England and Wales High Court (Commercial Court) Decisions

Credit Suisse First Boston Corporation v Rawi [2002] EWHC 222 (Commercial) (21st February, 2002)

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		21/02/02

Mr Justice : Tomlinson

1. The Claimant to which I will refer as “CSFB” is a U.S. registered broker dealer. Among other things, it carries on the business of buying and selling securities for its customers. It has a London based affiliate called Credit Suisse First Boston (Europe) Ltd to which I will refer as “CSFBEL.”
2. The Defendant is a British Citizen born and educated in London. He is now 29 years old. In 1993 he obtained a degree in Economics from University College, London. After graduation he wished to make a career in the financial services industry. From 1993 to 1996 he worked for a firm of chartered accountants in the West End. From 1996 to 1999 he worked in the accountancy practice of his father Mr Radwan Al Rawi in Ebury Street SW1. In October 1999 the Defendant set up Hayford Investment Management Ltd to which I will refer hereafter as “Hayford.” It was intended to be a vehicle for investment business. Initially the Defendant held 100% of the shares in Hayford. The Defendant was at all material times a Director of Hayford. Hayford operated from the first floor of the Ebury Street address of the accountancy practice of Mr Radwan Al Rawi. In December 1999 CSFB entered into a Customer Agreement with Hayford for the purpose of effecting the purchase and sale of securities. CSFB was prepared to regard the Defendant, at his invitation, as an “expert investor”.
3. The present action concerns CSFB’s claim against the Defendant for having induced or procured Hayford to commit the tort of deceit. CSFB also has a direct claim in deceit against the Defendant arising out of the same facts. The Defendant accepts that, on the facts of this case, his intention and knowledge can be attributed to Hayford and that he procured Hayford to make the statements that it made through him and which are alleged to give rise to a cause of action in deceit against Hayford. He accepts therefore for the purposes of this case that if Hayford is or would be liable to CSFB as a result of those representations then so is he liable directly to CSFB as being the person who procured or induced Hayford so to act. That being so, it is unnecessary for me to consider further the direct claim in deceit against the Defendant. The circumstances in which a director of a company can be sued directly in deceit for fraudulent statements made by him when acting qua director are controversial. See Standard Chartered Bank –v- Pakistan National Shipping Corporation [2000] 1 Lloyd’s Reports 218 Court of Appeal, Noel-v- Poland, 14 June 2001, unreported, Toulson J and Daido Asia Japan Co Ltd -v- Rothen, 24 July 2001, unreported, Lawrence Collins J. Happily I do not need to add to the debate, although CSFB has reserved the right to argue elsewhere if necessary that on this aspect the decision in Standard Chartered Bank is wrong and moreover need not be followed by a court of either inferior or co-ordinate jurisdiction.
4. The bare bones of the claim may be shortly stated. On Friday 31 March 2000 CSFB on Hayford’s instructions and for its account as principal purchased 10,000 shares in Ariba Inc, to which I will refer hereafter as “Ariba,” a relatively volatile high technology software stock quoted and traded on the NASDAQ Exchange. Hayford was under an obligation to settle that transaction by payment three working days later, i.e. on Wednesday 5 April. The price at which the shares were bought was US$213.5625, grossing up to US$213.6625 inclusive of the commission due to CSFB. Hayford’s liability was therefore of the order of US$2,130,000. CSFB alleges that the Defendant dishonestly procured Hayford to represent to CSFB that it CSFB had also agreed on Hayford’s behalf on 31 March to sell 10,000 Ariba shares at a price of US$230, thereby creating matching transactions which would yield a profit to Hayford. Hayford did so represent to CSFB, a representation which was communicated to CSFB on and after 6 April. Since Hayford did not settle the purchase transaction on 5 April the representation concerning the matching transaction was therefore communicated to CSFB on and after the first day on which Hayford was in default. CSFB alleges that the Defendant intended to induce CSFB to act on that representation by acquiescing in delay of settlement by Hayford of the price for the shares purchased on its behalf. CSFB says that the deception was successful in that it induced it not to close out the purchase of Ariba shares by resale on the market until 25 April on which day it sold them for US$67.25 per share. There had in the interim been a stock split of two for one, so that the sale was of 20,000 shares. CSFB claims from the Defendant the difference between the price which could have been obtained on 6 April and the price actually obtained on 25 April, a loss of US$791,699.84. It so happens that this figure is arithmetically the same as the difference between the price at which the shares were purchased on 31 March, together with the commission due to CSFB, and the price at which they were sold on 25 April. This is a coincidence, arising from the fact that CSFB asserts that a fair assumption as to the price at which the shares could have been sold on 6 April is US$106.8312, equivalent to US$213.6625 before the stock split. The Bloomberg material before the court indicates that the high and low prices on 6 April were US$115.13 and US$98.375 respectively. The mean if that be relevant is therefore US$106.7525. The stock closed on that day at US$105.375.
5. The Defendant denies the claim in its entirety and challenges it root and branch. He denies dishonesty or any intention that CSFB should be deceived. He denies that CSFB relied on any relevant representation or that it was induced thereby to adopt a course of conduct other than that which it would otherwise have adopted in the ordinary course. He denies that the Claimant’s loss has been correctly quantified in accordance with the principles governing recovery in the tort of deceit. For good measure he asserts that CSFB’s loss if any has been caused or substantially caused by its own negligence in respect of which he seeks relief under the Law Reform (Contributory Negligence) Act 1945. The Defendant recognises that in the light of the decision of the Court of Appeal in Standard Chartered Bank Ltd –v- Pakistan National Shipping Corporation (No.4) [2001] QB 167 he cannot hope before me to secure a reduction in damages pursuant to the Act, but he asks me to make relevant findings as to the appropriate apportionment in the light of the fact that leave to appeal against the decision of the Court of Appeal was given by the House of Lords on 7 June 2001. Finally there is an issue as to the effect upon the amount recoverable in this action of the fact that CSFB has recouped itself as to US$261,251 of its loss by deduction from commission payments otherwise due to its two traders who had primary responsibility for the Hayford account.
6. I have been asked by Mr King for the Defendant to bear in mind that the resolution of this case adverse to the Defendant will spell not just bankruptcy but the virtual certainty of exclusion from pursuing his chosen career. For reasons which will become clear I can give little weight, even assuming it to be relevant, to the former consideration since it is unclear to me for whose account the Defendant was in reality trading. I simply do not know whether in reality he faces bankruptcy. I do however acknowledge that he is a young man who was at the relevant time at the outset of a career in financial services, and that the consequences of an adverse finding are likely seriously to jeopardise his ability to pursue that career, at any rate in London. That is of itself irrelevant to the exercise which I have to perform, although it perhaps underscores the importance of requiring proof to a standard commensurate with the occasion and proportionate to the subject matter—see Hornal –v- Neuberger Products Ltd [1957] 1Q.B. 247. I bear in mind the need to be satisfied to a suitably stringent standard before attributing fraudulent intent to this inexperienced young man although there is, as always, a balance to be struck. He was himself at pains to represent himself to CSFB and to be treated by them as an “expert investor.”
7. I have already referred to the Customer Agreement into which CSFB and Hayford entered in December 1999, pursuant to which Hayford acted as principal in its dealings with CSFB. The agreement between CSFB and Hayford provided, as one might expect, that if Hayford failed to make any payment on the settlement date for any trade CSFB was entitled, in its sole discretion, to cancel or liquidate any transaction. Before CSFB would open an account for Hayford the Defendant, who had in the second half of 1999 unsuccessfully applied for a job on the US Institutional Desk of CSFBEL, was required to complete an Investor Classification Questionnaire and to furnish further information relevant to his status as an expert investor. A Mr Jamil Marmarchi of Merrill Lynch International Bank, who gave evidence at the trial, provided a letter dated 22 December 1999 in these terms:-

“I would like to advise that Mr Faris Rawi has been classified at Merrill Lynch as a Expert Investor under “SFA Client Class” due to his experience with the financial markets, his educational background and his investment risk criteria.

The corporation regularly trades equity in sizes varying between US$100,000 to US$1,500,000 and fixed income of US$500,000 and over.”

I think that this may relate to trading carried out by Merrill Lynch on the Defendant’s instructions for the account of him and his mother, although I cannot be sure where the beneficial interests lay. On 20 January 2000 the Defendant and his mother wrote jointly to Mr Marmarchi at Merrill Lynch instructing him to close their joint account and to transfer the holdings thereof to “the beneficial holder” Belgrave Group Ltd at SGH Hambros Bank and Trust (Guernsey) Ltd, to which I will refer hereafter. It is said by the Defendant that at all times and on all occasions material to this action Hayford was in fact acting for and on behalf of Belgrave Group Ltd to which I will refer hereafter as “Belgrave,” an entity incorporated on 5 November 1999 in the British Virgin Islands as an International Business Company. I turn next to the arrangements with Belgrave and with SG Hambros Bank and Trust (Guernsey) Ltd, to which I will refer hereafter as “Hambros,” observing that it was not until 28 February 2000 that CSFB opened an account with Hayford through which Hayford then began to trade.

8. From about October 1999 Mr Radwan Al Rawi was in contact with Hambros in connection with a proposal that Belgrave appoint Hambros to act as its custodian for executing and settling investment trades on its behalf. In relation to Belgrave the “settlor” was said in this correspondence to be a Mr Arfan Abdulla, born on 1 January 1949 and resident in Amman, Jordan. According to the Defendant Mr Abdulla is an individual of high net worth whose investment vehicle Belgrave was. In mid December 1999 Hambros confirmed to Mr Rawi senior its willingness to open an account for Belgrave for the purpose above stated.
9. Meanwhile, on 22 November 1999, Hayford and Belgrave entered into an agreement pursuant to which Hayford agreed, as and when requested by Belgrave, to advise on investment opportunities and to provide a best effort market execution service in fixed income securities, equities and other financial instruments. It was agreed for the avoidance of doubt that Hayford had no power to commit Belgrave or to act as its agent and that no decision to transact or to execute would be made by Hayford. Belgrave agreed to pay Hayford all of its expenses plus 10%, to ratify all that Hayford lawfully did in the performance of its duties under the agreement and to indemnify Hayford against demands and damages and other liabilities whatsoever arising out of the performance of its duties. This agreement was signed on behalf of Belgrave by “Janice Beazer, for and on behalf of Ambleside Ltd Director of Offshore Management S.A.” I have no idea who is this person and I know nothing of the two companies to which reference is there made, still less of their relationship to Belgrave. The agreement was signed for Hayford by the Defendant as a Director.
10. On 24 February 2000 the Defendant informed CSFBEL by fax that the share ownership structure of Hayford was “Faris Rawi 75% Belgrave Group Ltd 25%.” It will be recalled that on incorporation the Defendant held 100% of the shares in Hayford. I have no idea what if any was the consideration for the share transfer. The same fax message continued:-

“It is the intention of Belgrave Group Ltd to maintain its 25 % interest in Hayford indefinitely.

Finally, please note that Hayford’s business activity is to provide an execution service in securities for Belgrave Group Ltd only.

I trust that you are now in a position to complete the account opening process. However, should you require anything further, please do not hesitate to contact me directly.”

It was shortly after this that, as I have already mentioned, CSFB opened an account for Hayford pursuant to which it began to trade, allegedly for account of Belgrave.

