Weavering Capital ( Uk ) Ltd ((in Liquidation)) and Others (Respondents/Claimants) v Charanpreet Singh Dabhia and Another (Applicants/ Defendants)
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Proudman |
| Judgment Date | 30 May 2012 |
| Neutral Citation | [2012] EWHC 1480 (Ch) |
| Docket Number | Case No: HC09C01915 |
| Court | Chancery Division |
| Date | 30 May 2012 |
[2012] EWHC 1480 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice Proudman
Case No: HC09C01915
Robert Anderson QC and Tom Richards (instructed by Jones Day, solicitors) for the Claimants
James Aldridge (instructed by Stephenson Harwood, solicitors) for the 2 nd and 4th-7th Defendants
The 1 st, 9 th and 10 th Defendants (Mr Peterson, Mr Dabhia and Mr Platt) in person
Hearing dates: 17/18/19/20/21/24/25/26/27/28/31 October, 01/02/03/04/07/08/09/10/11/14/15/16/17/18 November, 05/06/08/09 December 2011 plus further written submission 01 February 2012
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This is a claim by Weavering Capital (UK) Ltd ("WCUK") and its liquidators (who seek relief under the Insolvency Act 1986 ("the 1986 Act")) against personnel involved in the running of WCUK. The claimants are represented by leading and junior counsel, Mr Anderson QC and Mr Richards. The action relates to investment advice given to, and management of, a Cayman Islands hedge fund, Weavering Macro Fixed Income Fund ("the Macro"). There is a claim in fraud against the first defendant, Mr Magnus Peterson ("Mr Peterson"), the Chief Executive and Managing Director of WCUK. There is also a claim in fraud against the tenth defendant, Mr Edward Platt ("Mr Platt") who, although not a director of WCUK was a senior and highly paid employee. These claims are particularly serious as both Mr Peterson and Mr Platt appear in person. The second defendant ("Mrs Peterson") is Mr Peterson's wife. She was also a director of WCUK. She is represented by solicitors and Mr Aldridge of counsel. Fraud is not alleged against her but it is said that she negligently permitted the alleged fraud to happen. The same is alleged against the ninth defendant, Charanpreet ('Chas') Dabhia ("Mr Dabhia"), another director. Although the claimants do not allege fraud against Mr Dabhia, Mr Peterson has joined him as a third party and does allege fraud in that claim. Mrs Peterson makes a Part 20 claim against Mr Dabhia for a contribution. Again, Mr Dabhia appears in person.
There are also outstanding claims against the third to the seventh defendants, recipients of transfers made by Mr Peterson and by WCUK on the authority of Mr and Mrs Peterson. The third defendant is an Isle of Man corporate trustee which, having obtained directions from the Court in the Isle of Man, is content to abide by the decision of the court. Mr Aldridge also holds a brief for the fourth to seventh defendants, known as 'the innocent gift recipients'. The claim has been settled against another recipient of funds, the eighth defendant.
Mr Peterson, Mr Dabhia and in particular Mr Platt have expressed bitterness about who is and who is not being sued and who is and who is not alleged to have been fraudulent, claiming that the claimants' selection of defendants is arbitrary in this regard. However I have to consider the claims as pleaded.
Background
Mr Peterson started work with a major Swedish bank in Gothenberg as an interest rate and foreign exchange trader. In 1989 he moved to the bank's London office, where he met his future wife, Mrs Peterson. In 1995 he became the bank's Global Head of Proprietary Trading. In or about 1995 he and Mrs Peterson both moved to R J O'Brien and Associates London, an independent US futures brokerage firm.
WCUK was incorporated in England in 1998. Mr Peterson left R J O'Brien to set it up; he was its founder and it was established as a family business. Mrs Peterson joined WCUK as Head of Trading Execution in 1999 but remained with R J O'Brien until 2000 when she became a director of WCUK. At all material times Mr Peterson was a director of WCUK, its chief executive officer and principal investment manager. Mr James Stewart had worked with Mr Peterson at the Swedish bank, and he became WCUK's Chief Economist. He was a director of WCUK from January 2009.
A few months after WCUK was incorporated, Weavering Capital Fund Limited ("WCF") was incorporated in the British Virgin Islands. Its directors were Mr Peterson's stepfather, Mr Hans Ekstrom, and, until 2006, his brother Mr Stefan Peterson. In 2006 Mr Peterson himself became a director of WCF in lieu of his brother. At all material times Mr Peterson was a shareholder in WCF and, from 2008 when WCUK relinquished its shareholding, he and Mrs Peterson between them had the majority shareholding. From incorporation until 2003 WCF carried on business as a hedge fund and at all material times it was managed by WCUK.
