1. März 2018
Attributing a director's fraud to a company
Key points
- To attribute a director's fraud to a company, the company must be a one-man company
- A one-man company requires no innocent directors or shareholders
The Facts
Singularis Holdings Ltd (the "Company") was set up to deal with the personal assets of Mr Al Sanea. Mr Sanea was at all the times the sole shareholder of the Company, though he was only one of a number of directors of the Company.
The Company held its bank account with Daiwa Capital Markets Europe Limited (the "Bank"). The Bank became aware that Mr Sanea's assets had been frozen by the Saudi Arabian Monetary Authority and executives of the Bank decided that no further payments should be made from the account. However, whilst the Company was on the verge of insolvency, the Bank allowed Mr Sanea to make a number of payments out of the account, which turned out to be fraudulent. The Company then went into liquidation.
The Company issued a claim against the Bank for the total amount of the transfers out the account. The High Court held that the Bank had breached its duty of care to the Company not to make payments whilst the circumstances put it on enquiry. The Bank appealed the decision and argued that the fraudulent conduct of Mr Sanea should be attributed to the Company, therefore barring the claim on the grounds of illegality.
The Decision
The Court of Appeal held that the High Court was correct in its decision. The court found that to attribute a director's fraud to a company, the company must be a one-man company, which would require there to be no innocent directors or shareholders. Whilst the other directors of the Company were not active in its management, they were still innocent directors, who were owed a duty of care by the Bank. As such, the Company was not a one-man company whose Mr Sanea's fraudulent actions could be attributed to and the Bank's appeal was dismissed.
