What is the test for a ‘one man company’?

Singularis Holdings Ltd (In Official Liquidation) (A Company Incorporated in the Cayman Islands) (Respondent) v Daiwa Capital Markets Europe Ltd (Appellant) concerns whether the dishonest state of mind of the sole shareholder and a director of a company is attributable to the company for the purposes of a claim in negligence against a third party bank or broker and, if so, what the consequences are of that attribution. The appeal was heard by Lady Hale, Lord Reed, Lord Lloyd-Jones, Lord Sales and Lord Thomas last month. The appeal in relation to attribution raises the following questions (1) what is the test for a “one man company”? is it a company where every single shareholder and director is implicated in the fraud, irrespective of whether the directors were involved in the management of the company at any point in time; or a company that is wholly owned and controlled by a fraudulent sole shareholder and dominant director and/or by the only person involved in the management and ownership of the company? (2) upon whom does the burden of proof lie so far as the role of the other directors is concerned? does it lie upon the company on whose behalf the directors acted at the material time or upon the bank or broker? (3) in determining the question of attributionIs it relevant to consider whether the company had a legitimate business, and/or does the nature of the Quincecare duty lead to the conclusion that Mr Al Sanea’s fraudulent knowledge should not be attributed to the respondent? If Mr Al Sanea’s knowledge and fraudulent actions are attributable to the Respondent then the appeal raises a series of further questions.

These questions are (1) is the respondent’s claim defeated by lack of causation because the Quincecare duty does not extend to protecting the respondent from its own deliberate wrongdoing and/or because the respondent did not rely upon due performance of the Quincecare duty? (2) does the reasoning of Evans-Lombe J in Barings plc v Coopers & Lybrand (a firm) [2003] PNLR 34 apply where the respondent is primarily (as opposed to vicariously) liable for the actions of Mr Al Sanea? (3) how does the three stage test recently identified by the Supreme Court in Patel v Mirza [2016] 3 WLR 399 apply in this case? In particular: is the respondent’s claim contrary to public policy? does the existence of money laundering legislation and associated regulations provide a countervailing policy consideration in favour of allowing such a claim? would it be disproportionate to deny the claim because of the ability to make a deduction for contributory negligence on account of the respondent’s own contributory fault? The facts are that the appellant is the London subsidiary of a Japanese investment bank and brokerage firm. At the material time, the respondent was wholly owned by an individual called Maan Al Sanea (“Mr Al Sanea”), who was the company’s Chairman, President, Director and Treasurer.

Supreme Court: Widow’s Contractual Claim Against BP Upheld

Braganza (Appellant) v BP Shipping Limited and another (Respondents) [2015] UKSC 17 (18 March 2015) 

This case was heard on appeal from a decision of Longmore, Rimer and Tomlinson LJJ, see [2013] EWCA Civ 230, and it threw up two connected questions of principle: first of all, the meaning of the general requirement that the decision of a contractual fact-finder must be a reasonable one; and secondly, the proper approach of a contractual fact-finder who is considering whether a person may have committed suicide. On 11 May 2009, Braganza disappeared between 1am and 7am, while on duty as the chief engineer on the British Unity (an oil tanker in the mid-North Atlantic managed by BP). The Court of Appeal was of the view that Braganza, an Indian national, had thrown himself overboard to commit suicide. Consequently, his widow, Mrs Niloufer Braganza, was precluded from receiving death benefits under her husband’s contract of employment, which contained a clause that compensation would not be payable if “in the opinion of the Company or its insurers, the death … resulted from … the Officer’s wilful act, default or misconduct”.

The question for Lord Neuberger PSC, Lady Hale DPSC and Lord Kerr, Lord Wilson and Lord Hodge JJSC concerned the proper test for the court to apply when deciding whether BP was entitled to reach the opinion that it did. Geared towards improving its systems, BP’s own inquiry about the disappearance identified six factors supportive of suicide and concluded that the most likely scenario was that Braganza deliberately jumped overboard. The six points related to (i) his behaviour being notably different on the voyage involving his disappearance than on previous voyages; (ii) the shoes and sandals he usually wore on board were found in his cabin after his disappearance; (iii) e-mail messages received from his immediate family suggested that he had some family and/or financial difficulties that were causing him concern; (iv) he was not aware, before joining the ship, of its status and reputation and was reported to be unhappy about this

