Medsted Associates Ltd v Canaccord Genuity Wealth (International) Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Longmore,Lord Justice Peter Jackson,Lady Justice Asplin |
| Judgment Date | 06 February 2019 |
| Neutral Citation | [2019] EWCA Civ 83 |
| Docket Number | Case No: A4/2017/2561 |
| Court | Court of Appeal (Civil Division) |
| Date | 06 February 2019 |
[2019] EWCA Civ 83
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
THE HONOURABLE MR JUSTICE TEARE
Royal Courts of Justice
Strand, London, WC2A 2LL
THE RIGHT HONOURABLE Lord Justice Longmore
THE RIGHT HONOURABLE Lord Justice Peter Jackson
and
THE RIGHT HONOURABLE Lady Justice Asplin
Case No: A4/2017/2561
Mr Henry Byam-Cook & Ms Belinda McRae (instructed by Memery Crystal LLP) for the Appellant
Mr Hodge Malek QC, Mr Matthew Slater & Mr Rupert Coe (instructed by Devonshires LLP) for the Respondent
Hearing date: 5 th December 2018
Approved Judgment
Introduction
This appeal is from a decision of Teare J, now reported at [2018] 1 WLR 314, made after a 5 day trial in which he decided 11 different liability issues mainly in favour of the claimant/appellant Medsted Associates Ltd (“Medsted”) including the issue whether the respondent was in breach of a non-circumvention term in its agreement with Medsted. The judge, however, awarded only nominal damages. Medsted submits that this was wrong and that it is entitled to substantial damages to be assessed or (perhaps) a sum by way of quantum meruit, debt or restitution.
Factual Background
Medsted is a company registered in the British Virgin Islands which conducts business as an introducing broker. Relevant individuals connected to the claimant include Mr Valasakis, a beneficial owner to the extent of 65% and Mr Dedetsinas (referred to by the judge as “Marios”), a beneficial owner to the extent of 35%.
The respondent, before it changed its name, was called Collins Stewart (CI) Ltd and is a company incorporated in Guernsey which conducts business as an investment institution. I shall refer to it as Collins Stewart. Relevant individuals connected to the claimant include Mr Jouan, a stockbroker based in Jersey, Mr Glover, a stockbroker and, from 1 st January 2010, the defendant's head of stockbroking in Jersey and Mr Lovett, chief executive officer of Collins Stewart's offshore business.
Outline of business conducted by the Medsted and Collins Stewart
The main financial products to which the present appeal relates were contracts for difference, or “CFDs”. CFDs are a form of derivative written by a major financial institution, known as a “first-tier provider”. The underlying asset of a CFD is equity stock and the CFDs allow investors to speculate on share price movements without buying or selling the shares. There were also trades in other financial products.
Individuals wishing to invest in CFDs cannot deal directly with the first-tier providers, but must deal with a regulated financial institution, or “second-tier provider”, which itself will have an account with the first-tier provider. A second-tier provider, such as Collins Stewart, may engage an introducing broker, such as the claimant, to find potential investors; alternatively it may be the investor who engages the introducing broker.
Trades are conducted on a leveraged basis, so that each investor is required to put up a margin of a given percentage of the value of each CFD. The second-tier provider charges each investor (i) a commission on opening and on closing the CFD, and (ii) a daily financing charge, or “funding rebate”, for keeping the CFD position open. The figures will be agreed between the investor and the second-tier provider. A proportion of the commission and financing charge may then be paid to the introducing broker pursuant to a contract between the second-tier provider and the broker.
There are thus at least three different contractual relationships in play. There is first the contract between the second-tier provider (Collins Stewart) and the first-tier provider. Secondly there is a contract between the second-tier provider and the investor and thirdly there is a contract between the second-tier provider and the introducing broker. There was no evidence in this case of any written contract between the investor and the introducing broker.
The claim arose from events in 2010 when Collins Stewart did business directly with one or more of the investors which Medsted had introduced, thus depriving Medsted of the commission and rebate to which they would otherwise have been entitled.
Relevant events
On some date before July 2008, Mr Valasakis of Medsted introduced four individual investors to MAN, an investment institution. The investors wished to trade CFDs and in the event did so via MAN.