11. The mechanics of a typical Hayford trade with CSFB were as follows. The Defendant would telephone a trader at CSFBEL and place a purchase or sale order for shares. The trader with whom the Defendant mainly dealt was Mr Kieren McCormack, although the Defendant may occasionally have spoken to Mr McCormack’s boss, Mr Fabio Quaradeghini. In accordance with normal practice in the City, the telephone lines of the traders at CSFBEL were tape recorded as were some of the lines at Hambros. The agreed transcripts of most of the telephone conversations relevant to these proceedings were available at the trial. If, as was often the case, the shares which Hayford wished to buy or sell were traded on a US exchange such as the NASDAQ, Hayford’s order was executed not by CSFBEL but by CSFB under the terms of its Customer Agreement with Hayford.
12. There are different types of order which a client like Hayford might place with a broker such as CSFB. For example, the order might be one to buy or sell a certain number of shares at prevailing market price; or it might be an order to buy or sell shares at a certain price whereby the order may remain in effect until either the broker has been able to execute the trade at that price or the customer cancels the order, known as a “good ‘til cancelled order.” After an order for a US traded security was placed by Hayford with Mr McCormack, Mr McCormack would place the order with a trader on the OTC (Over the Counter) desk at CSFB in the US and that trader would then execute the trade by buying or selling the appropriate number of shares. The trader on the OTC desk would then enter the details of the trade into CSFB’s front office system and the order would then proceed through to CSFB’s back office system. This latter system would then automatically generate a written trade confirmation which would be sent to the client Hayford and to his custodian Hambros.
13. As custodian, Hambros was responsible for the physical settlement of Hayford’s trades on its behalf i.e., depending upon whether Hayford was buying or selling, taking delivery of or delivering the shares, and making or receiving payment of the price on the settlement date, that date being three business days after the date of the trade. By that time Hambros should not only have received a written trade confirmation from CSFB but also a separate written trade confirmation or dealing instruction from Hayford. Provided those confirmations matched, Hambros would settle the trade. If they did not match Hambros would not settle the trade.
14. The trades between CSFB and Hayford were on a delivery against payment basis—in other words, as a matter of contract Hayford could not obtain delivery of shares purchased by it without at the same time paying for them, nor could it obtain the proceeds of any sale of shares without at the same time delivering those shares.
15. As noted above Hayford began trading, although not through CSFB, in January 2000. According to the Belgrave US$ profit and loss figures produced by the Defendant on his computer, the trades executed by Hayford for Belgrave in January and February 2000 generated profits of US$174,753 and US$307,400 respectively. However in March 2000 things began to go seriously wrong; in the first three weeks of that month Hayford’s trading generated a loss of at least US$815,894 and the position continued to deteriorate in the last week of March. By the end of March 2000 Belgrave’s US$ account with Hambros was US$755,456 in debit, with a credit of Euros 149,256 in the Euro designated account.
16. By 7 April 2001, even ignoring trades that had still to be settled, Belgrave was almost US$1million overdrawn at Hambros and the position was so serious that Mr Graham, one of Hayford’s principal points of contact at Hambros, was at that stage having to report directly to his Managing Director concerning the account. The Defendant was indicating to Hambros that he would not do any more trading until certain sales transactions had been settled, thus reducing Belgrave’s overdraft, and he was also seeking to arrange a US$250,000 cash injection into Belgrave’s account at Hambros. He admitted to Mr Graham that it had been a “very rough two weeks”. It was these financial difficulties which, says CSFB, precipitated the events giving rise to this action.
17. It is true that Hambros knew that Belgrave had certain long term positions which could be sold to reduce the overdraft. Interestingly the Defendant appears also to have utilised for the purpose of reducing the Belgrave overdraft certain holdings to which he acknowledged he had a personal beneficial entitlement. I am unsure why the Defendant should have done that, or why he should have transferred his and his mother’s holdings to Belgrave, if Belgrave was the exclusive vehicle of Mr Abdulla. It is also the case that on Wednesday 12 April, apparently through the intervention of Mr Radwan Al Rawi, Lloyds Bank in Geneva transferred or agreed to transfer US$400,000 to Belgrave’s account with Hambros, that apparently being a requirement of Hambros without which it would have taken steps to realise certain Abbey National shares which it had since 5 April held as security. According to the Defendant the account in Geneva from which the money came was Mr Abdulla’s account and the Abbey National shares were beneficially owned by Mr Abdulla. However notwithstanding the availability of certain funds, as to the precise source of which I can make no reliable finding, the position remains that by the end of March the net result of Hayford’s trading was disastrous. Whoever was the party for whose account it had been conducted faced a heavy loss. Without a further significant capital injection on a scale far beyond anything so far contemplated Hambros would be unable on Belgrave’s behalf to settle the purchase of the Ariba shares. Belgrave’s position was not covered by security. Hayford as I infer never had any significant asset beyond its entitlement to an indemnity from Belgrave.
18. CSFB asserts that it was against this background that the Defendant embarked upon a desperate and dishonest course of conduct. The Defendant denies any wrongdoing. He says he made mistakes under the pressure of great stress. I would find it the easier to evaluate that explanation for what is on any view an extraordinary course of conduct if I knew more about the person who was referred to at trial by Mr Dicker QC for CSFB as the elusive Mr Abdulla. That description was fully justified. The Defendant claimed to have been trading on Mr Abdulla’s behalf in a highly volatile market on an execution only basis in transactions involving substantial sums of money in circumstances where he did not even have a telephone number in Amman on which his client could be contacted for his instructions when required. There was produced before me not a single piece of paper or communication emanating from Mr Abdulla and no communication addressed to him. I reject the Defendant’s improvised suggestion in his oral evidence that Hambros sent to Mr Abdulla on a regular basis copies of Hayford’s dealing instructions, summarising the transactions concluded on his or Belgrave’s behalf. Had Hambros had any communication with Mr Abdulla or with Belgrave between 29 March and 25 April 2000 it would have disclosed it pursuant to the order made with its consent on 15 December 2000 by the Royal Court of Guernsey. Mr King for the Defendant reminded me that it was not suggested in CSFB’s pleaded case that Mr Abdulla did not exist or that he had no connection with Belgrave, and he suggested that it was therefore impermissible for me to reach any conclusion to that effect. Somewhat more attractively Mr King suggested that had the existence of Mr Abdulla or his connection with Belgrave been a pleaded issue then there might have been deployed at trial further material which could have had a bearing on the matter. Mr King did however accept that it was open to me to find that the nature and frequency of the contact between the Defendant and Mr Abdulla concerning the trading purportedly carried out on Mr Abdulla’s behalf was not as the Defendant described it. That issue is a matter of the credibility of the Defendant’s evidence. Mr Dicker for his part did not go so far as to invite me to find that Mr Abdulla does not exist. He did not however accept that Mr Abdulla had any beneficial interest in what was allegedly going on in his name. Mr Dicker invited me to find that Mr Adbulla knew nothing about the trading that was going on and he further invited me to conclude that at least part of the trading was done by the Defendant for the benefit of himself or other members of his family. Specifically, and perhaps most importantly, Mr Dicker invited me to reject the Defendant’s evidence to the effect that at some stage he had a conversation with Mr Abdulla who informed him that he Mr Abdulla was under the impression that the Ariba shares had been sold.
19. It is common ground that on Friday 31 March at 15.42 the Defendant telephoned Mr McCormack and ordered 10,000 Ariba shares at market price. That order was executed within six minutes. CSFB sent a written confirmation of the trade to Hayford and to Hambros. The settlement date was 5 April.
20. The Defendant maintained a running account of his transactions in a document called “the blotter.” It is a type of document which, in one form or another, is often used by dealers or traders and is readily recognisable as such. The Defendant’s evidence as to the manner in which the blotter was filled in was most unsatisfactory. The idea was that the entries should be made as and when a trade was placed. So far as concerns the entries for 30 and 31 March, with which I am principally concerned, the Defendant initially said that the entries were probably made some time after the trades were entered into but definitely before Sunday 2 April. Later he seemed to qualify that, admittedly in response to a leading question which contained a possibly inaccurate summary of his earlier evidence, to the effect that the entries were made after he had been told that the relevant trades had been executed. Later still there came a yet further qualification that an entry might have been made either after the Defendant had been told that the relevant trade had been executed or after he thought that it had been executed. Thus in relation to the latter possibility the suggestion was that if the Defendant had an order in, say, to sell at 30 Euros, he might if he saw on a dealing screen that the price of the relevant stock had gone to or above 30 Euros assume that his order had been executed at that price. I must say that this latter suggestion seems to me not very sensible and wildly implausible. Before explaining why I will however just indicate what are the relevant entries on the blotter. All of them were made by the Defendant himself. This is important, because at some times material to this action the Defendant had the assistance of Mr Wali Asif Khan, universally known as Billy. Billy made some entries on this blotter and Billy needed for the purpose of his various functions to understand the significance of entries which had been made by the Defendant himself.
21. The blotter records six trades for 30 and 31 March as follows, and in the order indicated:-

30 March a purchase of 2000 Juniper shares at US$280.0625 through Lehman Brothers designated reference number 641.

31 March a purchase of 10,000 Ariba shares at US$213.5625 through CSFB designated reference number 642.

31 March a sale of 10,000 Ariba shares at US$230 through CSFB designated reference number 643.

30 March a sale of 10,000 Cabletron shares at US$29 through Deutsche Bank designated reference number 644.

31 March a sale of 10,000 shares in RT-Set at Euros 30 through CSFB designated reference number 645.

30 March a sale of 10,000 shares in Portal Software at US$60.250 through Thomas Weisel designated as reference number 646.

22. Three of the trades thus entered on the blotter had not in fact taken place, viz. the sales of Ariba, RT-Set and Portal.
23. On Sunday 2 April the Defendant sent one of his routine dealing instructions to Hambros. This in fact covered transactions allegedly concluded on 29, 30 and 31 March. For 30 and 31 March it contained the same information as on the blotter save only that there has been added, as transaction reference number 642, a sale of 4,000 shares in Juniper at US$290 through Lehman Brothers. The insertion of this transaction on 30 March as reference number 642 has caused the reference numbers given to the succeeding transactions on the dealing instructions to be one point displaced from the number previously ascribed on the blotter. This additional transaction, the Juniper sale, had like the alleged sales of Ariba, RT-Set and Portal also not in fact taken place.
24. It was the Defendant’s evidence that he was by this time under considerable pressure and this I can accept. His trading had been disastrous. His evidence generally was to the effect that he had at the time of preparation of both the blotter and the dealing instructions been confused but that he had genuinely believed that all of the transactions therein described had been executed. This I am afraid I cannot accept. Whatever the pressure he was under it is inherently incredible that in relation to two trading days when only three transactions were executed the Defendant should by an innocent mistake have recorded seven transactions, four of which had not taken place, all four of which coincidentally happen to be sales rather than purchases which would therefore, if genuine, generate income for Hayford. There is also clear evidence deriving from the Defendant’s subsequent conduct in relation to the supposed sales which demonstrates that the Defendant had no contemporary belief that the four sales had been executed. I am in no doubt whatever that these four trades were not entered onto the blotter or into the dealing instructions by mistake. This was done as part of a deliberate and dishonest scheme by the Defendant. So far as concerns the Ariba shares with which this action is principally concerned, although the Defendant bought them on a falling market he hoped that the market would rise and that he would reap a corresponding profit. It is true that Ariba actually reached US$221 at some point on 31 March, although I cannot on the basis of the material before me deduce whether that was before or after the Defendant made his purchase. It may be a fair inference that since the stock closed at US$220 on 30 March and had a high of US$221 on 31 March closing on that day at US$209.6 the high of US$221 was reached before the Hayford purchase at US$213. However that may be, and I rest no conclusion on what may not be a fair inference, the fact remains that the stock at no point reached US$230 on 31 March. This makes unreal the suggestion that the entry on the blotter may derive from a belief that an order to sell at US$230 had been executed when the stock reached that level. The Defendant did not say in evidence that he had such a belief when he made the entry on the blotter. His evidence at the trial was that he did not on 31 March know that the stock had not reached US$230. Furthermore, the Defendant does not allege that on 31 March he had a conversation with any broker whether at CSFB or at any other broking house in the course of which he was told that a sale of 10,000 Ariba shares had been executed, whether at US$230 or at any price. There is therefore simply no basis upon which the Defendant can have believed on either 31 March or 2 April that, by one mechanism or another, he had on Friday 31 March achieved a sale of 10,000 Ariba shares at US$230. Mr King suggests that to make up a trade which could never have been executed, because the price was too high, would have been crass and bound to be discovered. I am not sure that that suggestion sits easily with the Defendant’s evidence that he did not on 31 March know that the price had not reached US$230. But in any event I am not sure that the point assists Mr King. The Defendant was looking to secure short-term relief, in the hope that he would buy sufficient time in which, with luck, the price would rise sufficiently to enable a substantial profit to be reaped. If that came about, no-one would have been too concerned to scrutinise the nature of the alleged error. In some ways the proof of the pudding is in the eating. It took a considerable time for the deception to be unravelled, notwithstanding the adoption of a price which was never reached on the day in question.
25. In fact the Defendant does not allege that he had conversations with any broker on 30 or 31 March in the course of which he was told that sales of Juniper, Portal or RT-Set had been executed for his account. It is true that on 30 March Portal reached a high of US$62 and that on 31 March RT-Set reached a high of Euros 32, both in excess of the prices at which the Defendant recorded sales on those days. However I am afraid that I must reject as plainly improvised and dishonest the suggestion that the explanation for these trades appearing on the blotter and/or the dealing instructions is that an order had been placed to sell at a certain level which the Defendant assumed had been executed when he saw the price move to or above the level at which he had placed his order. I do not think that the Defendant actually asserts that he had placed an order for the sale of Portal although he did assert, for the first time, in his oral evidence at trial, in fact in cross examination, that an order to sell RT-Set at Euros 30 had been placed with Merrill Lynch on 31 March. He also said that he had been told on the morning of Monday 3 April that this was unexecuted. I shall have to return to the significance of this development in the story but it does not explain why on the blotter and on the dealing instructions the sale is attributed to CSFB. The Defendant said that when on Monday 3 April he was advised by Merrill Lynch that his order was unexecuted he decided then to place the order with CSFB so as to bring the position into line with what was indicated on the dealing instructions. That does not explain why on Thursday 6 April the Defendant told Mr Robson of Hambros that three sales, Ariba, Juniper and RT-Set had all been placed with the same night salesman at CSFB on 31 March. I reject the Defendant’s explanation that he was, in relation to RT-Set, telling a white lie to Hambros in order to cover his embarrassment over his error in the dealing instructions. In any event placing the RT-Set sale order with CSFB on the morning of 3 April, as the Defendant in fact did, did not bring the situation into line with the dealing instructions at all. The dealing instructions indicated that a sale had been executed by CSFB on Friday 31 March. The transfer of the sale from Merrill Lynch to CSFB could thus only serve to help to conceal the fact that Hambros had been misled. What the Defendant told Mr Robson on 6 April in fact contained a further lie in relation to Juniper which sale he had incidentally attributed to Lehman Brothers in the dealing instructions. Furthermore the Juniper price had not reached US$ 290 on either 30 or 31 March. It would also be a further remarkable coincidence that both Merrill Lynch and Thomas Weisel should on successive days be unable for whatever reason to execute sales of orders at prices below the day’s high.
26. There are however yet further reasons why the Defendant’s attempt to explain these incorrect entries in the blotter and in the dealing instructions are simply incredible. Firstly, with the exception of these four trades the blotter and the dealing instructions record documented trades that had been executed on a particular day at a specific price. There is no example in the disclosed material of an entry which can have related to a trade ordered at a particular level which the Defendant merely hoped had been executed as a matter of inference from the information on his Bloomberg dealing screen and in respect of which he made an entry accordingly, without confirmation. Secondly the Defendant accepted that he did actually need to know before sending dealing instructions to Hambros whether ordered trades had been executed. I reject as wholly incredible the notion that the Defendant would honestly send to Hambros, in the shape of the dealing instructions, details of transactions in respect of which he had not received confirmation of execution. The Defendant must have known that the fact that a stock may reach the price at which an order is placed does not necessarily mean that the order will prove capable of execution at that price. As is obvious, much may depend for example upon the size of the order. If evidence of a trader is required for that proposition, Mr Quaradeghini supplied it. Thirdly, there is the consideration that Billy needed to understand the significance of the information on the blotter which was generally fed by him into a spreadsheet on the Defendant’s computer from which the dealing instructions were printed out. It so happens that on this occasion the information was input by the Defendant himself, but it would be surprising if in relation to trades on 30 and 31 March the Defendant for the first time adopted a practice of entering on the blotter trades which might not reflect executed transactions. Finally there is simply no explanation at all for the appearance in the dealing instructions of the alleged sale of Juniper through Lehman Brothers on 30 March, later attributed on 6 April to the CSFB night salesman. According to a schedule served in this action and twice verified by the Defendant he realised somewhere between 7 and 10 April that this sale was not with CSFB but with Lehman Brothers, to whom he had incidentally originally attributed it. He then found out that Lehman Brothers knew nothing about it and he finally sold through Merrill Lynch on 13 April. This explanation is simply not credible.
27. There are two specific areas in which it can clearly be seen how the Defendant has changed his story in response to or in an effort to accommodate the contents of the documents, as they emerged on disclosure, which demonstrated the falsity of what he had earlier said. In an affidavit¹ sworn by Catherine Heard, a director of the CSFB Legal Department, on 29 March 2001 in connection with interlocutory proceedings Miss Heard at paragraph 48 said this:-

