Singularis Holdings Ltd (In Official Liquidation) (A Company Incorporated in the Cayman Islands) (Respondent) v Daiwa Capital Markets Europe Ltd (Appellant)
Case ID: UKSC 2018/0039
The appeal concerns whether the dishonest state of mind of the sole shareholder and a director of a company is attributable to the company for the purposes of a claim in negligence against a third party bank or broker and, if so, what the consequences are of that attribution.
The appeal in relation to attribution raises the following questions:
1. What is the test for a "one man company"? Is it:
- a company where every single shareholder and director is implicated in the fraud, irrespective of whether the directors were involved in the management of the company at any point in time; or
- a company that is wholly owned and controlled by a fraudulent sole shareholder and dominant director and/or by the only person involved in the management and ownership of the company?
2. Upon whom does the burden of proof lie so far as the role of the other directors is concerned? Does it lie:
- upon the company on whose behalf the directors acted at the material time; or
- upon the bank or broker?
3. In determining the question of attribution:
- Is it relevant to consider whether the company had a legitimate business, and/or
- Does the nature of the Quincecare duty lead to the conclusion that Mr Al Sanea’s fraudulent knowledge should not be attributed to the Respondent?
If Mr Al Sanea's knowledge and fraudulent actions are attributable to the Respondent then the appeal raises a series of further questions:
1. Is the Respondent's claim defeated by lack of causation because the Quincecare duty does not extend to protecting the Respondent from its own deliberate wrongdoing and/or because the Respondent did not rely upon due performance of the Quincecare duty?
2. Does the reasoning of Evans-Lombe J in Barings plc v Coopers & Lybrand (a firm)  PNLR 34 apply where the Respondent is primarily (as opposed to vicariously) liable for the actions of Mr Al Sanea?
3. How does the three stage test recently identified by the Supreme Court in Patel v. Mirza  3 WLR 399 apply in this case? In particular:
- Is the Respondent's claim contrary to public policy?
- Does the existence of money laundering legislation and associated regulations provide a countervailing policy consideration in favour of allowing such a claim?
- Would it be disproportionate to deny the claim because of the ability to make a deduction for contributory negligence on account of the Respondent's own contributory fault?
The Appellant is the London subsidiary of a Japanese investment bank and brokerage firm. At the material time, the Respondent was wholly owned by an individual called Maan Al Sanea ("Mr Al Sanea"), who was the company’s Chairman, President, Director and Treasurer. The Respondent had six other directors but Mr Al Sanea effectively controlled the company and the other directors did not have any supervisory functions so far as the events in question are concerned. In 2007, the Appellant entered into a stock financing arrangement with the Respondent. In early June 2009, that arrangement was closed out. Between 12 June and 27 July 2009 the Appellant was instructed by the Respondent to pay funds which it held on behalf of the Respondent to or for the account of other companies owned and/or controlled by Mr Al Sanea. Mr Al Sanea had the authority to give instructions to the Appellant for the making of the payments. The Appellant made the payments in accordance with its instructions. On 18 July 2014 the Respondent (acting through its joint official liquidators) brought a claim against the Appellant for the full amount of those payments (less any amounts received in relation thereto from Mr Al Sanea, against whom the Respondent obtained a default judgment, or from the recipients of the funds) alleging that:
- each of the payments was a misappropriation of the Respondent’s funds
- the Appellant was liable for dishonestly assisting Mr Al Sanea’s breach of fiduciary duty, further or alternatively,
- the Appellant was liable for breach of a contractual and/or tortious duty of care by giving effect to the payment instructions. The Appellant denied the claim in its entirety.
At first instance, the trial judge found
- each of the payments was a misappropriation of the Respondent’s funds;
- the dishonest assistance claim failed because the Appellant’s employees acted honestly;
- it was irrelevant that the claim was pursued on behalf of creditors to whom no duty was owed;
- Mr Al Sanea's dishonest acts and state of mind were not attributable to the Respondent;
- the Appellant was liable for breach of duty in the amount of US$ 203,739,900 (being the amount of the payments less credit for recoveries);
- the claim was not precluded by the illegality principle;
- the claim was not defeated by an equal and opposite claim in deceit against the Respondent; and
- the damages awarded should be reduced under s.1 (1) of the Law Reform (Contributory Negligence) Act 1945 by 25% to reflect the contributory fault of Mr Al Sanea and the Respondent’s inactive directors, for whose fault the Respondent was to be held responsible.
The Appellant appealed that decision to the Court of Appeal. That appeal was dismissed.
Daiwa Capital Markets Europe Ltd
Singularis Holdings Ltd (In Official Liquidation) (A Company Incorporated in the Cayman Islands)
Lady Hale, Lord Reed, Lord Lloyd-Jones, Lord Sales, Lord Thomas
Hearing start date
23 Jul 2019
Hearing finish date
24 Jul 2019