Golden Belt 1 Sukuk Company BSC(c) v BNP Paribas

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.

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.

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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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 determination at this hearing are as follows:

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 claimants called six factual witnesses, namely:

These were all straightforward and candid witnesses. In general I accept their evidence.

It was to their credit as witnesses that the Funds’ witnesses made no attempt, either in their witness statements or in oral evidence, to support the now abandoned misrepresentation claim based on the Pronouncement, although the corollary of this was the notable and inevitably fatal absence of any evidential support for this claim.

BNPP called two factual witnesses:

Mr Foster was an impressive, intelligent and highly experienced capital markets lawyer. His oral evidence was generally helpful. However, his witness statement (even as corrected in chief) painted a rosier picture of his and BNPP’s relationship with Norton Rose, the solicitors advising the bank, than actually existed. He struggled to justify this in his oral evidence. In fact he formed a dim view of the level of service provided by Norton Rose in this highly specialised transaction. Moreover, it was apparent, that he had, as he acknowledged, little if any independent recollection of events. This was not surprising, but meant that his evidence about the arrangements for execution of the Promissory Note was of limited value.

Parts of Mr Khandelwal’s evidence were somewhat defensive, particularly when describing the relationship between BNPP and Mr Al-Sanea. For example, he was indignant at the suggestion put to him in cross examination that senior executives of BNPP adopted an unduly deferential attitude towards Mr Al-Sanea when, in my judgment, there was considerable force in this suggestion. Nevertheless, he too was a helpful witness.

I accept that all of the factual witnesses were seeking to assist me to the best of their ability, although to some extent the evidence of them all was coloured by hindsight. I have taken my assessment of this evidence into account in making the findings set out below. I have also borne in mind more generally the limitations of human memory and the fact that the events described by the witnesses occurred a long time ago – in some cases as long ago as 2006-7 and in other cases during 2009-11. As usual in commercial cases the contemporary documents and the inherent probabilities of the transaction in issue have generally been of greater assistance.

Other individuals who played an important role in the transaction but are no longer with BNPP and did not give evidence were as follows:

In addition there were expert witnesses on banking practice, Saudi law, handwriting (although this evidence was agreed and therefore the witnesses did not give oral evidence) and some aspects of quantum.

Permission was given for expert banking evidence as to “the role of an Arranger, Lead Manager and Book Runner in relation to a Sukuk”. In the event the banking evidence ranged much wider, with both experts addressing other topics outside the scope of this permission, including (for example) the way in which BNPP responded to a press report of money laundering allegations against Mr Al-Sanea. I have had regard to the banking evidence, but only to the extent that it was within the scope of the permission given. It is important that expert evidence is properly confined. If a party considers that the permission given is too narrow, an application should be made to extend its scope.

Both banking experts, Mr Anthony Saint for the claimants and Mr Tim Lupprian for BNPP, were experienced bankers, qualified to give the evidence for which permission had been given, although Mr Lupprian had the greater relevant experience. Each was seeking to assist to the best of his ability. The principal difference of approach between them arose because of Mr Saint’s view that arranging banks have a (frankly somewhat nebulous) “commercial duty” to look after the interests of investors, a view which Mr Lupprian did not share. In some respects, however, there was little relevant difference between them as to (1) some of the functions which a bank arranging a Sukuk (or for that matter a conventional Eurobond issue) will actually perform and (2) the understanding of these matters by those in the market, including potential investors.

The Saudi law evidence dealt principally with the question whether an original handwritten signature is required in order for a document to qualify as a promissory note subject to the jurisdiction of the CSNID. The claimants’ expert was Ms Reema Ali, the managing partner of a law firm based in Washington DC who has practised law for 33 years focusing solely on the laws of Arab countries including Saudi Arabia. She was an impressive, clear and knowledgeable witness.

BNPP’s expert was Mr Ian Edge, a practising English barrister who has taught and researched Islamic law for over 30 years in the Law Department of the School of Oriental and African Studies in the University of London. His evidence was rather less impressive. It was more in the nature of suggesting arguments which might be available to the claimants in proceedings before the CSNID than explaining what Saudi law was or what the CSNID would actually decide. As he acknowledged, the way in which he dealt belatedly with highly relevant CSNID decisions was not his “finest hour” as an expert witness. Where they differed, I prefer unhesitatingly the evidence of Ms Ali.

Evidence about the value of the Sukuk certificates if the alleged defects in the Promissory Note had been apparent to the market was given by Mr Andrew McGough for the claimants and Dr Chudozie Okongwu for BNPP. Mr McGough had 25 years experience in the analysis and trading of distressed debt. His evidence was compelling and, in my view, was in accordance with common sense. Dr Okongwu was an economist specialising in valuation and financial economics who acts as a consultant to financial institutions. Although I do not doubt that he was seeking to assist, his relevant experience was considerably less than that of Mr McGough and, as I shall explain, the somewhat theoretical exercise which he undertook was deeply flawed. I prefer the evidence of Mr McGough.

There are various different kinds of Sukuk. The form which this Sukuk was to take and which in the event it did take was set out in an Offering Circular dated 14 May 2007. It was effected by an extensive suite of transaction documents dated 14 or 15 May 2007 (the “Transaction Documents”). In summary, and so far as relevant for present purposes, it was structured as follows.

The first step consisted of an English law Head-Lease Agreement whereby Mr Al-Sanea leased to Golden Belt certain “Land Parcels” which he owned in Saudi Arabia in return for an upfront payment by Golden Belt, made to Mr Al-Sanea personally, of US $650 million. This was described as an “Advanced Rental Amount”. The payment was funded from the proceeds raised from the sale to investors of certificates in the Sukuk. A Service Agreement was then concluded between Mr Al-Sanea and Saad whereby Saad was to provide services to Mr Al-Sanea in return for a payment of US $650 million. By this means the funds raised by the Sukuk were made available to Saad for investment in its business.

In theory, therefore, the US $650 million was to flow from investors to Golden Belt to Mr Al-Sanea personally and finally to Saad. In fact, however, the flow of funds raised from investors was directly from BNPP to Saad. The fact that funds would flow in this way was arranged by BNPP before Golden Belt was even incorporated, without reference to its proposed directors.

The return to investors to whom certificates had been issued was provided by means of an English law Sub-Lease Agreement whereby Golden Belt sub-leased the Land Parcels to Saad. This provided for payment by Saad to Golden Belt, for onward transmission to certificate holders, of rental income in instalments between 2007 and 2012 which was equivalent in western economic terms to a return of principal together with a margin of LIBOR plus 85 basis points. Failure by Saad to make a rental payment when due constituted a Dissolution Event which required Golden Belt as the Trustee of the rights of Certificate Holders to terminate the Sub-Lease if requested to do so by the holders of 25 per cent of the face value of certificates. Upon such termination, the “Termination Sum” of US $650 million became immediately due and payable.

The Sukuk included a Saudi law governed Promissory Note issued by Saad in favour of Golden Belt in the sum of US $650 million. This was one of the Transaction Documents and was described in the Offering Circular as being “issued in support of Saad’s obligations to make payment of the Termination Sum”. The Offering Circular explained that the CSNID in Saudi Arabia had jurisdiction to hear all disputes relating to the Promissory Note. It did not say anything else about this Committee, such as who the members were, what procedure would apply or how easy it would be to obtain a judgment.

The Offering Circular included also a “Pronouncement” of the BNPP Sharia Board. This was a board of Islamic scholars who reviewed “the structure, mechanism and the documentation for the proposed issuance of the Sukuk” in order to ensure that it was in conformity with the principles of Sharia law. The Board expressed the view that it was. The signed Pronouncement was dated 9 April 2007, well before the issue of the Promissory Note and the other Transaction Documents. It referred repeatedly to the “proposed issue” of the Sukuk. It was obvious, therefore, that the Pronouncement did not purport to say anything about whether the Transaction Documents including the Promissory Note had been properly executed.

The Sukuk was marketed to financial and insurance institutions, fund managers and major corporates based in Europe, the Middle East and South Asia. It was marketed on the basis of an Offering Circular dated 14 May 2007 which followed a Preliminary Offering Circular in materially the same terms. It was rated BBB+ by Standard & Poor’s and Baa1 by Moody’s.

The Circular identified BNPP on its front page as the “Arranger and Sole Bookrunner” and as one of three “Joint Lead Managers”, the others being Arab Bank Plc and Samba Financial Group. It contained an “Important Notice” which included the following statements:

“Saad Trading, Contracting and Financial Services Company (“Saad”) is responsible for the information contained in this Offering Circular. Saad, to the best of its knowledge and belief and having made all reasonable inquiries to ensure that such is the case, confirms that the information contained in this Offering Circular is true and correct in all respects material in the context of the issue and offering of the Certificates and, in light of the circumstances under which it is provided, is not misleading, that there is no omission of a material fact necessary to make such information, in light of the circumstances under which it is provided, not misleading, and that the opinions and intentions expressed in this Offering Circular are honestly held. Saad accepts responsibility accordingly.

The Issuer, to the best of its knowledge and belief and having made all reasonable inquiries to ensure that such is the case, confirms that the information contained in this Offering Circular (other than the information provided under the headings Saad Trading, Contracting and Financial Services Company and ‘Saad Group of Companies’) is true and correct in all respects material in the context of the issue and offering of the Certificates and, in light of the circumstances under which it is provided, is not misleading, that there is no omission of a material fact necessary to make such information, in light of the circumstances under which it is provided, not misleading, and that the opinions and intentions expressed in the information contained in this Offering Circular are honestly held. The Issuer accepts responsibility accordingly.

No person has been authorised to give any information or to make any representation regarding the Issuer or Saad respectively, or the Certificates, other than as contained in this Offering Circular in connection with the offering of the Certificates. Any such representation or information should not be relied upon as having been authorised by the Issuer, Saad or the Lead Managers. …”

Such statements in an Offering Circular were entirely standard. Thus, in the usual way, the Offering Circular was an offer to prospective investors by Saad as (in effect) the borrower and by Golden Belt as the Issuer, each of whom accepted responsibility for its contents.

In contrast, as was also standard, the Important Notice made clear that the Lead Managers, one of which was BNPP, made no representation or warranty and accepted no responsibility as to the accuracy or completeness of the information in the Offering Circular:

“Saad and the Issuer have, in the manner provided above, confirmed the information contained herein, but the Lead Managers have not verified the information contained herein. Accordingly, no representation or warranty is made or implied by the Lead Managers or any of their respective affiliates and neither the Lead Managers nor any of their respective affiliates make any representation or warranty or accept any responsibility as to the accuracy or completeness of the information contained in this Offering Circular or any other information provided by Saad or the Issuer in connection with the Certificates, their distribution or their future performance. …

Each investor contemplating purchasing any Certificates should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of Saad and the Issuer.

Prospective investors should rely only on the information contained in this document or to which reference is made herein. Saad and the Issuer have not authorised anyone to provide prospective investors with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document.”

“Lead Managers” is a defined term in the Offering Circular. It refers to “Arab Bank Plc, BNP Paribas and Samba Financial Group acting as joint lead managers in connection with offering of the certificates”. The claimants point out that this definition is limited to acts done by BNPP (and the other banks) in the capacity of “Lead Managers” and that there is no definition of the terms “Arranger” or “Sole Bookrunner” and no disclaimer of responsibility for acts or omissions of BNPP acting in those capacities as distinct from its capacity as one of the “Lead Managers”. However, in view of the fluidity and lack of definition of these terms, on which the banking experts agreed, I do not accept that weight can be given to this point. It is not a distinction which would be drawn by a reasonable reader of the Offering Circular.

The Offering Circular identified a number of risks for certificate holders inherent in the transaction, although the list was stated to be non-exhaustive. These included the risk that a secondary market for certificates might not develop and that any such market might prove to be illiquid. The Circular contemplated that certificates issued to investors would be listed on the Bahrain Stock Exchange (as in the event they were) and that a secondary market would develop in which trading would be settled through Euroclear and Clearstream (international platforms for trading in securities). It recorded BNPP’s intention to make a market in certificates. In a presentation to Saad, BNPP had described the availability of such a secondary market as “paramount” for investors. It went on to explain that its practice was to demonstrate what it described as its “commitment to our transactions” (emphasis added) by making a market in all issues for which it acted as lead manager during the life of the bond in question. This shows how BNPP viewed the transaction. It is also how the transaction would have been perceived by investors generally. Nevertheless the warning in the Offering Circular was clear that the existence of a secondary market could not be guaranteed:

“There can be no assurance that a secondary market for the Certificates will develop, or if a secondary market does develop, that it will provide the Certificateholders with liquidity of investment or that it will continue for the life of the Certificates. The market value of the Certificates may fluctuate. … Application will be made for the listing of the Certificates on the Bahrain Stock Exchange but there can be no assurance that such listing will occur after the Closing Date or at all.”

The Circular emphasised also the Limited Recourse nature of the certificates (see [56] below), the fact that “No investigation or enquiry has been made and no due diligence has been conducted in respect of the Trust Assets”, and the risks inherent in investments in emerging markets including in some cases significant legal, economic and political risks.

Under the heading “Enforcement of Liabilities” the following warning was given:

“Saad is a Saudi limited partnership company and is registered in, and has its operations and the majority of its assets located in, the Kingdom of Saudi Arabia. Accordingly there may be insufficient assets of Saad located outside the Kingdom of Saudi Arabia to satisfy in whole or in part any judgment obtained from an English court relating to amounts owing under the Certificates. If investors were to seek enforcement of an English judgment in the Kingdom of Saudi Arabia, or to bring proceedings in relation to the Certificates in the Kingdom of Saudi Arabia, then the limitations described below would apply.

The Certificates are expressed to be governed by English law and provide for the jurisdiction of the courts of England, subject only to an option for Certificateholders to bring proceedings before The Committee for the Resolution of Securities Disputes established under the Saudi Arabian Capital Market Law. Despite this, the courts and judicial committees of the Kingdom of Saudi Arabia may not recognise the choice of English law for submission to jurisdiction of the English courts. Accordingly, in any proceedings relating to the Certificates in the Kingdom of Saudi Arabia, Islamic law (Shari’ah), as interpreted in the Kingdom of Saudi Arabia, may be applied by the relevant court or judicial committee. The courts and judicial committees of the Kingdom of Saudi Arabia have the discretion to deny the enforcement of any contractual or other obligations, if, in their discretion, the enforcement thereof would be contrary to the principles of Islamic law. …

Disputes of a commercial nature in the Kingdom of Saudi Arabia are heard before a court called the Board of Grievances which strictly applies Islamic law. In addition, the Board of Grievances has the exclusive jurisdiction to consider the enforcement of foreign judgments and arbitral awards, supervise insolvency and bankruptcy proceedings of commercial entities and hear claims against Saudi Arabian government bodies. Accordingly, if a judgment from an English court is to be enforced in the Kingdom of Saudi Arabia, it would need to be submitted to the Board of Grievances for enforcement.

The Board of Grievances may, at its discretion, enforce all or any part of a foreign judgment provided that (a) the judgment is not inconsistent with Islamic law and/or Saudi Arabian law and (b) the judgment creditor can demonstrate to the Board of Grievances that the courts of the jurisdiction granting the judgment will reciprocally enforce the judgements of the courts and committees of the Kingdom of Saudi Arabia in such foreign jurisdiction. Such reciprocity may be demonstrated by way of the existence of a treaty or protocol between the Kingdom of Saudi Arabia and the relevant jurisdiction or by virtue of a plaintiff providing evidence that the relevant foreign court has recognised and enforced a Saudi judgment on a previous occasion. In the case of an English judgment, there is no relevant treaty and, accordingly, Certificateholders seeking to enforce an English judgment might be required to adduce other evidence of such reciprocity. No assurance can be given that investors would be able to meet the requirements of reciprocity of enforcement. In addition, even if Certificateholders were able to meet this requirement, they should be aware that if any terms of the Certificates (including any provisions relating to the payment of profit) were found to be inconsistent with Islamic law, they would not be enforced by the Board of Grievances.”

This was a clear warning that the bringing of an action in Saudi Arabia for the enforcement there of an English judgment might be fraught with difficulty. It did not specifically address proceedings before the CSNID to enforce the Promissory Note.

The risks identified in the Offering Circular did not include any reference to the possibility of Saad not executing the Transaction Documents properly.

One of the Transaction Documents was a Certificate Purchase Agreement between Saad, Golden Belt and the Lead Managers including BNPP. This provided for the Lead Managers to subscribe and pay for the certificates at par on the Closing Date. However, this obligation was subject to the accuracy of various representations, undertakings and warranties given by Saad and Golden Belt and (among other conditions) to the receipt of each of the Transaction Documents (including the Promissory Note) “duly executed by the parties thereto”, although this was a condition which the Lead Managers were entitled in their discretion to waive. The representations, warranties and undertakings given by Saad included an undertaking that it would execute each of the Transaction Documents to which it was a party on or before the Closing Date, as well as a representation and warranty that the Sukuk was Sharia compliant in which Golden Belt also joined.

Although the Certificate Purchase Agreement provided that the Lead Managers were entitled to waive compliance with the representations, warranties and undertakings given by Saad, a sideletter agreement, referred to as the Condition Precedent Sideletter, provided (among other things) that Golden Belt was not obliged to pay the Advance Rental until BNPP had received the Transaction Documents in a form and substance satisfactory to it.

In closing submissions it was argued on behalf of Golden Belt that because BNPP was required to give notice to Golden Belt in the event that it decided to waive such compliance, Golden Belt was entitled to assume from the absence of such notice that BNPP was satisfied with (among other things) the way in which the Transaction Documents including the Promissory Note had been executed. This was said to support Golden Belt’s (but not the Funds’) case as to the existence of a duty of care. The argument was, with respect, rather artificial. It was certainly not supported by any evidence as to how Golden Belt viewed the absence of any notice. In my judgment it has no bearing on the question whether a duty of care was owed by BNPP.

The final page of the Offering Circular listed some of the parties concerned in the Sukuk. These included the legal advisers who were described as “Legal Advisers to the Lead Managers” as to the laws of Saudi Arabia, Bahrain and England respectively. They were, therefore, described as providing legal advice to the Lead Managers, including BNPP, rather than to Saad or Golden Belt. In fact, although described as providing services to all three Lead Managers, in practice the lawyers were instructed by and advised BNPP and not the other banks.

