Singularis Holdings Ltd (in Official Liquidation) (a Company Incorporated in the Cayman Islands) v Daiwa Capital Markets Europe Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Reed,Lord Thomas,Lady Hale,Lord Sales,Lord Lloyd-Jones |
| Judgment Date | 30 October 2019 |
| Neutral Citation | [2019] UKSC 50 |
| Date | 30 October 2019 |
| Court | Supreme Court |
[2019] UKSC 50
Lady Hale, President
Lord Reed, Deputy President
Lord Lloyd-Jones
Lord Sales
Lord Thomas
Appellant
John McCaughran QC
Michael Watkins
(Instructed by Ashurst LLP (London))
Respondent
Jonathan Crow QC
Andrew de Mestre QC
(Instructed by Jenner & Block London LLP)
Heard on 23 and 24 July 2019
( with whom Lord Reed, Lord Lloyd-Jones, Lord Sales and Lord Thomas agree)
Counsel for the respondent, Jonathan Crow QC, boldly asserted at the outset of his submissions that “this case is in fact bristling with simplicity”. The issue is certainly a simple one. The claim is brought by a company (through its liquidators) against its investment bank and broker for breach of the so-called Quincecare duty of care. In Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363, Steyn J held that it was an implied term of the contract between a bank and its customer that the bank would use reasonable skill and care in and about executing the customer's orders; this was subject to the conflicting duty to execute those orders promptly so as to avoid causing financial loss to the customer; but there would be liability if the bank executed the order knowing it to be dishonestly given, or shut its eyes to the obvious fact of the dishonesty, or acted recklessly in failing to make such inquiries as an honest and reasonable man would make; and the bank should refrain from executing an order if and for so long as it was put on inquiry by having reasonable grounds for believing that the order was an attempt to misappropriate funds. The issue in this case is whether such a claim is defeated if the company's instructions were given by the company's Chairman and sole share-holder who was the “dominant influence over the affairs of the company”. Can his fraud be attributed to the company? And if so, is the claim then defeated, whether on grounds of illegality, of causation, or by an equal and opposite claim against the company in deceit?
The respondent company, “Singularis”, is a company registered in the Cayman Islands, set up to manage the personal assets of a Saudi Arabian business man, Maan Al Sanea, separately from his business group. At all times material to this claim, Mr Al Sanea was its sole shareholder, a director and also its chairman, president and treasurer. There were six other directors, who were reputable people, but did not exercise any influence over the management of the company. Very extensive powers were delegated to Mr Al Sanea to take decisions on behalf of the company, including signing powers over the company's bank accounts. The company had a substantial and legitimate business, carried out over a number of years before the relevant events, for which it borrowed substantial sums of money under a variety of funding arrangements.
The appellant, Daiwa, is the London subsidiary of a Japanese investment bank and brokerage firm. In 2007, it entered into a stock financing arrangement with Singularis. Daiwa provided Singularis with loan financing to enable it to purchase shares which were the security for the repayment of the loan. In June 2009, all the shares were sold, the loan was repaid, and Daiwa was left holding a cash surplus for the account of Singularis. Together with a sum of US$80m deposited by Singularis in June 2009, the total held to Singularis' account was approximately US$204m.
Between 12 June and 27 July 2009, Daiwa was instructed by Singularis to make eight payments, totalling approximately US$204,500,000, out of the money held to Singularis' account. Five of those payments were to the Saad Specialist Hospital Company. Three of them were to or for the benefit of Saad Air (A320 No 2) Ltd and Saad Air (A340–600) Ltd (together, “Saad Air”). Those instructions were given with the approval of Mr Al Sanea who, as between Singularis and Daiwa, had authority to give instructions to make the payments. Daiwa made those payments. The judge held that each of the payments was indeed a misappropriation of Singularis' funds because there was no proper basis for any of them. There has been no appeal against that finding.
On 20 August 2009, Mr Al Sanea placed Singularis in voluntary liquidation. On 18 September 2009 the Grand Court of the Cayman Islands made a compulsory winding up order and joint liquidators were appointed.
