Barings Plc ((in Liquidation)) v Coopers & Lybrand (No. 5)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Evans—Lombe |
| Judgment Date | 20 March 2002 |
| Neutral Citation | [2002] EWHC 461 (Ch) |
| Docket Number | Case No: CH 1996 B No. 477 & |
| Court | Chancery Division |
| Date | 20 March 2002 |
[2002] EWHC 461 (Ch)
The Honourable Mr Justice Evans—lombe
Case No: CH 1996 B No. 477 &
CH 1998 B No. 5286
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Michael Brindle QC/Craig Orr (instructed by Ashurst Morris Crisp for BFS)
Jonathan Gaisman QC/Christopher Butcher QC/David Bailey/ James Brocklebank (instructed by Clifford Chance for D&T)
Hearing dates: 28 th January 2002–8 th March 2002
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
The Hon. Mr. Justice Evans—Lombe
Mr Justice Evans—Lombe
On 23 October 2001 I ordered, on the application of Deloitte & Touche (Singapore) ( "D&T"), the trial of a preliminary issue, namely "whether the claim of Baring Futures (Singapore) Pte Limited (" BFS") against D&T in respect of their 1992 and 1993 audits of BFS fails because D&T have a complete defence of circuity of action and/or a set-off extinguishing BFS' claim and/or an estoppel preventing BFS from making the claim against them that it does in these proceedings". D&T allege that these consequences flow from certain representation letters addressed to them by Mr Simon Jones, who was at the relevant time the Finance Director of BFS. In the event, no argument based on estoppel was pursued.
FACTUAL BACKGROUND
I set out the factual background giving rise to this litigation in my judgment of 23 November 2001, by which I struck out the claims of Barings Plc and Bishopscourt (BS) Limited (formerly Barings Securities Limited (" BSL") against D&T in the Plc action (as that term is used in that judgment). To render this judgment comprehensible, I need to add a few further facts to the facts set out in that judgment
Simon Jones
Mr Jones is a qualified accountant. He spent five years at Deloitte Haskins & Sells and seven years as regional finance director, and then Divisional Vice President, of Associated Merchandising Company. In February 1990 he became finance director of Baring Securities (Singapore) Pte Limited ( "BSS"), the Barings group's stockbroking company in Singapore.
In 1990 BFS was a dormant company. Mr Jones was appointed a director of BFS in May 1990, as its second Singapore resident director. The other Singapore resident director, and Mr Jones' immediate superior, was James Bax, who had been managing director of BSS since August 1987 and of BFS since June 1988. Mr Bax was the head of the Singapore office and was a director of BSL. It is not in issue that Mr Bax played an insignificant role in the immediate supervision of the operations of BFS.
When BFS became active as a corporate clearing member of SIMEX in June 1992, Mr Jones became its Finance Director.
From the end of 1992 onwards, BSL operated a matrix management system. This meant that the different aspects of the business of the Barings group were organised and managed "globally". Thus a particular business being conducted by subsidiary A might be managed by directors or executives actually employed by subsidiary (or parent) B. Materially to this judgment (though this is not accepted on every side), responsibility for the trading or "product" aspect of BFS' business was split from that for the settlement or "operational" side, and both appear to have been managed by executives nominally employed by, or directors of, other companies in the Barings group, in particular BSL and Barings Securities (Japan) Limited (" BSJ").
Although Mr Jones was, with Mr Bax, one of BFS' two executive directors, he had no immediate responsibility for BFS', and therefore Mr Leeson's, trading activity or the resulting settlement and account-keeping activity. It is not in issue that Mr Jones was responsible for the support facilities provided by BFS for its trading and settlement staff—offices, stationery, computers, personnel and such like; for expenses, tax computations, budgeting on the costs side, capitalisation of the company, and banking arrangements and controls; and for the production of BFS' annual accounts which had to be consolidated with the accounts of its ultimate parent (BSL in 1992 and Barings plc in 1993).
Mr Jones was nominally Mr Leeson's immediate superior but whether Mr Leeson reported to him is in dispute. According to the witness statement of Mr Norris (Chief Operating Officer of BSL from October 1992 and Chief Executive of BSL from March 1993), Mr Jones had operational accountability for Mr Leeson's activities. According to Mr Jones, his responsibility was limited to the accounting side of the office, including checking Mr Leeson's expenses, and Mr Leeson did not report to him at all.
