Black and Others v Davies
| Jurisdiction | England & Wales |
| Judge | Lord Justice Waller,LORD JUSTICE WALLER |
| Judgment Date | 06 May 2005 |
| Neutral Citation | [2005] EWCA Civ 531,[2005] EWCA Civ 608 |
| Docket Number | Case No: A2/2004/1219/1508/1224,A2/2004/1219 A2/2004/1508 |
| Court | Court of Appeal (Civil Division) |
| Date | 06 May 2005 |
[2005] EWCA Civ 531
Lord Justice Waller
Lord Justice Carnwath and
Sir Martin Nourse
Case No: A2/2004/1219/1508/1224
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
Mr Justice Buckley
03/TLQ/0116
Ian Mill QC and Pushpinder Saini (instructed by Denton Wilde Sapte) for the Appellant
Clive Freedman QC and Max Mallin (instructed by Teacher Stern Selby) for the Respondent
This is the judgment of the Court.
Mr Davies' Appeal
Mr Black traded copper futures on a massive scale during 1996, and this case is concerned with one chapter of that trading, a previous chapter being the subject of proceedings before the Court of Appeal on a previous occasion [see Black and others v Sumitomo Corporation and others [2002] 1 WLR 1562]. He did so through various brokers including Brandeis Brokers Limited (Brandeis). Mr Davies was the managing Director of Brandeis and Mr Gamwells was head of trading during the relevant period. Mr Black's strategy during the period with which these proceedings are concerned was to be outright short in the expectation that the price would go down enabling him to buy and make very substantial profits. Although outright short, he was of course trading, rolling forward his open positions. On 1st October he was 9739 lots (243,475 metric tonnes) short with the cash price at $1,885.50 that position showing a profit of $76.78 million. By the end of October he was shorter still the cash price having at one stage risen to over $2,000, and his position showing profits reducing but still in the region of $30 to $40 million. The price unfortunately continued to move against him the cash price being $2,112 on 14 th November and $2,258 by 15 th November when he was forced to close out his position (that price possibly being affected by his closing out such a large position). Ultimately in closing out instead of a profit he showed a loss of $12,000,000. It was for that sum that Brandeis pursued Mr Black in an arbitration.
Mr Black however counterclaimed in the arbitration alleging dishonest trading by Brandeis, and also alleging that Mr Davies had fraudulently induced him to remain short by advising him that Alcatel, a fabricator, intended to deliver some 80,000 metric tonnes of primary copper to the LME. If true that would have been an influence in keeping the price of copper down. Over the period LME stock reduced by something over 100,000 metric tonnes which had some influence in increasing the price of copper, and a delivery to the LME of 80,000 tonnes would have prevented at least in part that influence.
Mr Black was successful in his counterclaim. At Stage 1 of the arbitration he succeeded in demonstrating that over a sample of 7 days Brandeis had behaved dishonestly by what is called "front running" i.e. using the information as to Mr Black's trading to make trades for themselves at beneficial prices, and by mispricing. At Stage 2 of the Arbitration the issue was whether it was an answer to his counterclaim that he had been using Lito (the third claimant) to avoid taxes. On that issue Mr Black was also successful. The other aspect of the arbitration, the allegation that Mr Davies on behalf of Brandeis had dishonestly fed him false information intended to persuade him to stay short, was never ruled on by the arbitrators. Brandeis settled on terms that Brandeis would waive the $12 million and pay $36 million to include such claim as Mr Black may have had in relation to the provision by Mr Davies of false information.
Mr Davies personally was however excluded from the settlement. By the proceedings with which this appeal is concerned, Mr Black pursued Mr Davies. By those proceedings to establish an entitlement to more than the $48 million he had effectively received from Brandeis, Mr Black sought to establish that he would have closed out his position within a day or so of 8 th October, but was persuaded not to do so by Mr Davies feeding him the false information on 9 th October, and to establish that false information was a substantial inducement to him remaining short until he closed out his position on 15 th November.
