ON APPEAL FROM THE QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE TOULSON
LORD JUSTICE RIMER
| (1) PARABOLA INVESTMENTS LIMITED
(2) ARIA INVESTMENTS LIMITED
(FORMERLY TANGENT INVESTMENTS LIMITED)
|- and -
|(1) BROWALLIA CAL LIMITED
(FORMERLY UNION CAL LIMITED)
(2) MF GLOBAL UK LIMITED
(FORMERLY MAN FINANCIAL LIMITED)
(3) MATTHEW BOMFORD
Mr Neil Kitchener QC and Mr Steven Elliott (instructed by Gordon Dadds) for the Respondents
Hearing dates: 10-12 March 2010
Crown Copyright ©
Lord Justice Toulson:
"Mr Gill who is still only in his mid 30s is regarded by those who have dealt with him as one of the most successful traders in certain types of stocks and shares and their derivative products on world markets. Over the period of more than ten years since he left university, other than in one period, Mr Gill has consistently made profits from his trading, whether in bull or bear markets, sometimes extraordinarily good profits despite the state of the world markets The exception was the period when he was trading primarily through the second defendant between July 2001 and February 2002, throughout which time he was the victim of the systematic fraud with which this case is concerned. At that time, Mr Gill was still in his late 20s but had already been very successful in his trading."
The heads of loss
"183 In the present case, had it not been for the fraud perpetrated on it in the Man period by Mr Bomford, Tangent would have had a fund of £4.25 million at the end of June 2001 with which to trade CFDs, instead of which it had only the depleted fund of £521,644 in March 2002. On a balance of probabilities, I am satisfied that had the fraud not occurred, Tangent through Mr Gill would have gone on conducting its business of trading primarily in market makers throughout the Man period and thereafter and that business trading would have been profitable overall. To the extent that some individual trades conducted would have been loss-making, that is no reason to conclude that the trading overall is too speculative for loss of profits to be recoverable. The fact that losses would have been suffered on individual trades is catered for in the average percentage trading profit figures, on the basis of which the claim is presented, to which I turn in the next section of the judgment.
184 I am also quite satisfied that, since Tangent has yet to recoup that fund of £4.25 million which it should have had (and which was effectively stolen from it), notwithstanding the successful trading conducted with much smaller resources, Tangent has continued to suffer from the adverse effects of the fraud. In a very real sense, Tangent has been "locked in" to a much depleted trading business, a disadvantageous situation, as a consequence of the fraud throughout the period since June 2001. The fact that it cannot (because of the nature of the business which has been damaged) identify a specific alternative transaction, is neither here nor there and should not affect the recoverability of damages for loss of profits."
The judge's assessment of quantum
"I agree that the figure of 50% is appropriately conservative as an annual percentage of profit which could have been earned to 31 March 2002. It is pitched at a level which takes sufficient account of the inherent risks in any trading, such as that certain trades would probably have been loss-making."
As a result the judge awarded approximately £1.6 million for lost profits during stage 1.
"It is perhaps somewhat extreme to say that his evidence was inadmissible. I would prefer to say that it was of no real weight and of little assistance to the court."
By contrast, the judge "found Mr Plowman a careful and impressive expert witness" (para 13).
"On the basis of Mr Plowman's evidence and the other evidence as to Mr Gill's success at trading other than in the Man period, it seems to me that, on a balance of probabilities, with a larger fund available, Mr Gill would have traded just as successfully as he did in the years after the Man period with a depleted fund and would have made profits with at least the same percentage of profits annually as he in fact made."
and at para 192:
"Thus, as I see it, these projections for loss of profits are being put forward on a cautious and conservative basis. I accept Mr Kitchener's submission that they represent a minimum amount that, on a balance of probabilities, Mr Gill would have earned with greater trading capital than he in fact had because of the fraud."
The judge's assessment of quantum: grounds of challenge
The judge's assessment of quantum: discussion and conclusion
"An appellate court is always reluctant to interfere with a finding of a trial judge on any question of fact, but it is particularly reluctant to interfere with a finding on damages which differs from an ordinary finding of fact in that it is generally much more a matter of speculation and estimate. No doubt, this statement is truer in respect of some cases than of others…It is difficult to lay down any precise rule which will cover all cases, but…the court, before it interferes with an award of damages, should be satisfied that the judge has acted on a wrong principle of law, or has misapprehended the facts, or has for these or other reasons made a wholly erroneous estimate of the damage suffered."
Recoverability of damages for loss of investment opportunity after discovery of the fraud: the judge's reasons
"147. In my judgment, there is no such restrictive principle as that for which Mr Brindle contends. Rather each case depends upon its own facts. Obviously there will be cases where, on the evidence, it is not possible for the claimant to show on a balance of probabilities that any alternative transaction or business would have been profitable. The decision of the Court of Appeal in Davis v Churchward (1993) unreported was such a case. However, where, on a balance of probabilities, the court concludes that some profits would have been made from an alternative transaction or transactions, which the claimant would have entered but for the fraud, then the court can and should award damages for such loss of profits, if necessary discounting the amount recovered to reflect the element of risk (as appears to have happened in East v Maurer). There is simply no added requirement before such damages are recoverable that the alternative transactions(s) be shown to be "necessarily profitable. "
148. Furthermore, the suggestion that, before any damages for loss of profits are recoverable in deceit, the claimant must have identified a specific alternative transaction into which he would have entered had it not been for the fraudulent misrepresentation(s), is also contrary to the decision of the majority of the Court of Appeal in Esso Petroleum Limited v Mardon  1 QB 801."