“I should also mention that Kieren McCormack recalls a conversation with Rawi on 3 April 2000 (after the purchase of the Ariba stock had been made). In the course of that conversation Rawi expressed concern about Hayford’s exposure on Ariba, believing at that time that the share price was falling. The reason for Rawi’s concern was that the Ariba stock had split and was trading two for one, so that for every share held, a shareholder would now hold two shares at exactly half pre-split value. It would therefore at first appear that the Ariba stock had halved in value. Had there been a sale, there would, of course, have been no exposure for Hayford. There is no evidence to suggest that Rawi had any other positions open on the Ariba stock. The confirmations for the relevant period disclosed by Hambros suggest that the only other trading in Ariba was on 15 March 2000 which concluded with a sale of the shares then held.”

On 14 June 2001 the Defendant swore an affidavit, in fact his third, in opposition to CSFB’s application to continue a freezing injunction which had been granted by Langley J on 30 March 2001. At paragraph 18 (7) the Defendant dealt with the passage in Miss Heard’s affidavit to which I have just referred. He said this:-

¹I was asked not to read Miss Heard’s affidavit before the trial and I did not. I have referred to it only for the purpose for seeing to what it was that the Defendant was responding in his 3^rd affidavit in order appropriately to place his evidence in context.

“The Claimant has relied upon a conversation between Mr McCormack and me on 3 April in which I appear to be concerned because I was exposed on the purchase of Ariba stock. Catherine Heard has drawn the wrong conclusion from this. There were particular stocks that I was following on a day to day basis, regardless of whether I had outstanding positions in them. It was common for me to telephone the brokers I used and make enquiries about stocks I was not holding and this would have been the case with regard to the conversation with Mr McCormack. I would make 20 or 30 such calls of this nature a day. Unfortunately my solicitors have been unable to obtain a copy of this tape of the conversation from the Claimants solicitors at the time of making this affidavit and I am not able to comment in further detail until I have been able to hear the actual conversation.”

On 2 July 2001 the Defendant and his legal team were given access to the recording of this conversation. As transcribed, it went as follows:-

“Tape No: CS 03 W380 CH 84

Date: April 3 2000

Time Speaker Transcript

13:53:12 KM First Boston

FR Hi Kieren

KM Yeah

FR Quick question for you-you know Ariba?

KM Yeah

FR Did they stock split today?

KM Er, lets have a look here ARBA

FR Cos either they stock split or I’m losing 50%

KM No no. Lets have a look erm payable of 31^st err, ex-day, it’s gone ex date yeah 2 for 1

FR I did 2 for 1 did it?

KM Yeah

FR Okay

KM Don’t panic

FR No. Thanks, bye ”

I have set out the transcript in the form in which it was agreed, but it is obvious that the pre-penultimate observation of the Defendant must have been “it did two for one did it?” and not as transcribed. Looked at as a whole, this was obviously the enquiry of a man who thought that he was exposed. Perhaps that is why the Defendant made no further reference to this conversation in his second Witness Statement which was served on 15 August 2001. There was simply nothing he could say about this conversation which could assist his case. Not surprisingly he was asked about it in cross-examination. He sought to suggest that his remark that “because either they stock split or I’m losing 50%” was a joke but if this remark was intended to have some jocular content it would only make sense if the Defendant was indeed holding that stock. Mr McCormack said in evidence that it was quite clear from this conversation that the Defendant considered Hayford to be exposed to Ariba, at least as at 3 April. He pointed out that if Hayford had sold the stock on Friday 31 March, Monday’s price would have been of little concern to the Defendant. Mr King for the Defendant expressly eschewed the forlorn attempt to explain to me why this would be a humorous remark if made by a man who did not hold Ariba stock.

28. Mr King had another point in relation to this conversation. He suggested that the Defendant would have been unlikely to make these comments to Mr McCormack if he was about to perpetrate a fraud on CSFB which involved a suggestion that CSFB had sold or accepted an order to sell the Ariba shares on Friday 31 March. I see the force of that point, but it is not sufficient either singly or taken in conjunction with other points made by Mr King to dissuade me from the conclusion to which the evidence taken as a whole points overwhelmingly. It is inevitable in a case such as this that one cannot nail down every last loose end, and one cannot look for a rational explanation for everything said or done.
29. A similar pattern of trimming evidence in the light of disclosure can be seen in relation to RT-Set, a matter to which I said earlier that I would return. The Defendant first referred to this in his affidavit of 14 June 2001. Having acknowledged that there were mistakes in the dealing instructions in relation to Juniper, Portal and RT-Set he continued:-

“Thus although I thought there was a sale order for the sale of shares in RT-Set Ltd, when I was told by Mr McCormack that there was not, I accepted the position and placed another sale order for Euros 40,000 less.”

This was plainly an assertion that, at the time of preparing the dealing instructions, the Defendant thought that he had on 31 March placed with CSFB a sale order in respect of RT-Set. When the Defendant came to prepare his second Witness Statement dated 15 August 2001 he had available to him a transcript of a conversation between himself and Mr McCormack at 16.23 on 3 April. In the course of that conversation Mr McCormack informed the Defendant that RT-Set had not reached 30 Euros all day. The Defendant said that that was fine and “we’ll leave it in for tomorrow then” in response to which Mr McCormack sought confirmation that the Defendant intended that his order should remain good for tomorrow. Thus in his Schedule to his Witness Statement the Defendant said of the RT-Set transaction:-

“This appeared to handle a lot more simply. I found out for sure on 3^rd April from KM that no sale order had been executed or put in and we went ahead and sale finally executed on 11^th April at 25.59 Euros.”

Again, this was consistent only with an assertion that a sale order had been given to CSFB on 31 March but that it was only on 3 April that the Defendant discovered that it had not been executed. Subsequently however on 19 October 2001 there was disclosed to the Defendant a transcript of an earlier conversation with Mr McCormack on 3 April, in fact a conversation at 11.15 in the morning. This demonstrated that it was in the course of that conversation on 3 April that an order to sell 10,000 RT-Set shares was first placed with CSFB. Thus the Defendant’s position that he honestly believed on 2 April that this trade had been placed with CSFB on 31 March was shown to be quite untenable. It was in the light of this disclosure that the Defendant came to give his new account in cross examination at trial to the effect that he had placed an order with Merrill Lynch on Friday 31 March for the sale of 10,000 shares in RT-Set at 30 Euros per share, that by mistake he had entered that trade in the blotter and in the dealing instructions as a trade with CSFB, that he believed that that sale had been executed until the morning of Monday 3 April when he received a message from Merrill Lynch to the effect that the sale had not been executed and that he then placed the order with CSFB in order as he put it, to correct his error. I have already indicated that I reject this explanation, improvised as it was to account for documents which demonstrated the falsity of his earlier position. If further reason were required for this finding it is to be found in the fact that, as he now admits, the Defendant repeatedly lied to Hambros about the RT-Set trade telling them that RT-Set had been sold at 30 Euros on 31 March. This began on 6 April, as I have already mentioned. On 7 April the Defendant dishonestly told Hambros that he had had a conversation with CSFB in the course of which CSFB had been unable to confirm one way or the other whether RT-Set Ltd had been sold and that they were giving him temporising responses. He told Hambros that CSFB had said the same thing in relation to Ariba—the two trades were bracketed as being held up by the inefficiency and disorganisation of CSFB. As early as his third affidavit the Defendant had asserted that on 6 and 7 April he had at least two telephone calls from employees of CSFB in New York who rang him to ask about settlement of the purchase, by which he meant the Ariba purchase. The Defendant said in evidence at the trial that when on 7 April he told Hambros that he had spoken to CSFB and been dealt with as indicated above, that was a reference to his New York conversations. Yet the Defendant also accepted that what he had attributed to CSFB concerning RT-Set was wholly untrue. It was quite simply a complete fabrication without any foundation whatever. CSFB New York would have had no reason whatever to discuss RT-Set with the Defendant. On 10 April the Defendant told Hambros that CSFB “don’t know what the hell’s happened” in relation to RT-Set. In fact on the very next day the Defendant telephoned Mr McCormack and instructed him to reduce the price limit on the RT-Set order to 26 Euros, after which the shares were in fact sold. Mr Robson of Hambros even asked the Defendant the next day if the confirmation which came through could be correct bearing in mind that the price achieved was less than he thought the Defendant had told him to expect—in fact it was Euros 25.59. The Defendant did not take the opportunity to explain what had occurred.

