Camerata Property Inc. v Credit Suisse Securities (Europe) Ltd
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Flaux |
| Judgment Date | 20 January 2012 |
| Neutral Citation | [2012] EWHC 7 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 20 January 2012 |
| Docket Number | Case No: 2011 Folio 946 |
[2012] EWHC 7 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Flaux
Case No: 2011 Folio 946
Francis Tregear QC and Andrew Thomas (instructed by Thomas Cooper) for the Claimant
Adrian Beltrami QC (instructed by Allen & Overy LLP) for the Defendant
Hearing dates: 16 December 2011
Introduction:
The defendant (to which I will refer as "Credit Suisse") applies by Application Notice dated 14 October 2011 for an Order under CPR Part 3.4 striking out those paragraphs of the Particulars of Claim which relate to the claim in respect of the so-called "Lehman Brothers Note", alternatively for summary judgment under CPR Part 24 dismissing that claim.
In summary, Credit Suisse's case is: (i) that the claim in respect of the Lehman Brothers Note is precluded by reason of issue estoppel arising out of a judgment of Andrew Smith J dated 9 March 2011 ( [2011] EWHC 479 (Comm)) in proceedings between the same parties (2009 Folio 940) which also concerned the Lehman Brothers Note; (ii) that the pursuit of that claim in the present proceedings is an abuse of process; (iii) that even if not an abuse of process, the claim in respect of the Lehman Brothers Note in the present proceedings is unsustainable in the light of the findings of Andrew Smith J in that judgment, so that either the claim should be struck out or summary judgment should be entered in favour of Credit Suisse dismissing the claim.
Factual background to this application
Camerata's relationship with Credit Suisse
The claimant (to which I will refer as "Camerata") is a company incorporated in Belize in 2005. It is an investment company owned by a Panamanian Trust, the Frosio Foundation, of which Mr Charalambos Ventouris, is the sole beneficiary. Mr Ventouris is a wealthy man. His father founded a shipping business about fifty years ago, which has now been divided between Mr Ventouris and other members of his family. He manages bulk carriers, having once had a fleet of seven vessels. Through sales, this has been reduced to two vessels. At the time of his investment through Credit Suisse in 2007, he had funds of some $50 million for investment, which came from the operating profit from the vessels and from sales of the fleet.
In 2005, Mr Ventouris was introduced to Mr Fokiades who worked for Credit Suisse in Switzerland. Mr Fokiades in turn introduced him to Mr Petros Siakotos-Konstantinidis who worked for the Private Banking division of Credit Suisse in London as a relationship manager, dealing mainly with Greek clients. Mr Fokiades had told Mr Ventouris that he could earn a better return than that paid on bank deposits without risking his capital, which is why he introduced Mr Ventouris to Mr Siakotos-Konstantinidis, because the latter had experience of structured products.
From about May 2006 onwards and on the advice of Mr Siakotos-Konstantinidis, Mr Ventouris made investments in various such structured products, starting with the so-called Index Based Note. From early 2007, investments were made through Camerata, because Mr Siakotos-Konstantinidis had suggested that Mr Ventouris use an off-shore company. The details of these early investments are set out at [14] to [32] of the judgment of Andrew Smith J.
In about March 2007, Mr Ventouris indicated that Camerata wished to open an account with Credit Suisse (Guernsey) Limited ("CSG") and Mr Ventouris instructed Dr Lustenberger, a commercial lawyer in Zurich who was the sole director of the Frosio Foundation. Details of the documents which were sent by CSG to Dr Lustenberger on behalf of Camerata and specifically, the application form for opening a corporate account and the brochure entitled "Special Risks in Securities Trading" are again set out by Andrew Smith J at [33] to [39] of his judgment. For present purposes, it is only necessary to highlight two points.
The first is that the brochure contained a section about structured products which, as Andrew Smith J noted at [37], stated that they all had their own risk profile from the interaction of the component risks. The brochure continued:
"With structured products, buyers can only assert their rights against the issuer. Hence, alongside the market risk, particular attention needs to be paid to issuer risk. You need therefore be aware that, as well as any potential loss you may incur due to a fall in the market value of the underlying, a total loss of your investment is possible if the issuer should default. Market makers, who in most cases are the issuers themselves, normally guarantee that structured products are tradable. Nonetheless, liquidity risks cannot be excluded."