As already indicated, the English law advisers were Norton Rose. This firm was instructed by BNPP in Bahrain before the London office of the bank became involved in the transaction. Once the London office became involved, Mr Foster was strongly opposed to the instruction of Norton Rose and would have preferred to work with one of the City law firms with which he was more familiar. The instruction of Norton Rose was, however, a fait accompli. With the exception of the Promissory Note, the Transaction Documents were drafted by Norton Rose.

The advisers on Saudi Arabian law were The Alliance of Abbas F. Ghazzawi & Co and Hammad & Al-Mehdar (“The Alliance”).

The adviser on Bahraini law, the law of the place of incorporation of Golden Belt and where the certificates were to be listed, was Al Mahmood & Zu’bi.

Each of the legal advisers delivered a formal opinion addressed to BNPP, Citicorp and Golden Belt, confirming the Sukuk to be valid and enforceable under the relevant law. As is standard practice, the opinions were stated to be subject to certain assumptions. The opinion by Norton Rose dealt only with the English law Transaction Documents. It did not even mention the Promissory Note which was not such a document. The assumptions on which the opinion was expressly based included that Saad and Mr Al-Sanea had capacity to execute the English law Transaction Documents, that they had taken all necessary action to authorise such execution, and that they had duly executed each such document.

The Alliance opinion dealt with, but was not limited to, the Promissory Note. The assumptions on which it was based included that the documents submitted to The Alliance were authentic and true and that all signatures were genuine.

Accordingly, the questions whether the signature on the Promissory Note was valid and whether it had been properly executed were not addressed in any of the formal legal opinions. None of the advisers expressed any opinion whether the documents had been validly executed. The legal opinions, therefore, provided no comfort or assurance as to these matters and could not have been understood as doing so. However, as the full list of stated assumptions makes clear, these were not the only questions outside the scope of the legal opinions.

Saad’s obligations under the Sukuk were unsecured (in market terminology the Sukuk was “asset-based”, not “asset-backed”). Despite the Head-Lease and Sub-Lease structure, certificate holders obtained no interest by way of security or otherwise in the Land Parcels. The certificates were stated to be “Limited Recourse” obligations. This meant that in the event of default by Saad and termination of the Sub-Lease Agreement, the only remedy available to certificate holders was to require Golden Belt (or Citicorp acting as its Delegate) to invoke its rights under the Transaction Documents, those rights being held on trust for certificate holders.

There were two such rights. One was to seek to enforce payment of the Termination Sum under the Sub-Lease Agreement which was subject to English law and the non-exclusive jurisdiction of the English court. As the Offering Circular spelled out, there was no procedure in Saudi Arabia for the enforcement of an English judgment and any attempt at such enforcement was highly uncertain. So too was any attempt to enforce payment of the Termination Sum directly in the general courts of Saudi Arabia where the choice of English law might not be recognised, there was no system of precedent, commercial law was uncodified and not well developed, and in any event the underlying transaction would be strictly and unpredictably scrutinised for its conformity or otherwise with Sharia law. Indeed, the expert evidence was that there are several different schools of Islamic thought in relation to Sharia law and that the courts in Saudi Arabia generally but not always follow the particularly conservative Hanbali school.

The other right which certificate holders had was to enforce payment of the Promissory Note before the CSNID. This was intended to provide certificate holders with a simple and relatively straightforward remedy. Its advantages were twofold. First, enforcement of the Promissory Note would not require investigation of the underlying transaction and its conformity or otherwise with Sharia law. It would be a straightforward claim on the Note. Second, the CSNID was a specialist and more commercially minded tribunal than the general courts.

The Promissory Note was therefore a vital part of the structure of the Sukuk, designed to protect certificate holders in the event of a default by Saad and to enhance materially their prospects of a recovery. Certificate holders and potential investors would have recognised this as an important feature of the Sukuk.

In either case, however, an investor’s ability to obtain payment would depend not only on being able to obtain a judgment, but on the enforceability of any judgment and on the availability of Saad’s assets.

BNPP was the Arranger of the Sukuk. Although also named as one of three Lead Managers, it was described on the front page of the Offering Circular as the “Arranger and Sole Bookrunner”. Its responsibilities in this capacity were not further defined. The banking experts agreed that although a Sukuk has to be structured in order to comply with Sharia law, this makes no real difference to the role of an arranging bank. The tasks of the bank will be essentially the same as in the case of a conventional Eurobond issue. The banking experts agreed also that there is no fixed list of tasks or responsibilities associated with a title such as “Arranger” or “Bookrunner” and that the tasks required to bring a transaction to market will vary from one transaction to another. Nevertheless some tasks will be common to all such transactions. One of these is to ensure that the transaction documents are properly executed.

In its capacity as Arranger, it was BNPP which arranged the whole transaction without input from the other Lead Managers. In an email to Saad dated 2 March 2007, BNPP described the services which it was providing as Arranger and Bookrunner as follows:

An Arranger’s role will vary from transaction to transaction and from bank to bank, but will invariably include (as in paragraph (b) of this email) arranging the preparation and execution of the Transaction Documents. In the present case it was BNPP which instructed the lawyers who were to advise on legal aspects of the transaction and to draft the documentation. It was BNPP which made the arrangements for the execution of those documents. Mr Foster agreed that this responsibility would normally be undertaken by the Arranger. In all his years of experience he had never come across a transaction where somebody other than the arranging bank or the lawyers which it had instructed made the arrangements for the execution of the documents.

In these circumstances, as Mr Foster also accepted, any purchaser of certificates would know from the Offering Circular that the transaction had been arranged by BNPP and, as a result, would take it for granted that BNPP had taken steps to ensure that the documents had been properly executed, just as BNPP would assume when it bought an interest in a bond arranged by another major bank that the underlying transaction documents had been executed properly. That was, as Mr Foster accepted, “a given”.

Mr Khandelwal gave similar evidence. He agreed that investors would rely on BNPP’s expertise in arranging bond issues and that when BNPP lent its name to a transaction (as in this case), investors would assume that the underlying documentation would have been scrutinised meticulously by BNPP to ensure that it was robust and did what the relevant Offering Circular said it did.

The evidence of the claimants’ banking expert, Mr Anthony Saint, was to similar effect. He had never heard it suggested that it was not part of the role of the bank arranging a financing to ensure that documents were correctly executed with valid signatures. The task might sometimes be delegated to external lawyers, but overseeing and ensuring that the documents were properly executed was nevertheless an integral part of arranging the issue.

BNPP’s expert Mr Lupprian confirmed that assisting with the execution of the documents was a normal function of the arranging bank. He preferred the term “Bookrunner” to “Arranger”, at any rate in the context of a Eurobond issue, seeing no practical difference between the two terms. He agreed, however, that whatever precisely the term “Arranger and Sole Bookrunner” on the front page of the Circular might mean, it was telling the world (or at any rate the relevant financial markets) that it was BNPP which had arranged the Sukuk and that it would be obvious to any investor that it was BNPP which was “running the show”. Mr Lupprian accepted that while an investor might look at the underlying credit risk of the borrower, it was “a given” that the transaction documents had been properly executed and, moreover, that the process of execution would have been arranged and supervised by the arranging bank. He agreed that an investor would regard BNPP or its lawyers as the party best placed to ensure that the Transaction Documents had been executed properly. Although the division of responsibilities between the bank and its lawyers might vary from one transaction to another, those were the parties whose responsibility it would be to “choreograph the signing” of the documents.

Mr Lupprian referred in this connection to guidelines issued by the International Capital Markets Association which provide that:

“The international clearing systems will not normally enforce the terms of securities against an issuer or guarantor on behalf of persons investing in such securities through accounts held with the clearing systems. It is therefore important for a lead manager to ensure that the persons ultimately entitled to the securities can enforce their rights under the securities against the issuer, and if there is one, the guarantor. In particular special arrangements may be necessary in order to achieve this effect where the securities are represented by permanent global certificates.”

(This guideline refers to the typical situation where the issuer is the borrower; in the present context, therefore, the reference to “the issuer” refers to the entity in the position of Saad).

Although referring to a lead manager (which underlines the fluidity of these terms), the guideline recognises a responsibility on an Arranger to ensure that investors have recourse against the issuer of the securities in question in accordance with the terms of the offering. Its principal concern is the mechanism by which investors can enforce their rights in circumstances where the international clearing systems will not normally do so. It does not support any general duty on an Arranger to protect the interests of investors, but does provide some limited support for a duty to ensure that investors obtain the legal rights promised in an Offering Circular. Mr Lupprian suggested that this responsibility applies only during the short period until a temporary global certificate is replaced by a permanent certificate, but that is not what the guideline says.

On the other hand, there were other tasks which investors would know that BNPP had performed in its capacity as the Arranger of the Sukuk, because they were the kind of thing which an Arranger would always do, but for which it had undoubtedly disclaimed responsibility in the Offering Circular. These included conducting an analysis and evaluation of Saad’s assets. Mr Saint’s evidence that there was a general “commercial responsibility” to investors owed by an Arranger failed to distinguish between responsibilities in respect of matters where responsibility had been clearly disclaimed and other responsibilities where there was no such explicit disclaimer. For this reason, as well as because of its rather nebulous nature, I consider that this concept of “commercial responsibility” is of little help in the present case.

It was important to BNPP to be seen by the market as having fulfilled the role of Arranger and Sole Bookrunner. In its marketing materials for the Sukuk BNPP described itself (accurately) as one of Europe’s largest banks and “a leading Arranger of international bond issues”, as well as emphasising the strength of its own balance sheet. It had established an Islamic Banking Unit in Bahrain to take advantage of what was hoped and expected to be an expanding market for Islamic finance in the Gulf Cooperation Council area (including Saudi Arabia). This was to be its first Sukuk. To be seen to bring the Sukuk successfully to the international capital market would enhance BNPP’s reputation and could be expected to lead to valuable further business. As Mr Khandelwal described it in a memorandum to BNPP’s credit committee, this was a “another landmark transaction and extremely profitable”, in which BNPP’s position “on the front” (i.e. the fact that it was described as Arranger and Sole Bookrunner on the first page of the Offering Circular) would “ensure maximum visibility to us”. BNPP was keen to achieve precisely that “visibility”.

Golden Belt undertook two distinct functions in the Sukuk. The first was as the Issuer of the certificates, in which capacity it made the various representations set out in the Offering Circular and undertook responsibility for its contents (subject to the exception identified in the Important Notice set out above). In fact, although Golden Belt represented that it had made all reasonable inquiries to ensure that the contents of the Circular were correct, and although its directors including Dr Journeaux signed a statement accepting personal responsibility for those contents, it had made no such inquiries. As was explained in the Offering Circular, Golden Belt was nothing more than a special purpose vehicle incorporated a few days before issue. Its proposed directors, provided by Ohad which was only modestly remunerated, played a minimal part in reviewing the proposed documentation and carried out no independent inquiries at all. They relied entirely on the fact that the transaction was being arranged by BNPP and they signed what they were asked to sign without addressing their minds to the disclaimers made by BNPP itself. According to the evidence, this was not unusual. There is no need to consider in this action whether it was wise.

The second function undertaken by Golden Belt was as the trustee of the rights of certificate holders. There were no foreseeable circumstances in which Golden Belt would seek to enforce its rights under the Transaction Documents including the Promissory Note otherwise than for the benefit of the certificate holders. It had no interest of its own in the transaction.

In some of BNPP’s internal documents Golden Belt was described as a “shell”, a “conduit” or a “brass plate”. That was indeed how it was viewed by all participants in the Sukuk and how it would have been perceived by potential investors.

The Promissory Note was executed with what appears to be a signature by Mr Al-Sanea on behalf of Saad but (as is common ground) it was not signed with a “wet ink" or handwritten signature. Instead it was “signed” with a laser-printed signature. Mr Al-Sanea’s “signature” was purportedly witnessed in Al-Khobar where Saad was based by two individuals, Wael Mohamed Suleiman and Mohamed Abdulaziz Al Youssef, both adult Muslim men and nationals of Saudi Arabia. Nothing is known about the circumstances in which the Promissory Note was signed in this way, including for example whether Mr Al-Sanea was even present. Whether he was or not, it is hard to see how the witnesses could have signed the document in good faith.

The consequence as a matter of Saudi law of the fact that the Promissory Note had been signed in this way and not by hand is in issue. However, it is common ground that the absence of a handwritten signature would not have been apparent on inspection of the original Note without the use of powerful magnification. The claimants do not suggest that BNPP should have examined the Note with such a microscope. Nor was there any way in which certificate holders or potential investors could have discovered the way in which the Promissory Note had been signed.

There is no evidence whether the other Transaction Documents were signed in the same way. Whether they were and, if so, what the consequences may be have not been explored in this action. The claimants’ case of negligence by BNPP in the execution of the Transaction Documents is confined to the execution of the Promissory Note.

It will be necessary to say more in due course about the arrangements for the execution of the Promissory Note.

Once executed, and because it was regarded as a valuable and important document, the original Promissory Note was delivered to Norton Rose and then to Citicorp for safe keeping. This was done on BNPP’s instructions. The original Note was never seen by the directors of Golden Belt or by BNPP.

Initially all went well after issue of the Sukuk. It was popular with investors and was fully subscribed on issue. Saad duly paid the first three rental payments under the Sub-Lease. However, on 1 June 2009 there were reports in the Saudi media that the Saudi Monetary Authority had frozen Mr Al-Sanea’s and the Saad Group’s accounts. On 2 June Moody’s and Standard & Poor’s downgraded Saad’s ratings and then withdrew them. In the following days reports emerged that UAE banks had been instructed not to lend money to Saad or Mr Al-Sanea, that western banks were closing down credit lines to Saad, that Saad would be seeking a restructuring of its debt, and that it was selling down its holdings in HSBC, Berkeley Group and 3i.

Press reports linked Saad’s difficulties to a dispute between Mr Al-Sanea and another powerful Saudi family, the Algosaibi family. The Algosaibis owned another major Saudi conglomerate, Ahmad Hamad Algosaibi & Brothers (“AHAB”). Mr Al-Sanea had married the daughter of one of AHAB’s founders and had previously been a senior executive of AHAB.

On 16 July 2009 it was reported that AHAB had filed a claim in New York implicating Mr Al-Sanea personally in what was described as a US $10 billion fraud and forgery perpetrated on an AHAB company, The Money Exchange, including “massive forgery of documents and the provision of phony confirmations and guarantees”. This claim arose by way of third-party proceedings in an action brought by another entity, Mashreqbank PSC, against AHAB. AHAB denied any knowledge of the transaction giving rise to its liability to Mashreqbank. It contended that the relevant documents had been forged by Mr Al-Sanea and that the funds in question had been diverted by him to Awal Bank, a bank under his ownership and control. Although AHAB alleged that Mr Al-Sanea had misappropriated approximately US $10 billion in this way, the claim against it by Mashreqbank appears to have been limited to a claim for US $150 million.

Later in July 2009, AHAB filed claims against Mr Al-Sanea, Saad Investment Company Ltd (“SICL”) and other Saad Group entities (but not Saad itself) in the Grand Court of the Cayman Islands, alleging fraud and misappropriation by Mr Al-Sanea. Barclays, Calyon and RBS petitioned the Grand Court for SICL’s winding up following its default on US $6 billion of bank lending. The Grand Court granted freezing injunctions and the English court did so a few months later. On 30 July 2009 entities associated with the Saad Group were put into administration. Saudi Arabia passed a Royal Decree establishing a special committee to investigate the allegations of fraud, which froze the assets of concerned persons and companies and imposed travel bans, including on Mr Al-Sanea.

In February 2010 there were press reports that Mr Al-Sanea was implicated in a substantial fraud on another AHAB entity, The International Banking Corporation (“TIBC”). At about the same time Mr Al-Sanea was reportedly arrested by the Saudi authorities. In September 2010, US authorities announced a money laundering investigation into institutions connected to both the Algosaibi family and Mr Al-Sanea.

Whether the AHAB allegations against Mr Al-Sanea were well-founded is not an issue for determination in this action. For present purposes, what matters is that such allegations were made.

These events resulted in a series of Dissolution Events and Events of Default under the terms of the Sukuk. Although there was initially some uncertainty among those advising the certificate holders whether a Dissolution Event had already occurred, Saad was unequivocally in default when it failed to pay the rental amount due under the Sub-Lease Agreement on 10 November 2009. On 15 November 2009 it wrote to Citicorp as the Delegate stating that the freezing orders in Saudi Arabia and elsewhere had made it impossible for it to perform its payment obligations. After further Events of Default, Citicorp served a notice on Saad on 7 October 2010, terminating the Sub-Lease Agreement as of 14 October 2010. On that date, the Sub-Lease Agreement terminated and the Termination Sum of US $650 million became due.

Not surprisingly the news of these events caused a dramatic fall in the price of certificates in the Sukuk. By July 2009 they were quoted at just 21 cents in the dollar. It was in these circumstances that the Funds became interested in investing. Cyrus and Fortress (or at any rate the FCO Funds – see [101] and [102] below) are private equity funds which specialised in investing in distressed debt, i.e. debt which is trading at a substantial discount in circumstances where a default has occurred or is believed to be imminent. The market for such debt is illiquid, with few buyers – in practice the only buyers are other specialised distressed debt funds.

Neither Cyrus nor Fortress had any prior experience of Islamic finance. Accordingly they needed to take steps to understand how the Sukuk transaction worked, the assets which Saad had which would be available or potentially available to investors, the process by which any recovery might be achieved and the risks which might affect the prospects of recovery.

Cyrus identified the Saad Group as an entity which might be of interest as early as June 2009. Mr Joseph Kronsberg, an analyst at Cyrus, saw press reports about the financial difficulties of the Saad Group and the dispute with the Algosaibis, as well as that the rating agencies had downgraded the Saad Group and that the price of Saad Group debt had dropped dramatically. After further investigation Mr Kronsberg located on Bloomberg and studied carefully the Preliminary Offering Circular for the Golden Belt Sukuk. He located also a November 2008 Standard & Poor’s report on Saad which gave details of its asset position as at 30 June 2008. This showed that Saad had assets which far exceeded the amount of its debt.

