The ECU Group Plc v HSBC Bank Plc
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Moulder |
| Judgment Date | 01 November 2021 |
| Neutral Citation | [2021] EWHC 2875 (Comm) |
| Docket Number | Case No: CL-2019-000068 |
| Court | Queen's Bench Division (Commercial Court) |
[2021] EWHC 2875 (Comm)
Mrs Justice Moulder
Case No: CL-2019-000068
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
The Rolls Building
7 Rolls Buildings, Fetter Lane
London, EC4A 1NL
Richard Lissack QC, James Cutress QC and Nico Leslie (instructed by Mishcon de Reya LLP) for the Claimant
Kenneth MacLean QC, Sandy Phipps and Joshua Crow (instructed by Cleary Gottlieb Steen & Hamilton LLP) for the Defendants
Hearing dates: 14–17 June 2021, 21–24 June 2021, 28 June-1 July 2021, 5–8 July 2021, 12–15 July 2021, 27–29 July 2021
Approved Judgment
CONTENTS
| Introduction | 3 |
| Issues for determination | 4 |
| Approach to evidence | 4 |
| Submissions | 5 |
| Credibility of witnesses of fact | 6 |
| Claimant's witnesses | 6 |
| Mr Petley | 6 |
| Mr Hughes | 13 |
| Ms Chapman | 14 |
| Mr De Klerk | 15 |
| Mr MacKinnon | 17 |
| Defendants' witnesses | 18 |
| Mr Whiting | 18 |
| Mr Brown | 20 |
| Mr McEvoy | 21 |
| Mr Dench | 22 |
| Mrs Lane | 22 |
| Credibility of expert witnesses | 23 |
| Mr Gladwin | 23 |
| Mr Moore | 32 |
| Conclusion on expert evidence | 37 |
| Limitation | 38 |
| Introduction | 38 |
| “Sufficient knowledge to plead a claim” | 43 |
| January 2006 Trades | 44 |
| Evidence | 46 |
| Conclusion on “sufficient knowledge to plead a claim” in relation to front running of the January 2006 Trades | 88 |
| Did ECU have sufficient knowledge to plead a claim in relation to front running of the Further Orders? | 95 |
| Sufficient knowledge to plead a claim that HSBC traded ahead | 97 |
| Margin Claims | 97 |
| Conclusion on “sufficient knowledge” to plead the Margin Claims | 100 |
| Confidence Claims | 101 |
| Conclusion on “sufficient knowledge” to plead the Confidence Claims | 104 |
| Unlawful means conspiracy | 104 |
| Reasonable diligence | 104 |
| Claims based on false representation | 112 |
| Misuse of confidential information | 113 |
| The relevant law | 113 |
| Front running | 114 |
| Causation | 117 |
| Account of profits | 119 |
| Did ECU suffer loss as a result of the alleged front running of its trades? | 123 |
| Trades which would not have triggered on the same day | 125 |
| Points of general application | 126 |
| Individual trades | 139 |
| Confidence Claims and the Margin Claims (including the Market Orders). | 154 |
| Margin added by HBPB | 155 |
| Margin added by HBEU/HBUS | 155 |
| Summary of conclusions | 162 |
Introduction
This is a claim brought by The ECU Group PLC (“ECU”) against a number of entities within the HSBC Group in relation to matters which occurred between 2004 and 2006.
ECU describes itself as a specialist currency debt management firm which managed multi-currency loan facilities on behalf of clients through its multi-currency debt management programme (the “MCDMP”). The facilities comprised individual loans that ECU's clients (the “Loan Customers”) had taken out with a number of banks, by far the largest of which was HSBC Private Bank (UK) Limited (“HBPB”). HBPB was substituted as a defendant in these proceedings by HSBC UK Bank Plc by an order of Fancourt J dated 9 December 2019.
The loan agreement entered into by the Loan Customer with the bank (the “Facility Agreement”) provided that the loan could be switched to another currency and that switches would be transacted for value 2 business days thereafter (Special Condition 2). An administration fee of £125 was payable on each switch. The Facility Agreement also specified that multi-currency management would be provided by ECU (Special Condition 10) and a power of attorney was granted by each Loan Customer to ECU for this purpose.
The MCDMP pooled the loan facilities of the clients and this meant that the switch instructions were placed in identical terms in respect of the individual loan balances. Under an agreement between the Loan Customer and ECU the role of ECU was to monitor the currencies and to instruct the Lender on the Loan Customer's behalf to change the currency exposure as and when ECU considered it appropriate or desirable, in order to denominate the Loan in the currency which, “ in the opinion of ECU …provide the greatest perceived benefit to the [Loan Customer] by way of interest rate saving and /or debt reduction potential”.
