Judgement: Saad v Ahmed

The trial took place over 129 days before the Chief Justice in the Cayman Islands over the course of a year, ending on 27 July 2017 when judgment was reserved. The trial involved the cross-examination of over fifteen witnesses of fact and nine expert witnesses in relation to expert evidence of accountancy, handwriting and foreign law (including Saudi Arabian and Swiss law).

The trial was the largest which had ever taken place in the history of the Cayman Islands and is understood to have been the largest in the Commonwealth in 2016/2017.

The trial involved allegations made by AHAB, a Saudi Arabian partnership, that during the period from at least 2000 to 2009, Maan Al Sanea (who had married into the Algosaibi family and was once reputed to be one of Saudi Arabia’s richest men) used his alleged complete managerial control of the Money Exchange, a division of AHAB, to defraud AHAB by misappropriating over US$4 billion from the Money Exchange and funding the misappropriations by causing AHAB to be liable to third parties for, and eventually in default in respect of, over US$9.2 billion in alleged unauthorised debt. The Defendants were alleged by AHAB to have been recipients of that fraud.

The Money Exchange, the Chief Justice found, in conjunction with certain Bahraini companies owned by AHAB (the “Bahraini Financial Businesses”), had been used to perpetrate one of the largest Ponzi schemes in history, with later borrowing used to repay earlier borrowing, while also providing funds for the ever-increasing indebtedness of the Money Exchange.

From 2000 until the collapse of the Money Exchange in May 2009, some US$126 billion was raised by the Money Exchange (including through the Bahraini Financial Businesses) by way of fraudulent borrowing, from at least 118 different banks around the world. From January 2000 to May 2009, the total flow of cash through the Money Exchange was over US$330 billion. The total amount of the unrepaid borrowings at the time of the collapse, as at end May 2009, was SAR 34.6 bn (US$9.2 bn). The Chief Justice said that the fraud on the banks was the “raison d’etre of the Money Exchange”.

Dismissing AHAB’s claim, the Chief Justice held that he was satisfied that the knowledge and authority of the AHAB partners was overwhelmingly and conclusively proven. The Chief Justice had no doubt that each of Abdulaziz, Suleiman, Yousef and Saud Algosaibi (each partners of AHAB) knew of and expressly authorized the issuance of fraudulent financial statements and knew of the fraud on AHAB’s lending banks. Dawood Algosaibi, another AHAB partner, also had knowledge of the massive borrowing which he transacted, not only on behalf of the Money Exchange but also on behalf of the Bahraini Financial Businesses, in early 2009.

What follows is a summary of the background to AHAB’s claim and the Chief Justice’s findings.

The Background

AHAB has its origins in a business began by Hamad Algosaibi in the 1940s. Hamad died in 1969 and was succeeded by his three sons,
Ahmad, Abdulaziz, and Suleiman. Together, they incorporated AHAB as a general partnership and successively chaired AHAB until Suleiman’s death in February 2009. AHAB has since been chaired by Yousef, Ahmad’s son. Yousef, Saud (Abdulaziz’s son), and Dawood (Suleiman’s son) are amongst the current AHAB Partners.

From 1980 onwards, AHAB strategically expanded into financial services and other related businesses. In 1981, AHAB’s board of directors established the Money Exchange as an unincorporated division of AHAB. Mr Al Sanea, who had married Abdulaziz’s daughter in 1980, was appointed its Managing Director. In the 1980s, AHAB incorporated Algosaibi Investment Holdings EC (“AIH”) and Algosaibi Trading Services Limited (“ATS”) in Bahrain and, in 2003, AHAB incorporated a bank in Bahrain, The International Banking Corporation (“TIBC”) (together with AIH and ATS, the Bahraini Financial Businesses).

From near the time of the establishment of the Money Exchange until its collapse in May 2009, financial statements, disseminated to in excess of one hundred lending banks, understated the extent of the borrowings and true extent of AHAB indebtedness to the banks and its status as a borrower. By presenting them to the banks, the false financial statements became the central instrumentality of a fraud.

In 2009, AHAB defaulted on more than 34 billions of Saudi Riyals of debt (US$9.2 billion). Shortly after that default AHAB commenced proceedings against Mr Al Sanea and the Defendants (companies established by Mr Al Sanea in the Cayman Islands and which are now in liquidation).

In essence, AHAB’s claims were for fraudulent breaches of fiduciary duties allegedly committed by Mr Al Sanea and restitution, damages and compensation from the Defendants, including SICL and Singularis, on the basis of their alleged conspiracy with Mr Al Sanea, their knowing assistance in his alleged fraud upon AHAB and their alleged knowing receipt of the proceeds of that fraud. AHAB also brought proprietary claims against the Defendants on the basis that their assets were alleged to represent AHAB’s property which AHAB contended it could trace into their bank accounts or other assets.