Mr Kronsberg learned that a conference call for certificate holders in the Sukuk was to be held on 18 June 2009. Mr Stephen Freidheim, Cyrus’s managing partner, authorised the purchase of US $100,000 face value of Sukuk certificates in order to participate in this call and thereby obtain further information, as well as to gain access to the Sukuk documentation. This was a modest purchase of what is known as an “information piece”. During the conference call Citicorp in its capacity as the Delegate outlined the information which was available from press reports and (to a limited extent) from Saad and said that, according to legal advice from Norton Rose, there was some uncertainty as to whether there had as yet been a Dissolution Event. It was explained, however, that if such an event did occur, the certificate holders’ rights were on a limited recourse basis as set out in the Offering Circular, and that the Delegate’s rights included enforcement of the Promissory Note issued by Saad. This was described as being “the most straightforward route to obtaining payment” according to preliminary Saudi law advice which Citicorp had obtained.

Following the conference call, on 24 June 2009 Cyrus purchased Sukuk certificates with a face value of US $3 million. This was its first significant purchase of such certificates. Cyrus continued to monitor developments as closely as it could, reading press reports, speaking to contacts and obtaining copies of available documents such as publicly available filings from the New York litigation. It continued to invest, substantially increasing its holding by purchasing certificates in several tranches, between June 2009 and 30 November 2010. On 1 December 2009 it purchased US $16 million face value, which more than doubled the size of its position, after Saad had defaulted by failing to make the payment which had been due on 16 November. Overall, by 30 November 2010 Cyrus had paid a total of US $18.3 million for certificates with a total face value of US $81 million, at an average price of 22.29 cents in the dollar.

All of these purchases were made with knowledge of the fact that serious allegations of fraud and forgery had been made against Mr Al-Sanea. Cyrus did not know and had no way of knowing whether those allegations were true. Some of those to whom it spoke expressed the view that they were not, and that the Saad Group and Mr Al-Sanea were suffering from nothing more than short-term liquidity problems exacerbated by a political and family dispute with the Algosaibis within Saudi Arabia. However, there was certainly a risk, which Cyrus knowingly accepted, that the allegations might be true, while it knew also that there was at any rate sufficient evidence in support of them to persuade judges in the Cayman Islands and in this country to grant freezing orders.

It was put to the Cyrus witnesses (and also to the Fortress witnesses) in cross examination that if Mr Al-Sanea was indeed a fraudster as alleged, the risks associated with any purchase of certificates were considerable. They included the risks that (1) Saad’s assets or some of them represented the proceeds of fraud, (2) Saad’s audited financial statements were unreliable, (3) valid claims by the Algosaibi interests would dilute Saad’s assets, and (4) Saad’s assets had been dissipated to avoid enforcement of any claim. The witnesses accepted that these were indeed risks.

It was also put to the witnesses in a general sense, and they accepted, that there was a risk that transaction documents apparently executed on behalf of Saad were affected by fraud or forgery. However, there is a distinction between on the one hand a risk that transaction documents are affected by fraud despite the exercise of reasonable care by an Arranger bank and on the other hand a risk that transaction documents are affected by fraud in circumstances where such care had not been exercised. In my judgment the witnesses’ evidence viewed as a whole did not amount to acceptance of the latter risk. Nor was it expressly suggested to them that it did.

Cyrus was no stranger to transactions which might be affected by fraud and was not deterred by such allegations. As Mr Freidheim explained in his evidence, the risks associated with fraud are everyday matters for investors in distressed debt. Cyrus’s approach was to analyse those allegations as closely as it could in order to determine whether they were likely to affect its investment thesis. Having done so, it concluded that the Sukuk certificates were worth purchasing at the significantly discounted prices available and that the existence of certificate holders keen to sell (perhaps because they were scared off by the fraud allegations) represented an investment opportunity. Its investment thesis, in short, was that the available information concerning Saad’s assets showed that these substantially exceeded its liabilities, that the claims by the Algosaibi interests even if valid did not affect this assessment and in any event were very substantially exaggerated, and that those claims were not against Saad or its assets but against other entities within the Saad Group.

Nor was Cyrus deterred by the potential difficulties of obtaining and enforcing a judgment in Saudi Arabia or by rumours and press reports in September 2009 that the Saudi authorities had required or enabled the Algosaibi and Saad Group interests to settle with their local creditors to the exclusion of international creditors. Although this represented, if it was true, a serious prejudice to international creditors, potentially including Sukuk certificate holders, the other side of the coin was that such an approach could damage the ability of Saudi Arabian entities to raise funds on the international capital markets, a situation which the Saudi authorities would be anxious to avoid. International pressure might therefore be brought to bear both commercially and diplomatically.

I accept the evidence of Mr Freidheim and Mr Kronsberg that at all material times the Promissory Note was viewed by them as a key element of the Sukuk structure. Clearly, in order to realise its rights under the certificates (or, strictly speaking, to benefit from enforcement of certificate holders’ rights by the Delegate on behalf of Golden Belt), Cyrus would need to have a valid claim. Its understanding throughout the period when it was purchasing certificates was that the Promissory Note was a validly executed instrument which afforded it such a claim, despite the difficulties which might arise in enforcing that claim in Saudi Arabia and any problems which it might face as a result of any fraudulent conduct by Mr Al-Sanea. It viewed a judgment on the Promissory Note (or the ability to obtain such a judgment) as a critical step which would enable it either to enforce against Saad’s assets or to exert significant pressure on Mr Al-Sanea personally, bearing in mind his responsibility under Saudi law for Saad’s debts.

Both witnesses were extensively cross-examined to the effect that the Promissory Note was of little or no importance in their thinking as to whether to invest in Sukuk certificates. Reference was made to the various risks already inherent in a purchase of the certificates and to the existence of an alternative contractual claim for the Termination Sum against Saad pursuant to the Sub-Lease Agreement. However, both witnesses insisted that the Promissory Note was a major consideration. I accept that evidence. Mr Freidheim in particular was adamant in drawing a distinction between on the one hand the risk that an instrument creating an obligation might prove to be unenforceable for a variety of reasons and on the other hand the risk that an instrument forming part of a transaction arranged by a major international bank was worthless from the outset because it had not been properly executed. I consider that this was a valid distinction.

Cyrus’s assumption that the Promissory Note was a validly executed instrument was heavily influenced by the fact that BNPP was the Arranger and Sole Bookrunner of the Sukuk. I describe this as an assumption because, in circumstances where the transaction had been arranged by a major international bank such as BNPP, it simply did not occur to Mr Freidheim and Mr Kronsberg that the Promissory Note might not have been validly executed. They took it for granted that it had been. That was a reasonable attitude. I accept their evidence that for them it was of vital importance to see from the Offering Circular that the Sukuk had been arranged by a first-class international bank such as BNPP and that, if this had not been the case, Cyrus would not have purchased certificates. As Mr Freidheim expressed it with some feeling, “the institution on the cover of the document is meaningful to any investor”.

Cyrus purchased its holding of certificates with a view to holding them for the long term. While it might have considered selling the certificates if a profitable opportunity to do so had arisen, no such opportunity did arise. It expected any return to come from a repayment by Saad either by negotiation, intervention by the Saudi authorities or enforcement action rather than from selling the certificates on the market. It was prepared to accept the risk that there might be no such return from any of these routes.

For present purposes the Fortress funds fall into two groups. The first group consists of the Fortress Credit Opportunities Funds (“the FCO Funds”) for which Mr Gregory, to whom Mr Mortara reported, was responsible. These were funds which specialised in investing in distressed debt and, for this purpose, had extensive resources for research into and investigation of potential investments. Although Mr Gregory was not the final decision maker in deciding which investments should be made in these funds, that being the responsibility of Mr Pete Briger and Mr Dean Dakolias, he was in a position to give evidence about what motivated the FCO Funds to make purchases of Sukuk certificates.

The second group consists of the Fortress Partners Funds for which Mr Cook was responsible. These had less research capability and, for the purpose of investing in distressed debt which was only a part of their overall portfolio, relied on the expertise of the FCO Funds.

Mr Gregory and Mr Mortara of the FCO Funds became aware of the Saad Group and its legal dispute with the Algosaibi interests in the autumn of 2009. They began looking into the matter further and learned not only of the existence of the Sukuk but also that the Saad Group had substantial bank debt. In March 2010 Fortress heard that some US $70 million of bank debt was to be offered for sale, at a likely price of between 10 and 12 cents on the dollar. That prompted more intense interest on its part, although in the end it did not purchase any of this debt.

Fortress’s interest in the purchase of Saad’s bank debt led it to research more thoroughly an investment in Sukuk certificates. Just as Cyrus had done, it located and studied the Preliminary Offering Circular, obtained whatever financial information it could about Saad (albeit that this was somewhat out of date), and investigated the allegations of fraud made by the Algosaibis in the litigation in New York and (to the extent that information was available) the Cayman Islands. By the time that Fortress came to make its first purchase on 18 May 2010, its knowledge of these matters was in material respects the same as that of Cyrus, although it was only the purchase of its first certificates which gave it access to the Transaction Documents themselves. Essentially, however, these only confirmed what it already knew. Fortress was also aware of the report that local Saudi creditors had been favourably treated.

The first purchase made by the FCO Funds was of US $1 million face value at a price of 20.5 cents in the dollar. It continued to make further purchases over the next year up to and including April 2011.

The FCO Funds’ investment thesis was similar to that of Cyrus. Like Cyrus, Fortress concluded that the assets of Saad substantially exceeded its liabilities notwithstanding its financial difficulties and the allegations of fraud against Mr Al-Sanea which in any event concerned other entities within the Saad Group. It considered that there was a reasonable prospect that in due course Mr Al-Sanea and the Algosaibis would reach, or the Saudi government would intervene and force them to reach, a settlement between themselves and an accommodation with creditors. It saw this as being in the interests of the Saudi government which would not wish to deter international investors from providing future capital. This had also been a factor in Cyrus’s thinking, although it was more explicit in the case of Fortress.

As with the Cyrus witnesses, the Fortress witnesses were cross-examined as to the impact on their decision making of the Promissory Note. Both insisted that it was fundamental to their assessment that Fortress should have a claim and that it was the Promissory Note that would provide this claim. I accept this evidence. Although Mr Gregory said at one point that “we just need a claim”, the overall thrust of his and Mr Mortara’s evidence was that for this purpose they relied on the Promissory Note. Whether there was some other way in which a claim against Saad might have been advanced did not feature in their thinking. Although Fortress placed greater emphasis on the possibility of a negotiated settlement with Saad and on intervention by the Saudi government than on the pursuit of litigation in Saudi Arabia, even to negotiate with Saad or to benefit from any intervention of the government would still require Fortress to have a claim, which the Promissory Note would provide. Moreover, while enforcement of the claim in litigation was not Fortress’s preferred course, it was always a real possibility.

The involvement of BNPP, a major international bank, as the Arranger of the Sukuk was also important to Fortress. It was seen as providing an assurance that appropriate steps had been taken to ensure the validity of the transaction. This was Mr Gregory’s evidence, which I accept. Mr Mortara likewise viewed the involvement of BNPP as providing credibility to the Sukuk transaction. In addition he took some comfort from the fact that BNPP had acted in the transaction (and that Saad’s accounts had been audited by KPMG) as showing that Mr Al-Sanea was an individual for whom highly reputable organisations were willing to act.

The Fortress Partners Funds only became interested in the Sukuk on 17 March 2011 when Mr Cook attended a conference for investors in the FCO Funds. A presentation by Mr Gregory explained the nature of the FCO Funds’ investment and their investment thesis. This sparked Mr Cook’s interest and, after some further investigation, he decided to invest at what he regarded as an attractive price with only limited downside. Like Mr Gregory and Mr Mortara, he was aware of the risks, including the difficulty of obtaining and enforcing a judgment in Saudi Arabia.

As with Mr Gregory and Mr Mortara, it was suggested to Mr Cook that the Promissory Note was of little or no significance in his thinking and that the route to recovery which he contemplated was that there would be a restructuring of the Saad Group as part of a settlement with the Algosaibi interests or as a result of the intervention of the Saudi government. This was indeed his expectation. However, I accept his evidence that the Promissory Note was also an important part of his thinking. He saw it as the mechanism by which certificate holders would obtain access to the assets of Saad. It would be necessary to have a claim either to benefit from any settlement as part of a restructuring or, if necessary, to pursue a legal route to enforcement, whatever the difficulties of doing so in Saudi Arabia. Mr Cook was aware that the legal process, the commencement of proceedings by Golden Belt to enforce the Promissory Note before the CSNID, was imminent.

In total, between 18 May 2010 and 12 April 2011, the two groups of Fortress Funds purchased certificates with a face value of US $130 million, at a total cost of US $30.9 million and an average price of 23.7 cents.

Like Cyrus, Fortress purchased its certificates to hold them for the long term, rather than to dispose of them on the market in the short term. For all the Funds, therefore, the investments were viewed as long-term and high-risk.

Both Cyrus and Fortress joined a group of creditors who were advised by Ashurst. Another group was advised by Freshfields. In November 2010, shortly after notice of default had been given, Ashurst held a conference call including advice from Saudi counsel which was summarised in an email dated 10 November 2010. This advice was to the effect that there was a risk that a claim on the Promissory Note would be time barred four years after issue, and that it would therefore be prudent to commence proceedings no later than March 2011. Saudi counsel advised that obtaining a judgment from the CSNID “would be the cheapest and quickest method of enforcement in Saudi Arabia”.

Counsel added, however, that “it is worthwhile bearing in mind that Saad may raise some arguments to try and invalidate the promissory note or delay any judgment, e.g. that the promissory note is forged or not valid”. This warning was not intended to imply that there was any reason to believe that the Promissory Note was in fact forged or invalid. It was simply noting that such defences were commonly run in proceedings before the CSNID as a stalling tactic. This is how the warning was understood by both Cyrus and Fortress. Indeed it appears that this was such a common defence that at least one law firm operating in the Middle East published a briefing note to warn about it. In April 2010 Freshfields published a note of “Practical guidance for creditors of Saudi debtors” which included a heading, “Are you prepared for the forgery defence?” However, although this may have been seen as a commonly raised defence in 2010, there is no evidence that this was the position in 2007, which was of course before the financial crisis of 2008 dramatically changed the global financial situation.

As a result of this advice Golden Belt commenced proceedings before the CSNID against Saad on the Promissory Note on 21 March 2011. It was suggested to the Funds’ witnesses that these proceedings were only brought in order to avoid a potential time bar. However, while the risk of a time bar dictated the timing of the commencement of proceedings, I reject any suggestion that such proceedings would not otherwise have been brought at some stage. Enforcement of a claim under the Promissory Note was always seen as the legal route to obtaining a recovery, to be deployed if commercial pressures failed.

At a hearing on 28 May 2012 Saad contended that the CSNID did not have jurisdiction over the claim. In particular, it argued that the Promissory Note did not comply with certain formal Saudi law requirements for promissory notes provided for under Article 87 of the Saudi Law of Negotiable Instruments. These included Article 87(g), which requires a promissory note to carry the signature of the person executing it. Saad denied that the signature of Mr Al-Sanea was genuine. It took also two other points, namely that no such company as Golden Belt existed and that the claim was time barred. However, there was no substance in either of these additional points. They would have had to be dealt with, but would not have prevented Golden Belt from obtaining a judgment from the CSNID if the signature of Mr Al-Sanea was valid.

Subsequently, Citicorp commissioned an expert report of Mr Ahmed Al-Bah dated 8 February 2014. This stated that although the Promissory Note appeared to be signed by normal means, under microscopic examination it could be seen to have been signed by colour laser printing. A further report, from Mr Radley dated 5 March 2014, was to similar effect.

As a result Golden Belt has taken no further steps in the CSNID proceedings since 2013, taking the view that those proceedings are now doomed to fail. Whether that is correct as a matter of Saudi law is an issue in this action and is considered below. Formally, the CSNID proceedings remain in being.

Taking the view that its claim before the CSNID would fail, in July 2014 Golden Belt commenced a claim against Saad before the Saudi Banking Disputes Committee. However, this claim was dismissed in July 2016 on jurisdictional grounds.

BNPP alleged that it was unreasonable for Golden Belt to have brought this claim, but did not pursue this point in final submissions. Ms Ali dealt with the issue in her report and her evidence was not challenged in cross examination. Mr Edge’s suggestion to the contrary, put forward in his oral evidence, was unconvincing. I need therefore say nothing further about this issue, save to record my finding that it was reasonable for the claim to have been brought.

On 5 June 2016, the Joint Directorate of the General Court of Al-Khobar announced that it had started to receive “enforcement applications” against Saad, to be filed within 60 days. Golden Belt submitted a claim on the Promissory Note, but by this time, the statutory limitation period had expired and as a result the claim was dismissed. Whether it is now too late for Golden Belt to submit a claim for enforcement in the event that it obtains judgment in the Al-Khobar proceedings is an issue outside the scope of the present trial.

In August 2016 Golden Belt issued a claim in the Al-Khobar General Court against Saad and Mr Al-Sanea for payment of the Termination Sum under the Sub-Lease Agreement and for attachment of Saad’s assets (the “Al-Khobar proceedings”). This action has not yet been concluded.

Finally, in October 2016 Golden Belt issued claims against Saad and Mr Al-Sanea under the Sub-Lease Agreement and the Head-Lease Agreement in the English Commercial Court. These were served in January 2017. On 10 November 2017, following an application by Golden Belt for summary judgment, this court gave judgment in the absence of the defendants against Saad for US $668,271,643.19 plus £465,554.15 and against Mr Al-Sanea for US $588,651,324.60 plus £465,554.15 (Citicorp Trustee Co Ltd v Al-Sanea [2017] EWHC 2845 (Comm)). So far as I am aware no steps have yet been taken to enforce this judgment in Saudi Arabia. Whether it can be recognised or enforced there remains to be seen.

It appears that in 2011 a Royal Decree in Saudi Arabia exonerated Mr Al-Sanea of fraud and established a tribunal for hearing creditors’ claims against (among others) Saad and Mr Al-Sanea. However, progress appears to have been slow and little is known about the process. There is no formal insolvency law in Saudi Arabia. However, it is common ground in this action that no distributions have yet been made to international creditors.

Thus eight years after Saad’s default, none of its international creditors, including BNPP and other financial institutions, have received anything.

Notwithstanding Mr Al-Sanea’s apparent exoneration by Royal Decree in Saudi Arabia, the Bahraini authorities filed criminal charges against Mr Al-Sanea in March 2011 in connection with activities at Awal Bank and TIBC. Later that year, the Cayman Grand Court ordered default judgment to be granted in favour of AHAB after Mr Al-Sanea declined to submit a defence to AHAB’s claim. The Bahrain Stock Exchange formally de-listed the Sukuk in May 2012. The Grand Cayman Court ordered Mr Al-Sanea to pay US $2.5 billion to AHAB in June 2012 by way of an interim damages payment. In April 2015 the Bahrain High Court reportedly ordered Mr Al-Sanea to pay US $700 million to Awal Bank. A trial commenced in Cayman in mid-July 2016 in which AHAB reportedly claimed an additional US $7.3 billion. Judgment is awaited.

