13 July 2020
Sheila Kazzaz and another v Standard Chartered Bank  SGCA(I) 03Civil Appeal No 203 of 2019
Decision of the Court of Appeal (delivered by Robert French IJ):
Outcome: Court of Appeal dismisses the appeal by the appellant. There is no reason to interfere with the trial judge’s decision and findings of fact.
Background to the appeal
1 The appellants, Sheila and Ahmed Kazzaz (“Sheila” and “Ahmed” respectively) are citizens of the United Kingdom, resident in Dubai. Sheila’s late husband, Ahmed’s father, Sarchil Kazzaz (“Sarchil”), had established a range of businesses operating mostly in Dubai through a group of companies known as the ASK Group. When Sarchil died in 2007, Ahmed succeeded him as Chairman of the ASK Group.
2 The Kazzaz family owned a property known as Ducie Court. Ducie Court was owned by two companies held in a trust called the St Bernard Trust, set up by Ahmed. In April 2010, Ahmed decided he should sell Ducie Court, terminate the St Bernard Trust, place the proceeds with the respondent, Standard Chartered Bank (“SCB”), and apply them towards the purchase of a property in London. He met with Harish Phoolwani (“Phoolwani”), an officer of SCB Dubai, in April 2010. At the meeting, Phoolwani suggested that the Ducie Court’s sale proceeds might be applied to a property financing arrangement which would enable Ahmed to purchase a property and also generate wealth for the Kazzaz family. Phoolwani also floated the idea of purchasing an insurance policy as part of the arrangement.
3 In further preliminary discussions, it was envisaged that proceeds of the sale of Ducie Court would be deposited in a private banking account with SCB as one element of the financial arrangement. In August 2010, Ahmed sent to Phoolwani a copy of an Investment Licence (“the Investment Licence”) held by a company of the ASK Group in Iraq. The Investment Licence included an undertaking, by Ahmed on behalf of the company involved, to provide a Certificate of Financial Worthiness confirming the company’s financial capability to execute a project involving an investment of US$35m. Ahmed also mentioned to an officer of the SCB that the value of the Kazzaz family assets was between US$50m and US$60m.
4 On 22 September 2010, in a meeting between Ahmed, Phoolwani, Laurence Black (“Black”) of SCB amongst others. Ahmed was persuaded to establish several trusts along the lines suggested by Black. Ahmed thereafter met with Jyotsna Pandey (“Pandey”) of IPG Financial Services Pte Ltd (“IPG”), where she explained the features of a universal life insurance policy to Ahmed. To finance the policy, Phoolwani told Ahmed he could either borrow up to 90% of the Day 1 cash surrender value of the policy and pay the difference between that and the premium, or provide security in cash or assets for the shortfall amount if he were to take out a loan to cover the entire premium. If the Day 1 cash surrender value of the policy dropped, the account might have to be topped up. Ahmed would be able to use the Ducie Court sale proceeds as collateral. The loan to finance the premium of the life insurance policy is referred to as the “premium loan”.
5 Some time prior to 4 October 2010, Ahmed signed account opening documents, which included a Client Agreement, Client Declaration, Memorandum of Charge and Letter of Indemnity. The Client Declaration involved a representation and warranty by Ahmed that he qualified as a “Professional Client” for the purposes of the Dubai Financial Services Authority Rules and did not elect to be treated as a retail client. The reason for this was that SCB could only service those who qualified as “Professional Clients” under the Dubai International Financial Centre (“DIFC”) law.
6 At a separate meeting, Sheila signed the Client Agreement, Client Declaration and a Client Investment Questionnaire. She was to be the settlor of a proposed insurance trust intended to hold the life insurance policy, which she named the SAHLK Trust. The trial judge found that Phoolwani went through the documents with Sheila explaining that SCB, not having a retail licence, could only service her and Ahmed as Professional Clients. In Sheila’s Client Investment Questionnaire, she had indicated her estimated net worth to be approximately US$39.2m.
7 By this stage, for various reasons, it had been decided that the life insurance policy would be over Sheila’s, and not Ahmed’s, life. An SCB-affiliated company, Standard Chartered Trust (Guernsey) Ltd, as the trustee of the SAHLK Trust, sent an application for a life insurance policy on 1 November 2010. On 2 November 2010, it signed the account opening application with SCB and applied for credit facilities. Two life insurance policy illustrations – dated 27 October 2010 and 11 January 2011 – were provided to Ahmed by Phoolwani. Both involved a death benefit of US$21.5m guaranteed until Sheila turned age 100, and were signed by Sheila.