On 18 July 2014, Singularis, acting through its joint liquidators, brought a claim against Daiwa for the full amount of the payments (less any sums recovered either from Mr Al Sanea or the recipients of the payments). There were two bases for the claim: (1) dishonest assistance in Mr Al Sanea's breach of fiduciary duty in misapplying the company's funds; and (2) breach of the Quincecare duty of care to the company by giving effect to the payment instructions.
In the Chancery Division of the High Court, Rose J dismissed the dishonest assistance claim because Daiwa's employees had acted honestly. However, she upheld the negligence claim, while making a deduction of 25% under the Law Reform (Contributory Negligence) Act 1945 to reflect the contributory fault of Mr Al Sanea and the company's inactive directors, for which the company was responsible: [2017] EWHC 257 (Ch); [2017] Bus LR 1386.
Singularis did not appeal against the dismissal of the dishonest assistance claim. Daiwa did appeal against the finding of liability on the negligence claim. The Court of Appeal unanimously dismissed the appeal: [2018] EWCA Civ 84; [2018] 1 WLR 2777. In brief, it held (1) that Mr Al Sanea's fraudulent state of mind could not be attributed to the company; but (2) even if it could, the claim would still have succeeded — the bank's negligence had caused the loss, it was not defeated by a defence of illegality, or by an equal and opposite claim by the bank for the company's deceit; and (3) the judge's finding of 25% contributory negligence was a reasonable one.
Daiwa now appeals to this Court on the question of attribution and its consequences. Two broad issues arise. (1) When can the actions of a dominant personality, such as Mr Al Sanea, who owns and controls a company, even though there are other directors, be attributed to the company? (2) If they are attributed to the company, is the claim defeated (i) by illegality; (ii) by lack of causation because the bank's duty of care does not extend to protecting the company from its own wrongdoing or because the company did not rely upon its performance; or (iii) by an equal and countervailing claim in deceit?
The starting point must be the judge's findings, none of which is under appeal. She held that there was no good reason to make the payments to Saad Air and that it was a breach of fiduciary duty for Mr Al Sanea to direct Singularis to make them (para 120). She also held that the agreement made between Singularis and the hospital to pay the expenses of the hospital was a sham and the five payments were a misappropriation of the company's money by Mr Al Sanea in breach of his fiduciary duty (paras 121–127). As sole shareholder he was not entitled to ratify the misappropriation of company funds because he must have known that the company was on the verge of insolvency and his duty as director was to act in the best interests of the company's creditors. This precluded making gratuitous payments to other companies in the Saad group to the detriment of Singularis' creditors (paras 128–137).
She went on to hold that Daiwa was in breach of the Quincecare duty on the facts of the case. Any reasonable banker would have realised that there were “many obvious, even glaring, signs that Mr Al Sanea was perpetrating a fraud on the company”. He was clearly using the funds for his own purposes and not for the purpose of benefiting Singularis (para 192). First, Daiwa was well aware of the dire financial straits in which Mr Al Sanea and the Saad group found themselves at the end of May and in early June 2009 (paras 193–196). Second, it was aware that Singularis might have other substantial creditors with an interest in the money (para 197). Third, there was plenty of evidence to put Daiwa on notice that there was something seriously wrong with the way that Mr Al Sanea was operating the Singularis account (para 199). Fourth, it was alive to the possibility that the agreement with the hospital was a front or a cover rather than a genuine obligation (para 200). Fifth, there was a striking contrast between the way in which some payment requests were processed and how the disputed payments were handled (para 201). In short “Everyone recognised that the account needed to be closely monitored … But no one in fact exercised care or caution or monitored the account themselves and no one checked that anyone else was actually doing any exercising or monitoring either” (para 202).
On the basis of those findings, the judge held that there was a clear breach of Daiwa's Quincecare duty of care to Singularis. That is incontrovertible. The issue for this Court, as in the courts below, is whether Daiwa has any defence to that claim. The issue of attribution has to be seen in the context of the possible defences to which it might give rise. Were attribution to be established, Daiwa raises three possible defences. It is worth giving a brief account of each of these before turning to the question of attribution. It will be seen that, even if attribution were established, none of them is a very promising basis for denying liability.
Both the judge and the Court of Appeal rejected the illegality defence raised by Daiwa on two grounds: first, that Mr Al Sanea's fraud could not be attributed...
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