David Rocker v Full Circle Asset Management
| Jurisdiction | England & Wales |
| Judge | Mr Justice Morris |
| Judgment Date | 23 November 2017 |
| Neutral Citation | [2017] EWHC 2999 (QB) |
| Docket Number | Case No: HQ15X01731 |
| Court | Queen's Bench Division |
| Date | 23 November 2017 |
[2017] EWHC 2999 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Morris
Case No: HQ15X01731
Mr Philip Coppel QC (instructed by Ballinger Law) for the Claimant
Ms Laura John (instructed by Reynolds Porter Chamberlain) for the Defendant
Hearing dates: 5, 6, 8, 9, 12 December 2016; 23, 25, 26, 27 January 2017 and 3 February 2017
Judgment Approved
Introduction
In this action, commenced on 6 March 2015, the claimant, David Rocker ("Mr Rocker") claims damages against the defendant, Full Circle Asset Management Limited ("FCAM") for breach of contract, breach of statutory duty and negligence.
In May 2009, pursuant to an agreement between Mr Rocker and FCAM, Mr Rocker invested £1.5 million in a portfolio of investments managed by FCAM, known as the Inner Circle Portfolio ("the IC Portfolio"). In March 2014, Mr Rocker removed his investment from the IC Portfolio. At that time the capital value of his investment had fallen to £681,443. Mr Rocker claims not only the difference between these two figures, but also, as further loss, the amount by which he contends the value of the invested assets would have appreciated over that period, had FCAM adhered to its instructions. Mr Rocker alleges that these losses were caused by FCAM's breaches of the contractual terms and relevant applicable statutory rules and breaches of the common law duty of care and of collateral contract: in particular FCAM invested significant portions of the £1.5 million in highly risky investments in such a way as regularly to take the overall risk level of the portfolio above the agreed risk limits; and secondly failed to operate a promised "stop loss" policy that would have limited those losses.
FCAM denies liability, contending that it and Mr Rocker had an agreed "bear" strategy for the IC Portfolio, which, until June 2012, had an agreed "medium, but flexible" risk profile, that the risk profile of the Portfolio did not exceed the agreed risk profile over the relevant period; that it was not contractually obliged to operate a "stop loss" policy and in any event, it did not breach such a policy, on its true meaning. In any event, Mr Rocker fully agreed to all the investments made in the course of the IC Portfolio. Finally, Mr Rocker's claim for opportunity loss is misconceived.
Structure of this Judgment
The judgment addresses matters in the following sections:
(A) Background (paragraphs 5 to 38)
(B) The Issues (paragraph 39)
(C) The Evidence (paragraphs 49 to 57)
(D) The Legislative Background (paragraphs 58 to 60)
(E) Key Contractual Documents (paragraphs 61 to 97)
(F) FSA investigation under s.166 FSMA (paragraphs 98 to 109)
(G) The Issues: Analysis
Issue (1): Contractual Terms, Strategy and Risk (paragraphs 105 to 142)
Issue (2): Breach of Mandate (paragraphs 143 to 211)
Issue (3): Performance Benchmark (paragraphs 212 to 218)
Issue (4): Stop Loss (paragraphs 219 to 265)
Issue (5): The Regulatory Case: Breach of COBS (paragraphs 266 to 291)
Issue (6): Loss: Causation and Quantum (paragraphs 292 to 311)
My conclusions are stated at paragraph 312 below.
(A) Background
The Parties
Mr Rocker is now aged 72 and retired. He had a long and successful legal and business career, holding senior and board level positions in prominent companies including in particular at Guinness Plc in the 1980s. He first became a client of FCAM in August 2005 in his capacity as a trustee of a private trust. Prior to investing with FCAM, he had a number of years' experience investing in the stock market, working through his stockbroker.
FCAM is a private limited company, founded in 1990 and based initially in Orpington, and subsequently in Sevenoaks and whose principal activity is the provision of independent financial management and advice. It was formerly known as RH Asset Management Limited. In the relevant period between 2005 and 2014, John Robson was chief investment officer and investment manager responsible for Mr Rocker's account; Tony Marsh was, until 2011 an associate Director and one of FCAM's client relationship managers; and Andrew Selsby was an investment manager and is now the managing director and company secretary of FCAM. Its investment management committee comprised Mr Robson, as chairman, Mr Selsby and Mr John Miller as an investment analyst.