It is convenient at this point to deal with the question whether, as the claimants contend, a handwritten signature on the Promissory Note was required in order for it to be valid as a promissory note under Saudi law.

Article 87 of the Saudi Law of Negotiable Instruments of 1964 sets out the requirements for a promissory note:

“A promissory note shall contain the following particulars:

a)

a stipulation of order or the expression ‘promissory note’ written in the text of the note in the language in which it is written;

b)

an unconditional engagement to pay a certain specified sum of money;

c)

the date of maturity;

d)

place of payment;

e)

the name of the payee or to whose order it is payable;

f)

date and place of making the note; and

g)

the signature of the maker of the note.”

As this Article makes clear, and as Ms Ali explained, there has to be a signature. It is not a formal requirement of Saudi law that the signature should be witnessed, although this may be prudent. Ms Ali’s firm evidence was that “signature” refers to a handwritten signature. She supported this view by reference to the meaning of the word “signature” in the Arabic language, the law and practice of other Middle Eastern Arab states with similar legislation which require a handwritten signature in order for a document to be valid as a promissory note, Article 139 of the Saudi code of civil procedure, and general Sharia law derived from sura 2 verse 282 of the Qu’ran (“the debt instruments verse”).

Mr Edge’s first report was very tentatively expressed, stating only (in summary) that there was no express requirement in Article 87 or elsewhere that a signature had to be handwritten, that he was aware of no specific case in which the CSNID had ruled that a laser printed signature was insufficient, and that there were “good arguments as to why the CSNID could be persuaded to accept such a document”. He referred to the Saudi Electronic Transactions Law which came into force after the issue of the Promissory Note in this case and which provides that, in limited circumstances not applicable in the present case, an electronic signature shall be treated as a valid and enforceable original signature.

Although Mr Edge was not aware of this when he wrote his report, in fact there was a highly relevant decision of the CSNID both at first instance and on appeal in a case brought by BNPP itself against Saad, in which Saad was represented by Wael Mohamed al-Mabid, who appears to be the same person as one of the witnesses to the “signature” of Mr Al-Sanea on the Golden Belt Sukuk Promissory Note. BNPP was represented by Clifford Chance’s Saudi office. For reasons which have not been explained, BNPP did not disclose this decision (which is not publicly available) until after the Saudi law experts had met and produced their joint memorandum.

The decision (case no.1492/1431) concerned two promissory notes purportedly signed by Mr Al-Sanea but which in fact contained a laser printed signature, just as in the present case. Unlike the Golden Belt Promissory Note, however, they also contained a Saad stamp and, although there was space for two witnesses to sign, there were no signatures by witnesses. At first instance, in a decision dated 20 November 2013, the CSNID held that a signature by the maker of the note was a requirement under Article 87 and that a signature had to be handwritten. As it was not, the CSNID did not have jurisdiction. BNPP appealed to the Legal Committee of the Ministry of Commerce & Investment, which dismissed the appeal on 22 June 2016.

The appeal committee dealt with three arguments. The first was that the company was allowed to sign with its stamp, so that the absence of a handwritten signature was irrelevant. The second was that a laser printed signature was sufficient to satisfy the requirement for a signature. The third was that there was a custom permitting a laser printed signature. The committee rejected these arguments, holding that a signature was required in order to demonstrate the maker’s commitment to the note, and that this meant a handwritten signature.

In the light of this decision there is little or no room for debate about what Saudi law is on this issue. The decision, although not formally binding as Saudi law has no doctrine of precedent, is a clear decision on the very point at issue. The decision and its reasoning confirm Ms Ali’s evidence and fatally undermine any suggestion by Mr Edge that there is a serious prospect that the CSNID would reach a different decision.

Faced with this decision, Mr Edge produced a supplemental report a few days before the trial began in which he could only say that:

“I put it no higher than this: that there is a possibility that on the different facts of this case, where there were witnesses to evidence the identity of the person affixing the signature, then the CSNID (and indeed any other tribunal in Saudi Arabia) might come to a different conclusion as to the requirement of an actual handwritten signature.”

In oral evidence he developed this “possibility” by saying that there was an argument that what mattered was not the fact of a signature but evidence of the maker’s commitment to the note and that this could be provided by evidence from witnesses. His approach can be illustrated by his answer to a question as to what he thought the CSNID would actually decide if the Promissory Note in the present case was put before it. First he said that he could not answer that question one way or the other. Then he accepted, in agreement with Ms Ali, that the practice of the CSNID was to adopt a rigorous formalistic approach to the requirements of Article 87 which are very strictly interpreted. Then he said that 90% of the people in Saudi Arabia, including lawyers and judges as well as lay people, would interpret the word “signature” to mean a handwritten signature. At that point he might have been expected to agree that the logic of his answer was that it was as certain as it is possible to be that the CSNID in the present case would hold that a laser printed signature was insufficient. However, he did not. Instead he insisted that “signature” could be given a different meaning, that the decision in case no.1492/1431 suggested that there would be a “purposive” approach to the requirement of a signature in Article 87, and that it was an open question whether the CSNID would allow extrinsic proof from witnesses that a laser printed signature had been applied to the document by the individual purporting to have signed.

I reject this suggestion. There is no trace in the decision in case no.1492/1431 of any indication that evidence from witnesses would make any difference. On the contrary, the case decides that the maker’s commitment to the note must be demonstrated by his signature, which is after all what Article 87 says.

Other matters invoked by Mr Edge did not support his argument. For example, he suggested that the Electronic Transactions Law indicated that, even in cases such as the present to which its special regime did not apply, Saudi courts and tribunals were willing to adopt a more forward-looking approach. However, the Law indicates no such thing, but rather suggests that in cases to which it does not apply, the normal requirement for a “signature” is a handwritten signature. Mr Edge’s suggestion is impossible to reconcile with his acceptance that the practice of the CSNID is to adopt a rigorous, formalistic and strict approach to the requirements of Article 87. Nor was he in a position to dispute Ms Ali’s evidence that other Arab states with similar legislation derived from a common source insist on a handwritten signature, and that there is no reason why Saudi Arabia should do anything different.

Accordingly I conclude, accepting Ms Ali’s evidence, that in order to constitute a promissory note within the jurisdiction of the CSNID, the note must bear the handwritten signature of the maker of the note. This requirement is strictly insisted on. As the Promissory Note in the present case did not satisfy this requirement, it was inevitable that the CSNID would decline jurisdiction. The consequence would be, as both experts agreed, that any claim would have to be pursued in the general courts of Saudi Arabia where the entire Sukuk transaction and not merely the Promissory Note would be scrutinised for conformity with Sharia law. Whether it would survive that scrutiny is outside the scope of the present trial.

I would add that if (contrary to my view) Mr Edge’s suggestion that evidence from witnesses would be permitted to prove that a laser printed signature had been applied to the document by the individual purporting to have signed, that would only underline the vital importance of having independent witnesses who would be available to give evidence on behalf of the beneficiary of the note in the event of any dispute. As explained below, there are no such independent witnesses in the present case.

As noted above, it was common ground between the experts that the other points taken by Saad in the proceedings before the CSNID would not have prevented Golden Belt from obtaining a judgment if there had been a handwritten signature on the Promissory Note by Mr Al-Sanea. Ms Ali’s view, assuming reasonable diligence in the prosecution of the claim and allowing for delaying tactics by Saad, was that such a judgment could be obtained and the appeal process could have been exhausted within about two or three years from the denial of the validity of Mr Al-Sanea’s signature, that is to say by about mid-2015 at the latest.

This may be unduly optimistic, but even making some further allowance for contingencies, I find that Golden Belt would have obtained judgment in time to submit the judgment for enforcement to the Joint Directorate of the General Court of Al-Khobar in June 2016. However, it does not follow that Golden Belt would by now have received anything through that process. On balance I find that it would not. No other international creditor has yet done so. Whether it would have been likely to do so in the future lies outside the scope of the present trial.

Mr Nigel Tozzi QC and Mr Jeremy Brier for the claimants submit that BNPP owed to Golden Belt and to certificate holders a duty to exercise reasonable care and skill to ensure that the Promissory Note was properly executed. They rely in particular on BNPP’s role as the Arranger of the Sukuk as described in the Offering Circular; the way in which it was BNPP which in fact made the arrangements for signature of the Promissory Note; the fact that investors depended on BNPP to ensure proper execution of the Promissory Note with no opportunity to investigate for themselves whether it had been properly executed; and the fact that it was both contemplated and intended that there should be a secondary market in certificates after issue. In these circumstances they submit that the legal criteria for the imposition of a duty of care are satisfied.

Mr Robin Dicker QC and Mr James Macdonald for BNPP deny that BNPP owed any such duty. They say that the only duty assumed by BNPP was owed to Saad, its client; that no tortious duty should be imposed on a carefully structured contractual scheme; that the imposition of any duty of care to investors is negated by the terms of the Offering Circular, and in particular the Important Notice; that the duties of an Arranger are undefined and vary from transaction to transaction; that there were no dealings or exchanges which “crossed the line” between BNPP and certificate holders; and that although investors might take comfort from the fact that BNPP had arranged the Sukuk and would have its own commercial and reputational interests in ensuring proper execution of the Transaction Documents including the Promissory Note, that does not mean that any legal responsibility to investors was undertaken by or should be imposed on BNPP. In addition, they say that no duty was owed to Golden Belt which was merely a special purpose vehicle with no real commercial interest of its own, which was inserted into the Sukuk structure in order to render the transaction Sharia compliant and to hold certificate holders’ interests on trust in a single vehicle. They say further that even if a duty was owed to certificate holders as the parties with a real interest in the Promissory Note, such a duty did not extend to distressed debt funds such as Cyrus and Fortress purchasing certificates some years after issue of the Sukuk when Saad had either defaulted or was about to do so.

The circumstances in which a duty of care will be found to exist have been considered in many cases at the highest level. For present purposes it is unnecessary to cite more than a handful.

Three tests have been suggested, as summarised (for example) by Lord Bingham in Customs & Excise Commissioners v. Barclays Bank Plc [2006] UKHL 28, [2007] 1 AC 181 at [4]:

“The first is whether the defendant assumed responsibility for what he said and did vis-à-vis the claimant, or is to be treated by the law as having done so. The second is commonly known as the threefold test: whether loss to the claimant was a reasonably foreseeable consequence of what the defendant did or failed to do; whether the relationship between the parties was one of sufficient proximity; and whether in all the circumstances it is fair, just and reasonable to impose a duty of care on the defendant towards the claimant … Third is the incremental test … the law should develop novel categories of negligence incrementally and by analogy with established categories, rather than by a massive extension of a prima facie duty of care restrained only by indefinable ‘considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed’.”

As the cases recognise, however, these tests are easier to state than to apply. As Lord Bingham went on to explain, the “assumption of responsibility” test is to be applied objectively and is not answered by consideration of what the defendant actually thought or intended; ultimately, the law determines whether the circumstances are such that an assumption of responsibility should be attributed to the defendant. However, the further the test is removed from the actual intentions of the defendant, and the more notional the assumption of responsibility becomes, the less difference there is between this test and the threefold test. Moreover, the threefold test provides no straightforward answer in a novel situation to the question whether a duty of care is owed; the question whether it is fair, just and reasonable to impose a duty involves at least an element of policy; and the incremental test is of little value as a test in itself, and is only helpful when used in connection with a test or principle which identifies the legally significant features of a situation.

Despite this slightly gloomy analysis, Lord Bingham noted at [8] that in most cases the outcome was sensible and just, irrespective of the test used to achieve it. He underlined the importance of concentrating attention on “the detailed circumstances of the particular case and the particular relationship between the parties in the context of their legal and factual situation as a whole” – or, as Lord Steyn put it in Williams v. Natural Life Foods Ltd [1998] 1 WLR 830 at 835, emphasising the objective nature of the inquiry and the importance of context, “the primary focus must be on things said or done by the defendant or on his behalf in dealings with the plaintiff ... judged in the light of the relevant contextual scene.”

The other speeches in Customs & Excise Commissioners v. Barclays Bank Plc were to similar effect in observing that the various tests, each of which has its judicial supporters, operate at a high level of abstraction. It is therefore important to focus on the particular circumstances of the case, the relationship between the parties and the conduct of the defendant in his dealings towards the claimant which is said to give rise to the duty.

For this purpose, some factors which have been identified as particularly relevant (not an exhaustive list) include the purpose of the statement made or service provided by the defendant; whether the defendant knows that the claimant is relying on it; and the reasonableness of the claimant’s reliance or dependence on the defendant (see Clerk & Lindsell on Torts, 21^st Edition, paragraph 8-102). If the three tests operate at a high level of abstraction, these factors help to ground the issue whether a duty of care should be imposed.

In the context of the making of investment decisions, several cases should be mentioned. The first is Caparo Industries v. Dickman [1990] 2 AC 605, the case in which the threefold test was first stated by Lord Bridge at 617H. This was a claim by both existing and potential investors alleging negligence by the defendant auditors certifying that a company's annual accounts showed a true and fair view of its financial position. The House of Lords held that the purpose of the statutory requirement for an audit of public companies was the making of a report to enable shareholders to exercise their rights in general meeting and did not extend to the provision of information to assist existing or potential shareholders in making investment decisions. Accordingly, applying the threefold test, no relevant duty of care was owed.

Lord Bridge contrasted this situation with other cases where a duty of care had been held to exist, highlighting as significant the fact that defendant knew not only what transaction the claimant was contemplating but also that the claimant would rely on the defendant for this purpose. He said at 630H:

“The salient feature of all these cases is that the defendant giving advice or information was fully aware of the nature of the transaction which the plaintiff had in contemplation, knew that the advice or information would be communicated to him directly or indirectly and knew that it was very likely that the plaintiff would rely on the advice or information in deciding whether or not to engage in the transaction in contemplation. In these circumstances the defendant could clearly be expected, subject always to the effect of any disclaimer of responsibility, specifically to anticipate that the plaintiff would rely on the advice or information given by the defendant for the very purpose for which he did in the event rely on it. So also the plaintiff, subject again to the effect of any disclaimer, would in that situation reasonably suppose that he was entitled to rely on the advice or information communicated to him for the very purpose for which he required it.”

Possfund Custodian Trustee Ltd v Diamond [1996] 1 WLR 1351 was a decision of Lightman J on a summary judgment application. This was a claim against directors of a company who had issued an allegedly misleading prospectus in connection with the flotation of shares on the unlisted securities market. It was held to be arguable that a duty of care is owed to investors purchasing shares in an aftermarket. Although the decision was no more than that the case was arguable, a significant feature of the case was that prospectuses were made available to investors generally with the recognised purpose of enabling them to decide whether to make purchases in an aftermarket after the initial flotation had taken place.

Other cases concerned with investment decisions recognise the importance of the contractual background, including any disclaimer of responsibility. These features may negative any assumption of responsibility and mean that it is not fair, just and reasonable to impose a duty of care. For example in IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 (Comm), [2006] 2 CLC 1043 the defendant was the arranger of a syndicated loan. The information memorandum which it produced for prospective investors contained an Important Notice in broadly similar terms to the Important Notice in the present case, disclaiming any responsibility on the part of the defendant for the contents of the memorandum. Toulson J held that the defendant owed no duty to take reasonable care to inform prospective investors if it became aware of any facts showing that statements made in the information memorandum or in accountants’ reports annexed to it were incorrect. He held that:

“63.

The mezzanine syndication involved a number of interlocking contractual relationships giving rise to rights and obligations defined in documents drafted by specialist lawyers. In such circumstances the court should be very slow to superimpose any obligations of negligence going beyond those carefully defined in the contractual documentation.

64.

Goldman Sachs was not acting as an adviser to IFE or purporting to carry out any professional service for IFE, as the terms of the SIM made plain. It was acting for the sponsors and not on behalf of the recipients of the SIM. In general a party involved in negotiations towards a commercial venture owes no positive duty of disclosure towards another prospective party. A duty of disclosure may be undertaken, but no such duty was undertaken in this case either expressly or impliedly. The expression ‘assumption of responsibility’ has on occasions been used in cases where it would be more accurate to speak of the court imposing a responsibility, but I can see no ground on which it would be fair to impose on Goldman Sachs the duty of care contended for by IFE.”

The Court of Appeal agreed [2007] EWCA Civ 811, [2007] 2 CLC 134. Waller LJ said:

“28.

I can start by clearing one or two issues out of the way. First it seems to me that the argument that there was some free standing duty of care owed by GSI to IFE in this case is in the light of the terms of the Important Notice hopeless. Nothing could be clearer than that GSI were not assuming any responsibility to the participants: Hedley Byrne v Heller & Partners [1964] AC 465. The foundation for liability for negligent misstatements demonstrates that where the terms on which someone is prepared to give advice or make a statement negatives any assumption of responsibility, no duty of care will be owed. Although there might be cases where the law would impose a duty by virtue of a particular state of facts despite an attempt not ‘to assume responsibility’ the relationship between GSI either as arranger or as vendor would not be one of them. I entirely agree with the judge on this aspect.”

In JP Morgan Chase Bank v Springwell Navigation Corporation [2008] EWHC 1186 (Comm) Gloster J drew attention to a variety of contractual provisions setting out terms of business between the parties, representations or acknowledgements as to the parties’ sophistication and non-reliance, and conventional exclusion clauses. She continued:

“478.

I also accept Chase’s primary submission that it is not necessary, at least for the purposes of the general advisory claim, to undertake a detailed textual analysis of the precise ambit, extent and legal effect of each individual clause because the contractual documentation, taken as a whole, has the broader evidential significance of negating the assumption of any general advisory duty or obligation on the part of Chase. Thus I accept that the contractual documentation presented a consistent, and commercially coherent picture; namely that Springwell’s trading through the Investment Bank, whether in emerging markets instruments or otherwise, was not intended to give rise to, or impose upon the Private Bank or the Investment Bank, investment advisory obligations or responsibilities, either in relation to the particular securities purchased or sold, or more generally, in relation to Springwell’s financial position in the light of its emerging markets portfolio; in other words, that the relationship between Springwell and the Private Bank, and between Springwell and the Investment Bank, was one where neither the Private Bank nor the Investment Bank had an obligation to give any investment advice, and, moreover, was one where, even if any such advice was given, Springwell acknowledged that the Chase entities had no responsibility for any such advice, (a) because Springwell acknowledged that it had not relied upon any such advice in making its investment decision, and (b) because it had agreed that the Chase entities were not liable for any loss caused as a result of any investment decision by Springwell (save in the case of gross negligence or wilful default).”

