IG Index Plc v 1. James Colley and Others
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Stadlen |
| Judgment Date | 07 March 2013 |
| Neutral Citation | [2013] EWHC 478 (QB) |
| Docket Number | Case No: HQ09X04170 |
| Court | Queen's Bench Division |
| Date | 07 March 2013 |
[2013] EWHC 478 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Stadlen
Case No: HQ09X04170
Mr David Mayall (instructed by Martin Shepherd and Co) for the Claimant
Mr Oliver White (instructed by Grosvenor Law) for the 11th Defendant
Hearing dates: 16-18, 21-25, 29-30 May 2012
Approved Judgment
The Claimant ("IG Index") is a well known company which specialises among other things in spread betting transactions. The First Defendant ("Mr Colley") was at all material times employed by IG Index as a senior shares dealer. The Second to Sixteenth Defendants were clients of IG Index who entered into various spread betting transactions with it. In this claim it is alleged that over a considerable period of time between September 2005 and September 2008 Mr Colley perpetrated a fraud against IG Index in concert with the other Defendants, in some cases through their agents. The purpose and effect of the fraud was to enable the other Defendants to place spread bets with IG Index at artificially low and thus false prices resulting in artificially high profits or low losses. The means used was the systematic fraudulent manipulation by Mr Colley of the trading prices offered by IG Index on certain US stocks, to which, as a senior trusted shares dealer he had access, by the insertion of false dividends which had not been announced and were not expected to be paid, the subsequent placing by the other Defendants of spread bets at prices which, by reason of the insertion of the false dividends, did not reflect the market prices, the retention of the false dividends in the IG Index price long enough to evade detection of the fraud by the two checks made which compared the IG Index price with the contract price, and the subsequent removal of the false dividends to enable the other Defendants to close the bets with the benefit of the true market price of the stocks.
As against Mr Colley, it is alleged that he occupied a position of trust and acted fraudulently and in breach of a fiduciary duty owed by him to IG Index as a senior employee to act honestly and in its best interests. As against the other Defendants it is alleged that they traded fraudulently at the false price and profited from the fraudulent activity of Mr Colley in respect of which they were acting in concert with Mr Colley of which they were aware and in which they willingly participated. It is further alleged that the sums by which they profited by the fraud were sums diverted from IG Index by reason of Mr Colley's breach of fiduciary or other duty owed by him to IG Index, and that the other Defendants were knowing recipients of such sums. One of the matters said to give rise to the inference that the client Defendants and Mr Colley were acting in concert was that Mr Colley could not otherwise profit from his fraudulent activity. In an interlocutory judgment. I held that amounted to an allegation that the profits made by the client Defendant would redound to Mr Colley's advantage.
As appears below, there was dispute between IG Index and some of the client Defendants as to what was the nature of the causes of action relied on against them, and whether they were good in law. In the Amended Particulars of Claim it is alleged that, as a result of the matters pleaded, IG Index has suffered loss and damage and IG Index claims against Mr Colley the sum of £1,242,190.43, said to be the total amount of money by which the other Defendants profited by reason of the fraudulent transactions. As against each of the other Defendants, IG Index claims the amount by which it is alleged that he or she profited and IG Index suffered loss by reason of the fraudulent transactions.
As against the client Defendants IG Index also have a claim in contract based on a term of the Spread Betting Customer Agreement by which it is alleged they had agreed to be bound. IG Index allege that under that term it had the right, either to void from the outset or to amend the terms of any bet containing or based upon a Manifest Error. A Manifest Error was defined as "any error that we believe to be obvious or palpable. In deciding whether an error is a Manifest Error we may take into account any relevant information including the state of the Underlying Market at the time of the error or any mistake in, or lack of clarity of, any information source or pronouncement upon which we based our quoted prices."
Where the opening level of the relevant bets was based upon an anticipated dividend, when no such dividend was in fact anticipated, it is alleged that the bets were based upon a Manifest Error. IG Index had decided that each of the relevant bets was based upon a Manifest Error. It is therefore alleged that it was entitled to, and has amended, the opening level of each relevant bet to that which would have been the correct opening level had the false dividend not been fraudulently entered by the First Defendant.
