Sebastian Holdings, Inc. v Deutsche Bank AG

Hearing date: 8 July 2014

The question which arises on this application is whether we should impose conditions upon the pursuit by the Appellant, Defendant at trial, Sebastian Holdings, Inc ("SHI"), of its application for permission to appeal against an Order of Cooke J dated 8 November 2013. By that Order, after a 45 day trial, and delivery of a 400 page reserved judgment, the judge gave judgment for the Respondent, Claimant at trial, Deutsche Bank AG ("DB"), for about US$243m. He also directed that SHI was to make an interim payment on account of costs of about £34.5m by 22 November 2013.

SHI has sought permission to appeal from this court, the judge having refused it. On 6 February 2014, Sir Stanley Burnton, on a consideration on the papers, adjourned that application to a rolled up hearing on notice to the Respondent, with the appeal to follow if permission is granted. As a result a seven day hearing is listed to commence on 20 November 2014, with several days set aside in advance for pre-reading by the court. It is acknowledged that the proposed appeal is of a fact-intensive nature and that it will inevitably be costly, both for the parties and in terms of the judicial resources which must be devoted to it. Should it succeed in its appeal, SHI intends to pursue its counterclaim in an amount of up to about US$600m. It does not pursue the entirety of the counterclaim which was advanced, without success, at trial in the sum of about US$ 8bn.

In summary, the subject of the claim was Foreign Exchange, ("FX"), and Equities trading which SHI conducted with DB pursuant to a series of prime brokerage agreements. SHI's trading was conducted either by Mr Vik, SHI's sole shareholder and director, or by SHI's agent, Mr Klaus Said, an experienced and senior FX trader. Both Mr Vik's and Mr Said's trading suffered massive losses in the market turmoil of October 2008. This left SHI owing substantial sums to DB, about US$243m, which DB claimed from SHI. Mr Vik is by any standards a man of great wealth, said to be measured in billions.

SHI brought a US$8bn counterclaim, alleging ( inter alia) that DB's breaches of alleged oral agreements or implied terms relating to SHI's trading through DB caused SHI to incur billions of dollars of consequential losses and lost profits. Importantly, amongst other things, SHI claimed that margin calls made by DB in October 2008 in respect of SHI's trading forced it to close positions at significant losses and to incur billions of dollars of lost profits. A key issue in dispute was whether SHI in fact had funds available to it in October 2008 which it chose not to use to meet those margin calls.

The case took over four years to come to trial, following a protracted jurisdictional battle and a series of intensely fought interlocutory applications. The trial before Cooke J concluded in August 2013. It involved 29 witnesses of fact, 17 expert witnesses, hundreds of thousands of documents hosted on an electronic trial bundle, thousands of pages of closing submissions, and was conducted at a combined cost to both parties of around £100m, reflecting the vast sums at stake. Parallel substantive proceedings have also been ongoing in New York in which SHI is claiming about US$2.5bn from DB (these are continuing, no trial having yet been held)

Cooke J handed down his 400 page judgment on 8 November 2013. The Judge substantially upheld DB's claim in the sum of about US$243m. He dismissed SHI's US$8bn counterclaim in its entirety.

SHI argue that central to the judge's conclusion was his determination that although DB had been in breach of an implied contractual term requiring it to report to SHI the collateral requirements of Mr Said's trading, performance of which obligation would in practice limit SHI's risk on that trading to the US$35m collateral budget which it had provided, Mr Said had been authorised to waive and had waived performance of that obligation. In that regard it should be noted that the judge made findings of dishonesty on the part of some of the bank's personnel in relation to their subsequent explanations regarding the bank's inability properly to monitor the margin required by Mr Said's trading. It is against the finding of waiver that the appeal is principally directed. SHI says that, had that finding not been made, then, subject to certain subsidiary issues, SHI would have obtained substantial damages from the bank regardless of the multiple criticisms which the judge made of SHI's conduct of the case.

