Ahmad Hamad Algosaibi and Brothers Company (“AHAB”) v Saad Investments Company Ltd (in Official Liquidation) (“SICL”) and Others

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.),Anthony Smellie
• Judgment Date: 31 May 2018
• Date: 31 May 2018
• Docket Number: CAUSE NO. FSD 54 OF 2009 (ASCJ)
• Court: Grand Court (Cayman Islands)

Between

Ahmad Hamad Algosaibi and Brothers Company (“AHAB”)

Plaintiff

and

(1) Saad Investments Company Limited (In Official Liquidation) (“SICL”) and Others

(2) Maan Al Sanea

(8) Singularis Holdings Limited (In Official Liquidation) (“SHL”)

and

(14) Awal Finance Company Limited (in Official Liquidation) (“AFCL”)

(34) Saad Investments Finance Company (No. 5) Limited (in Official Liquidation) (“SIFCO 5”) and Others

Defendants

Before

The Hon. Anthony Smellie, Chief Justice

CAUSE NO. FSD 54 OF 2009 (ASCJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

FINANCIAL SERVICES DIVISION

IN OPEN COURT

REPRESENTATIONS:

Mr. David Quest QC and Ms. Emily Gillett instructed by Mr. Peter Hayden, Mr. Nicholas Fox, Ms. Delia McMahon and Mr. Charles Moore of Mourant Ozannes for the Plaintiff.

Mr. Michael Crystal QC, Mr. Mark Phillips QC, and Mr. Marcus Haywood instructed by Mrs. Colette Wilkins and Ms. Shelley White of Walkers for the 1st, 8th, 30th to 33rd, and 35th to 37th Defendants (the “GTDs”).

Mr. Marcus Smith QC, Ms. Bridget Lucas, Ms. Harriet Fear Davies and Mr. James Hart instructed by Mr. Ian Lambert, Mr. William Helfrecht, and Mr. Mark Russell of HSM Chambers for the 13th to 18th Defendants (the “AwalCos”).

Mr. Thomas Lowe QC and Mr. Jack Watson instructed by Mr. William Peake, Mr. Marc Kish, Ms. Grainne King, and Mr. James Elliott of Harney Westwood & Riegels for the 34th Defendant (“SIFCO 5”).

1 The trial of these claims brought by AHAB and counterclaims brought by SICL and SHL took place over 129 days in court over the course of a year, ending on 27 July 2017 when judgment was reserved.

2 This is the judgment on both the claims and counterclaims. For the reasons which follow, the claims and counterclaims are dismissed.

3 By its re-re-re-amended statement of claim (“RASOC”), AHAB pleaded a number of distinct heads of claim against the 2nd Defendant Mr. Maan Al Sanea (“Al Sanea”) and the corporate Defendants which are in liquidation and are among 42 companies established by Al Sanea in this jurisdiction. The corporate Defendants will also be referred to by acronyms according to their groupings (the “AwalCos”, the “GTDs” and “SIFCO 5”) as they have been referred to at trial and to reflect the fact that they are under the control of different liquidators. They will however generally be referred to collectively as “the Defendants”. 1

4 In essence, AHAB's claims are for fraudulent breaches of fiduciary duties allegedly committed by Al Sanea and restitution, damages and compensation from the Defendants; on the basis of their conspiracy with Al Sanea, their knowing assistance in his alleged fraud upon AHAB and ultimately, their knowing receipt of the massive proceeds of that fraud. AHAB also brings proprietary claims against the Defendants on the basis that their

assets represent AHAB's property —the proceeds of the fraud —which AHAB could trace into their bank accounts or other assets

5 AHAB's claims are massive in amount: initially for US$9.2bn, subsequently by amendment reduced to US$6bn. This massive sum is claimed as representing the proceeds of the alleged fraud as at the end of May 2009 when it was said to have been discovered, plus interest accruing since then.

6 The counterclaims of SICL and SHL are equally massive. They were filed by the liquidators of the GTDs (“GTJOLs”), instigated in large part by promissory notes presented to them by Al Sanea as representing security for debts owed to SICL and SHL by AHAB and signed and delivered to him by Suleiman Algosaibi (“Suleiman”), acting as chairman and on behalf of AHAB. They also contained other claims amounting to more than US$1bn which were based primarily upon liabilities recorded in the accounts of SICL and SHL as due from AHAB. The SICL and SHL promissory notes purported together to secure the repayment of US$6.7bn. Ultimately, the counterclaims were however, reduced to a total of US$5.9bn when reliance upon the SICL promissory notes was disavowed.

7 AHAB's allegations of fraud against Al Sanea relate to his management of AHAB's Money Exchange branch (“Money Exchange”).

8 Having become a member of the Algosaibi family by marriage to Sana'a Algosaibi (“Sana'a”), the daughter of Abdulaziz Algosaibi (“Abdulaziz”), Al Sanea came to enjoy a very close relationship with Abdulaziz, described like that of a favoured son.

