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England and Wales High Court (Commercial Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Riyad Bank & Ors v Ahli United Bank (UK) Plc [2005] EWHC 279 (Comm) (01 March 2005) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2005/279.html Cite as: [2005] EWHC 279 (Comm) |
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QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
(1) RIYAD BANK (2) RBE LONDON LIMITED (3) RBE IJARA FUND PLC |
Claimants |
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- and - |
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AHLI UNITED BANK (UK) PLC |
Defendant |
____________________
Mr. Michael Lyndon-Stanford Q.C. and Mr. Dominic Chambers (instructed by Lovells) for the defendant
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Crown Copyright ©
Mr. Justice Moore-Bick:
1. Introduction
2. The operation of the Fund
3. The claims made in these proceedings
4. Negligent misstatement
(a) Did UBK owe a duty of care to the Fund?
"no single general principle is able to provide a practical test which can be applied to every situation to determine whether a duty of care is owed and, if so, what is its scope."
In consequence, he concluded at page 123H,
"It therefore becomes necessary, in the absence of some general principle, to examine each individual case in the light of the concepts of foreseeability, proximity and fairness. The last of these concepts, however, is elusive and may indeed be no more than one of the criteria by which proximity is to be judged. It is perhaps sufficient to underline that in every case the court must not only consider the foreseeability of the damage and whether the relationship between the parties is sufficiently proximate but must also pose and answer the question: in this situation is it fair, just and reasonable that the law should impose on the defendant a duty of the scope suggested for the benefit of the plaintiff?"
"Each Name entered into one or more underwriting agency agreements with an underwriting agent, which was either a members' agent or a combined agent. Each underwriting agency agreement governed the relationship between the Name and the members' agent, or between the Name and the combined agent in so far as it acted as a members' agent. If however the Name became a member of a syndicate which was managed by the combined agent, the agreement also governed the relationship between the Name and the combined agent acting in its capacity of managing agent. In such a case the Name was known as a direct Name. If however the Name became a member of a syndicate which was managed by some other managing agent, the Name's underwriting agent (whether or not it was a combined agent) entered into a sub-agency agreement under which it appointed the managing agent its sub-agent to act as such in relation to the Name. In such a case the Name was known as an indirect Name."
"the question falls to be considered whether a like obligation rested upon the managing agents in tort, so that the managing agents which were also members' agents owed such a duty of care in tort to direct Names, with the effect that the direct Names had alternative remedies, in contract and tort, against the managing agents; and whether managing agents which were not also members' agents owed such a duty of care in tort to indirect Names, so that the indirect Names had a remedy in tort against the managing agents, notwithstanding the existence of a contractual structure embracing indirect Names, members' agents and managing agents, under which such a duty was owed in contract by the managing agents to the members' agents, and by the members' agents to the indirect Names."
"Mr. Kaye's approach involves regarding the law of tort as supplementary to the law of contract, i.e. as providing for a tortious liability in cases where there is no contract. Yet the law of tort is the general law, out of which the parties can, if they wish, contract; and, as Oliver J. demonstrated, the same assumption of responsibility may, and frequently does, occur in a contractual context. Approached as a matter of principle, therefore, it is right to attribute to that assumption of responsibility, together with its concomitant reliance, a tortious liability, and then to inquire whether or not that liability is excluded by the contract because the latter is inconsistent with it. This is the reasoning which Oliver J., as I understand it, found implicit, where not explicit, in the speeches in Hedley Byrne. With his conclusion I respectfully agree. But even if I am wrong in this, I am of the opinion that this House should now, if necessary, develop the principle of assumption of responsibility as stated in Hedley Byrne to its logical conclusion so as to make it clear that a tortious duty of care may arise not only in cases where the relevant services are rendered gratuitously, but also where they are rendered under a contract. This indeed is the view expressed by my noble and learned friend, Lord Keith of Kinkel, in Murphy v. Brentwood District Council [1991] 1 AC 398, 466, in a speech with which all the other members of the Appellate Committee agreed."
