Re Bank of Credit and Commerce International SA(APPEAL and CROSS-APPEAL)

8/13/2019 Re Bank of Credit and Commerce International SA(APPEAL and CROSS-APPEAL)

1/40

Re Bank of Credit and Commerce International SA (in liquidation) (No 15); Morris and others

Bank of India

C!"R# !$ A%%&A' CII' *IISI!N

+,--5. &/CA Ci 02; +,--5. , BC'C 2,3

4&ARIN6*A#&S7 13 1 ,- ,1 8AN"AR9 ,, 8"N& ,--5

,, 8"N& ,--5

CA#C4/!R*S7

$raudulent tradin: 6 Intent to defraud creditors 6 noart= to carr=in: on ?usiness orate lia?ilit= for em>lo=ee@s ?lind e=e

dishonest= 6 *efendant@s em>lo=ee turnin: ?lind e=e to >ossi?ilit= of fraud 6 #est of lo=ee@s knolo=er 6 Insolenc= Act 130 s ,12

4&A*N!#&7

In 131 S the :eneral mana:er of the 'ondon ?ranch of the a>>ellant ?ank B!I >roached M


2/40

fraudulent transactions in that S ro>osin: the transactions had actual knoer At first instance the Gud:e held that none of the B!I

em>lo=ees includin: S had the releant knoossi?ilit= of fraud did

hae the releant kno>ellate court should not li:htl= oerturn a findin: of >rimar=

fact or an inference of fact from a >rimar= fact made ?= the first instance court :ien that thetrial Gud:e had the immense adanta:e of seein: and hearin: the >arties and


3/40


4/40

Bank of Credit and Commerce International SA (in liq) Re (No 1E) Morris State Bank of India

+,--2. &/4C 1303 (Ch) +,--E. , BC'C ,20

Bank of Credit and Commerce International Re Banque Ara?e Morris +,--1. 1 BC'C ,02

Bio:en Medea >lc +1F. R%C 1

C (a minor) (ado>tion7 >arental a:reement7 contact) Re +12. , $'R ,0-

* (an infant) (ado>tion7 >arent@s consent) Re +1FF. 1 All &R 1E5 +1FF. AC 0-, +1FF. , /'R

F 4'

*u?ai Aluminium Co 'td Salaam +,--,. "4' E3 +,--2. 1 BC'C 2, +,--2. 1 All &R F

+,--2. , AC 200 +,--,. 2 /'R 112 4'

$armier (%roducts) 'td Re Moore add +1F. 1 BC'C 53 CA

$lo=d 8ohn $airhurst J Co +,--E. &/CA Ci 0-E +,--E. All &R (*) 21, (Ma=)

'alc Ro:ers +10. 2 &'R 32

Maidstone Buildin:s %roisions 'td Re +1F1. 2 All &R 202 +1F1. 1 /'R 1-35

Manifest Shi>>in: Co 'td "ni6%olaris Shi>>in: Co 'td +,--1. "4' 1 +,--1. 1 All &R FE2+,--2. 1 AC E0 +,--1. , /'R 1F-

McNicholas Customs J &cise +,---. S#C 552

Meridian lo?al $unds Mana:ement Asia 'td Securities Commission +15. , BC'C 110

+15. 2 All &R 13 +15. , AC 5-- +15. 2 /'R E12 %C

Morris Bank of America National #rust and Sain:s Association +,--1. 1 BC'C FF1 CA

National 8ustice Cia Naiera SA %rudential Assurance Co 'td (#he Ikarian Reefer) +15. 1

'lo=d@s Re> E55

%atrick and '=on Re +122. Ch F30

%i:lo


5/40

A>>eal and cross6a>>eal

#he Bank of India a>>ealed a:ainst the Gud:ment and order made ?= %atten 8 on ,0 March

,--E (+,--E. &/4C 5,3 (Ch) +,--E. , BC'C ,F) :iin: Gud:ment in faour of Christo>her

Morris 8ohn %arr= Richards Ste>hen 8ohn Akers Ian /i:ht Michael Macke= Michael %illin:

and Ral>h %reece the liquidators of Bank of Credit and Commerce International SA and Bankof Credit and Commerce International (!erseas) 'td (BCCI) in the sum of S3,2-,E1 atin: in a fraudulent scheme deised ?= BCCI to ena?le it to mani>ulate its

?alance sheet for the =ears 131 to 13E so as to >resent a false account of its assets and

liquidit= #he liquidators cross6a>>ealed a:ainst the Gud:e@s findin: that t


6/40

(,) #he court on the a>>lication of the liquidator ma= declare that an= >ersons ro>er@

