The recent unanimous Supreme Court ruling in Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd [2019] UKSC 50 is a stark warning to financial institutions of the potential cost of failing to act upon the signs of potential fraudulent activity.
The case reinforces the Quincecare duty, specifically that it is an implied term of the contract between a bank and its customer that the bank owes a duty of care not to execute the customer's order where it knows the order to be dishonestly given, it shuts its eyes to obvious dishonesty or acts recklessly in failing to make enquiries. The Supreme Court's decision confirmed that the duty owed could not be avoided or diminished by the fact that fraudulent payment instructions were given by the company's Chairman and sole shareholder who had the dominating influence over the company's affairs.
The respondent company, Singularis, registered in the Cayman Islands, was set up to manage the personal assets of Mr Maan Al Sanea, the sole shareholder, a director and the chairman, president and treasurer of the company. Mr Al Sanea instructed the bank to make payments to third parties which amounted to the misappropriation of the company's funds and left the company unable to meet the demands of its creditors. Daiwa complied with instructions.
The bank argued that since Singularis was effectively a one man company, with Mr Al Sanea as its controlling mind and will, his fraud should be attributed to the company. The Supreme Court unanimously dismissed the bank's appeal, deciding that the money should never have been paid out on the instructions of Mr Al Sanea and has ordered the bank to pay damages of at least $152m.
The president of the Supreme Court, Lady Hale, ruled that Singularis had been "a victim of Daiwa's negligence" and that "Daiwa should have realised that something suspicious was going on and suspended payment until it had made reasonable inquiries to satisfy itself that the payments were properly to be made."
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