The Cayman Islands Court of Appeal has dismissed an appeal by Saudi Arabia’s Algosaibi Group in its litigation against Cayman-based companies that belonged to businessman Maan Al Sanea in the longest and most expensive trial in Cayman’s history.
The Ahmad Hamad Algosaibi and Brothers conglomerate, known as AHAB, had appealed a May 2018 decision by Chief Justice Anthony Smellie.
In his 1,348-page judgment, the chief justice had described the feud between the two Saudi Arabian business empires as “a cauldron of fraud”.
AHAB alleged that Al Sanea, who had married into the Algosaibi family, had used his position as managing director of the Money Exchange, an unincorporated division of AHAB, to perpetrate a multibillion-dollar fraud from within the group.
In the trial, it was undisputed that the Money Exchange had for decades understated AHAB’s borrowing and debt levels in financial statements handed to more than 100 financial institutions to fraudulently obtain bank loans under the guarantee of the family conglomerate.
However, AHAB asserted the family company partners had not been aware of the fraud, until the Money Exchange and other businesses operated by Al Sanea collapsed in 2009.
This in turn caused AHAB to default on US$9.2 billion dollars of debt, which it sought to recover from Al Sanea’s personal companies in the Cayman Islands.
AHAB alleged that Al Sanea had breached his fiduciary duty by diverting billions of dollars from the Money Exchange to his own companies through unauthorised loans and transactions.
Chief Justice Smellie, however, in his judgment ruled that AHAB partners knew about the fraudulent borrowing at the Money Exchange, which had been institutionalised to defraud the lending banks in “an enormous, long-standing Ponzi scheme”.
Even after Abdulaziz Algosaibi, Al Sanea’s father-in-law and chairman of the family comglomerate, suffered a stroke in 2000, Smellie ruled, AHAB partners had been aware of the financial position of the Money Exchange, as well as the fraudulent loans and the level of borrowing by Al Sanea, as they had been meticulously documented in internal audit reports.
Rather than being victims, the judgment found, the Algosaibis were the “primary architects” of the fraud.
The fact that Al Sanea had shifted enormous sums from the Money Exchange to his own companies was the “quid pro quo for his willingness also to use the Money Exchange to procure fraudulent borrowing for the AHAB partners themselves”, the original judgment stated.
Trial not ‘unfair’
Although AHAB with its appeal initially sought a complete reversal of the judgment’s findings, the Court of Appeal in its decision made clear that AHAB could have only achieved a retrial, as the appeals court could not interfere with the chief justice’s findings of fact unless they were “plain wrong”.
The appeal raised a total of 51 issues, which claimed, among others, core errors, and substantive and procedural irregularities that meant AHAB had not received a fair trial.
It also questioned whether the Algosaibis had known about and consented to the borrowings by Al Sanea or whether Al Sanea had misappropriated funds from the Money Exchange by forgery and manipulation or in breach of fiduciary duties.
The main argument was that the chief justice had failed to take into account important aspects of AHAB’s evidence and submission, and reached his conclusions about the partners’ conduct based on inferences that were not supported by the evidence before the court.
The original judgment with its “over-compartmentalised approach” had, for instance, not considered Al Sanea’s “proven dishonesty” and rejected compelling arguments in favour of Al Sanea’s use of forgery.
Another error in the first instance judgment had been “to proceed uncritically from a conclusion concerning the partners’ participation in a fraud against the lending banks to an unwillingness to accept that Al Sanea had in all probability committed gross breaches of fiduciary duty against the partners, to which the only defence could have been a fully informed consent, which was never proven, but too readily assumed”.
The appellant suggested that the chief justice had copied and pasted large parts of the respondent’s closing written submissions in his judgment and disregarded almost all of AHAB’s final oral and written counter-submission without giving any adequate reason.
However, the Court of Appeal found that “the Chief Justice’s preference for the Respondents’ case was not a matter of unfairness but of judgment, meticulously recorded”.
The court accepted that “over-reliance on one or other party’s submissions in the form of copying of them is not a desirable way of drafting a judgment, if only because it sets up anxieties in the losing party”. But it expressed sympathy for the chief justice, who had repeatedly acknowledged that he had relied on the respondent’s argument in his judgment, given the task set by the extent of the submissions.
Although the chief justice “may have, as a matter of technique, over-compartmentalised his judgment”, the appeals court said, “this Court is unable to say that the Chief Justice has erred as a matter of substance, let alone conducted an unfair trial”.
The court agreed with the chief justice’s conclusion that the AHAB partners had knowledge of the fraud on the banks and of Al Sanea’s borrowings.
“Nor has the Chief Justice failed to appreciate that Al Sanea was himself dishonest, and in all probability the chief villain of the piece,” the Court of Appeal said in its 276-page judgment.
“The essential question, to put it bluntly, was whether they were all in it together, or whether Al Sanea deceived a more or less complicit but somehow blindsided AHAB. On such a question, the Chief Justice was both immersed in the evidence and the arguments, and clearly on top of them.”
The appeal’s judgment only differed from the original judgment in certain subsidiary legal aspects in the case and, as a result, ordered a retrial on the limited issue of whether any part of a single $191 million transfer, which Al Sanea made shortly before the business collapsed, can be traced to one of his companies.
AHAB restructuring
In 2019, AHAB filed for a financial restructuring under Saudi Arabia’s new bankruptcy law. In October this year, a Saudi court issued a final order for the restructuring, which paved the way for the company to begin liquidating its assets and making distributions to its regional and international banking creditors.
AHAB’s creditors who have about $7.3 billion in debt claims, are set to receive approximately 26 cents on the dollar.
Both AHAB and Al Sanea’s Saad Group defaulted on about $22 billion in combined debt in 2009.
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