Originally there were 16 Defendants. By the time of the trial of the action IG Index had settled with, or obtained judgment against, all of them except Mr Colley, the Second Defendant ("Mrs Benn"), the Tenth Defendant ("Mr Osborn"), the Eleventh Defendant ("Mr Regan"), the Twelfth Defendant ("Mr Slaney") and the Thirteenth Defendant ("Mr Teller"). Mrs Benn is the mother of the Third Defendant ("Tom Benn") and Mr Teller is the son of the Fourteenth Defendant ("Mrs Teller") and the sister of the Fifteenth Defendant ("Ms Teller").
Details of the judgments and settlements available to the court at the time of the trial included the following. Judgment in default of a fully particularised defence in the sum of £197,317 and interest was obtained against Tom Benn. Judgment in default of a fully particularised defence was obtained against the 8 th Defendant ("Mr Goldstein") in the sum of £112,348 plus interest. Judgment was obtained against the Fifth Defendant ("Mr Cowan") in the sum of £22,263, against Mrs Teller in the sum of £20,204 plus costs and against Ms Teller in the sum of £56,151 plus costs. The action against the Fourth Defendant ("Ms Cooper") was stayed on terms that she agreed to pay IG Index £1500.
Spread Betting
It is convenient to set the scene by reference to the description of what is involved in spread betting given by Rix LJ in Spreadex Ltd v Battu [2005] EWCA Civ 855 at [2]–[3].
"Spread betting
Spread betting is not so much or not merely a bet, although it can be described as such, as a form of contract for differences. It enables a customer to take a position on a market (or an event) for a very small stake. Thus if the Dow Jones Index is, say, at 10,000, one can "buy" or "sell" the market at a spread around the index of, for the sake of example, 10 points either way, 9,990 to 10,010. If one buys, one is betting that the market will rise above 10,010. If one sells, one is betting that the market will fall below 9,990. If one buys and the market rises, one stands to gain £1 for every point that the index exceeds 10,010. If one sells and the market falls, one stands to gain £1 for every point that the index drops below 9,990. If, however, one calls the market wrong, then one will stand to lose £1 for every point that the index exceeds the spread point in the wrong direction. Thus if one sells at 10,000 with a sell spread point at 9,990, one will make £1 for every point the market falls below 9,990 and lose £1 for every point the market rises above 9,990. Until the bet or "trade" is closed, the gains and losses are merely "running" gains or losses. They are real enough, but constantly changing with every change in the index, and have not yet been fixed. Closing the bet will fix the position, win or lose. Unlike a classic bet, the customer can of course lose more than his stake. Indeed, on the example given, of a sale spread point of 9,990 when the market is at 10,000, if the market does not move an inch, the customer will lose £10 for every £1 staked. Nor, again unlike a classic bet, are his winnings fixed at the outset by an agreement on odds. In theory winnings based on rising markets are infinite (in practice of course they are not) and losses based on falling markets are limited only in so far as they cannot exceed the consequences of a fall in the index to zero.
Normally, of course, to gain by £1 for every rise (or fall) of a single point in a stock market index such as the Dow Jones would take an investment of significantly more than £1. In effect, one's £1 bet commands a position in the market significantly greater than the stake. In other words, there is a large element of gearing in the trade, and the situation is correspondingly volatile. Where the market in question is itself in a volatile phase, the risks become even greater. Thus, if the Dow Jones is capable of moving within a range of 100 or 200 points in a single day, the customer can be £100 to £200 richer or poorer per £1 stake within a matter of hours of his trade. On a trade of £100, those figures become £10,000 to £20,000."
IG Index described its carrying out of its spread betting business so far as relevant to this claim as follows in its Amended Particulars of Claim:
"The Claimant offers spread bets on, inter alia, the future price of individual US quoted stocks. As an example the Claimant might offer the quoted September 2009 price of "US Inc" as being 99–101 cents. The difference between 99 and 101 is the "spread"....
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