QUEEN'S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
B e f o r e :
|IG MARKETS LIMITED||Claimant|
|AND:||Claim No. 1BM40043|
|IG MARKETS LIMITED||Claimant|
Declan Crinion, self represented.
Crown Copyright ©
a. In claim no. 1BM40042 the Claimant claims €824,074.18 (plus interest and costs) against Tommy Crinion in respect of account CB805 ("the Tommy Crinion Claim");
b. In claim no. 1BM40043 the Claimant claims €1,386,045.03 (plus interest and costs) against Declan Crinion in respect of accounts CB804 and CB988 ("the Declan Crinion Claim").
a. There are four issues specific to the Tommy Crinion Claim:i. (a) Did Declan Crinion complete and submit the application form in respect of account CB805? (b) If so, did he do so with his father's authority and if not did Tommy subsequently ratify Declan's actions?ii. Is Tommy Crinion bound by the Power of Attorney signed by Declan on his behalf and if so what is the effect of this?iii. Was account CB805 opened initially as a limited risk account and if so was it validly upgraded to a standard, non-limited risk account?iv. Did the Claimant act in breach of contract as alleged at paragraph 6 of Tommy's Amended Defence?
b. There are three issues specific to the Declan Crinion Claim:i. Did Declan inform the Claimant that account CB988 was held by him as agent or nominee for TJC Ltd?ii. Is Declan personally liable in respect of account CB988?iii. Did the Claimant represent to Declan that he would not be personally liable in respect of account CB988?
c. There are 7 issues common to both claims in relation to alleged breaches of the FSA Rules:i. Did the Claimant provide the Defendants with its terms of business in good time (within the meaning of COB Rule 4.2.5) and/or take reasonable care to provide them with a proper opportunity to consider them before allowing any trading to take place on the accounts?ii. Did the Claimant's terms of business include the Power of Attorney for the purposes of COB Rule 4.2.5?iii. Did the Claimant correctly classify the Defendants as Intermediate Customers or take reasonable steps to do so under COB the Rules and/or COBS?iv. Did the Claimant breach COB Rule 8.1 and/or COBS 16.2 or 16.3 by failing to provide records to Tommy Crinion in relation to account CB805? However, it is accepted on behalf of Tommy that regular statements were sent to Declan so this point falls away if the Court finds that Declan was validly appointed as agent or attorney to receive statements of account on behalf of his father.v. Did the Claimant fail to act in the Defendants' best interests in breach of COBS 2.1.1?vi. Was the Claimant in breach of COBS 10.2 or 10.3 by failing to request sufficient information about the Defendants' knowledge and experience?vii. Is the Claimant liable to either Defendant on the Counterclaims?
"Q. So at some stage you'd have seen this email wouldn't you?
A. Yes I've got a recollection of seeing it. Yes."
"… we have been maintaining open positions across the three accounts for quite some time on the understanding that funds are being sent, which we have not yet received. I understand that in the current economic climate you have found it more difficult than expected to liquefy the necessary assets, and you have informed us of at least one asset sale that is being stalled from the purchaser's side. I feel that it is in the best interests of both parties to come to an agreement over a plan of action going forward…"
Evidence evaluation method
". . . Faced with a conflict of evidence on an issue substantially effecting the outcome of an action, often knowing that a decision this way or that will have momentous consequences on the parties' lives or fortunes, how can and should the judge set about his task of resolving it ? How is he to resolve which witness is honest and which dishonest, which reliable and which unreliable? . . .
The normal first step in resolving issues of primary fact is, I feel sure, to add to what is common ground between the parties (which the pleadings in the action should have identified, but often do not) such facts as are shown to be incontrovertible. In many cases, letters or minutes written well before there was any breath of dispute between the parties may throw a very clear light on their knowledge and intentions at a particular time. In other cases, evidence of tyre marks, debris or where vehicles ended up may be crucial. To attach importance to matters such as these, which are independent of human recollection, is so obvious and standard a practice, and in some cases so inevitable, that no prolonged discussion is called for. It is nonetheless worth bearing in mind, when vexatious conflicts of oral testimony arise, that these fall to be judged against the background not only of what the parties agree to have happened but also of what plainly did happen, even though the parties do not agree.
The most compendious statement known to me of the judicial process involved in assessing the credibility of an oral witness is to be found in the dissenting speech of Lord Pearce in the House of Lords in Onassis v Vergottis  2 Lloyds Rep 403 at p 431. In this he touches on so many of the matters which I wish to mention that I may perhaps be forgiven for citing the relevant passage in full:
''Credibility' involves wider problems than mere 'demeanour' which is mostly concerned with whether the witness appears to be telling the truth as he now believes it to be. Credibility covers the following problems. First, is the witness a truthful or untruthful person? Secondly, is he, though a truthful person telling something less than the truth on this issue, or though an untruthful person, telling the truth on this issue? Thirdly, though he is a truthful person telling the truth as he sees it, did he register the intentions of the conversation correctly and, if so has his memory correctly retained them? Also, has his recollection been subsequently altered by unconscious bias or wishful thinking or by over much discussion of it with others? Witnesses, especially those who are emotional, who think that they are morally in the right, tend very easily and unconsciously to conjure up a legal right that did not exist. It is a truism, often used in accident cases, that with every day that passes the memory becomes fainter and the imagination becomes more active. For that reason a witness, however honest, rarely persuades a Judge that his present recollection is preferable to that which was taken down in writing immediately after the accident occurred. Therefore, contemporary documents are always of the utmost importance. And lastly, although the honest witness believes he heard or saw this or that, is it so improbable that it is on balance more likely that he was mistaken? On this point it is essential that the balance of probability is put correctly into the scales in weighing the credibility of a witness. And motive is one aspect of probability. All these problems compendiously are entailed when a Judge assesses the credibility of a witness; they are all part of one judicial process. And in the process contemporary documents and admitted or incontrovertible facts and probabilities must play their proper part."
