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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Black & Ors v Davies [2005] EWCA Civ 531 (06 May 2005) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2005/531.html Cite as: [2005] EWCA Civ 531

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
Mr Justice Buckley
03/TLQ/0116

		Royal Courts of Justice Strand, London, WC2A 2LL
		6 May 2005

Lord Justice Waller :

This is the judgment of the Court.

Mr Davies' Appeal

1. Mr Black traded copper futures on a massive scale during 1996, and this case is concerned with one chapter of that trading, a previous chapter being the subject of proceedings before the Court of Appeal on a previous occasion [see Black and others v Sumitomo Corporation and others[2002] 1 WLR 1562]. He did so through various brokers including Brandeis Brokers Limited (Brandeis). Mr Davies was the managing Director of Brandeis and Mr Gamwells was head of trading during the relevant period. Mr Black's strategy during the period with which these proceedings are concerned was to be outright short in the expectation that the price would go down enabling him to buy and make very substantial profits. Although outright short, he was of course trading, rolling forward his open positions. On 1st October he was 9739 lots (243,475 metric tonnes) short with the cash price at $1,885.50 that position showing a profit of $76.78 million. By the end of October he was shorter still the cash price having at one stage risen to over $2,000, and his position showing profits reducing but still in the region of $30 to $40 million. The price unfortunately continued to move against him the cash price being $2,112 on 14^th November and $2,258 by 15^th November when he was forced to close out his position (that price possibly being affected by his closing out such a large position). Ultimately in closing out instead of a profit he showed a loss of $12,000,000. It was for that sum that Brandeis pursued Mr Black in an arbitration.
2. Mr Black however counterclaimed in the arbitration alleging dishonest trading by Brandeis, and also alleging that Mr Davies had fraudulently induced him to remain short by advising him that Alcatel, a fabricator, intended to deliver some 80,000 metric tonnes of primary copper to the LME. If true that would have been an influence in keeping the price of copper down. Over the period LME stock reduced by something over 100,000 metric tonnes which had some influence in increasing the price of copper, and a delivery to the LME of 80,000 tonnes would have prevented at least in part that influence.
3. Mr Black was successful in his counterclaim. At Stage 1 of the arbitration he succeeded in demonstrating that over a sample of 7 days Brandeis had behaved dishonestly by what is called "front running" i.e. using the information as to Mr Black's trading to make trades for themselves at beneficial prices, and by mispricing. At Stage 2 of the Arbitration the issue was whether it was an answer to his counterclaim that he had been using Lito (the third claimant) to avoid taxes. On that issue Mr Black was also successful. The other aspect of the arbitration, the allegation that Mr Davies on behalf of Brandeis had dishonestly fed him false information intended to persuade him to stay short, was never ruled on by the arbitrators. Brandeis settled on terms that Brandeis would waive the $12 million and pay $36 million to include such claim as Mr Black may have had in relation to the provision by Mr Davies of false information.
4. Mr Davies personally was however excluded from the settlement. By the proceedings with which this appeal is concerned, Mr Black pursued Mr Davies. By those proceedings to establish an entitlement to more than the $48 million he had effectively received from Brandeis, Mr Black sought to establish that he would have closed out his position within a day or so of 8^th October, but was persuaded not to do so by Mr Davies feeding him the false information on 9^th October, and to establish that false information was a substantial inducement to him remaining short until he closed out his position on 15^th November.
5. Mr Black commenced the proceedings on 7^th March 2002. They came on for trial before Buckley J in April 2004. Mr Black's case was that on the evening of 8^th October (the evening of the 1996 LME dinner) as a result of information received at that dinner, he gave instructions to Mr Gamwells to close out his short position, and to start doing that on the 9^th October. His case was that Mr Davies then between 8.20 and 8.45 am on the morning of 9^th October gave him false information that Alcatel, a company connected with the Group of which Brandeis was a member, was, unknown to anyone else in the market, about to deliver 80,000 tonnes of primary copper to the LME. His intention was to persuade Mr Black that the delivery would have the effect of reducing the price of copper, and according to Mr Black's pleading Mr Davies advised Mr Black to stay short rather than close out.
6. The case was that the information was false to Mr Davies' knowledge and that it continued to influence Mr Black's thinking up to 15^th November. However the price of copper rose, and Mr Black was forced to close out on 15^th November.
7. Mr Davies' case was that he had at some stage been untruthful in suggesting that he [Mr Davies] had been in touch with Alcatel and in suggesting a possible delivery to the LME but that his reason for that untruthfulness was to try and get Mr Black to organise a switch with Alcatel of secondary metal for Alcatel's primary metal. He maintained that he had first mentioned Alcatel late in October although by the end of cross examination he accepted that that may have been as early as 14^th October. His case supported by Mr Gamwells was that although Mr Black had received information at the LME dinner which caused him concern, Mr Black did not give instructions to close out his position on 8^th October. He gave instructions to "lighten the position" by buying some 500 to 1000 lots. His case was that even that instruction was withdrawn on 9^th October, but not because Mr Black had been told anything about Alcatel. The change, on Mr Davies' case, was due to Mr Black taking into account all the information he had obtained at the LME dinner, and on 9^th October taking a view as to what the market was likely to do.
8. So far as Mr Black's case against Mr Davies was concerned the precise timing of any instruction to close out, and of any provision of information on Alcatel, was critical. Unless he could establish that an instruction to close out was given on the evening of 8^th October and that Mr Davies provided the information on Alcatel on the morning of 9^th October, it is common ground that he would have no claim against Mr Davies because he would be unable to establish a loss over and above that already recovered from Brandeis.
9. Mr Davies also in the alternative argued that on 6th November there was in any event a break in the chain of causation because Mr Black on that day did decide to close out his position and then changed his mind by reference to a factor quite distinct from Alcatel. So it was argued the losses after 6^th November flowed from that change of mind.
10. If Mr Davies was successful on either point it was common ground that Mr Black could not recover from Mr Davies personally anything over and above the $48 million already recovered from Brandeis.
11. Buckley J found that Mr Davies was not telling the truth about his reason for telling Mr Black about Alcatel. An analysis of the telephone conversation of which there was a transcript before the judge of 29^th October confirmed to him that Mr Davies had made the representation about Alcatel and that his intention was to persuade Mr Black to maintain his short position. The motive for that was not precisely clear, but it seems that it could have had something to do with a long position which Brandeis itself held or something to do with the fact that while holding his short position Mr Black did of course continue to trade to roll the positions forward and Brandeis could earn commission or front run or misprice.
12. On the key questions on which depended Mr Black's ability to recover more than he recovered from Brandeis, the judge found (i) that Mr Black did give instructions to close out his short position on the evening of the LME dinner; (ii) Mr Davies did provide the information on Alcatel between 8.20 and 8.45 on the morning of 9^th October to persuade Mr Black to change his mind; (iii) that the information on Alcatel was still operating on Mr Black's mind when he changed his mind on 6^th November; and thus that Mr Black was entitled to damages of about $20 million from Mr Davies over and above those obtained from Brandeis.
13. The judge decided two further points. First in Mr Black's favour he decided that on the basis of the award of the Arbitrators of damages who had examined 7 days of trading, he could extrapolate over the whole of Mr Black's trading and this increased his award by $5 million. Second in Mr Davies' favour he decided that trading in copper futures done through Refco had not been adequately demonstrated to be losses of Mr Black and thus that those losses could not be taken into account.
14. The judge gave Mr Davies permission to appeal the following findings in his judgment:-