Mr Black commenced the proceedings on 7 th March 2002. They came on for trial before Buckley J in April 2004. Mr Black's case was that on the evening of 8 th October (the evening of the 1996 LME dinner) as a result of information received at that dinner, he gave instructions to Mr Gamwells to close out his short position, and to start doing that on the 9 th October. His case was that Mr Davies then between 8.20 and 8.45 am on the morning of 9 th October gave him false information that Alcatel, a company connected with the Group of which Brandeis was a member, was, unknown to anyone else in the market, about to deliver 80,000 tonnes of primary copper to the LME. His intention was to persuade Mr Black that the delivery would have the effect of reducing the price of copper, and according to Mr Black's pleading Mr Davies advised Mr Black to stay short rather than close out.
The case was that the information was false to Mr Davies' knowledge and that it continued to influence Mr Black's thinking up to 15 th November. However the price of copper rose, and Mr Black was forced to close out on 15 th November.
Mr Davies' case was that he had at some stage been untruthful in suggesting that he [Mr Davies] had been in touch with Alcatel and in suggesting a possible delivery to the LME but that his reason for that untruthfulness was to try and get Mr Black to organise a switch with Alcatel of secondary metal for Alcatel's primary metal. He maintained that he had first mentioned Alcatel late in October although by the end of cross examination he accepted that that may have been as early as 14 th October. His case supported by Mr Gamwells was that although Mr Black had received information at the LME dinner which caused him concern, Mr Black did not give instructions to close out his position on 8 th October. He gave instructions to "lighten the position" by buying some 500 to 1000 lots. His case was that even that instruction was withdrawn on 9 th October, but not because Mr Black had been told anything about Alcatel. The change, on Mr Davies' case, was due to Mr Black taking into account all the information he had obtained at the LME dinner, and on 9 th October taking a view as to what the market was likely to do.
So far as Mr Black's case against Mr Davies was concerned the precise timing of any instruction to close out, and of any provision of information on Alcatel, was critical. Unless he could establish that an instruction to close out was given on the evening of 8 th October and that Mr Davies provided the information on Alcatel on the morning of 9 th October, it is common ground that he would have no claim against Mr Davies because he would be unable to establish a loss over and above that already recovered from Brandeis.
Mr Davies also in the alternative argued that on 6th November there was in any event a break in the chain of causation because Mr Black on that day did decide to close out his position and then changed his mind by reference to a factor quite distinct from Alcatel. So it was argued the losses after 6 th November flowed from that change of mind.
If Mr Davies was successful on either point it was common ground that Mr Black could not recover from Mr Davies personally anything over and above the $48 million already recovered from Brandeis.
Buckley J found that Mr Davies was not telling the truth about his reason for telling Mr Black about Alcatel. An analysis of the telephone conversation of which there was a transcript before the judge of 29 th October confirmed to him that Mr Davies had made the representation about Alcatel and that his intention was to persuade Mr Black to maintain his short position. The motive for that was not precisely clear, but it seems that it could have had something to do with a long position which Brandeis itself held or something to do with the fact that while holding his short position Mr Black did of course continue to trade to roll the positions forward and Brandeis could earn commission or front run or misprice.
On the key questions on which depended Mr Black's ability to recover more than he recovered from Brandeis, the judge found (i) that Mr Black did give instructions to close out his short position on the evening of the LME dinner; (ii) Mr Davies did provide the information on Alcatel between 8.20 and 8.45 on the morning of 9 th October to persuade Mr Black to change his mind; (iii) that the information on Alcatel was still operating on Mr Black's mind when he changed his mind on 6 th November; and thus that Mr Black was entitled to damages of about $20 million from Mr Davies over and above those obtained from Brandeis.
The judge decided two further points. First in Mr Black's favour he decided that on the basis of the award of the Arbitrators of damages who had examined 7 days of trading, he could extrapolate over the whole of Mr Black's trading and this increased his award by $5 million. Second in Mr Davies' favour he decided that trading in copper futures done through Refco had not been adequately demonstrated to be losses of Mr Black and thus that those losses could not be taken into account.
The judge gave Mr Davies permission to appeal the following findings in his judgment:—
"a. the finding that there was a decision to cover...
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