The case of Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd  EWHC 257 (Ch) concerned the liability of a stockbroking company for failing to investigate fraudulent transactions.
After termination of a trading relationship, Daiwa (the stockbroking company) held approximately $204m on behalf of its client, Singularis. Shortly before Singularis was put into liquidation, Daiwa, on the instructions of Singularis' principal director and sole shareholder, Mr Al Sanea, paid out the money to other companies in a related company group. Mr Al Sanea was found to have breached his fiduciary duty as director of Singularis by instructing these gratuitous and fraudulent payments to the related companies. Singularis' liquidators sought recovery from Daiwa on two grounds: dishonest assistance and negligence.
Despite the many obvious signs that Mr Al Sanea was perpetuating a fraud, the English High Court found that Daiwa had not dishonestly assisted with the breaches. Rather, Daiwa had failed to make proper inquiries into the transactions, as the employees had not understand what was required of them to fulfil Daiwa's obligations to Singularis. Therefore, Daiwa was, based on the duties set out in Quincecare, found to be in negligent breach of the coextensive implied contractual duty to act with reasonable care and skill.
The Court dismissed an illegality defence raised by Daiwa, as Mr Al Sanea's fraud could not be attributed to Singularis for the purposes of that defence. The Court noted that this attribution would undermine the purpose of Daiwa's duty of care (to protect Singularis from the fraudulent conduct of a trusted person) if the defence was allowed. The Court also dismissed Daiwa's equal and opposite claim in deceit against Singularis on the basis that it was Daiwa's negligence that had caused its exposure to Singularis. However, damages were reduced by 25% (from the full $204m) because of contributory negligence.
See the Court's decision here.