Ritter and Geneva Insurance Spc Ltd (in Voluntary Liquidation) v Butterfield Bank (Cayman) Ltd

• Jurisdiction: Cayman Islands
• Court: Grand Court (Cayman Islands)
• Judge: (Williams, J.)
• Judgment Date: 29 May 2018
• Date: 29 May 2018

RITTER and GENEVA INSURANCE SPC LIMITED (in voluntary liquidation)

and

BUTTERFIELD BANK (CAYMAN) LIMITED

(Williams, J.)

Grand Court (Cayman Islands)

Estoppel — representation — forgery of bank customer’s signature — customer required promptly to report forgery to bank — intentional silence is representation — bank suffers detriment if chance of recovery from forger materially prejudiced by delay — may rely on estoppel in action by customer for damages

Held, ruling as follows:

(1) The responsibility and liability of a bank towards its customer was governed by the applicable law and the relevant contract entered into by the parties. The contract determined the manner in which services were to be provided and recorded the obligations of each party. In the event of an alleged breach by the bank of an express or implied term of a contract, three elements needed to be satisfied in order to establish liability: (i) proof of breach by the bank against the customer; (ii) damages; and (iii) causation between the breach and damage suffered by the customer. In the present case, the parties had agreed to limit the issues to be determined by the court to (i) whether the plaintiffs were estopped from advancing claims against the bank in contract and negligence; and (ii) whether the bank dishonestly assisted in a fraud involving forgeries of the first plaintiff’s signature by DS. The general rule was that a bank was ordinarily not entitled to debit a customer’s account if it had honoured a wire transfer bearing a forged signature. However, a defence available to a paying bank might arise if the customer breached his duty to the bank by failing to inform it of any forgery on the account as soon as the customer became aware of it (paras. 127–129).

(2) To establish the defence of estoppel the bank had to prove that the first plaintiff intentionally failed to promptly report to it what he knew about the forgery. The bank had to prove that the first plaintiff’s not informing it of the forgery amounted to a representation that the transfer requests were in order, and that by its acts or omissions it relied on the representation to its detriment. When a customer’s signature was forged, on discovering the forgery, he was required to inform the bank. If he deliberately abstained from doing so with the result that the bank lost its remedy against the forger, the customer would be estopped from relying on the forgery. It was clear in the present case that the first plaintiff had a responsibility to inform the bank of DS’s forgery when he first became aware of it on September 1st, 2011, which he had failed to do. The bank was not made aware of the forgery until August 27th, 2012. The first plaintiff’s conduct, by remaining silent, was deliberate and intended to ensure receipt of the funds transferred by DS into his personal account in the United States. His remaining silent against his duty to inform the bank of the forgery amounted to a representation. The bank had also proved material detriment as a consequence of the first plaintiff’s representation as its chance of recovering from DS had been materially prejudiced. DS’s assets were no longer available by the time the bank first became aware of the forgery. (The legal fees incurred by the bank in the Texan proceedings could not be characterized as detriment because they were unrelated to any relevant loss.) In addition, the plaintiffs’ submission that estoppel by representation operated pro tanto, i.e. that they should not be estopped to the full extent of their claims but only to the extent of actual potential detriment found to have been suffered by the bank was not correct (paras. 130–173).

(3) There were three elements of a dishonest assistance claim which must be pleaded and proved: (i) that there had been a disposal of assets in breach of trust or a fiduciary duty; (ii) that the defendant assisted in that breach or disposal; and (iii) that the defendant assisted the breach of trust dishonestly. The third element was the only element in dispute between the parties in the present case. The key issue was therefore not whether the bank assisted in the fraud but whether it did so dishonestly. The standard of proof required was the civil standard of proof, the balance of probabilities. It was not an absolute standard. When considering allegations of dishonesty and fraud, a court would naturally require a higher degree of probability than it would require when asking if negligence was established. It did not adopt as high a degree as a criminal court but it did require a degree of probability commensurate with the occasion and seriousness of the allegation. It was not necessary for the court to establish whether the defendant considered that he was acting dishonestly, the defendant’s knowledge of the transaction had to be such as to render his participation contrary to normally acceptable standards of honest conduct. An honest person did not deliberately not ask questions lest he learn something he would rather not know. A dishonest state of mind mightconsist in suspicion combined with a conscious decision not to make inquiries which might result in knowledge. In a commercial setting, dishonesty could be found on the basis of commercially unacceptable conduct. In a case including a claim of dishonesty, that claim must be clearly pleaded first, before any claim of negligence, and be adequately particularized (paras. 176–185).