Gloster J referred to IFE Fund SA v Goldman Sachs International at [480] as “a recent example of the approach that contractual documentation can define the relationship between the parties, so as to exclude any parallel or free-standing common-law duties of care”. She added at [482] that the case “endorses the fundamental importance of the contractual matrix in determining the existence and scope of any duty of care.”

Hamblen J followed the same approach in Standard Chartered Bank v Ceylon Petroleum Corporation [2011] EWHC 1785 (Comm):

“521.

As made clear in the Springwell case, in determining whether the circumstances are such as to impose a duty of care, an important factor is the way in which the parties have sought to regulate their relationships, and to allocate risk, by contract. Where the parties have entered into agreements containing representations or acknowledgements as to sophistication and non-reliance the court is not required to undertake a detailed textual analysis of the precise ambit, extent and legal effect of each relevant clause. This is because ‘the contractual documentation, taken as a whole, has the broader evidential significance of negating the assumption of any general advisory duty’ (Gloster J at [478]).”

Two points emerge clearly from these cases which are relevant to the position of a bank arranging a capital markets transaction such as that in the present case for which purpose it prepares an Offering Circular (or similar document) to be provided to prospective investors.

First, it is necessary to bear in mind that BNPP’s client was Saad. It was Saad which had engaged BNPP to act as Arranger, Sole Bookrunner and Lead Manager and which paid it for doing so. It was to Saad that BNPP owed contractual duties relating to the performance of its services in so acting. In general a bank acting for one party to a transaction will not undertake a duty of care to another, but that must depend on all the circumstances. It would be unlikely that BNPP assumed any duty of care to investors which was contrary to, or would not sit well with, the primary duty which it owed to Saad. But the argument against undertaking a duty to investors which complements its duty to its client is weaker.

Second, the existence of carefully drafted and interlocking contractual relationships means that the court should be slow to superimpose a tortious duty of care on those relationships. It should not do so if that would contradict or unbalance the allocation of risks and responsibilities which the parties have defined. One circumstance (but not the only one) in which that might happen would be if it could reasonably be expected that an arranging bank had stipulated for a limitation of its liability in respect of a particular service which would not apply to a tortious duty (cf. Arrowhead Capital Finance Ltd v KPMG LLP [2012] EWHC 1801 (Comm)).

Nevertheless, while these are factors which need to be carefully considered, they do not rule out in all circumstances the possibility of some duty of care being owed to prospective investors by an arranging bank. (Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 is an example, in the insurance rather than the financial markets, of a duty of care being imposed alongside carefully drafted contractual duties and, in the case of the “indirect Names”, a duty of care where there was no direct contractual relationship between the parties). It is one thing to say that the court should be “slow” to impose a duty of care. It is quite another thing to say that it should never do so. Indeed, as Gloster J pointed out in the passage from Springwell cited above, the contractual matrix may determine not only whether a duty of care can exist at all, but also (when it can) the scope of any such duty. A duty of care does not exist in the abstract. It is necessary to consider the scope of the duty for which the claimant contends.

All of the investment cases cited above (except Caparo and Arrowhead which were about the duties of auditors) were concerned with whether a duty of care could be imposed on an arranging bank (or a defendant in an equivalent position) to give advice to a prospective investor or to undertake responsibility for the contents of an Offering Circular (or equivalent document). It is not difficult to see why the existence of an Important Notice or equivalent disclaimer negates the imposition of such a duty.

In the present case the duty for which the claimants contend is very different. It is not concerned with the contents of the Offering Circular or even (more broadly) with advice or information bearing on the desirability of an investment in Saad debt, but with the performance by BNPP of its own responsibilities as the Arranger of the Sukuk. I accept that it is unnecessary to engage in detailed textual analysis of the precise ambit, extent and legal effect of a disclaimer (or of other similar provisions) when it is possible to see that its broad thrust negatives the assumption of certain kinds of duty. But a broad disclaimer of responsibility for the contents of an Offering Circular does not necessarily mean that an Arranger is also disclaiming any responsibility for the performance of its own functions. Indeed, the fact that it is thought necessary to disclaim responsibility for the contents of the Circular may imply that, without the disclaimer, there is at least a risk that such responsibility would exist. If that is so, the absence of a disclaimer of responsibility for performance of the Arranger’s own functions is a factor tending to point towards rather than away from the existence of a duty of care in respect of those functions.

The only duty for which the claimants now contend is that BNPP owed to Golden Belt and certificate holders a duty to take reasonable care that the Promissory Note was properly executed (i.e. with a handwritten signature which was appropriately witnessed). It is true that, as originally pleaded, the duties alleged by the claimants ranged much more widely, but this is a relatively narrow duty which must be considered on its own merits. It is unnecessary to consider the claimants’ wider and less focused formulations of a duty, now abandoned, for example that BNPP owed a duty to take reasonable care that the Promissory Note was enforceable under Saudi law or that the Sukuk was Sharia compliant. These and other wider formulations would be difficult and in some cases impossible to reconcile with the detailed terms or even the broad thrust of the Offering Circular, but that does not rule out the possibility of the narrower duty for which the claimants now contend.

Mr Dicker submitted that it was important to identify the duty for which the claimants were contending as being either a duty to prevent fraud or a duty to prevent a negligent or innocent mistake. He did so because the claimants advance no positive case that Mr Al-Sanea acted fraudulently, and for the purpose of a submission that commercial relationships operate on the basis of trust, that a bank is entitled to trust its customer in the absence of telling indications to the contrary, and that there is in general no duty to prevent the fraud of a third party (see e.g. Barclays Bank Plc v Quincecare Ltd [1992] 4 All ER 363 per Steyn J, citing the well-known words of Bowen LJ in Sanders Bros v Maclean (1883) 11 QBD 327 at 343 that “credit, not distrust, is the basis of commercial dealings”). However, the duty for which the claimants contend is properly formulated in my view as a duty to take reasonable care that the Promissory Note was properly executed. It is relevant in considering whether that duty was discharged to bear in mind that in the absence of indications to the contrary, BNPP was entitled to regard Saad as trustworthy, but that is a separate matter.

Applying the legal principles summarised above to the duty for which the claimants contend, it is helpful to consider the following factors.

In a broad sense the service provided by BNPP was to arrange the Sukuk. Undoubtedly BNPP was the Arranger of the Sukuk (in colloquial terms, as Mr Lupprian accepted, it was “running the show”), but in my judgment that is not the relevant service for the purpose of determining whether it owed a duty to take care to ensure that the Promissory Note was properly executed. The relevant service was more specific, namely arranging for the execution of the Promissory Note. That was a service which BNPP agreed with Saad that it would provide (see the email dated 2 March 2007 referred to at [62] above) and which it did provide. It is what an Arranger typically does.

This was not a particularly complicated or onerous service. It involved finding out what was required to ensure that the Promissory Note would be valid and enforceable in Saudi Arabia and taking appropriate steps to ensure that the relevant requirements were satisfied having regard to the purpose of the Promissory Note.

BNPP says that there is more to obtaining properly executed documents than making appropriate arrangements for signature and that it may be difficult to decide how far any duty extends. For example, it may be necessary to ensure that a company has capacity, that the necessary board or shareholder resolutions have been passed, and that the necessary authorisations have been provided to the relevant signatories. In the present case there is no doubt that Saad had capacity and that Mr Al-Sanea was authorised to sign the Promissory Note. It is therefore unnecessary to decide whether any duty extends beyond making appropriate arrangements for signature, although I am inclined to think that any duty might well extend to these matters. However, the evidence did not address the extent to which an arranging bank will in practice undertake responsibility for such further matters or the extent to which investors rely upon it to do so. It may, for example, be practicable, at least in theory, for an investor to take its own advice about a borrower’s capacity. If so, that may be a relevant distinction. In any event, if the criteria for imposition of a duty in relation to making arrangements for signature are satisfied, the fact that BNPP may be able to identify some aspects of its role as the Arranger where the position is less clear-cut is not a good reason to say that it undertakes no duty in respect of arranging signatures when the evidence is clear that this is part of the function of an arranging bank.

Of course, the mere fact that a defendant has performed a task does not necessarily mean that it has assumed legal responsibility to third parties for the performance of that task or that it would be fair, just and reasonable to impose a duty upon it. It may have performed the relevant task in its own interests or as part of a duty owed to a client. It is, however, an important and necessary starting point.

As explained below, I find that it was BNPP which made the arrangements for signature of the Promissory Note.

The Promissory Note had one purpose only in the Sukuk structure. That was to provide certificate holders with a simple and relatively straightforward claim against Saad in the event of a default by Saad in performing its obligations under the Sub-Lease. It was a vital part of the overall Sukuk structure, which would be needed (but which would only ever be needed) in the event of such a default. However, for this remedy to be available it was essential that Golden Belt should be able to prove that the Promissory Note had been properly executed.

It was obvious that the circumstances in which a certificate holder would need to rely on the Promissory Note would be very different from those which prevailed at the time of issue of the Sukuk when the Promissory Note would be executed. When BNPP was arranging the Sukuk in early 2007, Saad was a major company with assets exceeding US $4.6 billion and a strong investment grade rating, which was owned and controlled by a prominent and distinguished businessman who was one of the world’s 100 richest men and was personally liable for its debts. A default seemed unlikely. Had it been otherwise, the Sukuk would not have gone ahead and, even if it had, would not have been as popular with investors as it was.

Nevertheless it was always possible that Saad might default during the life of the Sukuk and (notwithstanding Saad’s strong rating and reputation as of May 2007) certificate holders needed protection against that possibility. Hence the Promissory Note. Nobody would have suggested that the Promissory Note was redundant because a default was unlikely. But there would only ever be a claim on the Promissory Note if, for whatever reason, there had been a dramatic change of circumstances or Saad’s apparently strong position turned out to be an illusion. In that event, certificate holders could expect to be dealing with a borrower which would do whatever it could to avoid liability. It was, therefore, particularly important that the Promissory Note should be properly executed and that this could be proved if it was challenged. There was no room for any slip. It was no doubt for this reason that The Alliance referred in an email dated 2 May 2007 to “the sensitive nature of the document where a slight discrepancy may jeopardise the entire note”. That was not because of any lack of trust between BNPP and Saad. It was simple common sense, having regard to the circumstances in which the Promissory Note might be needed.

At a very general level, it was in Saad’s interest that the Promissory Note should be properly executed. That was a necessary condition (unless BNPP exercised its right to waive it, which was inconceivable) in order for funds to be released to Saad. However, as events demonstrated, provided that it got its money, it would make no difference to Saad if (whether deliberately or innocently) the Promissory Note was not properly executed in a way which was not readily apparent and therefore was not noticed by BNPP.

For all practical purposes, therefore, ensuring that the Promissory Note was properly executed was a service carried out entirely for the benefit of certificate holders. Once funds had been released, which could only happen after BNPP was satisfied that the Promissory Note had been duly executed, the only people who would have an interest in the Promissory Note were certificate holders (which might, and in fact did, include BNPP itself). In this respect there is no difference between immediate purchasers of certificates and those who purchased subsequently in a secondary market after issue.

BNPP pointed out that there may have been communications or instructions between BNPP and its client Saad of which investors would not be aware and that the interests of Saad, for whom BNPP was acting, might run counter to the interests of investors. For example, it would be in Saad’s interests to obtain the funds on the least onerous terms, while it might be in investors’ interests to have the benefit of more onerous or restrictive conditions. A duty should not be imposed, therefore, which might put an arranging bank in a position where conflicting duties were owed to its client and to prospective investors. I would accept that this may be a good reason not to impose any wider duty of care on BNPP relating generally to the arrangement of the Sukuk. However, as investors would appreciate, once it had been determined that a Promissory Note would form part of the Sukuk structure, Saad could never give an instruction (or if it did, BNPP could never accept it) conflicting with the need for proper execution of the Promissory Note. Focusing on the specific duty for which the claimants contend, therefore, there was no possibility that instructions given by Saad of which investors were not aware could affect the position.

Prospective investors were required to make their decision whether to purchase certificates on the basis of the Offering Circular. That was its purpose – as the Important Notice put it, “to provide information to assist potential investors in deciding whether or not to subscribe for or purchase” certificates. Indeed the Notice expressly told prospective investors (subject of course to the disclaimer by BNPP) that they should rely “only” on the information contained in the Circular.

What prospective investors were told in the Circular, among other things, was that certificate holders would obtain the benefit of the Promissory Note as protection against the risk of a default by Saad. The Circular made it very clear that there was no guarantee of recovery and that certificate holders would have to accept a whole range of risks, but there was no hint that certificate holders were expected to take the risk that the Promissory Note might turn out to be invalid because care had not been taken to ensure that it was properly executed. Nor was this within the scope of the disclaimer. This was an entirely different kind of risk from those about which certificate holders were warned in the Circular.

Moreover, prospective investors had no means of checking whether the Promissory Note had been properly executed. It would have been contrary to standard market practice for them to ask to see it before deciding whether to invest, but even if they had done so they would have been none the wiser.

In contrast, it would have been possible for prospective investors to undertake their own inquiries as to many of the risks described in the Offering Circular. For example, they could have investigated for themselves the standing and assets of Saad and confirmed that Saad was indeed rated by the ratings agencies as the Circular indicated; they could have formed their own view about the likelihood of a secondary market in Sukuk certificates developing; and they could have taken advice about Saudi law and procedure, in order to understand what would be involved in obtaining and enforcing any judgment if that proved to be necessary. But they would have no way of knowing whether the Promissory Note had been properly executed. They had no choice but to take on trust from the Offering Circular that, on purchasing certificates, they would obtain the benefit of a validly executed Promissory Note.

Mr Lupprian confirmed this, accepting that investors do not in practice check whether documents have been properly executed and that there is no practical way in which they could do so.

As the claimants’ witnesses agreed, and as BNPP insisted, the Offering Circular was issued by Saad and Golden Belt, who expressly took responsibility for its contents. It was Saad and Golden Belt, therefore, who were describing the various risks which investors would have to accept. However, responsibility for the contents of the Circular should not be conflated with responsibility for ensuring proper execution of the Transaction Documents. It is one thing to say that an arranging bank accepts no responsibility for what it is told by its client. It is quite another to say that an arranging bank accepts no responsibility for the proper performance of its own functions.

It was BNPP which ensured that it was prominently described as the “Arranger and Sole Bookrunner” and as one of three “Joint Lead Managers”. This was important to BNPP. It wanted “maximum visibility” (see [71] above) for its role, that is to say it wanted the market as a whole, including prospective investors, to understand the prominent role which it had played in bringing the Sukuk to market. It was, as Mr Khandelwal put it in an internal email, “desperate” to establish its credentials in the world of Islamic financing by bringing to market a successful Sukuk and being seen to do so.

BNPP contended that there were no communications or dealings which “crossed the line” between itself and prospective investors. Although the existence of such communications or dealings will be a relevant factor, it is not in all circumstances a requirement that there should be communications “crossing the line”. White v Jones [1995] 2 AC 207, the “disappointed beneficiary” case, is an example of a duty of care where there were no such communications, albeit an unusual example on very different facts which was heavily influenced by policy considerations.

However, the Offering Circular was itself such a communication. It was issued by Saad and Golden Belt, but this was with the approval and active involvement of BNPP which (as any prospective investor would understand and as BNPP wanted investors to understand) had been responsible for preparing and drafting the Circular. It was provided to prospective subscribers at the time of issue and was made available on Bloomberg to prospective subsequent purchasers of certificates in the secondary market which it was anticipated and intended (albeit without guarantee) would develop.

As the functions of an Arranger invariably include responsibility for arranging the execution of the Transaction Documents, BNPP was effectively telling prospective investors that it would arrange (or had arranged) the execution of the Promissory Note (see [66] and [67] above). BNPP knew that prospective investors would understand this and that they would take it for granted that BNPP had taken steps to ensure that the Note had been properly executed. As Mr Foster accepted (see [64] above), this was “a given”.

Prospective investors would also expect that BNPP had itself underwritten part of the issue (although they would not know how much) and that it was encouraging its own clients to invest. Mr Lupprian confirmed both of these points, accepting that investors would know that by encouraging its clients to invest BNPP was “putting its name and reputation behind the Sukuk”. They would know, therefore, that BNPP had its own interests, both financial and reputational, in ensuring that the Transaction Documents including the Promissory Note had been properly executed. They would know that it was important to BNPP that the Sukuk was successful, which would mean (among other things) that a secondary market in certificates would develop. Investors would not be relying on BNPP to do anything extra in addition to what it could be expected to do for itself and its client in any event. As Mr Foster said, “Well, we were going to be one of the investors so we would want it to work for us”.

Moreover, there was nobody else on whom prospective investors could rely. As Mr Lupprian confirmed, a newly incorporated special purpose vehicle such as Golden Belt would not be expected to (and did not in fact) play any part in ensuring the proper execution of the Promissory Note. Nor would it be sensible for investors to rely on Saad on this particular point when the purpose of the Note was to give certificate holders a claim against Saad.

All these considerations mean, not only that investors would rely on BNPP to ensure that the Promissory Note was properly executed, but that it was reasonable for them to do so. That was how the transaction and the market worked.

All of the factors considered so far were or should have been known to BNPP. To a large extent this is apparent from contemporary documents and from Mr Foster’s evidence but, in any event, it was obvious.

This is an important factor. As Clerk & Lindsell points out (21^st Edition, paragraph 8-109), the case for imposing a duty is strongest where the defendant knows that his service is likely to impact directly upon the claimant without there being any independent check on the quality of that service. It corresponds to the “salient feature” highlighted by Lord Bridge in Caparo [1990] 2 AC 605, 630H (see [152] above).

As BNPP points out, citing Lord Oliver in Caparo [1990] 2 AC 605, 651F-G, the question whether a duty is owed cannot be considered in the abstract:

“It has to be borne in mind that the duty of care is inseparable from the damage which the plaintiff claims to have suffered from its breach. It is not a duty to take care in the abstract but a duty to avoid causing to the particular plaintiff damage of the particular kind which he has in fact sustained.”