"a. the finding that there was a decision to cover which was reversed following the Defendant's representations made on 9 October 1996 and the consequent finding of reliance;

b. the finding that there was not a decision by Mr Black to close out all of his short positions on 6 November 1996 and that Alcatel continued to have a causal role in Mr Black remaining short thereafter; and

c. the finding, in relation to quantum, at paragraph 90 of the Judgment, that the appropriate level of the front running and misuse of confidential information claim (in relation to non-Alcatel losses) was US$5,000,000"

He gave Mr Black permission to appeal the finding:-

". . . the decision in paragraph 98 of the Judgment that the Claimants were not entitled to recover damages in respect of losses suffered on the Refco account."

15. No permission has been sought to appeal any other findings. It is once again common ground that if the judge was wrong in making either of the findings, the subject of (a) or (b) in paragraph 14 above, the result would be that the award of damages in favour of Mr Black must be set aside. Unsurprisingly those findings formed the major part of the argument before us.
16. It will be noted that the findings are findings of fact by the judge. What is more they were findings amongst many findings which involved the assessment of the credibility and reliability of the witnesses. The judge disbelieved Mr Davies in all significant areas; he rejected the evidence of Mr Gamwells who was called to support Mr Davies. He accepted the evidence of Mr Black in all critical areas. It must be unusual for a judge to give permission to appeal pure findings of fact, but that may be an indication of the difficulties that surround the assessment of these particular findings.
17. We have been reminded of observations by many judges as to the role of an appellate court and the caution to be exercised in considering whether to reverse findings of fact made by the judge who has seen and heard the witnesses. We were particularly shown observations by Clarke LJ in Assicurazioni Generali Spa v Arab Insurance Group [2002] EWCA Civ 1642 and Mance LJ in Todd v Adam [2002] EWCA Civ 509 in the context of considering whether the CPR had involved any change in the approach of the Court of Appeal to findings of fact by the court below. Their conclusion was that there was no difference. Their judgments, as others in the past have done, point up the difference between findings of primary fact, where the issue is whether the judge was right, and evaluation flowing from the existence of primary facts, where the question is whether the view is one the judge could legitimately take. In this case we are concerned with findings of primary fact. In that context this court has a duty to re-examine the evidence. It must appreciate the advantage held by the judge who heard the witnesses. Only if after examination of the evidence this court is sure that the judge got a finding of fact wrong, will it interfere, but if it is sure that he has got it wrong, it is its duty to do so.

8^th – 9^th October 1996

18. There are two aspects to ground (a) - did Mr Black give instructions to close out his position on the evening of 8^th October? Did Mr Davies provide false information on the morning of 9^th October to persuade him to change his mind? The only direct evidence that instructions were given on 8^th October and that the false information was provided on 9^th October comes from the oral evidence of Mr Black. The only direct evidence to the contrary comes from the oral evidence of Mr Gamwells and Mr Davies. We remind ourselves of two things. First the judge heard these witnesses, and we have not. Second the judge appears to have directed himself absolutely properly in paragraph 38 when, following findings against the credibility of Mr Davies now unchallenged, he said:-

"The findings I have made inevitably have an effect on the overall credibility of Mr Davies as a witness. He maintained his story that such untrue representations as he made to Mr Black were in the context of switches and I have rejected that account. However, in a case such as this, I believe it would be too simplistic to reject all of Mr Davies' evidence without more. Mr Black accepted that he had needed to read the transcripts in order to reconstruct some of the events, indeed he re-read significant parts of them overnight during his evidence. Generally, I preferred Mr Black's evidence to Mr Davies', but that does not mean Mr Black is necessarily right on everything and I consider it safer to look for corroboration in the transcripts and the circumstances generally. I must also bear in mind Mr Mill's submission that Mr Black has fabricated incidents and added them to the basic facts in order to pursue a vendetta against Mr Davies and construct a legal claim against him. Without condoning any such course of conduct, I could understand it in the case of an individual who had been lied to by Mr Davies and cheated by Brandeis to the extent that Mr Black was. It could even be that such an individual would come to believe in his reconstruction."

One of Mr Mill's main points on the appeal is however that the judge did not obey his own directions.