30. The Defendant’s explanation for this course of conduct is that it can be passed off as a series of white lies told in order to keep Hambros happy at a time when they were pressing concerning the overdraft. This explanation does not suffice. Precisely because Hambros were concerned as to the overdraft it was of the first importance that they should not be misled as to the secured funds available to Belgrave. The Defendant wanted them to believe that the RT-Set shares had been sold at 30 Euros on 31 March and that the only reason why they had not received the proceeds was because of inefficiency on the part of CSFB. The Defendant knew full well the importance of not misleading his bankers on this matter.
31. I have already mentioned that Mr Marmarchi gave evidence at the trial. On the insistence of his employers he did so under subpoena and his employers were similarly unwilling for him to sign a witness statement in advance of his attendance. There was however prepared a witness summary. It is evident that Mr Marmarchi made no mention of RT-Set in advance of his attendance at court. He claimed that listening to the Defendant give evidence had jogged his memory concerning RT-Set, and he said that the Defendant had placed an order with him on Friday 31 March to sell RT-Set. He did not say on what basis or at what price the order was placed. He further claimed that on Monday 3 April he had called the Defendant and told him that the order “wasn’t done.” It was apparent from the rest of his evidence that Mr Marmarchi’s recollection was not good except where he could be assisted by documents and he had not checked any relevant documents at Merrill Lynch in order to verify what he said. Indeed he said that since the trade was not done there would in any event have been no entry in his own log, at which he had glanced briefly before giving evidence. I find it difficult to believe however that there would not be some record of a firm order to sell, even if it was not in Mr Marmarchi’s log. Indeed I should have thought that in any even moderately well run broking house there would simply have to be a documentary or electronic record of an instruction to sell and I would not expect it to be destroyed in the event of non execution of the instruction. I am afraid that without production of some corroborative document, or of a transcript of the relevant conversations on the Friday and Monday, which are both likely to have been recorded, I cannot regard this evidence as reliable.
32. I have also already mentioned that the Defendant maintained throughout that on 6 and 7 April he had at least two telephone calls from employees of CSFB in New York who rang to ask him about settlement of the Ariba purchase. According to the Defendant he explained to them that he believed that there was a matching sale and he was told first that they would look into the position and get back to him and secondly that they would sort out the problem. It was this information that the Defendant passed on to Hambros on 6 April in the conversations to which I have already referred. The Defendant has admitted that he gave to Hambros a partially dishonest account of these telephone calls. It is not a large step from that to the conclusion that the Defendant’s entire account of these telephone calls is dishonest. In the first place it is inherently unlikely that any operations personnel in New York would wish to speak directly to a London based client of a London based trader. I think it likely that they are forbidden to do so. I regard it as virtually inconceivable that they would do so without reference to the responsible London trader. The evidence demonstrated that those in New York would not have had access to the Defendant’s telephone number. I also see no reason not to regard as wholly conclusive the electronic search of all telephone calls made from CSFB’s Equities Desk and Trade Support Departments in New York during the relevant period. That search demonstrates conclusively that no such calls were made. There is a yet further consideration that the Defendant’s contemporary account of the telephone calls is internally inconsistent and inconsistent with known facts. On 6 April the Defendant told Mr Robson of Hambros that CSFB had told him that they knew nothing about the Ariba sale. Yet on 7 April the Defendant told Mr Graham at Hambros that “I’ve been promised by CSFB that when New York opens they’ll get some confirms out for me” in relation to Ariba and RT-Set. This was of course admittedly untrue in relation to RT-Set, but it was also obviously untrue in relation to Ariba. CSFB, whether in London or New York, could never have said that they would send out a confirmation in respect of the Ariba sale because they had never been instructed to execute it.
33. In summary I am satisfied that the Defendant never had any conversations with CSFB in New York. The content of the invented telephone calls was all part of his dishonest plan to string things out in the hope of a market improvement. The Defendant has attributed the calls to New York because he knew full well that his conversations with the bank staff in London would have been recorded. He therefore resorted to saying that he had spoken to unidentified persons in New York, in the hope no doubt that CSFB would find that a difficult matter to disprove. He may also have known that the now virtually universal practice in the City of London of tape recording telephone conversations of this sort does not extend to New York, where, I believe, different legal considerations obtain.
34. It follows from the foregoing that I must also obviously reject as a pure contemporary invention the suggestion made by the Defendant to Mr Robson on 6 April that he had placed the sale orders for Ariba, Juniper and RT-Set with the same night salesman at CSFB on Friday 31 March. This was obviously untrue as has already emerged in relation to RT-Set. Equally, it was untrue so far as concerned Juniper, the sale order in respect of which had on the dealing instructions been attributed to Lehman Brothers. I have no doubt whatever that the Defendant knew full well when he made this representation to Mr Robson that it was equally untrue so far as concerned the Ariba shares.
35. Between 6 April and 12 April 2000 there were some 14 telephone conversations between the Defendant and Mr McCormack, the latter being as I have already mentioned the trader at CSFB with whom the Defendant most frequently dealt and with whom he had placed the Ariba purchase order. If the Defendant had genuinely believed that he had placed a sale order with CSFB which CSFB had failed to execute, or that CSFB had lost the documentary record of the order or even of its execution, it is inconceivable that he would not have mentioned this to Mr McCormack during this period. The Defendant’s explanation for his failure to mention the Ariba sale to Mr McCormack was that at the time he believed that Hambros were chasing CSFB in relation to it, and that it never occurred to him that Mr McCormack would be unaware of the failed trade. I am afraid that again I have to reject this explanation as patently untrue. The Defendant was at pains to give Hambros the impression that he was chasing CSFB. On 4 April Lee Crerar at CSFB telephoned Mr Graham of Hambros in relation to another Hayford trade, Versatel. The conversation which took place is consistent only with the Defendant already having told Mr Graham that he, the Defendant, was missing trade confirmations from CSFB, that that accounted for Hambros too lacking confirmations from CSFB including those which the dealing instructions would have led them to expect and that he, the Defendant was going to chase up the matter with CSFB. In his evidence at trial the Defendant seemed at first to accept that such a conversation had taken place between himself and Hambros but he sought to resile from that acceptance when he realised that there was no record of such a conversation and he saw the opportunity to deny that it had taken place. The Defendant did not proceed to chase up the missing confirmations with CSFB. However at 10.35 on the next day, 5 April, the Defendant called Mr Graham again. His opening words to Mr Graham were “okay, Chris, I was just querying all these trades now CSFB are gonna get back to me they are totally lost.” This was consistent with the Defendant having the previous day led Mr Graham to believe that he would be chasing up the missing confirmations with CSFB. In his evidence at trial, although not before, the Defendant suggested that he may here have been referring to a conversation with Lee Crerar about Versatel, which as he could see from the transcript of the taped conversation between Lee Crerar and Mr Graham on 4 April was the immediate cause of Lee Crerar’s call to Mr Graham on that day. This was an opportunistic suggestion, borne out of the Defendant having learned two days earlier from the oral evidence of Tracy Dilks that CSFB had no tape recordings of calls made from Lee Crerar’s telephone—the recording of her conversation with Mr Graham had come from Hambros. I reject this assertion from the Defendant. I can think of no reason why he would have thought that Lee Crerar was the person to whom he should speak. In any event the Defendant reported to Mr Graham that he had been querying with CSFB “all these trades” not one single trade.
36. Early on the morning of 6 April Mr Andre Gibb of the CSFB back office telephoned Mr Graham to discuss the fact that Hambros had failed to settle Hayford’s purchase of Ariba shares on the due date, which was the previous day 5 April. Mr Graham reported that he did not think that CSFB had been sending through the contract notes. Mr Gibb replied with the interrogative “You haven’t got our contract?” by which he meant confirmation of the purchase. Mr Graham in turn replied “No” by which he meant confirmation of the sale of Ariba shares which the dealing instructions told him had been concluded on the same day as the purchase at a higher price. He continued “We’ve been missing the whole raft of them and I know that the person, Belgrave is it, oh sorry Hayford” at which point Mr Gibb confirmed that it was Hayford and Mr Graham continued “Yeah I don’t think you guys have been sending through contract notes, I know Hayford has been onto your people yesterday about it.” Again, this is consistent only with the Defendant having told Mr Graham the previous day that he had chased up CSFB for missing confirmations. Indeed Mr Graham called the Defendant on the afternoon of 5 April to see if he was having any luck. He asked him first about Thomas Weisel whom he thought the Defendant was chasing up in relation to Portal. The Defendant responded that they were looking into it and that CSFB too were going to call him back by which he meant to imply that he had chased CSFB for missing confirmations. The Defendant told Mr Graham that he had told CSFB that he had “the settlement on hold at the moment” by which he meant that he had told CSFB that he had the settlement of the Ariba purchase on hold. This was untrue as he had not raised the matter with CSFB. Similarly untrue was his suggestion to Mr Graham that he was also waiting for a confirmation from CSFB of the sale of RT-Set on 31 March. Indeed the Defendant embellished this dishonest account with the words “something’s happened with CSFB trade that day (sc.31 March) I don’t know what the hell happened.”
37. The Defendant’s intention when making these false representations to Hambros as to the existence of a sale order placed with CSFB on 31 March in relation to 10,000 Ariba shares was to buy time for the settlement of the Ariba purchase effected on the same day. The Defendant intended that Hambros would decline to settle the Ariba purchase with CSFB until CSFB settled the supposed sale order, and he intended thereby to induce CSFB not to close out the purchase order and not to take immediate steps to enforce its rights against Hayford under the customer agreement whilst it investigated whether there had indeed been a sale order. The Defendant intended that his explanations to Hambros as to why they were lacking confirmation of a matching sale of Ariba on the strength of which they would settle the purchase would be reported back to CSFB when they in turn chased Hambros for settlement. The Defendant knew that this would inevitably happen in the ordinary course of events. He knew and intended that Hambros would not settle the purchase without confirmation of a matching sale. He intended that CSFB would act upon the assertion that they had sold the Ariba shares on 31 March, or undertaken so to do, by not closing out the purchase order until the confusion had been unravelled by which time he hoped the Ariba price would have increased sufficiently to enable the shares to be sold at a substantial profit. The Defendant wanted the settlements departments of Hambros and CSFB to believe that there had been an Ariba sale for as long as he could get away with it in the hope that the price of Ariba would increase substantially before the truth was discovered. It was in truth, as Mr Dicker put it, a one way bet. If the plan worked and the market rose sufficiently, this would go some way towards solving the Defendant’s financial problems caused by his trading to date. If the plan did not work or if the market did not improve, Hayford would simply go into liquidation and be unable to meet CSFB’s inevitable claim. The fact that considerations of this sort were uppermost in the Defendant’s mind is in my judgment borne out by the fact that, when he came on 3 May 2000 to respond to CSFB’s notice of intention to commence litigation against Hayford, he said that Hayford was experiencing financial difficulties and had ceased to trade. I shall have to return to the contents of this extraordinary letter. It displays dishonesty and arrogance in equal and substantial measure.
38. Mr Dicker at one stage submitted that this was a case in which, perhaps unusually, the Defendant had told so many lies that it was difficult to know where to begin. This submission was fully justified. I have already made sufficient findings to indicate why the Claimant has succeeded in proving to the requisite standard that the Defendant dishonestly induced or procured Hayford to make false representations on which he hoped CSFB would rely. I must however as briefly as I may sketch in how matters developed. Perhaps inevitably in the light of the early deceptions which he had practised the Defendant resorted to yet further dishonesty.
39. On 6 April Mr Stuart Robson of Hambros called Mr Gibb of CSFB. He acknowledged receipt of a fax sent by Mr Gibb confirming the Ariba purchase but pointed out that it was actually confirmation of the sale that Hambros were missing—reflecting the fact that Mr Gibb and Mr Graham had on the previous day been at cross purposes. Mr Robson gave to Mr Gibb details of the alleged sale as he understood them to be. Mr Robson also told Mr Gibb that Hambros were missing confirmation from CSFB in relation to two more trades, Juniper and RT-Set. Although this was not put to the Defendant, I think it likely that there had already been a conversation between the Defendant and Hambros in the course of which the Defendant had suggested that the Juniper sale was placed with CSFB. Unless such a conversation had taken place I cannot understand why Mr Robson should have attributed the Juniper sale to CSFB as opposed to Lehman Brothers to whom it is attributed on the dealing instructions. Only 32 out of 100 extensions at Hambros were recorded and the search for relevant conversations which Mr Robson or Mr Graham may have had on recorded extensions other than their own is unlikely to have been successful in uncovering every conceivably relevant conversation. However nothing turns on whether there had in fact been the conversation which I deduce since as I have already remarked in a later telephone conversation on 6 April of which there is a record the Defendant asserted to Mr Robson that all three sales, that is Ariba, Juniper and RT-Set had been placed with the same CSFB night salesman on the same day. Specifically in relation to Ariba Mr Robson told Mr Gibb that “as long as we’ve got the sell, we’ll put the sell and the buy through today.”
40. Later on the same day Mr Gibb called Mr Robson to report that CSFB could not trace any details of either the Ariba or the Juniper sales. Mr Gibb asked Mr Robson to revert to his trader, i.e. Hayford/the Defendant, and to get them to contact the relevant trader at CSFB with details of the trades. There then took place the conversation to which I have already twice referred in the course of which the Defendant told Mr Robson that the three sales, Ariba, Juniper and RT-Set had all been placed with the same night salesman at CSFB on the same day, notwithstanding incidentally that the dealing instructions in addition to attributing the Juniper sale to Lehman Brothers also placed it on 30 March whereas the other two sales were indicated to have taken place on 31 March. The Defendant told Mr Robson that he had been on the telephone to CSFB and that they were sorting it out. This suggests a call by the Defendant to CSFB for this purpose, a call which never took place. The Defendant says that he was referring to a call that he had received from CSFB in New York but I have already rejected this explanation. An additional reason for rejecting it is that CSFB in New York can have had no reason to call concerning the alleged Juniper sale.
41. On 7 April Mr Gibb called Mr Robson to discuss the fact that the Ariba purchase had again not been settled—in the jargon it had been “DK’d” again, i.e. the counter party had indicated that it did not agree with or “know” the trade in question. Mr Robson repeated to Mr Gibb the explanation given to him by the Defendant, viz. that the matching sale which Mr Gibb had been unable to trace had been placed through a late day or end of day trades man, as had Juniper and RT-Set.
42. Later on the same day the Defendant told Mr Graham at Hambros “I’ve been promised by CSFB that when New York opens they’ll get out some confirms for me.” He said that that applied to Ariba and RT-Set and that it was CSFB who had sold Juniper and that they had promised to sort something out on that too. He explained that, in relation to Juniper, CSFB “know about the order so on, everything.” All this was of course untrue. The Defendant and Mr Graham went on to discuss the extent to which Belgrave was overdrawn and the reduction in the overdraft which the sales proceeds would bring about.
43. On the same day Mr Robson of Hambros called Mr Gibb. He told him “about those trades” “right its CSFB New York” intending to convey, I think, that it would be from CSFB New York that sale confirmations should be expected for Ariba, Juniper and RT-Set. He also said “and the name, or there are two names, its Kieren or Fabio.” This probably referred back to the fact that Mr Robson had been unable in an earlier conversation that day to give to Mr Gibb the name of the late day or end of day trades man. There must have been an earlier conversation of which there is no record, or no traced record, in which the Defendant gave those names to Mr Robson or, more likely, to Mr Graham. The names are in fact the first names of Mr McCormack and Mr Quaradeghini, neither of whom are of course end of day salesmen and both of whom were based in the London office. Mr Robson went on:-

“Fabio I suppose is F-A-B-I-O, yeah, apparently our customers” been on the phone to New York, I think I’ve been assured, well I’ve been told that the trade should come through early this afternoon, do you want me to give you a call if that’s the case?”