Lord Hoffmann made a similar point in Customs & Excise Commissioners v Barclays Bank Plc [2006] UKHL 28, [2007] 1 AC 181 at [35]:

“In these cases in which the loss has been caused by the claimant’s reliance on information provided by the defendant, it is critical to decide whether the defendant (rather than someone else) assumed responsibility for the accuracy of information to the claimant (rather than to someone else) or for its use by the claimant for one purpose (rather than another). The answer does not depend upon what the defendant intended but, as in the case of contractual liability, upon what would reasonably be inferred from his conduct against the background of all the circumstances of the case. The purpose of the inquiry is to establish whether there was, in relation to the loss in question, the necessary relationship (or ‘proximity’) between the parties and, as Lord Goff of Chieveley pointed out in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145,181, the existence of that relationship and the foreseeability of economic loss will make it unnecessary to undertake any further inquiry into whether it would be fair, just and reasonable to impose liability. In truth, the case is one in which, but for the alleged absence of the necessary relationship, there would be no dispute that a duty to take care existed and the relationship is what makes it fair, just and reasonable to impose a duty.”

In my judgment the position of certificate holders on the one hand and Golden Belt on the other is materially different. All of the factors discussed so far are concerned with the loss liable to be suffered by certificate holders in the event that, following a default by Saad, the Promissory Note turned out to be worthless because it had not been properly executed. In that event it was certificate holders who would suffer any loss. It was certificate holders who in fact depended on BNPP to ensure proper execution and for whose benefit, for practical purposes, the Note was produced. In contrast Golden Belt was merely a special purpose vehicle (a “shell”, “conduit” or “brass plate”) with no economic interest of its own in the validity of the Promissory Note.

I consider, therefore, that any duty must be owed to certificate holders and not to Golden Belt. To permit the existence of concurrent duties would lead to difficulties in circumstances where the measure of damages would be different. It would lead also to at least one significant anomaly, that is to say that to permit a claim by Golden Belt for the benefit of all certificate holders would mean that any certificate holders who had not in fact relied on BNPP would nevertheless achieve a full recovery.

In these circumstances I conclude that BNPP did owe a duty to take reasonable care to ensure that the Promissory Note was properly executed. The duty was owed to certificate holders, but not to Golden Belt.

Applying an objective test, BNPP assumed responsibility to certificate holders to exercise reasonable care.

Applying the three stage test, it was foreseeable that if reasonable care was not exercised, certificate holders would suffer loss because the package of rights which they acquired would be intrinsically flawed; the relationship between BNPP and certificate holders was sufficiently proximate; and it would be fair, just and reasonable that BNPP as the arranging bank should owe such a duty. In this last connection, no good reason was suggested why as a matter of policy an arranging bank should not owe such a duty. It seems to me that there are powerful reasons why it should. To impose such a duty would not require banks to do anything which they would not do in any event. It would not in any way undermine the contractual structure which existed and is consistent with the Offering Circular, including the disclaimer in the Important Notice. It would strengthen investor confidence in the integrity of capital market instruments. I would accept that it is open to an arranging bank to include an express disclaimer negativing any responsibility to ensure that an important document for the protection of investors is properly executed. However, a bank which wishes to disclaim such responsibility and thereby to cast upon investors the risk that they are purchasing worthless documents ought to do so in clear terms, accepting the consequences for the success or otherwise of the issue that such a disclaimer might involve. A bank can protect itself against liability, not only by exercising such care as is reasonable in the circumstances, but also by negotiating with its client a fee which takes account of the risk which it is accepting. An investor, on the other hand, has no such protection, as already discussed. It must either rely upon the arranging bank to have taken care to ensure that the relevant document is properly executed or must shun the issue, to the disadvantage of the arranging bank and its client.

Finally, I reject the suggestion that the imposition of a duty of care would be contrary to the incremental test. Citing IFE Fund SA v Goldman Sachs International [2007] EWCA Civ 811, [2007] 2 CLC 134, BNPP submits that there has been no case in this jurisdiction holding that a duty of care is owed to investors by a bank which has assisted a borrower to arrange a publicly listed bond issue, and that to impose such a duty would be a novel extension of the law. I do not agree. It is not the law that an arranging bank can never owe a duty to investors, convenient for banks as such a law might be. The duty which I have found to exist is limited and specific. It is very different from the duty contended for in IFE Fund SA v Goldman Sachs International. The conclusion that such a duty exists is reached by the application of established principles to the novel facts of the Sukuk, including importantly the Promissory Note, in this case.

BNPP submits, citing the well-known words of Cardozo CJ in Ultramares Corporation v Touche (1931) 174 N.E. 441, 444 that a duty should not be imposed if it results in “liability in an indeterminate amount for an indeterminate time to an indeterminate class”. It contends also that a point may come when it is no longer reasonable to rely on the defendant and, in this connection, that the Offering Circular was intended to enable investors to decide whether or not to purchase certificates at the time of issue and, at the most, for a short time afterwards.

I recognise the force of Cardozo CJ’s words, but consider that they have little or no application here. The potential liability of BNPP is large, but that is a function of the size of the Sukuk. Liability is not, however, indeterminate, but is limited to the amounts paid by certificate holders together with any costs reasonably incurred by them in seeking to enforce their rights. The liability does not exist for an indeterminate time, but is limited by the life of the Sukuk, a period of five years. The class of potential claimants is likewise not indeterminate, but is limited to the number of certificate holders during the life of the Sukuk at any given time.

I would accept that much of the information in the Offering Circular, was likely to “be outdated relatively quickly” as the Circular warned. That would apply, for example, to information about Saad’s financial position, although that was a matter where there was in any event an explicit disclaimer of responsibility by BNPP. However, the information that investors purchasing certificates would obtain the benefit of the Promissory Note in the event of a default by Saad would not be outdated in any similar way. On the contrary, it was hoped and anticipated, albeit without guarantee, that a secondary market in certificates would exist throughout the life of the Sukuk.

At any time an investor interested in purchasing certificates would be expected to review the Offering Circular in order to ascertain what it was buying. That review would reveal that, among other things, it was buying the benefit of the Promissory Note. It would be just as important to an investor at a later stage as it had been at the beginning that the Promissory Note should be validly executed. Indeed, if anything it would be more important if circumstances had arisen to make a default by Saad more likely. Moreover, the later purchaser would be just as dependent on BNPP as the earlier purchaser in this respect, and (if it had thought about it) this would have been obvious to BNPP.

Moreover, for the reasons given at [97] to [99] and [107] to [110] above, the Funds did in fact rely (or depend) on BNPP to exercise reasonable care to ensure that the Promissory Note was properly executed. Clerk & Lindsell (21^st Edition) suggests at paragraph 8-113 that “reasonable dependence” may be a more appropriate concept than reliance, but whichever concept is applicable, in my judgment there was such reliance or dependence in the present case.

In my judgment, therefore, there is no principled reason to hold that a duty to certificate holders had expired by the time when the Funds purchased their certificates. At that stage, as is common ground, there remained no reason for investors to suppose that there was any reason to doubt the validity of the signature on the Promissory Note. I would accept that, depending on the circumstances, it may be hard for subsequent investors to demonstrate as a matter of causation that they relied or depended on BNPP to have exercised reasonable care to ensure that the Promissory Note was validly executed. For example, an investor who did not care whether the Promissory Note was validly executed, but placed all his faith in the prospect that the Saudi government would intervene to require Saad to reimburse certificate holders without regard to the validity of the Note, would struggle to establish the necessary reliance or dependence. But as I have found, that was not the position of the Funds.

For the reasons which I have explained, I conclude that BNPP owed a duty to the Funds, but not to Golden Belt, to take reasonable care to ensure that the Promissory Note was validly executed.

The claimants submit that, in making the arrangements for execution of the Promissory Note, BNPP “dropped the ball” – that is to say, it allowed Saad to take over the arrangements for execution in circumstances where there would be no independent check on whether the Note was properly signed on behalf of Saad. They say that (particularly in the light of recent money laundering allegations against Mr Al-Sanea) BNPP ought to have insisted, either on a formal signing ceremony attended by Mr Al-Sanea or whomever was going to sign on behalf of Saad, or on the Promissory Note being signed in the presence of representatives from BNPP or The Alliance.

BNPP on the other hand submits that it would have been unusual to insist on a signing ceremony, that it was entitled to trust Saad to sign the Promissory Note, and that it was entitled to rely on the advice of Norton Rose and The Alliance as to the procedure to be followed.

The standard of care which BNPP was required to exercise was that of a reasonably competent banker specialising in transactions of this nature. This standard was memorably described by Bingham LJ in Eckersley v Binnie [1995-1995] PNLR 348 at [17-34]:

“The law requires of the professional man that he live up in practice to the standard of the ordinary skilled man exercising and professing to have his special professional skill. He need not possess the highest expert skill; it is enough if he exercises the ordinary skill of an ordinary competent man exercising his particular art. So much is established by Bolam v Friern Hospital Management Committee [1957] 1 WLR 582, which has been applied and approved time without number. ‘No matter what profession it may be, the common law does not impose on those who practise it any liability for damage resulting from what in the result turn out to have been errors of judgment, unless the error was such as no reasonably well-informed and competent member of that profession could have made’. (Saif Ali v Sydney Mitchell & Co [1980] AC 198 at 220D, per Lord Diplock).

From these general statements it follows that a professional man should command the corpus of knowledge which forms part of the professional equipment of the ordinary member of his profession. He should not lag behind other ordinarily assiduous and intelligent members of his profession in knowledge of new advances, discoveries and developments in his field. He should have such awareness as an ordinarily competent practitioner would have of the deficiencies in his knowledge and the limitations on his skill. He should be alert to the hazards and risks inherent in any professional task he undertakes to the extent that other ordinarily competent members of the profession would be alert. He must bring to any professional task he undertakes no less expertise, skill and care than other ordinarily competent members of his profession would bring, but need bring no more. The standard is that of the reasonable average. The law does not require over a professional man that he be a paragon, combining the qualities of polymath and prophet.”

In order to determine whether, applying this standard, there was a breach of duty by BNPP it is necessary to consider several strands of the evidence. These concern (1) the relationship between BNPP and Saad, (2) press reports in which Mr Al-Sanea was alleged to be guilty of money laundering, (3) the arrangements made for execution of the Promissory Note, (4) the extent to which BNPP relied on Norton Rose to make the relevant arrangements, (5) the advice given by The Alliance, and (6) the instruction of Jamal Al Muzein, the law firm in Al Khobar which was to supply witnesses to Mr Al-Sanea’s signature. I take each of these in turn.

The Saad Group was well known in the Gulf Cooperative Council (“GCC”) region and had relationships with a large number of local, regional and international banks including BNPP. Its relationship with BNPP had extended over some 15 years. Mr Al-Sanea was known to a number of senior BNPP executives, including Mr Jean-Christophe Durand, the head of territory for the GCC region who had known him for several years, and Mr Chodron de Courcel, BNPP’s chief operating officer and deputy chief executive officer. At the operational level the relationship was overseen from early 2006 by Mr Khandelwal who paid regular visits to Saad’s office in Al-Khobar where his main contact was Mr Maan Al-Zayer, Saad’s chief financial officer.

BNPP regarded the Saad Group as an important and professionally managed client with which it had a strong relationship and with which it was very keen to do more business. Mr Chodron de Courcel had given instructions that business in the GCC area should be developed aggressively. Future business with the Saad Group was one element of this plan.

BNPP was first instructed in connection with the transaction which became the Sukuk in or about May 2006. At that time it was intended to raise capital of US $200 million by this means, with BNPP agreeing to underwrite US $62.5 million (although these sums were later increased). As the submission to its credit committee explained, BNPP saw this as a prestigious and profitable mandate which would enhance its reputation (“a show piece of our ability in handling complex transactions in the region. We indeed believe that this Sukuk will be a trendsetter and provide us the visibility and profile to get more such mandates”). It was envisaged in particular that the initial Sukuk for US $250 million (as it had become) would be a first step, to be followed by a second Sukuk for Saad for the same amount.

Once the instruction was received (although there were drafts in evidence, I was shown no signed mandate) it was BNPP’s specialist Islamic Banking Unit in Bahrain which undertook the initial work, with the Debt Capital Markets legal team in London led by Mr Foster becoming involved at a later stage. At this stage Bank Al Jazira was to be a joint lead arranger also underwriting US $62.5 million, with BNPP as the bookrunner structuring and arranging the transaction and marketing it to investors. At some point, however, Bank Al Jazira dropped out, with Arab Bank and Samba Bank taking on the role of joint lead managers and participating in the underwriting of the transaction.

It was at first hoped that the Sukuk would be launched in October 2006, but progress was much slower than expected. The date was pushed back to January and then to March 2007. This was a cause of frustration for Saad’s Mr Al-Zayer, who requested that BNPP should bridge the financing of the amount which it had agreed to underwrite by providing a loan to be repaid out of the proceeds of the Sukuk. BNPP agreed to do so.

In February 2007 Saad learned that it was to receive a credit rating from Standard & Poor’s of BBB+ and an equivalent rating from Moody’s. This was a very strong investment grade rating, stronger than had been expected, which made Saad’s debt more attractive to potential investors. It led to a dramatic increase in the amount of capital which Saad sought to raise. Almost immediately it proposed that the sum to be raised by the Sukuk should be doubled to US $500 million. By the beginning of March 2007 Saad was saying that it wanted to raise a total of US $2 billion in 2007 by a combination of Sukuk and other financing. Only a few days later the figure had increased to US $5 billion.

BNPP was anxious that Saad should not (as it was hinting) go to other banks to arrange this financing and agreed to assist it to raise this money, with the Sukuk as the first step. BNPP was (as Mr Khandelwal put it in an internal e-mail) “desperate” to establish its credentials in the world of Islamic financing by bringing to market a successful Sukuk and being seen to do so. The benefits from doing so would not only include the fees which it would earn from this transaction, but would put it in a good position to win similar business from other clients and to earn substantial fees from arranging the other ambitious financing which Saad intended to raise. BNPP estimated that revenue from Saad would amount to a total of US $10 million in 2007 alone. It was no doubt with these considerations in mind that BNPP’s senior management emphasised that it was “of paramount importance that we make that first Sukuk a success”.

In the event it was decided to proceed with the Sukuk in the increased amount of US $650 million. Marketing began on 3 May 2007 with 15 May as the target date for the provision of funds by investors. Although it would have been possible to postpone this date, it would have been difficult and embarrassing to do so. As Mr Khandelwal agreed, once the Sukuk was launched, BNPP’s credibility was “on the line”.

An additional factor which affected the relationship between BNPP and Saad at this time was that Mr Al-Sanea had recently purchased a substantial shareholding in HSBC and was building a similar stake in BNPP, targeting a holding of 3% of BNPP’s shares. Mr Durand wrote to welcome him as a shareholder on 17 April 2007 and promised support in Mr Al-Sanea’s future endeavours (“You can count on BNP PARIBAS to continue accompanying you in your endeavours. The first step is a successful launch of the Sukuk”). This was a relationship which BNPP was extremely anxious not to jeopardise. It would have been most reluctant to upset or offend Mr Al-Sanea.

It was therefore unfortunate timing that on 1 May 2007 Mr Khandelwal and Mr Ozgur Erkovan (of the Debt Capital Markets team in Bahrain who was leading on commercial as distinct from legal aspects of the Sukuk) learned of press reports referring to allegations of money-laundering by Mr Al-Sanea and suggesting that he had been arrested. Mr Khandelwal regarded this as a very significant and important piece of news which needed to be addressed immediately, but he himself did nothing to investigate or report the allegations other than to pass them on to his superiors in Bahrain, Mr Jean-Christophe Durand and Mr Jacques Tripon, expressing the hope that the news would not impact the closing of the Sukuk. Somewhat surprisingly, Mr Foster who was leading the legal aspects of the transaction in London was not told about it.

Neither Mr Erkovan nor Mr Durand gave evidence. Mr Khandelwal’s evidence was that it was immediately established that the news was false, that the allegation was withdrawn and that the website on which it had been reported had apologised. However, it appears that each element of this evidence was something of an exaggeration.

In fact it appears that there was a telephone conversation between Mr Al-Sanea and Mr Durand in which Mr Al-Sanea denied the money laundering allegation and said that he would write to BNPP and place a press advertisement to set the record straight. This was followed on 2 May 2007 by a letter from Mr Al-Sanea to Mr Durand describing the allegations as outrageous and untrue personal attacks. Mr Al-Sanea said that he had reported the matter to prosecutors in affected jurisdictions and that the Kuwaiti website which had published the allegations was issuing an apology. In addition he forwarded press articles showing that on the day when he was supposed to have been under arrest he was in fact attending a well-publicised business meeting in Al-Khobar. The articles appear to have been published in newspapers friendly to Mr Al-Sanea and were probably what he had referred to as setting the record straight.

Accordingly this was a denial of the allegation by the individual alleged to be guilty of the money laundering. It was not in any sense independent evidence, save that it did appear from the articles provided by Mr Al-Sanea that he was not under arrest. It appears that neither Mr Durand nor anyone else at BNPP ever saw or sought any independent evidence of any report to prosecutors or apology by the website in question. If such report or apology ever happened, there is no evidence about it. Instead BNPP accepted without question what Mr Al-Sanea had asserted. Indeed Mr Durand wrote immediately to Mr Al-Sanea to reassure him that BNPP was “aware that these personal attacks were untrue in any aspects and you can count on BNP Paribas’ support as ever”. He went on to express the hope that the perpetrators of the allegations would be prosecuted and punished and looked forward to a meeting between Mr Al-Sanea and Mr Chodron de Courcel. In addition Mr Durand told others within BNPP that the website had been closed down, an apology had been issued, and that the matter was in the hands of the prosecution authorities in Saudi Arabia and Kuwait. So far as the evidence goes, he had no basis for saying any of these things.

Nobody in the Sukuk deal team reported the money laundering allegations to BNPP’s compliance department or to its Money Laundering Reporting Officer. On the contrary, Mr Tripon who was Mr Khandelwal’s immediate superior in Bahrain noted that the compliance department had not raised the allegations with the deal team.

