Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd

A bank owes its customer a duty to refrain from executing a payment instruction where it has reasonable grounds for believing that the instruction is an attempt to misappropriate the customer's funds. The duty applies even where the instruction is given by the company's controlling director and the company is insolvent or of doubtful solvency. Attribution of the director's fraud depends on the context and purpose of the relevant rule. A company may therefore rely on the duty against the bank whose negligence enabled the fraud. The illegality defence is assessed by the structured public-policy approach in Patel v Mirza [2016] UKSC 42. Contributory negligence may reduce damages where the company's own management contributed to the loss.

Singularis Holdings Ltd, in liquidation, claimed approximately $204 million from Daiwa Capital Markets Europe Ltd. Daiwa had held the money in a segregated client account after closing out a stock-lending relationship. It paid the money, on instructions from Singularis's sole shareholder and director, to companies within the wider Saad Group.

Singularis alleged dishonest assistance in breach of fiduciary duty and negligence or breach of contract for failing to investigate the payment instructions. Daiwa denied dishonesty and liability, and relied on attribution, illegality, an equal and opposite deceit claim, its contractual terms, inevitable misappropriation and contributory negligence. The principal issue was whether the Lipkin Gorman and Quincecare duty applied and was breached in the circumstances.

1. Dishonest assistance. Mr Al Sanea misappropriated Singularis's money. The payments to Saad Air were unexplained and illegitimate. The purported Hospital Expenses Agreement was a sham, so the payments to Saad Specialist Hospital Company were gratuitous and in breach of fiduciary duty. Mr Al Sanea could not ratify them because Singularis was insolvent or on the verge of insolvency and creditors' interests had intruded. The claim nevertheless failed because Mr Metcalfe and Mr Hudson were incompetent or negligent, but not dishonest.
2. Quincecare duty. The duty described in Lipkin Gorman [1989] 1 WLR 1340 and Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363 required Daiwa to refrain from making a payment while it had reasonable grounds for believing that the instruction was an attempt to misappropriate company funds. The duty was owed to Singularis, not directly to its creditors, and insolvency did not prevent the company suing.
3. Attribution and illegality. Whether a director's knowledge or fraud is attributed to a company depends on the context and purpose of the substantive rule. Attribution would deprive the Quincecare duty of value because the duty exists to protect a company from fraud by an authorised signatory. Singularis was not a one-man company in the relevant sense because it had a board containing other reputable directors. The illegality defence also failed under the structured public-policy test in Patel v Mirza [2016] UKSC 42.
4. Breach and loss. Daiwa had ample warning signs: the financial collapse of Mr Al Sanea and the Saad Group, the unusual third-party payments, unexplained funds, conflicting supporting documents and the absence of effective internal responsibility. It was negligent to make the payments without proper inquiry. The loss was caused by Daiwa's breach, not defeated by the possibility that Mr Al Sanea might later have misappropriated money paid elsewhere. Daiwa's standard terms were not proved to have been sent to Singularis.
5. Outcome. Daiwa was liable in negligence and breach of contract for $203,741,900. The damages were reduced by 25 per cent under section 1 of the Law Reform (Contributory Negligence) Act 1945.