Smithton Ltd (Formerly Hobart Capital Markets Ltd) v Guy Naggar (1) Barry Townsley (Third Party) (2) Colin Thomas (Fourth Party) (3) Jason Berry (Fifth Party)

JurisdictionEngland & Wales
CourtChancery Division
JudgeMrs Justice Rose
Judgment Date11 July 2013
Neutral Citation[2013] EWHC 1961 (Ch)
Docket NumberCase No: HC11C00054

[2013] EWHC 1961 (Ch)



Royal Courts of Justice

Strand, London, WC2A 2LL


Mrs Justice Rose

Case No: HC11C00054

Smithton Limited (Formerly Hobart Capital Markets Ltd)
Guy Naggar


(1) Barry Townsley
Third Party
(2) Colin Thomas
Fourth Party
(3) Jason Berry
Fifth Party

Mr Philip Marshall QC and Mr Jonathan Adkin QC (instructed by Dechert LLP) appeared on behalf of the Claimant and Messrs Townsley, Thomas and Berry.

Mr Michael Crystal QC, Mr David Alexander QC, Mr Tom Smith and Ms Charlotte Cooke (instructed by Messrs Isadore Goldman Solicitors) appeared on behalf of the Defendant.

Hearing dates: 15, 16, 17, 20, 21, 22, 23, 24 May and 3, 4, 5 and 7 June 2013

Mrs Justice Rose

This is a claim for loss suffered by the Claimant when two companies, Insureprofit Ltd ('Insureprofit') and Mariona Ltd ('Mariona') defaulted on their obligations to pay margin calls under open-ended contracts for difference entered into between the Claimant and those two companies. When the defaults occurred, on 10 July 2008, the Claimant had to arrange the rapid placing on the market of several million shares that had been referenced by the contracts for difference and had been acquired as a hedge for those contracts. The shares were sold at a price substantially below the average price at which the shares had been acquired over the previous months when the contracts for difference had been set up. Hence the loss that the Claimant alleges it has suffered.


These proceedings are not brought against Insureprofit or Mariona because both those companies are insolvent. The claim is brought against the Defendant, Mr Naggar, personally. Insureprofit was a property and equity investment company owned in part by family companies of Mr Naggar. Mariona was an equity and derivative trading company owned by Mr Naggar and his wife. The issue underlying this claim is, broadly speaking, whether Mr Naggar is personally liable for the losses which his two companies allegedly caused to the Claimant.


During much of the period with which this case is concerned, the Claimant was called Dawnay Day Capital Markets Ltd. Shortly after the collapse of the Dawnay Day group in July 2008, the Claimant was renamed Hobart Capital Markets Ltd. In March of this year it was renamed again Smithton Limited. In this judgment I shall refer to the Claimant as 'Hobart' although for certain parts of the narrative it is significant that its name was Dawnay Day Capital Markets Ltd.


The Dawnay Day group and Hobart's initial business


Mr Naggar has been working in the financial services sector in the City of London since 1963. Dawnay Day International ('DDI') was incorporated in 1985 and became the parent company of certain companies within the Dawnay Day group. Mr Naggar held, either directly or indirectly, a substantial interest in DDI and at all times material to this case he was the Chairman of that company. In 1992, Peter Klimt and his family acquired a substantial interest in the group. Although I refer to the Dawnay Day 'group', this was not a straightforward corporate group of parent and subsidiary companies but a much more complex network of interests held by companies, by family trusts and by individual members of the Naggar and Klimt families. It is useful however to refer to the Dawnay Day group using that term in a non-technical sense. The term 'Dawnay Day group' as used by the parties thus extends beyond those companies in which DDI held an interest (those were mainly financial services companies) to include any companies jointly owned by Mr Naggar and Mr Klimt or their families. They include Insureprofit, Starlight Investments Limited ('Starlight') and Dawnay Day Properties Ltd. Other companies involved in this matter were entirely owned by Mr Naggar's family rather than jointly with Mr Klimt. Those include Mariona, Forwardissue Limited and Fitzgerald Securities Ltd ('Fitzgerald'). These were regarded as being outside the Dawnay Day group. The term 'Connected Companies' was adopted by the parties to cover both Dawnay Day group companies and those personally owned by Mr Naggar and his family and I adopt that term in this judgment.


