UK Supreme Court finds bank liable to customer for breach of Quincecare duty to company
22 January 2020
Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd  UKSC 50
The UK Supreme Court in Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd has held that a bank breached its Quincecare duty of care towards a customer. The Quincecare duty, first set out in Barclays Bank plc v Quincecare Ltd  4 All ER 363, provides that a bank will be liable to its customer in negligence if it makes a payment in circumstances where it had reasonable grounds for believing that the payment instruction was an attempt to misappropriate the funds of its customer. In this case, the Supreme Court declined to attribute the fraud of the customer’s director to the customer.
Singularis was a company set up to manage the personal assets of Mr Al Sanea, its sole shareholder and one of its directors. There were six other directors, but they did not have any influence over the management of the company.
In 2007, Daiwa (“Bank”) entered into a stock financing agreement with Singularis. The monies loaned pursuant to this agreement were repaid in June 2009 and the total held in Singularis’ account was approximately US$204 million (including a US$80 million deposit made by Singularis on 2 June 2009).
On 5 June 2009, the Bank’s compliance division warned staff to be cautious in their dealings with the Singularis account and to ensure that any payment requests they received were properly authorised and related to normal business activities. This was because the Bank had become aware that Mr Al Sanea and his wider business group (“Saad Group”) were in financial difficulty.
The Bank was instructed by Singularis to make payments totalling around US$204 million from its account to companies within the Saad Group. The instructions were approved by Mr Al Sanea, who had authority to give those instructions. The Bank made the payments. Singularis subsequently entered into liquidation.
Singularis claimed that the Bank had dishonestly assisted Mr Al Sanea to breach his fiduciary duties to Singularis by making these payments. Singularis also alleged the Bank had breached its Quincecare duty of care to Singularis by acting on the payment instructions. The English High Court dismissed Singularis’ claim based on dishonest assistance, but found that the Bank had breached its Quincecare duty to the company. The Bank appealed and the Court of Appeal unanimously dismissed the appeal in its entirety.
The Bank appealed to the Supreme Court where the court unanimously dismissed the appeal with Lady Hale stating that this was a case “bristling with simplicity”.
The Bank argued that, as Singularis was effectively a one-man company and Mr Al Sanea was its controlling mind and will, his fraud should be attributed to Singularis.
The Supreme Court confirmed that whether knowledge of a fraudulent director can be attributed to the company is always to be found in consideration of the context and the purpose for which the attribution is relevant. The court expressly stated that there is no principle of law that in any proceedings where the company is suing a third party for breach of a duty owed to it by that third party, the fraudulent conduct of a director is to be attributed to the company if it is a one-man company. In any event, the Supreme Court held that Singularis was not a “one-man company” because Singularis had a board of reputable people and a substantial business. There was no evidence to show that the other directors were involved in or aware of Mr Al Sanea’s actions and there was no reason that the other directors were complicit in this misappropriation of the money.
The court said that the Bank had breached its Quincecare duty of care towards Singularis. The purpose of that duty was to protect Singularis against the misappropriation of its funds by a trusted agent of the company who was authorised to withdraw its money from the account. In these circumstances, the court held that the fraud of Mr Al Sanea could not be attributed to Singularis. To attribute the fraud of that person to the company would be to denude the duty of any value in cases where it is most needed. If the Bank’s argument were to be accepted in a case such as this, there would in reality be no Quincecare duty of care or its breach would cease to have consequences.
The court commented that the Quincecare duty strikes a careful balance between the interests of the customer and those of the bank and denying the claim would not enhance the integrity of the law. The court noted that denying the claim would undermine the public interest in requiring financial institutions to play an important part in uncovering financial crime and money laundering. It found that contributory negligence was a more appropriate method of responding to any wrongdoing on the part of Singularis, rather than finding that the Quincecare duty did not apply as the Bank sought to argue.
Having found that the Bank’s defences failed, and that the fraudulent state of mind of Mr Al Sanea could not be attributed to Singularis in any event, the Supreme Court dismissed the Bank’s appeal.