“3) Mr. Al-Sanea is a very high profile & wealthy businessman in Saudi Arabia. His wealth & cash flow is driven from his ownership of the Saad Group of Companies. Such group reported 1H2007 net income of$715 mn and equity of$7.4bn (excluding$3bn of personal loans to the group). His personal reputation & standing within Saudi business/political arenas is immensely important to him. As such, we believe that it is highly unlikely Mr. Al-Sanea would not fulfil his financial obligations to us. Mr Al-Sanea has said to the [Daiwa] Relationship manager “counterparties that stick by the Saad Group during uncertain market conditions will become core members of the inner-circle”
“The main areas that the report highlighted which should be addressed or improved are that senior management should be more proactive in taking responsibility for identifying and assessing fraud risk, as well as ensuring that there is clear and appropriate allocation of anti-fraud responsibilities within firms.”
“He said large losses were being crystallised on the portfolio and that if these positions were being hedged elsewhere, [Daiwa] were not seeing them. Mr Sakashita asked that the account continued to be monitored carefully.”
“However, because the owner is the same, funds may flow from [Singularis] into Saad in order to support the Saad group, in which case [Singularis] will be put in a tight situation as well. Alternatively, funds may be retained in [Singularis] in order to preserve the personal assets.”
“I think we should also have in mind the possibility of not only a liquidity run but also a fraud, a major loss on speculative bets at his level, or something like that. It is unusual that a central bank would freeze the accounts of a locally powerful businessman even when there is a pending restructuring of the foreign debts of its group. There is something fishy.”
“As you probably already know, things accelerated over the week-end with the Saudi Central Bank’s decision to freeze Al Sanea’s accounts in Saudi. This is very unusual and goes much further than a usual Group debt restructuring case. The rumour (from Kimura San’s information) is that there might be large amounts of money borrowed by Al Sanea from TIBC and that he failed to repay. Something of this nature could well have happened. In any case, the solvability of Al Sanea is now clearly in question and the legal situation may quickly become unstable if creditors try to claw money back at Al Sanea’s level and to seek Court injunctions overseas, etc. It is therefore necessary to exit more quickly that envisaged last friday. This morning, we have asked Singularis, by phone, to give us an instruction to sell part of the portfolio in order to repay Daiwa’s loan. But we are now also preparing necessary legal steps in order to give notice of termination of this facility (which is rolled over on a daily basis) this afternoon London time if they do not give their instruction before that. We will call their Geneva office to advise them at the same time, by the beginning of this afternoon.”
“Have just spoken to SICL Geneva. They were deeply upset that we were unable to assist (much more so than I anticipated). Indeed the phone was literally slammed down on me! I guess that currently individuals within SICL are under a lot of stress, and the danger is that by adopting this stance we run the risk of joining the ranks of Citigroup etc who have been seen to let the group down in their hour of greatest need! Although I did not rule out Daiwa facilitating this Swift altogether, I said it was likely to take time for appropriate approval to be granted after we consultation with various regulatory experts etc. Is there any way we can reconsider maybe sending one sum to a UK Banking entity? Thoughts? Nick”
“I’d agree with that. The risk is that we are later challenged over their authenticity and “should we have made them” in which case we can respond (1) there is no suspicion of criminal activity therefore no need to report to authorities for approval (2) the payments are exceptional but so are the circumstances and the transactions are supported by documentation”
“… To the extent that Singularis is in a suspect period, the question is whether Singularis’ foregoing of that claim is a preference or transaction at an undervalue. This will be very fact specific and will partly depend on whether there are any other benefits to Singularis in entering into this arrangement. If Daiwa is aware of any financial difficulties of Singularis, it is likely that the burden of establishing that there was no preference will (from a practical perspective) be more difficult. Of course this would be a question of BVI law, but assuming that BVI law were equivalent to English law, I would have a concerned that (absent other circumstances to the contrary) this could be challenged.”