Thus from time to time, ECU gave instructions to the banks (including HBPB) to switch the currency exposure of the client loans. This claim concerns two types of instruction or order, referred to as “market” and “stop-loss” orders respectively. In each case, the order required the bank to switch the currency denomination of the loan: a “Market Order” required an immediate switch, whereas a “Stop Loss Order” was a conditional switch that would be ‘triggered’ where the prevailing foreign exchange (“FX”) spot rate reached or exceeded a specified trigger level.
The nature of the “instruction” or “order” given by ECU is disputed. ECU says that they placed FX “ orders” with HBPB in respect of their clients and as the business increased HBPB relayed the orders to the First Defendant, HSBC Bank PLC (“HBEU”) and/or HSBC Bank USA, N.A. (“HBUS”) for “ handling and execution” (paragraph 8 of the Particulars of Claim).
The Facility Agreement did not specify the rate at which the switches were to be effected. The power of attorney authorised ECU to convert the loan “ at the Lender's prevailing foreign exchange rate from time to time”.
ECU brings the claims in its own right and in the capacity of assignee of certain causes of action vested in the Loan Customers (the “Assignors”) which have been assigned to it.
The factual basis of the claims against HSBC can be summarised as follows:
9.1. “Trading Ahead Claims”: it is alleged by ECU that it instructed HBPB not to trade ahead of the order and that this instruction also bound HBEU and HBUS. It is further alleged that HBEU and HBUS breached that instruction and traded ahead in a number of trades.
9.2. “Front Running Claims”: ECU also alleges that traders at HBEU and HBUS were engaged in “ front running” certain trades that is that they traded in the market with knowledge of ECU's order in order to trigger the Stop Loss order and that the traders by their actions did trigger the orders and made a profit for HSBC.
9.3. “Margin Claims”: ECU alleges that HBEU and HBUS wrongfully added a margin to the rate at which they traded in the market and that the rate provided to ECU included that margin causing loss to ECU. (HBPB has admitted prior to the commencement of this trial that it added a margin to the rate provided by HBEU and HBUS and that it was not entitled to do so.)
9.4. Collateral proprietary trading (“Confidence Claims”): ECU alleges that certain traders wrongfully traded on their own account with knowledge of the ECU orders as described below.
This is the judgment of the court on the liability issues, a split trial on liability and quantum having been ordered.
Issues for determination
ECU advanced a number of legal bases for its various claims. However it was submitted for ECU that its claims could be addressed on the basis of its claim for breach of confidence.
HSBC rejected the claims but in addition to its substantive responses to the various claims it also relied on the defence of limitation and the issue of causation.
In the light of the submissions and my findings, I have addressed the following principal issues (as explained below in the relevant section) in this judgment:
13.1. Limitation;
13.2. Misuse of Confidential Information:
13.2.1. Front running;
13.2.2. Causation;
13.2.3. Account of profits;
13.2.4. Trades which would not have triggered on the same day
13.3. Confidence Claims and the Margin Claims.
Approach to evidence
There are a number of preliminary matters to consider in relation to the evidence:
14.1. In relation to the witnesses who were called, they were being asked to recollect matters that occurred some 15 years ago. I bear in mind the fact that witnesses are unlikely to be able to recollect matters which occurred such a long time ago and that even where a witness appears to recollect a conversation or meeting that recollection may be faulty. If authority is needed for this approach, I have regard to Gestmin SGPS v Credit Suisse [2013] EWHC 3560 at [22]. I also note that in some instances there are audio recordings of conversations which, by contrast with witness evidence many years after the event, are in my view reliable and to the extent that they contain material evidence are to be preferred to witness testimony.
14.2. A number of people who ECU says should have been called to give evidence were not called as witnesses. In particular the court did not have evidence from the individual traders who are accused of having perpetrated the alleged wrongdoing at HSBC. The question of whether the court should draw an adverse inference from the absence of these potential witnesses is considered below.
14.3. Partly due to the time elapsed the documentary evidence in relation to individual trades in particular is incomplete. Whilst the experts have largely been prepared to express conclusions on the data provided, the reliability of the conclusions expressed by the experts has to be assessed in the light of the shortcomings in the data which was available to them. This is discussed further below.
14.4. ECU seeks to rely on circumstantial evidence and in particular evidence of the wrongdoing on the part of HSBC referred to in the Deferred Prosecution Agreement dated 17 January 2018 (the “Deferred Prosecution Agreement”) in the US proceedings and the FCA Final Notice dated 11 November 2014 (the “FCA Final Notice”). The weight to be given to such circumstantial evidence is considered...
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The Ecu Group Plc v HSBC Bank Plc
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