I have naturally given anxious consideration to whether this adds any credence to the Defendant’s assertion that he had been on the telephone to New York. In my view it does not. It seems likely that Mr Robson was relying on what he must have been told by Mr Graham about what the Defendant had said to him in the earlier conversation to which I have already referred in paragraph 42 above. Mr Robson was obviously not entirely clear as to the position. Either he or Mr Graham may have inferred that because the confirmations were apparently going to come from New York so it followed the Defendant had been on the telephone to New York to discuss the same. Interestingly Mr Gibb understood these remarks to refer to conversations with the CSFB traders in London who dealt with trades on the New York market, although that can have no bearing on what the Defendant may have said to Mr Robson, or more likely to Mr Graham, in the conversation of which there is no record in the course of which the names Kieren and Fabio were given. Looked at overall I am satisfied that this tentative reference by Mr Robson to the Defendant having been on the phone to New York does not enable me to conclude, against the weight of the evidence and the probabilities, that the Defendant had indeed been on the phone to New York and moreover that those telephone calls had been made from New York.

44. Mr King made the point that the Defendant might have been reluctant to give the names of Mr McCormack and Mr Quaradeghini to Hambros if he was practising a deception. He said that it was consistent with a desire to sort out confusion that the Defendant supplied these names. I cannot give great weight to this point—it seems likely that the Defendant was asked a direct question to which he could not avoid giving a direct answer. In any event the names seem to have been given in circumstances which engendered at the least confusion as to whether the persons of that name were in London or New York. Given the other things which the Defendant was saying, the supply of these two names was not calculated to lead to instant resolution of the confusion. Furthermore by the morning of 7 April the Defendant may have had some grounds for optimism that Ariba might soon reach a price at which the shares could be sold at a substantial profit. On 5 April they reached a high of US$110.50 and on 6 April a high of US$115.13. They closed on 6 April at US$105.375 and reached a high on 7 April of US$111.75. These were not prices a sale at which would contribute to a substantial reduction of the overdraft but the trend may have seemed encouraging.
45. I must notice another argument of the Defendant to the effect that if he had not believed that a sale order had been placed he could have sold the Ariba shares at a profit on 5, 6 or 7 April. Quite apart from the fact that a profit was by no means available throughout each of those trading days, and that the profit achievable might not have been sufficiently substantial to alleviate the financial situation, the suggestion is an over-simplification. Hayford would have had to pay for the shares on 5 April and would not have received the proceeds of any sale of those shares until 5 days after the date of the sale when that trade would be due for settlement. The Defendant asserted that Hambros would have been prepared to advance US$2million to enable the transaction to proceed but I cannot assume that that is necessarily so. On the other hand I have no doubt that integral to the Defendant’s plan was his calculation that in the event that the share price rose, he would be able to sell them without having had to pay for them. Indeed, the Defendant was anxious to point out in evidence that there were two examples of cases where he had succeeded in selling shares without first paying for them—Juniper and Portal which he sold through Merrill Lynch on 13 April, albeit at a loss. The Ariba share purchase involved a total price in excess of the cost of the Juniper and Portal purchases combined.
46. Reverting to 7 April Mr Graham called the Defendant again. He asked the Defendant to have a word with CSFB and with Lehmans. Lehmans were of course pressing concerning settlement of the Juniper purchases. The Defendant agreed to do so. Mr Graham raised with the Defendant the subject of Mr Gibb in CSFB’s settlements department and said that it is “their guys that are causing all the problems.” The Defendant said that he had been chatting to the salesman that morning about the trade and that he, the Defendant had said “what the hell happened about Friday.” The Defendant continued:-

“and they’re clueless, they’re absolutely clueless, they’re not even calling back about it, so I don’t know what to do and every time I call them back, they tell me they’re going to call me back and they’re not calling me back…..so I’m gonna give them a buzz now. …. I mean, don’t settle because they’re not giving me my sales and I don’t see why we should give them purchases…. and I’ll give them a ring again.”

47. There then followed a telephone call from Mr Robson to Mr Gibb. Mr Robson told Mr Gibb that “those trades” still had not come through. Mr Robson told Mr Gibb not to put the trade through by which he meant not to attempt to deliver the Ariba stock “because obviously that trade will fail if you put it through.” Mr Gibb replied “okay, we won’t put that through tonight.” Mr Robson went on to say “no problem, I mean it should have been through today from CSFB New York, that’s what CSFB, you know, guaranteed our customer.”
48. Still on 7 April Mr Graham again called the Defendant. The Defendant said to him:-

“and I spoke to CSFB you know things can’t just disappear, I said tell me what’s happened to Ariba because Ariba today was trading at the price I sold it at, so I said tell me if you haven’t sold this there’s a cock up do sell it now for me and they’re saying we’ll get back to you, we’ll get back to you. So I mean they are really restricting me on that….. I mean, I don’t want to go sell the stock at the same price and then be, having sold it twice.”

Mr Graham then enquired of the Defendant whether the person with whom he had done the trade was not there to which the Defendant replied “they’re not even coming up with anything, they can’t even explain what the hell’s happened.” Later in the conversation the Defendant went on to say that CSFB were going to have to do something, and he added that if the prices now fell he was going to insist that CSFB gave him the prices anyway. The Defendant also said that he had noted the time at which he spoke to CSFB.

49. The weekend then intervened. On the afternoon of Monday 10 April the Defendant called Mr Robson and told him that CSFB were still looking into the sale of the Ariba shares. Mr Robson described this as an in-house problem for CSFB in that both the purchase and the sale had been with CSFB. The Defendant agreed.
50. On 12 April the Defendant called Hambros intending to speak to Mr Graham but his telephone was picked up by Mr Robson. Mr Robson told the Defendant that Ariba was still outstanding. The Defendant said that he was very very annoyed with CSFB. Later in the day Mr Gibb phoned Mr Robson to chase the Ariba purchase. Mr Robson told Mr Gibb that apparently there was some confusion and that the Defendant had gone back to whoever he had spoken to at CSFB and that they were having to go back to the tapes to find out exactly what had been said.
51. Later on this day there took place the first conversation between the Defendant and Mr McCormack in the course of which the question of the delayed settlement of the ARIBA purchase and the missing ARIBA sale were discussed. I have already mentioned that the Defendant and Mr McCormack had had 14 telephone conversations since 6 April during which this topic was never once mentioned by the Defendant. Mr McCormack told the Defendant that one of his new trade support chaps, in fact Mr Gibb, had just come over and mentioned to him that “we have a small settlement issue regarding Ariba.” The conversation continued as follows:-

“KM But what he mentioned, he mentioned there something else which made me quite concerned I’m sure he is just er misunderstanding the situation.

FR Em

KM Er on the 31 March you bought 10,000 Ariba through us.

FR Yep

KM 213,6625

FR Yeah

KM He spoke to guy Stuart on does Stuart work for you or for your agents?

FR Yeah I think he works in SG Hambros Guernsey

KM Exactly Yeah he spoke to Stuart and Stuart mentioned oh we’re not going erm put our instructions in until he get confirmation of the sale on the same day

FR A confirmation of the sale?

KM Yeah on the same… on the 31^st also which wasn’t with us and I just want to confirm that you knew that it wasn’t with us

FR I wasn’t aware of this but anyway let me check call them up and see what the hell is going on…..

KM Ok good

FR And I will get back to you

KM See that there is not outstanding that we don’t know about

FR No not that I’m aware let me check my records now

KM Exactly

FR I’m sure I faxed them something

KM Ok let me know

FR Ok cheers

KM Bye

FR Bye.”

The Defendant said in evidence that when he said “I wasn’t aware of this” he meant that he wasn’t aware that the sale was not with CSFB. I am not at all sure that that is the natural meaning of the words. The “them” who were to be called up was obviously Hambros. I think that the Defendant was feigning ignorance of the fact that settlement was being delayed by Hambros because of the absence of a matching sale. At all events the Defendant’s reaction is of course quite inconsistent with that to be expected if he thought that the trade had been placed with a CSFB end of day trader and if he had been assured by CSFB New York that the problem was being sorted out and that a sale confirmation could be expected.