Every judge is familiar with cases in which the conflict between the accounts of different witnesses is so gross as to be inexplicable save on the basis that one or some of the witnesses are deliberately giving evidence which they know to be untrue . . . . more often dishonest evidence is likely to be prompted by the hope of gain, the desire to avert blame or criticism, or misplaced loyalty to one or other of the parties. The main tests needed to determine whether a witness is lying or not are, I think, the following, although their relative importance will vary widely form case to case:
(1) the consistency of the witness's evidence with what is agreed, or clearly shown by other evidence, to have occurred;
(2) the internal consistency of the witness's evidence;
(3) consistency with what the witness has said or deposed on other occasions;
(4) the credit of the witness in relation to matters not germane to the litigation;
(5) the demeanour of the witness.
The first three of these tests may in general be regarded as giving a useful pointer to where the truth lies. If a witness's evidence conflicts with what is clearly shown to have occurred, or is internally self-contradictory, or conflicts with what the witness has previously said, it may usually be regarded as suspect. It may only be unreliable, and not dishonest, but the nature of the case may effectively rule out that possibility.
The fourth test is perhaps more arguable. . . ."
"And it is not to be forgotten that, in the present case, the Judge was faced with the task of assessing the evidence of witnesses about telephone conversations which had taken place over five years before. In such a case, memories may very well be unreliable; and it is of crucial importance for the Judge to have regard to the contemporary documents and to the overall probabilities. In this connection, their Lordships wish to endorse a passage from a judgment of one of their number in Armagas Ltd v. Mundogas S.A. (The Ocean Frost),  1 Lloyd's Rep. 1, when he said at p. 57:-
"Speaking from my own experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses' motives, and to the overall probabilities, can be of very great assistance to a Judge in ascertaining the truth." [emphases added].
That observation is, in their Lordships' opinion, equally apposite in a case where the evidence of the witnesses is likely to be unreliable; and it is to be remembered that in commercial cases, such as the present, there is usually a substantial body of contemporary documentary evidence."
In that context he was impressed by a witness described in the following terms.
"Although like the other main witnesses his evidence was a mixture of reconstruction and original recollection, he took considerable trouble to distinguish precisely between the two, to an extent which I found convincing and reliable."
That is so important, and so infrequently done."
11. By the end of the judgment, it is clear that what has impressed the judge most in his task of fact-finding was the absence, rather than the presence, of contemporary documentation or other independent oral evidence to confirm the oral evidence of the respondents to the proceedings.
12. There are many situations in which the court is asked to assess the credibility of witnesses from their oral evidence, that is to say, to weigh up their evidence to see whether it is reliable. Witness choice is an essential part of the function of a trial judge and he or she has to decide whose evidence, and how much evidence, to accept. This task is not to be carried out merely by reference to the impression that a witness made giving evidence in the witness box. It is not solely a matter of body language or the tone of voice or other factors that might generally be called the 'demeanour' of a witness. The judge should consider what other independent evidence would be available to support the witness. Such evidence would generally be documentary but it could be other oral evidence, for example, if the issue was whether a defendant was an employee, the judge would naturally consider whether there were any PAYE records or evidence, such as evidence in texts or e-mails, in which the defendant seeks or is given instructions as to how he should carry out work. This may be particularly important in cases where the witness is from a culture or way of life with which the judge may not be familiar. These situations can present particular dangers and difficulties to a judge.
14. In my judgment, contemporaneous written documentation is of the very greatest importance in assessing credibility. Moreover, it can be significant not only where it is present and the oral evidence can then be checked against it. It can also be significant if written documentation is absent. For instance, if the judge is satisfied that certain contemporaneous documentation is likely to have existed were the oral evidence correct, and that the party adducing oral evidence is responsible for its non-production, then the documentation may be conspicuous by its absence and the judge may be able to draw inferences from its absence.
a. First, a number of matters in his pleaded Defence were clearly inaccurate, despite the fact that Declan acknowledged in cross-examination that the importance of his Defence being complete and accurate was explained to him before he signed the statement of truth. For example:i. He accepted that the reference to transferring only two accounts (rather than four) from Cantor Fitzgerald to the Claimant at para 5.1 of his Defence was wrong.ii. At para 5.11(c)(II) of his Defence it was alleged that the Claimant only gave him 4 hours' notice that it would commence closing out the positions on the accounts at 4pm on 30 January 2009. However, this assertion is clearly contradicted by the contemporaneous documents. The Claimant first put him on notice that it would close out the accounts in November 2008 unless a concrete proposal for payment was received. Secondly, on 27 January 2009 the Claimant expressly wrote to both Defendants stating that it would close out all positions on the accounts without further notice unless it received payment by 4pm on 30 January 2009. Thirdly, the note of the meeting on 28 January 2009 (made by a solicitor and which he accepted was accurate) showed that he was informed at that meeting that it was likely that the accounts would be closed out.iii. At para 16.2 of his Defence it was alleged that on or about 9 August 2007 the Claimant expressly told him that (i) it would be possible for him to open an account for TJC Ltd in his own name and (ii) that he would not be personally liable in respect of that account but that he would be the agent of TJC Ltd. However, he was unable to point to anywhere in the transcripts of the telephone calls on 9 or 10 August 2007 where such representations were made. Insofar as he sought to assert that there was another telephone conversation with another representative of the Claimant at the time (but now untraceable), Ben Butterworth, during which such representations are made, this must be wrong in light of Mr Miah's unchallenged evidence that the Claimant has not been able to locate any record of any other telephone calls involving Declan at that time with Ben Butterworth or at all.iv. Numerous breaches of the COB Rules and COBS were asserted in his Defence but were conceded during the course of the trial on the basis that Declan conceded that they were unsustainable. Declan must have known that some or all of these allegations were unsustainable at the time he signed the Defence: for example, he must have known that he received regular statements in relation to his accounts.
b. Secondly, Declan made at least one assertion in his witness statement which he must have known was not true. At para 32 of his statement he stated that he left the meeting with the Claimant on 29 January 2009 "in the belief that, subject to ratification by Peter Hetherington, an agreement not to close [the accounts] out had been reached…" [emphasis added]. However, in cross-examination he accepted that the Claimant's note of the meeting was accurate and the meeting note stated the exact opposite, namely that subject to discussions with Mr Hetheringon closing out seemed the best/most likely option.
c. Thirdly, his disclosure was clearly deficient despite the fact that he was represented by solicitors at the time disclosure took place. He gave evidence that he had taken notes of the meeting on 29 January 2009 but had failed to disclose them. Similarly, he gave evidence that he kept files in his office in relation to the accounts with Cantor Fitzgerald and in relation to his father's account with the Claimant (in particular the letters posted by the Claimant in August 2007). However, no such documents appear in his disclosure list.