8 Ahmed requested in February 2011 that Phoolwani meet with Ahmed’s friend, Walid Fattah (“Fattah”) to explain the financing charts relating to the premium loan to Fattah, so that Fattah might in turn advise Ahmed. Fattah was described by Ahmed as his financial adviser. After Fattah met Phoolwani, he sent Ahmed an email which expressed support of SCB’s proposals, and explained the proposed life insurance in further detail.
9 A further meeting occurred on 28 February 2011 between Ahmed, Phoolwani, Black and Naushid Mithani (“Mithani”), SCB DIFC’s Head of Relationship Management and Investment Advisory. At this meeting, it was discussed that the life insurance offer had been revised such that the standard death benefit was reduced from 100 to 85 years. The insurance premium and required “collateral/equity” was also reduced. The possibility of margin calls being required if there was insufficient collateral for the premium loan, the size of the premium, and the need to monitor the value of the envisaged policy on a monthly basis were found to have been discussed at this meeting.
10 Ducie Court was sold in early March 2011, and the first part of the Ducie Court sale proceeds, being £2m, was deposited with SCB on 11 March 2011. The Ducie Court sale proceeds were eventually held under a private investment company known as ASK One Ltd, incorporated to hold various financial assets of the appellants. On 11 March 2011, there was a drawdown of the premium loan. On the same day, premium payment was made to the insurance provider, the life insurance policy was issued, and the policy was assigned to SCB as security for the premium loan.
11 On 21 March 2011, Phoolwani sent a Client Advisory Proposal to Ahmed. In particular, a table in the document entitled “Proposed Asset Allocation” described the application of Ahmed’s funds between “Fixed Income” assets – a reference to bonds – on the one hand and “Equities” on the other. In a separate table, the “Total average coupon cashflow Incom [sic] from Bonds per annum Absolute” was indicated to be £127,125.00. Phoolwani asked Ahmed for his response to that document at a meeting on 24 March 2011. Ahmed, however, said that he was not able to make investment decisions for himself and that he would be guided by the advice and recommendations of SCB.
12 Ahmed took out a number of loans – of US$850,000, US$650,000 and US$1m taken out on 29 March, 31 March and 21 April 2011 respectively – against the value of the portfolio for use in his Iraqi businesses. Ahmed claimed that he took out the loans because he had been assured by SCB that his business needs would be met by the arrangement that had been put in place. When Ahmed requested for further funds in May 2011, Phoolwani cautioned him that he would be in a “Margin Call/Sell Down situation”. Nonetheless, Ahmed took out three further loans of US$500,000 each, from May to June 2011.
13 In May 2011, the appellants found a suitable London flat (“the Westchester property”) for purchase. Ahmed eventually agreed to obtain financing from SCB via a loan secured by a mortgage over the Westchester property (referred to as the “mortgage loan”). By way of a facility letter dated 28 July 2011, Ask Three Ltd – a private investment company created for the appellants – obtained the mortgage loan from SCB to finance the purchase of the Westchester property. Phoolwani also provided Ahmed with an executive summary of the proposed mortgage loan. The trial judge found that Ahmed knew or ought to have known from Phoolwani’s communication what the mortgage loan established. The Kazzaz family’s offer to purchase the Westchester property for £1.75m was accepted on 14 May 2011. The purchase was completed on 31 August 2011.
14 In addition, SCB set up trust structures for Ahmed using three trusts: the SAHLK Trust, the ASK Star Trust and the ASK Trust.
15 In proceedings below, Ahmed asserted that in mid-2011 SCB had not alerted him to the possible impact on his investment portfolio of what the trial judge described as “his withdrawals from the Ducie Court proceeds”. Ahmed’s evidence was that he was reassured by Phoolwani that everything was fine. The trial judge did not accept his evidence in this regard.
16 Over a period of time from 2013 to 2016 various accounts of Ahmed, Sheila and the appellants’ companies with SCB were terminated. SCB eventually surrendered the life insurance policy in December 2016. That left a shortfall to be recovered through enforcement of a pledge over ASK One Ltd’s assets. In October 2016 Ahmed sold a property in Iraq to redeem the mortgage over the Westchester property.