19. We can say straight away that we have a concern that the two aspects of ground (a) were treated separately by the judge and again separately by Counsel before us. That is no doubt for convenience in marshalling the evidence and because logically there are two separate questions. But the questions are closely interlinked and our anxiety is that there is a danger of using the finding on one as support for the finding on the other. So the argument of Mr Freedman to support the giving of instructions to close out is he says supported by the providing of the information on the 9^th October to prevent Mr Black from doing so – you would not need to provide the false information if it were not for some major decision such as an instruction to close out. Or in the other direction, the fact that there was an instruction to close out on the 8^th October makes it the more likely that it would be on the morning of the 9^th October that Mr Davies would supply the false information. Of course Mr Freedman is entitled to say that the judge has found that at some stage Mr Davies did provide the false information and did persuade Mr Black to stay short, but as far as the timing is concerned, the point critical to this appeal, there is a danger of one aspect being used to support the other without any firm foundation from which to start. In our view the questions ought to be considered together.
20. We are also a little concerned that the judge's starting point was the oral evidence, followed by an assessment as to whether other objectively indisputable evidence was consistent, e.g. the recorded contemporaneous telephone conversations. The witnesses were attempting to remember the precise timing of instructions and the provision of information in October 1996 at a trial in 2004. It seems to us that the chances of people actually remembering with any precision such matters over a period of seven years, and the chances of them distinguishing between what they actually remember and what they have talked themselves into remembering at some stage during the period are very slim. Indeed the witnesses themselves in this case accepted the reality, which was that they had to reconstruct from such contemporaneous records as there were. Mr Black himself gave a revealing answer in cross-examination at one stage when he said:-

"I honestly have searched for this conversation, put down this witness statement to the best of my ability, testifying here to the best of my ability, but the reality is I've heard this story so many times already in the last several years that it's like a fog already."

21. In our view the only safe starting point is to set down the facts about which there can be no dispute including any contemporaneous document or record, to consider then the probabilities, and then to come back to the evidence of the main protagonists.
22. The most important contemporaneous record in this case is the tape recordings of conversations between Mr Black and Mr Gamwells. So far as these interlinked questions are concerned there are three such conversations on the morning of 9^th October, the first starting at 7.59; the second at 8.21; and the third at 8.45. It is accepted that there may have been conversations unrecorded, and Mr Black's evidence was that Mr Davies fed him the false information in an unrecorded conversation between the 8.21 and 8.45 recorded conversations, but apart from that possible conversation, there is no suggestion that the above three transcripts do not reflect accurately what went on between Mr Black and Mr Gamwells between 7.58 and the end of the 8.45 conversation. That in our view is of great importance. In the context of using the 29^th October record as supporting his finding that Mr Davies had not been truthful, the judge says this in para 20:-

"As I have mentioned, although transcripts of numerous recorded telephone conversations were in evidence, it is agreed there were many others. Caution therefore must be exercised and I remind myself that any particular transcript may well not tell the whole story."

23. But as to what happened between 7.59 and 8.45 apart from the possible conversation between Mr Davies and Mr Black which could have taken place between 8.21 and 8.45, it is not suggested that any other conversations took place.
24. What are the incontrovertible facts against which these conversations must be viewed? First the LME dinner was on the 8^th October; Mr Black was overall short 244,975 metric tonnes showing on paper a profit of $58.89 million. As between the 7^th and 8^th October it seems there had been a rise in price which had reduced his profit from $71.59 million. On the evening of the LME dinner he was provided with information which made him at the very least think about whether his strategy of remaining outright short was correct. [There is no evidence as far as we can ascertain to support the judge's view that "Mr Black was already concerned about his large short position by the time of the LME dinner . . ." [para 42] but the point has little significance.] It is not contested that he was informed by another trader, Mike Farmer, that Farmer had closed out his short positions, and that he had been given other information from persons from UBS. It is not in dispute that he gave some instructions to Mr Gamwells on the evening of 8^th October which caused Mr Gamwells to be in the office early watching the markets in various parts of the world. On Mr Black's case the instructions were to "start covering his short positions" by which Mr Black suggested he meant that he had taken a decision to cover all his positions and that Mr Gamwells was to make a start doing it quietly so far as possible so as not disrupt the market and cause the price to move to Mr Black's disadvantage. On Mr Gamwells' evidence the instructions were to "lighten the position to the extent of 500 to 1000 lots".
25. At 7.59 am Gamwells rang HB to report and the conversation starts in this way:-

"HB: Thank you

CG: Hello

HB: Oh hi

CG: Herb, morning

HB: Morning

CG: Yeh just to let you know tha ah well I mean I was in ah really early this morning just to ah keep an eye on things, very very quiet um not done anything at the moment but ah ah not seeing anything one way or t'other, buying or selling and nothing in the Far East, it was 45 50 but the London dealers are drifting in now, AMT put up 50 55 and Wolff's just gone 48 53

HB: Yeh

CG: Um, yeh I'm not, not going to, you know, not going to attack it but ah, you know, as we discussed last night we're getting the ah ah, you know, we get any selling then ah, you know, we'll take it but there's nothing on the book at the moment

HB: Yeh I don't think there's any purpose in attacking it here

CG: Absolutely not

HB: Um, you know, it's not like um there's something else that I noticed after when I got back to my hotel

CG: Uhmn

HB: And that is, you're coming up at 19 70, the 100 day moving average

CG: Uhmn

HB: And that should bring in some serious buy, selling

CG: Hmn

HB: No

CG: Uhmm

HB: Or?

CG: I think ah well I mean, you know, spoke to one of the technical boys this morning, he said that, you know, the, you know, the, the, the trend at the moment ah as far as they're concerned is fairly neutral, it's sideways but ah they'd expect some fairly ah fairly good selling up around ah the 80 90 level

HB: There you go

CG: Yeh

HB: There, see so ah . . .

CG: But um most of those guys, you know, stopped out yesterday ah they'd been running short um, you know, it's broken through the short term ah short term averages at the moment, I think you know, I think it will just carry ah, you know, it's got a bit more momentum in it, it's caught the market a bit short

HB: Yeh

CG: Um but ah we're not going to get, you know, we're not going to get . . .

HB: Why don't you get?

CG: Anything serious in at the moment, there's no reason for people to sell it right now but ah there'll be bits and pieces, you know, and ah but ah I don't think we'll see anything, ah, you know, any sort of meaty volume until we've got up to those sort of numbers.

HB: Yeh

CG: But ah yeh, anyway I just wanted to let you know that I'm here and keeping an eye on it, OK

HB: OK, I don't think there's any purpose in me pushing it either

CG: No, no"

26. The inference from that exchange appears to be that Gamwells went in early and, that in accordance with "the discussion last night", would have acted to buy in. Indeed Gamwells still intended to buy in but only if something was available.
27. The conversation continues:-

"HB: You know it's ah, listen, I've seen it up to 21 60

CG: Yeh exactly

HB: I've seen it up at 19

CG: Sure

HB: To 20 ah what the hell, 19 90

CG: Yeh, yeh, it's not as though we haven't been here before so ah yeh

HB: I, and I'm also ah, you know, you covered, he covered ah stocks are going down . . .