On 22 nd July 2008, Mr Valasakis met Mr Lovett and Mr Jouan of Collins Stewart and Mr Xenophontos, a MAN account executive, with a view to persuading Collins Stewart to replace MAN in respect of the four investors. At that meeting:
i) Mr Valasakis raised the subject of an introducing broker agreement and a non-circumvention agreement (“NCA”). On 24 th July 2018, Mr Valasakis sent to Mr Lovett a draft agreement and a draft NCA; and
ii) Mr Lovett asked to know the terms on which Medsted and MAN were operating. On 25 th July 2018, Mr Xenophontos informed Collins Stewart that the clients paid (i) a commission of 0.7%, of which 0.25% was paid to Medsted; and (ii) a financing charge of 6.2%, of which 4.5% was paid to Medsted.
These four investors were subsequently transferred from MAN to Collins Stewart. In late 2008 Mr Valasakis of Medsted and Mr Jouan of Collins Stewart discussed the possibility of further investors being introduced and it was this further business which gave rise to the present claim.
The first such new investor introduced by Medsted was Mr Alexis Komninos, who provided margin to Collins Stewart on about 11 th or 12 th May 2009. Shortly afterwards Mr Valasakis sent Mr Jouan two documents, a draft “Introducing Agreement” and a note headed “Commission Proposal to Collins Stewart”. The judge held that the parties agreed the terms of the former document by their conduct over the subsequent months so that it was to be treated as setting out the terms of their contract.
Those terms recorded at the outset that Medsted would introduce clients to Collins Stewart and that “Collins Stewart will execute separate agreements with these clients”. It also recorded that “Medsted acknowledges that it is not an employee of Collins Stewart and has no power or authority to enter into agreements on Collins Stewart's behalf”.
The contract also provided that “Collins Stewart will pay Medsted a commission and funding rebate in relation to CFDs or any other product placed with Collins Stewart by customers introduced by Medsted to Collins Stewart. Such payments will be made monthly in arrears”. As the judge explained in his judgment (para 28) it can be calculated from the contract that Collins Stewart agreed to pay Medsted commission at a rate of 0.25% and pay it rebate in respect of financing at a rate of 4.5%. To the extent no rate was agreed in respect of a particular product, it was an implied term that Collins Stewart was to pay a reasonable rate of remuneration (para 80).
It was common ground that by March 2010 Medsted had introduced 16 investors and that those investors subsequently traded in various financial products via Collins Stewart. Those introductions were made under the terms of the contract between Medsted and Collins Stewart as found by the judge, and so Collins Stewart was obliged to pay commission and rebate to Medsted in respect of that trading. However, while Collins Stewart paid commission and rebate on some of that trading, it did not pay it on all such trading. Rather, as the judge put it, “in 2010 Collins Stewart did business directly with one or more of the clients on terms which cut out Medsted from any right to claim its share of commission or funding rebate”.
In particular, on 3 rd March 2010 Mr Jouan spoke with Mr Komninos prior to Mr Jouan's planned trip to Athens. They discussed the possibility of obtaining further business from Mr Ioannis Panagiotopoulos, who was another investor introduced to Collins Stewart by Medsted. They made a plan to hold meetings behind Medsted's back about such business, Mr Komninos saying that any business should “stay between you and me”. It may be that Mr Komninos had already found out how much Medsted were charging but the judge (paras 45 and 46) makes no explicit finding to that effect.
The next month Mr Jouan had further discussions with Mr Komninos in which they agreed that Mr Komninos and Mr Panagiotopoulos would open new accounts with Collins Stewart which would be hidden from Medsted. Mr Komninos would be treated as the introducing broker on those accounts and Collins Stewart would itself receive new and higher rates on those accounts. The judge does find (para 48) that on this occasion Mr Komninos told Mr Jouan that he had sought to persuade Medsted to reduce its charges but that it had refused.
Mr Komninos and Mr Jouan then put this scheme into action from the end of April 2010, with Collins Stewart opening the new accounts without telling Medsted. Part of this scheme involved opening accounts in the name of corporate entities which were beneficially owned by Mr Komninos and Mr Panagiotopoulos, with the express purpose that the different names would assist in hiding the trading from Medsted.
At the same time, Collins Stewart kept Mr Komninos' and Mr Panagiotopoulos' original accounts open and both clients continued to do some trading through those accounts (and Collins Stewart paid commission and rebate to Medsted on that disclosed trading). However, the essence of Medsted's complaint is that Collins Stewart concealed the fact of the larger volumes of trading which was carried out through the hidden accounts.
It was common ground that Collins Stewart had to disclose on a regular basis...
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