There is in these circumstances some force in the claimants’ criticism that BNPP did not respond adequately to the report of these allegations. Nevertheless it is necessary to bear in mind that it is not the claimants’ case that BNPP ought to have refused to proceed with the Sukuk as a result of the money laundering allegations. They were after all no more than unproven allegations on a website in Kuwait, which had been picked up in some local press reports. The claimants’ case is that these allegations constituted one aspect of the circumstances which ought to have caused BNPP to be particularly cautious about the arrangements for signature of the Promissory Note and that BNPP’s response to the allegations, in particular the way it rushed to accept Mr Al-Sanea’s protestation of his innocence and to reassure him of its support, illustrates that it was not prepared to stand up to Mr Al-Sanea because to do so would jeopardise a very lucrative relationship.

While I accept that there is some force in this point, at any rate so far as the commercial members of the BNPP team were concerned, ultimately this point goes nowhere. Mr Al-Sanea was after all a long standing and respectable client and unfounded attacks on prominent businessmen in non-mainstream media were not unknown. It is not pleaded that BNPP should have refused to proceed. Moreover, as I have indicated, Mr Foster was not aware of the money laundering allegations or of BNPP’s response to them. It follows that his approach to the arrangements for signature of the Promissory Note was not affected by them in any way.

Arrangements for the signature of the Transaction Documents including the Promissory Note were coordinated by Mr Foster and Mr Erkovan for BNPP with the assistance of Lisa Suttie, an associate at Norton Rose. Discussion of the proposed arrangements began in early May 2007. It was recognised that the necessary formalities in all relevant jurisdictions, which for the Promissory Note meant Saudi Arabia, would have to be complied with. One question was whether signature by fax would be acceptable. The Alliance advised that it would not and that signature on an original document was necessary.

Initially the plan was that Saad’s in-house lawyer Michael Alexander (a United States attorney) would come to Dubai on 8 or 9 May 2007 to collect execution versions of the documents, including the Promissory Note, which Saad would need to sign. Although Ms Suttie referred in an email dated 7 May 2007 to a signing ceremony (i.e. a ceremony at which all parties would be present to sign the Transaction Documents) as the “ideal option”, she went on to say that for logistical and timing reasons, this might not be possible.

Later on the same day Ms Suttie asked Mr Adli Hammad of The Alliance to confirm that either of two courses would be acceptable and valid from a Saudi law perspective. The first was for the original documents to be given to Saad, who would sign and courier the documents to BNPP to sign and hold in escrow. The second was for the documents to be sent to Saad by email, so that Saad could print them out for signature, email copies of the signed documents back to BNPP and Norton Rose and courier the signed originals to BNPP. Mr Hammad advised that the first course should be followed, this being the common procedure according to Saudi law. He added that “the witness on the Promissory Notes should be a Saudi citizen and unrelated to Saad or the Chairman of Saad”. In response to a request for clarification, Mr Hammad confirmed that the second course was also viable provided that original documents were signed by all parties and not just the emailed versions.

As already noted (see [129] above), it was not a formal requirement of Article 87 of the Saudi Law of Negotiable Instruments that the Promissory Note should be witnessed, although the draft which had been prepared contained spaces for witnesses to sign. It may be, I suppose, that Mr Hammad was mistaken in thinking that the signature on the Promissory Note needed to be witnessed in order to be valid. However, I doubt this. Although he did not spell it out, it is much more likely that the point which Mr Hammad was making was that it would be prudent for the signature to be witnessed and for the witnesses to be independent of Saad and Mr Al-Sanea. No doubt he had in mind the requirements of sura 2, verse 282 of the Qu’ran (“the debt instruments verse”) setting out what should be done when a debt instrument needs to be witnessed:

“And bring to witness two witnesses from among your men. And if there are not two men, then a man and two women from those whom you accept as witnesses – so that if one of the women errs, then the other can remind. And let not the witnesses refuse when they are called upon.”

By the following day, 8 May 2007, the plan had changed. An email exchange between Mr Foster in London and Mr Erkovan in Bahrain indicates that what was now envisaged was for the documents to be executed at a signing ceremony in BNPP’s office in Bahrain attended by all parties. However, the plan quickly changed again, reverting to collection by Saad of execution versions of the documents on the following day. Explaining this in an email sent to Mr Hammad at 18:04 hours on 8 May 2007, which was copied to Mr Foster and Mr Erkovan among others, Ms Suttie added the following request:

“…In addition, in relation to the execution of the Promissory Note … BNP Paribas have requested that two individuals from The Alliance act as the witnesses to the execution of these documents by Saad. We understand that the witnesses need to be Saudi citizens and independent, and it would be advantageous if a member of your firm could act in this capacity in order to ensure that the execution is valid. Please confirm that this is viable.”

This request must have been made (and I find that it was) by Mr Foster on the telephone.

On 9 May 2007 Mr Hammad responded to BNPP’s request in an email to Ms Suttie which was copied to Mr Foster:

“As a general rule under Saudi law, the witnesses should only be adult male Muslims over 21 old. However from our experience it is mostly advisable to have Saudi witnesses to make sure the witnesses are available in Saudi Arabia to give their testimony in case of dispute. The Promissory Notes could be held outside of Saudi Arabia.

As for having two lawyers from the Alliance to be the witness we will come back to you today.”

Mr Foster replied:

“Thank you – it would be most advantageous for us if you could supply known witnesses who are independent – we would appreciate it greatly.”

This was an important exchange. Clearly Mr Foster had recognised the need for the witnesses to the Promissory Note to be both known and independent. The reason for this was obvious. It was as stated by Mr Hammad, namely so that BNPP could be confident that the witnesses would be available to give evidence in Saudi Arabia in the event of any later dispute. Witnesses who were unknown to BNPP would not satisfy that requirement. Nor would witnesses who were not independent of Saad and therefore could not be relied upon to give evidence against Saad if needed to do so.

It is not clear whether The Alliance ever responded further to BNPP’s request that the witnesses should be lawyers from that firm. Although Mr Foster thought that he recalled a conversation about this, his detailed recollection of events from this time was understandably limited and I am unable to find that there was such a conversation. In any event, there is no evidence which I accept that there was such a response. It is more likely that the request was not pursued further but was simply dropped. The arrangements actually made were not made by The Alliance.

At this stage it was still planned that there would be a signing ceremony of some kind in Bahrain. However that plan was finally abandoned later on 9 May following a telephone call between Mr Erkovan and Mr Al-Abbas of Saad. Mr Al-Abbas told Mr Erkovan that Mr Al-Sanea wanted to sign the documents on behalf of Saad but would not now be able to come to Bahrain to do so; consequently an alternative arrangement would need to be made which did not require a physical signing ceremony. BNPP accepted this change of plan without question.

The claimants suggest that the Promissory Note did not need to be signed by Mr Al-Sanea, and that it could have been signed by any authorised signatory of Saad. While this is correct from a strictly theoretical point of view, there were other documents which Mr Al-Sanea did need to sign (e.g. the Head-Lease Agreement to which he personally was a party) and it made sense for the protection of investors that he should personally sign other documents such as the Promissory Note, to demonstrate his personal commitment to the transaction. In practice, therefore, given the information that Mr Al-Sanea was not available to come to Bahrain, BNPP was faced with a choice between insisting that he do so regardless of his other business or social commitments or making a suitable arrangement which would enable him to sign the documents in Al-Khobar. In the circumstances I do not consider that BNPP can validly be criticised for failing to insist that Mr Al-Sanea come to Bahrain for a signing ceremony. The evidence was that such signing ceremonies were relatively rare.

However, if there was to be no signing ceremony in Bahrain, BNPP needed to ensure that appropriate arrangements were made for signature in Al-Khobar. The real question is whether it negligently failed to do so.

Although the position is not entirely clear, it is probable that Mr Erkovan agreed with Mr Al-Abbas in this conversation that Saad would provide witnesses to Mr Al-Sanea’s signature on the Promissory Note. Mr Erkovan subsequently sent an email in which he told Mr Al-Abbas that the witnesses should not be “related to” Saad Trading or Mr Al-Sanea but left Mr Al-Abbas to select the individuals who would act as witnesses. If the arrangement had been that The Alliance was going to arrange the supply of the witnesses, this instruction would not have been necessary. Hence my finding above that the request to The Alliance was dropped.

There were also conversations on 9 May 2007 between Mr Erkovan and Mr Foster, with Ms Suttie also involved. There is no record of these conversations and Mr Foster could not remember what was said. It is probable that the new arrangement described above was discussed, with no objection by anyone being raised. If there had been an objection, there would no doubt be some reference to it in the contemporary documents.

Following the call Ms Suttie emailed Mr Hammad at The Alliance, copied to (among others) Mr Foster and Mr Erkovan at BNPP and Mr Al-Abbas at Saad, attaching the final form of the Promissory Note. She continued:

“… the Place of Issue should (unless you advise otherwise) be Al Khobar (being the location of Saad's offices). The documents should be left undated and we can arrange for dating when all the other documentation is signed.

As regards witnessing (for the promissory notes and all other relevant documentation), please be advised that we have arranged for a law firm in Al Khobar (that knows Saad) to provide 2 witnesses. Please confirm that this will be acceptable. …”

A further email from Ms Suttie elaborated on the arrangements:

“Michael Alexander (Saad’s counsel) has today taken execution versions of all documentation required to be signed by Saad and Mr Maan Al-Sanea to KSA. Michael will arrange for these documents to be executed by Saad and Mr Al-Sanea. … The Promissory Note … will be completed by The Alliance (following receipt of all necessary information on Friday regarding pricing) and will be forwarded to Saad (Hussien, Maan and Michael) by email. Witnessing of the documentation will be undertaken by two representatives from Jamal A. Al-Muzein (lawyers in Al Khobar) (being Saudi citizens and adult Muslim males over 21 years old).

Saad will arrange for a representative to travel with the signed copies to Bahrain on Monday 14 May.”

Although Ms Suttie said in the first of these two emails that “we” have arranged for a law firm in Al-Khobar to provide two witnesses, I do not accept that it was Norton Rose who made these arrangements. Ms Suttie’s email meant no more than that this is what had been arranged and it would have been understood in this way, at any rate by Mr Erkovan and in all probability by Mr Foster also. Nor had these arrangements been made by The Alliance, which was only told the name of the law firm in the second of these emails. If The Alliance had been involved in the making of these arrangements, it would not have needed to be told the name of the Jamal A. Al-Muzein law firm.

The strong probability is (and I find) that it was Saad which had undertaken to make these arrangements, including giving the name of the law firm concerned. The firm, Jamal Al-Muzein, was not known to BNPP, which knew only that it was a firm which “knew” Saad. BNPP did not know whether Saad was a client or a significant client of the firm. There is no evidence of any contact between any of BNPP, Norton Rose or The Alliance and Jamal Al-Muzein. I find that no such contact occurred. BNPP did not at any stage ask Norton Rose for more information about the arrangements than was contained in these emails, or even whether Norton Rose knew the Jamal Al-Muzein firm. It simply left Saad to make the arrangements.

On the following day, 10 May 2007, Mr Hammad responded to Ms Suttie’s email. His response was copied to (among others) Mr Foster and Mr Erkovan:

“… It is acceptable to have Saudi witnesses from a law firm in Al Khobar who can identify Mr Al Sanea.”

It is important to be clear about what Ms Suttie was asking when she asked for confirmation that the arrangement which she described was “acceptable” and what Mr Hammad was saying when he confirmed that it was. In my judgment he was saying no more, and would not reasonably have been understood as saying any more, than that the signature of Mr Al-Sanea, witnessed by two representatives of the Jamal Al-Muzein firm who could identify Mr Al-Sanea, was acceptable as a matter of Saudi law. He was not expressing any view about whether this was a prudent arrangement. It was apparent from earlier emails that BNPP had already taken on board his advice that the witnesses should not only be adult male Muslim witnesses who were Saudi nationals (the legal requirement for witnesses) but should be both known and independent so as to be available to give evidence in case of need (the prudent requirement). There was, therefore, no need for him to repeat this advice.

Thereafter the execution of the documents proceeded in accordance with these arrangements.

Scanned copies of the documents executed by Mr Al-Sanea were received by Norton Rose on 14 May 2007 and the funds were released on the following day.

BNPP did not consider at any stage whether to send its own representatives, or representatives from Norton Rose, to Al-Khobar to ensure that the Promissory Note was properly executed by Mr Al-Sanea. It did not occur to it to do so. It had at an earlier stage requested that representatives from The Alliance should be present, but this request was not pursued once Saad said that it would provide the witnesses from a local law firm. BNPP simply accepted this without requesting any information about the identity or contact details of the witnesses.

In fact it is doubtful whether one of the witnesses was even a lawyer. Mohamed Abdulaziz Al Youssef, with civil registration number 11010333399, appears to have been the owner of a small general contracting business in Al-Khobar. The other witness, Wael Mohamed Sulaiman, with civil registration number 1003331426, does appear to have been a lawyer from Jamal Al-Muzein. He appears to be the same person as Wael Mohamed al-Mabid, with civil registration number 103331426, who acted for Saad in the defence of the claim by BNPP in case no. 1492/1431 in which Saad denied the validity of the printed laser signature of Mr Al-Sanea (see [131] above).

As already mentioned, Mr Foster would not have chosen to instruct Norton Rose, a firm with which he had not previously worked. However, by the time that he became involved, Norton Rose had been instructed by BNPP in Bahrain.

From the beginning of his involvement in October 2006 Mr Foster, whose experience of the legal aspects of Eurobond issues was extensive, was unimpressed with the service provided by Norton Rose. He was disappointed with what he saw as the lack of partner involvement in the transaction and regarded the associate as out of her depth. He regarded the initial draft of the Offering Circular produced by Norton Rose as containing elementary mistakes and thought that other documents produced by them, as well as the way they responded to questions, demonstrated a lack of experience of both capital markets transactions in general and the structuring of Islamic finance transactions so as to ensure compliance with Sharia law in particular. Some of the points which caused Mr Foster concern were the result of what might be regarded as shoddy drafting, but others were fundamental to the viability of the whole transaction. A series of scathing comments to colleagues in internal emails reveals his frustration with and lack of confidence in Norton Rose, or at any rate the team which was working on the Sukuk transaction. This view persisted throughout the preparation of the Sukuk. In a report to a BNPP lawyer in early May 2007, Mr Foster described Norton Rose as “purported” specialists and said that “basically their international securities experience/depth is not good enough to make them reliable or efficient … Too much left to inexperienced assistants”. It appears that Mr Erkovan had a similar view, commenting that he would not think about working with Norton Rose again.

It is unnecessary to determine whether or to what extent Mr Foster’s criticisms of Norton Rose were justified. This is not a negligence claim against Norton Rose and there is no suggestion in this action that the Sukuk as eventually issued was defective in any respect save for the existence of a laser printed signature on the Promissory Note. Moreover, it is only fair to mention that Norton Rose remains one of BNPP’s panel firms and that it continues to be instructed by BNPP’s Islamic Banking Unit in Bahrain. The only relevance of these criticisms is to the extent that they bear on whether or to what extent BNPP relied on Norton Rose in connection with the execution of the Promissory Note and whether it was reasonable to do so.

In the end I do not think that the question whether it was reasonable for BNPP to rely on Norton Rose’s advice matters. The fact is that in deciding to accept Saad’s proposal that the Promissory Note should be executed in Al-Khobar in the presence of witnesses from the Jamal Al-Muzein firm, BNPP did not rely on Norton Rose’s advice. Indeed, it was BNPP’s case in closing that “the relevant advice in relation to execution was provided by The Alliance” rather by Norton Rose.

However, as described above, the advice sought from and provided by The Alliance was limited. It consisted of (a) legal advice that the Promissory Note needed to be signed on behalf of Saad, such signature being on an original document and, at least by necessary implication, handwritten, (b) advice that the signature should be witnessed by two adult males who were Muslims and Saudi citizens independent of Saad and of Mr Al-Sanea, but able to identify him, who would be available to give evidence in the event of any dispute, and (c) confirmation that witnesses from the Jamal Al-Muzein law firm would satisfy the legal requirements for witnesses under Saudi law.

It is apparent that The Alliance did not advise or purport to advise that the witnesses from the Jamal Al-Muzein firm were known or independent witnesses or (more generally) that they would be suitable witnesses to Mr Al-Sanea’s signature. On the contrary, in circumstances where BNPP clearly understood (or appeared to understand) that the witnesses needed to be known and independent, and where The Alliance was told that arrangements had been made for the attendance of witnesses from a law firm in Al-Khobar who knew Saad, The Alliance was not invited to and did not express any view about the suitability of this arrangement. Nor could BNPP have thought that it was doing so.

Accordingly I do not accept that BNPP relied on the advice of Norton Rose or The Alliance as to the procedure to be followed.

As already indicated, there was no contact between BNPP (or anyone on behalf of BNPP) and Jamal Al-Muzein. BNPP left Saad to select the individuals who would witness Mr Al-Sanea’s signature and to give them whatever instructions (if any) they were given. It did not ask for any information about the identity or contact details of the witnesses. It knew nothing whatever about who they were or whether they would be available to give evidence in the event of any future dispute.

Drawing the threads together, and despite my view of Mr Foster as an intelligent and experienced capital markets lawyer, I conclude that on this occasion BNPP did indeed “drop the ball” in failing to live up to the standard of the ordinary skilled banker engaged in a transaction of this nature.

First, it is necessary to bear in mind the function of the Promissory Note in the Sukuk transaction. It was an important protection for certificate holders which would be needed, and would only be needed, in the event of a default by Saad in which it was to be expected that Saad would take whatever points it could, whether or not well founded, to avoid liability.

Second, BNPP had been warned about this. For example, it was advised by Norton Rose in December 2006 that “issues of enforcement regularly arise in respect of transactions involving Saudi Arabia”. Moreover, on 2 May 2007 Mr Saqib Awan of The Alliance advised that the Promissory Note should be in Arabic and not in other languages because of the “sensitive nature of the document where a slight discrepancy may jeopardise the entire note”. While this advice was directed to the specific issue of the language of the Note, the point made, that a slight discrepancy could jeopardise the entire Note, was of general application. It made clear that no chances should be taken.

Third, it was the evidence of Mr Lupprian that as a practical matter it was obvious that BNPP would need to know who the witnesses were and to be confident that they would be available to give evidence if it were ever necessary to enforce the Promissory Note in a Saudi Arabian court. This was important evidence. Not only was it obvious that BNPP needed to have this information so that it could be confident of the witnesses’ availability. BNPP had itself registered this point, as is apparent from Mr Foster’s email to The Alliance of 9 May 2007 requesting The Alliance to supply “known witnesses who are independent” (see [236] above).

