Ivanishvili, Bidzina and others v Credit Suisse Trust Ltd

• Jurisdiction: Singapore
• Judge: Patricia Bergin IJ
• Judgment Date: 26 May 2023
• Neutral Citation: [2023] SGHC(I) 9
• Court: International Commercial Court (Singapore)
• Docket Number: Suit No 4 of 2021
• Hearing Date: 05 September 2022,06 September 2022,07 September 2022,08 September 2022,09 September 2022,12 September 2022,13 September 2022,14 September 2022,15 September 2022,16 September 2022,19 September 2022,20 September 2022,21 September 2022,22 September 2022,23 September 2022,16 February 2023,17 February 2023
• Citation: [2023] SGHC(I) 9
• Year: 2023
• Plaintiff Counsel: Cavinder Bull SC, Woo Shu Yan, Tan Yuan Kheng, Fiona Chew Yan Bei, Kelly Tseng Ai Lin, Gerald Paul Seah Yong Sing and Liang Fang Ling Elisabeth (Drew & Napier LLC)
• Defendant Counsel: Lee Eng Beng SC, Disa Sim and Torsten Cheong (Rajah & Tann Singapore LLP) (instructed), Kenneth Lim Tao Chung, Mak Sushan Melissa, Afzal Ali, Wong Pei Ting, Yeow Yuet Cheong, Gan Yun Han Rebecca and Justin William Jeremiah (Allen & Gledhill LLP)
• Subject Matter: Trusts,Trustees,Duties,Breach of trust,Extent of liability
• Published date: 31 May 2023

Patricia Bergin IJ: Introduction

Bidzina Ivanishvili (“the plaintiff”) had a long and for many years trusting relationship with Credit Suisse Trust Limited in Singapore (“the defendant”). That relationship commenced in 2004 when an officer of Credit Suisse AG Geneva Branch (“the Bank”), the private investment banking arm of the Credit Suisse Group (“CS Group” or “Credit Suisse”) approached the plaintiff and offered to assist him with wealth management services.

The plaintiff was advised by the defendant and the Bank to use a structure pursuant to which he deposited over US$1.1 billion into the custody of the defendant to be placed on trust in “The Mandalay Trust” (or “the Trust”) with the objective of “Inheritance Planning and Asset Holding”. The responsible corporate vehicles of the Trust were Meadowsweet Assets Limited (“Meadowsweet”), Soothsayer Limited (“Soothsayer”) and Lynden Management Ltd (“Lynden”).

Unfortunately, the Bank had within its ranks a fraudster, Mr Patrice Lescaudron (“Mr Lescaudron”), who was appointed as the Trust’s Relationship Manager (“RM”) and over the next 9 years misappropriated many millions of dollars from the Trust. His scheming and fraudulent conduct was not halted until 2015 when market forces intervened, with the inevitable consequences of his arrest and subsequent imprisonment.

The Swiss Correctional Court (the “Swiss Court”) found that Mr Lescaudron had: embezzled large amounts of money; purchased securities above market price causing damage to the plaintiff and to the Trust; and operated a scheme pursuant to which he opened various accounts and transferred moneys without the knowledge of either the plaintiff or the defendant for the purpose of covering losses in other clients’ accounts which he had caused.¹

The Swiss Court also recorded Mr Lescaudron’s admission that he had forged orders by cutting and pasting the plaintiff’s signature on documents. The Swiss Court described some of Mr Lescaudron’s activities as follows:²

Starting in 2009, having earned the client’s trust in terms of the investments made, Patrice LESCAUDRON managed the accounts of Bidzina IVANISHVILI alone, without so much as a conversation taking place between them, which he classified as a “perverse way of operating”. Subsequently, there was the non-execution by CREDIT SUISSE Singapore of client orders and losses, which he had hidden from the client in the Excel tables sent to him, for fear of losing his client. He had then performed unauthorised trades to recover the loss. This had been the case at the end of 2009 and he had profited from transferring, through transfers or through the sale of securities at overly high prices, as part of the profit generated for other clients.

Mr Lescaudron presented statements to the plaintiff which “did not reflect reality”.³ He moved money around to cover up the transfers made to other clients and to also cover the actual losses that were incurred by various clients of the Bank. His method of operation was at times apparently rather frantic and the money misappropriated from the Trust’s accounts was for “covering the losses generated by the trading operations that he had performed” in other clients’ accounts without their agreement.⁴ He utilised hidden sub-accounts and transferred funds into “side-pockets” in a web of fraudulent transactions.⁵

The plaintiff, his wife, Ekaterina Ivanishvili, and three of their children (together “the plaintiffs”), sue the defendant in respect of alleged breaches of trust and losses in respect of which they claim damages of approximately US$1.2 billion.

The plaintiffs claim that the defendant breached its obligations as trustee in failing to properly administer the Trust and failing to keep the Trust assets safe.

The defendant took a very robust approach to the plaintiffs’ claims from the outset of the proceedings in 2017. Until August 2022, it put the plaintiffs to strict proof of the fraud perpetrated by Mr Lescaudron notwithstanding that Mr Lescaudron had pleaded guilty and had been convicted and imprisoned for the fraud.⁶

Until a few weeks before the commencement of the trial on 5 September 2022, the defendant had denied that it had a duty to “[s]afeguard the Trust Assets by having measures in place to detect and prevent fraud and misappropriation on the Trust Accounts from taking place and by acting on any relevant information obtained through those measures”.⁷

On 5 September 2022, at the commencement of the trial, the defendant accepted it was “under a duty to protect the Trust Assets if it had actual knowledge that those assets were not being managed properly”⁸. However, it maintained that it “played a very limited role” in the facts which led to the fraud and on “the basis of its role, and what it was told, it could not have prevented the fraud or brought it to an end”.⁹

On 16 September 2022 the defendant admitted “that it was required to take reasonable steps to protect and safeguard the Trust Assets from being misappropriated”.¹⁰

The parties The plaintiff

The plaintiff was born in Georgia and grew up in Chorvila, a small rural town in Georgia. He was educated in Georgia and graduated with Honours in Engineering and Economics from the State University in Tbilisi. At 25 years of age he moved to Moscow to study for a post-graduate degree in Economics at the Scientific Research Institute for Labour and Social Affairs.¹¹ He holds a PhD in Economic Science.¹²

During the 1980s the plaintiff established and operated a business in partnership with a business associate, Mr Vitaly Malkin (“Mr Malkin”), importing cheap telephones and computers from Asia for sale in the USSR. This business was funded by loans from family and friends.¹³ It was a very successful business, the profits from which were used by the plaintiff and Mr Malkin to establish Rossiyskiy Kredit, one of the first privately owned banks in Russia.¹⁴

In 1989 the plaintiff met his wife, and they were married in 1994. They have four children, three of whom are plaintiffs and the fourth is now a resident of France.¹⁵

In 1993–1994, the plaintiff established the Cartu Group. The Cartu Group was established with the aim of attracting investment to Georgia and developing banking businesses in Georgia.¹⁶ In 1995, the plaintiff and his wife established the Cartu International Charity Foundation for the promotion of charitable causes in Georgia.¹⁷

The plaintiff and Mr Malkin were part owners of a metallurgical complex in Russia, known as Mikhailovsky, which was part of a group of metallurgical businesses under the brand name “Metalloinvest”. In 2004 the plaintiff and Mr Malkin sold that business for approximately USD 1.6bn.¹⁸ In 2006, Rossiyskiy Kredit sold its retail bank, Impexbank, to Raiffeisen Bank for USD 550m. These sales produced significant profits for the plaintiff and Mr Malkin.¹⁹

The plaintiff returned to live in Georgia in 2005.²⁰ He has had a very successful business life and has also been successful in politics, having served as the Prime Minister of Georgia from 2012 to 2013.²¹

The plaintiff’s communication with the defendant and the Bank during the relevant period of their relationship was sometimes direct in face-to-face meetings with representatives of each entity and sometimes by e-mail directly to him. However, in the later years, the relationship was also conducted through the plaintiff’s personal assistants/advisers who would deal directly with the representatives of the defendant and the Bank, consult with the plaintiff, and then respond to the defendant and/or the Bank. Those assistants were Mr Irakli Garibashvili (“Mr Garibashvili”) until about late 2010, Mr Zviad Khukhunashvili (“Mr Khukhunashvili”) from about late 2010 until 2012, and Mr George Bachiashvili (“Mr Bachiashvili”) from 2012.²²

The defendant

The defendant, Credit Suisse Trust Limited, incorporated in Singapore, is a wholly owned subsidiary of Credit Suisse Trust AG (“CS Trust AG”), a Swiss company. CS Trust AG has other subsidiaries in other countries around the world. CS Trust AG and its subsidiaries will be referred to as the “CST Group”.²³ The defendant was described as “well embedded into the [CST Group] Structure” which at the relevant times had around 350 employees working in 5 sub-departments.²⁴

CS Trust AG is a subsidiary of the CS Group.²⁵ The Bank is also a part of the CS Group. The Bank has various branches around the world, including in Geneva and in Singapore. The Singapore branch of the Bank will be referred to as “the Singapore Bank”. Credit Suisse Life (Bermuda) Limited (“CS Life”) is a subsidiary of CS Bank.²⁶

There were three main departments in the defendant: (i) Trust & Estate Advisory; (ii) Trust Management; and (iii) Legal & Compliance. In the Trust Management department, there were four Trust Management teams and one Finance/Trust Accounting team.²⁷ These teams reported to the head of Trust Management.

Each of the defendant’s heads of department had a “line manager” (a superior to which they reported) working in CS Trust AG which acted as the headquarters for the CST Group.²⁸ The defendant’s head of Trust & Estate Advisory reported to the global head of Trust & Estate Advisory at CS Trust AG. The defendant’s head of Trust Management reported to the global head of International Trust Management, who in turn reported to the global head of Trust & Insurance Management at CS Trust AG. The defendant’s head of Legal & Compliance reported to a member of the Legal & Compliance team at CS Trust AG, who in turn reported to the global head of that department.²⁹ The global heads of Trust & Estate Advisory, Trust & Insurance Management and Legal & Compliance at CS Trust AG reported to the CEO of the CST Group.

The CEO of the CST Group reported directly to the head of Investment Services & Products, who was part of the private banking division of the CS Group.³⁰

The defendant offered...