"I wish however to add that I strongly suspect that the situation which arises in the present case is most unusual; and that in many cases in which a contractual chain comparable to that in the present case is constructed it may well prove to be inconsistent with an assumption of responsibility which has the effect of, so to speak, short circuiting the contractual structure so put in place by the parties. It cannot therefore be inferred from the present case that other sub-agents will be held directly liable to the agent's principal in tort. Let me take the analogy of the common case of an ordinary building contract, under which main contractors contract with the building owner for the construction of the relevant building, and the main contractor sub-contracts with sub-contractors or suppliers (often nominated by the building owner) for the performance of work or the supply of materials in accordance with standards and subject to terms established in the sub-contract. I put on one side cases in which the sub-contractor causes physical damage to property of the building owner, where the claim does not depend on an assumption of responsibility by the sub-contractor to the building owner; though the sub-contractor may be protected from liability by a contractual exemption clause authorised by the building owner. But if the sub-contracted work or materials do not in the result conform to the required standard, it will not ordinarily be open to the building owner to sue the sub-contractor or supplier direct under the Hedley Byrne principle, claiming damages from him on the basis that he has been negligent in relation to the performance of his functions. For there is generally no assumption of responsibility by the sub-contractor or supplier direct to the building owner, the parties having so structured their relationship that it is inconsistent with any such assumption of responsibility."
"The Islamic Investment Banking Unit of the United Bank of Kuwait Plc has been appointed to act as the General Investment Advisor to the Company. The General Investment Advisor's responsibilities cover the giving of informed advice to the Directors on a regular basis on the investment of the Company's assets in equipment on lease."
"A minimum of 75% by value of the Company's assets will be investments in a diversified portfolio of equipment in U.S.A. on lease to creditworthy U.S. corporations.
Leasing advisers will identify equipment and lessees which meet the investment criteria of the Company and the General Investment Adviser will investigate the proposed transactions and make recommendations to the Directors of the Company as to which purchases and leases of equipment might be attractive to the Company. . . . . . . . . . . .
It is the intention of the Directors that the weighted average of the portfolio of the Company's assets should, by value, have a credit rating at least equivalent to Moody's Baa rating and further that the residual value of equipment forming the Company's assets should reflect as closely as possible the fair market value of all equipment purchased for the Company's account."
" Residual Value Risks
A significant part of the Company's projected returns will come from the re-marketing or re-leasing of equipment. When entering into leasing contracts with lessees the Directors of the Company will take account of the leasing advisors' prudent and conservative future projections on the likely residual values of equipment being put on lease. If these residual value projections are inaccurate and equipment cannot be re-sold or re-leased at the values originally projected then the value of the Company's Shares may be negatively impacted."
"RBE will instruct IIBU to duplicate as far as possible its current Leasing Fund in order to make optimal use of its knowledge of (i) the legal and tax structures involved in creating a premier leasing product, (ii) the administrative and custodial facilities required in its operation and (iii) the identification of suitable leased assets in which the Riyad Bank Europe Leasing Fund (RBLF) may invest, (iv) an extensive base of relationships with the best quality of US leasing managers/lease originators. RBE (via a management company established by it for the purpose) will, based on a technical advisory agreement with IIBU, take on the prime role of General Investment Advisor to the Fund. . . . . . "
"The development of the existing IIBU Leasing Fund took in excess of two years from conceptualisation to launch. Broadly speaking, the areas of substantial expertise which IIBU has (and which it will make available to RBE) are:
- Establishing a suitable Fund structure for leasing in USA . . . . . . . . . . . .
- Credibility in and knowledge of the US Leasing Market. . . . . . . . . . . . .