"A number of the cases recognise that where the adverse effects of a fraudulent misrepresentation continue after the fraud has been discovered, then in principle the claimant can recover as damages the losses he suffers as a consequence of those adverse effects for so long as they remain operative, whether loss of profits or additional expenses or other losses."
He instanced New Smith Court, Esso v Mardon and the judgment of David Richards J in 4 Eng Limited v Harper  Ch 91. He also cited Lord Nicholls' speech in Sempra Metals Limited v Inland Revenue Commissioners  UKHL 34,  1 AC 561 as authority that loss of the use of money can sound in damages.
Recoverability of damages for loss of investment opportunity after discovery of the fraud: the parties' submissions
1. Tangent's loss should have been assessed at the date of Mr Gill's discovery of the depletion of its trading fund (13 February 2002) or, at latest, at the date of the termination of Tangent's relationship with Man (7 March 2002).
2. There is a crucial difference in principle between the damages recoverable for torts involving infringement of the claimant's property rights and the damages recoverable for deceit or negligent misstatement. Infringement of property rights may continue to have a direct effect until trial. Fraudulent (or negligent) misstatement involves a claimant acting to his detriment under the inducement of a false belief. That influence ceases once the truth becomes known. There may be circumstances where the claimant has been induced to change his legal position in a way that cannot be immediately undone on discovering the truth; and there may be cases where the claimant has lost, once and for all, an opportunity which he would otherwise have taken of entering into some particular form of alternative transaction which would have continued beyond the date that he discovered the truth. Those are exceptional circumstances in which direct loss may properly be said to continue after the discovery of the truth, but this case does not fall into such a category.
3. In this case to allow a claim for damages for loss of profits suffered after the discovery of the fraud would amount in substance to allowing a claim for damages for delay in the payment of damages. To allow such a claim would also be to permit the award of profits on profits, to which there would logically be no end. Moreover, it would potentially apply to every claimant who has suffered monetary loss through deceit or negligent misstatement. The only way that the law allows compensation for loss of use, during stage 2, of the trading fund lost during stage 1 is by way of an award of interest.
4. To permit Tangent to recover damages for lost profits during stage 2 would create an unjust asymmetry in the law of damages and would encourage speculative claims. The asymmetry would arise because the claimant would have the option of settling for statutory interest on its primary loss (which would require no proof of how the claimant would have used the money) or of seeking damages based on its hypothetical use of the lost fund. This would put every claimant in a position where he would have nothing to lose and all to gain by advancing a case as to how he would otherwise have used the money. This is not only likely to encourage speculative claims but it is wrong in principle. Logically, the claimant's hypothetical use of the money should be regarded in principle either as too remote a factor, or not as too remote a factor, to be taken into account in the overall assessment of damages. It would be unprincipled to take it into account as increasing the assessment of the claimant's overall loss if his use of the money would have been profitable, but not as reducing the overall loss if it would have been unprofitable.
Recoverability of damages for loss of investment opportunity after discovery of the fraud: consideration
"While the general rule undoubtedly is that damages for tort or breach of contract are assessed at the date of the breach…this rule also should not be mechanistically applied in circumstances where assessment at another date may more accurately reflect the overriding compensatory rule."
"There is in truth only one legal measure of assessing damages in an action for deceit: the plaintiff is entitled to recover as damages a sum representing the financial loss flowing directly from his alteration of position under the inducement of the fraudulent representations of the defendants."
"East v Maurer shows that an award based on the hypothetical profitable business in which the plaintiff would have engaged but for deceit is permissible: it is classic consequential loss."
"There is, in our view, a critical distinction between an order that interest be paid upon an award of damages and an actual award of damages which represents compensation for a wrongfully caused loss of the use of money and which is assessed wholly or partly by reference to the interest which would have been earned by safe investment of the money or which was in fact paid upon borrowings which otherwise would have been unnecessary or retired. On the one hand, there is no common law power to make an order for the payment of interest to compensate for the delay in obtaining payment of what the court assesses to be the appropriate measure of damages for a wrongful act…On the other hand, there is no acceptable reason why the ordinary principles governing the recovery of common law damages should not, in an appropriate case, apply to entitle the plaintiff to an actual award of damages as compensation for a wrongfully and foreseeably caused loss of the use of money…
In the present case, the breach of the duty of care which the appellants owed to the respondents caused over payments of tax by the respondents. The direct and foreseeable effect of those over payments was that specific sums of money (i.e. the amounts of the over payments), which would otherwise been available to avoid, repay or off-set the costs of some of the significant borrowings of the respondents' business, were unavailable to the respondents from the time of the respective over payments. The injury sustained by the respondents by reason of the loss of the use of the amounts of the over payments was as foreseeably caused by the breach of the appellants' duty of care as would have been the case if the appellants had wrongfully deprived the respondents of the use of their money by locking it in a fool proof safe and withholding the key."
"I start with the broad proposition of English law that as a general rule a claimant can recover damages for losses caused by a breach of contract or a tort which satisfy the usual remoteness test. This broad common law principle is subject to an anomalous, that is, unprincipled, exception regarding one particular type of loss arising in respect of one particular type of claim. The exception comprises claims for interest losses by way of damages for breach of a contract to pay a debt. The general common law principle does not apply to such claims. Damages are not recoverable in cases falling within this exception."
"The common law should sanction injustice no longer. The House should recognise the remnant of the restrictive common law exception for what it is: the unprincipled remnant of an unprincipled rule. The House should erase the remains of this blot on English common law jurisprudence."
Lord Justice Rimer:
Lord Justice Mummery: