England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Hon. Mrs Justice Proudman
HC09C01915

		Royal Courts of Justice Strand, London, WC2A 2LL
		15/02/2013

Lord Justice McCombe:

(A) Introduction

1. This is an appeal, brought with the permission of the Judge herself, from the Order of Proudman J of 30 May 2012. By that Order judgment was given for the First Respondent ("WCUK") against each of the Appellants, jointly and severally inter se and jointly and severally with two other defendants in the action, for US$ 450,000,000 and costs. In the Second Appellant's case the costs order was restricted to 75% of WCUK's costs. It was further declared that the sums paid to the Appellants by WCUK by way of salary and bonuses were paid to them in breach of their fiduciary duties to WCUK and that the Appellants were liable to account to WCUK for those payments; directions were given for the taking of accounts. Appeal is now brought against those orders. The Respondents do not resist the appeal brought in respect of the Judge's order relating to the Appellants' salary and bonuses and it is agreed that the appeal should be allowed to that extent.
2. In the remainder of this judgment I shall call the First Appellant "Mr Dabhia" and the Second Appellant "Mr Platt". WCUK had gone into liquidation and the liquidators (appointed on 8 October 2009) were (together) called the Second Claimant in the action.

(B) Background Facts

3. The early history I summarise gratefully from the learned Judge's judgment.
4. Mr Dabhia and Mr Platt were respectively a director and a senior employee of WCUK which was incorporated in England and Wales in 1998. Each received substantial remuneration by way of salary and bonuses. Mr Magnus Peterson ("Mr Peterson") was the leading light in WCUK throughout its life and he and his wife, Mrs Amanda Peterson ("Mrs Peterson"), were also directors of WCUK. They were the First and Second Defendants in the action. They were found liable for the same losses. Neither has appealed against the Judge's order.
5. Shortly after the incorporation of WCUK, a company called Weavering Capital Fund Limited ("WCF") was incorporated in the British Virgin Islands. Its directors were Mr Peterson's brother, Mr Stefan Peterson, and his step-father, Mr Hans Ekstrom. In 2006 Mr Peterson replaced his brother as director of WCF. From incorporation until 2003 WCF carried on business as a hedge fund, managed by WCUK. Its trading was on the global interest rate markets. Its principal investor was yet another company, owned by Mr and Mrs Peterson and a Swedish investor. The judge found that at the times material to the action WCF was owned, and entirely controlled, by Mr Peterson. WCF suffered heavy losses and ceased significant trading in its own right in 1998.
6. From 2000, on the Judge's findings, Mr Peterson carried on another hedge fund business, again unsuccessfully, through a second company incorporated this time in the Bahamas, and managed by WCUK. On 2 April 2003, Mr Peterson procured the incorporation of Weavering Macro Fixed Income Fund Limited in the Cayman Islands to carry on a yet further hedge fund operation. It began trading on 11 August 2003. It was managed throughout by WCUK whose main executives were Mr and Mrs Peterson, Mr Dabhia and Mr Platt. In the course of its activities it attracted millions of dollars in investment from financial institutions, investment funds, pension funds, charities and wealthy individuals. It was the misfortunes of this company, known throughout as "the Macro", which led to the liquidation of WCUK and the inception of these proceedings by its liquidators.
7. The Macro's investment fund was presented to investors as a highly liquid fund invested principally in global fixed income and money markets in the UK and the rest of Europe, USA and Japan, and not exposing more than 20% of its gross assets to the solvency or creditworthiness of any one counterparty.
8. Mr Dabhia was initially a consultant for WCUK and became its full time employee in September 2003. He became a director of WCUK on 14 October 2004. His principal role in the company was marketing. He attended meetings with investors and prospective investors to discuss strategy, holdings and performance. He sent out marketing materials and "due diligence" questionnaires and dealt with queries from investors "usually, but not invariably" (per the Judge) after consultation with Mr Peterson. He did not question instructions or information given to him by Mr Peterson.
