Ahmad Hamad Algosaibi and Brothers Company v Saad Investments Company Ltd, Al Sanea and Others

• Jurisdiction: Cayman Islands
• Judge: (Rix, Martin and Birt, JJ.A.)
• Judgment Date: 21 December 2021
• Court: Court of Appeal (Cayman Islands)

AHMAD HAMAD ALGOSAIBI AND BROTHERS COMPANY

and

SAAD INVESTMENTS COMPANY LIMITED, AL SANEA and OTHERS

(Rix, Martin and Birt, JJ.A.)

Court of Appeal (Cayman Islands)

Fraud — unauthorized borrowing — knowledge of plaintiff — claim for unrepaid borrowings alleged to represent proceeds of fraud against plaintiff dismissed — plaintiff aware of and authorized fraud on lending banks — Grand Court decision upheld on appeal, with exception of one transfer of funds made in breach of fiduciary duty owed to plaintiff

Trusts — tracing actions — general principles — consideration of tracing under Cayman law

	Held, dismissing AHAB’s appeal in respect of the AwalCos; as to SIFCO 5, dismissing AHAB’s appeal in respect of the proprietary claim but otherwise allowing it to the extent of ordering a retrial as to whether any of AHAB’s claims of dishonest assistance, conspiracy or under the unifying theory succeeded in relation to the sum of $191m. misappropriated from the Money Exchange on May 3rd, 2009:

	(1) The court would not interfere with findings of fact made by the Chief Justice unless they were plainly wrong in the sense that they were ones which no reasonable judge could have made. The Chief Justice had sat through the long trial, which had numerous witnesses, disputed disclosure and a great deal of evidence. The Chief Justice had had to evaluate the motivations and personalities, credibility and reliability of key witnesses, especially the AHAB partners, as to their case that over a long period of time they lacked the knowledge of Al Sanea’s borrowings which the documents strongly suggested that they had. In such a case, the Chief Justice’s estimation of the honesty and integrity of the witnesses’ evidence was of particular significance. The Chief Justice properly directed himself as to the approach to be taken by a trial judge in a case “so heavily burdened with allegations of fraud on all sides and where everything will depend on what the court makes of the evidence of the knowledge, recollections, truthfulness or untruthfulness of witnesses” (paras. 233–249).

	(2) It could not be said that the Chief Justice had failed conscientiously to address the issues. He had grappled with the evidence and the parties’ submissions. The court accepted that there had been very considerable copying and repetition of the respondents’ submissions. There was no doubt that the Chief Justice relied, to a substantial extent, and as he himself acknowledged, on the respondents’ submissions as a partial template for his judgment. There was jurisprudence which justified criticism of such a judicial approach. Overreliance on one or other party’s submissions in the form of copying of them was not a desirable way to draft a judgment, if only because it set up anxieties in the losing party. However, the court had sympathy for the Chief Justice in the task the parties had set for him. If, having asked himself whether he could believe the AHAB witnesses, and having determined that he could not, he proceeded, with full acknowledgements, to find assistance in the organization of his judgment in the respondents’ submissions, it was possible to be understanding of that. Moreover, the authorities did not encourage an appellate court to the conclusion that, on that ground alone and irrespective of the merits of a case, a judgment would be set aside. Whether or not the Chief Justice had erred in separate parts of the argument or in his overall conclusions, the court had not been persuaded that he had failed to bring to bear and toexercise an independent and impartial mind, or that in any other respect he had failed in any substantial way to exercise due process. Nor had the court been persuaded that the Chief Justice was blind to or gave insufficient attention to the submissions made on behalf of AHAB. Those submissions were reflected in the judgment, even if more tersely than those of the respondents (paras. 301–307).