a. Concerned to argue his own case: On numerous occasions during his oral evidence it was clear that Tommy was more concerned to argue his own case than to answer the questions actually being put to him. He was evasive.
b. Gave confused and contradictory evidence: He was frequently confused and contradictory. For example, initially in cross-examination Tommy asserted that he had no understanding at all of the concept of "leverage" – an important feature of CFDs - in August 2007. However, in his witness statement at paragraph 9 he had stated that at the relevant time he had "vaguely understood that instead of buying the shares themselves Declan's trading involved the trader putting up a loan and Declan putting up the deposit". He was asked about this apparent inconsistency in cross-examination and his evidence in response was confused, evasive and in parts completely contradictory:"Q. Right. We can see what it says in your witness statement. If you flip forward to paragraph 9. -- A. Right.Q. So you told us just now that you had no idea of the concept of leverage until proceedings started. The bottom of page 28 you said, you say: "I vaguely understood" - so that's at the time both of the accounts were opened in August 2007: "I vaguely understood that instead of actually buying the shares themselves, Declan's trading involved the trader putting up a loan and Declan putting up the deposit." -- A. Yes.Q. So you did understand the concept of leverage? -- A. Not really no.Q. Well ... -- A. I still don't.Q. ... whether you called it by that word or not you were aware of the concept of borrowing - putting down a deposit and borrowing the rest, that's right isn't it? -- A. Yes that's right.Q. So do you want to correct the evidence you gave just now that you didn't have any idea about leverage until proceedings started? -- A. No I didn't have any idea about leverage.Q. If Declan was putting up the deposit only and there was a loan for the rest, who did you think would be responsible for repaying the loan? -- A. I didn't know. I didn't open this account, I have nothing to do with this account.Q. Did you even think about - so you were aware, you say you were aware that Declan was putting up a deposit and somebody else was putting up a loan? -- A. No.Q. Who did you ... -- A. No, sorry, I wasn't aware anyone was putting up a loan.Q. Well you said that in your witness statement, we've just looked at it, paragraph 9: "I was vaguely aware", that's exactly what you said, are you saying that's wrong? -- A. No I'm vaguely aware of it.Q. So your witness statement is wrong is it? -- A. No.Q. So which is right, you were either aware or you weren't? -- A. Yeah.Q. Will you answer the question? -- A. Yes. Aware yes.Q. You were aware in August 2007 that Declan was putting up the deposit and somebody else was putting up the loan, the trader was putting up the loan? -- A. No I wasn't ..."
c. Exaggerated his evidence in order to help his own case: On occasion Tommy demonstrably exaggerated aspects of his evidence seemingly in order to help his case. For example, in his witness statement he gave the impression that he was not at all knowledgeable about business matters except for some limited experience gained from involvement in his toyshop and newsagency business. However, in cross-examination he revealed himself to be a highly sophisticated businessman who had run a successful business importing toys from China and who had a working knowledge of complex financial instruments such as bills of lading, letters of credit and foreign exchange transactions. Similarly, in his witness statement he made wide ranging and extremely serious (and so far as the Claimant is concerned potentially defamatory) allegations that the Claimant had dishonestly colluded with Declan to keep him in the dark about the status of his account (see Tommy para 42) but accepted in cross-examination that the allegation of dishonesty was unfounded and he was exaggerating the true position.
d. Made implausible assertions: Tommy also made various implausible assertions. For example, despite the fact that he claimed that he could not remember having signed his own Amended Defence on 24 October 2011 only two weeks earlier, he claimed he could definitely remember not receiving the two letters from the Claimant dated 10 and 13 August 2007 over 4 years previously.
e. Refused to accept obvious propositions: He also refused to accept obvious propositions. For example, (initially at least) he refused to accept that he was aware that there was even a theoretical possibility that since account CB805 was in his name he might be personally liable in relation to it. Similarly, he would not accept that opening an account with a new CFD provider would have required an application form to be completed.
f. Unable to explain matters in his own documents: At paragraph 7 of his witness statement, Tommy referred to account opening documents in respect of his Cantor Fitzgerald account. However, in cross-examination he stated that he had no such documents in his possession and could not explain why he had referred to them or even what documents he had meant. In addition, extraordinarily he denied ever having seen his own disclosure statement before, despite having apparently signed it .
"Q. ... you are saying that at the very least there was a serious betrayal of trust by Declan? -- A. Yes.
Q. And at worst a deliberate fraud by him on you, is that right? -- A. Yes.
Q. You said just now that you left your defence up to Declan, you let him handle the lawyers and basically you left everything up to him, is that the explanation for ... -- A. Yes.
Q. ... how your defence is wrong in, or was wrong until you corrected it? -- A. Yes but I never met anyone from Thrings either, whatever you call it, Thrings.
Q. What I suggest to you is that makes no sense. If your case is correct ... -- A. Mm.
Q. ... and you really thought from the outset that Declan had seriously betrayed your trust ... -- A. Yes.
Q. ... or possibly even defrauded you ... -- A. Yes.
Q. ... and made you liable for 800,000 Euros ... -- A. Yes.
Q. ... there is no way that you would have allowed him to deal with your legal affairs and there is no way your lawyers, Thrings, would have been prepared to represent both you and him? -- A. Well they did it for a while and then they said it was conflict of interest in the case.
Q. Yes, that was in October 2011? -- A. Yes.
Q. So you never mentioned to Thrings until ... -- A. No I had no correspondence with Thrings.
Q. You never mentioned to anyone at Thrings until October 2011 that in fact what had happened was Declan had seriously betrayed your trust or defrauded you? -- A. Yes.
Q. You never thought to mention that very important ... -- A. I didn't.
Q. aspect when you met ... -- A. Well he was standing ...
Q. ... Mr Sear? -- A. ... he was standing ...
Q. When you met ... -- A. He ultimately transferred shares and did all that himself with his money, so I didn't think I was liable for anything, but the letter came.
Q. When you met Mr Sear to discuss your case - this was after proceedings had been issued - if you're right you must have known by that stage ... -- A. I didn't meet Mr Sear.
Q. You've told us already today twice that you did? -- A. A mediation, I spoke to him on, on the telephone I didn't meet him.