17 The appellants’ claim against SCB and the other named defendants at first instance –Phoolwani, Black and Mithani – was for compensation or damages being: (a) US$1,076,857.81 being the interest paid on the premium loan; (b) US$1,225,267.80 being shortfall on the policy; (c) US$141,913.64 being the additional cost incurred in purchasing the Westchester property by means of a mortgage rather than cash; (d) US$1,500,000 on account of the forced sale of an Iraqi property to redeem the mortgage; and (e) US$178,983.66 being fees paid to SCB.
18 The appellants alleged that they had been advised by Phoolwani, Black and/or Mithani to enter into an arrangement — which they designated “the Property Financing Arrangement” or “PFA” — which involved the provision of financial services and the sale of financial products as follows: (a) obtaining the mortgage loan; (b) investing the sale proceeds from Ducie Court with SCB; (c) obtaining a life insurance policy over Sheila’s life; and (d) establishing and incorporating various offshore trusts and companies to hold the Kazzaz family’s assets and to obtain financing for the Westchester property.
19 The appellants alleged that oral representations were made by Phoolwani, Black and/or Mithani in order to induce Ahmed to enter into the PFA. The alleged representations as pleaded included the following: (a) the PFA was suitable for the Plaintiffs and the Kazzaz family; and (b) as interest rates were low, the returns on the investment of the sale proceeds with SCB would be greater than the interest charged on the mortgage for the London property and the returns would go towards repayment of the mortgage and generate wealth for the Kazzaz family. The appellants alleged that SCB, Phoolwani, Black and Mithani owed them a duty at common law to advise and to exercise reasonable care and skill in advising and ensuring that the appellants understood the advice. Phoolwani, Black and Mithani were said to have been negligent and in breach of the duty of care in various ways, including by making the alleged misrepresentations above. SCB and its officers were also said to have breached their fiduciary duty and to have breached laws, regulations and guidelines in the DIFC applicable to them.
20 The appellants’ claims were all dismissed by the trial judge. The trial judge was invited to make several findings. One alleged misrepresentation was that SCB and its officers represented and assured Ahmed that the returns on investments would cover the interest payments for the premium loan and the mortgage (referred to as “Alleged Misrepresentation (1)”). The trial judge found that SCB represented that the investment portfolio could generate returns that would pay off the interest due on the premium and mortgage loans, but that it did not represent that the returns would be sufficient no matter how much moneys Ahmed “withdrew” from the investment portfolio. Another alleged misrepresentation was that SCB and its officers misrepresented to Ahmed that the PFA was suitable for the Kazzaz family’s needs. The trial judge found that Phoolwani had represented as such to Ahmed, but that Phoolwani’s believe that the arrangements were suitable was not unreasonable.
The Court of Appeal’s decision
21 The Court of Appeal dismissed the appeal.
22 The appellants’ criticism of the trial judge’s use of the term “withdrawals” in reference to Ahmed’s loans taken from SCB is misplaced. It is clear that the trial judge was referring to those transactions and did not fail to understand their character as loans (at ). The trial judge had simply indicated the limited circumstances supporting the reasonable belief which was open about the potential of the arrangements (at ).
23 Alleged Misrepresentation (1) was not pleaded. The trial judge, in finding that Ahmed would have understood that the investment portfolio was supposed to generate returns from which the premium and mortgage loans could be met, went beyond the appellants’ pleaded case. The fact that the trial judge dealt with Alleged Misrepresentation (1), as he formulated it, on its merits adversely to the appellants and did not deal with the pleading point does not mean that the pleading point is a bad one. Significantly, no application was made in this court to amend the pleading. The inadequacy of the appellants’ pleading is fatal in relation to Alleged Misrepresentation (1) (at , , , ,  and ).
24 The evidence did not support appellate intervention in respect of the trial judge’s decision on the merits of Alleged Misrepresentation (1). The trial judge did have regard to the projected returns (at , ,  and ).
25 The trial judge’s decision in respect of Alleged Misrepresentation (3) involved an evaluative judgment and is not shown to have been in error (at ,  and ).
This summary is provided to assist in the understanding of the Court’s judgment. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s judgment.
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