Golden Belt 1 Sukuk Company BSC(c) v BNP Paribas

An arranging bank may owe certificate holders a specific duty to take reasonable care that an important enforcement document is properly executed. A broad disclaimer concerning the contents of an offering circular does not ordinarily exclude responsibility for the bank’s own arranging functions. The duty may extend to subsequent purchasers where the relevant protection remains material and reliance or reasonable dependence is established. The bank must meet the standard of a reasonably competent banker specialising in the transaction. Where it negligently fails to arrange proper execution, damages should reflect the claimant’s actual loss and the risks it accepted, including any recovery that would have been available even without the defect.

The claimants were the issuer and certain distressed-debt purchasers of certificates issued under a Saudi-related Sukuk arranged by BNP Paribas. The transaction included a Saudi-law promissory note intended to provide certificate holders with a straightforward enforcement route against the borrower. The note bore a laser-printed rather than handwritten signature.

The claimants alleged that BNP Paribas negligently failed to ensure proper execution. The court considered whether a duty was owed to the Funds and to the issuer, whether the duty was breached, causation, and the proper measure of damages.

1. Duty of care. BNP Paribas owed the Funds, including purchasers in the secondary market, a duty to take reasonable care to ensure that the promissory note was properly executed. It did not owe that duty to Golden Belt, which was a special purpose vehicle without an economic interest of its own in the validity of the note.
2. The relevant service was arranging execution of the promissory note, rather than a general duty to protect investors or responsibility for the contents of the offering circular. The note was a vital protection for certificate holders, investors could not practically verify its execution, and BNP Paribas knew that they would take its proper execution for granted. The disclaimer concerning the circular did not clearly exclude responsibility for BNP Paribas’s own functions.
3. The duty applied to the Funds notwithstanding their later purchases after default. The benefit of the note remained material throughout the life of the Sukuk, and the Funds in fact depended on the note being validly executed.
4. Breach. The standard was that of a reasonably competent banker specialising in transactions of this nature. BNP Paribas negligently left the choice and supervision of witnesses to Saad, without ensuring that they were known and independent or sending representatives to supervise execution. The precaution was necessary and practical, particularly because the note might be challenged in enforcement proceedings.
5. Saudi law. Article 87 of the Saudi Law of Negotiable Instruments required a handwritten signature for a promissory note within the jurisdiction of the CSNID. The laser-printed signature therefore made it inevitable that the CSNID would decline jurisdiction.
6. Causation and damages. The Funds suffered loss caused by the negligence. Golden Belt suffered no loss and its claim was dismissed. The proper measure for the Funds was the difference between the recovery they would have made with a valid note and the recovery they would in fact achieve. Quantification, including enforcement costs, was adjourned to a further trial.