Of IPGL, conspiracies and conspirators: the mysterious case of the letter to the Electoral Commission

Over the past couple of days on the twitter following the publication of a letter to the electoral commission by former MP and current candidate, Roger Mullin, the tag #torydirtymoney has been appearing in tweets. Despite being debunked by BUzzfeed’s James Ball, and being dismissed by the electoral commission, the tag has a life of its own, and stories continue to be circulated on various websites and by tweeters and by politicians and journalists who should know better (including sophisticated electoral gadget operator Jeremy Vine, and TV’s Robert Peston from Peston on Sunday with TV’s Robert Peston)

The basis of Mullin’s complaint is first, HSBC loaned money to a company known as IPGL Ltd which was, according to Mr Mullin, “in some financial distress”; and second, the money was (in the words of Mr Mullin) “Laundered” into COnservative party donations. Among other things Mr Mullin suggests HSBC should have notified donations made by its borrower to the electoral commission.

The financial position of IPGL Ltd is dealt with by James Ball in his Buzzfeed piece, and can be checked with a review of the IPGL accounts. This was not a company in “distress”. The 2008 accounts and 2009 accounts show the company made a loss in each year. But, with plenty of collateral available (the company had over £1/4 billion of net assets) the company reported that it consolidated various existing HSBC debts into a £200 million loan with HSBC in October 2008 and arranged a repayment schedule through to 2011. The debts were being repaid (and total indebtedness to HSBC being substantially reduced), while the donations (amounting to just over £1million over the two financial years to 2008 and 2009) were made. As James Ball notes, the company returned to profit in 2010 and remains trading today. For a company in financial distress (as suggested by Mr Mullin) that’s a very quick recovery – particularly when the company was paying back tens of millions of pounds of debt. Perhaps then the reality is that the premise of Mr Mullin’s complaint is flawed. There is no indication the company was in financial distress. A group of companies, containing investment companies, made an operating loss at the height of the global crash. This is not a surprise. It happened to lots of businesses. And it happened to lots of businesses that subsequently recovered. There is no story here. The continued propagation of it seems conspiratorial. One would have expected a journalist of Robert Peston’s experience in financial and business journalism to have carried out basic checks of the accounts before sharing a story which seems to have a flawed foundation.

Disregarding this though the other basis of Mr Mullin’s complaint is itself startling. He appears to argue (and my apologies if I am misrepresenting him) that somehow HSBC retains responsibility for the way in which the money loaned to IPGL Ltd is used. This seems to be the only basis for his argument that HSBC had to report the donations made by its borrower to the Electoral commission. To a property lawyer this analysis is bizarre.

Consider the following situation. Bank X lends money to A. The money loaned becomes the property of A. As A’s property, A has the power to use and to enjoy the property as A wishes. Bank X has a right against A to get the money paid back. But short of express provision in the loan agreement Bank X is not responsible in any way for what A does with the money. The “money” is no longer Bank X’s property. Bank X has no ongoing property interest in it (unless provided expressly – in Scotland this would not be possible). So if A borrows money for a specific purpose and uses it for a different purpose the bank will only have a remedy against A as an express term of the contract. And that remedy will be to demand repayment of the loan – the bank cannot simply assert that it still owns the money previously handed over. Similarly, if A goes and buys drugs Bank X has no responsibility for that purchase. The police will not come knocking on the door of Bank X to arrest the directors under the Misuse of Drugs Act. Why then, accepting the logic of Mr Mullin’s argument, would Bank X incur liability to the Electoral Commission? If Bank X is not a shadow director (whereby the debtor company is used to acting in accordance with their instructions) Bank X has no responsibility. Creditors do not generally have liability for the actions of their borrowers.

A review of a basic student book on banking law, Ellinger’s Modern Banking law, ch 17, sees a discussion of instances where lenders incur liability. These include negligent advice by the bank to the borrower, the bank bringing a loan facility to an end too early, the bank incurring liability as a shadow director because it tells the borrower what to do, and environmental cases – where banks can incur liability if it causes or permits pollution or enforces a security and takes possession of the property. The environmental liability arises expressly in statute. If the statute was silent there would be no liability because the default position is the lender is not responsible for the actions of the debtor.

Mr Mullin’s letter proceeds on two assumptions: (a) IPGL Ltd was in financial distress; and (b) that HSBC has responsibility for what the borrower, IPGL LTd, does with the money loaned. Unfortunately for the conspirators IPGL LTd was not in financial distress; and HSBC has no responsibility for the actions of its debtor.

If people are wanting to look at issues regarding expenses in political contexts there are a variety of other stories that can be looked at. But this story is a non-story.


About loveandgarbage

I watch the telly and read when not doing law stuff and plugging my decade and a half old unwatched Edinburgh fringe show.
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