Singularis Holdings Ltd (in Official Liquidation) v Daiwa Capital Markets Europe Ltd (2019)

The Supreme Court has handed down its judgment in favour of Singularis, finding that investment bank Daiwa had breached their Quincecare duty of care to the company.

Singularis Holdings Ltd was a Cayman Islands based company, set up to manage the personal assets of a Saudi Arabian businessman, Maan Al Sanea. Mr Al Sanea was the sole shareholder, and a director of Singularis with signing powers over the company’s bank accounts. There were six other directors of Singularis who did not exercise any influence over the management of the company.

The London subsidiary of a Japanese investment bank, Daiwa Capital Markets Europe Ltd (“Daiwa”) provided Singularis with loan financing which was subsequently repaid and together with funds deposited in the account, Daiwa held approximately US$204 million on behalf of Singularis.

Between June and July 2009, Daiwa was instructed by Singularis to make eight payments totalling $204,500,000 out of the company’s account. In August 2009, Mr Al Sanea placed Singularis in voluntary liquidation and in September 2009 a compulsory winding up order was made and Joint Liquidators were appointed. 

The Joint Liquidators brought claims against Daiwa for the full amounts of the payments on the bases of (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, as established in Barclays Bank v Quincecare, which states that a bank must use reasonable skill and care in executing their customers’ orders.

At first instance the Judge dismissed the dishonest assistance claim but upheld the negligence claim but deducted 25% from the losses as a result of contributory negligence. The Court of Appeal upheld the negligence claim.

Daiwa appealed to the Supreme Court, arguing that the fraud was attributed to Singularis, as Mr Al Sanea was its controlling mind, and the company’s loss was caused by its own fault and not by Daiwa. This argument failed, and it was held that the fraudulent instruction to Daiwa gave rise to a duty of care, which Daiwa breached, and this caused the loss.

The Supreme Court held that Daiwa had breached their Quincecare duty of care towards Singularis when it made the payments. The Quincecare duty conflicts with the bank’s duty to execute orders promptly to avoid causing financial loss to their customers.

In upholding the decision, the Supreme Court had in mind the commends of the Court of Appeal judge who stated that there were “many obvious, even glaring, signs that Mr Al Sanea was perpetrating a fraud on the company”. Daiwa were aware of Mr Al Sanea’s dire financial circumstances, that his companies owed approximately $22 billion, that Singularis had substantial creditors and there was plenty of evidence that there was something wrong with the way Mr Al Sanea was operating Singularis’ bank account. The Court of Appeal judge had also held that “everyone recognised that the account needed to be closely monitored… but no one in fact exercised care or caution or monitored the account”.  Daiwa therefore facilitated Mr Al Sanea’s fraud on Singularis.

The Appeal was dismissed and Daiwa was held to be liable for the loss suffered by the company, subject to the 25% deduction for contributory negligence.

This is the first case where a Bank has been found liable for breaching their Quincecare duty of care owed to its customers and raises the prospect of financial institutions owing a much higher duty of care to their customers. This decision will assist Insolvency Practitioners in bringing claims against banks who have negligently carried out instructions by fraudulent directors.

 For any more information please contact Olivia Reader from the Restructuring & Insolvency