CG: Hmn

HB: At the moment

CG: Hmn

HB: Where is the thing really going, you know what I'm saying

CG: Yeh

HB: If one were to think the whole thing through, where are we going?

CG: Sure

HB: Huh

CG: Yeh, I mean if you know wait long enough and ah, you know, it's going to be back down isn't it but ah

HB: Yeh

CG: It's ah, you know, it can be a bit of an uncomfortable ride in-between time

HB: Yeh, no but I mean how much are they even, who, whoever is going to push it

CG: Oh sure yeh, no this is, you know, this is a correction, you know maybe a good one, um . .

HB: Yeh (inaudible)

CG: It's not, it's not a change in trend

HB: We're not going into a bull market

CG: No, for sure

HB: But I appreciate, now what time is it now?

CG: Ah it's ah just gone ah 5 past 8

HB: Oh

CG: But ah I've been here since about quarter to 7

HB: Jesus! You had sleep?

CG: Oh I set the alarm early, I thought ah I thought I know what's going to happen if I'm not in Sat, you know, I'm going to miss something possibly but

HB: Nah . . .

CG: Nevermind

HB: (inaudible) this morning you're going to get very much, in fact I think that you . . .

CG: Well you never know, I'd have kick, I'd, I'd have kicked myself if ah

HB: If you wouldn't have been around

CG: If I hadn't of been here, yeh

HB: Yeh, what are you doing with everything else?"

28. The clear inference from that exchange is that Mr Black has not made up his mind as to whether any rise in price is just a blip or whether it suggests a trend.
29. After dealing with other matters the conversation continues:-

"CG: I'll leave you in peace, yeh it's 50 55 AMT yeh but ah, you know, if you need to call me I'll be here for a while

HB: Yeh Wolff might have marked it down 'cos they were short

CG: Uhmn

HB: 40 lots or something, they're not playing big at all

CG: No

HB: I mean I'm not going to even call them very much

CG: No?

HB: But I will call your guys just to find out what's going on

CG: Yeh of course yeh

HB: Otherwise it wouldn't be normal

CG: No

HB: For them to give me a report

CG: Yeh sure

HB: You know what I'm saying

CG: Yeh yeh

HB: And um yeh no I think the ah, it, you won't get volume around here but you would get volume further up

CG: Uhmn, so you, now, now the problem is you see as there's ah there's a certain guru who's ah quoted on fast track

HB: Yeh

CG: Saying that ah there's a possibility of a short term spike to 22 00

HB: Who Me?

CG: Yeh (laughs), see everyone's looking at that now

HB: Well, that's a . . .

CG: Someone 'phoned me last night about that and said ah, he said to me we're going ah we're going up

HB: Really?

CG: Yeh, yeh, I said nah you don't want to believe everything you read in ah that you read in print

HB: Well I just wanted to cover myself

CG: Yeh I know

HB: That's all

CG: I know

HB: So they can't say to me ah

CG: For sure

HB: I wasn't going to stand there like an idiot

CG: Absolutely not

HB: But, you know, people are going to buy it on the back, I, I think people are going to have difficulty in buying it actually ah it's one thing to buy a short, it's another thing to go long

CG: Absolutely, yeh, it's, this is a correction, you know, now how far we've got to ride this ah ride this out I'm not sure but ah it ain't ah ain't a change in ah trend

HB: No, have you looked at the chart or?

CG: Yeh, I've got ah, you know, I got the chart out this morning just to see um, you know, I mean I was looking at the short term averages I mean ah it's broken above the ah, you know, the 10 and 20 days, I always think are, you know, fairly good short term indicator but 19 50 there's, you know, there's a bit of a, you know, bit of a down trend line there I mean if it goes through there um, you know, we'll see a bit more technical based buying but ah, you know, I ah there should be the selling waking up at ah, you know, around 19 80

HB: Yeh, well

CG: But short term it looks, you know, it, it, it's moved into slightly positive territory on the ah on the chart and ah, you know, we've been rumours about the stocks etc with, you know, it ah, you know, I think just think it's likely to ah move up a bit more

HB: Where do you think the top of this is?

CG: If it goes through, you know, I mean if it went through that sort of level um, you know it, it pushes into slightly different territory I would say maybe ah, you know, maybe around 20 50 something like that but you, you, you've seriously got to think, you know, think that the ah the producers have got to be looking at ah hitting the market there, I mean if I was them I wouldn't ah, you know, I'd be scale up selling, you know, I mean you don't wait for ah, you don't wait for the market to move ah somewhere and then try and do something, I think ah, you know, if it was me, I'd scale up it, you know, from wherever, you know, wherever you pick your point

HB: I understand what you're saying, today I think would be a bad day to judge something like that though, you agree?

CG: Yeh, very, actually it's not a particularly good week full stop, that's probably why we're up 50 bucks from yesterday, you know, had it been a normal day, we may even, might have been at 19 20, 25, you know, that would have been ah, you know, that would have been a rally but ah ah it's distorted this week and ah, you know, it's just something we have to live with

HB: Yeh um I'm having dinner with Dwight on Thursday night

CG: Uhmn"

30. The above indicates that Mr Black was still considering what to do. He was going to obtain some further information before acting from Dwight [Dwight Anderson] on Thursday evening i.e. not that evening but a day later. This is inconsistent with there being a firm instruction to close out all positions even gradually. It is consistent with wait and see.
31. The conversation continues with a discussion about Mr Anderson's position and his having "moved his stuff out to 1998". That leads to a discussion of what Mr Black might do. It includes discussing the cost of moving Mr Black's position forward leading to a discussion about moving part forward. That is again inconsistent with any firm decision having been taken to close out all short positions.
32. It then continues:-

"CG: Sure, very, it's just gone 48 53 with ah Rouse

HB: Yeh, be gentle, take it ah . . .

CG: Of course

HB: You know what I mean . . .

CG: Yeh yeh

HB: Take it easy

CG: Yeh, will do

HB: I mean what are your objectives today in terms of size? Or are you not thinking that?

