Stokors Sa & Others v IG Markets Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Tomlinson,Lord Justice Lewison,Lord Justice Munby |
| Judgment Date | 02 November 2012 |
| Neutral Citation | [2012] EWCA Civ 1706 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2012/1472, |
| Date | 02 November 2012 |
[2012] EWCA Civ 1706
Lord Justice Munby
Lord Justice Tomlinson
and
Lord Justice Lewison
Case No: A3/2012/1472,
A3/2012/1892
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(MR JUSTICE TEARE)
(MR JUSTICE POPPLEWELL)
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Paul Downes QC and Emily Saunderson (instructed by McClure Naismith LLP) appeared on behalf of the Appellant.
Mr Jonathan Nash QC, Mr Sandy Phipps and Mr Rajesh Pillai (instructed by Laytons) appeared on behalf of the Respondent.
There are before the court, first, an appeal and, secondly, an application for permission to appeal in respect of case management decisions made by two judges of the Commercial Court in relation to a substantial trial which is fixed to begin two weeks on Monday, that is to say on 19 November, the estimate for the trial being, as I understand it, four or five weeks. The subject matter of the two appeals, as I will call them, are: firstly, an order made by Popplewell J in relation to security for costs (and I might add in relation to the security for the costs of a discrete part of the preparation for trial, not the whole preparation); and, secondly, an order made in July 2012 by Teare J consequent upon an application to amend pleadings made by the defendant, the effect of which was to convert what would have been the full trial into a split trial, or, as Mr Paul Downes QC, who has appeared for the defendant, has more accurately termed it, an order for a partial trial of liability. It goes without saying, and Mr Downes has very readily accepted, that the burden placed upon a party seeking to interfere, or seeking to persuade this court to interfere, with case management decisions made in such circumstances is a very considerable one and amounts to his being in a position to demonstrate that the judge on either occasion has really approached the matter on the basis of some serious error of principle.
In order to understand the nature of the applications, I should indicate very briefly what the trial is about. The first claimant carries on an asset management business; the second claimant is an investor; the third claimant is an investment vehicle for a private individual. The fourth claimant is also an investor, but, as I understand it, for present purposes we can ignore him. The defendant, IG Markets, is a financial services firm. The third party, the position of which has not featured in the argument before us, is a compliance consultancy. The claim brought by the claimants is to the effect that the defendant is liable as an accessory to what the claimants allege were breaches of trust committed by a now insolvent Scottish broker called Echelon Limited. It is the claimant's case that, as clients of Echelon, they contracted with Echelon for Echelon to act as their agent in the placement of financial transactions and, in particular, Contracts for Differences ("CFDs") with third parties.
What is alleged by the claimants is that, pursuant to Echelon's Terms of Business, upon which they say they contracted with them, funds transferred by the claimants to Echelon for the purpose of trading in CFDs were to be held for the claimants' benefit in segregated client accounts, save in very limited circumstances dealt with in the standard Terms and Conditions of the account, which broadly related to the transfer of moneys in one or other of the accounts in order to meet margin calls. The thrust of the allegation made by the claimants is that funds transferred by them to Echelon were not in fact kept segregated by Echelon but were transferred to unsegregated accounts held by Echelon with the defendant. What is alleged is that Echelon then, for its own account, as a principal, engaged in CFD trading with the defendant, even though (as it is alleged and I believe accepted) Echelon was not authorised by the Financial Services Authority to trade as a principal. Furthermore, in circumstances where the trading between Echelon and the defendant was carried out through a head account and several hundred sub-accounts, which were allocated by Echelon to its clients including the claimants, IG Markets, the defendant, enjoyed as against Echelon a general right of set-off in respect of any debit or credit balances on any of the sub-accounts.
It is the claimants' case that they were unaware of the arrangements between Echelon and the defendant and that they believed that the funds that they had transferred to Echelon for CFD trading, and any profits generated by the trading, were held by Echelon on a segregated basis, except where their agreement permitted otherwise; for example, as I have indicated, in relation to the meeting of margin calls.
In particular, the claimants allege that they did not know that their funds were transferred to unsegregated accounts of the defendant or that they could be used to make up deficits on accounts held by or for other Echelon clients. The claimants contend that Echelon's conduct in this regard amounted to a dishonest breach of trust or fiduciary duty and that the defendant, IG, is liable as an accessory in dishonest assistance and knowing receipt. There was some debate before us as to whether or not it is necessary for the claimants to go so far as to allege that Echelon's conduct amounted to a dishonest breach of trust or fiduciary duty, but it is plainly unnecessary to go into that now.
The allegation against the defendant, putting it broadly, is that through certain named employees, one of whom has recently been dropped from the list of those alleged to have been responsible, the defendant wilfully turned a blind eye to the circumstance that Echelon was acting in breach of trust or fiduciary duty or, alternatively, that it had a clear suspicion that Echelon was so acting but nonetheless carried on regardless. Accordingly, the claimants claim damages for equitable compensation in the value of the credit balance of their sub-accounts at Echelon as at the time of Echelon's collapse in October 2008.
Additionally, and this is one of the features of the case which has given rise to part of the debate before us, the first and third claimants claim losses over and above the value of the credit balance in their accounts with Echelon at the relevant time. They assert that, had those sums been made available to them at the appropriate time, they would have been in a position to earn trading profits on them and they have made a claim in respect of what they say are the lost trading profits, which they have calculated by reference to their actual returns since October 2008.
The defendant, IG Markets, has defended the claim by not admitting the allegations made by the claimants against Echelon, in respect of which it adopts the stance that it is not in a position to know what the nature of the arrangements agreed between them was. The defendant denies the allegations made against it and its own employees. It contends that it maintained the clients' sub-accounts as a way of providing administrative support to Echelon and it believed that Echelon was trading with it as a principal at all times.
The third party was introduced in May 2012 on the basis that it is alleged by the defendant that the third party was a provider of compliance services to Echelon, and contribution under the Contribution Act is sought by the defendant against the third party in the event that it is held liable, on the basis that the third party is another party who has a liability to the claimants, thus providing the scope for a claim for contribution. The third party has taken no part in the argument before us, nor I think did it take any part in the argument on either occasion below, but its position is that it is ready and prepared for trial and it points to the prejudice that would be occasioned to it, were it to find that the trial is now to be adjourned.
The claim was begun in November 2010 and the defence was filed in February 2011. There was a case management conference in July 2011, and the trial was then fixed to take place in October 2012, but, as I understand it, it was in October 2011 that the trial was pushed back by a month, possibly a month-and-a-half, to 19 November 2012, with an estimate of four weeks. The trial has, therefore, been fixed to take place in either October or November, so now a period considerably in excess of one year.
On 11 June 2012 the defendant issued an application seeking the permission of the court to amend its Defence. The nature of the amendment is two-fold. Firstly, insofar as the claimants assert that they can recover trading profits over and above their headline losses, which they seek to justify by reference to their returns since October 2008, the defendant sought to introduce an amendment to assert that those profits have been achieved by unlawful insider trading, indeed by criminal conduct, and that, had it not been for the claimants indulging in criminal conduct, prohibited conduct of that sort, such returns would have been unsustainable. That, of course, pleaded as it is in the Defence, is a point that goes to the quantum of the claimants' claim.
The amendment to which I have just referred is in paragraph 46 of the Re-amended Defence, where it is denied that the returns claimed in the Re-amended Particulars of Claim of 167 per cent are achievable on a continuing basis, or could have been achieved, had the first and third claimants had available to them the additional assets with which to trade. What is said is that...
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