9. Mr Platt was the assistant investment manager to the Macro, second only to Mr Peterson. He had investment management authorisation from the Financial Services Authority ("FSA") and had authority to place orders on the Macro's behalf. He made trade decisions and was responsible for the day to day fund management of the Macro. He prepared and distributed to relevant persons much of the misleading or inaccurate material, reporting on the Macro's financial status from time to time, including Net Asset Value calculations ("NAVs"). He was not a director of WCUK, but the Judge found that Mr Peterson regarded him as his "right-hand man". Like Mr Dabhia he did not question instructions or information given to him by Mr Peterson.
10. As already mentioned, WCUK acted as investment adviser to, and manager of, the Macro under Investment Management Agreements of 31 July 2003 and 30 January 2007 and an Investment Advisory Agreement also of 30 January 2007. By clause 10.1 of the Investment Advisory Agreement of January 2007 WCUK agreed to indemnify the Macro against losses to and claims on the Macro arising from the fraud, negligence or wilful default of WCUK. Its liquidators accordingly received claims in respect of losses to the Macro in excess of US $530,000,000 and in the present proceedings sought indemnity from the various defendants, including Mr Dabhia and Mr Platt, in the face of WCUK's inability to meet such claims.
11. The reasons for the collapse of the Macro, and hence of WCUK, can be shortly stated.
12. The Macro traded in derivatives, financial instruments whose value derives from the values of underlying variables, such as a stock exchange price, exchange rates or interest rates. The Macro's trades were mainly in interest rate derivatives. Such derivatives can be traded on a public exchange, such as the London International Financial Futures and Options Exchange or "over the counter" ("OTC") arranged between individual parties to the transactions. As the Judge put it, the credit risk with an exchange-traded derivative is that the exchange's clearing house may fail. On the other hand, the risk with an OTC transaction is that the particular counterparty to the derivative instrument may fail.
13. The problem here was that when the Macro began to trade in August 2003 it swiftly began to make losses on exchange traded transactions, but through Mr Peterson's scheming, it sought to cover such losses by what seemed to be gains through OTC transactions. These transactions were initially forward rate agreements ("FRA"s) by which an agreed fixed interest rate is applied to a specified principal sum over a fixed period of time. However, the counterparty to these OTC transactions was WCF, by then merely a worthless company under the control of Mr Peterson. By March 2004, such OTC transactions represented nearly 40% of the fund's reported NAV. Thereafter, between February 2005 and February 2009, the Macro entered into 30 interest rate swap transactions with WCF as purported counterparty.
14. Following the collapse of Lehman Brothers in September 2008 the Macro began to receive a large number of requests from investors for redemption of their investments. The supposedly highly liquid Macro could not meet them and in March 2009 a well-known firm of accountants and financial experts was called in to advise. It was then discovered that the fund's largest reported assets consisted of four swap transactions with WCF as counterparty with a reported value of US$ 637 million. The Judge found, and this is not challenged, that these swaps were mere shams. The unpaid redemptions at March 2009 amounted to $260 million and could not be met.
15. Throughout the period in issue, as the Judge found, WCUK made a number of untruthful representations to investors in its Offering Memorandum, in 31 Due Diligence Questionnaires and other marketing materials, including weekly, monthly and annual portfolio summaries and risk reports. A number of these misrepresentations are quoted by the Judge in paragraphs 29 to 31 of her judgment. In summary, the documents presented to investors a picture of a low-risk, low volatility and high liquidity fund, invested principally in exchange-traded interest rate derivatives. These misrepresentations made over the trading period attracted continuing investments and enabled the fund to stay active until it collapsed under the weight of redemption demands without any of the real assets to meet them.

