Singularis Holdings Ltd (in Official Liquidation) (a Company Incorporated in the Cayman Islands) v Daiwa Capital Markets Europe Ltd

JurisdictionEngland & Wales
JudgeSir Geoffrey Vos,Lady Justice Gloster,Lord Justice McCombe
Judgment Date01 February 2018
Neutral Citation[2018] EWCA Civ 84
Docket NumberCase Nos: A3/2017/0907, 0908, and 0909
CourtCourt of Appeal (Civil Division)
Date01 February 2018
Singularis Holdings Limited (in Official Liquidation) (a Company Incorporated in the Cayman Islands)
Claimant / Respondent
Daiwa Capital Markets Europe Limited
Defendant / Appellant

[2018] EWCA Civ 84



Lady Justice Gloster


Lord Justice McCombe

Case Nos: A3/2017/0907, 0908, and 0909






Claim No: FL-2016-000015

Rolls Building

7 Rolls Buildings

Fetter Lane

London, EC4A 1NL

Mr John McCaughran QC and Mr Michael Watkins (instructed by Ashurst LLP) appeared for the appellant

Mr Robert Miles QC and Mr Andrew de Mestre (instructed by Jenner & Block London LLP) appeared for the respondent

Hearing dates: 18 th and 19 th December 2017

Sir Geoffrey Vos, Chancellor of the High Court:



The central question in this appeal is whether the defence of illegality is available to allow a bank to defeat a claim in negligence and breach of contract brought by its corporate customer. The claim arises from the fact that the bank paid away large sums at the instigation of the sole shareholder and the director of the customer who had “the dominant influence” over its affairs. It is common ground that the shareholder director was acting fraudulently and the primary question is whether, in those circumstances, his knowledge should be attributed to the bank's corporate customer. If it should, then the secondary question is whether the customer's claim should be barred under the three-tier test adumbrated by the Supreme Court in Patel v. Mirza [2016] UKSC 42 (“ Patel v. Mirza”). There are subsidiary questions raised by the appellant bank on contributory negligence, whether the scope of the duty that it owed extended to protect the creditors of the customer, and whether it should anyway succeed in an equal and opposite claim in deceit against the customer.


The director the attribution of whose knowledge is in issue was Mr Maan Al Sanea (“Mr Al Sanea”). He ran the affairs of Singularis Holdings Limited, the claimant and respondent to this appeal, which is now in liquidation in the Cayman Islands (“Singularis” or the “company”). On the primary question of attribution, the appellant and defendant, Daiwa Capital Markets Europe Limited (“Daiwa”), has sought to rely on various dicta taken from the speeches of the House of Lords in Stone & Rolls Ltd v. Moore Stephens (a firm) [2009] 1 AC 1391 (“ Stone & Rolls”). Daiwa acknowledged, however, that Lord Neuberger had said in the Supreme Court (supported by the majority) in Bilta (UK) Ltd (in liquidation) v. Nazir (No 2) [2016] AC 1 (“ Bilta”) that the decision in Stone & Rolls should not be looked at again (see paragraph 30 of his judgment in that case).


In brief outline, Mrs Justice Rose gave judgment on 16 th February 2017 after a 3-week trial in favour of Singularis against Daiwa in the sum of US$152,804,925. Daiwa is the London subsidiary of a Japanese investment bank and brokerage company, Daiwa Securities SMBC Co Ltd. In 2006, Daiwa entered into a lending relationship with Saad Investment Company Ltd, which was part of the Saad group, a Saudi Arabian conglomerate owned by Mr Al Sanea. On 3 rd December 2006, Singularis was incorporated in the Cayman Islands (originally under the name “Saad Investments Finance Company (No. 7) Limited”). The company was set up to manage Mr Al Sanea's personal assets, and was not part of the Saad group. At all relevant times, as I have said, Mr Al Sanea was its sole shareholder. Its directors included Mr Al Sanea, his wife, his daughter, Mr Omer El Mardi (who had previously worked at the World Bank, the United Nations, and as a judge in Sudan) (“Mr El Mardi”), Mr Christopher Hart (who had worked at Scandinavian Bank, Bank of America and Citibank before joining the Saad group) (“Mr Hart”), Mr Maan Al-Zayer (who had worked at National Commercial Bank before joining the Saad Group) and Mr Michael Alexander (a US attorney).