(4) In the present case, the plaintiffs had failed to plead the claim of dishonesty first or separately plead the negligence claim. The dishonesty claim appeared after the breach of contract and negligence claims in the pleadings. No individual employees were identified by name or position in the bank as conducting themselves dishonestly. In cases of dishonest assistance against a corporate entity, a particular individual or particular individuals must be identified as having acted dishonestly given the fact that, although a company has legal personality and capacity, it functions through human agents. The statement of claim must therefore identify and particularize what the defendant did to assist in the breaches of fiduciary duty or trust, how the assistance caused, contributed or resulted in the plaintiff’s loss and how the defendant was alleged to have acted dishonestly in assisting the main perpetrator. The bank rightly highlighted the requirement that it might be permissible not to identify the relevant dishonest individual(s) at the stage of pleading the case, if the plaintiff were unaware at that stage of their identity, provided the plaintiff otherwise properly pleaded and particularized the dishonest conduct and identified an individual employee by name or even by post with relevant knowledge. The plaintiffs had failed to identify in the pleadings or at trial any individual(s) with any knowledge of the fraud or who acted dishonestly. As dishonesty was a serious allegation it was not to be pleaded lightly. The claim would therefore be dismissed. Even if the court were wrong in reaching this conclusion, the plaintiffs had not provided sufficient evidence to prove such a serious allegation (paras. 187–202).

Cases cited:

(1)Avon County Council v. Howlett, [1983] 1 W.L.R. 605; [1983] 1 All E.R. 1073; [1983] I.R.L.R. 171, followed.

(2)Derby v. Scottish Equitable plc, [2001] EWCA Civ 369; [2001] 3 All E.R. 818; [2001] 2 All E.R. (Comm) 274; [2001] OPLR 181, distinguished.

(3)Ewing v. Dominion Bank, [1904] A.C. 806; (1904), 35 S.C.R. 133, considered.

(4)Foley v. Hill (1848), 9 E.R. 1002; 2 H.L. Cas. 28, referred to.

(5)Freeman v. Cooke (1848), 154 E.R. 652; 2 Ex. 654, dictum of Parke, B. considered.

(6)Fung Kai Sun v. Chan Fui Hing, [1951] A.C. 489, referred to.

(7)Greenwood v. Martins Bank, [1932] 1 K.B. 371; on appeal, [1933] A.C. 51, followed.

(8)Holt v. Markham, [1923] 1 K.B. 504, referred to.

(9)Kelly v. Fraser, [2012] UKPC 25; [2013] 1 A.C. 450; [2012]3 W.L.R. 1008; [2012] I.C.R. 1408, dicta of Lord Sumption considered.

(10)Lipkin Gorman v. Karpnale Ltd., [1991] 2 A.C. 548; [1991] 3 W.L.R. 10; [1992] 4 All E.R. 512, applied.

(11)McKenzie v. British Linen Co. (1881), 6 App. Cas. 82; 8 R. (H.L.) 8, considered.

(12)National Westminster Bank plc v. Somer Intl. (UK) Ltd., [2001] EWCA Civ 970; [2002] Q.B. 1286; [2002] 3 W.L.R. 64; [2002] 1 All E.R. 198; [2001] Lloyd’s Rep. Bank 263; [2001] CLC 1579, considered.

(13)Ogilvie v. West Australian Mortgage & Agency Corp. Ltd., [1896] A.C. 257, considered.

(14)Pickard v. Sears (1837), 112 E.R. 179; 6 Ad. & El. 469, considered.

(15)Publishers Representatives Ltd. v. UBS (C.I.) Ltd., 2000 CILR 473, distinguished.

(16)Royal Brunei Airlines Sdn. Bhd. v. Tan Kok Ming, [1995] 2 A.C. 378; [1995] 3 All E.R. 97, referred to.

(17)Singularis Holdings Ltd. v. Daiwa Capital Markets Europe Ltd., [2017] EWHC 257 (Ch); [2017] 2 All E.R. (Comm) 445; [2017] 1 Lloyd’s Rep. 226; [2017] 1 BCLC 625; [2017] Bus. L.R. 1386; on appeal, [2018] EWCA Civ 84; [2018] 1 W.L.R. 2777; [2018] Bus. L.R. 1115; [2018] 1 Lloyd’s Rep. 472; [2018] 2 BCLC 1, applied.

(18)Skyring v. Greenwood (1825), 107 E.R. 1064; 4 B. & C. 281, referred to.

(19)Stokors SA v. IG Markets Ltd., [2013] EWHC 631 (Comm), applied.

(20)Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd., [1986] A.C. 80; [1985] 2 All E.R. 947; [1985] 2 Lloyd’s Rep. 313; [1986] FLR 14; (1985), Sol. Jo. 503, applied.

S. Dobbyn for the plaintiffs;

S. Said and J. Hale for the defendant.

The plaintiffs sought damages for, inter alia, breach of contract, negligence and breach of fiduciary duty/dishonest assistance.

The first plaintiff was a director, sole shareholder and beneficial owner of the second plaintiff, a captive insurance company incorporated in the Cayman Islands. DS was a director of the second plaintiff and the company secretary. The second plaintiff was managed by a company licensed as an insurance manager (“Monkton”) which was the corporate entity of DS, who was its managing...