(C) The claims against Mr Dabhia and Mr Platt

16. Summarising from the Re-Re-Amended Particulars of Claim, WCUK claimed against Mr Dabhia that he acted and/or failed to act in breach of his fiduciary duties as a director, in breach of contract and negligently in failing to acquire or maintain sufficient knowledge of the true nature of the Macro business, in failing to investigate the swaps and in making numerous misrepresentations to investors. It was alleged that he was in further breach of duty in failing to bring the true position to the notice of WCUK's board or its shareholders or to the attention of its investors, auditors or the FSA.
17. Mr Dabhia's case at trial (summarising his Defence) was that he was not an investment manager and had no knowledge or experience in trade execution; his prime responsibility was establishing and implementing marketing strategy. He said that he reasonably and honestly relied upon Mr and Mrs Peterson for such matters and his information was derived from attending meetings with Mr Peterson, where Mr Peterson described to him the Macro's investments and gave him information to provide in turn to investors. He did not know of the flaws in the swaps transactions and he said that, when he did find out, he was instrumental in calling in the accountants in March 2009.
18. The Judge rejected Mr Dabhia's defence. She found that he failed to apply his mind to the identity of the counterparty to the swaps and that he should have realised that the requirements of the Offering Memorandum were not being observed. He should also have realised that the swaps were being concealed from investors. Instead, he participated in the misrepresentations to investors, some blatant examples of which he perpetrated himself. The Judge found that Mr Dabhia failed to acquire a sufficient knowledge and understanding of the business and to satisfy himself of the details and propriety of the swaps. He was also found to have failed to act with reasonable care and skill in making the representations that he did to investors.
19. Mr Platt was accused by WCUK of dishonestly assisting in the fraud perpetrated by Mr Peterson in setting up the sham transactions to fool the investors and to attract and/or maintain investment for the Macro. It was alleged that he knew or suspected that the swaps were worthless and deliberately refrained from making enquiries about them and assisted Mr Peterson in perpetuating the Macro's business by these means. It was also alleged alternatively that, "…Mr Platt failed to act with reasonable skill and care in breach of his contractual and/or common law duties". The adequacy of the pleading on this issue is one of the principal grounds of Mr Platt's appeal.
20. Mr Platt denied the claims. He contended that he honestly and reasonably believed that the swaps were genuine transactions and that the values of the swaps were approved by external managers and the auditors. He said his main duties were related to the exchange traded futures and options, with the remainder of the investments being handled by Mr Peterson. In paragraph 6 of his Defence he listed the persons who were also aware of the existence of the swaps and accepted them without question. He took instructions from and relied upon Mr Peterson.
21. The Judge rejected the "dishonest assistance in fraud" claim made against Mr Platt, but found him liable in negligence. In setting out the outline of WCUK's claim in fraud against Mr Platt, the Judge said this:

"204. In alleging fraud the claimants rely on Mr Platt's position as assistant investment manager to the Macro (second only to Mr Peterson), his sole authority to place orders on the Macro's behalf and his investment management authorisation from the FSA. He also had sole authority with Mr Peterson to move the Macro's cash and was the person who liaised with PNC over the question of the NAV calculation. He made trade decisions and was responsible for day to day fund management of the Macro. The claimants point to the many defects in Mr Platt's documentation of the swaps, including backdating them, applying flawed swap calculations, and on the one occasion signing in the name of another. He did not read the OM or the compliance materials sent to him by Mr Hemmant. When asked whether he had heard of the phrase "clear, fair and not misleading" in the requirement imposed by the FSA, his response was "I've not really read many FSA rules, to be honest". He uncritically forwarded Mr Peterson's responses to investors and to PNC, for example that the Macro was "in the process of reducing swap exposure and replacing it in our portfolio with futures and options." He was also unrepentant that when asked to show Mr Hora of Signet the Macro's positions he only went through "his" futures and options and did not mention the swaps.

205. The claimants say that Mr Platt's conduct was obviously and knowingly fraudulent. For example, the origin of the weekly risk reports was a request from the investor AIS for risk data in the format received from another investment manager. Mr Platt said that he knew that the investors were using the reports to assess risk and he was trying the best that he could to replicate the other investment manager's template. The claimants say that he did not in fact do so since not only the swaps but also the hedges purportedly relating to them were omitted from his reports. It is also said that his NAV estimates were so inaccurate that they must have been deliberately misleading. Again, it is said that he must have known that swap trades were put on retrospectively in order to take advantage of price discrepancies and benefit from retrospective knowledge of movements in the market."

Having said this, the Judge concluded:

"I cannot infer that Mr Platt was doing other than his "incompetent best" ".