“As you are all aware the SAAD group and some of the related individuals and entities have been experiencing well publicised problems including downgrades and the freezing of bank accounts. Under these circumstances can I reemphasise the need for care and caution in terms of any activity on their accounts with us. Singularis have reasonably large sums of client money lodged with us and we need to ensure we maintain appropriate oversight of both further deposits and requests for payments. We are not a bank and do not have banking licence and for reasons both regulatory and reputational cannot be seen to be acting as their ‘bank account’. We should therefore ensure that any funds received relate to normal business activities and, if they are unsolicited, can clearly be linked back to their normal investment business (e.g. funds from liquidation of positions). Clearly any payment requests we receive must be properly authorised and be ‘appropriate’ in the context of our business relationship with them. If there are any doubts or concerns please contact Compliance or Legal. Lastly, our understanding is that the problems that SAAD group is experiencing are fiscal in nature, if that information should change then it is vital that this is communicated to Compliance/Legal as soon as possible so we can take any action necessary. If there is anyone else who needs to see this note, please forward as necessary. David”
“… was an attempt to keep people focussed, to ask them to consider whether any activity on SICL or Singularis’ accounts with Daiwa, including payments in or out, passed the ‘smell test’, and to refer anything to Legal or Compliance that they were unsure of”
“Q. … Now, in relation to the payments out, it wasn't enough just to have a proper Swift request, was it, it also had to be appropriate in the context of the business relationship? A. That's what I say here, yes. Q. That meant that you would need to know why the payment was being made. Is that right? A. Sorry, could you repeat that? Q. All right, I'll ask it in a slightly different way: in order to know whether the payment was appropriate, whoever was dealing with the payment would need to understand why the proposed payment was being made. Is that right? A. I don't think in this email I was setting out a fixed process or a policy as such. I was giving broad guidance on the subject to make sure, if we did get payment requests, that people were thinking about those in the context of, you know, is it properly authorised, do we understand the -- who it's being paid to. Q. Right. Although you didn't spell it out, in order for anyone who received this to then make a decision whether a payment request was appropriate, that person would need to understand why the payment was being made? MRS JUSTICE ROSE: Is your question limited to third party payments? MR MILES: Yes, it is. MRS JUSTICE ROSE: Yes, perhaps make that clear. MR MILES: Yes. In relation to third party payments, why the payment was being made. A. And/or is there a valid -- is there an explanation for that, for that payment, yes. Q. Yes. A. Yes. Q. In fact, this email was really prompted by the prospect of third party payments, wasn't it, because you wouldn't have regarded, at this stage, payments back to an account of Singularis itself as really raising these problems, would you? A. No. Q. So you're agreeing with me that this part of the email was really concerned with third party payments? A. Yes.”
“Q. … You didn't give any thought to whether this might be -- this might involve any misappropriation of assets from Singularis? A. I had no suspicion that this was, no. Q. You didn't give any thought to that question? A. I don't recall giving any conscious thought but ... Q. I am not going to ask you about your unconscious thoughts. I mean, did you think about -- did you give any thought at all to whether there was a risk of misappropriation of assets from Singularis by this payment to a hospital in Saudi Arabia? A. I don't recall considering that. However, I also had the memo of 5 [June] which said, you know, we do not suspect this is criminal activity, and so I was starting off on that basis, I believe, that everyone thought this was a fiscal situation, no one believed this was any sort of criminal activity with a long-established client. So I'm not saying I ignored the possibility ... but I can't consider -- I can't remember thinking this isn't misappropriation. Q. And you didn't give any thought to the purpose of the payment beyond just assuming that it was to another Saad Group company; is that right? A. Yes, I viewed -- as I said, I viewed all these companies as belonging to the same beneficial owner, so I had no suspicion. Q. I mean, you didn't even know, or check, that it was a Saad Group company, did you? A. I don't believe I did at the time. With hindsight I should have done. Q. It was just an assumption you made? A. Yes. Q. Did you even know the name of the company that it was being paid to, do you think? A. I must have known the name in order to put the details in the system or to have the check made. Q. So it was just an assumption you made without knowing anything about the relationship between these companies? A. Yes.”