CG: You know, I mean, I, I, I'd, I'd like to get ah, you know, sort of, you know, if possible ah sort of 500 lots in today, I think ah yeh I don't think it's going to be easy but ah, you know . . .

HB: Over the course of the day?

CG: That's what I'd like, yeh, oh yeh, but um, you know, I mean, you know, it can vary, you know, I mean you suddenly get ah, you know, you suddenly get a slug of ah, you know, 50 or 100 lots and ah it's looking ah it's looking a bit better but ah what I, you know, what I didn't want to do is go into the market

HB: No OK, well I think what will happen actually is that ah if, if it hangs around and does nothing you're going to have trouble getting in that kind of size

CG: Um, of course

HB: But then again . . .

CG: Bit of movement and then yes we would ah . . .

HB: But then . . .

CG: Would see it

HB: But then again it's not being pushed

CG: No

HB: So it doesn't matter, I mean if it hangs around here and you don't buy very much and then it falls off

CG: Sure

HB: It doesn't matter

CG: Yeh

HB: You know what I'm saying

CG: Exactly, yeh

HB: So ah

CG: Yeh"

33. Mr Black seems to be approving the strategy for that day of buying 500 lots but saying it actually does not matter if that amount cannot be bought. This again appears quite inconsistent with a decision that all his positions should be closed out.
34. Discussion continues and then the conversation ends with this exchange:-

"CG: Alright?

HB: Are they changing the screen?

CG: No 48 53 still

HB: Yeh

CG: Rouse's quote

HB: Yeh, let's keep our cool it's no ah, I'm not panicked, I, I feel better actually, don't ask me why

CG: Uhmn

HB: Nothing happened I just ah

CG: Yeh

HB: And I do feel they can run it up ah 20 bucks here or something

CG: Uhmn

HB: 30 bucks but then I think it's coming off again and

CG: Yeh

HB: And I think you'll see selling and

CG: Yeh

HB: You know

CG: Yeh

HB: We'll just ah, I think you gotta look at it until ah next week as ah, you know, when I review what every, every, every producer

CG: Hmn

HB: Is doing

CG: Uhmn

HB: Or and has done

CG: UHMN

HB: It's unbelievable how bearish one has to be for the, if I wasn't short

CG: Yeh

HB: I'd start selling some here

CG: Yeh, no that's right

HB: I really would

CG: Hmn

HB: I'm not talking my book, I

CG: Sure

HB: I'd sell some here, I wouldn't sell everything here

CG: UHMN, I know you you're saying

HB: 'Cos as I mean if the Chinese story really that ah having the material available if the market goes into distortion between the Shanghai and the

CG: Sure, yeh

HB: Quite possible no?

CG: On yeh, I, I definitely think so, I mean this guy said to me, you know, 'cos I kept, you know, I mean I didn't want to push him too much but ah, you know, I said is it being consumed, he said some is but ah he said the market . . ."

35. Mr Gamwells and Mr Black appear to be watching the price, and thinking that it is not going up. The contemplation appears to be that they will look at it "next week" with more information. Mr Black is clearly bearish. The exchange is again quite inconsistent with Mr Black instructing a closing out of all his short positions. Mr Black appears already to be convincing himself that his strategy of remaining short is probably right. Indeed if Mr Gamwells had closed out all his short positions without waiting, he would, as it seems to us, have been acting contrary to this exchange.
36. Then at 8.21 Mr Black has what can only be described as a "bearish" conversation telling Mr Gamwells of material being sold and that the effect will be to lower the price. This again is consistent with Mr Black persuading himself that he is right to be bearish.
37. The tapes up until this moment would indicate a man who has not made up his mind what to do. We suggest that it is a clear inference indeed that Mr Black would have protested vigorously if, without further communication, Mr Gamwells had closed out all his short positions and the price had then gone down. The 8.45 conversation starts in this way:-

"HB: I think we're gonna back off actually

CG: Yeh?

HB: And I'll tell you why. I had a discussion last night with the head guy of Codelco – the short guy – who used to be the Finance Minister?

CG: Yeh?

HB: You know who I mean?

CG: Yeh

HB: Okay. He was ready to sell me 100,000 or 200,000 tonnes of copper

CG: Oh really?

HB: Yeh. Last night. I could have bought it from him. In one shot, that's number one.

CG: Yeh

HB: Okay?

CG: Uh huh

HB: How do I know that?

CG: Yeh

HB: We got into whole lengthy discussion him and I, about what he should be doing here and how he feels about the market and he realises that he's in trouble. Okay?

CG: Uhmn

HB: And I said you're not alone and I said you should attack the market

CG: Yeh

HB: And by attacking the market you would get out some tonnage, you would put other people out of business or at least slow them down a lot faster, and you'd get rid of your problem instead of it going on for years.

CG: Uhmn

HB: He's got absolutely, first of all for this year he has 2-300,000 tonnes additional to sell

CG: Yeh. Which is . . .? For this year?

HB: For this . . '97

CG: Oh, for next year, yeh yeh . . Whenever.

HB: We're in next year – it3's next year.

CG: Yeh yeh, sure sure

HB: Second of all, he's got a 1,300,000 tonnes for the following year.

CG: Oh of course, yeh

HB: To be done. He's got nothing done.

CG: No

HB: And like he says, the fear is that in case it will go up, I said, well you know, well I said you should do a third or a quarter and you'll average up or you'll average down.

CG: Sure

HB: I said and he's, the new woman, they invited me to Chile

CG: Uhmn

HB: Okay?

CG: Uhmn

HB: And the new woman there that's working with him?

CG: Yeh?

HB: We got into the whole thing and I said "if you sold a quarter, which is 300/400 thousand tonnes here"

CG: Uhmn

HB: Ya know?

CG: Yeh

HB: I said then no matter what happens to the market

CG: Uhmn

HB: At lease you know that you'll average up or you'll average down

CG: Uhmn

HB: I said and he said yeh, but they look at a sale to the LME as speculative

CG: Hmn

HB: So I said well if I said to you I'll take from your 300,000 tonnes or 200,000 tonnes of copper right now, would you sell it to me? And he looked at me I said "would you sell me a hundred?" He said "I would sell you 100-200,000 tonnes yeh".