$actual ?ack:round

+2. BCCI id :rosed in

8ul= 11 erated from

BCCI SA@s offices in 'ondon until 130 ?ut all its actiities an=


7/40


8/40

knolo=ees includin:

Mr Samant had the releant knoeal

+10. #hree main >oints are raised ?= Mr Moss KC >ears >eal $irst it is contended that in li:ht of the eidence ?efore him and in li:ht of

his assessment of that eidence the Gud:e could not >ro>erl= hae concluded that Mr Samant

held Mr Samant@s dishonest= could not

and should not ?e attri?uted to B!I #hirdl= it is contended that there


9/40


10/40


11/40

BC'C ,F at +1-F.)7

@+1-F. I hae found Mr Samant to ?e an unrelia?le and I am afraid untruthful re>ared to reco:nise the eistence of some dou?t as to roement of BCCI@s earnin:s to adances ratio as a >lausi?le e>lanation for the

arran:ements durin: the course of the first transaction M= oro?a?ilities he must hae entertained some cause for concern a?out it een at that time if onl=

?ecause head office itself >=@

+,. After considerin: the first transaction a little further the Gud:e then turned to the second and

su?sequent transactions and said (+,--E. , BC'C ,F at +1-3.)7

@+1-3. 4oted him to >roduce the 131 accounts and as I hae

alread= found I am satisfied so as to ?e sure that Mr Samant looked at that material and did

see and did realise that an im>roement in the earnin:s to adances ratio could not ?e achieed

?= the remoal of loans oer the =ear end 4e also realised that onl= a transfer of non6

>erformin: de?t ur>ose of the

transaction licated and certainl= more sus>icious than he ma= at

first hae su>>osed #hese sus>icions must hae ?een increased ?= his knoose to ?e achieed@

+2-. #he tassa:es for the >ur>ose of the >oints raised on the a>>eal

and the cross6a>>eal are in >aras +11,. and +1,-. of the Gud:ment Accordin:l=


12/40

s>eak to them I acce>t that It is therefore more likel= that the= sim>l= alloreferrin: to rel= on Mr Samant@s Gud:ment in the matter Althou:h the

transactions (ece>t the first) >roed at ?oard leel this


13/40

+21. Althou:h the first >oint ar:ued on ?ehalf of B!I


14/40

+2F. $ourthl= @+d.es>ite the hi:hl= unusual nature of osed Mr Samant re>ared almost immediatel= to recommend acce>tance ?= B!I@ ose or status of the eistin: loans or the reason


15/40

in relation to the first transaction and the= all a>>l= at least


16/40


17/40

reall= ?e descri?ed as tion7

>arental a:reement7 contact) +12. , $'R ,0- at ,F2 that %atten 8 ed for oer a

month in the eidence and the >ersonalities of the ersonalit= certainl= cannot ?e Gud:ed as t of


18/40


19/40

+0,. /hile the foundation for this ar:ument is >lainl= ri:ht resent case $irst the Gud:e ara +10. of his Gud:ment


20/40

conclusion is o>en to attack ?ecause of the difficulties ened ,- =ears a:o and the defensie feelin:s lained ?= the fact that

Mr Samant ma= not hae ?een arom>ted Mr Shukla@s request that does not mean that Mr Samant a>>reciated that

the request ara:ra>h of

his Gud:ment the Gud:e referred to Mr Samant@s eidence that @he did not discuss the matter

directl= art from this there is eidence to su::est that if BCCI@s 131 ?alance sheet had

?een sent to the B!I ?oard ?= Mr Samant it had ?een sent @quite some time a:o@ to quote from

a tele from Mr Samant of 2 Au:ust 13, Accordin:l= Mr Samant and indeed Mr Shukla could

hae for:otten a?out it Kuite a>art from this all that ma= hae ?een sent the first time


21/40

concluded that ?ecause the Gud:e erson had :uilt= knol= on that account hae had :uilt= knoreious transaction

+F,. In connection ut for


22/40

+F0. $urthermore Mr Samant@s role


23/40

Me


24/40

s ,12 and its a>>lication to the facts found ?= the Gud:e In oses of s ,12 to a cor>orate ?od= orate

knoredecessors in the authorities Such discussion as there is has mainl= ?een in the

liti:ation concernin: the colla>se of BCCI7 see Re Bank of Credit and Commerce International

Banque Ara?e Morris +,--1. 1 BC'C ,02 at ,06,F2 and Morris Bank of America National

#rust and Sain:s Association +,--1. 1 BC'C FF1 at F3,6F32

%osition of B!I

+30. B!I acce>ted the >ossi?ilit= that s ,12 could a>>l= to a cor>orate counter>art= such as

B!I ?ut contended that it le of

an indiidual director of the fraudulent com>an= It


25/40

conclusion ?oth as a matter of la< and on the facts #he lia?ilit= of B!I for >artici>atin: in

