The Court of Appeal has recently dismissed an appeal in the case of Singularis v Daiwa. In the High Court, Mrs Justice Rose held that the defendant bank was negligent by breaching its “Quincecare” duty of care to its customer, Singularis Holdings Limited. The breach of duty was in respect of monies paid out of its client account at the instruction of Mr Al Sanea, a director of Singulars’ and its sole shareholder. However, Mr Al Sanea was acting fraudulently – as is so often the case in liquidations. The bank ran the defence of illegality. The basis of the defence is that the actions of the fraudulent director are, by the action of attribution, the actions of the company. As those actions are illegal the company can’t use them as the foundation of claim, because the claim would be based on the company’s own wrong doing.
The key issue for the Court of Appeal was whether the knowledge of the fraudulent director should be attributed to the limited company customer of the bank and thus allow the bank the chance to run an illegality defence.
The Court of Appeal determined that there should be no such attribution, to allow attribution would be to denude the Quincecare duty of care of any effect. Further, it was held that a bank continues to owe a duty of care to its customers despite the fact that only creditors (and not the customer itself) would benefit from any proceedings.
This is a welcome decision for liquidators, showing that the courts are willing to allow negligence claims in the face of illegality defences. However, each matter will be very fact sensitive (for example, what is provable in relation to the bank’s actual knowledge) and it will be interesting to look at the individual facts of future cases to determine if there is any pattern developing, this case being the most recent decision in the area of illegality and attribution.
Short Richardson & Forth has recently acted in a liquidation and recovered a very substantial figure for the benefit of creditors based on the negligence of a bank to its customer in the face of fraudulent directors who withdrew millions of pounds in cash. That was a nil asset case which as a consequence of the claim gave a return to creditors. The case was conducted entirely on a damages based agreement. The firm is always happy to evaluate the prospects of such claims on a contingency basis – please do get in touch for more information.