The judge was very critical of Mr Vik. For present purposes, it suffices to note that Cooke J found that substantial parts of SHI's defence and counterclaim were based on dishonest evidence and fabricated documents put forward by Mr Vik, or by SHI's only other factual witness, Per Johansson. Mr Johansson was and apparently still is engaged as a litigation consultant to SHI. Amongst other things, Cooke J found that Mr Vik had invented the alleged oral agreements with DB, and that SHI's vast counterclaim was put forward on a dishonest basis by Mr Vik and Mr Johansson relying on fabricated documents. Cooke J was also critical of SHI's conduct of the proceedings in other respects, in particular its approach to disclosure, its pursuit of hopeless arguments, and as to the evidence of two of its main experts.

I have already mentioned the issue whether SHI had available to it in October 2008 funds with which it could have met the substantial margin calls which were required to sustain the trading. This issue was made more complicated by the bank's failures, and in particular by the circumstance that it was only on 22 October 2013 that the bank identified, and told SHI of, a systems error which had resulted in SHI's assets with the bank being overstated by US$315m. This notwithstanding, taking all relevant factors into account, the judge nonetheless made an unequivocal finding that on and after 13 October 2008, when Mr Vik had a clear idea that SHI's trading liabilities ran to many hundreds of millions of dollars, he caused US$896m of funds and assets to be transferred from SHI either to himself or to companies closely associated with him or with his family. In particular, very substantial sums were transferred to CM Beatrice, Inc. ("Beatrice"), and to VBI Corporation ("VBI"). The judge found that Mr Vik procured these transfers for no bona fide commercial reason, and that he did so with a view to depleting SHI's assets and making it more difficult for DB to seek recovery of the amounts owed to it by SHI. The judge concluded, at paragraph 1461:

"I therefore find that all these funds were available to SHI (some US$896M) prior to transfer and that, moreover, Mr Vik could, at a moment's notice, procure the transfer of those funds back to SHI should he have chosen to do so. There was no good bona fide commercial reason for the transfers."

In a subsequent judgment of 24 June 2014 pursuant to which the judge has made, pursuant to s.51 of the Senior Courts Act 1981, a non-party costs order against Mr Vik, the judge said this:-

"66. First, for the reasons set out at paragraphs 1434–1465 of my judgment in the action (at paragraphs 1455, 1460 and 1463 in particular) I found that Mr Vik transferred assets out of SHI with a view to depleting those assets and making it more difficult for DBAG to recover sums from SHI in respect of any liability owed. He sought to move assets speedily away from SHI and in particular from SHI's accounts with DBAG in order to render access to them more difficult. At paragraph 1461, I concluded that all the funds which he had transferred were still available to SHI because Mr Vik could, at a moment's notice, have procured the re-transfer of those funds to it had he chosen to do so. The funds were available to SHI to produce margin for Mr Said's FX trading at the time and Mr Vik could choose to utilise them whilst they were in SHI's accounts, whether at DBAG, HSBC or elsewhere and equally use them even after transfer to Beatrice, to VBI or to himself. Until 30th October 2008 at the earliest, Mr Vik owned Beatrice as well as SHI and moved money between these companies "as he saw fit".

67. SHI's financial situation was very much an issue at the trial because of the allegations of about forced close out, duress, available funds and transfers as well as the counterclaim. I found that there was no duress and that Mr Vik was not forced to close out any of SHI's transactions, whether those concluded by Mr Said or those concluded by himself, because of these available funds. The effect of the transfers was that intended. Assets available to DBAG to satisfy debts owed to it by SHI were depleted. Whatever might have happened to those funds since October 2008 in the counterfactual situation had these transfers not occurred is not relevant for this purpose. The transfer of SHI's assets, on Mr Vik's instructions, has undoubtedly caused or contributed to SHI's inability to meet the costs order of 8th November 2013.

68. Moreover, there was, as I have...