“For the record my Compliance people have asked for confirmation that the proposed payment to Saad Hospitals is made pursuant to an appropriate corporate obligation of Singularis Holdings Ltd. Could you please provide me with this confirmation”
“It is problematic when they use a hospital as a front/cover. Practically speaking, since we will be making a transfer to a recipient other than Singularis, please handle this matter extremely carefully by discussing it well with the Compliance and Legal teams.”
“Jonathan, As per our discussion, please find the attached Agreement between [Singularis and SSHC] and [SSHC] Invoice. I trust that they correctly reflect the appropriate corporate obligation between the two parties and will satisfy the requirements of your compliance team. Please call me if you have further questions. Thanks once again for bearing with us on this matter. Kind regards Mike”
“Q. We've seen that you didn't ask any questions at all about any of these payments. The only thing you did was do your check on the computer; isn't that right?”
"following consultation with my advisers (and without waiving privilege), I had formed the view that [Singularis’] asset position was considerably weaker than it formerly had been; that even if it was not already insolvent, which it might have been, its insolvency was probably inevitable."
“… which combines an objective test and a subjective test, and which requires that before there can be a finding of dishonesty it must be established that the defendant's conduct was dishonest by the ordinary standards of reasonable and honest people and that he himself realised that by those standards his conduct was dishonest”
“dishonesty requires knowledge by the defendant that what he was doing would be regarded as dishonest by honest people, although he should not escape a finding of dishonesty because he sets his own standards of honesty and does not regard as dishonest what he knows would offend the normally accepted standards of honest conduct.”
“By and large dishonest people are dishonest for a reason. They tend not to be dishonest wilfully or just for fun. Establishing a motive for deceit, or conspiracy, is not a legal requirement, but if a motive cannot be detected or plausibly suggested then wrongful intention (to tell a deliberate lie in order to deceive) is less likely. The less likely the motive, the less likely the intention to deceive, or to conspire unlawfully. In many, if not most, fraud cases this would not be a particularly live point. The defendant is often a person who would be a direct beneficiary of the fraud, and a plausible motive is, to that extent, relatively easily propounded. The present case is, however, different.”
“For my part I would hesitate to try to lay down any detailed rules in this context. In the simple case of a current account in credit the basic obligation on the banker is to pay his customer’s cheques in accordance with his mandate. Having in mind the vast numbers of cheques which are presented for payment every day in this country, whether over a bank counter or through the clearing bank, it is, in my opinion, only when the circumstances are such that any reasonable cashier would hesitate to pay a cheque at once and refer it to his or her superior, and when any reasonable superior would hesitate to authorise payment without inquiry, that a cheque should not be paid immediately on presentation and such inquiry made. Further, it would, I think, be only in rare circumstances, and only when any reasonable bank manager would do the same, that a manager should instruct his staff to refer all or some of his customer’s cheques to him before they are paid.”
“I would not, however, accept that a bank could always properly pay if it had reasonable grounds for a belief falling short of probability. The question must be whether, if a reasonable and honest banker knew of the relevant facts, he would have considered that there was a serious or real possibility, albeit not amounting to a probability, that its customer might be being defrauded, or, in this case, that there was a serious or real possibility that Cass was drawing on the client account and using the funds so obtained for his own and not the solicitors’ or beneficiaries’ purposes. That, at least, the customer must establish. If it is established, then in my view a reasonable banker would be in breach of duty if he continued to pay cheques without inquiry. He could not simply sit back and ignore the situation. In order so to establish the customer cannot, of course, rely on matters which a meticulous ex post facto examination would have brought to light. Such an examination may well show that it was indeed obvious what Cass was doing, but in the present case the inquiry is simply whether Mr. Fox, and therefore the bank, had, on the basis of the facts and banking practices established at the time, reason to believe that there was a serious possibility that Cass was misusing his authority to sign under the mandate in order to obtain and misapply the case handed to Chapman in fraud of the solicitors.”
