Liability - Demand for payment - Claimant bank alleging fraud against defendants

Dubai Islamic Bank PJSC v PSI Energy Holding Company BSC and others: Queen's Bench Division, Commercial Court (Mr Justice Hamblen): 24 October 2011

The claimant was a bank in Dubai, in which the state had a 30% ownership. The second to fourth defendants were individuals linked to a company, the fifth defendant. In 2002, the claimant entered into trade financing agreements with the fifth defendant. Between 2002 and 2007, the claimant advanced around $500m to the fifth defendant or its parent company. In summer 2007, the claimant discovered that around $440m of that sum had been advanced to companies controlled by the second defendant. It contended that it had been the victim of a $440m fraud perpetrated by the second to fifth defendants.

An investigation began, following which a restructuring agreement was made between the parties, under which repayments would be made. Under that agreement, the claimant took security over P, a leasehold interest in Dubai, whose majority shareholder was F. In June 2008, P defaulted on payments to the claimant. F was arrested and held incommunicado for ten days. Shortly after F's arrest, the claimant made a complaint as to the default.

The claimant commenced proceedings against the defendants and F, leading to the commencement of the instant proceedings in May 2009. In the course of proceedings, the defendants took advice from T, a solicitor. The claimant sought summary judgment against the second to fourth defendants.

The claimant's case was that none of the defences raised by the defendants had a realistic prospect of success. The defendants raised a number of defences, including, inter alia, that: (i) the default had been engineered by the claimant; and (ii) that there had been a shared understanding or common intention between the parties that if the assignment of P was enforced but it was not sold within a reasonable time, then the defendants and F should have had the benefit of value of P at the date of its assignment. The application would be dismissed.

(1) On the evidence, there appeared to be a disturbing connection between the circumstances around the incarceration of F and the making of the complaint by the claimant. Further, the claimant's conduct following the perfection of the assignment of the lease of P lent further evidence to the conclusion that there were features of the case beyond the simple debt collection exercise suggested by the claimant. Furthermore, it would possibly be necessary to hear evidence from T (see [50]-[54], [59] of the judgment).

Nigeria v Santolina Investment Corp [2007] All ER (D) 103 (Mar) applied; Black v Ottoman Bank (1862) 15 Moo PCC 472 considered; Bank of India v Trans Continental Commodity Merchants Ltd and Patel [1982] 1 Lloyd's Rep 506 considered.

(2) On the evidence, the defendants had raised issues relating to whether there had been a shared understanding or common intention that if the assignment of P Ltd was enforced but it was not some within a reasonable time then the defendants and F should have the benefit of its value at the date of assignment (see [84] of the judgment). While the defences raised by the defendants would not be easy to establish, the defence had a realistic rather than fanciful prospect of success and raised issues of fact requiring a trial (see [63], [84] of the judgment).

SERE Holdings Ltd v Volkswagen Group United Kingdom Ltd [2004] All ER (D) 76 (Jul) not followed; Chartbrook Ltd v Persimmon Homes Ltd [2009] 4 All ER 677 considered.

Stephen Phillips QC and Fred Hobson (instructed by Hogan Lovells) for the claimant; Max Mallin (instructed by Archerfield Partners LLP) for the second defendant; Jonathan Acton Davis QC, Rupert Reed and Jonathan Chew (instructed by Artis Legal) for the third defendant.