Q. You spoke to him on the telephone and you met him ... -- A. Yes.
Q. ... and you discussed the case with him? -- A. I'm sorry I met him in mediation.
Q. And you spoke to him on the telephone? -- A. Yes.
Q. And when you spoke to him you talked about the case? -- A. At the conference yes.
Q. And he asked you questions presumably about your case - I don't want to know what advice he gave you, but I presume your evidence here, it had never occurred to you that you ought to point out that in fact what happened was it's all Declan's fault, he betrayed your trust, possibly even defrauded you, and that's how you got into this mess - it never even occurred to you to tell him that? -- A. Well I would expect probably reading the case he would have known that.
Q. But you never, it never occurred to you ... -- A. I never said it.
Q. ... to tell him ... -- A. No.
Q. ... explicitly that that's what had happened? -- A. No.
Q. And that's your evidence to his lordship, it never ... -- A. Yes.
Q. ... occurred to you? -- A. No."
Issues specific to Tommy Crinion Claim
Issue 1: (a) Did Declan complete and submit the application form in respect of account CB805? (b) If so, did he do so with his father's authority and if not did Tommy subsequently ratify his son's actions?
(i) Express Authority
(ii) Implied Authority
a. Implied authority is that "inferred from the conduct of the parties and in the circumstances of the case": Hely-Hutchinson v Brayhead Ltd  QB 549 at 583.
b. Authority will be implied where one party has conducted himself towards another in such a way that it is reasonable for that other person to infer from that conduct assent to an agency relationship. Consent by the principal to the agency relationship need not be express (and may even be denied) but is often inferred by the Court from the circumstances. The test is an objective one: Bowstead & Reynolds on Agency (19th ed) at para 2-030 et seq.
"Q. Who completed the application form on behalf of your father? -- A. I did.
Q. Did you tell your father that you were going to complete it? -- A. No.
Q. But he knew you had opened an account with Cantor Fitzgerald for him? -- A. Yes.
Q. And ... -- A. Well he knew I had opened an account for him ...
Q. Okay. -- A. ... I won't say where it ...
Q. Okay so ... -- A. ... I wouldn't have needed to.
Q. ... he knew you'd opened an account for him, you told him you were going to transfer it to another provider, a company in England? -- A. Yeah again I, I, I wouldn't say I'll transfer it, I would've said I'm, I'm moving, I'm moving away.
Q. Okay. So you told him you were going to move that account. You must have thought he would be happy or agree to you completing an application form for the company, whichever one it was, to which you moved to the account - is that fair? -- A. I suppose it is fair to say that yeah."
"Q. Right, let's leave that, we'll move on. The position was this, you knew he'd opened an account with someone? -- A. Yes.
Q. It was in fact Cantor Fitzgerald? -- A. Yes.
Q. You knew he'd opened an account in your name? -- A. Yes he told me that.
Q. And he told you he was going to move that account to a new provider, that's right isn't it? -- A. Yes.
Q. And you agreed, or at least didn't object, to him doing so, that's right ... -- A. No I didn't object.
Q. Any reasonable person in Declan's position would have thought you were happy for him to present an application form for that new account with the new provider? -- A. Yes I suppose that's right."
a. Ratification may be express or by conduct: see Bowstead at para 2-070 et seq.
b. Express ratification is a manifestation by someone on whose behalf an unauthorised act has been done that he treats the act as authorised. It need not be communicated to the third party or agent: see Bowstead (above).
c. Ratification will be implied whenever the conduct of the person on whose behalf the act is done is such as to amount to clear evidence that he adopts or recognises the act. It may be implied from the mere acquiescence or inactivity of the principal: see Bowstead (above).
d. It is irrelevant whether the principal is aware of the legal consequences of ratification: AMB Generali Holding AG v SEB Liv Holding Aktiebolaget  1 Lloyd's Rep 318 at .
"Q. But just on page 232, we've seen this already: "I was aware the account was opened in August 2007." -- A. Yes.
Q. So in August 2007 you were aware it had been opened? -- A. Yes.
Q. But then on, over the page you say because you didn't think you had any risk in relation to the account, you didn't think it necessary to inform the claimant of such matters, i.e. that Declan had opened it without your knowledge or authority? -- A. Well surely they should have known that, it wasn't for me to inform them.
Q. Well, so what you're saying there is that you were happy - once you found out Declan had opened the account - you were happy for him to keep it going provided that you thought it was only him ... -- A. That there was no risk to me.
Q. You were happy for him to have opened the account and operate it in your name provided there was no risk to you, is that right? -- A. Yes.
Q. So if the account had remained a limited risk account, which means that only the deposits made by Declan were at risk ... -- A. Yes.
Q. ... you would have been happy for him to keep the account and operate it in your name? -- A. Yes."
"Q. So when you told Declan that he could sign the power of attorney on your behalf ... -- A. Yes.
Q. ... you must have known then that he had applied for an account with the claimant ... -- A. Yes.
Q. ... on your behalf, and you agreed to him signing the power of attorney on that basis? -- A. Yes but he was going to trade shares, I only did it for the shares only.
Q. Exactly, so you agreed, so you knew he'd opened an account, applied for it in your name and opened it, and you thought the power of attorney was required for him to be able to trade on the account? -- A. Yes.
Q. So when you said to Declan yes you can sign it on my behalf, you didn't qualify it in any way did you? -- A. No."
Issue 2: Is Tommy Crinion bound by the Power of Attorney signed by Declan on his behalf and if so what is the effect of this?
(a) Is Tommy bound by the Power of Attorney?
"Q. So do you accept that's accurate, that you called him before you signed it to ask for permission, he said yes? -- A. Yeah my only, my only point would be I did call him, I did discuss it with him briefly. Whether I discussed it with him before I opened the account or just after I opened the account I'm not sure. I would assume it was just before to say I need a power of attorney to open the account.
Q. That's - that's what I was going to say - it must have been before? -- A. I would, I would assume but I, but it's because obviously it's four years ago and even, I know the witness statements some of them are done since 2009 or 10, it's very hard to know did you do it, you know, at five o'clock that evening or at half seven that evening, I suppose that's my point.
Q. Did you explain to him why you needed a power of attorney? -- A. I said it was to open the account."
"Q. The next thing is the power of attorney. -- A. Yes.
Q. Now your evidence is that Declan told you that a power of attorney was needed ... -- A. That's right.
Q. ... for the account? -- A. Yes.
Q. This is at paragraph 20 of your witness statement. -- A. Yeah.
Q. "My son did mention to me that a power of attorney was required" - do you see that? -- A. Yes.
Q. Then a few lines down: "I simply presumed" - the next line: "I simply presumed the accountants somehow or other had got together, I assumed that it was therefore necessary for me to provide a power of attorney to enable him to carry out the trading." -- A. Yes.
Q. Next line down: "So I was content to authorise him to have the power of attorney." -- A. Yes.
Q. Then you say ... -- A. Yes just to trade in the shares not to incur any losses ...
Q. Yes so you were ... -- A. ... which is ...
Q. ... content to have him on that basis ... -- A. Yes.
Q. ... as your power of attorney? "I confirm that I did not personally even sign the power of attorney ..." -- A. Mm.
Q. "... Declan told me that he would sign the power of attorney for me and I allowed him to do so." -- A. Yes.
Q. Then at the bottom of the page: "I can, I recall Declan phoning me and mentioning the power of attorney ..." -- A. Yes.
Q. "... he didn't explain it to me ..." -- A. No.
Q. "... but I allowed him to sign it on my behalf." -- A. Yes.
Q. So you expressly told Declan to go ahead and sign the power of attorney? -- A. Yes. Understanding that it was just about the shares not to incur me in any loss."
"Q. Well of course you would know it wasn't because you didn't sign it. I mean, are you familiar with the concept of a power of attorney? -- A. No.
Q. You're not? -- A. No.
Q. Well it authorises someone to act on your behalf. -- A. Yes I know that, yes - sorry I know that.
Q. Yes so you knew it was needed for Declan to operate the account on your behalf? -- A. Yes."
"Q. Exactly, so you agreed, so you knew he'd opened an account, applied for it in your name and opened it, and you thought the power of attorney was required for him to be able to trade on the account? -- A. Yes.
Q. So when you said to Declan yes you can sign it on my behalf, you didn't qualify it in any way did you? -- A. No."
"Q. You were happy for him to have opened the account and operate it in your name provided there was no risk to you, is that right? -- A. Yes.
Q. So if the account had remained a limited risk account, which means that only the deposits made by Declan were at risk ... -- A. Yes.
Q. ... you would have been happy for him to keep the account and operate it in your name? -- A. Yes."
(b) If Tommy is bound by the Power of Attorney, what is its effect?
a. First, it gave Declan express authority to do the following (see clause 2 of the Power of Attorney):i. Open and operate Tommy's account. In this regard, it should be noted that the account was only opened after the Power of Attorney was signed and received by the Claimant and therefore Declan was expressly authorised under the Power to open the account on Tommy's behalf.ii. Deal with the Claimant on Tommy's behalf which included giving oral and written instructions. In this regard, Tommy also expressly authorised the Claimant to accept all instructions from Declan and the Claimant was not obliged to make any further inquiries of Tommy before acting on such instructions.iii. To pay margin on Tommy's behalf in relation to the account.iv. To do anything else contemplated by the customer agreement which was reasonably necessary for the purposes of Tommy's dealings with the Claimant, including the upgrading of the account from a limited risk account to a standard account.
b. Secondly, Tommy ratified Declan's actions in completing and submitting the application form in respect of the account. By authorising Declan to open and operate the account with the Claimant, he must necessarily have (at least retrospectively) authorised the completion and submission of the application form in order to do so. Indeed, Tommy accepted as much in cross-examination. In those circumstances, he must also be taken to have ratified (and therefore be bound by) the representations made in the application form about his knowledge and experience of CFDs because the terms of the application form and the Intermediate Customer Notice were clear: the Claimant's CFD trading services were only available to customers with sufficient knowledge and experience to be classified as intermediate customers.
Issue 3: Was account CB805 opened initially as a limited risk account and if so was it validly upgraded to a standard, non-limited risk account?
"Q. Given the size of the positions that were on the Cantor Fitzgerald accounts, would it have been possible to transfer those positions into a standard account at I G with the standard 50,000 maximum deposit? -- A. No.
Q. Would it have been possible, given the size of the Cantor Fitzgerald accounts in this case, would it have been possible to transfer those into a limited risk account? -- A. No."
"Q. Did you speak to your father before this email was sent? -- A. I don't believe I did.
Q. So you called him before filing the power of attorney, do you think it's possible that you also called him in a similar way before sending this email just to check? -- A. I, it may, may have been mentioned in the same conversation. I don't, I don't believe I ever mentioned that I need to send an email. I don't believe so.
Q. But the same applies doesn't it that you wouldn't have sent this email on his behalf if you thought he would object to it would you? -- A. Well again it comes back to the same if, if, if he definitely, he definitely would have asked more questions or would have asked questions if I had have asked him.
Q. Well let's put it this way ... -- A. I didn't believe I was doing anything wrong ...
Q. Yes ... -- A. ... because I was just ...
Q. ... he'd just authorised you under a power of attorney, so he agreed to let you have a power of attorney in relation to the account, you must have thought it would be okay to send this email? -- A. Well I did send the email so I must have thought at the time it was okay to send the email.
Q. And having discussed it was necessary to send this email to upgrade the account to standard account otherwise his positions from Cantor Fitzgerald couldn't have been transferred could they? -- A. Well it's, that's what Ramy Soloman says."
a. Where a person (A) by words or conduct represents or permits it to be represented that another person (B) has authority to act on his behalf, A is bound by the acts of B with respect to any third party (C) dealing with B as an agent on the faith of any such representation, to the same extent as if B had the authority he was represented to have, even though he had no such actual authority: Bowstead & Reynolds (above) at 8-013 et seq.
b. The doctrine applies where a principal allows his agent to appear to have more authority than he actually has, or alternatively makes reservations to his agent's authority which limit the authority but fails to inform the third party of this: see Bowstead (above) at 8-027.
c. Moreover, the fact that the agent acted in his own interests and/or in fraud of his principal will not relieve the principal of liability if in fact the agent's act was in other respects within the scope of his apparent authority: Hambro v Burnand  2 KB 10.
d. The development of the doctrine has been based in part upon the principle that where the Court has to decide which of two innocent parties is to suffer from the wrongdoing of a third party the Court will incline towards placing the burden upon the party who was responsible for putting the wrongdoer in the position in which he could commit the wrong: Gurtner v Beaton  2 Lloyd's Reports 369 at 379.
