Credit Suisse Trust Limited v Ivanishvili, Bidzina and others

JurisdictionSingapore
JudgeSteven Chong JCA
Judgment Date05 July 2024
Neutral Citation[2024] SGCA(I) 5
CourtCourt of Appeal (Singapore)
Docket NumberCivil Appeal No 10 of 2023
Hearing Date10 May 2024,08 April 2024
Citation[2024] SGCA(I) 5
Year2024
Plaintiff CounselLee Eng Beng SC, Disa Sim, and Torsten Cheong (Rajah & Tann LLP) (instructed),Kenneth Lim Tao Chung, Mak Sushan Melissa, Afzal Ali, Wong Pei Ting, Gan Yun Han Rebecca, and Justin William Jeremiah (Allen & Gledhill LLP)
Defendant CounselCavinder Bull SC, Woo Shu Yan, Tan Yuan Kheng, Kelly Tseng Ai Lin, Gerald Paul Seah, and Liang Fang Ling Elizabeth (Drew & Napier LLC)
Published date08 July 2024
Steven Chong JCA (delivering the judgment of the court): Introduction

The heart of this appeal concerns the proper determination of the consequences of the fraud perpetrated by a relationship manager of a bank over a period of more than a decade. However, that relationship manager was not an employee of the appellant, Credit Suisse Trust Limited (“CS Trust”). He was at all material times a senior employee of Credit Suisse AG (“CS Bank”) where the respondents’ assets were deposited (the “Trust Assets”) and over which CS Trust owed a duty to protect and safeguard. At the risk of stating the obvious, CS Bank and CS Trust are part of the Credit Suisse Group.

The ultimate analysis of the consequences of the fraud depends on the nature of the breach of duty by CS Trust. CS Trust does not dispute that it was in breach of its duty to safeguard the Trust Assets — although that admission was only made about ten days into the trial in the court below. However, the parties remain divided as regards the nature of the breach. CS Trust seeks to frame the breach as a tortious breach of its duty to safeguard the respondents’ assets. On that premise, it relies on the usual tortious principles concerning causation, burden of proof, scope of duty with reference to the contractual terms, remoteness of damages, and contributory negligence, to bear on the quantification of the damages. The respondents’ case is instead premised on CS Trust’s breach of fiduciary duty which if accepted — as was found by the Judge of the Singapore International Commercial Court (the “Judge”) — would consign these points as background facts and no more.

As we explain below, an admission by CS Trust of a breach of its duty to safeguard the Trust Assets does not preclude a separate finding that it was nonetheless also in breach of its fiduciary duties. In our judgment, it is clear that CS Trust was indeed in breach of its fiduciary duties to the respondents with the result that the main focus of this judgment is on the proper quantification of the respondents’ claim. To that end, both parties adduced conflicting and contrasting expert evidence to construct an alternative investment portfolio on the basis that the respondents would have moved the Trust Assets to an alternative competent and professional financial advisor, had CS Trust timeously informed the respondents of the numerous unauthorised transactions. This judgment will thus examine the threshold for appellate intervention in relation to expert evidence where such expert evidence is sensitive to and subject to the objective factual evidence before the court.

Facts

The background facts have been canvassed in detail by the Judge in Ivanishvili, Bidzina and others v Credit Suisse Trust Ltd [2023] 5 SLR 59 (the “Judgment”). We therefore briefly set out only the salient facts for this appeal.

The parties

The first respondent is Mr Bidzina Ivanishvili (“Mr Ivanishvili”), a wealthy French-Georgian businessman. Credit Suisse promoted their trust services to Mr Ivanishvili in 2004 who then agreed to their proposal to establish a trust over assets exceeding US$1.1bn (the “Mandalay Trust”). The Mandalay Trust had the objective of “Inheritance Planning and Asset Holding” and was to be for the benefit of Mr Ivanishvili and his family, the second to fifth respondents (collectively, the “respondents”).

The appellant, CS Trust, was appointed the trustee of the Mandalay Trust. CS Trust is a wholly owned subsidiary of Credit Suisse Trust AG (“CS Trust AG”). The Trust Assets were deposited with CS Bank, in accounts at branches in Geneva (“CS Bank (CH)”) and Singapore (“CS Bank (SG)”).

The Mandalay Trust

The settled assets of the Mandalay Trust comprised bankable assets and various artworks. The Trust Assets with which we are concerned were derived from the funds that were originally deposited in March 2005 into accounts opened by Meadowsweet Assets Limited (“Meadowsweet”) at CS Bank (CH) (the “Meadowsweet Accounts”), and accounts opened by Soothsayer Limited (“Soothsayer”) at CS Bank (SG) (the “Soothsayer Accounts”). We refer to the various accounts of the Mandalay Trust collectively as the “Trust Accounts”. Meadowsweet and Soothsayer are owned by nominee companies that are in turn ultimately owned by CS Trust.