CG: Hmn

HB: I said fine – consider the LME me okay?

CG: Hmn

HB: And look after your company and your job. I said I'm not trying to tell you what to do, I'm just trying to tell you that if you want to protect the people that are working for you on a long term basis, I said where do you honestly believe the copper market is going in 97 and nine . . . (laugh)

CG: Uhmn

HB: Way down

CG: Sure

HB: Okay

CG: Uh huh

HB: Now I'm not saying tomorrow morning there are gonna be sellers

CG: No

HB: But I'm telling you that if I picked up the 'phone when he is home on Monday

CG: Uhmn

HB: I could buy 4000 lots of copper from him off the market

CG: Uhmn

HB: Easy

CG: Uhmn

HB: I'm not saying I wanna do that either

CG: No

HB: I'm just saying to you that it's there, it's there

CG: It's there

HB: And it's there with everybody else and I'd rather see where the market is gonna react to without us, versus us going in to give it that extra 500 or 1000 lot support in a day like today, so people misread it and there isn't that much volume there anyway.

CG: Sure

HB: And the odds are that if I have to pay up at 2000 there will be plenty of volume at it.

CG: Yeh

HB: It hasn't gone through 1990 or 1970 yet

CG: Uhmn

HB: And nobody's piling in this morning to buy it yet

CG: No

HB: Not yet

CG: No"

38. There is then a little later the following interchange:-

"HB: It hasn't hurt me yet, that doesn't mean to say it won't and I realise that I have a big position.

CG: Sure

HB: And I respect that fact and if we have to act, we'll act

CG: Okay

HB: At this juncture, I just think that to buy like to buy 500 lots doesn't matter

CG: Hmn

HB: At this juncture, does it really?

CG: Erm, no, in the wider scope of things no

HB: Right okay. So if I blow it and I get that extra 500 lots at 2000 I lose $50 a tonne on 10,000 tonnes, half a million dollars, 2 million dollars, but then again, I might never even blow it.

CG: Sure

HB: And it might not distort the rest of my picture. What do you think of that?

CG: Okay. No. I mean, I think that we all felt this, you know, there was no great concern about

HB: Right

CG: You know, about events and this is a short term correction, I mean, you can't ignore what's been going on and I still, you know, I think that over the, you know, short term, you know, IF and you, you have to believe what you've been hearing, I mean you've heard it from reasonably good sources – those stocks go below 200,000 there will be a reaction in the market and that will be up. That's what my concern is."

39. Mr Black appears not to dissent from the view that no one felt great concern. That again supports the view that Mr Black did not make some major decision to close his position on 8^th October.
40. If one takes the tapes at face value they would indicate that Mr Black initially instructed Mr Gamwells to use his discretion to do some buying if available. They indicate that Mr Black was not too concerned if it did not happen. They indicate that Mr Black was still considering whether the increase in price was likely to be a blip or showing a trend. They indicate that Mr Black was not panicking and was still anxious to glean information over the next days and into the next week in considering what his strategy should be. They indicate indeed that prior to the end of the 7.59 conversation Mr Black had changed or at least started to change his mind about buying in at all. The 8.21 conversation supports a firming up of a change of mind back to his strategy of staying short with no covering. The commencement of the 8.45 conversation seems to indicate a further firming up of that position by reference to a further bit of information on Codelco also obtained at the LME dinner. The detail provided on Codelco does not read (as the judge suggested) like a weak or invented excuse. Indeed Mr Black in his evidence did not suggest that it was [D1-273].The tapes are quite inconsistent with a firm decision taken by Mr Black to close out his short positions.
41. That some general instruction was given at the LME dinner to use a discretion to "start covering" but only if the opportunity presented itself seems likely. By the end of the conversation at 7.59 Mr Black appears clearly already to be contemplating "backing off" and is not unhappy if Gamwells cannot even buy 50 to 100 lots. If Mr Black was already thinking of backing off, there is no more motive for Mr Davies to become involved at 8.30 in the morning rather than at any other time while Mr Black remains short and is considering his strategy. Mr Black's reliance on the further "Cadelco" information appears real enough, and indeed is accepted was in no way made up. If in truth what was affecting his decision at this stage was some information just provided by Mr Davies, even if asked to keep that confidential, it seems unlikely that Mr Black would explain a change in strategy to Mr Gamwells by reference to information from the LME dinner. Mr Gamwells would be likely to respond: "but you knew of that when you made the decision last night".
42. Further conversations on 9^th and 10^th October were inconsistent with Mr Black's case as recognised by the judge [paragraph 53]. The conversation on the 10^th in particular was quite inconsistent with Mr Davies persuading Mr Black to be bearish.
43. There are factors which Mr Mill suggests the judge did not take into account. Mr Black first mentioned the Alcatel allegation during the SFA investigation when being cross examined by Mr Brodie QC. He referred to the night of the LME dinner and to being told by Mr Farmer "he had covered his shorts" and to UBS people threatening to "get him" and continued:-

"Then subsequently - - and I'm not 100% sure as to what date - - Mr Vivian Davies swore me to secrecy and told me in confidence, without me soliciting this advice, that someone from Alcatel had been on to him, he didn't divulge the name, and that they in fact were negotiating with him to deliver 80,000 tonnes physical copper: 40,000 tonnes in November and 40,000 tonnes in December. Because the previous year 80,000 tonnes of copper was delivered at that time, he said: "They're going to most likely be doing the same thing as they did last year." So at that given moment in time, I could be bear-ish the market but forced to cover, for the simple reason that I have no choice. If there's a market manipulation going on, the fact that there's plenty of copper around doesn't mean to say that the copper market can't go up. So not to generalise and answer your question and try and be a little more specific, I would have to go through day by day by day as to the events and I really would need the tapes and the conversations I had with Vivian Davies - - hopefully they're on recorded lines - - and I'd need similarly the tapes and conversations that I had with Colin Gamwells about Alcatel."

It is significant that Mr Black is not saying "on the evening of the LME dinner I gave firm instructions to close out, and then early the next morning Mr Davies provided information which caused me to change my mind". Such a major decision and reversal of that decision is something one might expect Mr Black to remember as linked to the LME dinner. There is no mention of a decision to close out. Information from Mr Davies is described as coming "subsequently". The provision of the information from Mr Davies is not said to be linked to a reversal of some decision to cover his short positions.

