HYB, might be viewed as being of some relevance. The lack of a complete picture in this respect, overall, would be likely to begin to colour the FMIO’s view;
e. Fifth, contrary to HSBC’s submissions, but consistently with the judge’s second judgment, I conclude a FMIO would consider that HYB’s survival was of some “considerable importance to the judge”. It does not seem to me the FMIO would consider the fact that HYB was dear to the judge’s heart, or that he was an instructor, or that the judge’s wife had other business interests (including in BTL), would add particularly to this analysis, save perhaps to reinforce that a FMIO would conclude there was a close connection between the judge and HYB in this case. To put it another way, the FMIO who reads beyond the headlines would conclude there is more to this case than the headline that the judge was a 50% shareholder in HYB which had an entirely standard banking relationship. HYB needed not only a Bounce Back loan, but then also a Recovery Loan. It was insolvent. It was far from clear that such recovery finance would be sufficient to enable HYB to avoid terminal insolvency, at least not without further support, possibly from the judge;
f. Sixth, the FMIO would not view the judge and HYB as being in the same proverbial boat as the position of the Ryans and MCPLC. The scale of the lending and the highly personalised nature of the relations in the latter case are very different from the former case. A subject matter/issue overlap is not so stark in this case. However, the mere fact that the original cause of HYB’s problem was Covid-19 related would not be viewed as being a panacea either. A FMIO would look at the finances of HYB and consider that HYB’s financial trajectory was still apparently in the wrong direction, some time after Covid-19. The FMIO may also consider that HYB’s own positive experience of finance 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 for/to HYB, even if subconscious;
g. Seventh, a FMIO would still probably consider that it was doubtful that the judge’s connection, via HYB, with HSBC gave rise to a real possibility of bias, either because the judge might feel a sense of obligation, or gratitude to HSBC, or wanting to be on the “right side” of HSBC. Knowing of the judicial oath, and the training of the judge, and his experience, the FMIO would still think it doubtful that simply because HYB had a moderate, and perhaps increasing, sense of reliance on finance with HSBC, this was not such as to put the judge in an exceptional position of pecuniary mercy, or with a sense of any special obligation to HSBC. To put it another way a FMIO would not view this as clearly falling within the extremes contemplated in Dovade where the need for recusal was obvious, but more in a twilight category of case;
h. Eighth, a FMIO would be interested to know to what extent the judge gave any conscious consideration to the issue before he gave his judgment. The FMIO would be alert to any signs, either in the way the manner the judge dealt with the issue when it was raised before him, or in the way in which he dealt with the case more generally, which might give rise to such concerns being either assuaged or exacerbated;
i. Ninth, thus, overall, the FMIO would be alert to any signs of a lack of apparent objective consideration of the issues and fairness in the manner in which the judge dealt with the recusal issue, and indeed matters before then. The FMIO would remain concerned, but also open minded, about the question of apparent bias.
The Enquiry Ground For Judicial Recusal
The Court said there were real grounds for the FMIO to doubt the position that the judge would objectively hear the matter:
a. The FMIO would, taking the judge’s explanation as to non-disclosure on its face, consider that a potentially relevant matter which could give rise to a risk of bias remained in the sub-conscious and there remained a risk of sub-conscious bias;
b. The FMIO would more likely have been reassured if the judge had consciously considered the question before the hearing and either satisfied himself it was not an issue, but was mindful of it, or if the judge had given the parties the opportunities to make submissions on it before he heard the matter. This would have meant that the points raised by the parties would have been firmly in his mind, and might have been more readily guarded against once brought to his notice, even if he thought he could properly continue;
c. Before reaching a final conclusion on the real possibility of apparent bias, the FMIO would therefore consider carefully events both before and after the explanation provided by the judge.
Under this ground for recusal the Recusal Judge also noted the following:
The judge also stated at the hearing that the reference to bias had been “slipped in at the bottom” of the Ryans’ skeleton for the hearing as in some way indicating sneaky behaviour by the Ryans’ counsel and that he was “not very impressed” with the approach taken by the Ryans. This was not an easy point for the Ryans or their counsel to raise and this type of language, and the tone and hostility it demonstrates to the Ryans, would be a concern to a FMIO. In short, a FMIO’s pre-existing concerns would be reinforced rather than being assuaged by the language and attitude displayed by the judge in these respects;
Unfair Process Ground For Judicial Recusal
Under this ground for judicial recusal there was reference to an approach to evidence that was submitted by the Ryans to be unbalanced:
The essential complaint by the Ryans is that the judge used conclusory language in the judgment to describe their case/evidence which was not balanced or warranted, such as: “simply incredible and incoherent” [53], “simply disconnected from reality and unreal” [57], “simply unreal” [61 and 69], “a very big and incredible ask which I am not prepared to take” [81], “this is quite simply incredible”[87]; “ungrounded in reality and unfounded in evidence” [89] and unfairly described the Ryans as seeking to “blacken” the name of HSBC [80].
…
I have already substantially addressed this point above. In my judgment the FMIO would have been more concerned that the judge did not appear to have undertaken a balanced assessment of the evidence overall. However it does seem to me a valid complaint that at [85]-[88] the judge appears to be indicating a readiness to reject as incredible and fanciful the evidence of the Ryans in circumstances which can rarely be done by a first instance tribunal, without cross-examination. I consider an FMIO would view this as part of the impression gained as to the assessment of evidence, and the case, overall, rather than on its own.
Summary Conclusions By The Recusal Judge
The Recusal Judge said there was a real possibility that the FMIO would consider:
… the tribunal was biased. I do so on the basis that (and by reference to the three main cases/grounds identified):
a. Ground/case 1 – the business association ground: The FMIO would begin to have some doubts as to whether or not the business association in this case between the judge, via HYB, and HSBC, having regard to the insolvent financial position of HYB, and its close connection with the judge, and perceived importance to him and his family, was an association which could result in a real possibility of bias, having regard also to the potential for some subject matter, and issue overlap, with the facts of the present case. It would have left the FMIO interested to know to what extent the judge gave any conscious consideration to the issue before he heard the case and gave his judgment. The FMIO would be alert to any signs, either in the manner in which the judge dealt with the issue when it was raised before him, or in the way in which he dealt with the case more generally, which might give rise to such concerns being either assuaged or exacerbated;
b. Ground/case 2 – the stage 1 enquiry ground: The manner in which the judge dealt with the issue of apparent bias, after it had been raised, and the stage 1 enquiry, would not have assuaged those concerns, and instead would have exacerbated them. Overall, having reviewed the first and second main grounds together, the FMIO would perceive that there was a real possibility of bias by the judge against the Ryans, and in favour of HSBC. The FMIO would remain open minded, however, as to whether or not that perception of real possibility was reinforced or assuaged by the approach taken by the judge at the substantive hearing and how this was reflected in his judgment;
c. Ground/case 3 – the unfair process ground: There are a number of indicators that the judge did not discharge his judicial functions in accordance with a fair process during the hearing, and as reflected in the judgment, such that the FMIO would conclude there was a real possibility of bias. They are sufficiently widespread, and significant, that in my view the FMIO would have reached the conclusion of a real possibility of bias from them alone, and whether or not grounds 1 and 2 are made out.
In the circumstances, I conclude that the judge should not continue to hear the permission application, or make any final order on it, and his judgment should be set aside. I shall consider what consequential orders should be made as a result of that conclusion after receiving further submissions from the parties.
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