Parabola Investments Ltd and another v Browallia Cal Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Toulson,Lord Justice Rimer,Lord Justice Mummery |
| Judgment Date | 05 May 2010 |
| Neutral Citation | [2010] EWCA Civ 486 |
| Docket Number | Case No: A3/2009/1242 |
| Court | Court of Appeal (Civil Division) |
| Date | 05 May 2010 |
[2010] EWCA Civ 486
Flaux J
Before: Lord Justice Mummery
Lord Justice Toulson
and
Lord Justice Rimer
Case No: A3/2009/1242
COURT OF APPEAL (CIVIL DIVISION)
COMMERCIAL COURT
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
Mr Ali Malek QC, Mr Jeffrey Chapman and Mr Adam Kramer (instructed by Legal First) for the Appellants
Mr Neil Kitchener QC and Mr Steven Elliott (instructed by Gordon Dadds) for the Respondents
Hearing dates: 10–12 March 2010
Lord Justice Toulson:
Introduction
This appeal raises a question of law about the recoverability of damages in deceit for loss suffered, after the discovery of the fraud, through loss of the availability of the funds of which the victim was defrauded.
The second defendant (Man) and third defendant (Mr Bomford) appeal against a judgment in favour of the second claimant (Tangent) delivered by Flaux J on 6 May 2009, [2009] EWHC 901 (Comm), [2009] 2 All ER (Comm) 589. The judgment followed a trial which took place over 17 days in March and April 2009.
At the beginning of the trial, liability and quantum were both in dispute. On the tenth day, leading counsel who represented the appellants at the trial (but not on the appeal) admitted the allegations of fraud made against Mr Bomford. The admission followed what the judge described as “a disastrous three days in the witness box for Mr Bomford, during which he was exposed not just as a fraudster throughout the relationship between Tangent and Man but also as a persistent and inveterate liar in almost everything he said”. Inducement remained in issue at the trial, but there is no appeal against the judgment on liability.
The judge gave permission to appeal on the question whether Tangent could recover damages for loss of the profits which he found that it would otherwise have made, after the period of the fraud, from use of the funds of which it had been defrauded. He refused permission to appeal on issues of quantification of Tangent's loss of profits, both during and after the period of the fraud, and the appellants have renewed their application for permission to appeal on those issues.
The facts
The facts are fully set out in Flaux J's impressive judgment. For present purposes they can be summarised more briefly. Man is a well established financial institution, trading on the London Stock Exchange and other world markets. Mr Bomford was employed at the relevant time by Man as a senior futures broker. Tangent was a company set up by Mr Rajesh Gill for the purpose of trading in stocks, shares and derivatives. The judge described him in the opening paragraph of his judgment as follows:
“Mr Gill who is still only in his mid 30s is regarded by those who have dealt with him as one of the most successful traders in certain types of stocks and shares and their derivative products on world markets. Over the period of more than ten years since he left university, other than in one period, Mr Gill has consistently made profits from his trading, whether in bull or bear markets, sometimes extraordinarily good profits despite the state of the world markets The exception was the period when he was trading primarily through the second defendant between July 2001 and February 2002, throughout which time he was the victim of the systematic fraud with which this case is concerned. At that time, Mr Gill was still in his late 20s but had already been very successful in his trading.”
Tangent's relationship with Man lasted from 1 July 2001 to 7 March 2002, although active trading ceased soon after 13 February 2002. Except during that period of trading, the bulk of Mr Gill's trading was in market makers, principally those listed on the FTSE 350 Index. During the Man period the bulk of Mr Gill's trading was in contracts for differences (CFDs), particularly through the Stock Exchange Electronic Trading Service (SETS). He had not traded in SETS before, but he was encouraged to do so by Mr Bomford. Because of the volume and speed of the trades, substantial commissions for Man were generated, which would in turn mean that Mr Bomford would receive generous bonuses. Mr Gill was induced to continue this course of trading by Mr Bomford's repeated false assurances that the trading was profitable, whereas the judge found that “in truth it was disastrously loss making from an early stage”. Mr Bomford also on several occasions lied to Mr Gill about how much was in his account. On 26 October 2001 he gave Mr Gill a figure of approximately £9.27 million, when the true figure was about £2.8 million and had been declining rapidly for several months. No other Man employee was involved in the fraud. Matters came to light on 13 February 2002. On that day Mr Bomford was away from the office. Another employee of Man informed Mr Gill that the open positions on his account were such that there would be a margin call and that the amount in the account was £817,000. Mr Gill was at first unable to believe what he was being told, because by then he had been led by Mr Bomford to believe that he had over £10 million in his account, but the truth was out.