Despite this, BNPP allowed Saad to provide witnesses who were neither known nor independent and who, in the event, were content to attest to Mr Al Sanea’s signature when, as is now known, he had not in fact signed the Promissory Note. It is overwhelmingly likely that if the witnesses had indeed been known to BNPP or The Alliance and independent of Saad, or if BNPP had sent its own representatives to ensure that execution took place properly, Mr Al-Sanea would have signed the Promissory Note with a handwritten signature. Although Saad was an important client whom BNPP would not wish to offend, the Sukuk was after all a major step for Saad in its fundraising programme and it was important for Mr Al-Sanea that it should go ahead. In view of the importance of the Promissory Note in the Sukuk structure, I do not accept that it would have been embarrassing or impractical for BNPP to have insisted that Mr Al-Sanea’s signature should be witnessed by representatives of The Alliance or alternatively the presence of its own representatives. In all the circumstances this was a necessary and entirely practical precaution which needed to be taken and BNPP was negligent for failing to take it.

BNPP submits, citing Lord Steyn in Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830, that proof of reliance by the claimants is essential in order for causation to be established. So far as the Funds are concerned, it submits that there was here no such reliance because the validity of the Promissory Note and its enforceability by proceedings in Saudi Arabia formed no part of the Funds’ investment thesis and because the role of BNPP in the transaction back in 2007 was a factor of marginal significance to them. For the reasons already given, I reject this submission on the facts. I do not accept that it is necessary to show that the Funds relied on the existence of a duty of care owed to them by BNPP. I accept the claimants’ submission that this is not how people think. Thus the Funds relied (or depended) on the validity of the Promissory Note and on BNPP to exercise reasonable care to ensure that the Promissory Note was properly executed, even though they did not give any thought to the question whether BNPP was assuming any legal responsibility to them.

I conclude, therefore, that BNPP’s negligence, as I have found it to be, caused the Funds to suffer a loss. How that loss is to be measured is a separate question considered below.

Again the position of Golden Belt is different. Golden Belt was never going to suffer a net loss if the Promissory Note was invalid. It would either have a claim on the Promissory Note for the benefit of certificate holders if the Note was valid or it would have no claim on the Promissory Note and (because of the Limited Recourse nature of the certificates) no liability to certificate holders if it was not. It has suffered no loss as a result of the invalidity of the Note. Golden Belt did not rely or depend on BNPP to ensure that the Promissory Note was properly executed. It did not do so in fact as its directors did not and had no reason to apply their minds to this question. Nor is there any reason why it should be treated as having done so in law.

The Funds’ case is that they purchased certificates on the basis that the underlying Transaction Documents, including the Promissory Note, were valid and would not have done so if they had known that the Promissory Note was invalid. They say that their loss is to be measured by reference to the value of the certificates at the date(s) when they were purchased and consists of the difference between the value of their certificates (1) with the benefit of a valid Promissory Note and (2) if the invalidity of the Promissory Note had been known in the market. In addition they claim their share of the costs incurred seeking to enforce a claim against Saad. They say that the best evidence of the value of their certificates with the benefit of a valid Promissory Note is what they in fact paid for their certificates and that, if the invalidity of the Promissory Note had been known in the market, the certificates would have been almost worthless. In the course of final submissions, however, Mr Tozzi accepted that the Funds would need to give credit against any recovery in accordance with this measure for any sum which may in future be received pursuant to the Sub-Lease Agreement, for example in the Al-Khobar proceedings (or, if the prospect of recovery has not been exhausted, an assessment of that prospect would have to be made at the date when the court quantifies the Funds’ damages).

BNPP submits in contrast that any loss suffered by the Funds is to be measured by reference to the value of the certificates at the date of trial and consists of the difference between (1) the recovery, if any, which the Funds would have made if the Promissory Note had been valid and (2) the recovery, if any, which they will in fact achieve. It submits that on this measure the Funds’ recovery will be zero, for one or other of two reasons. The first is that the Funds would never have recovered anything even if the Promissory Note had been valid, the true reason for their loss being Saad’s insolvency. The second is that, regardless of the validity of a claim under the Promissory Note, the Funds have an equally valid claim (to be brought for their benefit by Golden Belt) for recovery of the Termination Sum under the Sub-Lease Agreement. Whether those submissions are valid is outside the scope of the present trial. This trial is concerned with the measure of loss as a matter of principle.

The applicable legal principles were summarised by Hamblen J in Cassa di Risparmio della Repubblica di San Marino SpA v Barclays Bank Ltd [2011] EWHC 484 (Comm), [2011] 1 CLC 701 at [547] to [554]:

“547.

The basic object of an award of damages in tort is to put the injured party in the same financial position as he would have been in if he had not sustained the wrong for which he is being paid compensation: Livingstone v Rawyards Coal Co (1880) 5 App Cas 25, 39.

548.

The general rule in tort as in contract is that damages are assessed as at the date of breach: see e.g. Miliangos v George Frank (Textiles) Ltd [1976] AC 443, 468; Dodd Properties (Kent) Ltd v Canterbury City Council [1980] 1 WLR 433, 451; Future International Ltd v Sealand Housing Corpn [2002] EWHC 2454 (Ch), (where shares obtained by fraud, the value should be calculated as of their date of purchase).

549.

Damages may be assessed by reference to another date if the court considers that to do so would more fairly and appropriately give effect to the basic compensatory principle: see e.g. Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254, HL; Golden Strait Corpn v Nippon Yusen Kubishika Kaisha [2007] 2 AC 353, 381, 397.

550.

In Smith New Court, as the result of fraudulent misrepresentation the representee bought a large parcel of shares, the true value of which was greatly reduced by a then undiscovered separate fraud practised on the company. It was held that the representee could recover the whole of the difference between what it paid for the shares and the amount actually realised on the resale of the shares. Lord Browne-Wilkinson stated at p266-7:

‘In sum, in my judgment the following principles apply in assessing the damages payable where the plaintiff has been induced by a fraudulent misrepresentation to buy property: (1) the defendant is bound to make reparation for all the damage directly flowing from the transaction; (2) although such damage need not have been foreseeable, it must have been directly caused by the transaction; (3) in assessing such damage, the plaintiff is entitled to recover by way of damages the full price paid by him, but he must give credit for any benefits which he has received as a result of the transaction; (4) as a general rule, the benefits received by him include the market value of the property acquired as at the date of acquisition; but such general rule is not to be inflexibly applied where to do so would prevent him obtaining full compensation for the wrong suffered; (5) although the circumstances in which the general rule should not apply cannot be comprehensively stated, it will normally not apply where either (a) the misrepresentation has continued to operate after the date of the acquisition of the asset so as to induce the plaintiff to retain the asset or (b) the circumstances of the case are such that the plaintiff is, by reason of the fraud, locked into the property. (6) In addition, the plaintiff is entitled to recover consequential losses caused by the transaction; (7) the plaintiff must take all reasonable steps to mitigate his loss once he has discovered the fraud’.

551.

In this case CRSM's primary claim was for damages in accordance with the general rule assessed at the dates of the relevant transactions, being the dates when the CDO²s were purchased and the date of the restructuring. Alternatively, damages were claimed on the basis of the net sums actually lost.

552.

In addition, CRSM claimed its lost return since that date by reference to its return on assets (not, as currently pleaded in the Particulars of Loss, return on equity), in accordance with the principles set out in Sempra Metals v Inland Revenue Commissioners [2007] UKHL 34, [2008] 1 AC 561 at paras 94-95.

553.

Barclays submitted that this was a case in which the general rule of assessment at the date of the transaction should be displaced in favour of the selection of another date of assessment, or another measure, in order to give a true measure of the claimant's loss. Two matters in particular were relied upon:

(1)

where the claimant has actually re-sold the financial product, producing an actual re-sale loss, it may well be more appropriate to assess the loss by reference to that loss, or to put the same point another way, the claimant must give credit for the proceeds of the re-sale: see Kennedy v Van Emden (1997) 74 P&CR 19; Smith New Court v Scrimgeour Vickers [1992] BCLC 1102 (Chadwick J), 1142-1143, para 2 (overturned on appeal, but not on this point).

(2)

Where the claimant was buying to hold and continues to hold under the continuing influence of the misrepresentation, it may well be inappropriate to assess damages at the date of the transaction – see Downs v Chappell [1997] 1 WLR 427, 441E-443F; Naughton v O'Callaghan; Smith New Court (HL), 267B-C.

554.

I agree that this is a case in which date of transaction damages would not appropriately reflect CRSM's loss. In particular: (1) these were investments which CRSM was always intending to buy and hold rather than resell; (2) these were not readily marketable investments; (3) the alleged misrepresentations did continue to operate after the date of acquisition; (4) CRSM were to a significant extent locked into the investments – the only available buyer was Barclays itself; (5) this is a case involving actual re-sales, and (6) the logic of taking date of transaction damages is that CRSM would still be entitled to its damages claim of some €92 million even if the Notes had been repaid and a full coupon received, a remarkable windfall.”

In the present case I accept that the Funds would not have purchased the certificates if they had known that the Promissory Note was invalid, but have nevertheless no doubt that the measure for which BNPP contends gives effect most fairly and appropriately to the compensatory principle. I reach this conclusion for the following reasons which are similar to those which weighed with Hamblen J in the Cassa di Risparmio case.

First, the Funds bought the certificates with a view to holding them for the long term and enforcing a claim against Saad or (preferably) participating in any settlement. Although they might have investigated any resale opportunity which arose, none was foreseen or likely and none eventuated. To treat the Funds as having suffered a trading loss when they had no intention of trading the certificates would be inappropriate in the circumstances of this case.

Second, there was no available market for the purchase or sale of certificates, certainly not in the amount of the holdings built up by the Funds. By 2009 when Cyrus first began to purchase certificates any market was highly illiquid and the only potential buyers were Cyrus, Fortress and other funds specialising in distressed debt. However, there is no evidence that any other distressed debt fund had any interest in purchasing Sukuk certificates. Nor is there any evidence of any actual transaction in Sukuk certificates after the final purchase by the Fortress funds. Although there were brokers who were prepared to quote a price, and as a result there were quotations published on Bloomberg, these quotations appear to have been largely guesswork and did not represent any real market in such certificates. The Funds were therefore “locked-in” to the certificates which they had purchased.

Third, the Funds’ acceptance that credit would need to be given for any actual or prospective recovery to be obtained in the future means that, even on their measure, a monetary judgment in their favour could not be given now. The measure for which the Funds now contend, after allowing for the concession made in closing, represents something of a hybrid between assessment of the damages at the date of purchase of the certificates and at the date of trial. The concession is necessary in order to avoid the windfall that would result if, after awarding damages based on the Funds’ measure, full (or indeed any) recovery of the face value of the certificates were to be made in the Al-Khobar proceedings. However unlikely such a prospect may seem, it is after all the position for which Golden Belt (supported by the Funds) is contending in those proceedings. The fact that it is necessary to know (or to form a view about) the recovery which may be made in those proceedings is an indication that assessment of final damages at the date of purchase of the certificates is not appropriate in this case.

Fourth and importantly, the BNPP measure allows a proper distinction to be made between the numerous risks which the Funds undoubtedly accepted when they purchased the certificates and the one risk which I have held that they did not accept, namely the invalidity of the Promissory Note. Thus the Funds accepted the risks of Saad’s insolvency, the difficulties involved in enforcement proceedings in Saudi Arabia, and the failure of the Saudi authorities to intervene to promote a settlement. Although those risks were taken into account in the price paid by the Funds, that price necessarily represented a highly uncertain assessment of future events.

It may prove to be the case that even with the benefit of a valid Promissory Note and a judgment in its favour from the CSNID, Golden Belt would never have made any recovery. Although that is not a question for this trial, I have been able to conclude that no such recovery would have been made as yet, just as it appears that no other international creditor of Saad has as yet recovered anything (see [142] above). If in fact there was never going to be any recovery regardless of the validity of the Promissory Note, an award of damages based on assessment at the date of purchase of the certificates would provide the Funds with an undeserved windfall. In that event the true cause of their loss would be the insolvency of Saad and/or the failure of enforcement proceedings in Saudi Arabia, risks which the Funds knowingly accepted. In such circumstances the BNPP measure, which will give effect to actual knowledge of the Funds’ recovery or at any rate to a much better informed assessment, reflects more accurately the compensatory principle (cf. The Golden Victory [2007] 2 AC 353 and Bunge SA v Nidera BV [2015] UKSC 43). As Lord Sumption put it in the latter case at [22] in terms which were concerned with a claim for breach of contract but are equally applicable here:

“Where the only question is the relevant date for taking the market price, the financial consequences of the breach may be said to ‘crystallise’ at that date. But where, after that date, some supervening event occurs which shows that that neither the original contract (had it continued) nor the notional substitute contract at the market price would ever have been performed, the concept of ‘crystallising’ the assessment of damages at that price is unhelpful. The occurrence of the supervening event would have reduced the value of performance, possibly to nothing, even if the contract had not been wrongfully terminated and whatever the relevant market price.”

It is common ground that (if, contrary to my conclusion, Golden Belt has a claim against BNPP) the measure of any loss suffered by Golden Belt is the difference between (1) the recovery, if any, which the Funds would have made if the Promissory Note had been valid and (2) the recovery, if any which it will in fact achieve.

I leave out of account for present purposes the Funds’ claim for costs incurred in seeking to enforce their claims in Saudi Arabia. Time did not allow for proper investigation of these claims, and they are in any event better considered as part of any further trial, in accordance with the measure of damages which I have found to be correct.

In case I am wrong in my conclusion as to the applicable measure of the Funds’ damages, I must make a finding as to the Funds’ loss in the event that this is to be determined as at the date of purchase of their certificates.

It is common ground between the valuation experts, Mr McGough and Dr Okongwu, that the best evidence of the value of the certificates with the benefit of a valid Promissory Note is the actual prices paid by the Funds as at the dates when they purchased their certificates. I find accordingly. These prices took account of the known risks affecting the Sukuk, including Saad’s default, the difficulty of enforcement in Saudi Arabia, the allegations by the Algosaibis of fraudulent conduct on the part of Mr Al-Sanea, and the risk that Saad might turn out to have fewer assets than was thought. However, they did not factor in any risk that the Promissory Note had not been properly executed.

The experts agreed also that the method of recourse available to creditors is a key factor in assessing the value of a distressed debt. However, they adopted radically different approaches to determining the value of the certificates at the dates of purchase in the event that the invalidity of the Promissory Note had been known in the market at that time.

Mr McGough’s evidence was put forward on two alternative hypotheses. The first was that the Promissory Note represented the only means of enforcing a claim against Saad. The second was that it was the primary but not the only such means. On the first hypothesis, his evidence was that the certificates would be almost worthless, with a value of between zero and 1% of their face value. Essentially any buyer would be speculating on the prospect of a settlement when there was no enforceable underlying legal liability. On the second hypothesis, there would remain a possibility of enforcing a legal claim, but market knowledge of the invalidity of the Promissory Note would suggest impropriety by Saad in executing the Promissory Note and would therefore call into question in prospective purchasers’ minds the invalidity of the whole transaction. On this hypothesis, the value of the certificates would be somewhere between zero and 5% of their face value. These views were based on extensive experience of trading in deeply distressed debt.

In contrast Dr Okongwu carried out a theoretical exercise which consisted of examining the reaction of the market during the period between 18 April 2012 and 6 November 2013 to the news that the Promissory Note was invalid. Based on this examination, he concluded that the market’s reaction to this news was a fall of 6.01 cents in the dollar and therefore that the same fall would have occurred if this news had become public during the period between June 2009 and April 2011 when the Funds were purchasing their certificates.

This exercise was flawed for a number of reasons. It is sufficient to mention five.

First, there was no market activity during the period considered by Dr Okongwu. The figures with which he was working were no more than brokers’ guesswork. As time went by, and by the 2012-13 period which Dr Okongwu was considering a great deal of time had gone by since there had been any actual trade, those figures became less and less reliable.

Second, it never became known in the market during the 2012-13 period that the Promissory Note was invalid. It was therefore impossible for Dr Okongwu to measure the market’s reaction to such news. What certificate holders were told was merely that the validity of Mr Al-Sanea’s signature on the Promissory Note had been challenged, but it did not follow from this that it was necessarily invalid. On the contrary, by this time it was generally known that a challenge to the validity of a signature was a common delaying tactic by Saudi defendants in proceedings before the CSNID (see [114] above). As Dr Okongwu accepted, this was a very different thing.

Third, it is not clear whether or when the information provided to certificate holders became generally known in the market. It is therefore difficult or impossible to correlate information becoming generally known with particular movements in Bloomberg quoted prices.

Fourth, Dr Okongwu’s analysis was carried out by reference to a later period than when the Funds were purchasing the certificates, after the Bloomberg quoted price had already fallen significantly from the prices paid by the Funds. I do not accept that conditions in this later period were the same or sufficiently similar, such that movement in the quoted price during this later period can be treated as if they would have been equally applicable in the earlier period.

Fifth, Dr Okongwu was unable to explain why, adopting his analysis, the result should be expressed as an absolute drop of 6.01 cents in the dollar as distinct from a percentage reduction of the value which could then be applied to the values as at the dates when the Funds purchased their certificates. Dr Okongwu accepted that this would be an alternative approach. In fact it would make a large difference to the assessment of damages. To my mind this underscores the artificial nature of his analysis.

I accept Mr McGough’s evidence on this issue. In view of the possibility of a claim under the Sub-Lease Agreement, the second of his two hypotheses, namely that the Promissory Note was the primary but not the only means of enforcing a legal claim, is the relevant approach. Accordingly I find that the value of the certificates was somewhere between zero and 5% of their face value. Complete accuracy is not possible, but this is a fair approximation. If I had accepted the Funds’ measure of damages, I would have taken a midpoint figure of 2.5% of face value. The total price paid by the Funds was US $49,279,712, resulting in a damages award of US $48,047,719. From this there would need to be deducted any actual or assessed future recovery (see [270] above). To my mind the fact that the Funds would be entitled to an award over US $48 million if damages are assessed as at the date(s) of purchase for certificates when there is a serious prospect that even with a valid Promissory Note they would never have recovered anything reinforces my conclusion that this is not the appropriate way in which to give effect to the compensatory principle.

I summarise my principal conclusions as follows: