GOLDEN BELT 1 SUKUK COMPANY BSC V BNP PARIBAS

[2017] EWHC 3182 (Comm), Queen's Bench Division, Commercial Court, Mr Justice Males, 7 December 2017

Banking - Duty of care - Islamic financing - Sukuk - Promissory Note issued for protection of certificate holders in event of default by borrower - Promissory Note unenforceable by reason of improper signature - Whether arranging bank owed duty of care to trustee and to purchasers of certificates - Breach of duty - Measure of damages

BNPP arranged a sukuk, an Islamic financing transaction for a Saudi Arabian limited partnership, Saad, designed to raise US$650 million. The sukuk, which was governed by Saudi law, was the equivalent of a Eurobond issue but compliant with Sharia law. Golden Belt was established in Bahrain as a special purpose vehicle in order to issue certificates to the value of US$650 million and to act as the trustee for the holders of those certificates. BNPP underwrote part of the sukuk and also placed certificates with investors, in return for a fee of some US$4.25 million. One of BNPP's functions was to coordinate the execution of the transaction documents for the sukuk, one of which was a Promissory Note for the full sum. The purpose of the Promissory Note was to provide investors in the sukuk with a ready means of enforcement in the event of default by Saad: without a valid Promissory Note, the certificates were of much less value. The Promissory Note was signed on behalf of Saad with a laser-printed signature rather than with a "wet ink”" handwritten signature; that rendered the Promissory Note unenforceable in Saudi law. The sukuk initially went well but by 1 June 2009 there were reports that the Saudi Monetary Authority had frozen the Saad Group accounts. Shortly afterwards allegations of fraud were made against Saad's owner and Saad's accounts were frozen. Two actions were brought against BNPP for losses suffered by the inability to enforce the Promissory Note: by Golden Belt, as trustee; and by Fortress and Cyrus, two New York hedge funds specialising in distressed debt, who had bought certificates in the sukuk at heavily discounted prices between 2009 and 2011 after Saad’s accounts had been frozen, in reliance on the enforceability of the Promissory Note.