44. In the arbitration against Brandeis the allegation in the counterclaim was in these terms:-

"25.2 By the end of October 1996 Black had become concerned as to whether it was right to continue to run the said short positions. On a number of occasions during the second half of October 1996 [our underlining] Black asked Mr Davies of Brandeis for advice as to the said short positions. On each of the said occasions Mr Davies advised Black that Black should not be concerned as:

25.2.1 Mr Davies was in the middle of concluding negotiations with Alcatel in France for the completion of a transaction that would result in the delivery of 80,000 metric tonnes of copper into the market. 40,000 tonnes would be delivered in November and 40,000 tonnes in December."

45. We accept that Mr Black may not have had access to the recordings of the telephone conversations, but his recollection was that he was provided with the Alcatel information in the second half of October; and even if he remembered starting to buy, he does not remember a close proximity between that decision and a change in that decision by reference to Alcatel.
46. The judge, as Mr Freedman before us, relied on an answer given by Mr Gamwells to the regulators:-

"Right I mean that started I mean the potential for covering the short position really took off LME dinner night."

47. The judge then dealt with the 7.59 conversation in quite brief terms referred to the 8.21 conversation and concluded as follows:-

"I find there was an agreement to start covering Mr Black's short positions on 9^th October. Certainly, Mr Gamwells and Mr Black would have realised that it was unrealistic to attempt more than a start on that day. That much comes across from the transcripts and Mr Gamwells' evidence. Given Mr Black's pre-existing concerns about the market and the fact that covering entirely would take a few days, I do not consider Mr Black's decision to be sudden or dramatic as Mr Gamwells suggested. Mr Black would have known he could change tack at any time, he could even have reversed trades if he felt sufficiently strongly. I am satisfied that the parties envisaged that a start in covering generally would be made on 9^th October. The references to 500 and 1,000 lots were references to the number of lots Mr Gamwells hoped to get in that day. Mr Gamwells has now read that as an overall limit, I find wrongly"

48. Mr Gamwells' answer was given to the regulators in the context of explaining Mr Black's attitude in October 1996, but it seems to us that the judge places a weight on Mr Gamwells' phraseology which it simply will not bear when read in its context. The answer is actually more consistent with the inference that we suggest should be drawn from the recorded conversations – that the potential i.e. the possibility of closing short positions was in place after the LME dinner, but not a firm decision to close out.
49. The key feature which seems to us to be missing from the judge's assessment is the position as at the end of the conversation at 7.59. That part of the conversation appears only consistent with no final decision having been taken as to what to do and with the expectation that further time would be spent thinking about the right strategy. It appears quite inconsistent with an instruction from Mr Black to "cover generally".
50. This point would affect both aspects of ground (a) because in assessing whether it was likely that information relating to Alcatel was provided on 9^th October, it was crucial to the judge's finding that something just before 8.45 changed Mr Black's mind from wishing his positions closed out, to one of backing off completely. But if account is taken of how the 7.59 conversation ended and of what was said at 8.21, the picture appears to be that Mr Black has never been firm that all his positions should be closed out. If he ever contemplated that it might come to that he seems clearly not to be contemplating it by the end of that conversation. The words "back-off actually" seem to be simply a confirmation of the way his thoughts have finally developed for that moment. It does not appear to be a great change of mind. It does not seem to require some dishonest information from Mr Davies to produce the result. The likelihood appears to be that the information on Alcatel was given "subsequently" during "the second half" of October, where Mr Black had placed it previously.
51. Does the judge's assessment of the oral evidence cast doubt on what appears to be the probabilities? Mr Davies was not a witness who could be believed. Mr Gamwells did not impress the judge either. Mr Black was clearly an impressive witness, but without being dishonest it would be natural for him to reconstruct in the way he did. In our view his reconstruction on a full analysis of the taped conversations simply cannot be supported. The inference to be drawn from the taped conversations is too clear. On ground (a) accordingly we would reverse the judge's findings.

6^th November 1996

52. In the light of our conclusion on ground (a), we can take ground (b) quite shortly.
53. The submission on behalf of Mr Davies is that the chain of causation was broken by a decision by Mr Black to close out his position on 6^th November, followed by a reversal of that decision uninfluenced by the misleading information provided by Mr Davies on Alcatel. There are thus two aspects of this point. Did Mr Black give an instruction to close out his position on 6^th November? Did the misleading information on Alcatel have any influence on a change in that instruction (if given)? The judge was against Mr Davies on both questions.
54. In our view it is not possible to fault the judge's reasoning in relation to the influence of the Alcatel information whether or not Mr Black ever gave a firm instruction to cover all his positions on 6^th November. It must be remembered that the judge's finding unchallenged on appeal was that Mr Davies had made a fraudulent representation with the motive of inducing Mr Black to remain short. That is a representation that he never corrected and the presumption must be that he continued to intend Mr Black to rely on it. It would take very powerful evidence to demonstrate that as the judge put it "the Alcatel information did not play any sensible part in Mr Black's decision" to remain short. As it is, in the transcripts of conversations taking place during the relevant period, there are numerous references to Alcatel.

(i) On 8^th November 1996 (3/388) Black is recorded as asking Gamwells whether or not there was any chance of Alcatel doing anything, and Gamwells is recorded as saying that that was strictly a one-to-one thing with Davies;

(ii) On the same day (4/7) Black is recorded as asking Davies if he had had anything with "that special", a reference to Alcatel;

(iii) On 12^th November 1996 (4/51) Mr Black is recorded as saying to Mr Gamwells that all that was needed was one call from Alcatel:

(iv) On 13^th November 1996 (4/95), although in a conversation between Mr Black and Mr Gamwells Mr Black is recorded as "forgetting even to ask" about Alcatel, that comment is followed by "but I know that he called the guy again yesterday, or the day before, or something", which appears to be a reference to Alcatel.

(v) On the 15^th November 1996 (5/124) Mr Black is recorded as asking Mr Gamwells what would happen if Alcatel came in. Albeit by this date Mr Black was being forced to close out, the comment indicates a concern about his exposure on the spreads while he was covering his shorts, and demonstrates a reliance and a belief that Alcatel would be delivering material to the market.