Issue 4: Did the Claimant act in breach of contract as alleged at paragraph 6 of the Tommy's Amended Defence?
a. The Claimant operated the account as an unlimited risk account and failed to agree a stop level with Tommy prior to commencing trading.
b. The Claimant accepted instructions from Declan which were not authorised under the Power of Attorney.
c. The Claimant failed immediately to close out all positions and the account upon margin calls failing to be met and instead (i) allowed Declan to persuade it to keep the account open without making any enquiries of Tommy; or alternatively (ii) allowed the account to remain open without making reasonable enquiries as to Tommy's financial position.
d. The Claimant failed to provide Tommy with regular statements in relation to the account to his home address of 17 Sutton Castle, Sutton, Dublin 13.
a. The Claimant accepts that it operated the account as a standard as opposed to a limited risk account. As set out above, however, the account was validly upgraded following receipt of the upgrade email. Further, it is denied that the Claimant was under any obligation to agree a stop level prior to trading commencing. Clause 11 of the Initial Customer Agreement places the onus on the customer to request a stop level in relation to a specific transaction. Clause 12 of the COBS Customer Agreement was in identical terms. However, no such request was ever received.
b. For the reasons set out above, the Claimant was entitled to accept instructions from Declan pursuant to his actual or apparent authority under the Power of Attorney. Furthermore, under the terms of the Power of Attorney Tommy expressly agreed to ratify all acts done under the authority or purported authority of the Power of Attorney.
c. In relation to the third allegation, the Claimant submits as follows:i. There was no obligation on the Claimant to close out all positions or the account when margin calls were made but not met. The Claimant had an absolute discretion as to whether to allow the account to remain open or to close it without prior notice under clause 16 of the COBS Customer Agreement. Clause 15 of the Initial Customer Agreement is in identical terms. Accordingly, in deciding whether to close out the accounts the Claimant was required only to act honestly and rationally and was entitled to consult primarily its own interests: Socimer International Bank v Standard Bank London  1 Lloyds Rep 558 at [60-66] and .ii. Declan had authority under the Power of Attorney to negotiate with the Claimant about keeping the account open and the Claimant was under no obligation to make further enquiries of Tommy.iii. It is admitted that under clause 16(4) of the COBS Customer Agreement the Claimant agreed that the exercise of its discretion to allow the account to remain open would depend on its assessment of Tommy's financial circumstances. However, at all material times the Claimant believed Tommy's financial circumstances were more than adequate to support the trading on the account. His estimated savings and investments were put at €10m in the application form. On 14 August 2007 his accountants sent a statement showing he had net assets of €14.8m. Further on 13 November 2008 the Claimant was sent a spreadsheet showing Tommy had assets of over €10m.
d. There was no requirement to send all statements to Tommy's home address. Under clause 13(9) of the COBS Customer Agreement all correspondence, written notices, confirmations and statements could be sent to the email address specified in the account opening form. This is what the Claimant did according to Mr Russell. In any event, under clause 14(5) of the COBS Customer Agreement Tommy acknowledged that it was his responsibility to be aware of any margin requirements whether or not the Claimant contacted him, details of which were available by telephone or via the internet.
Issues Specific to the Declan Crinion Claim
Issue 5: Did Declan inform the Claimant that account CB988 was held by him as agent or nominee for TJC Ltd?
a. He wanted to transfer two CFD accounts from Cantor Fitzgerald to the Claimant and needed to do so urgently.
b. He explained that one account was his personal account and the other was held by TJC Ltd.
c. The Claimant stated that two accounts could be opened in his name and that TJC Ltd's account could be transferred into its name at a later date.
"Q. ... there's no mention of TJC Limited, a company by that name, in either the 9th or 10th August conversations in the transcript is there? -- A. Well there is on my, on ...
Q. The only reference is at page 6? -- A. I know but you just said there's no reference, there is.
Q. It's a reference to TJC, the name I trade under is TJC, it doesn't say TJC Limited, it doesn't say that it's a company, there's no indication at all is there? -- A. No but, but there is no, but I would assume that the same way as you say I G, you don't always say I G Markets Limited - you say TJC and the person says TJC, no problem, and I'll have a quick look and I'll just type it in to see, now nothing's coming up under TJC.
Q. So ... -- A. I don't believe I, I hid, I hid behind the facts that we didn't discuss TJC from the outset.
Q. Well that's a matter for submission I think. But also we can see there's no suggestion by Mr Soloman in either of those two conversations that you could open an account for TJC Limited in your name is there? -- A. No there doesn't seem to be.
Q. And he never told you that you could do that and then transfer the account into TJC Limited's name at a later date? -- A. No Ra..., Ramy Soloman doesn't seem to do that."
"Q. At page 75 in the bundle you sent an email to Mr Soloman asking for another account? -- A. Yes.
Q. And it says, you ask: "Would it be possible for you to arrange a duplicate account, another account to be opened under my name so effectively I would be left with two account numbers for me personally" - can you see that? -- A. Yeah.
Q. So there's no suggestion is there that CB988 would be for a company, specifically TJC Limited? -- A. There's no suggestion in that email no.
Q. So in fact it couldn't be clearer that you want it to be for you personally, that's right isn't it? -- A. Well I, no I don't, I disagree with that.
Q. Well that's what it says: "for me personally", can you see that? -- A. Yes I, I see that.
Q. JUDGE BROWN: Well can you just tell me what it does mean then? -- A. Well no, but I think - why, why would you want to have two accounts in your own name with the one, the, the, my plan, my intention at the time was to move the shares that had been transferred from the company account, which was DBY791, into 988 - oh sorry into, is this, this it right, did I do that, yes?"
Issue 6: Is Declan personally liable in respect of account CB988?