Conduct of Persons in Financial Services: Causing a Financial Institution to Fail

The Financial Services (Banking Reform) Act 2013 (the Act) is yet another Leviathan statute. The Act is spread out over eight parts encompassing one hundred and forty-eight sections and contains ten schedules. First of all, this wide-ranging legislation implements the recommendations of the Independent Commission on Banking (or ICB, chaired by Sir John Vickers). Equally, it also implements the recommendations of the Parliamentary Commission on Banking Standards (or PCBS, in relation to the LIBOR scandal) which aim to improve culture and standards in the banking sector. Moreover, under section 17, the Act also provides the Bank of England with the new stabilisation “bail-in option” under the Banking Act 2009. See updates here and here.

Independent Commission on Banking

In its final report, the ICB remarked that:

Banks are at the heart of the financial system and hence of the market economy. The opportunity must be seized to establish a much more secure foundation for the UK banking system of the future.

Recommending structural reform of the banking industry, coupled with measures designed to increase the capacity of banks to absorb losses, the ICB’s work focused on cost effective solutions as regards rescuing failing banks.

LIBOR: Misrepresentation and Amendment – Part II

Deutsche Bank AG & Ors v Unitech Global Ltd & Ors [2013] EWHC 471 (Comm) (28 February 2013)

This is another judgment about the London Interbank Offered Rate (LIBOR). The instant case, which is interesting to contrast with the Graiseley case highlighted earlier, relates to two actions concerning a credit facility agreement and a related interest rate swap agreement. Cooke J refused the defendants Unitech (U) permission to amend their statements of case – as these had no prospect of success – to plead allegations against the claimants Deutsche Bank (D) that it had manipulated LIBOR and that owing to D’s false representations, U was induced into the agreements. This robust judgment has been appealed and the Court of Appeal is seised of the matter.

The litigation involves D claiming £11 million from U in relation to an interest rate swap agreement and another £150 million under a credit facility agreement. U alleged that D proposed the swap agreement as a hedge against fluctuations in the interest rate and that the swap agreement and the credit facility had been part of a package deal. Aggrieved U thought that it had been induced into the swap agreement by D’s representations that made the agreement appear to be suitable whereas it was not. The interest for the credit facility was linked to LIBOR and U argued that like other banks D had manipulated LIBOR. Therefore, U applied to amend the statements of case to include claims for breach of contractual warranty which were argued to have occurred because of the fact that D was a LIBOR panel bank for the British Bankers’ Association. Similarly, U sought to add common law and statutory claims in respect of misrepresentation.

VTB v Nutritek: Piercing the Corporate Veil: UK Supreme Court Preview

The truly important and absorbing case of VTB Capital plc (Appellant) v Nutritek International Corp and others (Respondents) UKSC 2012/0167 has made it to the UK’s court of final recourse which granted permission to appeal on 26 July 2012. The case is going to be heard for three days by Lords Neuberger, Mance, Clarke, Wilson and Reed JJSC from 12 to 14 November 2012 . There are a lot of issues in this case. Notably a couple of juicy ones are (1) whether the court can pierce the corporate veil and treat a person as a party to a contract if that person uses a puppet company to enter into a contract with a third party in order to perpetrate fraud on that third party and (2) when determining whether England is clearly the appropriate forum, is there a presumption that a defendant who has committed a wrong in England ought to answer for that wrong in England. For some reason this case is not being broadcast live. Maybe it is just too high profile and controversial to show live. Too bad …  because upon appeal to the UKSC, even Special Immigration Appeals Commission dealing with national cases are aired. 

Facts

VTB (“V”), a London-based bank (the appellant) entered a facility agreement with a Russian company (“R”) in 2007. Under that agreement, V loaned R $225m to fund the purchase of six Russian Dairy Plants (“the dairy companies”) from the first defendant (Nutritek, “D1”: the “defendants” (at first instance) also became the “respondents” in subsequent proceedings). R subsequently defaulted on the loan. In 2010, V began claims in deceit, alternatively conspiracy to defraud, against the defendants. In May 2011, Chief Master Weingarten granted permission to serve the claims on the defendants out of the jurisdiction. In August 2011, V obtained a worldwide freezing order against Konstantin Malofeev or “D4”: see below.