BCCI@s fraud ro>er

construction of the le:islatie lan:ua:e read of course in its contet; (c) :eneral >rinci>les of

cor>orate lia?ilit= for ciil lo=ees;

and (d) >lain :ood sense

+-. #he liquidators relied on the essential facts found ?= the Gud:e a?out the circumstances in


26/40

he erson


27/40

Council decision cited ?= %atten 8 in >aras +115.6+11F. of his Gud:ment

+5. #he articles of association of the com>an= its contractual relations and the art of the >rocess ofstatutor= inter>retation and for the >ur>oses of the rule in question it ma= ?e necessar= to

fashion s>ecial rules for the attri?ution of knoan= As 'ord 4offmann said in

the Meridian case +15. , BC'C 110 at 1,161,, +15. , AC 5-- at 5-F7

@#he com>an=@s >rimar= rules of attri?ution to:ether rinci>les of a:enc=

icarious lia?ilit= and so forth are usuall= sufficient to ena?le one to determine its ri:ht and

o?li:ations In ece>tional cases hole a rule ma= ?e stated in lan:ua:e

>rimaril= a>>lica?le to a natural >erson and require some act or state of mind on the >art of the

>erson @himself@ as o>>osed to his serants or a:ents #his is :enerall= true of rules of the

criminal la>lied to a com>an= !ne >ossi?ilit= is that the

court ma= come to the conclusion that the rule >l= to com>anies at all; for

eam>le a la< ret the la< as meanin: that it could a>>l= to a

com>an= onl= on the ?asis of its >rimar= rules of attri?ution ie if the act :iin: rise to lia?ilit=

ecificall= authorised ?= a resolution of the ?oard or an unanimous a:reement of the

shareholders But there rimar= rules of attri?ution ractice defeat that intention In such a case the court must fashion a s>ecial rule of attri?ution

for that >articular rule #his is alretation7 :ien that it >l= to a com>an= ho< >l= /hose act (or knoose intended to count as the act etc of the com>an= !ne finds the ans>l=in: the usual canons of inter>retation takin: into account the lan:ua:e of

the rule (if it is a statute) and its content and >olic=@

+0. /e a:ree aras +113. and +11. of his Gud:ment) that follo>roach the determination of the >erson >ossessin: the releant knour>oses

of ascertainin: lia?ilit= under s ,12 is not sim>l= a matter of identif=in: the >erson an= in question #he scheme of dele:ation of authorit= mi:ht as in this case >roide onl=

an incom>lete >icture of oses of determinin:

an= should ?e treated as >ossessin: the requisite knorimar= rules of attri?ution ?ased on factors such as the sco>e of the a:ent@s authorit=


28/40

ma= require to ?e modified either restrictiel= or li?erall= in order to accommodate the statutor=

>ur>ose of the le:islation oses the lia?ilit=@

Sco>e of ciil and criminal lia?ilit= for fraudulent tradin:

+F. Before dealin: olic= of s ,12 a= com>ensation and criminal sanctions ma= ?e im>osed on an= >erson

es of lia?ilit= etend ?e=ond the com>an=

arties redecessor >roisions of s ,12 anies Act 1, and s 22, of

the Com>anies Act 1E3 #hose sections com?ined ?oth com>ensator= and >enal >roisions

#he= enal le:islation and as such erson char:ed the ?enefit of the dou?t7 Re Maidstone Buildin:s %roisions 'td +1F1.

2 All &R 202 +1F1. 1 /'R 1-35

+. #he >osition is different under the 130 Act Section ,12 is not a >enal >roision It onl=

coers ciil lia?ilit= to >a= com>ensation in cases an= an= for contri?ution to ?e made to the assets of that com>an= for the ?enefit of its

creditors

+1--. It is acce>ted that @outsider@ com>anies can ?e made lia?le under s ,12 >roided that it is

esta?lished the=


29/40

(includin: shado< directors) @!utsiders@ lies in relation to a >erson an= the court

on the a>>lication of the liquidator ma= declare that that >erson is to ?e lia?le to make such

contri?ution (if an=) to the com>an=@s assets as the court thinks >ro>er

(,) #his su?section a>>lies in relation to a >erson if6(a) the com>an= has :one into insolent

liquidation (?) at some time ?efore the commencement of the of the com>an= the

>erson kne< or ou:ht to hae concluded that there ros>ect that the

com>an= erson an= at that time; ?ut the court shall not make a declaration under this section in an= case

ara:ra>h (?) a?oe ril 130@

+1-5. As for criminal sanctions for fraudulent tradin: the releant >roisions roisions and amended #he criminal >roisions in s 22, of the 1E3 Act onl=

a>>lied as did the ciil >roisions to cases an= an= is carried on an= or

creditors of an= other >erson or for an= fraudulent >ur>ose eer= >erson >lies an= has ?een or is in the course of ?ein: @