"3. Dealings between you and us
(1) We will act as principal and not as agent on your behalf. You will open each Transaction with us as principal and not as agent for any undisclosed person. This means that unless we have otherwise agreed in writing, we will treat you as our client for all purposes and you will be directly and personally responsible for performing your obligations under each Transaction entered into by you, whether you are dealing with us directly or through an agent. If you act in connection with or on behalf of someone else, whether or not you identify that person to us, we will not accept that person as an indirect customer of ours and we will accept no obligation to them unless specifically agreed in writing.…
18. Representations and warranties
(1) You represent and warrant to us, and agree that each such representation and warranty is deemed repeated each time you open or close a Transaction by reference to the circumstances prevailing at such time, that:…
(c) You will enter into this Agreement and open each Transaction as principal.…This Agreement contains the entire understanding between the parties in relation to the dealing services we offer. Any amendment to this Agreement must be in writing and signed on behalf of the parties by you and by an authorised person on our behalf…"
Issue 7: Did the Claimant commit an actionable misrepresentation by representing to Declan that he would not be personally liable in respect of account CB988?
Issues relating to FSA Rules
Issue 8: Did the Claimant provide the Defendants with its terms of business in good time (within the meaning of COB Rule 4.2.5) and/or take reasonable care to provide them with a proper opportunity to consider them before allowing any trading to take place on the accounts?
"Unless any of the exemptions in COB 4 Annex 1 applies, a customer must, in good time before designated investment business is conducted, be provided with a firm's terms of business, setting out the basis on which the designated investment business is to be conducted with or for the customer" [emphasis added]
Issue 9: Did the Claimant's terms of business include the Power of Attorney for the purposes of COB Rule 4.2.5?
Issue 10: Did the Claimant correctly classify the Defendants as Intermediate Customers or take reasonable steps to do so under COB Rule 4.1.4 and/or COBS?
Classification under COB Rules
"(1) Before conducting designated investment business with or for any client, a firm must take reasonable steps to establish whether that client is a private customer, intermediate customer or market counterparty
(2) A firm which takes reasonable steps to classify its clients, as required by the rules in this section, and treats a client in accordance with the classification it has established for that purpose, does not breach any other rule in COB to the extent that the breach arises only from inappropriate classification of that client"
"(1) A firm may classify a client who would otherwise be a private customer as an intermediate customer if:(a) the firm has taken reasonable care to determine that the client has sufficient experience and understanding to be classified as an intermediate customer; and(b) the firm:(i) has given a written warning to the client of the protections under the regulatory system that he will lose;(ii) has given the client sufficient time to consider the implications of being classified as an intermediate customer; and(iii) has obtained the client's written consent, or is otherwise able to demonstrate that informed consent has been given."
a. Before allowing any trading to take place on the accounts, the Claimant was required by COB Rule 4.1.4 to take reasonable steps to establish whether the Defendants were intermediate customers.
b. As to what those reasonable steps were, COB Rule 4.1.9 required the Claimant to take reasonable care to determine that the Defendants had sufficient experience and understanding to be classified as intermediate customers and COB 4.1.10 sets out guidance as to the factors to which the Claimant should have regard in taking reasonable care.
a. The COB Rules as to classification do not require a firm to arrive at an objectively correct classification of a client, but only to have taken reasonable steps to do so. Thus, even if Declan and/or Tommy did not in fact have sufficient experience and understanding to be intermediate customers, the Claimant will only be in breach of COB Rules 4.1.4 and/or 4.1.9 if it failed to take reasonable steps and/or reasonable care in classifying them as intermediate customers (see Wacher (above) at ).
b. The issue of whether the Claimant took reasonable steps and/or reasonable care to classify the Defendants is to be determined based on what was done and known at the time, not with hindsight by reference to the disastrous trades carried out by Declan on the accounts (see Wacher (above) at ).
c. Accordingly, compliance with the Claimant's duties under COB Rules 4.1.4 and 4.1.9 does not depend on the objective characteristics of the Defendants but on following the procedural requirements under the rules at the time the accounts were opened (see Wachner (above) at ).
d. The relevant procedural requirements are set out in COB 4.1.9R and COB 4.1.10G. In this regard, it is not necessary for the Claimant to have complied with all four criteria under the guidance at COB 4.1.10. COB 4.1.10G merely indicates that it is likely that in establishing that it has taken care for the purposes of COB Rule 4.1.9 that the firm will need to have regard to one or more of the criteria set out in COB 4.1.10G: see Wachner (above) at .
e. There is no requirement under COB Rule 4.1.9 or the guidance at COB 4.1.10 that requires a firm to interview or meet the client nor is it necessary to cross-check information provided by a third party with the customer: see Wachner (above) at .
f. Similarly, the Claimant was entitled to take statements made by or on behalf of the Defendants about their knowledge and expertise at face value unless and until there is some reason for further scrutiny: Wilson v MF Global (above) at .
"Q. Okay. So do you accept that the information that you typed into the application form about your financial position and your trading experience is correct? -- A. Yes.
Q. So all that information is correct. You also ticked a box in the declaration saying that you had read and understood the risk disclosure notice, the customer agreement and the intermediate customer notice, and you agreed to be bound by the terms of the customer agreement, and you agreed to being an intermediate customer - that's right isn't it? -- A. I, it's correct that I ticked the boxes - I didn't read it."
a. The Claimant complied with the guidance at COB 4.1.10 and took reasonable care to determine that Tommy had sufficient experience and understanding to be classified as an intermediate customer by asking the questions set out in the application form. In Tommy's application form it was clearly stated that he understood the nature and risks of margined products, which includes CFDs, and had over 12 months' experience of trading CFDs in an execution only capacity. It was also stated that during the previous 12 months he had traded CFDs on average more than 5 times per month and that he had assets of €10m. On the face of it, this information was sufficient to justify the Claimant in classifying him as an intermediate customer.
b. The Claimant was entitled to take the information in Tommy's application form at face value: see Wilson v MF Global (above). COB Rule 2.3.3 also states that: "A firm will be taken to be in compliance with any rule in COB that requires a firm to obtain information to the extent that the firm can show that it was reasonable for the firm to rely on information provided to it in writing by another person". In this case, there was no reason for the Claimant to doubt that the answers given in Tommy's application form were correct at the time when the application form was submitted (which is the relevant time because that was when he was classified). In the circumstances, it is it was reasonable for the Claimant to rely on the information in the application form in classifying Tommy as an intermediate customer.
