Daiwa loses UK duty of care appeal case, faces $150 million bill

By Huw Jones

LONDON, Oct 30 (Reuters) - Daiwa Capital Markets Europe 8601.T did breach a rule on checking a customer instruction for fraud, Britain's top court ruled on Wednesday, leaving the Japanese investment bank facing a $150 million damages bill.

"The Supreme Court unanimously dismisses Daiwa's appeal and upholds that the High Court order should stand," the court said in a statement.

Such a ruling could prompt international banks to shift some corporate business away from London to cut their liability risk in future, financial sector officials have said.

The court was ruling on a dispute between Singularis Holdings, now in liquidation, and London-based Daiwa.

At stake was whether Daiwa considered a duty on banks to guard against fraud by refusing an instruction from an officer at a corporate client when there are reasonable grounds for believing it would be a misappropriation of funds.

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

This left Singularis unable to meet demands of creditors.

Britain's High Court had found that Daiwa had breached 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.

The High Court had also upheld claim by Singularis for damages amounting to $150 million.

It is the first time that courts have found against a bank in respect of the Quincecare duty, raising the prospect of a much higher duty of care burden for financial institutions when it comes to dealing with corporate clients.

Daiwa had no immediate comment.

Daiwa had unsuccessfully argued that Singularis was a one-man company and would therefore have known if there was misappropriation.

"The context in this case is the breach of Daiwa's Quincecare duty of care. To attribute the fraud of a trusted agent of the company to the company would denude the duty of any value in cases where it is most needed and be a retrograde step," the Supreme Court said.

(Reporting by Huw Jones, editing by Jason Neely)

((huw.jones@thomsonreuters.com; +44 207 542 3326; Reuters Messaging: huw.jones.thomsonreuters.com@reuters.net))

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