52. Later in the day Mr McCormack chased the Defendant concerning Ariba. The Defendant responded “I am talking to them as I speak to you now” adding “I am trying to find out what is going on.”
53. The next day 13 April the Defendant called Mr McCormack back. He said “The reason I am not settling at the moment is because my custodian has a backlog of purchases…..which have been sold and I haven’t even received stock so they haven’t even been able to deliver them on.” Mr McCormack responded “Right, so so, your, your client is er waiting, sorry your custodian for delivery elsewhere?” to which the Defendant responded “basically, yeah and erm, anyway I am trying to sort this out as soon as I can I’ve been on the phone to about three different banks.” The Defendant continued “And I know that supposed sale order that went in for that Ariba which I cannot find anywhere” to which Mr McCormack responded “Who does that go in with?” The Defendant’s response was “See that’s the thing it says CSFB but I know it wasn’t CSFB.” The Defendant asked Mr McCormack to speak to his settlements department and to explain the situation and that the Defendant was working on it and would get back that day or the following day. Mr McCormack agreed to hold off until the Defendant got back to him.
54. There are a number of points to be made about what the Defendant said in the course of this conversation. What he was seeking to suggest was that there was some administrative problem at Hambros which accounted for his failure to have settled the Ariba purchase. There was in fact no backlog at all at Hambros, except in so far as the Defendant may have been intending to refer to problems with Juniper and Portal. However the only reason why the Defendant had not received stock in relation to his Juniper and Portal purchases was because he had not paid for it. The truth of the matter was of course that Hambros was not settling the Ariba purchase because the Defendant had instructed them not to do so unless and until a confirmation of sale was produced. That instruction was vividly reinforced when, shortly after this conversation with Mr McCormack, the Defendant spoke again to Mr Graham. He told Mr Graham that he had been on the telephone that morning with CSFB to sort out Ariba, and that CSFB were talking to their people. Mr Graham responded, as was his understanding, that CSFB were on both sides of the Ariba transaction, i.e. that they were instrumental in both the purchase and the sale, to which the Defendant agreed. He indicated assent also to Mr Graham’s proposition that CSFB could get stuffed until they had straightened out the position, by which he meant produced a confirmation of the Ariba sale. Only three hours after the Defendant and Hambros had in this manner agreed upon the appropriate treatment of CSFB Mr Gibb called the Defendant for an update on the Ariba purchase. The Defendant told him that he was “having a few aggros” with his custodian, but that hopefully it would be sorted out today or tomorrow. On this basis Mr Gibb was content to leave matters that the Defendant would let CSFB know later in the day whether they should attempt to redeliver the stock to Hambros.
55. On the following Monday morning 17 April the Defendant called Mr McCormack and requested an extension on Ariba because he was having problems with his client. What he actually said about the client was “who is actually doesn’t want me to have the purchase at all cause he’s claiming that he put an order with me to sell it.” The Defendant continued “now I have been trying to get in touch with, er, Billy, who is travelling in the Far East at the moment… cause I didn’t write down any order and I didn’t even put an order in… I’ve seen him written something saying CSFB is sell order and he’s insisting he sold the stock at 220 and he’s not allowing the custodian to accept delivery of the stock until….. sort it out.” The Defendant then asked what is the longest extension he could have and continued “I gonna fly out and see him tomorrow if this keeps going on because, er, I mean I don’t know what to do. He is giving me such a hard time about it.” Mr McCormack then enquired “Did you guys put an order in with anybody to sell this?” to which the Defendant replied “Well that’s why I am trying to get in touch with Billy… to find out exactly. But I mean it doesn’t seem like it. I have been calling around and er, I mean he was er, he was going ballistic at the moment. Um. So I mean whatever you can do. Whatever extension you can get and I can work around it.” This conversation contains the first of a series of untruths in the course of which the Defendant was attempting to suggest that Billy might have been involved in the Ariba transaction and that he was unable to check with him because he was travelling in the Far East. On Thursday 20 April the Defendant said that Billy would be back from holiday the following Tuesday, which would have been 25 April and was the first working day after the Easter holiday. In fact Billy went to Singapore on Monday 3 April for one week. He was back by 10 April. He was then in London, or at any rate not abroad, for a period of about two weeks before returning to the Far East for a further two weeks. It is unclear whether Billy was ever in the Defendant’s office after 3 April but on neither 17, or 20 April was he travelling and the Defendant could have contacted him without difficulty.
56. Mr McCormack phoned back later in the day for an update. The Defendant asked Mr McCormack what was the best extension that he could have. Mr McCormack replied that a couple of days was the best CSFB could do. The Defendant told Mr McCormack that he had borrowed funds on the Ariba trade. He also said that he might actually go and see his client the following day in the Middle East. The Defendant said that hopefully he would get it sorted out in the next two days and that then there would not be a problem. Mr McCormack asked the Defendant if he was pretty confident that the problem would be solved, to which the Defendant replied that he was, or at any rate that he hoped so. He reiterated that he was going to fly out.
57. On 18 April the Defendant told Mr McCormack “I am actually out on a flight tomorrow to see my client.”
58. The Defendant also called Mr Graham of Hambros on 18 April. Mr Graham told the Defendant that Mr McCormack had been on the phone concerning the Ariba trade and that he, Mr Graham, had not replied to him one way or another on that subject. Evidently the Defendant was not in his office because he replied to the effect that he would call Mr Graham about it the following morning adding “Just don’t, just don’t accept their shit.” Mr Graham indicated that Hambros were not doing that but that he would have to tell Mr McCormack something because Mr McCormack was asking if Hambros had seen “the sales ticket” by which of course was meant a confirmation of the Ariba sale. To this the Defendant replied “Just say that you haven’t seen a sales ticket.” As anticipated Mr McCormack rang Hambros later in the day to check the position. Mr Graham told him that there was no evidence of any sale ticket having been sent by CSFB to Hambros. Mr McCormack then enquired whether Hambros had received something from Hayford. Mr Graham confirmed that they had and then read over to Mr McCormack the relevant contents of the dealing instructions insofar as they related to the Ariba purchase and sale.
59. Likewise on 18 April there took place a number of conversations between the Defendant and Mr Quaradeghini, who was by this time in New York. The Defendant told Mr Quaradeghini that he had purchased 10,000 ARIBA shares at US$212.58 on 30 March and that his records showed a sale on the same day at US$220. The Defendant said that the sale appeared to have been entered by his assistant Billy to whom he needed to speak for further clarification. He said that Billy was in Bangkok. He also said that he was planning to fly to the Middle East to see his client to try to resolve the situation. The Defendant assured Mr Quaradeghini that he was doing his utmost to resolve the problem and that he was desperate for more time in which to do so. Mr Quaradeghini understood from this conversation that Billy might have made a mistake. Mr Quaradeghini placed reliance upon the Defendant’s statement that he was to meet with his client to resolve the situation in order that he could settle the purchase. Mr Quaradeghini believed that the Ariba purchase would settle as soon as the Defendant had had the opportunity to speak to Billy and/or his client.
60. On the next day Wednesday 19 April, which was the Wednesday before the Easter holiday weekend, the Defendant told Mr Graham of Hambros that he was going to spend the weekend in Berkshire. He then asked Mr Graham how it had gone with CSFB and whether they had called again that day. Mr Graham replied that he had not spoken with them. The Defendant continued:-

“I mean cos basically the story is yesterday what I told them I said listen you know, I told you guys there was no sale went through so you know you’ve had it for like whatever its been a long, long time and I said you know my client’s refusing ….now suddenly its two weeks later the stock was at those levels for like, you remember when I was saying to you.”

61. The next day Thursday 20 April the Defendant had another telephone conversation with Mr Quaradeghini. The Defendant told Mr Quaradeghini “I’m catching a flight in about three hours.” He explained that he needed to go to talk to his client over the weekend and that he was flying out there. He said also that he was worried that Billy might have taken the order and forgotten to put it in or get it executed. Billy however was not expected back until the following Tuesday. The conversation had begun with Mr Quaradeghini emphasising that no extension of the date for settlement was in place. Mr Quaradeghini said that he was about to telephone his Legal Department in New York and that they might close the position down. The Defendant specifically asked Mr Quaradeghini to try to work on his Legal Department to convince them to keep the position open in the light of the fact that he was travelling to try to sort it out.
62. It would appear that the decision to close out was made in New York late on 20 April by Andy Benjamin, the Head of Private Client Sales in New York and/or Karen Crupi, an Equities lawyer in the Legal and Compliance Department likewise in New York. Out of deference no doubt to the fact that London did not trade on Good Friday (21 April) and that the Defendant was apparently flying to the Middle East in a final attempt to resolve the situation, both of which matters had been impressed upon Mr Benjamin by Mr Quaradeghini, the decision was to hold the stock over the weekend but to take immediate action the following week if Hayford did not settle the trade.
63. Mr Quaradeghini telephoned the Defendant on the evening of Easter Sunday, 23 April. He did so because he believed that he would by then have returned from the Middle East. In fact the Defendant had not been to the Middle East although I do not think that this point emerged in the conversation. The Defendant informed Mr Quaradeghini that his client had refused to pay for the stock. The Defendant laid the entire blame for the situation on his assistant Billy. Despite his client’s refusal to settle the trade the Defendant was still pleading with Mr Quaradeghini not to close out the position. He said that he desperately hoped that the stock would recover and that he wanted CSFB to hold the stock until such time as it did. Mr Quaradeghini made it clear to the Defendant that the matter was outside his control and that he expected the position to be closed out without further delay.
64. Monday 24 April was of course Easter Monday and the European markets were closed. On the next working day Tuesday 25 April CSFB gave notice to the Defendant that they would sell the Ariba shares at Hayford’s risk and commence litigation against Hayford for breach of contract and fraud. This elicited from the Defendant by way of response his letter of 3 May 2000 to which I referred earlier. This read as follows:-

“Dear Ms. Crusi,

Re:Notice of Intent to Commence Litigation:

Failure to Pay for 10,000 Shares of Ariba Inc

Further to your letter dated 25 April 2000, please note the following.

The stock was purchased on 31^st March 2000 with the intention of selling it on the same day or within a maximum of 5 working days, a policy of the company, which was well known, to CSFB.

On the same day that the purchase was made a g.t.c. order was placed with CSFB to sell the shares at a price of $230. The price of $230 was reached on 6^th April 2000 and Hayford Investment Management Ltd (Hayford) was under the firm belief that the sale was executed.

Hayford did not know that the sale was not executed until 11^th April 2000, when it was notified by CSFB of the failing trade purchase.

CSFB’s failure to execute the order of Hayford resulted in a loss of profit to Hayford of US $163,375 for which, CSFB is responsible and you may consider this letter as a formal demand to pay this amount.

Furthermore, CSFB’s failure to notify Hayford that the above trade failed on the 5^th April 2000 has prevented Hayford from taking the necessary action to prevent any financial exposure to a loss.

On the 5^th , 6^th and 10^th April 2000 the stock traded substantially above the purchase price and if Hayford was aware that the order was not executed, or at least been informed of the failing trade purchase on these dates, the stock could have been sold at a profit and not the loss that you incorrectly and unfairly claiming.

Since CSFB was aware of the failing trade on 5^th April 2000, why was the stock not sold on the 5^th, 6^th, 7^th or even 10^th of April when the position was still profitable? It is your firm’s duty to mitigate your loss in such circumstances. In fact, if this was done, there would have been n o loss but a profit to Hayford. At the minimum Hayford should have been informed as soon as the trade failed so that action could have been taken by Hayford during this period.

CSFB’s failure to act between the 5^th and 10^th April 2000 is inexcusable. These were critical dates. You did not do anything, eg. close-out the position or notify us. These matters, by nature, need to be dealt with promptly. It is obvious that your firm acted without due care and diligence by failing to act or notify. At no time between 5^th and 10^th April 2000 were we aware that the order was not executed or the trade failed. A simple telephone call from you would have prompted us to liquidate the position at any time during these dates. This is what is expected and required of any organisation of your size, calibre and stature. Surely, there must have been a failure of internal controls within your company.

Your intent to litigate against Hayford for “fraud” is groundless and ridiculous, particularly when Hayford has not gained any financial benefit. In fact Hayford was prevented from making a profit on this trade due to the incompetence and the negligence of your organisation.

Finally Hayford is currently experiencing financial difficulties and has ceased to trade. Under the circumstances, I urge your company to consider the facts carefully and make an equitable offer to compensate Hayford for the loss of profit referred to in this letter.

Yours sincerely

Faris Rawi.”

65. The Defendant has described this letter as clutching at straws and prays in aid the fact that it was written without the benefit of legal advice. Legal advice is not required in order to set out the truth. In view of the game he was playing in order to bring about non-settlement of the purchase—“just don’t settle the purchases” “don’t settle because they’re not giving me my sales” I find it quite breathtaking that the Defendant could in this letter have complained of the Claimant’s incompetence in not closing the position earlier. Other notable points are the assertion that there had been placed a “good ‘til cancelled order,” the suggestion that Hayford did not know that the sale was not executed until 11 April and the simply astonishing complaint that CSFB failed to notify Hayford that Hayford had failed to comply with its obligation to pay for the Ariba shares on 5 April. Notable also in this letter is the absence of any reference to discussions with CSFB New York. As I have indicated earlier in this judgment I find it difficult to accept that the writer of this letter had made a mistake (or a series of mistakes) under pressure. When combined with the stark contrast between what the Defendant said to Hambros and what at the same time he was saying to CSFB it leaves me in no doubt of his dishonesty. That is a conclusion to which I have come based upon the undisputed facts, the probabilities and in the light of the content of the recorded telephone conversations. That conclusion was however reinforced by the impression which the Defendant made in the witness box. Mr King invited me to find that the Defendant had given his evidence in a dignified manner. It is true that his performance was controlled. However I cannot regard that as more consistent with honesty than dishonesty. Assessment of demeanour in the witness box is a notoriously fickle guide to the truth and I prefer to rest my conclusion principally upon the objective probabilities, the weight of the proved facts and the demonstrable inconsistency between the manner in which the Defendant dealt with Hambros and the manner in which he dealt with CSFB.
66. In order to lend support to his case that he had genuinely intended to fly to Amman to see Mr Abdulla the Defendant put in evidence a witness statement of a Ms Sherin Ghassan Shaker, a close family friend. Mr Dicker indicated that he did not wish to cross examine this witness as a result of which she did not attend to give her evidence in person. Paragraphs 3 and 4 of her witness statement read:-

“I invited Faris Al Rawi to my family’s country house in Berkshire for the Easter weekend last year (21^st-24^th April 2000 inclusive). I had in fact been making this invitation to him every year for the last five years and I remember on this occasion that he told me that he may not be in a position to accept my invitation due to the fact that he may suddenly need to fly out urgently to the Middle East on business. He advised me of this possibility a week or so before the actual Easter weekend. I remember this because I only had a limited number of people I was able to invite due to accommodation arrangements and therefore if Faris was unable to make it I had another close friend in mind who I would have invited.

Faris in fact confirmed that he would be able to accept my invitation either on the Thursday night being 20^th April 2000 or the Friday morning being 21^st April 2000.”

As I have already related it was during the afternoon of Thursday 20 April that the Defendant had told Mr Quaradeghini that he was catching a flight in about three hours time. The Defendant did not in fact travel to the Middle East over the Easter weekend, or, so far as I am aware, at any time in relation to this transaction. I express no doubt about the accuracy of Ms Shaker’s account of what the Defendant told her but it does not assist me to the conclusion that the Defendant had any genuine intention to travel to the Middle East. More importantly it cannot assist me on the role played in the transaction by Mr Abdulla. On that aspect I do not find it necessary to make any findings. There was no independent or documentary evidence on this matter and I have I hope said enough to indicate that I cannot base any findings upon the Defendant’s uncorroborated evidence. Furthermore it is in fact irrelevant, except to the Defendant’s credibility, whether he in fact intended to travel to the Middle East to see his client. However in view of his contradictory statements on the point I simply cannot reliably conclude that he had any such intention. Needless to say there was no evidence of any travel arrangements, not even of a provisional nature.