- The practicalities of purchasing suitable leasing assets in the USA. . . . . . . . . the remaining area of technical complexity is the assessment of the potential transactions on offer. IIBU has adopted a unique matrix approach to selecting potential leased assets, involving lessee (credit), lease, sector and asset analysis and (relative/absolute) evaluation. Further, IIBU has developed its own expertise in dealing with transaction-by-transaction issues, relating to asset transfer, local duties/taxes and lease documentation."
"A. IIBU will be responsible for:-
1. Advising RBE on the establishment of the RBLF . . . .
2. Technical advice to RBE on various on-going matters, including:
- identification of one or more leasing originators.
- identification and recommendation of suitable assets which fall within RBLF's investment guidelines.
- Attendance at RBLF Board Meetings as required.
B. RBE will be responsible for
1. Co-ordination of the development of the RBLF with Riyad Bank Group and its own marketing strategy in Saudi Arabia.
2. Joint due diligence (with IIBU) in connection with all matters referred to in A above.
3. Managing the General Investment Advisor management company and the processes relating to Board Meetings of RBLF. This will include formal recommendations on the acquisition of assets for RBLF.
4. Providing (if required) a liquidity underwriting facility (similar to that provided by IIBU for its own Leasing Fund to assist in the successful marketing of RBLF."
"(iv) to devise, in association with RBE, a set of operational procedures to allow the ongoing decision making process to be operated in an effective, timely and efficient manner;
(v) to provide ongoing technical services to RBE including, but not limited to the following:
(a) recommending specific lessees;
(b) review of portfolio diversification criteria
(c) analysis of the Lease Manager's estimate of residual value and renewal assumptions, with suitable amendments if appropriate;
(d) recommendation of specific leases for the Fund;"
Among the functions that RBE said it intended to perform were
"(ii) to review and approve the various agreements drafted by IIBU;
(iii) to review and approve the operating procedures drafted by IIBU;
(iv) . . . . . . . . . . . . . .;
(v) to act as General Investment Advisor to the Fund;"
"The TSA [sic] will need to review the residual value estimate provided by the Lease manager to help determine whether the residual value risk is appropriate for RBE to commend to the Fund. This assessment will initially be performed by the Lease Manager, and reviewed by the TSA, using a combination of quantitative and qualitative techniques to assess the appropriateness of the Lease Manager's residual and renewal assumptions."
" 1. DEFINITIONS
"Administrative Procedures" means the set of administrative procedures prepared by the TSC relating to the Fund and dated [ ]
2. ENGAGEMENT OF THE TSC
The Fund Advisor [RBE] hereby engages the TSC [UBK] . . . . . as a technical consultant to the Fund Advisor . . . . . to perform the following services:
. . . . . . . . . . . . . . . . . . . .
2.2 To evaluate and propose suitable Asset Managers (after undertaking appropriate due diligence work) for the proposed Fund . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
2.5 To provide on-going technical services to the Fund Advisor as contemplated by the Administrative Procedures, including, but not limited to, the following:
(a) evaluation and proposal of specific lessees;
(b) review of portfolio diversification criteria;
(c) analysis of the Asset Managers' estimate of residual value and renewal assumptions, with suitable amendments if appropriate;
(d) evaluation and proposal of specific leases for the Fund which are in line with [the] Fund's objectives (as may be notified to the TSC by the Fund Advisor from time to time);
(e) provision of regular information on the Fund, such as portfolio mix, performance, etc.
2.6 The TSC shall use its best endeavours to ensure that all leases recommended by the TSC hereunder shall comply with the selection criteria used by the TSC in connection with [the] IIBU Fund
. . . . . . . . . . . . . . . . . . . .
2.7 To perform other related tasks, as the Fund Advisor may reasonably specify from time to time in order to comply with [the] Administrative Procedures and the Fund Advisor's obligations under the Investment Advisory Agreement to help the Fund to be devised, launched and operated in a manner that complies with relevant legal, regulatory, taxation, asset management and credit matters.
. . . . . . . . . . . . . . . . . . . .