	(3) If AHAB’s appeal against the Chief Justice’s findings (that the AHAB partners knew of, authorized and consented to the borrowings from banks and Al Sanea’s borrowings from the Money Exchange) failed, it would not be open to AHAB to raise a new case of lack of fully informed consent, based on different and additional complaints that the partners did not fully know about the uses to which Al Sanea put the money or his prospects for repaying his borrowings. It might be true that Al Sanea must be regarded as a rogue, and that it would have been extremely difficult for him to prove anything the burden of which lay on him to prove. Nevertheless, if it were assumed ex hypothesi that the respondents would be able to sustain the Chief Justice’s findings on appeal, it would be unfair to say that the respondents must lose on any new case which AHAB proposed on appeal, just because they had put in issue on the pleadings a doctrine of fully informed consent, the burden of disproving which lay on the respondents. In an extremely complex case, AHAB chose to take their stand on their knowledge or ignorance, since 2000, of fraudulent borrowings from the banks and of unauthorized borrowings from the Money Exchange by Al Sanea. AHAB sought to support both the allegations of innocence and ignorance on the part of the AHAB partners, and the allegations (by way of corollary) of fraudulent borrowings from banks and in turn from the Money Exchange on the part of Al Sanea, by accusations of wholesale forgery against Al Sanea. If that case failed, AHAB could not rely on new allegations that the respondents had failed to prove that the AHAB partners had been informed about and consented to every aspect of Al Sanea’s business purposes and prospects. That would be somewhat analogous to allowing a new case of negligence to be advanced after the failure of a case of fraud, or a fortiori of allowing a new case of fraud to be raised after the failure of a first case of fraud (paras. 331–333).

	(4) The appeal failed and the court upheld the Chief Justice’s decision in relation to knowledge, authority, informed consent and breach of fiduciary duty, with the exception of the Al Sanea’s transfer of $191m. on May 3rd, 2009. There was a longstanding fraud on the banks, which started with Abdulaziz and Al Sanea, and which continued for years throughout the succession of Suleiman and finally (albeit briefly) Yousef as chairmen of the Money Exchange. It was impossible to acquit Abdulaziz of conscious appreciation of dishonesty. The structure of the Money Exchange’s operations whereby the banks were misled as to the extent of the Money Exchange’s borrowings and the value of its assets was a fundamental part of the Money Exchange’s operations. Although it was difficult to be sure how fully Abdulaziz took his partners into his detailed knowledge of the operation, it was impossible to think that they did notunderstand the essential structure of the fraud. They were members of the same family, all working in the AHAB family business. AHAB’s case on appeal was not so much that the Chief Justice ignored or mistook the established evidence but that he did not reach the conclusion that AHAB advocated with respect to forgery and manipulation, namely that there was an evasion of “new for old” in fraud of the Algosaibis. The court was not persuaded that the Chief Justice erred in his conclusions and certainly not that he reached conclusions to which he was not entitled. The court recognized, as did the Chief Justice, that Al Sanea was dishonest, but so too were the Algosaibis and their dishonesty was intimately linked with Al Sanea’s. Their foundational case of “new for old” rightly failed and with it the basis for their submission that Al Sanea had to cheat them as well in order to continue with their mutual fraud on the banks. Their dishonesty continued, after the Money Exchange’s collapse, into litigation, with suppression of documents and dishonest evidence (paras. 665–672).

	(5) Al Sanea was in breach of fiduciary duty in relation to the transfer on May 3rd, 2009 of $191m. from the Money Exchange to an account with Awal Bank. The content of the fiduciary duties owed by Al Sanea to AHAB was governed by the law of Saudi Arabia but the duties under Saudi law were similar to the duties owed by a director of a Cayman company. A director’s duty to act in the best interests of the company of which he was a director would, in certain circumstances relating to insolvency, include a duty to have regard to the interests of creditors. Therefore, from the point at which Al Sanea knew or should have known that the Money Exchange would probably become insolvent, his accepted duty to act in good faith in the best interests of AHAB required him to have regard to the interests of the creditors of the Money Exchange. There was overwhelming evidence that by May 3rd, 2009, Al Sanea knew that the Money Exchange was (or at its lowest would probably become) insolvent. The transfer of $191m. out of the Money Exchange was a clear breach of Al Sanea’s duty to act in good faith in the best interests of AHAB because he completely ignored the interests of creditors at a time when he knew the Money Exchange was or was about to become insolvent. The Chief Justice seemed to have accepted that Al Sanea’s conduct was arguably a breach of fiduciary duty but to have found that such a finding was not available to AHAB “given its dishonestly pleaded case of ignorance and lack of authority of all new borrowing post circa October 2000.” The court did not follow this argument. The fact that the Chief Justice had rejected AHAB’s claim that they were not aware of and had not consented to previous borrowing could not operate to prevent a finding that Al Sanea’s action on May 3rd, 2009 did amount to a breach of duty, because it was clearly not acting in good faith in the best interests of AHAB given the financial position of the Money Exchange at the time. Although the court was not generally in a...