The Dawnay Day group had two main business areas, financial services which was primarily Mr Naggar's purview and property investment which was primarily Mr Klimt's. As regards financial services business, Mr Naggar described the model he developed as providing 'a platform for capable and talented merchant bankers working for large institutions who had the entrepreneurial drive to set up their own operation focused on their specialised area'. The model was that each new business started as a division of an existing regulated business within a Dawnay Day company but keeping separate accounts as though it were independent. Mr Naggar referred to this process as 'incubating' the new business. If the business became successful, a new company would be formed and the business spun off into this company as a joint venture between Dawnay Day and the individuals concerned. Dawnay Day would provide the initial capital and the group would continue to provide the new company with IT, accounting and compliance services. Dawnay Day would also own a majority of the voting shares in the new company and would appoint directors to look after its interests. This model of incubating and then spinning off businesses was used by the Dawnay Day group on a number of occasions during the 1980s and 1990s. At its height, the group was a very substantial empire with businesses across the world said to comprise assets of over £1 billion and employing directly or indirectly over 10,000 people.


The contracts for difference business that subsequently became Hobart's business was initially set up as a division within the company called Dawnay Day Brokers Ltd ('DDBL'). DDBL was a wholly owned subsidiary of DDI and Mr Naggar was the chairman of the board of DDBL as well as of DDI. The business was developed from about 2004 by Mr Barry Townsley who was a long-standing friend of Mr Naggar. It was a broking business which specialised in setting up contracts for difference for various clients. Mr Townsley brought into the division people with whom he had worked at various points in his career. Chief among these was Mr Colin Thomas who ultimately became the CEO of Hobart. They were successful in building up Hobart's business and on 1 October 2007 the business was spun out of DDBL and became Dawnay Day Capital Markets Ltd; the company to which I am referring as Hobart.


The interests and responsibilities of the individuals to be involved in the new company were set out in a joint venture agreement made on 12 September 2007 ('the JV Agreement') between DDBL, DDI, Hobart and the six individuals who then made up the senior management of the company namely Mr Townsley, Mr Thomas, Jason Berry, Darryll Warnford-Davis, Richard O'Neill and Neil Ridley. The JV Agreement provided that:

i) DDI would receive 50.1% of the voting rights in the new company and would contribute £3 million through the acquisition of non-voting ordinary shares. Shares carrying 45% of the voting rights were distributed among Mr Townsley and his colleagues with Mr Townsley receiving 250 shares, Mr Warnford- Davis 115 shares, Mr Thomas, Mr Berry and Mr Ridley 25 shares each and Mr O'Neill 10 shares: see clause 3.2.

ii) The Board of Hobart would comprise Robert Keane, Barry Pincus and Ian Morley (who were non-executive directors appointed by DDI), Mr Townsley, Mr Warnford-Davis, Mr Thomas, Mr Berry and Ray Kelly: see clause 6.1.

iii) DDI had the right to appoint up to seven directors to the Board and Mr Townsley and his colleagues had the right to appoint six directors. Mr Townsley was appointed Chairman of the board: see clause 6.4 and 6.5.

iv) Mr Townsley and his colleagues undertook the 'continuing obligations' set out in Schedule 1 to the JV Agreement: see clause 9. These obligations included providing the shareholders regularly with detailed financial information such as monthly management and progress reports, monthly management accounts, all returns to the company's regulator and such further information as any shareholder might from time to time reasonably require as to all matters relating to the businesses or affairs of the company.

v) Mr Townsley agreed not to procure that the company would do anything listed as a 'reserved matter' without the consent of DDI. Reserved matters included changing the nature of the company's business; incurring any capital expenditure which exceeded the amount for capital expenditure in the current business plan; entering into any long term (that is longer than 12 months) or material (that is over £20,000) capital commitment; changing the directors and a wide range of other matters.

vi) A Dawnay Day group company would provide, as required, secretarial, human resources, administrative, IT and accounting services for the company's business; it would advise and assist on achieving and maintaining regulatory compliance standards and procedures under the Financial Services and Markets Act 2000 (' FSMA') and would provide office space, all in return for a management fee: clause 15.


In order to do business, Hobart and the individuals working in it had to be approved by what is now the Financial Conduct Authority ('FCA'). An important point for the purpose of this case was that Hobart was not authorised to take a position itself on shares or derivatives. In other words Hobart could not hold shares in a way which made it possible for it to make either a profit or a loss as a result of movements in the price of that stock. There were two ways in which Hobart could therefore buy stock. One way was to buy as an agent for someone else. The other was by making a back-to-back...

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