22. The Judge then set out some answers given by Mr Platt in cross-examination and went on to say this by way of findings and conclusions:

"207. Having heard Mr Platt over a number of days, my conclusion is that he was simply over-promoted and that he swallowed everything that Mr Peterson told him as to trade customs, compensation, authorisation and the like. He thought, indeed still thinks, that Mr Peterson's explanations made sense, especially as they were not apparently queried by Ernst & Young or by PNC. I do not think he believed that the swaps were not genuine instruments or that his statements to PNC were false. He was given too much to do and did it unquestioningly.

208. However, although not fraudulent within the Twinsectra test, Mr Platt was in my judgment plainly negligent. It was an implied term of his contract with WCUK that he would perform his duties with proper care: see e.g. Lister v. Romford Ice and Cold Storage Co Ltd [1957] AC 555 at 572."

(D) The Grounds of Appeal

23. Each of the appellants' stated grounds of appeal, in their final draft form, differ from the grounds originally advanced and each has applied to the court for permission to make the necessary amendments. We heard the appeals, and the respondent's response to them, on the basis of the drafts as finalised, leaving questions of amendment over until judgment.

Mr Dabhia's Appeal

24. Mr Dabhia, through Mr Mott's able and persuasive submissions, advanced two grounds of appeal. First, he submitted that the Judge was wrong to have found him in breach of duty. Secondly, he argued that WCUK's alleged losses were not, in any event, caused by any breach of duty by him. This second point on causation also arises in Mr Platt's appeal and I will deal with that aspect of the case, with regard to both appellants, at the end of this judgment.
25. Mr Mott took us to section 174 of the Companies Act 2006 which provides as follows:

"(1) A director of a company must exercise reasonable care, skill and diligence.

(2) This means the care, skill and diligence that would be exercised by a reasonably diligent person with-

(a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company, and

(b) the general knowledge, skill and experience that the director has."

26. Mr Mott reminded the court of the power of directors to delegate and referred us to the passage in the judgment of Jonathan Parker J (as he then was) in Re Barings plc and others (No.5) [1999] 1 BCLC 433, 489 (approved on appeal by Morritt LJ (as he then was) [2001] BCC 273, paragraph 36) as follows:

"(i) Directors have, both collectively and individually, a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company's business to enable them properly to discharge their duties as directors.

(ii) Whilst directors are entitled (subject to the articles of association of the company) to delegate particular functions to those below them in the management chain, and to trust their competence and integrity to a reasonable extent, the exercise of the power of delegation does not absolve a director from the duty to supervise the discharge of the delegated functions.

(iii) No rule of universal application can be formulated as to the duty referred to in (ii) above. The extent of the duty, and the question whether it has been discharged, must depend on the facts of each particular case, including the director's role in the management of the company."

27. Mr Mott's submissions under this head were distilled into two primary points. First, he submitted that the Judge failed adequately to consider or express any conclusion as to the standard of care that had to be exercised by Mr Dabhia and that that standard would, for example, have been much lower than that to be expected of Mrs Peterson. Secondly, and in any event, Mr Mott argued that the Judge was wrong to find Mr Dabhia in breach of any such duty having regard to his role in the company and the nature of default by WCUK that occurred.
28. On the first point, Mr Mott argued that, having regard to the separate requirements of section 174(2), the Judge needed to identify specifically "…the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions…" of Mr Dabhia (s. 174(2)(a)) and the general, skill and experience that Mr Dabhia actually had (s.174(2)(b)) and, having done that, it was necessary for her to spell out how the required standard had not been met.
29. For my part, I reject the premise of this submission. It seems to me that, provided a judge recognises the law's requirements as to the duties placed upon directors and, having reviewed the facts, considers that the relevant duty has been broken, it is not necessary to spell out any further what the duty is or the standard of care to be exercised by the particular director whose conduct is being called into question.
30. In the present case, it is clear that the Judge fully considered the relevant law, including section 174 of the 2006 Act, which she recited in paragraph 150 and following of her judgment, with regard to the claim against Mrs Peterson, and she clearly had that law in mind in deciding the merits of the claims made against each of the director defendants.
31. In my judgment, when it came to Mr Dabhia, she drew the necessary conclusions of fact as to his functions and what was to be expected of him, largely by reference to matters admitted by him. At paragraphs 182 and 183 of the judgment, the Judge said this:

