Golden Belt 1 Sukuk Company BSC(c) v BNP Paribas, Court of Appeal - Commercial Court, December 07, 2017, [2017] EWHC 3182 (Comm)

Issuing Organization:Commercial Court
Actores:Golden Belt 1 Sukuk Company BSC(c) v BNP Paribas
Resolution Date:December 07, 2017

Neutral Citation Number: [2017] EWHC 3182 (Comm)

Case No: FL-2016-000009





Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 07/12/2017

Before :


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Between :

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Nigel Tozzi QC and Jeremy Brier (instructed by Stewarts Law LLP, Solicitors) for the Claimants

Robin Dicker QC and James Macdonald (instructed by Clifford Chance LLP, Solicitors) for the Defendant

Hearing dates: 5-6, 9-12, 16-18, 23-26, 30-31 October,

7-8 November 2017

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Mr Justice Males :


  1. This case is concerned with the duties owed by the defendant bank (``BNPP'') as the Arranger of an Islamic financing transaction known as a Sukuk, equivalent in economic effect to a Eurobond issue but structured so as to conform to the principles of Sharia law. The Sukuk was intended to raise US $650 million for Saad Trading, Contracting & Financial Services Company (``Saad''), a limited partnership company registered in Saudi Arabia. One of the documents to be issued was a Promissory Note for that sum. It was to be governed by the law of Saudi Arabia and was intended to be subject to the jurisdiction of the Saudi Arabian Committee for the Settlement of Negotiable Instruments Disputes (``the CSNID'', sometimes also referred to as the ``Negotiable Instruments Committee''). The claimants are the issuer and certain holders of Sukuk certificates.

  2. It is the claimants' case that BNPP owed them a duty to exercise reasonable care and skill to ensure that the Promissory Note was properly executed. This involved two stages, the first being to find out what were the requirements of the law of Saudi Arabia and the second to take appropriate steps to see that those requirements were fulfilled. The claimants say that one such requirement was that the Promissory Note should be signed with a ``wet ink" (i.e. an original handwritten) signature and that because it was not signed in this way, but instead was ``signed'' on behalf of Saad with a laser-printed signature, it was unenforceable in Saudi Arabia. They say that BNPP's failure to insist that the Promissory Note should be executed in the presence of its own lawyers or representatives was negligent.

  3. The claimants say that the Promissory Note was intended to provide investors in the Sukuk to whom certificates would be issued with a ready means of enforcement in the event of a default by Saad and that, without a properly executed Note, the rights which they obtained as certificate holders were worthless or at any rate much less valuable than they ought to have been.

  4. BNPP denies that it owed any duty, let alone to certificate holders who only acquired their certificates at distressed prices after Saad was already in default. It denies any negligence on its part, saying that it acted on the basis of proper legal advice and that it had no reason to distrust Mr Maan Al-Sanea, the chairman of Saad who signed the Promissory Note on its behalf. It denies also that the Promissory Note needed a handwritten signature in order to be valid and enforceable.

  5. Accordingly the principal issues arising are whether BNPP owed any and if so what duties to investors in the Sukuk relating to the execution of the Promissory Note and, if so, whether it was in breach of those duties. There are also issues as to causation and the measure of any damages.

  6. Two other ways in which the claimants pleaded their case should be mentioned briefly. First, a case in contract, based on what was said to be an implied term of the Certificate Purchase Agreement (referred to below), was abandoned immediately before the trial. The claimants acknowledged in their opening argument that any such claim would be time barred. Second, a pleaded case that BNPP was responsible for misrepresentations contained in a ``Pronouncement'' (or ``Fatwa'') by its Sharia Board which was included in the Offering Circular for the Sukuk was abandoned in the course of the claimants' evidence. It was clear that the Pronouncement did not say what the claimants said it did.

  7. Accordingly the only claim remaining in issue is a claim in tort for negligence in the execution of the Promissory Note.

    The parties and others

  8. This has been the trial of two actions, now consolidated. The claimant in the first action is Golden Belt 1 Sukuk Company BSC(c) (``Golden Belt"), a special purpose vehicle incorporated in Bahrain in order to act as the issuer of certificates to the value of US $650 million and as the trustee for the holders of those certificates in respect of their rights under the Transaction Documents. Golden Belt was incorporated on 9 May 2007, only a few days before the issue of the Sukuk on 15 May. It is administered by a professional corporate services company, Ohad Trust BSC(c) (``Ohad''), incorporated in Bahrain. It delegated its rights and powers under the Transaction Documents to Citicorp Trustee Company Ltd. It is now in liquidation but continues in existence.