4 RESPONSIBILITY AND INDEMNITY
4.1 The Fund Advisor acknowledges . . . . . . . . . . that all investment decisions and decisions with respect to the management of the Fund shall be solely made by the directors of the Fund, again as advised by the Fund Advisor. However, the TSC shall be obliged to exercise all reasonable care in the performance of its duties under this Agreement, taking into account the level of experience and expertise which the TSC has, such experience and expertise being based on its operation of IIBU fund II Plc."
" a) To recommend for approval (by the Board) the acquisition of new leases following identification by the Lease Managers;
b) . . . . . . . . .
c) . . . . . . . . . .
d) To perform due diligence visits to the Lease Managers and to assess in detail:
1. The Lease Managers' ability to estimate residual values on leased assets;
2. The Lease Managers' ability to provide the Company's investment advisors and valuers with detailed information on lease status and performance;
3. Whether any changes are necessary in the assumptions to estimated residual values or renewal months (subject to Board approval);"
" 3.1.1. research and evaluate opportunities for possible investment by the Company in Leases and negotiate suitable terms for the acquisition and disposal of Investments;
3.1.2. keep under review the Investments for the time being and, as circumstances may require, recommend changes in such Investments;
. . . . . . . . . .
3.1.6. Advise the Technical Services Consultant on all actions which it appears to the General Investment Advisor would be advantageous to the Company in implementing the investment policies of the Company;
3.1.7. analyse the performance of current Investments of the Company;
3.1.8. advise on the appointment and retirement of leasing advisors, monitor their performance and recommend allocation of assets amongst them."
(b) Standard of care – review or independent analysis?
5. Breach of duty
(a) Misstatement
(1) Pricing and valuing
(2) Estimating residual value
(3) The basis of valuation, "haircutting" and renewals
(4) Sources of data - market or cost?
(5) The use of residual value matrices
(6) The adequacy of the market information
(7) Replacement Cost New
(8) Permissible range of estimated residual values
(9) Discounting
(i) One discount rate or two?
(ii) The discount rate for rental streams
(iii) The discount rate for residual value
(10) Summary of conclusions on valuation
(b) Negligence
6. Damages
"As consideration for the services rendered and to be rendered by the TSC to the Fund Advisor in connection with the Fund, the Fund Advisor shall pay, cause the Fund to pay or cause to be paid to the TSC the following amounts at the following times:
(a) Within 10 days after each Dealing Day, an amount equal to 1.0% of the amount of the cost of Assets purchased by the Fund on that Dealing Day
(b) Within 10 days after each Dealing Day, a management fee at a rate of 0.75% per annum of the Net Asset Value of the fund . . . . . "
7. Claim for loss of Reputation
"What Mrs. Dimond was paying for here was more than the cost of hiring a car for a week. It was reasonable for her to pay the additional sum in order to obtain the additional benefits enjoyable under the scheme even though the accident hire company were under no legal obligation to do more than provide her with a car on credit. The sum which she paid, having regard to what she was to get was, on the evidence, reasonable. But she cannot claim the whole cost as the cost of mitigating the loss of the use of her car. The cost of that was, on the evidence, only about £24 per day. The remainder of what she paid was attributable to other matters and therefore should not be included in the cost of mitigation."
8. The claim of RBE and Riyad Bank to recover damages on behalf of the Fund.
9. Miscellaneous issues
(a) Contributory negligence
(b) The indemnity clause
"Subject to clause 4.4, the Fund Advisor shall indemnify and save the TSC, its directors, officers, employees, and agents (the 'Indemnitees') harmless from and against any and all liability, cost, damage, claim or expense (including reasonable attorneys' fees) that the Indemnitees may suffer or incur or arising out of or in connection with claims brought by third parties and arising out of the performance by the TSC of its duties under this Agreement, provided that the TSC shall not be indemnified to the extent that the TSC has acted in breach of this Agreement or if any claim arising [sic] as a result of gross negligence, fraud or wilful default."
(c) Waiver in the course of novation
(d) Waiver in the course of termination
10. Further directions