"182. Mr Dabhia's primary responsibility was marketing the Macro to investors. He accepted that in order to fulfil that role he was required to understand the rudiments of derivatives trading and of the Macro's investment strategy. He accepted that he understood the difference between exchange traded investments and OTC investments and that swaps and FRAs fell into the latter category. He also knew that related party OTC transactions were a cause for serious concern and that Mr Peterson had promised not to enter into them again. He accepted that he knew that the swaps existed, that they were large in size and that they came to form a large part of the Macro's portfolio. However, as I have said, I find that his understanding of what Mr Peterson was doing was foggy and that he did not realise that WCF was the counterparty to the swaps, or understand the credit risk this presented, until March 2009.

183. None of this alters the fact that Mr Dabhia owed duties to WCUK as a director. It is no answer to a claim for breach of those duties that he failed to apply his mind to the important question of the counterparty. He should have realised that something was seriously amiss with the swaps and that the requirements of the OM were not being observed. He should have realised that the swaps were being concealed from the investors, he should have asked the identity of the counterparty (whether the swaps were placed with a major bank, for example) and considered the issue of the 20% restriction and made inquiries as to how WCF could meet its obligations. Instead he participated in misrepresentation to the investors."

She also dealt in the following paragraphs with his role in making misrepresentations to investors. Her conclusion was stated in paragraph 188. In these paragraphs, to my mind, she adequately spelt out what she considered was to be expected of Mr Dabhia as a director of WCUK and how he fell short of the required standard.

32. I turn to the second submission under this head, namely that the judge was wrong to find Mr Dabhia in breach of duty on the facts as found.
33. Mr Mott invited the court to bear in mind the nature of the fraud committed by Mr Peterson and the sort of person that Mr Peterson was. He was found to be a plausible liar with a charismatic personality. The Judge herself described her impression of Mr Peterson in giving evidence as a man who "had an answer for everything" but that his answers "depended upon an exceptionally plausible manner rooted in his own confidence in himself". This meant, said Mr Mott, that Mr Dabhia, who was only 27 when recruited, was dealing with a formidable adversary. He invited the court to note the explanations proffered by Mr Peterson in seemingly plausible fashion in his evidence and set out in paragraphs 122 to 125 of the judgment. Mr Mott argued that the judge was reviewing matters with the great benefit of hindsight, not through the eyes of the 27 year old Mr Dabhia, confronted by Mr Peterson with apparently plausible explanations at the time. Those explanations were swallowed uncritically by several persons involved in the business of the Macro.
34. It seems to me, however, that the judge concluded, and was entitled to conclude on the evidence before her, that if Mr Dabhia had probed the information that he had been given, as he should have done, he would have been able to see that Mr Peterson's explanations were deficient. As the Judge said at paragraph 61 of the judgment:

"61. I conclude that Mr Dabhia did not think through what he was actually doing for much of the time and referred virtually all queries about strategy upwards. He had no coherent answer as to why he had felt able to make the very many representations to investors in the DDQs, in emails and face to face, when he ought to have known that those representations were false or misleading, other than to repeat that this was what he had been given to believe by Mr Peterson and he did believe and trust him implicitly, always following his lead."

That finding, together with the findings in the passages quoted above, amply justified the judge's conclusion that Mr Dabhia was in breach of his duty to WCUK.

35. As mentioned already, I will address the question of whether the judge was correct to find that the breaches of duty caused the loss alleged in the last part of this judgment.