Knowledge and Authority

The pivotal issue in the case was whether the AHAB partners knew of and expressly or implicitly authorised the enormous borrowings from banks which were obtained by fraudulent means through the Money Exchange.

The resolution of this pivotal issue was heavily influenced by the extent of the AHAB partners’ knowledge of and involvement with the means by which the Money Exchange perpetrated the fraud against the banks; namely, by the dissemination to the banks of falsified financial statements.

The Chief Justice held that he was satisfied that the knowledge and authority of the AHAB partners of the fraud on AHAB’s lending banks was overwhelmingly and conclusively proven. The Chief Justice had no doubt that each of Abdulaziz, Suleiman, Yousef and Saud Algosaibi knew of and
expressly authorized the issuance of fraudulent financial statements and knew of the fraud on AHAB’s lending banks. On the basis of his late involvement at the final stages of the crisis leading to the collapse of the Money Exchange in 2009, the evidence of Dawood’s involvement was also said by the Chief Justice to be revealing of his state of knowledge.

During Abdulaziz’s time, the fraudulent practices of the Money Exchange were institutionalised for the purposes of defrauding the banks. He was knowingly aware of this and was the primary architect of the practices. Not only was Abdulaziz responsible as Chairman for the adoption of the fraudulent accounting practices, he also was fully aware of their meaning and effect. During Abdulaziz’s life time, Suleiman and Yousef Algosaibi were also knowingly aware of the fraudulent practices and they continued the practices after his time.

As to Saud Algsoasbi, who was cross examined by Michael Crystal QC for over 10 days, the Chief Justice held that the evidence revealed that Saud was fully aware of the fraudulent practices and of the financial position of the Money Exchange throughout the period 2000 to 2009. His assertions to the contrary were rejected by the Chief Justice as deliberately untruthful. Saud was consistently involved, not just in monitoring the financial position of the Money Exchange, but in the significant decisions taken by the Money Exchange. Saud knew of and authorised Mr Al Sanea’s activities.

As to Dawood, who was cross-examined by Mark Phillips QC for over 5 days, the Chief Justice held that his evidence struck him as a false and convenient narrative aimed at avoiding the fact that his involvement, as a partner of AHAB, fixed AHAB with his knowledge of the massive borrowing which he transacted, not only on behalf of the Money Exchange but also on behalf of the Financial Businesses, in early 2009.

The Algosaibis, the Chief Justice held, were willing to allow the massive personal borrowing of Mr Al Sanea from the Money Exchange to go unchecked because it was the quid pro quo for his willingness also to use the Money Exchange to procure fraudulent borrowing on behalf of the AHAB partners themselves. Payments to Mr Al Sanea were not “misappropriations” but loans, which were expected to be repaid. What the AHAB partners had not reckoned on, and what shocked them in May 2009 when the global financial crisis erupted, was that Al Sanea, thought to be one of the wealthiest men in the world, would be unable to repay his debts. The reality, the Chief Justice held, was that the AHAB partners had made a bad credit decision.

The Forgery and Manipulation Allegations

AHAB’s case pivoted around allegations that Mr Al Sanea, in his alleged fraud upon AHAB, engaged in forgery “on an industrial scale”. In this regard AHAB relied on, amongst other things, the presence of “matched” signatures recovered from among the records of the Money Exchange, AHAB’s Head Office and the Bahraini Financial Businesses.

Dismissing AHAB’s forgery allegations, the Chief Justice held that those allegations had been shown to have been made on a random scatter-shot basis without any reasonable foundation for a finding that the questioned documents and signatures were deployed by Mr Al Sanea without the knowledge and authority of AHAB partners.

In addition to the forgery case, AHAB also ran a document manipulation case based on 16 sets of bank facility documents. Dismissing this aspect of AHAB’s case, the Chief Justice held that the bank facility documents on which AHAB’s manipulation case was based could not bear the weight of inference that AHAB wished to place upon them. Whatever the reason for the alteration of these documents might have been at the time, the one thing the documents showed was that AHAB was in fact aware of the ever-increasing facilities which it procured – that, in and of itself, was inconsistent with the evidence of AHAB’s own witnesses.

Consideration of AHAB’s forgery and manipulation allegations involved the cross-examination of two handwriting experts (Dr Audrey Giles and Michael Handy) over a number of days.