The heads of loss
It was agreed at the trial that the difference between the size of Tangent's fund for investment at the beginning and at the end of the Man period was £3,222,000. On the premise that Tangent established liability, the appellants did not dispute that it would be entitled to recover that sum with interest. Tangent, however, claimed to have suffered considerably greater loss than would be satisfied by an award of interest, first, from its lost opportunity to have traded with the fund as it would otherwise have done during the Man period (referred to during the appeal as stage 1), and secondly, from its lost opportunities for trading during the period from the termination of its relationship with Man until the trial (stage 2) resulting from the depletion of its trading fund.
As to those claims, the judge made the following broad findings:
“183 In the present case, had it not been for the fraud perpetrated on it in the Man period by Mr Bomford, Tangent would have had a fund of £4.25 million at the end of June 2001 with which to trade CFDs, instead of which it had only the depleted fund of £521,644 in March 2002. On a balance of probabilities, I am satisfied that had the fraud not occurred, Tangent through Mr Gill would have gone on conducting its business of trading primarily in market makers throughout the Man period and thereafter and that business trading would have been profitable overall. To the extent that some individual trades conducted would have been loss-making, that is no reason to conclude that the trading overall is too speculative for loss of profits to be recoverable. The fact that losses would have been suffered on individual trades is catered for in the average percentage trading profit figures, on the basis of which the claim is presented, to which I turn in the next section of the judgment.
184 I am also quite satisfied that, since Tangent has yet to recoup that fund of £4.25 million which it should have had (and which was effectively stolen from it), notwithstanding the successful trading conducted with much smaller resources, Tangent has continued to suffer from the adverse effects of the fraud. In a very real sense, Tangent has been “locked in” to a much depleted trading business, a disadvantageous situation, as a consequence of the fraud throughout the period since June 2001. The fact that it cannot (because of the nature of the business which has been damaged) identify a specific alternative transaction, is neither here nor there and should not affect the recoverability of damages for loss of profits.”
The judge's assessment of quantum
In addition to the evidence of Mr Gill, whom the judge described as “an essentially truthful witness”, and Mr Bomford, whose evidence was worthless, both sides called expert witnesses on investment brokerage and trading, namely Mr Jeffrey Plowman for Tangent and Mr Philip Jones for the appellants, and forensic chartered accountants, namely Mr Humphrey Creed for Tangent and Mr Gervase McGregor for the appellants.
As to stage 1, the judge accepted Tangent's estimate that during the Man period it would have made profits at a rate of 50% per annum (reduced pro rata to allow for the fact that the Man period was only eight months). This approximated to Mr Gill's average profit percentage over the six years prior to the Man period, omitting the year of the dot com boom in which Mr Gill made a profit of over 1,000%. It also approximated to Mr Gill's rate of profit over several years after the Man period. For part of the pre-Man period Mr Gill had been a client of Mr Plowman, who described him as the best trader that he had ever come across in 40 years of broking experience. He considered that 50% per annum was a conservative estimate of the level of profits that he would have expected Mr Gill to make during stage 1 and that there was nothing in the market conditions during that period which would have led him to conclude otherwise. No rival estimate was put forward by Mr Jones. The appellants' case was that the matter was altogether too speculative for the judge to be able to make any reasonable estimate of the profit which Tangent would have...
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