A Question Of Attribution: UK Supreme Court Clarifies Law On The Illegality Defence And The Quincecare Duty Owed By Financial Institutions

A Question of Attribution

The UK Supreme Court has released an important decision, limiting the circumstances when the actions of a directing mind can be attributed to the company he owns and controls. That decision, Singularis Holdings Limited (in liquidation) v Daiwa Capital Markets Europe Limited,1 also marks the termination of the first case in the UK where a financial institution has been found in breach of the so-called "Quincecare" duty of care. The Quincecare duty establishes that a financial institution will be liable in situations where it has executed a payment instruction "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."2

Facts

The respondent, 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, At all relevant times, Mr. Al Sanea was its sole shareholder, and was also a director of Singularis, its chairman, president and treasurer. There were six other directors but they did not exercise any influence over the management of the company. Singularis delegated extensive powers to Mr. Al Sanea to take decisions on its behalf, including signing powers over the company's bank accounts.3 Mr. Al Sanea was also the founder and chairman of the Saad Group of companies, a Saudi Arabian conglomerate.4

The appellant, Daiwa Capital Markets Europe Limited, is an investment bank and brokerage firm, which provided Singularis with loan financing in 2007 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 held a cash surplus for the account of Singularis. Together with a sum of US$80M deposited by Singularis, the total held to Singularis' account in June 2009 was approximately US$204M.5

By the middle of 2009 it appeared that the company was running into difficulties. Between June 12 and July 27, 2009, Singularis instructed Daiwa to make eight payments, totaling approximately US$204.5M out of the money held to Singularis' account to Saad Group entities. 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 the payments. On August 20, 2009, Mr. Al Sanea placed Singularis in voluntary liquidation.6

Procedural History

On July 18, 2014, Singularis, acting through its joint liquidators, brought a claim against Daiwa for the full amount of the payments, on the basis (1) that Daiwa dishonestly assisted Mr. Al Sanea's breach of fiduciary duty in misapplying the company's funds, and (2) that Daiwa had breached its Quincecare duty of care to the company by giving effect to the payment instructions.

At first instance, Justice Rose dismissed...