The judge held that Mr Al Sanea must have known that Singularis was on the verge of insolvency at the time the payments were made, and therefore had a duty to act in the best interests of the company's creditors. Mr Al Sanea was thereby precluded from ratifying the payments as its sole shareholder. The judge rejected Singularis's case that bank employees had dishonestly authorised the payments, but held them to have done so negligently. Accordingly, Daiwa was in breach of the duty of care adumbrated by Steyn J in Barclays Bank plc v. Quincecare Ltd [1992] 4 All ER 363 (“ Quincecare”), and it was irrelevant that only Singularis's creditors, who were not owed the duty, suffered a loss. The judge rejected Daiwa's argument that Mr Al Sanea's knowledge and fraud should be attributed to Singularis for four main reasons. First, Bilta did not go so far as establishing that, where a company is suing a third party for breach of a duty, the fraudulent conduct of a director is to be attributed to the company if it is a one-man company. Secondly, attribution in this context would denude the Quincecare duty of value in situations where it is most needed, and that duty is very different from the duty owed by auditors. Thirdly, Stone & Rolls, properly interpreted in the light of Bilta, did not lead to a different conclusion. Fourthly, Singularis was in any event not, as a matter of fact, a one-man company in the sense used in Stone & Rolls and Bilta, notwithstanding that Berg Sons & Co v. Adams [1992] BCC 661 (“ Berg”) showed that the presence of an innocent director, who is not involved in running the company, was insufficient to prevent attribution. Here, even though Mr Al Sanea was the dominant influence, the company had a board composed of reputable people and a substantial business.


The judge held that Daiwa had breached its duty of care to Singularis in making the payments without any proper inquiry. Any reasonable banker would have realised that there were many obvious signs that Mr Al Sanea was perpetrating a fraud on the company. There were failures at every level within Daiwa. The judge accepted that Daiwa had a “dysfunctional structure leading to a sequence of events where everyone [assumed] that someone else [was] dealing with investigating the disputed payments but no one [troubled] to check whether that [was correct]”. All Daiwa's defences failed. The illegality defence failed because Mr Al Sanea's wrongdoing could not be attributed to the company, and vicarious liability did not apply in this context. Moreover, the three-fold test in Patel v. Mirza was not satisfied: it would not be contrary to the public interest to allow the claim; denying the claim would have a material negative impact on the growing reliance on banks to help reduce financial crime, and would be a disproportionate response to any wrongdoing on the part of Singularis, particularly where this could be more accurately reflected by reducing its damages for contributory negligence. Daiwa did not have an equal and opposite claim against Singularis for the tort of deceit, on the basis of Evans-Lombe J's decision in Barings plc v. Coopers & Lybrand [2003] PNLR 34 (“ Barings”).


The judge reduced Daiwa's damages by 25% in respect of Singularis's contributory negligence. The main grounds for the 25% reduction were Singularis's vicarious liability (in this context) for the deceit of Mr Al Sanea, and that its other directors had failed to contact Daiwa at any stage, even though they were aware that the company was “travelling through very rough waters”, and that the association of their names with the company would provide a measure of comfort to third parties dealing with it.


Against this backdrop, Daiwa raised 5 grounds of appeal as follows:-

i) The judge was wrong in law to hold that Mr Al Sanea's conduct and state of mind were not attributable to Singularis for the purposes of its claim against Daiwa.

ii) The judge ought to have held that Daiwa's duty did not extend to protecting the interests of Singularis's creditors and that, in circumstances where the only persons who suffered losses were creditors, for whose exclusive benefit the claim was brought, no claim lay against Daiwa.

iii) The judge should have held that Singularis's claim was defeated by an equal and opposite claim by Daiwa for the tort of deceit.

iv) The judge ought to have held that Singularis's claim was precluded by an illegality defence.

v) Alternatively, if Daiwa was liable to Singularis for breach of duty, the judge erred in law or reached a conclusion that was not reasonably open to her by reducing Singularis's damages by only 25%, rather than by 80% to 100%, under the Law Reform (Contributory Negligence) Act 1945 (the “1945 Act”).


Before dealing with these grounds of appeal, it is necessary to set out the factual background in a little more detail, and to outline the essential elements of the most important authorities that bear on the appeal.

Factual background


On 13 th April 2007, Daiwa entered into a global master securities lending agreement with Singularis, under which Daiwa provided loan financing to enable the company to buy shares. The shares stood as security for the loan, and Daiwa was entitled in certain circumstances to top up the value of its security by making margin calls on the company.


Daiwa subsequently financed the acquisition by Singularis of shares in financial institutions. Alongside financing from its other lenders, this enabled the company to accumulate an equity portfolio valued at more than US$10 billion by 30 th April 2008. Its most significant holdings were in HSBC, BNP Paribas and JP Morgan.


Until the end of 2008, and despite the ensuing turmoil in the financial markets, Daiwa's credit reports on Singularis (which were based on the...

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