Adieu to Attribution
| Published date | 01 May 2022 |
| Author | Qinhao Zhu |
| Date | 01 May 2022 |
| DOI | http://doi.org/10.1111/1468-2230.12679 |
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Modern Law Review
DOI:10.1111/1468-2230.12679
CASE
Adieu to Attribution
Qinhao Zhu∗
Applying the illegality defence to corporate claims remains one of the most vexed issues at the
interface of the law of obligations and company law. In Singularis Holdings Ltd vDaiwa Capital
Markets Europe Ltd, the Supreme Court held this defence did not bar a company from suing its
bank for negligently failing to stop the company’s controlling director from misappropriating
funds. While the result is defensible, the decision fails to resolve some important uncertainties:
(1) the relationship between the defence and attribution of illegal acts to companies;(2) the role
of contr ibutory negligence; (3) the (un)importance of corporate personality; and (4) the future
of the illegality defence. This note argues that, while not a panacea,taking a practical, rather than
a metaphysical, view of companies is the rst step in resolving these diculties.
INTRODUCTION
In Barclays Bank plc vQuincecare Ltd1(Quincecare) Steyn J held:‘[A] banker must
refrain from executing an order if and for as long as the banker is ’put on
inquiry’ in the sense that he has reasonable grounds (although not necessarily
proof) for believing that the order is an attempt to misappropriate the funds
of the company … And, the external standard of the likely perception of an
ordinary prudent banker is the governing one.’2
The Quincecare duty arises as an implied term of the banker-depositor con-
tract and in the tort of negligence.3It addresses the familiar dilemma of ap-
portioning the loss caused by a fraudster between two innocent parties. Al-
though the bank’s employees were negligent, almost inevitably they will not
bear the liability.Instead, the bank’s shareholders will. Like the defrauded com-
pany’s shareholders they are innocent of any direct wrongdoing (but may have
been negligent in choosing their servants).4This kind of analysis,looking past
∗BA (Oxon) (forthcoming).Special thanks to Har ry Stratton.Thanks also to the anonymous reviewer,
who gave feedback on twodrafts, Harrison Fookes and Professor Peter Watts QC for their comments.
Mistakes are attributable to me alone.
1 [1992] 4 All ER 363 (QB).
2ibid, 376, cited with approval in Lipkin Gorman vKarpnale Ltd [1989] 1 WLR 1340, 1356 per
May LJ (reversed in part on dierent g rounds [1991] 2 AC 548). For criticism, see P.Watts,‘The
Quincecare Duty: Misconceived and Misdelivered’[2020] JBL 403.
3Federal Republic of Nigeria vJPMorgan Chase Bank NA [2019] EWHC 347 (Comm); [2019] 1
CLC 207 at [40] (armed [2019] EWCA Civ 1641; [2019] 2 CLC 559).
4SeeKirschner vKPMG LLP 938 NE2d 941,957-958 (NY 2010), noted (2011) 124 Harvard LR
1797 (Kirschner); Re Hampshire Land Company [1896] 2 Ch 743, 747.
© 2021 The Author.The Modern Law Review © 2021 The Modern Law ReviewLimited. (2022) 85(3) MLR 755–772
Adieu to Attribution
the corporate form to ask cui bono (and cui detrimento) from corporate liability,
is adopted throughout this note. Some will cr iticise this approach, because it
supposedly overlooks the ‘separate legal personality’(SLP) of companies.5Such
criticism, however, gets things backwards. SLP is a consequence of the legal
rules that dene what companies are. Those rules are ‘entity shielding’, ‘au-
thority’ and ‘procedure’.‘Entity shielding’ means companies can own assets and
those assets cannot be attached by the shareholders’ creditors (because they are
‘shielded’ by the company). Authority rules give individuals the power to act
for companies. Procedural rules specify how companies can sue and be sued.6
Putting it all together: authority rules allow companies to accrue rights and
incur obligations through human agency; procedural rules allow companies to
enforce their rights and be held responsible for their obligations; ‘entity shield-
ing’ makes companies’ legal responsibility meaningful by g iving them a separate
pool of assets to satisfy judgments. In that sense, companies have SLP. To start
from SLP as an immutable property of companies and then try to work out
the rules is to engage in the ‘metaphysics’ that Lord Homann deprecated in
Meridian Global Funds Management Asia Ltd vSecurities Commission7(Meridian),
where he rejected the ‘directing mind and will’ ‘test’ for corporate mens rea.
The metaphysical question of who is the company’s ‘directing mind and will’
is replaced with a practical question: whose knowledge should be attributed to
the company to further the purpose of the particular cr iminal statute?8
Singularis Holdings Ltd vDaiwa Capital Markets Europe Ltd (Rose J)9(Singularis
(HC)) is the rst decision where the Quincecare duty has led to liability on the
facts. That decision was armed by the Court of Appeal (Sir Georey Vos C;
Gloster and McCombe LJJ agreeing)10 (Singularis (CA)) and the Supreme Court
(Lady Hale; Lords Reed, Lloyd-Jones, Sales and Thomas agreeing)11 (Singularis
(SC)). In this note I rst summarise the facts and dene the important term
‘gatekeeper’. Second, I explain and analyse all three judgments. Third, I argue
that the Supreme Court misused the landmark case of Salomon vA Salomon
&CoLtd
12 (Salomon (HL)) and the idea of corporate personality generally.
Fourth, I consider reform of the illegality defence for companies in the context
of gatekeeper liability. I conclude by rearming that in tackling company law
issues judges should look past the ction of the company.
BACKGROUND
Facts and procedural history
Singularis Holdings Ltd is a company incorporated in the Cayman Islands. Mr
Maan Al Sanea, a prominent Saudi businessman, was its sole shareholder and
5 See for example S.Worthington,‘Corporate Attribution and Agency: Back to Basics’ (2017) 133
LQR 118.
6 See R. Kraakman et al, The Anatomy of Corporate Law: A Comparative and Functional Approach
(Oxford: OUP, 3rd ed, 2017) ch 1, esp 5-8.
7 [1995] AC 500, PC (NZ).
8ibid, 511.
9 [2017] EWHC 257 (Ch); [2017] 2 All ER (Comm) 445.
10 [2018] EWCA Civ 84; [2018] 1 WLR 2777.
11 [2019] UKSC 50; [2020] AC 1189.
12 [1897] AC 22.
756 © 2021 The Author.The Modern Law Review © 2021 The Modern Law ReviewLimited.
(2022) 85(3) MLR 755–772
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