Mr Platt's appeal

36. In his original grounds of appeal Mr Platt raised three points: first, he challenged the finding that Mr Platt was in breach of fiduciary duties owed to WCUK ("the Fiduciary Duty Ground") and secondly, he raised three points as to the relief granted by the Judge ("the Relief Ground"). The first of these three points on relief was that "causation" had not been proved or found: see below. The second was that there was no justification for the finding that Mr Platt was liable to indemnify WCUK against its losses. The third point was that the finding of liability to account for salary and bonuses received was based upon the incorrect finding that Mr Platt was liable to WCUK for breach of fiduciary duty.
37. As mentioned already, the Fiduciary Duty Ground and the point relating to salary and bonuses are conceded by WCUK and the appeal is to be allowed by consent in that respect.
38. Miss Powell on behalf of Mr Platt applies for permission to amend the Grounds of Appeal to raise two further grounds of appeal. Each raises essentially the same issue. As noted, the Judge rejected the claim that Mr Platt had dishonestly assisted Mr Peterson in a fraud. However, she found him to have been negligent and accordingly liable for breaches of duty in contract and in tort.
39. In the proposed new additional grounds, supported by able submissions by Miss Powell, Mr Platt contended that the Judge's findings were made on the basis of a claim that was not pleaded against him and that the finding that he was so liable was, therefore, a serious procedural irregularity. She submitted that Mr Platt came to the trial believing that he had to defend himself against a claim of fraud and dishonesty and that there was no true focus on any alternative claim. On the issue of dishonesty he succeeded and it was procedurally unfair, therefore, to find against him on the grounds of negligence alone.
40. Miss Powell took us to the Re-Re-Amended Particulars of Claim. She first drew our attention to paragraph 7A which is in the following terms:

"The Duties of Mr Platt

7A. As a senior employee of WCUK in a position of trust, Mr Platt owed fiduciary duties to WCUK as set out in paragraph 3 above, contractual duties as set out in paragraphs 6.1 and 6.2 above and a further contractual duty to exercise reasonable skill, care and diligence in performing his duties."

This led in turn to paragraph 6 which reads:

"6. Further or in the further alternative, the contracts of employment of each of Mr Peterson, Mrs Peterson and Mr Dabhia contained the following terms implied by law:

6.1 A duty to act at all times in good faith in the best interests of WCUK

6.2 A duty not to act, without reasonable cause, in such a way as was calculated or likely to damage the relationship of trust and confidence inherent in the employment relationship; and"

Those allegations, Miss Powell submitted, were based upon the alleged fiduciary duties of Mr Platt. In particular, in paragraph 7A there was no reference to paragraph 6.3 which added a further allegation of duties of care and skill against the director defendants, in terms set out in paragraph 5.2 of the pleading. Paragraph 5.2 alleged that the director defendants owed duties as follows:

"5.2 To exercise reasonable skill, care and diligence in performing his or her duties as a director, including without limitation:

5.2.1 Acquiring and maintaining a sufficient knowledge and understanding of WCUK's business to enable him or her properly to discharge his or her duties as a director;

5.2.2 Supervising the discharge of any function as a director that was delegated by him or her;

5.2.3 Taking in the performance of his or her duties such care as an ordinary man might be expected to take on his own behalf; and

5.2.4 Exercising any power vested in him or her as director honestly, in good faith and in the interest of WCUK"

41. It was also pointed out that the Re-Re-Amended Particulars of Claim against Mrs Peterson and Mr Dabhia alleged that each of them should have realised that the swaps were shams and that, therefore, they each had a duty to bring these matters to the attention of interested parties, including the Board, shareholders, investors, the auditors and the FSA. In contrast, no such specific allegation was made in the pleading against Mr Platt. Further, it was said (correctly) that in the lengthy list of issues contained in the written opening submissions by counsel for WCUK the issue for trial as regards Mr Platt was stated to be: "(10) Was Mr Platt aware of Mr Peterson's fraud, and is he liable to WCUK as alleged?". Thereafter, Miss Powell argued that the thrust of those submissions was directed entirely towards the claim based upon Mr Platt's alleged dishonesty.
42. Miss Powell submitted, therefore, that the case against Mr Platt at trial was, in essence, a claim in fraud, on which he succeeded, and that the secondary claim for breach of contractual and tortious duties, on which he was found liable, came in by a "side wind" (my words not Miss Powell's). It was submitted that this was unfair to Mr Platt, particularly as he was not represented by lawyers.
43. In response to these points, Mr Anderson QC for WCUK, in his helpful argument, pointed out that this pleading point had only emerged some two weeks before the hearing of these appeals. On the other hand, paragraph 24 of Miss Powell's original skeleton argument had stated expressly, in summarising the judge's findings for this court, that, "[WCUK's] secondary case was framed in negligence, namely that he failed to act with reasonable skill and care in the performance of his duties as an employee".
44. While Mr Anderson accepted that the passages in paragraphs 5, 6 and 7 of the Re-Re-Amended Particulars of Claim referred to by Miss Powell could have been better drafted, he submitted that Mr Platt could have been under no illusion that an alternative claim in negligence was being made against him. He submitted that that is patently clear at the outset from paragraph 1.7A of the pleading and from the conclusion of paragraph 7A; that is also to be seen from paragraph 24B of the prayer where the first head of relief sought against Mr Platt is: "Damages for breach of contract and/or breach of statutory duty and/or negligence". Moreover, Mr Anderson submitted, there can be no doubt that Mr Platt was fully aware at the trial of the alternative claim, and that this is abundantly clear from the terms of his own Defence. The penultimate sentence of paragraph 30 of that Defence reads:

