An important ruling regarding the liability of financial
institutions who are found to have been negligent in their dealings
with their customers was handed down by the UK Supreme Court on 30
October 2019 in the case of Singularis Holdings Ltd (In
Official Liquidation) (A Company Incorporated in the Cayman
Islands) v Daiwa Capital Markets Europe Ltd [2019] UKSC 50.
The Supreme Court upheld the decisions of both the High Court and
Court of Appeal that Daiwa, the former investment bank and broker
of Singularis, had breached the Quincecare duty of care, which
establishes that a bank owes a duty to use reasonable skill and
care in executing its customer's orders.
Singularis had originally lacked sufficient funds to meet the costs
of bringing this claim against Daiwa; its only substantial assets
being those it was pursuing by way of litigation. Without third
party funding, therefore, the claim for $204 million plus interest
would never have gone ahead. Walkers, who have acted as Cayman
Islands Counsel for Singularis and the Grant Thornton Joint
Official Liquidators throughout the liquidation, advised on and
successfully obtained sanction from the Grand Court of the Cayman
Islands to enter into the litigation funding agreements which made
this litigation possible.
The English courts found that Singularis successfully established
that Mr Al Sanea, who was the company's chairman, director,
president, treasurer and sole shareholder with dominating influence
over the company's affairs, fraudulently deprived the company
of approximately US$204 million of its money by directing Daiwa to
pay those monies in eight separate transactions to two separate
companies associated with Mr Al Sanea. Daiwa had breached its
Quincecare duty of care to Singularis, and was therefore liable for
Singularis' losses arising from these transactions, albeit with
a deduction of 25% for Singularis' contributory
negligence.
Daiwa's appeal to the Supreme Court was based on the issue of
attribution; Mr Al Sanea was Singularis' duly authorised
instruction giver and "controlling mind" and,
accordingly, should his actions/behaviour be treated as one and the
same as Singularis.
The Supreme Court took the view that the case "bristled with
simplicity", confirming that Mr Al Sanea and Singularis were
not to be treated as one and the same. Daiwa should have suspended
payment until it had made reasonable enquires to satisfy itself
that the payments were properly made. Its failure to do so was
negligent. In coming to these findings, the Supreme Court developed
two areas of law:
- it provided clarity on the nature and scope of the Quincecare duty of care owed by financial institutions to their customers, particularly in circumstances where fraud is, or ought to be, suspected; and
- it set out the approach to be taken by the courts when determining whether the (dishonest) actions of a company's "controlling mind" should be attributed to the company, in particular when considering defences to breaches of the Quincecare duty of care.
This case is an important decision in the insolvency of Singularis and will return significant assets to the liquidation estate.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.