9 As will be examined in some detail in this judgment, that relationship came to instill a level of mutual trust such that Al Sanea was appointed Managing Director of the Money Exchange when it was re-launched in July 1981, with more ambitious objectives than had defined its earlier existence as a mere bureau de change. While the reasons for the relaunch of the Money Exchange and the reasons for Al Sanea's involvement were matters of debate at the trial, it is common ground that the Money Exchange expanded rapidly as a financial institution under Al Sanea's management, as it pursued its campaign of borrowing from the banks. While it was also a matter of deep contention, what became of the massive sums obtained from the banks, it became incontrovertible that very large amounts were used for the acquisition of investments in AHAB's name and very large amounts were applied to the funding of Al Sanea's interests. Indeed, it is also common ground that the massive inflow of borrowed funds allowed Al Sanea to borrow from the Money Exchange to fund his own enterprises. This allowed Al Sanea in a startlingly short period of time to become noticed as one of the richest men in the Middle East, standing in his own right nearly if not on equal financial footing with the AHAB Partners themselves.

10 The campaign of borrowing was also aggressively pursued through other Financial Businesses established in Bahrain in AHAB's name. It was however, a matter of deep contention whether this was known to AHAB and whether the Partners were aware of the use to which this “offshore” borrowing was being put by Al Sanea.

11 Following Abdulaziz's incapacitation, on 30 September 2000, it is alleged by AHAB that Suleiman imposed restrictions upon the level of borrowing and that by his “New for Old” policy, Al Sanea was instructed to incur no further indebtedness through the Money Exchange. However, between the time of the imposition of Suleiman's putative “New for Old” policy and the collapse of the Money Exchange and other Financial Businesses in May 2009, the staggeringly large amount of US$330bn in further borrowing from more than 100 of the world's leading banks had been obtained.

12 When the collapse occurred in May 2009, some US$9.2bn was outstanding to the banks and this became the sum of AHAB's initial claim.

13 At the heart of AHAB's claims lay the allegations that Al Sanea fraudulently without their knowledge and authority evaded Suleiman's “New for Old” policy and that he did so by the implementation of a program of forgery “ on an industrial scale”.

14 The essence of the Defendants' defences is that this is not true, that Suleiman had imposed no such curtailment upon Al Sanea's borrowing. Instead that AHAB, having become trapped in its own vortex of debt from which it could not escape without revealing its fraud upon the banks, was bound to allow Al Sanea to continue to borrow for his own purposes as well as to keep AHAB itself from collapse. Thus, the crucial and pivotal issue in the case became whether the AHAB Partners knew about and authorised Al Sanea's activities at the Money Exchange and other Financial Businesses. This crucial and pivotal issue is that which is first examined in this judgment. Other important issues, including the allegations of forgery against Al Sanea will also be examined in turn.

Introduction of the dramatis personae, historical and factual background to the action 2

15 AHAB has its origins in a business begun by Hamad Algosaibi (“Hamad”) in the 1940s. That business was based and, although exponentially expanded, still is based in the

Eastern Province of Saudi Arabia (the “Eastern Province”), with its headquarters in Al Khobar

16 The Eastern Province is the largest province of Saudi Arabia. It is located in the east of the country on the Arabian Gulf coast, and it has land borders with Kuwait, Qatar, the United Arab Emirates, Oman and Yemen. In addition, it is linked to neighbouring Bahrain through the King Fahd Causeway. The four principal cities of the Eastern Province are Al Khobar, Dammam, Jubail and Dhahran. Dhahran is the base for the Saudi state-owned oil producing company, ARAMCO.

17 Hamad died in 1969. He was succeeded by his three sons, namely, Ahmad, Abdulaziz and Suleiman. Following their father's death, the AHAB business was incorporated as a general partnership (sharikat al-tadamun) in 1969, by Ahmad, Abdulaziz and Suleiman.

18 Ahmad was Chairman of AHAB from 1970 to his death in 1990. Abdulaziz succeeded Ahmad as Chairman from 25 September 1990 until his death on 12 May 2003. Suleiman succeeded Abdulaziz as Chairman from 24 May 2003 until his death on 22 February 2009. Yousef Algosaibi (“Yousef”), Ahmad's eldest son, became Chairman of AHAB on 26 February 2009. Yousef remains AHAB's Chairman. Saud Algosaibi (“Saud”) succeeded his father Abdulaziz to partnership in AHAB in May 2003 although, as the evidence shows, Saud was actively involved in the affairs of AHAB and the Money Exchange from the time of Abdulaziz's incapacitation on 30 September 2000. Dawood Algosaibi (“Dawood”) succeeded his father Suleiman to partnership in AHAB upon Suleiman's passing on 22 February 2009.

19 It is understood and generally accepted that, as Yousef confirmed in testimony, the three brothers, Ahmad, Abdulaziz and Suleiman were very close. As Yousef also accepted in cross-examination, the three brothers made their business decisions jointly: 3

“Q. Your uncles and your father made business decisions jointly? You have told me that it was they jointly who set up stevedoring and canning in the 1970s and...