AHAB’s Proprietary Claims

AHAB’s tracing claim involved complex allegations relating to a multiplicity of transactions through accounts in numerous jurisdictions. Eight accountancy experts gave evidence over several weeks. The Chief Justice held that AHAB’s tracing claims failed both on the facts and the law. As to AHAB’s allegation of receipt by the Defendants, even if AHAB had been able to establish the antecedent breach of trust by Mr Al Sanea (which the Chief Justice held it had not), it would still have had to prove the necessary
transactional links required by the case law, between its funds taken from the Money Exchange and the accounts of the Defendants. The Chief Justice held these requirements had not been satisfied by AHAB. Recognizing this problem, AHAB resorted, impermissibly the Chief Justice held, to a claim for equitable accounting based upon a reversal of the burden of proof. Rejecting this argument, the
Chief Justice held that the duty of a constructive trustee to account did not arise where there was no receipt of monies in relation to which a constructive trust could arise. It followed that there was no duty on the Defendants to account unless AHAB established receipt. As AHAB had not established receipt, AHAB’s assertion that a reversed burden of proof applied to the Defendants because of their duty to account was also held to be misconceived.

Saudi and Swiss Law

The Chief Justice’s judgment also considered a number of issues relating to the law of Saudi Arabia and Switzerland.

The Chief Justice held that the proper law governing AHAB’s equitable claims was the law of Saudi Arabia. Having accepted this principle as being applicable here, the Chief Justice found that Saudi law does not admit of a proprietary claim against intangibles (dayn). In these circumstances, AHAB could not satisfy the conflict of laws rules in respect of its receipt-based or proprietary claims for knowing receipt, dishonest or unjust enrichment/ restitution in any event.

As to AHAB’s claim for damages for conspiracy, under Saudi law there is no hard and fast rule of joint and several liability for harm and damage at large for conspiracy (which itself is not recognised as a distinct tort). The Chief Justice accepted the submissions of the Defendants that in the circumstances of this case a Saudi judge would apportion liability between joint tortfeasors (i.e. “for what” they are liable) on an actual “receipts” basis. As a consequence of the “double actionability” rule, the liability of the Defendants under the law of the Cayman Islands was, therefore, also restricted to actual receipts (if any).

The Saudi law issues decided by the Chief Justice involved the crossexamination of three Saudi law experts (including Professor Chibli Mallat and Professor Frank Vogel) over a number of days. As to claims made by AHAB in respect of intangible assets held by SICL in Switzerland, subject to a “mini – bankruptcy proceeding” there and governed by Swiss law (worth some US$225 million) AHAB, the Chief Justice held, could have had no
proprietary right to these assets as a matter of Swiss law, irrespective of how it framed its claim.

Illegality

The Chief Justice further held that the Defendants’ illegality defence (the legal doctrine which prevents a claimant from pursuing a claim if the claim arises in connection with some illegal act on the part of the claimant) was entitled to succeed, not only on the basis of AHAB’s continuous complicity in the fraud from beginning to end but because of AHAB’s indisputable involvement through Abdulaziz Algosaibi until October 2000, in what had already become a massive fraud on the banks and one which AHAB must have known would be continued.

There could be no doubt as to the gravity of the fraud perpetrated by AHAB, the Chief Justice held. This was a fraud carried out, with increasing
sophistication, from as early as 1981. The total sums borrowed pursuant to AHAB’s fraud numbered in the hundreds of billions of dollars. In short, this was an enormous, longstanding Ponzi scheme which defrauded more than a hundred banks. Every single dollar or riyal that ever flowed into the Money Exchange was obtained dishonestly through fraudulently obtained borrowing.
The Money Exchange was, from its very inception, a criminal enterprise. It remained so throughout its existence.

In effect AHAB’s response to the illegality defence came down to the argument that AHAB was deserving of being afforded a locus poenitentiae for allegedly having corrected the error of its ways after Abulaziz’s time.

The Chief Justice held that there was no possibility of AHAB establishing a locus poenitentiae in the face of its conduct during Abdulaziz’s time and its admitted continuing involvement in the use of fraudulent accounts to obtain loans from the banks. There could be no suggestion of repentance because AHAB had failed to make any attempt at penitence long after the fraud took place. The effects of the fraud were entirely irreversible. The loans obtained by the Money Exchange had been paid off many times with the proceeds of other dishonestly borrowed funds.

In these circumstances, the Chief Justice held that AHAB’s claim was barred in any event, through the application of the Court’s policy that it will not enforce an illegal arrangement and/or because AHAB lacked clean hands so that it was not entitled to invoke the Court’s equitable remedies.

Conclusion

In all these circumstances, the Chief Justice held that AHAB’s claim should be dismissed. The Chief Justice also dismissed certain counterclaims advanced by SICL and Singularis against AHAB on the basis that the evidence relied upon in proof of the counterclaims was unsafe and unreliable.