Singularis Holdings Ltd (In Official Liquidation) (A Company Incorporated in the Cayman Islands) v Daiwa Capital Markets Europe Ltd

A bank must refrain from executing an authorised payment instruction while reasonable grounds exist for believing that it is an attempt to misappropriate the customer’s funds. Corporate attribution depends on the context and purpose of the rule in question. Fraud is not automatically attributed to a company merely because the fraudster is its dominant director and sole shareholder.

For the purpose of the Quincecare duty, attributing the authorised agent’s fraud to the company would deprive the duty of value where it is most needed. A resulting claim is not defeated by illegality, absence of causation or a countervailing deceit claim where those defences rely on the very fraud which the bank was obliged to detect. Contributory negligence remains available to achieve an appropriate allocation of responsibility.

Singularis Holdings Ltd, a Cayman Islands company in liquidation, claimed against its investment bank and broker, Daiwa Capital Markets Europe Ltd. Daiwa had executed eight instructions, approved by Singularis’s chairman, sole shareholder and dominant director, which misappropriated approximately US$204.5m from the company.

Rose J dismissed a dishonest-assistance claim but upheld the claim for breach of the Quincecare duty, subject to a 25% deduction under the Law Reform (Contributory Negligence) Act 1945: [2017] EWHC 257 (Ch); [2017] Bus LR 1386. The Court of Appeal unanimously dismissed Daiwa’s appeal: [2018] EWCA Civ 84; [2018] 1 WLR 2777.

The Supreme Court considered whether the fraud should be attributed to the company because the fraudster dominated its affairs. It also considered whether attribution would defeat the claim through illegality, lack of causation or an equal counterclaim in deceit.

1. Disposition. The appeal was dismissed unanimously. Lady Hale delivered the only judgment, with which Lord Reed, Lord Lloyd-Jones, Lord Sales and Lord Thomas agreed. Rose J’s order, including the 25% deduction for contributory negligence, stood.
2. Corporate attribution. A company has a legal personality separate from its shareholders and directors, consistently with Salomon v A Salomon and Co Ltd [1897] AC 22. Attribution is governed first by the company’s constitution and then by ordinary rules of agency and vicarious liability. Where those rules do not answer the question, the particular rule must be construed in its context and according to its purpose. There is no general rule that a dominant director’s fraud is attributed whenever a company sues a third party merely because the company is effectively controlled by one person.
3. The Quincecare context. The duty exists to protect a customer from misappropriation through instructions given by an authorised and trusted agent. Attributing that agent’s fraud to the company would deprive the duty of value in the cases where it is most needed. Mr Al Sanea’s fraud was therefore not attributed to Singularis for this purpose. Stone & Rolls Ltd v Moore Stephens [2009] UKHL 39 supplied no general attribution rule and could be laid to rest beyond its fact-specific outcome.
4. Illegality. Even if the fraud had been attributed, the claim would not have been barred. Applying Patel v Mirza [2016] UKSC 42, denial would not advance the prohibitions against breach of fiduciary duty or false statements. It would undermine the calibrated Quincecare duty and the policy that banks should assist in detecting financial crime. It would also be disproportionate, especially because the Law Reform (Contributory Negligence) Act 1945 permitted a more appropriate adjustment of responsibility.
5. Causation. Once the law imposes a duty to protect a customer from harm caused by an entrusted agent, it is inconsistent to deny causation merely because the agent’s conduct is attributable to the customer. The fraudulent instruction engaged the duty. Daiwa’s failure to suspend payment and make reasonable inquiries caused the loss because the money would otherwise have remained available to the company and its creditors.
6. Deceit. Daiwa had no equal and countervailing deceit claim which cancelled the negligence claim. The fraud was a precondition of the Quincecare duty, and that duty required Daiwa to guard against being misled by such instructions. Daiwa’s breach, rather than the misrepresentation it should have detected, caused its exposure to the claim.

1. United Kingdom Supreme Court: In [2019] UKSC 50, unanimously dismissed Daiwa’s appeal and ordered that Rose J’s order should stand.
2. Court of Appeal: In [2018] EWCA Civ 84; [2018] 1 WLR 2777, unanimously dismissed Daiwa’s appeal. It held that the fraud was not attributable to Singularis and that, even if it were, the illegality, causation and deceit defences would fail. It upheld the 25% deduction for contributory negligence.
3. High Court, Chancery Division: In [2017] EWHC 257 (Ch); [2017] Bus LR 1386, Rose J dismissed the dishonest-assistance claim but upheld the claim for breach of the Quincecare duty. Damages were reduced by 25% for contributory negligence.