The second point is that, in completing that part of the application form which was entitled "Investment Objectives (Risk Tolerance Indicator)", Dr Lustenberger answered the questions in such a way as to produce the conclusion that Camerata had "Low Risk Tolerance", the lowest of the five tolerances contemplated by the form.
On 16 May 2007, Mr Siakotos-Konstantinidis signed a "Client Profile" document in respect of the proposed account which described the use of the account in terms which he agreed in cross-examination before Andrew Smith J was referring to products that would involve medium to high risk. He thought he had not seen the Risk Tolerance Indicator completed by Dr Lustenberger and accepted that he was at fault for failing to do so. Andrew Smith J was very critical of Mr Siakotos-Konstantinidis' approach, concluding this section of his judgment at [42]:
"Mr Siakotos-Konstantinidis, however, must have been aware that Camerata had stated in Credit Suisse's formal documentation that they did not wish to take risks with their investments. He could not have overlooked this when he completed the form. I can only conclude that he thought that he had a better understanding of his client's real wishes and objectives than they had formally stated, and so disregarded the formal statement of their position. He showed a similar attitude towards Credit Suisse's procedures in failing to read, or at least failing to read with any care, the forms that Camerata were required to complete. As I have said, he did not observe Credit Suisse's procedures for completing file notes of discussions with clients and so there is no record of his conversations with Mr Ventouris upon which Mr Siakotos-Konstantinidis relied to justify his indifference to Camerata's formal statements of their wishes. Indeed, as I shall explain, his assistant, Mr Kelly, asked Camerata to sign the client agreement in blank and to allow CSSE to complete it as they saw fit."
Investment in the Lehman Brothers Note
At a meeting in London in June 2007 to discuss possible investments, Mr Siakotos-Konstantinidis mentioned to Mr Ventouris that he might consider investing in the Lehman Brothers Note which had come to Mr Siakotos-Konstantinidis' attention in the middle of May 2006. He thought that it might interest Mr Ventouris because the latter was familiar with the movement of the US dollar against the Euro through his shipping business, which operated in dollars but the overheads of which were calculated in Euros.
The Note was a Five Year Autoredemption Note issued by Lehman Brothers Treasury BV, a subsidiary of Lehman Brothers. It paid no regular coupon, but it could be automatically redeemed throughout its life on certain observation dates (at six monthly intervals), if the exchange rate between the Euro and the US dollar was at or below the "strike rate" of 1.3740 US dollar per 1 Euro. At maturity (assuming it had not been redeemed early), provided the exchange rate had never been above the "knock-in rate" of 1.5755 US dollar per Euro, the Note would redeem 100%. However, if at maturity, the Note had at any stage been at or above that knock-in rate, the investor was exposed to the negative performance of the dollar against the Euro from strike and the redemption price would be equal to the strike rate divided by the final exchange rate.
This was all explained on the face of the issuing documentation, which included a table setting out examples of the effect of negative performance of the dollar if the knock-in rate had been reached at any stage. The most pessimistic example given was if the final exchange rate was US$1.60 to €1, in which case the Note would redeem at 85.88% of the original investment. Of course theoretically, the final exchange rate at maturity could be worse if the dollar had fallen catastrophically against the Euro, but the investor would only suffer a total loss of his investment in the event of issuer default.
In an email on 3 July 2007, Mr Siakotos-Konstantinidis advised Mr Ventouris about what investments he should make. In addition to the Lehman Brothers Note in which he recommended half the funds for investment should be placed, he recommended a 20% investment in an Enhanced Return Note based on four indices. His email concluded: "This allocation matches my perception of your medium term investment approach and your desire to put on varying degrees of risk for an average return in the 12–16% range".
Andrew Smith J made the following findings about this advice at [59] of his judgment:
"Mr Siakotos-Konstantinidis acknowledged that Mr Ventouris had not told him that he was looking for a return of 12–16%. He said that he stated his own perception of what Mr. Ventouris wished, so that Mr Ventouris could comment upon it....
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