Banque Financiere de la Cite S.A. (formerly Banque Keyser Ullmann S.A.) v Westgate Insurance Company Ltd (formerly Hodge General & Mercantile Company Ltd); Banque Keyser Ullmann S.A. v Skandia (U.K.) Insurance Company Ltd

JurisdictionEngland & Wales
Judgment Date28 July 1988
Judgment citation (vLex)[1988] EWCA Civ J0728-2
Docket Number88/0658
CourtCourt of Appeal (Civil Division)
Date28 July 1988
La Banque Financière De La Cité S.A. (Formerly Named Banque Keyser Ullmann En Suisse S.A.)
Respondents (Plaintiffs)
Westgate Insurance Company Limited (Formerly Named Hodge General & Mercantile Insurance Company Limited)
Appellants (Defendants)

[1988] EWCA Civ J0728-2


Lord Justice Slade

Lord Justice Lloyd


Lord Justice Ralph Gibson








Royal Courts of Justice

MR MARK WALLER, Q.C., MR JONATHAN GAISMAN and MR CHARLES CORY-WRIGHT (instructed by Messrs Richards Butler) appeared on behalf of the Appellant Westgate Insurance Company Limited.

MR JOHN GRIFFITHS, Q.C., MR MARK HAPGOOD and MR HODGE MALES (instructed by Messrs Hopkins & Wood) appeared on behalf of Banque Financiere De La Cite S.A.)


This is the judgment of the court, to which all its members have contributed, on an appeal from a judgment of Steyn J. delivered on 30th September 1986 and reported at (1989) 1 Lloyds Rep. 69. The appellant is an insurance company which is now named Westgate Insurance Company Limited, but was formerly named Hodge General & Mercantile Insurance Company Limited, and will be referred to in this judgment as "Hodge". That judgment was delivered in four commercial actions, namely action 1983 B.No.813 ("the Ultron action"), action 1983 S.No. 763 ("the Deminter action"), action 1983 S.No. 764 ("the HSG action") and action 1982 B.No. 3436 ("the ESG action").


There were originally before this court appeals in all four actions. The principal appellant in the Ultron action was Hodge. The appellant in the other three actions was another insurance company, Skandia (U.K.) Insurance Company Limited ("Skandia"). It was also an appellant in the Ultron action in relation to an order for costs. However, at a late stage in the course of the hearing, Skandia, which was separately represented, withdrew its appeals in all four actions. Accordingly, in the event judgments on the appeals in the Deminter, HSG and ESG actions are no longer required. This judgment relates solely to the Ultron action.


Four Swiss Banks in all were joined as respondents to the appeals. Nearly all of them have changed their names since the proceedings began, but it will be convenient to refer to them by the names by which they are called in the documentation before the court. The respondent to Hodge's appeal in the Ultron action is Banque Keyser Ullmann en Suisse S.A. ("Kusa"). The respondents to Skandia's appeal in the Deminter action were Slavenburgs Banque (Suisse) S.A. ("Slavenburgs"), American Fletcher Bank (Suisse) S.A. ("American Fletcher") and Chemical Bank. The respondents to Skandia's appeal in the HSG action were American Fletcher and Chemical Bank. Kusa was respondent to Skandia's appeal in the ESG action. In this court Kusa, Slavenburgs and American Fletcher appeared by the same counsel, but Chemical Bank was separately represented.


The four actions raise issues of fact and law of considerable complexity and interest. The trial in the court below took some three months and was followed by a very full, clear and careful judgment of the learned judge, to which we pay tribute. The hearing of the appeals has occupied about 24 working days. We gratefully acknowledge the care and skill with which the cases have been presented on all sides.


It is necessary briefly to explain the course of the hearing. It began with Mr. Kentridge Q.C. presenting Skandia's appeals. On the 8th day Mr. Waller Q.C. began his opening of Hodge's appeal. In doing so he adopted Mr. Kentridge's submissions so far as they applied to the case on the appeal of Hodge, but added substantial submissions of his own. On the 11th day Mr. Strauss Q.C. began responding to Skandia's appeals on behalf of Chemical Bank. On the 19th day Mr. John Griffiths Q.C. began his address on behalf of the other three respondent banks. In doing so he adopted in general terms the entirety of Mr. Strauss's submissions both on the facts and the law.


On the 21st day of the hearing Mr. Kentridge announced that Skandia was withdrawing its appeals. An Order was accordingly made by consent whereby, on certain terms relating to costs and to the dismissal of a cross-appeal by Kusa against Skandia in the Ultron action, all Skandia's appeals were dismissed.