c. There was no requirement under the COB Rules to contact Tommy directly (or for that matter to cross-check any information provided by Declan on his behalf). The Claimant's evidence from Mr Soliman and Mr Russell was clear that the Claimant's classification process was highly automated and relied on information provided by clients. There was no need for any human review of the classification process unless an exception showed up. Mr Russell confirmed that this was standard industry practice and has never been questioned by the FSA on its regular inspections of the Claimant. The only reason that there was any direct contact between Mr Soliman and Declan in this case was because firstly he called the Claimant on his own initiative before submitting the application forms and then later because he and Tommy failed the automated identification checks because they were resident outside the UK.
a. For the reasons set out above, Tommy authorised Declan expressly or impliedly to submit the application form on his behalf. He is therefore bound by the statement in the application confirming that he agreed to being classified as an intermediate customer.
b. Alternatively, Tommy ratified the opening of the account. The account could only be opened if Tommy agreed to be classified as an intermediate customer. Accordingly, he cannot now be heard to say that he was incorrectly classified.
c. The document headed "IG Markets Ltd Declaration" signed by Tommy on 7 September 2007 contains similar assertions as to Tommy's knowledge and experience and also a further express declaration which stated (inter alia) as follows: "I/we confirm that I/we have sufficient experience and understanding to trade CFDs and that I/we understand the risks of CFD trading. I/we confirm that I/we have read and understood the IG Customer Agreement, Risk Disclosure Notice and Intermediate Customer Notice and agree to be bound by its terms". The handwriting experts agree that the signature on this document "appears more similar to the signatures of Mr Tommy Crinion, suggesting that this is a copy of a genuine signature". Although in cross-examination Tommy denied that he had signed this document, this was the first time he had done so, in particular he did not deny signing it in his witness statement. Moreover, he could not even remember signing his own Amended Defence only two weeks earlier. In my judgment, his memory in relation to what documents he had or had not signed cannot be relied upon.
a. Despite the impression given in his witness statement, Tommy Crinion was clearly a sophisticated businessman. In cross-examination, he accepted that he would not have been able to accumulate a personal fortune of over €13m without being "financially astute or commercially savvy" . He also accepted that in his role as managing director of TJC Ltd he had personally been responsible for visiting factories in China to discuss specifications and for dealing with all contractual negotiations with TJC Ltd's suppliers and that he was familiar with bills of lading, letters of credit and foreign exchange transactions.
b. Moreover, when he was taken to the Claimant's internal checklist for classifying customers, he accepted that he would have been able to tick 4 out of the 5 boxes. Although the Claimant's internal procedures required customers to tick all 5 boxes, this went further than what was required under COB 4.1.9 and 4.1.10. As set out above, the Claimant was only required to have regard to one or more of the criteria at COB 4.1.10 (see Wachner at ). Given the level of Tommy's business sophistication and extremely high net worth the Claimant was entirely justified in classifying him as an intermediate customer.
Classification under COBS
Issue 11: Was the Claimant in breach of COB Rule 8.1 and/or COBS 16.2 or 16.3 by failing to provide records to the Defendants in relation to the accounts?
Issue 12: Did the Claimant fail to act in the Defendants' best interests in breach of COBS 2.1.1?
a. First, it is alleged that the Claimant failed to ensure that the account was opened as a limited risk account. As set out above, account CB805 was initially opened as a limited risk account and validly upgraded to a standard risk account subsequently.
b. Secondly, it is alleged that the Claimant failed to ensure that the account was closed when an exposure "greater than 10%" was reached or when the first margin call was made but not met:i. Tommy has sought to explain the reference to exposure "greater than 10%" at Responses 9.1 and 9.2 of the Response to the Part 18 Request. It appears to be alleged that the Claimant should have closed the account when the margin of 10% had been lost in respect of any one trade. However, there is no rule under COB or COBS to that effect. A client may expressly request a guaranteed stop loss on a transaction which would have a similar effect but the Defendants chose not to do so in this case.ii. Moreover, margin rates differ between stocks and between CFD providers (this was the reason Declan wanted to transfer the accounts from Cantor Fitzgerald). Thus, a blanket rule of this kind would be impractical.iii. Further, such a draconian rule would be potentially unfair and not in the client's best interests for several reasons. First, a margin call might not be met immediately for any number of reasons beyond the customer's control. Secondly, it would be uncommercial and potentially unfair if a customer's whole account had to be closed as a result of one missed margin call in relation to a particular stock even though all other positions on the account were in profit. Thirdly, it might require a particular trade to be closed out at a loss even though the stock in question rose again almost immediately afterwards.
c. Thirdly, it is alleged that the Claimant failed to ensure that Tommy consented to continue trading on the account and/or that his financial circumstances allowed him to do so:i. At all material times, the Claimant dealt with Declan as Tommy's authorised agent under the Power of Attorney or alternatively in reliance on Declan's apparent authority. Under the Power of Attorney there was no requirement to confirm instructions received from Declan.ii. Further, the Claimant was under no obligation to (a) satisfy itself as to the suitability of transactions on the account; (b) monitor or advise Tommy on the status of the account; (c) make margin calls; or (d) to close any transactions on the account: see clause 3(2) of the Initial Customer Agreement and clause 2(4) of the COBS Customer Agreement.iii. Finally, as regards Tommy's financial circumstances, at all material times the Claimant believed Tommy's financial circumstances were more than adequate to support the trading on the account. First, his estimated savings and investments were put at €10m in the application form. Secondly, on 14 August 2007 his accountants sent a statement showing he had net assets of €14.8m. Thirdly, on 13 November 2008 the Claimant was sent a spreadsheet showing Tommy had assets of over €10m.
d. Fourthly it is alleged that the Claimant failed to ensure that Tommy (as opposed to Declan) was aware of the state of the account and the losses being incurred: at all material times it dealt with Declan as Tommy's authorised agent under the Power of Attorney or alternatively in reliance on Declan's apparent authority.
Issue 13: Was the Claimant in breach of COBS 10.2 and/or 10.3 by failing to request sufficient information about the Defendants' knowledge and experience?
Issue 14: Is the Claimant liable to either Defendant on the Counterclaims?
His Honour Judge Simon Brown QC
Specialist Mercantile Judge
Birmingham Civil Justice Centre
Clerks: Alison Wood & Caroline Norman
Tel: (0121) 681 3035
3rd April 2012