67. In a case of the present type where I have found dishonesty and CSFB in the event behaved exactly as the Defendant intended it should, it must be very difficult if not impossible for the Defendant to deny that CSFB acted in reliance upon the fraudulent misrepresentations made by him to Hambros and reported by Hambros to CSFB and, in the later stages, made directly by him to CSFB. It is however in my judgment clear and beyond serious argument that from the moment when Mr Gibb started to investigate the position on 6 April his and CSFB’s response was entirely fashioned by their reasonable reaction to the Defendant’s representations. In this regard I accept the evidence of Mr Gibb and of Mr McCormack. Mr King pointed out that the Defendant at no time stated unequivocally that Hayford would settle. That is true but to my mind it is beside the point. The point surely is that Hayford was obliged to settle and the Defendant at no time until the end stated that Hayford would not or could not settle. On the contrary, it was in my judgment part of the Defendant’s design to continue to give the impression that there was a realistic prospect, indeed every prospect, that settlement would take place when the confusion was sorted out. In this he was entirely successful. If Hambros, passing on what the Defendant had been saying, had at any stage indicated that the purchase would not be settled, Mr Gibb would immediately have escalated the matter to his superiors. As it was, he was induced into believing that the problem was being sorted out by the traders, and it matters not that his understanding of what the Defendant talking to New York may have involved differed from that of Mr Robson. The Defendant had succeeded in sowing uncertainty and confusion. It is for these reasons that the Defendant is wide of the mark when he criticises Mr Gibb for failing to act on 10/11 April in response to Mr Robson’s statement to him that obviously the trade would fail if put through. The whole point is that that observation was made in the context of generally reassuring noises to the effect that the trade would in due course be settled—as was Hayford’s obligation. As soon as it became apparent to Mr Gibb that the sale confirmation was not necessarily on its way after all he reported the matter to Mr McCormack who had been mentioned to him as one of the traders involved.
68. Mr McCormack was put off the scent by the Defendant feigning ignorance of the problem. Then on Thursday 13 April Mr McCormack was reassured that the problem lay only in a backlog of purchases. I do not accept that Mr McCormack’s evidence in this regard was, as Mr King submitted, evasive and unsatisfactory. On the contrary, I accept that Mr McCormack relied upon this statement as he was intended to do. It was moreover reasonable that he should rely on it. The Defendant was recognising the purchase, now recognising that no sale had been placed with CSFB, and not suggesting that there was any reason why Hayford should not honour its obligation to settle. It is true as Mr King reminded me that the Defendant did also say that he could not find the sale with any other bank and that he was in “a bit of a mess.” I can however think of no reason why Mr McCormack should not have placed confidence in the statement that the reason why the trade had not been settled was because of a backlog of purchases, especially when the Defendant was at the same time not suggesting that Hayford was not bound by its obligation. Most people would infer from that that the Defendant was indicating that there was no reason to doubt that Hayford would in due course honour its obligation, and that is what Mr McCormack did infer. It is actually very surprising that the Defendant should contend that CSFB was not intended to rely and did not rely on the representation as to a backlog of purchases. Only minutes after making that representation to CSFB, thereby placing the blame for non-settlement on Hambros, he was agreeing with Hambros that CSFB should in view of their incompetence get stuffed.
69. It was only on the morning of Monday 17 April that the Defendant indicated to Mr McCormack that he was having problems with his client who was refusing to settle the trade. It was at this point that Mr McCormack elevated the matter to his superiors, calling Tanya Torres in the Fail Control Department in New York and making contact also with Mr Quaradeghini who was en route to New York when the information emerged that the Defendant was in dispute with his client. When finally Mr Quaradeghini called Mr McCormack from his hotel room at O230 on 18 April Mr McCormack responded to the enquiry why “we didn’t find out about this ‘til now” with the response, as was indeed the case, “the only time it became an issue to us was yesterday when we found out that the whole reason they were not settling it is because they needed to speak to their client before then it was just like Faris saying “we’ll settle it” he just doing some checking and come back to you….”
70. It is only necessary for the purpose of its claim that CSFB should prove reliance until 17 April, for on that day the Ariba share price reached its lowest point since 6 April—indeed its lowest since 31 March. Thereafter the price rose, albeit not uniformly and the price achieved on 25 April was undoubtedly better than any price which could have been achieved on 17 April. Thus the fact that the transaction was not closed out on 17 April has enured to the Defendant’s benefit by way of reduction of the claim. However in case it is necessary I should record that again I accept Mr Quaradeghini’s evidence as to his reliance thereafter on what he was told by the Defendant, particularly the representation that he was flying out to see his client in the Middle East but also the suggestion that things might become more clear after he had had an opportunity to check the position with his assistant Billy. As at 18 April Mr Quaradeghini believed that the trade would settle as soon as the Defendant had had an opportunity to speak to Billy and/or his client. By 20 April Mr Quaradeghini had lost confidence in what the Defendant was telling him but he was in my judgment fully justified in not acting precipitately—or in inducing others not to act precipitately. Mr Quaradeghini put the position very clearly in his evidence as follows:-

“…. We were relying on his (the Defendant’s) information to not close out the trade, because what you need to bear in mind is if we had closed out the position, and subsequently his client had affirmed and paid for the sale, and the stock rebounded against us, we probably would be sitting in court now charged with loss from Faris. So we had to be absolutely sure that Faris was not telling the truth and unable to settle the trade before we closed the position.”

The accuracy of that account is borne out by the fact that it is precisely the way in which Mr Quaradeghini put it to Mr Benjamin when, in the course of a tape recorded telephone conversation on 20 April, he explained why he would prefer to take no action until after the weekend by which time the Defendant would have returned from his trip to the Middle East. I therefore reject Mr King’s submission that the bank’s actions after 18 April were independent of anything that the Defendant said.

71. I should just record at this point that Mr King had an argument to the effect that it could not be assumed that the Defendant intended or expected Hambros to pass on to CSFB statements concerning contacts he had received from CSFB in New York. It was suggested that the Defendant would hardly intend that such statements would be passed on because CSFB would know them to be false, and thus the lie would be revealed to Hambros. The fact that the Defendant did mention such matters to Hambros must be an indication of his honesty. Conversely if he was acting dishonestly, he cannot have intended that these particular representations concerning contacts with CSFB New York should be passed on. I am afraid that I cannot accept this argument. As I have already observed the Defendant’s objective was to buy time in the hope that the Ariba price went up substantially. If he was successful in that objective in the sense that the price did go up the elements of the deception would simply never have been examined. If the price did not go up he had lost the gamble anyway and he may not have thought too carefully about the consequences, beyond the fact that Hayford would be in liquidation and thus unable to pay.
72. I did not understand Mr King to pursue an argument adumbrated in opening to the effect that it was necessary to examine what was the authority of Hambros so far as concerned the passing on to CSFB of statements made by the Defendant. This struck me as an artificial approach. Hambros were likely to pass on to CSFB anything said by the Defendant that was relevant to the question why Hambros as a custodian was not settling the Ariba purchase. The Defendant knew that would happen and intended that it should.
73. What is the Recoverable Loss

The starting point of this enquiry is not in doubt. It was authoritatively stated by Lord Denning MR in Doyle -v- Olby (Ironmongers) Ltd [1969] 2 QB 158, approved by the House of Lords in Smith New Court Ltd -v- Citibank N.A. [1997] AC 254. “The Defendant is bound to make reparation for all the actual damages directly flowing from the fraudulent inducement”— per Lord Denning MR in Doyle -v- Olby at p.167, approved by Lord Browne-Wilkinson in Smith New Court at page 265.