There is an issue in the Part 20 proceedings between D&T and BSJ whether Mr Leeson's trading activity during 1992 and 1993 was controlled from BSJ. At this hearing, D&T deny that Mr Jones perceived Mr Leeson's trading to be so controlled.
The relevant trading
BFS' claims against D&T relate to their audits of the period of trading of four months up to 30 September 1992 ("the 1992 audit") and the period of 15 months up to 31 December 1993 ("the 1993 audit").
Until September 1992 BFS was believed by Barings management to be conducting only agency trading. The instructions for this were given by the group of agency traders at BSJ in Tokyo headed by Mike Killian, one of Barings' experts on derivative trading. This trading was almost wholly on behalf of clients of BSL. The resulting settlements were processed through BFS' office using the CONTAC system described in my 23 November 2001 judgment. The trades were then reported to BSL by means of the electronic "trade feed" direct from the CONTAC system to BSL's First Futures system.
It is now known that, within about a month of the commencement of trading, Leeson had procured the system to be falsified so that the trade feed omitted trades booked to the 88888 account.
The electronic feeds from BFS were received at BSL in a settlements department headed by Gordon Bowser, to whom Leeson, at least nominally, reported on the settlement or "operational" side.
From September or October 1992 onwards Mr Leeson commenced executing proprietary or "house" trading in addition to the agency trading. The proprietary trading was executed primarily (there were also some instructions from London) on the instructions of the group of BSJ proprietary traders who from April 1993 onwards were headed by Fernando Gueler. This trading was on behalf of both BSJ and BSL (most of the trading on behalf of BSL being carried out by BSJ traders). Trades for BSL were reported through the trade feed described above. All proprietary trades, whether booked to BSL or BSJ, were reported to BSJ by faxing the daily activity sheets.
Ron Baker became head of Barings' Financial Products Group in December 1993, the final month of the 1993 audit, and thus became Mr Leeson's ultimate "product" manager in relation to proprietary trading. Mr Baker did not take over responsibility for agency trading until a year later.
Suppression of activity statements for the 88888 account
At paragraphs 11 to 14 of my 23 November 2001 judgment I explained the BFS computer system and Mr Leeson's interference with it in pursuance of his fraud. For the purposes of this judgment, I should add one detail to that explanation.
BFS' trading computer system, CONTAC, contained full information as to the activity on all BFS accounts, including the 88888 account. It generated daily and monthly activity statements for all BFS accounts, though it appears that monthly activity statements for the 88888 account were not printed out unless requested by Mr Leeson.
It appears that during 1993, at least, the daily activity statements for the 88888 account were delivered to Mr Leeson, who destroyed them. In 1992 the position is slightly less clear, in that in the course of that audit one of the D&T auditors is known to have traced a payment through to the 88888 account daily activity statement. Therefore it may be that Mr Leeson only began destroying the daily activity statements after that audit.
The chronology of the 1992 and 1993 audits
D&T audited BFS for the first time in relation to the trading period ending 30 September 1992. BFS had commenced active trading on SIMEX only in June 1992 and its revenues, consisting of commission and interest, for the period to 30 September were S$3.9 million. The chronology of D&T's 1992 audit was as follows:
i) on 16 October 1992 D&T sent to Coopers & Lybrand (London) ( "C&LL") the consolidation schedules which they had prepared in relation to BFS and the other Barings Singapore companies, for consolidation into the group accounts of BSL. They were expressed to be subject, inter alia, to the resolution of the local statutory accounts;
ii) on 20 November 1992, D&T sent BFS' statutory accounts in draft to Mr Jones, along with a draft representation letter addressed to D&T to cover the 1992 audit which they asked him to sign and return. They repeated the request on 10 December 1992;
iii) on or about 17 December 1992, Mr Jones returned the signed representation letter. Apparently he had had it retyped on BFS letterhead, but he did not change the text from D&T's draft;
iv) on 31 December 1992, D&T issued their opinion on the statutory accounts of BFS and submitted their regulatory reports to the Singapore regulators, MAS and SIMEX.
The 1993 audit covered the period 1 October 1992 to 31 December 1993. BFS' revenues had increased from S$3.9 million for the four months...
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