In 2005, shortly after the establishment of the Mandalay Trust, Meadowsweet and Soothsayer entered into discretionary portfolio management agreements with CS Bank (CH) and CS Bank (SG) respectively, granting CS Bank the mandate and authorisation to manage the assets within the Trust Accounts. Clementi Limited (“Clementi”), another related company wholly owned by CS Trust, was appointed the authorised signatory of the Trust Accounts. This meant that payments could (ostensibly) only be made out of Trust Accounts upon Clementi’s signed instructions. Mr Ivanishvili, on the other hand, was never appointed as an authorised signatory of the Trust Accounts.

It is undisputed that Mr Ivanishvili was responsible for: (a) certain Russian investments from 2005 to 2008; (b) recommending a US$100m investment by Meadowsweet into the Georgian Cooperation Fund in 2014; and (c) directing a US$100m loan to certain third-parties in 2014: Judgment at [478]–[479].

Mr Lescaudron

The fraudster, one Mr Patrice Lescaudron (“Mr Lescaudron”), was Mr Ivanishvili’s relationship manager at CS Bank from 2006 until 2015, when his fraud was discovered. Mr Lescaudron was then convicted by the Swiss courts and was found to have not only misappropriated from the Mandalay Trust, but also to have covertly transferred and manipulated the Trust Assets for the purposes of concealing and covering losses in other clients’ accounts, losses which Mr Lescaudron had also caused. Amongst other acts of subterfuge, Mr Lescaudron executed fraudulent investments orders by forging Mr Ivanishvili’s signature.

A significant (but by no means the only) aspect of Mr Lescaudron’s fraud took the form of Unauthorised Payments Away (“UPAs”), a term used internally by Credit Suisse to refer to a type of high-risk transaction. By Credit Suisse’s own internal guidelines, transactions that are UPAs include payment transactions out of a bank account held by a structure (such as the Mandalay Trust) under a Credit Suisse trustee (such as CS Trust) that are effected by a relationship manager of CS Bank (such as Mr Lescaudron) without the necessary approval. In other words, UPAs represent unauthorised direct removals of Trust Assets and a corresponding reduction to the Trust Accounts.

Credit Suisse’s internal guidelines therefore required UPAs to be reduced to a minimum and required UPAs to be swiftly addressed within ten working days by obtaining adequate documentation to support the transaction. UPAs are to be identified from “Debit Advices” from CS Bank, which record payments out of a bank account. If the Debit Advices fail to adequately describe the transaction, identify the recipient of the transaction, or state the reason and nature of the transaction, the transaction will be flagged as a possible UPA. The “Trust Manager” at Credit Suisse would then need to make inquiries with the relevant relationship manager to obtain evidence of the beneficiary’s approval of the transaction. Transactions that remain UPAs are therefore self-evidently not in the best interests of the beneficiary. We therefore focus on UPAs in our brief narrative of the relevant facts, both because of the patent risk of harm generated by UPAs, as well as the undeniable fact that CS Trust would have known, and did know, about the occurrence of the UPAs from the Trust Accounts.

Before summarising the litany of red-flags which surfaced during Mr Lescaudron’s tenure as Mr Ivanishvili’s relationship manager, it is important to highlight that Mr Lescaudron was never formally authorised to deal with the Trust Assets. Mr Lescaudron was not authorised to withdraw or transfer funds from the Trust Accounts, open new sub-accounts, or trade on the accounts. Nevertheless, Mr Lescaudron was apparently allowed to do so with impunity between 2006 to 2015.

Unauthorised Payments Away

In November 2006, several months after Mr Lescaudron first took over as Mr Ivanishvili’s relationship manager in July 2006, six UPAs totalling US$35.412m were carried out by Mr Lescaudron. This staggering sum flowed out of the Trust Accounts within a very short timeframe, between 10 and 23 November 2006. CS Trust was evidently aware of this, as Ms Sim I-May Joni (“Ms Sim”), the Trust Manager of the Mandalay Trust, wrote to Mr Lescaudron on 5 December 2006 seeking clarification on the unauthorised transactions and requiring him to furnish supporting invoices. After being informed that the funds had already been paid from the Trust Accounts despite the lack of CS Trust’s prior authorisation, Ms Sim cautioned that signed instructions by Clementi were necessary and that payments should not be made based on Mr Ivanishvili’s signature. Mr Michael Low (“Mr Low”), the head of Trust Administration at CS Trust, and Ms Lina Teng (“Ms Teng”), a senior compliance officer at CS Trust, were copied. Mr Low emphasised to Mr Lescaudron that Mr Ivanishvili was not to operate the Trust Accounts without CS Trust’s permission.

This first set of UPAs, occurring right at the inception of Mr Lescaudron’s involvement with the Mandalay Trust, was the cause of palpable alarm within CS Trust. Ms Teng prepared a report on Mr Lescaudron’s UPAs for senior members of CS Trust and CS Trust AG. Thereafter, internal communications expressed concern at the fact that the sum of US$35.412m had been paid out to third-parties, rather than to the beneficiaries of the Mandalay Trust (ie, the respondents), and warned that UPAs were clearly prohibited and posed a grave risk of employee fraud. UPAs were said to pose “considerable regulatory and legal risks” as they made it “impossible” for CS Trust to safeguard the...

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