Daiwa loses UK duty of care appeal, faces $150 million bill
31 Oct 2019

Daiwa Capital Markets Europe lost a court appeal on Wednesday that leaves the Japanese bank facing a $150 million damages bill and reinforces the expected duty of care between a bank and a corporate customer.

The court was ruling on a dispute between Singularis Holdings, now in liquidation, and London-based investment bank Daiwa, a subsidiary of Daiwa Securities Group Inc of Japan.

The case relates to a payment Daiwa made at the request of the main shareholder in Singularis and whether it had sufficiently carried out its duty as a financial institution to guard against fraud.

It was the first time that courts have found against a bank in respect of the so-called Quincecare duty of care for banker-customer relations, named after a court case involving Barclays bank and a company called Quincecare in 1992.

It raises the prospect of a much higher duty of care burden for financial institutions when it comes to dealing with corporate clients.

“The Supreme Court’s decision develops the law with regard to the nature and scope of the duty owed by financial institutions to their corporate customers in situations where fraud is suspected,” said Christian Tuddenham, a lawyer at Jenner & Block that assisted Singularis’ liquidator, Grant Thornton.

The Supreme Court unanimously dismissed Daiwa’s appeal and upheld an earlier High Court order.

“Denial of the claim would undermine the public interest in requiring banks to play an important part in uncovering financial crime and money laundering,” the court said.

Daiwa declined to comment.

The ruling could leave Britan’s financial sector, already vulnerable to loss of business to the European Union because of Brexit, at risk of losing more business to other jurisdictions, said Oliver Lodge, who acted as an expert witness in the case.

“It does change the recognised level of liability for banks and other financial institutions,” said Lodge, also a councillor for the City of London, municipal authority for the capital’s financial district.

Singularis went into liquidation after Daiwa paid $200 million from Singularis’ trading account to third parties on instructions from Singularis’ sole shareholder Maan Al Sanea.

Indebted billionaire Sanea was detained in Saudi Arabia after his company Saad defaulted together with another conglomerate in 2009, leaving banks with unpaid debts of around $22 billion.

Payments made in 2009 were a misappropriation of Singularis’ funds, leaving it unable to meet creditor demands, the Supreme Court said.

“Daiwa should have realised that something suspicious was going on and suspend payment until it had made reasonable enquiries to satisfy itself that the payments were properly made,” the court said.

By Huw Jones, Reuters, 30 October 2019

Read more at Reuters

RiskScreen: Eliminating Financial Crime with Smart Technology

You can claim CPD minutes for this content, by signing up to our CPD Wallet