"Mr Platt denies failing to act with reasonable skill and care and was not in breach of any contractual and/or common law duties."

Paragraph 97 of the pleading alleged positively:

"Mr Platt was not a director, but he exercised reasonable skill, care and diligence in performing his duties."

The pleading was stated as having been served by Mr Platt "as a Litigant in Person". He must, therefore, have been fully aware of its terms.

45. We were taken by Mr Anderson to numerous passages in the written closing submissions for WCUK in which the alternative case in negligence was asserted and to several passages in the oral submissions for WCUK and by Mr Platt himself in which he sought to refute that case.
46. It was accepted by Miss Powell that at no stage in the trial was objection taken by Mr Platt that he was taken by surprise by the alternative case. Mr Anderson pointed out that the underlying facts of the case in fraud were equally relied upon by WCUK to found the case in negligence. Therefore, it is submitted that Mr Platt was not evidentially prejudiced before the Judge and that no specific element of prejudice has been alluded to on this appeal.
47. In my judgment, notwithstanding the persuasive presentation of the point by Miss Powell, this ground of appeal must fail, essentially for the reasons advanced by Mr Anderson. It seems clear to me that the Re-Re-Amended Particulars of Claim made distinct allegations of breach of contractual and common law duties of care against Mr Platt. If there were any doubt about this, it is dispelled by the terms of the Defence, drafted by Mr Platt himself, in which he expressly denies negligence and positively asserts the exercise by him of all reasonable skill and care. His submissions at trial make it clear that he was in no way surprised by the claim and did his best to meet it. No complaint about this formulation of the case or the finding made by the Judge was raised, as might have been expected, had there been real surprise or prejudice, when judgment was delivered, or at any stage until shortly before the hearing of the appeals.
48. No other complaint is made against the Judge's finding of negligence on the facts as found.

(E) Causation

49. I turn to the issue of causation raised by both appellants. The short point is that, to succeed on claims such as these, a claimant must prove that the breach of duty asserted caused the loss alleged. So much is trite law. It was submitted by both Mr Mott and Miss Powell that WCUK did not sufficiently discharge that burden and the Judge did not make adequate findings that the breaches of duty, which she found, caused the loss alleged.
50. Mr Mott referred us to a passage in Palmer's Company Law (in its November 2009 Revision) where the following is to be found:

"The problems of proof of breach are clear from the preceding paragraph. There are also problems in proving a causative loss. Typically, the facts are similar to those in City Equitable, Re: a rogue, reasonably trusted by all, at the centre of the action, his frauds deceiving even the auditors; and a board of directors, many of them non-executive, meeting only at intervals and justifiably delegating many functions to committees and subordinate officers. On such facts, it is virtually impossible to hold that the acts (or, more likely, the omissions) of those directors who were not directly involved in the wrongdoing were the cause of the company's loss. (Emphasis in original)"

He submitted in reliance upon the judgment of Briggs J in Lexi Holdings v Luqman [2009] BCC 716, paragraph 28 that, having established breach of duty it was necessary for the court to construct "a necessarily hypothetical edifice so as to ascertain what would probably have happened if the relevant duties had been performed". That approach was, he submitted, confirmed by this Court [2009] BCC 716 (paragraph 37, per Morritt C), although the judge's decision in that case was reversed on the facts. Mr Mott argued that the Judge failed to construct the "hypothetical edifice" and failed to consider what would have happened based on that edifice.

