Midland Bank 'let fraudster in to ruin a customer'

A small businessman will go up against the might of HSBC in the High Court on Tuesday in the culmination of an eight-year battle over what he alleges was a breach of trust.

Norman Bale, who is based in Truro in Cornwall, alleges that HSBC and a business adviser recommended by the bank, Nicholas Montgomery, were responsible for allowing a convicted fraudster to gain control of the books of a prefabricated house company he ran, BergHus Europe.

The fraudster, Colin Budd, set up a separate company with a similar name and transferred money and assets to it. As a result, the real BergHus went into liquidation in 1995.

Budd, who was convicted of fraud and made bankrupt in the 1980s, has since died.

Mr Bale claims he and other creditors lost more than £2m because of the collapse. He has been pursuing the case through the courts since 1995. Initially it was thrown out, but he had it reinstated on appeal and it opens in the High Court on Tuesday.

A successful business, BergHus won an award at the National Self-Build Exhibition in 1994. It had its account at a branch of what was then Midland Bank, since rebranded HSBC, in Worthing, East Sussex.

Mr Bale went to the manager of the branch in early 1994 looking to increase BergHus's overdraft facility. The manager wanted more financial information and recommended he use Mr Montgomery, a business consultant, to produce a report on the company. Mr Montgomery in turn recommended Budd as a business adviser.

Mr Bale maintains that both Mr Montgomery and Midland should have warned him about Budd's past track record. He will argue that Budd had already caused difficulties three years earlier for another client of Midland, Mark Usher Racing, which banked at the bank's Bromley branch. Again, Budd had been introduced by Mr Montgomery.

As evidence for his claim, Mr Bale will produce a report by Anthony Greenman, a director of the Banking Liaison Group, who concluded that Midland owned a duty of care to BergHus because it forced him to use Mr Montgomery rather than a firm of accountants, such as Berg-Hus's own auditor, KPMG.

"Despite Mr Bale's desire not to use Mr Montgomery... Midland Bank proceeded to press Mr Bale to use Mr Montgomery in preference to any other solution, making Mr Montgomery a condition under the terms of the facility letter dated 17 June 1994," said the report.

Both HSBC and Mr Montgomery deny any liability. "We do not believe these allegations have any substance," said a spokesman for HSBC.