October 31, 2019

A team from Jenner & Block’s London office has secured a victory in the UK Supreme Court for client Singularis, a company in liquidation. The United Kingdom’s highest court has affirmed that the London brokerage arm of Japanese banking group Daiwa is liable to Singularis in negligence for facilitating the misappropriation of funds out of Singularis’ account in 2009. Including interest and costs, Daiwa faces a total liability to Singularis in the region of US$200 million.

It was the first appearance before the UK Supreme Court for Jenner & Block’s London office, which opened in June 2015. The team advising the liquidators of Singularis included Partners Christian Tuddenham and Kelly Hagedorn and Associates Michaela M. Croft and Tracey Lattimer.  As Mr. Tuddenham noted in some of the resulting media coverage, this long-running litigation “develops the law with regard to the nature and scope of duty owed by financial institutions to their corporate customers in situations where fraud is suspected and provides important clarity on the circumstances in which an institution may - and may not - be able to avoid liability for breach of that duty.”

Singularis’ claim was brought by its Cayman-appointed liquidators, partners of Grant Thornton. In 2009, Daiwa made a payment at the request of Singularis’ sole shareholder and chairman, Maan Al Sanea, to third-party accounts in the aggregate amount of US$204 million.  The payments left Singularis unable to meet creditor demands.  Singularis commenced proceedings against Daiwa in 2014, alleging that Daiwa had breached the duty of care which is owed by a financial institution to its customer in circumstances where there are reasonable grounds to suspect that a payment instruction has a fraudulent purpose. In such circumstances, the institution is obliged to refrain from executing the payment instruction until it has been able to satisfy itself that there is a legitimate basis for the instruction. Once the duty is engaged, the duty takes priority over the usual obligation on a bank or broker to execute customer instructions promptly, pursuant to the contractual mandate.

In 2017, the English High Court held for Singularis and its liquidators.  The trial Judge stated that any reasonable banker would have realised that there were “many obvious, even glaring, signs that Mr. Al Sanea was perpetrating a fraud on the company.”  Daiwa appealed to the English Court of Appeal, arguing that Mr. Al Sanea and Singularis were, as a matter of law, one and the same entity. Daiwa argued that Mr. Al Sanea’s fraud was therefore to be attributed to Singularis, which would in turn bar Singularis’ claim from succeeding. The Court of Appeal unanimously rejected that argument. Daiwa then appealed to the UK Supreme Court on the same grounds.

Giving the unanimous judgment of the UK Supreme Court, the President of the Court Lady Hale said that “[t]he fraud of Mr. Al Sanea is not to be attributed to the company … The bank should have realised that something suspicious was going on and suspended payment until it had made reasonable enquiries to satisfy itself that the payments were properly to be made. The company (and through the company its creditors) has been the victim of the bank’s negligence.”

The Court’s decision was covered by a variety of media, including Financial Times (for subscribers), The New York Times, The Times and Reuters.