Counsel for Skandia and Chemical Bank then withdrew from the court.


Mr. Griffiths and his junior, Mr. Hapgood, then proceeded with and completed their submissions on behalf of Kusa in response to Hodge's appeal in the Ultron action. Finally, on the 23rd day, Mr. Waller began his reply in support of this appeal, which he concluded on the following day.


In the result there remains before this court for adjudication only Hodge's appeal in the Ultron action. A cross-appeal by Kusa against Hodge in that action has been abandoned. This curtailment of the number of appeals has done little or nothing to reduce the difficult and important issues of law with which we have to deal. These have been more or less common to all four appeals. It has somewhat reduced the contentious issues of fact. For while the causes of action in the Ultron action are based primarily on events occurring up to September 1980, the causes of action in the Deminter, HSG and ESG actions were based on events occurring up to later dates. However, we think it necessary to include a brief reference to the events which gave rise to those three actions, since these formed an important part of the background against which the issues in the Ultron action fell to be dealt with at the trial.


As will appear, a number of other banks besides those already mentioned have from time to time been interested as participators in making the various loans with which these actions are concerned. For the sake of convenience, where precise identification of the particular bank or banks concerned appears unnecessary, we will from time to time use the expression "the banks" to refer to one or more of the respondent banks and these other participators. Also, for the sake of convenience, with all due respect to the arguments submitted to us, we do not propose in every instance to differentiate between them by reference to the names of counsel who presented them. In referring to submissions made by counsel for Hodge, we intend to include both the submissions made by Mr. Waller and those made by Mr. Kentridge, which so far as applicable were adopted by Mr. Waller. In referring to submissions made by counsel for Kusa, we intend to include both the submissions made by Mr. Griffiths and Mr. Hapgood and those made by Mr. Strauss which, so far as applicable, were adopted by them. Since by arrangement between the parties Mr. Kentridge's address preceded that of Mr. Waller and Mr. Strauss's address preceded that of Mr. Griffiths, it was inevitable that in some respects the principal burden of the argument should fall on Mr. Kentridge and Mr. Strauss, though in the event they had both left the court before the end of the hearing.



The story, as the learned Judge said, is one of fraud on a massive scale. During the years 1979 to 1981 a Spanish citizen, Mr. Jaime Ballestero, persuaded various combinations of the above-named banks, together with other banks, to make loans amounting in all to 80 million Swiss francs (approximately £30 million at present rates of exchange) to four Liechtenstein or Swiss companies, all of which he controlled. The securities offered in respect of the loans included gemstones and credit insurance policies. Mr. Ballestero, together with other persons who produced fraudulent valuations of the gemstones, perpetrated frauds, both on the lending banks and the insurers, who included Hodge and Skandia. The banks suffered heavy losses. Whether or not they attempted to do so, they did not succeed in obtaining any redress from Mr. Ballestero and his fraudulent associates. In the first instance they attempted to obtain recoupment of their losses under the policies, but eventually were driven to accept that claims of this nature were unsustainable because all the policies contained clauses expressly excluding liability for claims arising out of fraud.


However, the banks found themselves in a position to attack the insurers on another front. The insurances were throughout arranged by Ernest Notcutt & Company Limited, a reputable firm of Lloyds brokers with offices in London, Beckenham and Cardiff. Mr. Roy Lee of that firm negotiated and arranged all the relevant insurances, acting for Mr. Ballestero and the banks. In 1979 he was the manager of the firm's Cardiff office. In 1980 he had become their Regional Development Manager. He had left the firm in late 1981. Mr. Lee had been guilty of dishonest conduct from an early stage in the transactions. Neither he nor his employer nor the insurers are shown to have been involved in any way with the fraud perpetrated by Mr. Ballestero and his associates, or to have been aware of them at any material time. As to Mr. Lee, the most relevant features of his misconduct consisted in the issue at an early stage of cover notes in which he represented to the interested banks that 100% cover was in place before it had in fact been fully placed and in permitting them thereafter unwittingly to remain with only partial cover for a period of several months.


The banks asserted that in June 1980 Mr. A. C. Dungate, who was then employed by Hodge and subsequently by Skandia, became aware of such misconduct on the part of Mr. Lee and failed to disclose it to them. They claimed that if it had been disclosed to them, no further sums would have been lent...

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