Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd

The Court of Appeal dismissed the bank's appeal and upheld the first instance judgment that Daiwa breached the Quincecare duty by authorising payments from Singularis's client account without proper inquiry. The court held that the fraudulent knowledge of Singularis's sole directing shareholder, Mr Maan Al Sanea, was not to be attributed to the company for the purpose of defeating the claim by way of illegality. In doing so the court applied the context-sensitive approach to attribution endorsed in Bilta and rejected an expansive reading of Stone & Rolls. The court also held (i) the Patel v. Mirza three-stage test did not bar the claim, (ii) causation and Barings-type equal-and-opposite-deceit arguments failed because Daiwa's own breach caused the loss, and (iii) the trial judge's 25% reduction for contributory negligence under the Law Reform (Contributory Negligence) Act 1945 was within the reasonable range.

Background and parties: Singularis, a Cayman Islands company in liquidation controlled by its sole shareholder and dominant director Mr Maan Al Sanea, sued its bank, Daiwa, for approximately US$204 million removed from its client account by payments authorised in June–July 2009. The claim was pleaded alternatively in dishonest assistance and in negligence/breach of contract based on the Quincecare duty.

Procedural posture: Rose J in the Chancery Division (Financial List) found for Singularis after trial, awarding US$152,804,925 net of a 25% contributory negligence reduction. Daiwa appealed to the Court of Appeal.

Nature of the claim and issues:

• Claim: recovery of sums misapplied from Singularis's client account; pleaded in the alternative as dishonest assistance and negligence for breach of the banker’s duty (Quincecare).
• Principal issues before the Court of Appeal: whether Mr Al Sanea’s fraud was attributable to Singularis so as to defeat the claim by illegality; whether the Patel v. Mirza test barred the claim; causation (whether the company relied on Daiwa’s duty); whether Daiwa had an equal and opposite claim in deceit; whether the Quincecare duty can be vindicated where only creditors will benefit; and whether the 25% contributory negligence reduction was lawful and reasonable.

Court’s reasoning and holdings:

• Attribution: applying the context- and purpose-driven approach from Bilta, the court concluded that Singularis was not a ‘one-man company’ in the sense required to attribute Mr Al Sanea’s fraud to the company. The trial judge’s factual findings that other directors were not shown to be complicit were not vitiated by error of law or fact.
• Illegality (Patel v. Mirza): the court explained it would only overturn the trial judge’s application of the three-part Patel proportionality test if she had erred in principle or reached an unreasonable conclusion; she had not. Denying the claim would not serve the public purposes underpinning the prohibitions, would undermine banks’ role in combating financial crime and would be disproportionate to the company’s wrongdoing.
• Causation and deceit: Barings was applied to hold that Daiwa’s exposure was caused by its own breach in failing to make inquiries, not merely by the fraud; an equal and opposite deceit claim did not extinguish Daiwa’s liability.
• Scope of duty and creditors: the Quincecare duty is owed to the bank’s customer (here Singularis) and is not displaced merely because recoveries benefit creditors; solvency is relevant to the assessment of breach but not to the existence of the duty.
• Contributory negligence: the 25% reduction under the 1945 Act reflected Singularis’s vicarious liability for the fraud and the other directors’ supervisory failures, balanced against Daiwa’s multiple and serious breaches; the reduction was within the permissible range.

Appeal dismissed. The court upheld Rose J’s findings that (i) Daiwa owed and breached the Quincecare duty to Singularis by making payments without proper inquiry; (ii) Mr Al Sanea’s fraud was not attributable to Singularis for the purpose of defeating the claim by illegality; (iii) applying Patel v. Mirza the illegality defence failed; (iv) causation and an equal-and-opposite deceit counterclaim did not defeat Singularis’s claim; and (v) a 25% contributory negligence reduction was lawful and within the range of reasonable outcomes.

Appeal from the High Court of Justice, Chancery Division, Financial List (Rose J), Claim No: FL-2016-000015 (judgment at first instance given 16 February 2017). This judgment is the Court of Appeal’s decision: [2018] EWCA Civ 84.