The Facts in outline
Having met Mr Robson of FCAM in June 2003, Mr Rocker first became a personal client of FCAM in December 2005, when he appointed FCAM as his discretionary portfolio fund manager and invested £1 million in FCAM's investment portfolio known as the "Model Portfolio". At that time, Mr Rocker owned two properties outright, had monies invested in a portfolio, a PEP and an ISA amounting to about £500,000 as well as £3 million cash on deposit. He had no financial dependents.
The agreed investment objective of the Model Portfolio was "medium term capital growth" and in December 2005 Mr Rocker signed a document "Attitude to Risk and Loss" ("the 2005 ATR Document") in which he indicated that he was a medium risk investor. The products in the Model Portfolio were structured so that they were "bearish", i.e. that they would grow in falling market conditions. FCAM's analysis of the market was that the FTSE 100 would fall and equities would suffer and it therefore adopted a non-standard or non-traditional (or "contrarian") approach to investment, investing in a manner so as to profit when markets fell. In November 2007, the Financial Services Authority ("FSA") introduced substantial changes to the regulation of investment management, through new Conduct of Business rules. In September 2008 Mr Rocker signed a further and new client agreement in respect of the Model Portfolio. During the period of operation of the Model Portfolio, there were a number of documented references to investment in bear funds, suggesting discussion of such investments between Mr Robson and Mr Rocker. Between December 2005 and May 2009 Mr Rocker's Model Portfolio delivered average annual growth of 9.7% equating to an overall increase of 34.6% in value. No complaint is made by Mr Rocker in relation to the Model Portfolio. He maintained that investment until 11 October 2016.
In early 2009 Mr Robson approached Mr Rocker, inviting him to invest in a different portfolio, the IC Portfolio. This was a portfolio reserved to FCAM's clients with higher levels of funds. The IC Portfolio was intended to operate a similar strategy (at that stage "bearish") to that operated in the Model Portfolio.
Following a meeting on 9 March 2009, on 30 April 2009 Mr Rocker indicated to Mr Robson that he wished to become an IC Portfolio client. On 7 May 2009 Mr Rocker concluded an agreement with FCAM ("the 2009 IC Agreement") to sign up to the IC Portfolio, signing the client agreement ("the Client Agreement") and an Appointment of Custodian Application form ("the Custodian Form"); and at the same time he was provided with a "suitability letter" ("the Suitability Letter"). No further assessment of Mr Rocker's attitude to risk was undertaken at this time. In the lead up to the conclusion of the 2009 IC Agreement, FCAM emphasised the objectives of capital preservation, outperforming cash on deposit, and applying an aggressive stop loss policy to prevent losses. Further Mr Robson explained that the strategy of the IC Portfolio was to seek to take advantage of falling equity markets worldwide i.e. a "bear strategy". Mr Rocker contends that, for the purposes of the IC Agreement, the earlier 2005 ATR Document, completed in respect of the Model Portfolio, applied and thus that it was agreed that he was a "medium risk investor". FCAM contends that the relevant applicable risk level was "medium but flexible". Under the terms of the Client Agreement, a performance benchmark was set, being a return on investment in a bank account linked to Bank of England base rate.
On 12 May 2009 Mr Rocker invested in £1.5 million in the IC Portfolio. In July 2009 FCAM provided Mr Rocker with a "Risks Warning Schedule".
Mr Rocker maintained his investment in the IC Portfolio from then until 17 March 2014. In that period of almost five years, there were many and frequent exchanges, communications and discussions between Mr Rocker and FCAM, and in particular Mr Robson, about the IC Portfolio generally and about particular investments within the Portfolio. Mr Robson and Mr Rocker developed a very close relationship, based on mutual respect.
Whilst between March and June 2010, and again between March and August 2011, the value of Mr Rocker's IC Portfolio improved, overall the value declined, and ultimately fell substantially. By January 2011, Mr Rocker was expressing his unhappiness with having lost money in the IC Portfolio, but stated that he remained sceptical about equities and he agreed to stay invested. Nevertheless he wanted careful monitoring of the bear notes.
Between July 2011 and August 2012 there was an FSA instigated investigation, under the provisions of the Financial Services and Markets Act 2000 (" FSMA"), into FCAM's practices, concentrating on the Model Portfolio. In summary, in an initial report – the s.166 report — there were very substantial criticisms of FCAM's practices in relation to risk assessment. As a result FCAM was required to improve its practices and to re-assess customer risk on a substantial number of customers. Following that process, the services provided to those customers were found to be suitable ultimately. No fine and no reprimand was imposed. This is explained further in paragraphs 98 to 104 below.
In the meantime, according to FCAM, in September 2011, the performance benchmark for the IC Portfolio changed from Bank of England base rate to APCIMS...
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