England and Wales High Court (Commercial Court) Decisions

Sumitomo Corporation v Credit Lyonnais Rouse Ltd. [2002] EWHC 124 (Commercial) (14th February, 2002)

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		14th February 2002

Mr Justice Langley:

1. The major question before the court on this restored CMC was whether certain issues (as specified in the Claimant’s Application Notice) should be tried (if necessary) only after and separately from all the other issues which arise. At the end of oral argument on the question, and in order to deal with other matters, I said that the application would be refused at this stage of the proceedings and I would give my reasons for that conclusion later. My reasons follow.
2. The Claimant, Sumitomo, is an international trading company that carries out copper transactions through a Copper Team in its Non-Ferrous Metals Department. The team leader of the Copper Team until 1996 was a Mr Yasuo Hamanaka. The Defendant, CLR, is a Ring Dealing Member of the London Metal Exchange and acted as one of Sumitomo’s clearing brokers in relation to copper transactions between 1989 and 1996.
3. Sumitomo contends that in June 1996 Mr Hamanaka confessed to having carried out unauthorised and hidden trading in copper through CLR and others, accumulating very large losses in the process.
4. In the present action, Sumitomo alleges that CLR dishonestly assisted Mr Hamanaka’s breach of fiduciary duty to Sumitomo and/or procured a breach or breaches of his contract with Sumitomo in relation to a set of transactions cleared by CLR for Sumitomo in the period between 25 June 1993 and 30 September 1993. Those transactions included a combination of options and futures transactions that were cleared on 25 June 1993, known as the “MAGM/RADR” transactions. Sumitomo claims that CLR is liable to pay equitable compensation and/or damages in an amount totalling approximately US$ 248 million.
5. CLR denies Sumitomo’s claims. In particular, CLR alleges that it acted honestly and that it had no knowledge of any lack of authority on the part of Mr Hamanaka. CLR also alleges that Sumitomo knew that Mr Hamanaka was pursuing a strategy of speculative trading (so as to maximise Sumitomo’s profits) and trading in breach of internal limits, and that it failed to supervise or control him. Sumitomo denies these allegations.
6. Mr Barnes said the key issues on liability were the questions of trading limits, Sumitomo’s knowledge of Mr Hamanaka’s activities and the honesty of CLR.
7. CLR also alleges that Sumitomo has not suffered any loss for which it is entitled to equitable compensation or damages from CLR. The basis of this allegation is that in law it is said to be necessary to take into account also the profits and/or losses made on transactions cleared by CLR for Sumitomo after 30 September 1993 until Mr Hamanaka’s removal from the Copper Team in May 1996. Sumitomo accepts that on this approach Sumitomo made a net profit on its account with CLR but contends not only that its claim is properly limited to the loss and damage it sustained in June to September 1993 but, if it is not, it is entitled to take into account the profits and/or losses made on transactions after 30 September 1993 across all brokers and banks, in which event CLR would be liable to Sumitomo for a loss in the region of $1.29 billion. In support of this claim Sumitomo alleges that trades at other banks and brokers were used to pay off losses at CLR and that CLR participated in the trading through other brokers.
8. I propose to describe the June to September 1993 claim as “the Basic Sumitomo claim”; the CLR response relying only on all the transactions cleared by CLR as “the CLR Transactions Defence” and the Sumitomo response relying on all transactions with all brokers as “the All Transactions Sumitomo claim”.
9. It is not Sumitomo’s application that liability should be tried before issues of loss and damage nor that issues of amount alone should be hived off or tried on assumed facts but rather something of a hybrid. The proposition is that all issues should be tried in a first trial except factual and amount issues which arise on the All Transactions Sumitomo claim. The court is invited to decide in principle which of the 3 approaches to the claim is correct doing so on the basis of the actual findings it makes in respect of the Basic Sumitomo claim and the CLR Transactions Defence but on the assumption that the facts alleged by Sumitomo in paragraph 113C of the Reply and the answers to Requests for Information on paragraph 113C are established as regards the All Transactions Sumitomo claim. A glance at the information referred to reveals its extensive nature and the formidable amount of work which has gone into its preparation.
10. The basis and justification for the application is that the sheer volume of work and documentation material to the All Transactions Sumitomo claim and the detailed issues to which it may give rise is such that it will considerably extend the length of any trial and so delay any likely trial date and that it may all be unnecessary and wasteful if the Court determines that there is no liability or that the Basic Sumitomo claim or the CLR Transactions Defence is the correct approach to questions of loss and damage.
11. I should note that the further information concerning the All Transactions Sumitomo claim was served by Sumitomo as recently as 21/12/01, that disclosure has proceeded on the basis that documents material to all the transactions should be disclosed and that Sumitomo is to re-amend the claim and reply in part to reflect the work done on the All Transactions Sumitomo claim. CLR has not yet had a real opportunity to consider let alone to respond to this claim. Sumitomo estimated that if it succeeded in its application a trial would take 16 weeks and the earliest it could realistically commence would be October 2003.
12. CLR’s objections to the application in summary are that:

i) In order for the court to determine which of the 3 approaches is correct in principle it will have to compare the circumstances applicable to each, and that to do so on the basis of a mixture of facts found and facts assumed is wrong and dangerous. If the assumptions prove to be wrong so too might the conclusion of the first trial be wrong. The result would be no more than “a consultative ruling”.