“it is right to say that trust, not distrust, is also the basis of a bank’s dealing with its customers”
“In my judgment the sensible compromise, which strikes a fair balance between competing considerations, is simply to say that a banker must refrain from executing an order if and for as long as the bank is ‘put on inquiry’ in the sense that he has reasonable grounds (although not necessarily proof) for believing that the order is an attempt to misappropriate the funds of the company. … And, the external standard of the likely perception of an ordinary prudent banker is the governing one. That in my judgment is not too high a standard.”
“a simple and unsurprising consequence of the fact that every physical manifestation of the company Berg was Mr Golechha himself. Any company must as a last resort if it is to allege that it was fraudulently misled, be able to point to some natural person who was misled by the fraud. That the plaintiffs cannot do.”
“ … it is very difficult to see how the law can rationally hold an auditor liable when the entire shareholder body and the entire management is embodied in a single individual who knows everything because he has done everything.”
“The position is different where the company is suing a third party who was not involved in the directors’ breach of duty for an indemnity against its consequences. In the first place, the defendant in that case, although presumably in breach of his own distinct duty, is not seeking to attribute his own wrong or state of mind to the company or to rely on his breach of duty to avoid liability. Secondly, as between the company and the outside world, there is no principled reason not to identify it with its directing mind in the ordinary way. For a person, whether natural or corporate, who is culpable of fraud to say to an innocent but negligent outsider that he should have stopped him in his dishonest enterprise is as clear a case for the application of the illegality defence as one could have.”
“The technique of applying the general rules of agency and then an exception for cases directly founded upon a breach of duty to the company is a valuable tool of analysis, but it is no more than that. Another way of putting the same point is to treat it as illustrating the broader point made by Lord Hoffmann in Meridian Global that the attribution of legal responsibility for the act of an agent depends on the purpose for which attribution is relevant. Where the purpose of attribution is to apportion responsibility between a company and its agents so as to determine their rights and liabilities to each other, the result will not necessarily be the same as it is in a case where the purpose is to apportion responsibility between the company and a third party.”
“Subject to these points, the time has come in my view for us to hold that the decision in Stone & Rolls should, as Lord Denning MR graphically put it in relation to another case in In re King[1963] Ch 459 , 483, be “put on one side and marked ‘not to be looked at again’”
“99. Looking behind the maxims, there are two broad discernible policy reasons for the common law doctrine of illegality as a defence to a civil claim. One is that a person should not be allowed to profit from his own wrongdoing. The other, linked, consideration is that the law should be coherent and not self-defeating, condoning illegality by giving with the left hand what it takes with the right hand.” 100. Lord Goff observed in the Spycatcher case, Attorney General v Guardian Newspapers Ltd (No 2)[1990] 1 AC 109 , 286, that the “statement that a man shall not be allowed to profit from his own wrong is in very general terms, and does not of itself provide any sure guidance to the solution of a problem in any particular case”
“The present case is different. Here, B was under a pre-existing contractual duty owed to A’s employer to test the truthfulness of A’s statements. Had B performed his duty, he would have realised the statements were false. B failed in that duty and believed the statements. His only loss is his liability to A’s employer for failure to perform that duty. A’s employer can say “it was your job to check the truth of what A said. You cannot sue me for being deceived when, if you had done your job, you would not have been.”
"Without prejudice to the specific provisions of these Terms neither the Company, nor its officers, directors, employees or agents shall be liable for any loss suffered by the Client, except to the extent that the same is caused by the Company's officer's, director's, employee's or agent's gross negligence, wilful default or fraud."
"The Client will indemnify the Company, its officers, directors, employees and agents including where applicable a Broker against any cost, loss, liability or expense whatsoever which may be suffered or incurred by the Company and/or them directly or indirectly in connection with, or as a result of, any service performed or action permitted under these Terms, including where applicable any liabilities to a Broker, except to the extent that the same is caused by the Company's and/or their gross negligence, wilful default or fraud."