  9. The claimants in the second action ("Fortress'' and ``Cyrus'', together ``the Funds'') are New York hedge funds specialising in distressed debt. They purchased certificates in the Sukuk at heavily discounted prices between 2009 and 2011 after Saad's accounts had been frozen as a result of allegations of fraud and forgery made against Mr Al-Sanea and other entities within the Saad Group and (in the case of some purchases) after Saad had defaulted in making the payments which it was required to make.

  10. BNPP, a major international bank, was the ``Arranger and Sole Bookrunner'' and one of three ``Lead Managers'' of the Sukuk. It was engaged by Saad to arrange the Sukuk, to underwrite it in part and to place certificates with investors, for which it received fees totalling US $4.25 million. Of this, US $2.6 million represented its fee for acting as the Arranger. However, the fees payable to BNPP and the breakdown between fees payable in respect of different aspects of its services would not have been known to any investor. Among other things, BNPP coordinated the execution of the Transaction Documents for the Sukuk.

  11. BNPP instructed English, Saudi and Bahraini lawyers to advise on legal aspects of the Sukuk, each of whom delivered formal legal opinions confirming the Sukuk to be valid and enforceable under the relevant laws, subject to various assumptions. The English lawyers, Norton Rose LLP, advised on structuring the transaction and drafted the documentation.

  12. Saad was a diversified property and equity investment and construction partnership operating from Al-Khobar, a city in Saudi Arabia's Eastern Province. In April 2007 it was rated investment grade (BBB+/Baa1) by Standard & Poor's and Moody's, a very strong rating for a private company. Its 2005 and 2006 financial statements were audited by KPMG and PwC. It employed over 6,000 people and its total assets exceeded US $4.6 billion as at 2006. It was the flagship company of the Saad Group, a multi-billion dollar conglomerate which was one of the largest in the Gulf region and which was owned and controlled by its chairman and founder, Mr Al-Sanea.

  13. Mr Al-Sanea was a prominent Saudi businessman who, in addition to his role at the Saad Group, held various other directorships, was a board member of the Saudi Arabian Eastern Province Chamber of Commerce and Industry, held investments through the Group in major western financial institutions and corporates (including HSBC), supported various educational and charitable programmes and held an honorary degree from City University, London. A Statement of Financial Condition audited by PwC showed his net worth in 2007 to be US$10.2 billion. Forbes ranked him as one of the world's 100 richest men. As Saad's general partner, he had unlimited liability for its debts under Saudi law.

    The issues for decision

  14. The issues for determination at this hearing are as follows:

    i) Duty of care: did BNPP owe a duty to (a) the Funds as future certificate holders and/or (b) Golden Belt to take reasonable care to ensure that the Promissory Note was properly executed?

    ii) Breach: Was there a breach of that duty of care?

    iii) Causation: have (a) the Funds and/or (b) Golden Belt suffered a loss?

    iv) Measure of damages: how, in principle, is any loss suffered by (a) the Funds and/or (b) Golden Belt to be measured?

    v) Quantum of the Funds' loss: If, as the Funds contend, their loss is to be measured by reference to the difference between the value on the dates they were purchased of (1) certificates backed by a valid Promissory Note, and (2) certificates without the benefit of a valid Promissory Note, what is the quantum of that loss?

  15. Pursuant to an order agreed between the parties and approved by Leggatt J, other issues, relating to quantum and contributory negligence, are not for determination as part of the present trial, but are to be held over for future decision if necessary. In the course of the trial I ruled that the question whether a claim brought by Golden Belt against Saad in proceedings in Al-Khobar is likely to succeed is not for determination in the present trial. Nor is the question whether the English judgment which Golden Belt has now obtained will be enforceable in Saudi Arabia. The significance of these issues is that BNPP pleads that the claimants in this action have suffered no loss as a result of any defect affecting the Promissory Note because they have these alternative claims which provide an equally effective route to recovery (or, perhaps more accurately, an equally ineffective route as it is BNPP's case that even if the Promissory Note had been valid, there would have been no recovery in any event because of Saad's insolvency).

    The witnesses

    The claimants' witnesses of fact

  16. The claimants called six factual witnesses, namely:

    i) Graham Journeaux, one of the founders of Ohad and a director of Golden Belt;


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