ii) That is particularly so when, as is agreed, the principles of law to be applied are not well established or precise but involve an appreciation of the overall picture so that the court cannot form any view at all, at least at present, as to the likelihood of a second trial being required and no party suggests that a preliminary or separate issue of law is appropriate for trial.

iii) The lack of precision in the law is itself a reason for not pursuing the course proposed by Sumitomo because the court may find it more sensible to address the principles in the light of the actual facts as it finds them to be and not assumed facts. It does appear to be accepted that continuity and comparability of the transactions involved are or may be material factors and no attempt has been made or, in the case of CLR can yet be made, to isolate similarities or differences between them. The extent to which the facts which Sumitomo says should be assumed will be in issue is at present also unknown.

iv) There is in any event an overlap between the issues Sumitomo proposes to be tried at a first trial and the evidence relating to the All Transactions Sumitomo claim. In particular CLR will want to consider questions of Sumitomo’s knowledge of the transactions with other brokers to see if they support the case that Mr Hamanaka was permitted to act as he did and Sumitomo either knew or turned a blind eye to what he was doing. The comparability and continuity (or otherwise) of those transactions is material in that context also, in particular perhaps the extent to which CLR was involved in the transactions with other brokers. In other words CLR will at the very least want and is entitled to study with care the transactions with other brokers to see how far it supports its case and refutes Sumitomo’s case, and until that work is done it remains uncertain to what extent there will be an overlap. But an investigation is needed in any event as part of the trial process and will greatly benefit from the fact that Sumitomo has carried out so much work already.

v) CLR also offers the real prospect of important aspects of the All Transactions Sumitomo claim being agreed. There has been considerable agreement in respect of the CLR Transactions. Whilst of course such a prospect might equally exist after a first trial, if achieved in the context of a single trial the prospect of a much longer and less manageable trial involving all the issues is considerably reduced. Should it transpire that some aspects of the claim were in issue which might sensibly be excluded from a first trial (for example matters of quantification) that could be done when they were identified. Whilst Mr Barnes expressed some scepticism about this offer I see no reason to doubt it is genuine and much to be said for putting it to the test.

vi) CLR submits that a split trial would also involve very extended delays in the commencement of a second trial if one proved to be required as even without the inclusion of the All Transactions claim a trial would last some 16 weeks and it could not start before October 2003. On that basis a second trial would not be likely before mid-2004 even without allowing for possible appeals.

vii) In the course of his submissions Mr Briggs said that in any event investigation of the All Transactions Sumitomo claim was not the critical item in assessing the time required to prepare the case for trial or in making an estimate of an appropriate start date for a trial. The critical item was the time required to translate from Japanese to English a vast number of documents disclosed by Sumitomo which were or might be material to the issue of Sumitomo’s knowledge of Mr Hamanaka’s activities. Mr Briggs said there were particular difficulties in such translations and a rough estimate of the time required in respect of documents already disclosed could well be a year and it was known that further documents in Japanese would be available soon. Whilst there was no evidence before the court to support Mr Briggs’ statement it was made on instructions and Mr Barnes candidly acknowledged the general nature of the difficulty. The consequence is that even an October 2003 trial date would probably be unachieveable for this reason and Mr Barnes’ concern that long delay was inevitable and indeed that the proceedings would grind to a halt if the All Transactions Sumitomo claim was not excluded from a first trial was misplaced and failed to recognise the other delays inherent in the proceedings.

13. I think there is force in all of these objections. I am of course alive to the real attraction of hiving off issues which may involve a mass of detail and evidence and especially so if much if not all of it may turn out to be a non-event because of the resolution of other issues. However I do not find it possible at this stage of these proceedings to conclude that Sumitomo’s proposal is appropriate or justified. Indeed I think it probable that will remain the case. Neither party has suggested any other form of trial management. The position may however change in either direction. Agreements may be reached or admissions made which reduce or remove Sumitomo’s worries; alternatively it may become apparent that there are areas of dispute which it is indeed appropriate to hive off such as details of calculation. For the present, however, I think the case should proceed on the basis that all issues are to be tried in a single trial.
14. Following the hearing directions were given for the completion of the pleadings including responses by CLR to the detail of the All Transactions Sumitomo claim. A further case management conference is to be held in July both to review the position and, assuming the absence of really compelling reasons not to do so, to fix a trial date. Both parties say, and I do not doubt, that they are anxious for the case to proceed as quickly as is consistent with proper preparation of what is on any view a serious and substantial claim.