74. Mr King advanced sustained submissions on this part of the case. They were designed to build up a hypothesis as to what might have occurred had the fraudulent misrepresentations not been made. Indeed Mr King was severely critical of CSFB for its failure, as he alleged, to adduce evidence as to what would have occurred had the misrepresentations not been made. Mr King’s submissions also involve the assertion that CSFB was bound to suffer a loss from the moment it accepted the order to purchase the Ariba shares, unless it had the good fortune to execute a sale by way of closing out the unsettled transaction at those moments during 5, 6 and 7 April at which the historical high prices would seem to indicate that a sale at or above break-even might have been achieved. This was an unattractive argument because it involved the unstated premise that the Defendant had no intention of paying for the shares, or no intention of procuring Hayford to pay for the shares, at the moment when he instructed the CSFB to buy them. Put another way, on this hypothesis the Defendant can have had no belief at that time that Hayford would be able to pay for the shares when the time for settlement came and no intention to procure funds from elsewhere to meet Hayford’s payment obligation. This of course assumes a yet further fraud by the Defendant which is an unattractive premise on which to found an argument of this sort.
75. However there is in my judgment a more fundamental answer to Mr King’s submissions. That is that it is simply unnecessary to enquire what would have happened if the misrepresentations had not been made, because this is an irrelevant enquiry. It is also an enquiry which in anything other than the most straightforward situations must inevitably be attended by great uncertainty. It is not possible to know what is the hypothesis on which the enquiry should be based. It is all very well to hypothesise that the misrepresentations would never have been made—but in this case what does that mean? The first misrepresentation on which CSFB relies was communicated to it on 6 April. What if anything is one to assume would have been happening prior to 6 April to provide the context in which the misrepresentations were then not made? Presumably non-receipt by Hambros of any dealing instructions indicating that a matching sale had been concluded, although perhaps not if the Defendant is on this hypothesis to be assumed to have sent the information in genuine error. What is it to be assumed would have been said on 6 April by way of explanation for Hayford’s failure to settle on the previous day? Is it to be assumed that it would have been immediately acknowledged that no sale had been effected? And if so, why cannot it also be assumed that the Defendant would immediately have instituted steps to close out the position? Would CSFB have been told of the state of Belgrave’s overdrawn account with Hambros? Presumably the only sure approach is to assume that CSFB would at all times have been told the truth, but in a case such as the present that simple formula masks a whole host of problems as to what would have been said or required to be said and when it would have been said or required to have been said. Hobhouse LJ in Downs -v- Chappell [1997] 1WLR 426 pointed out that this is an irrelevant enquiry. Once “the plaintiffs have proved what they need to prove by way of the commission of the tort of deceit and causation” it is “wrong to ask how they would have acted if they had been told the truth. They were never told the truth. They were told lies in order to induce them” [in that case] “to enter into the contract.” Furthermore in that case as in this the lies were material and successful—in that case they induced the plaintiffs to act to their detriment and to contract with Mr Chappell, in this case they induced CSFB not to close out the purchase. There are observations of Lord Steyn in the Smith New Court case to similar effect at page 283. Lord Steyn there points out that in an action for deceit the plaintiff is entitled to recover all his loss directly flowing from the fraudulently induced transaction. In this case the fraudulently induced transaction is the acquiescence by CSFB in delay of settlement by Hayford, part and parcel of which is CSFB’s abstinence from exercise of its contractual right to close out. In Smith New Court the fraudulently induced transaction was of course the entering into a contract, and it was in that context that Lord Steyn pointed out that it is not necessary in an action for deceit for the judge, after he has ascertained the loss directly flowing from the victim having entered into the transaction, to embark on a hypothetical reconstruction of what the parties would have agreed had the deceit not occurred.
76. Accordingly it is in my judgment wrong to ask what CSFB would have done had it not been deceived on and after 6 April. CSFB has satisfied me that, in consequence of the fact that it was deceived on and after 6 April, it did not close out the Ariba purchase until 25 April. That is sufficient to sustain CSFB’s pleaded claim for damages.
77. I also regard as entirely consistent with authority the manner in which those damages have been calculated. Mr King suggested that the damages should be assessed by reference to the lowest price at which the shares might have been sold on 6 April. I can discern no principled basis whatever on which I should approach the matter in that way. As Lord Blackburn pointed out in Livingstone -v- Rawyards Coal Company [1880] 5 App. Cas. 25 at 39 and Lord Steyn reiterated in Smith New Court at pages 279-280 there is no need for the law to make tender presumptions in favour of deliberate wrongdoers. Indeed one might plausibly say in CSFB’s favour that its loss should be assessed by reference to the highest price at which it might have sold on 6 April. Ariba closed on 5 April at US$102.0625 and reached a high on 6 April of US$115.13, closing at US$105.375. The first dishonest statement was communicated to Mr Gibb at about 0900 when he called Mr Graham of Hambros. It seems to me an eminently fair and reasonable approach to conclude that CSFB might have achieved a sale at US$106.8312, which is within the range of prices achieved on that day. Had CSFB realised on 6 April that it was simply not going to be paid for the Ariba purchase, its concern would have been to recoup its loss and I consider it an entirely fair and realistic approach to take a figure within the range achieved on the day which has the effect of making good the entirety of CSFB’s exposure. Whilst I would not myself characterise this as a rough and ready approach, if it is, it is justified by the unquantifiable contingencies and unverifiable assumptions which the exercise inevitably involves—see per Lord Mustill in Smith New Court at page 269.
78. If I had to investigate what CSFB would have done if the Defendant had not been guilty of deceit, I would have come to the same conclusion whilst recognising that the exercise in reconstruction is artificial and imperfect. I would again have concluded that CSFB would have closed out the purchase on 6 April or alternatively by no later than 7 April at or above a price equivalent to US$213.6625 per share. So far as concerns 7 April, the position is that Ariba shares closed at US$105.375 on 6 April. On 7 April they achieved a high of US$111.75, a low of US$100.5 and closed at US$103.5. It follows that the required sale price of US$106.8312 is again well within the range of those which might have been realised on 7 April.
79. It is clear that on 6 April Mr Gibb would have sought an explanation for the fact that the purchase was not settling. I must assume, for this part of the argument, that at that stage Mr Gibb would have been told the truth. If he had been told the truth, it would have been immediately apparent that Hayford was not going to settle the purchase and that if CSFB held onto the Ariba shares it would be running the risk of both a fall in the price and an inability to recover any of the resultant loss from Hayford. Mr Gibb’s evidence which I accept was that if at any point he had been told by Hambros that the Ariba purchase was not going to be settled, he would have immediately escalated the matter to his superiors. Indeed, when Mr Gibb was first provided by Hambros with information which suggested that there might be a potential problem with the Ariba purchase, he raised the matter with Mr McCormack and Lee Crerar. Likewise, if the Defendant had told Mr McCormack the truth, Mr McCormack too would have informed his superiors immediately if he had known that the Defendant was not going to settle the trade. That was the effect of Mr McCormack’s evidence and again I accept it. His evidence in that regard of what he would have done if he had known the truth is supported by what he in fact did. On 17 April Mr McCormack for the first time appreciated that the problems surrounding the trade were more than merely administrative and on that day he escalated the matter to his superiors. As to what then would have happened as Mr Quaradeghini explained for obvious reasons CSFB, like other banks, does not take risks and run clients’ positions on its own book, and accordingly CSFB like any bank will immediately close out a position when faced with a client who is unable to pay for a trade.
80. Mr Quaradeghini explained why it was that in fact the Ariba purchase was not immediately closed out after he had become aware of the potential problem on 18 April. This was because it was still unclear whether a sale order had or had not been placed by Hayford with CSFB. The Defendant had by now said that there was no such sale with CSFB, but CSFB wanted to check out every possibility. Naturally CSFB had to consider its own position in order to satisfy itself that by closing out it would not be exposing itself to criticism from its customer. Furthermore, the Defendant was still leading CSFB to believe that the trade would hopefully settle and Mr Quaradeghini reasonably relied upon these assurances. What is in my judgment significant is that Hayford had an obligation to settle, and the Defendant at no time said that the trade would not be settled and did his best to convey the impression that there was a realistic prospect that it would be settled.
81. Mr King invited me to reject Mr Quaradeghini’s evidence on these matters. In particular he submitted that Mr Quaradeghini’s evidence on the reasons why the purchase was not closed out while there was a possibility that Hayford’s client might pay was incredible. I do not regard this evidence as at all incredible—on the contrary I regard as quite extraordinary the suggestion that Mr Quaradeghini should in the light of his conversation with the Defendant on Thursday 20 April have simply gone ahead and closed out at a substantial loss. One cannot divorce what CSFB did from what they had been and were continuing to be told. In the course of this conversation, against the background of everything that had gone before, the Defendant had said that he was catching a flight in about three hours. He had planted the idea that his assistant was responsible for an error and said that he would not be back and available for consultation until the following Tuesday. He had said Hayford if sued would simply go into liquidation but that his client had money to meet the obligation. The Defendant was pleading for an extension to keep the position open in the hope that if ever the price got back to break-even then the stock could be sold. In the light of all that had gone before Mr Quaradeghini and CSFB acted both prudently and generously. For so long as there was a prospect that the Defendant’s client would recognise the trade, i.e. acknowledge his liability to pay for the Ariba purchase, the bank had to be concerned that a forced sale of the shares at a loss could and might well involve them in dispute with Hayford and its principal even if that might be a dispute in which it would expect ultimately to be successful.
82. However returning to the hypothesis that CSFB had been told the truth on 6 April, CSFB in that situation would obviously not have been in any doubt as to whether or not a sale order had been placed, nor would it have believed that the trade would settle, nor would it have been concerned about any potential liability to Hayford if it closed out the purchase. In these circumstances it is perfectly plain and obvious that CSFB could and would have closed out the trade on 6 or at the latest 7 April at or above a price equivalent to its exposure, US$213.6625 per share.
83. Finally I should notice an argument of Mr King’s to the effect that a passage in CSFB’s Branch Management Supervisory Procedure Manual would have precluded CSFB from closing out the trade until 5 business days after the trade date, i.e. 7 April. I am not sure if this point was ultimately pursued—it seemed to me to rest upon a mistaken assumption that the transaction was subject to the 7 day rule whereas delivery versus payment transactions seem to be an exception to that rule. However the point was divorced from reality and academic. Academic because CSFB could still have broken even on 7 April. Divorced from reality, because for better or worse CSFB’s conduct appears to me at no time to have been informed by a consideration of the contents of this manual. Clause 8 of the Customer Agreement with Hayford gave to CSFB the right to close out the purchase immediately after failure to settle on 5 April and this is what would have happened had the Defendant dealt with CSFB in a straightforward manner. This latter statement alone demonstrates the artificiality of a reconstruction exercise. If the Defendant had dealt with CSFB in a straightforward manner there would in all probability never have been a purchase of Ariba shares on 31 March. Even if there had been such a purchase, an honest person faced with the reality of his own error or oversight concerning an intended sale on the same day would on 6 April have sold the shares or ensured that they were sold, shouldering the loss if any, which at that stage would have been relatively small, at most of the order of US$170,000. A sale on 6 April in fact offered the prospect of a profit of the same order, assuming that a sale could have been effected at the day’s high. The honest response would have been to deal with the situation, one way or the other.
84. Contributory Negligence

It is accepted by the Defendant that even if the appeal to the House of Lords in Standard Chartered Bank -v- Pakistan National Shipping Corporation [2001] QB 167 is successful the 1945 Act will only apply where the contributory conduct of the Claimant is independent of the deceit, i.e. unconnected with the Claimant’s belief as to the truth or otherwise of the representation or representations relied upon.

85. Mr King made four allegations of contributory negligence against CSFB, as follows:-

(1) Mr Gibb was not properly instructed in his task. If he had been he would have been instructed to contact Mr Quaradeghini or Mr McCormack as soon as the trade failed, or at least where it was showing a loss;

(2) CSFB did not have proper procedures in place to deal with the situation. Such procedures were only put in place after the events in question. If CSFB had had proper procedures in place they would have been able to make a decision to close out the purchase at a much earlier stage;

(3) There was no system in place to put into effect Section G of the Branch Management Supervisory Procedures under which Mr Quaradeghini or Mr McCormack should have contacted Hayford when money was due;

(4) Mr Quaradeghini and Mr McCormack were not properly instructed as to what to do when a purchase failed.

86. I do not find it necessary to find in the abstract whether persons at CSFB were properly instructed or whether proper systems were in place, although I should record that I regard the criticism of Mr Gibb’s performance as wholly misplaced. He was new to the task and inexperienced but he struck me as an entirely competent person and I could discern no respect in which it could plausibly be suggested that his handling of the situation was at fault. The short point however is that no different instructions or system would on the facts of this case have made any difference. CSFB had no reason to suspect that the Defendant was acting other than in good faith, and in those circumstances I agree with Mr Dicker QC that it is fanciful to suggest that CSFB was at fault in failing to close out the purchase without fully investigating the Defendant’s claim that there had been a sale. Indeed as I have already indicated for CSFB to have closed out whilst there remained a realistic possibility that the liability would be recognised and honoured by the person for whose account it had been undertaken carried with it a serious risk that the bank would face criticism in the event that the stock thereafter rose. That such criticism would itself have been misplaced is again beside the point. As Mr Quaradeghini put it in evidence the decision as to when to close out was being dictated completely by the Defendant. There is in my judgment no scope for any reduction in the damages to be awarded to the Claimant on account of its contributory negligence because CSFB was not in any relevant or causative respect at fault. The bank’s own conduct did not in any way cause or contribute to its loss.
87. I should add that in a case like the present I would find it difficult to conclude that contributory conduct of the type alleged, even if made out, is properly to be characterised as independent of the deceit. There is to my mind something amiss with the notion that a bank is, at any rate vis à vis its own customer, at fault in failing to prevent that customer from defrauding it. The situation is far removed from that in Standard Chartered Bank where the claimant bank had itself attempted to deceive the bank issuing the letter of credit. However I do not need to explore that point further. Nor do I need to address the related issue which might arise as to the extent to which it could be just and equitable to reduce a claimant’s damages in circumstances where the claimant has been defrauded. One of the insidious vices of fraud is that it can thrive undetected where the procedures for its detection are lax. It may be a moot point whether the policy of the law is advanced by reducing the damages recoverable from a fraudster in circumstances where he can show that his victim was, in an abstract sense, negligent in failing to discover his fraud sooner. I would have thought that in circumstances such as those which obtain in this case it must be difficult to conclude that the claimant shares responsibility for the damage. However all these are matters for another day.

Has CSFB’s recoverable loss been reduced by recovery from its traders?

88. Both Mr McCormack and Mr Quaradeghini have been required by CSFB to forego commission payments as a result of their having been involved in the failed trade. Apparently at this time Mr McCormack and Mr Quaradeghini would normally receive one third of the commission which their activities generated for CSFB. They would split that amount as between themselves 35% to Mr McCormack and 65% to Mr Quaradeghini. Apparently in the months following this incident there was deducted from the commission payments to which they would otherwise have been entitled one third of the total loss sustained by CSFB on the transaction, i.e. US$261,251, that being one third of CSFB’s loss of US$791,699.84. That amount was borne by Mr McCormack and Mr Quaradeghini in the proportion 35%/65%, described and quantified in their evidence as their having been penalised in the approxiamate sum of £65,000 and £121,000 respectively. Their evidence was to the effect that CSFB undertook to reimburse them out of any recovery which it might make, although I apprehend that that was dependent on CSFB recovering at least two thirds of its loss. It was implicit in the arrangement that only recovery in excess of that amount would generate the obligation to reimburse.
89. I found it surprising that this arrangement was not documented, save to the extent apparently of some ledger entries which I have not seen. In particular I was shown no contractual terms of employment or engagement pursuant to which these payments have been exacted. However it was not regarded by the traders as out of the ordinary. As Mr McCormack put it “we do actually have to take our share of the losses.”
90. The Defendant says that CSFB cannot recover more than the amount it has actually lost. However the bank did lose US$791,699.84. It has recouped itself as to one third thereof on terms whereby it has undertaken to repay the traders if it recovers the money elsewhere. The question is whether the payments have reduced the loss which CSFB may recover as against the Defendant.
91. In my judgment it is clear that they have not. Although the arrangements between CSFB and its traders are somewhat imprecise and undocumented, it is plain from the agreement to refund in the event of recovery that these arrangements were not intended to enure to the benefit of parties against whom CSFB has an enforceable cause of action, a fortiori not to the benefit of someone who has defrauded the bank. The position is in my judgment analogous to that where a claimant recovers his loss pursuant to a contract of insurance which he has taken out at his own expense for his own benefit and protection—c.f. Parry -v- Cleaver [1970] A.C.1. A similar approach obtains in other fields of the law where the entitlement is to be indemnified against loss—c.f. the position under a contract of insurance as discussed in Merrett-v- Capitol Indemnity Corporation [1991] 1 Lloyds Reports 169 and Colonia Versicherung A.G. -v- Amoco Oil Company [1997] 1 Lloyds Reports 261. The short point is that the deduction from commission was made pursuant to arrangements which were expressly intended not to enure to the benefit of those against whom CSFB might have an enforceable cause of action and the payments made have not diminished CSFB’s loss. The deduction is as between CSFB and the Defendant wholly extraneous to the relationship of claimant and tortfeasor and is not something from which the Defendant can derive benefit. It is worth standing back from the point in the way in which Steyn J did in Merrett. Acceptance of the Defendant’s argument would result in the consequences of his dishonest behaviour being borne in part by the traders whose only causative part in the loss was their willingness to deal with him. That would be a most unreasonable result and, in my judgment, the law does not compel it.

Conclusion

92. There must be judgment for the Claimant for the sum claimed, US$791,699.84.