+1-F. #he se>aration of the >roisions relatin: to ciil and criminal lia?ilit= is releant in

identif=in: the >ur>ose of the >roisions Se>aration has made it easier to isolate and focus on

the >olic= of im>osin: ciil lia?ilit= #hat affects the a>>lication of the >roisions to the facts of


30/40

>articular cases /e turn to consider the >olic= of s ,12

#he >olic= ar:uments

+1-3. #he Gud:e e>ressl= considered the >ur>ose of %arliament in im>osin: ciil lia?ilit= in

order to determine ersons >otentiall= lia?le for inolement in the transactions:iin: rise to the fraud and in erl= ?e

treated as cor>orate knour>ose an= to recoer com>ensation for the ?enefit of

those an= such as B!I could shelter ?ehind an ar:ument

that the onl= releant knoe lia?ilit=

?= the ?oard dele:atin: decisions to senior mana:ers and acce>tin: their recommendations

+1-. B!I dis>uted that that lete anal=sis of the >olic= of s ,12 It

contended that the >olic= a>>earin: from the earlier authorities


31/40


32/40

com>an= is ca>a?le of ?ein: made lia?le under s ,12 noan= een thou:h such attri?ution ma= e>ose it to the risk of lia?ilit= under s ,12

+115. B!I criticised the Gud:e for not a>>l=in: to this case the >rinci>le that the knorinci>al lo=er and in circumstances in le in McNicholas Customs J &cise +,---.

S#C 552 a site mana:er lo=er for A# It olic= and content of the le:islation oerrode an= >rinci>le that kno


33/40

order to make the section effectie

+1,-. /e also a:ree oint #he a>>lication of s ,12 requires a s>ecial rule

of attri?ution in order to make its self6eident >olic= effectie #he >olic= is to make those arties to fraudulent tradin: lia?le to com>ensate the creditors of the fraudulent

com>an= In order to make it effectie in a case such as this it is necessar= to attri?ute theknotitude of the B!I ?oard; or of makin: mem?ers of the ?oard

>ersonall= lia?le for the fraud art #he= are not lia?le nor (sae for Mr Shukla and Mr a:hul)


34/40

his knoan= or to its directin: mind and ro>osition that there can ?e no attri?ution of knoonsi?ilit= for

the actions of Mr Samant ?= resistin: the attri?ution of his kno


35/40

+1,. /e er a>>roach to the question of attri?ution in this case turns on the construction and >ur>ose

of s ,12 Secondl= the seerin: of criminal and ciil lia?ilit= for fraudulent tradin: means that

there is no question of an= conclusion in >rinci>le or on >articular facts as to ciil lia?ilit=

affectin: the ?asis on ro>riate in the case of a com>an= to limitattri?ution for its >ur>oses to the ?oard or those s>ecificall= authorised ?= a resolution of the

?oard #o limit it in such a


36/40

+12E. In >ara ,1 it ersons


37/40

%articulars

(a) #he makin: of adances and the acce>tance of de>osits osits lo=ment;

(c) In ne:otiatin: and im>lementin: those adances and de>osits Mr Samant also acted

>ursuant to authorities :ien7

(i) ?= the Chairman and Mana:in: *irector of B!I on or a?out 11 Noem?er 131; and

(ii) ?= the ?oard of B!I on Au:ust 13, ,0 !cto?er 132 and Au:ust 13E

(,) Mr Samant ects found ?=

%atten 8 in his Gud:ment herein dated 1 March ,--E@

+123. #he critical alle:ations are that the releant transactions lemented@ ?= Mr Samant @in the course of his

em>lo=ment@ that he Mr Samant >ears at least in that form in the eistin: >leadin:

+12. It is common :round that BCCI@s a>>lication for >ermission to amend is made after thee>ir= of the releant limitation >eriod7 see the decision of this court in Re $armier (%roducts)

'td Moore add +1F. 1 BC'C 53 It is also common :round that the effect of the

amendment


38/40


39/40


40/40

eidence in fact adduced at the trial addressed these additional factual issues issues ut foroints out 6 and oint of

su?stance not Gust a de?atin: >oint 6 if all these matters had >reiousl= ?een adequatel=

>leaded BCCI lication for

>ermission to amend must ?e refused

+151. In the circumstances there is no need for us to consider ho< eal are dismissed

*IS%!SI#I!N7

A>>eal and cross6a>>eal dismissed

Documents

Re Bank of Credit and Commerce International SA(APPEAL and CROSS-APPEAL)