51. It was accepted by Mr Anderson that the Judge did not provide any express analysis of causation. He submits, however, that such a finding is implicit and that there are more than sufficient facts (set out in particular in his Respondent's Grounds) upon which such a finding was justified. He points out that the Judge must have been well aware of the need to satisfy herself that the breaches found caused the loss, since a causation point was taken by counsel on behalf of Mrs Peterson and was rejected. No such point was taken at all by either Mr Dabhia or Mr Platt at the trial. It was, therefore, not surprising that the judgment did not deal with the matter expressly in relation to them.
52. The point made for Mrs Peterson was that, if she had raised queries with her husband, the answers would only have allayed her fears by dint of seemingly plausible explanations from him. The Judge rejected Mrs Peterson's contentions on the basis that she had not identified what plausible explanation would or might have been given which would have relieved her of any further obligation to make inquiries. Mrs Peterson had positively approved the swap trading; she could not consistently with her duties have given such approval. Further, when the accountants were called in, a hedge fund professional of similar age and experience to Mrs Peterson had immediately put a stop to that activity when he realised that the swaps were with a related party.
53. Mr Dabhia now makes a similar point to that made by Mrs Peterson at the trial, namely that a reasonable director in his position would ultimately have been satisfied by Mr Peterson's responses to his reasonable enquiries. In my judgment, Mr Anderson is correct in his submission that to advance such a point at trial it would have been incumbent upon Mr Dabhia to plead his case and to give evidence of the explanation that would have satisfied the reasonable director. That is why the Judge found against Mrs Peterson on the causation issue. I agree also with Mr Anderson that the argument now raised by Mr Dabhia ignores the facts alleged and proved against him, namely that he repeatedly made false representations to investors enabling the Macro's business to continue. Indeed, it was part of his case that, "It was his actions in early 2009 that led to the investigation by PwC of the Macro Fund's portfolio and the discovery of the matters complained of by the Claimants" (see Mr Dabhia's Defence, paragraph 6.6). That assertion demonstrates what would have happened if the "hypothetical edifice" had been expressly constructed by the judge: the Macro's sham business would have been stopped in its tracks.
54. For much the same reasons I am unpersuaded by the new point on causation advanced on behalf of Mr Platt. It was submitted by Miss Powell also that there was no explanation by the judge of how the breaches found caused the losses claimed by WCUK. With respect to Miss Powell, I do not accept that the judge's omission to deal expressly with the matter renders her findings defective. It seems to me to be clear that in paragraphs 89H to Q of the Re-Re-Amended Particulars of Claim the case against Mr Platt was fully pleaded. In those paragraphs Mr Platt's knowledge of the nature of WCUK's business was fully set out. With the exception of the allegation that Mr Platt knew that the swaps were shams, it seems to me that those allegations were made out on the judge's findings. In paragraphs 89J to L of the pleading WCUK set out the various positive steps carried out by Mr Platt on a regular basis in furtherance of the Macro's business. These positive acts included executing swap transactions that falsely inflated the Macro's NAV, valuing the swaps in a defective or misleading manner, executing documents which were defective and misleading, on one occasion forging a director's signature and producing risk reports that were inaccurate and misleading. It is then clearly alleged that those failings by Mr Platt led to the loss.
55. In my judgment, it is implicit in the judge's findings that she accepted that those extensive matters pleaded against Mr Platt, and proved to her satisfaction caused the loss; if he had complied with his duties the business of the Macro would have ground to a halt. It is implicit in the judgment, although it would have been better if it had been explicit, that the roles of these appellants, in negligently enabling this business to continue, caused the loss claimed.

(F) Amendments to the Grounds of Appeal

56. As mentioned above, we heard this appeal on the basis of the final versions of the grounds desired to be advanced by each appellant. It was not obvious that any material prejudice was caused to the respondent in meeting the arguments raised. No real objection to the proposed amendments was raised by the respondent in argument. I would, therefore, grant permission to amend the grounds in each case as sought.

(F) Conclusion

57. However, for the reasons given, I would dismiss both appeals.

Lord Justice Moore-Bick:

58. I agree.

Master of the Rolls

Lord Dyson:

59. I agree.