The original plan was that WCF would trade in global interest rate markets on the basis of themes generated by Mr Stewart. The principal investors in WCF were Magnumhold Limited ("Magnumhold"), a private investment vehicle owned by Mr and Mrs Peterson, and a Swedish investor. However WCF suffered heavy losses in the autumn of 1998 and ceased to carry on any significant trading. In August 2003 it became the counterparty to over the counter ("OTC") transactions with the Macro. By that stage it had ceased to have any external investors and it had no administrator and no auditors. It is admitted on the pleadings that it had become a private investment vehicle for Mr and Mrs Peterson. I find that at all material times WCF was majority owned, and entirely controlled, by Mr Peterson.
In March 2000 Mr Peterson caused another company called Weavering Capital Fund Limited ("Weavering Bahamas") to be incorporated, this time in the Bahamas. It carried on business as a hedge fund and it too was managed by WCUK. Weavering Bahamas, like WCF before it, adopted a high risk volatile investment strategy. It suffered heavy losses following the 9/11 attacks in 2001.
On 5 th November 2002 it was noted at a WCUK Board meeting that,
"The key to the future of the firm lay in a fund of funds vehicle with low volatility," and that,
"..thefirm's old investors were very, very upset and would be unlikely to be the source of future investments."
Three months later at a board meeting WCUK adopted a formal risk policy.
On 2 nd April 2003 Mr Peterson caused the Macro to be incorporated. Mr Ekstrom and Mr Stefan Peterson were the directors of the Macro and it began trading on 11 th August 2003. Unlike the earlier hedge funds, it was said to be intended to achieve a low risk and a more secure return. It was launched on the Irish Stock Exchange on 4 th August 2003. It attracted millions of dollars in investment from financial institutions, funds of funds, pension schemes, charities and high net worth individuals. Its reported assets under management increased from $27m in December 2004 to $583m in December 2008.
Mr Dabhia had recently joined WCUK as a consultant and from September 2003 he became a full time employee of WCUK. He became a director of WCUK on 14 October 2004. He attended meetings with investors and prospective investors to discuss the Macro's strategy, holdings and performance, he sent out marketing materials and due diligence questionnaires and he dealt with queries from investors, usually, but not invariably, after consultation with Mr Peterson.
PNC Global Investment Servicing (Europe) Limited (at that stage known as 'PFPC' but which for convenience sake I shall throughout call "PNC") became the Macro's Administrator. For fiscal reasons which proved unsuccessful, another Weavering Company, Weavering Capital Management Limited, ("WCM") was appointed to act as investment manager of the Macro from 30 th January 2007. However as WCM delegated to WCUK its functions of advising and managing the Macro, and as the management fees were paid to WCUK, the involvement of WCM can be ignored for present purposes.
From 1998 another Weavering company had been appointed to act as investment manager of WCF but, again, that company had, from 1998, appointed WCUK to act as its investment adviser.
Thus WCUK acted as investment adviser to, and managed, both the Macro and WCF. The Investment Management Agreement dated 31st July 2003 made between WCUK and the Macro required WCUK to manage the Macro "with a view to achieving the then current investment objectives of the Fund as laid down from time to time by its Directors." Clauses 3.1 and 5.1 of WCUK's Investment Advisory Agreement with WCM and the Macro (dated 30 January 2007, which took over from the 2003 Agreement) obliged WCUK to provide investment advisory services in accordance with the investment objectives and policies and subject to the investment restrictions described in the Offering Memorandum.
Managers of hedge funds use particular trading strategies with the specific aim of reducing market risks to produce risk-adjusted returns, which are consistent with investors' desired level of risk. The case turns on the distinction between OTC transactions and exchange-traded transactions. The terms of exchange-traded derivatives are defined by the exchange on which they are traded. OTC derivatives, by contrast, are concluded bilaterally and their terms are negotiated between the parties to the transaction. Futures are always exchange-traded; options may be either exchange-traded or traded OTC. Forward Rate Agreements ("FRAs") and Interest Rate Swaps ("swaps") are traded OTC and may be customised by the parties.
The credit or counterparty risk with an exchange-traded...
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