55. It therefore matters not whether the judge was right in his conclusion as to whether Mr Black ever gave firm instructions to cover his positions on 6^th November 1996. The influence of Alcatel remained in any decision that Mr Black took to remain short.
56. But on the issue whether Mr Black ever did give instructions to close out his positions on 6^th November, we see no reason to disturb the findings of the judge. On that issue, the key point made by Mr Mill for Mr Davies is that on Day 3 under cross examination by reference to the transcripts of the records of telephone conversations at the material time Mr Black appeared to concede that he had indeed given such instructions, and indeed that he had only reversed them as a result of specific information provided to him by Don Ratcliffe of Cyprus Metals. Then on the 4^th Day Mr Black commenced the day by stating that he wished to make "a couple of corrections regarding his testimony yesterday". The corrections involved as Mr Mill put it "a volte face", and an explanation that his instructions were simply to cover a part of his position on a "take it as offered basis". Later on Day 5 he provided an analysis of the telephone conversations in re-examination consistent with his Day 4 evidence.
57. Mr Mill buttressed his submission that Mr Black's first thoughts were right by reference to the fact that 6000 lots was the total of the position at Brandeis (save for 3000 lots needed to provide cover against his option exposure), and that the instruction recorded in the 6^th November conversation to "do up to 6,000" was consistent with an instruction to close out Mr Black's entire position. Mr Mill criticised the judge's approach to this instruction in paragraph 76 which he says fails to appreciate that it was common ground that 6000 lots was the total position at Brandeis.
58. So Mr Mill's submission was that since Mr Gamwells gave evidence of Mr Black having given an instruction to close out on 6^th November, the judge's conclusion to the contrary was clearly wrong.
59. Mr Mill's difficulty is that Mr Gamwells in his second witness statement had only remembered two occasions on which Mr Black had given instructions to close out – 17^th May 1996 and 15^th November 1996; it was only in a third witness statement that he said he had a recall of an instruction to close out on 6^th November.
60. Mr Freedman also pointed to the fact that in the telephone transcripts there is no reference to covering the whole position. That point echoes a point made on the transcripts of 9^th October, but on this occasion it is Mr Freedman on behalf of Mr Black who emphasises the lack of reference to a decision to close out. The lack of reference to such a decision is a powerful pointer to there not ever having been made a firm decision.
61. Mr Mill emphasised the references by Mr Black in the conversations which took place on 6^th November to "biting the bullet". That phrase, Mr Mill submitted, is only consistent with Mr Black taking a decision to close out. However Mr Freedman pointed out that the phrase was being used in the context of moving Mr Black's position forward and in the context of Mr Black wishing to lighten his position.

Mr Freedman relied on the following passages from the transcript of 6^th November 1996:

"HB: Right, that's what we gotta keep doing, just keep, I gotta bite the bullet lose the back and move it forward.

CG: Yeah!

HB: And also lighten up so if it rallies I have what to sell?

CG: Yeah, you have something left to sell, yeah indeed."

and

"HB: Well we started to bite the bullet a little bit and if we do it every day I don't think it will be a problem.

CG: Yeah!

HB: What d'you think?

CG: . . . I think it's absolutely right.

HB: Everybody's waiting for it to run up and . . . I'm not sure it will run up and I'm not sure what the hell's gonna happen, so if we lighten up a bit, if we keep moving everything forward, they can't squeeze us."

62. Mr Freedman submits that the expression "bite the bullet" clearly refers to rolling forward the short position and not closing the same. He submits that the phrase also refers to "lightening up" and submits that the concepts of "rolling forward" and "lightening up" are inconsistent with closing out the whole position.
63. The judge took the view that:-

"Given the amount of trading Mr Black was doing within this period and the numerous telephone calls almost every day, it is not surprising that he needed to ponder the transcripts in order to piece together the events that occurred"

The judge on that basis accepted the corrections to Mr Black's evidence as consistent with the transcripts of conversations which took place at the material time.

64. In our view the judge was entitled to accept Mr Black's corrected evidence. Unlike the position as at the 9^th October where, as it seems to us, it is quite impossible to read the transcript consistently with the evidence being given by Mr Black, in this instance it is possible so to do and it would be wrong for this court to reverse the finding of the judge.

US$ 5,000,000

65. This issue no longer arises, and again we can take it shortly. The judge was asked to assess the value of the non-Alcatel claims for which Mr Black had received compensation in the settlement with Brandeis. Mr Davies' complaint relates to the judge's assessment of the "misuse of confidential information or front running claims". In the arbitration the Arbitrators had taken a period of 7 days as a sample and concluded that on 3 out of the seven front running had taken place. That would have given a claim of $1.9 million (the sum contended for by Mr Clifford the expert called by Mr Davies as the sum at which the judge should assess this aspect). The judge in paragraph 90 of his judgment arrived at a figure of $5 million on the following basis:-

"90. The arbitrators found this abuse on only three of the 7 days considered. Given that those were 7 heavy trading days, I consider it safe to conclude that if the abuse occurred outside those days it would be on a significantly lower percentage of days. I do not think the transcript references take the matter much further, but overall, I do find the probabilities are that this practice occurred to an extent outside the 7 days. Here is an example of the court having very limited materials and simply having to do its best taking an over view of the case. Doing the best I can, I find that the abuse probably occurred on about one in 10 days over the trading period of about 3 years. Since the arbitrators' days were "busy" days I would consider that an average figure somewhat lower than the $88,000 they found on 30^th April 1997, would be fair. I have used those touchstones as guidance only and arrive at an overall figure of $5,000,000 as opposed to Mr Clifford's $1,900,000 and Mr Freedman's $10,000,000 odd."

66. It seems that the reason for the judge's reference to "Mr Freedman" as the supporter of the figure of $10 million is that on this aspect no expert evidence was relied on by the respondent. The case was advanced purely by way of submission.
67. In their skeleton Mr Mill and Mr Pushpinder Saini suggest that the judge's conclusion was reached "without stating any discernible reasoning or identifying an evidential basis for his figure". They submit that the burden was on the respondents to provide an evidential basis, and that they failed to produce any evidence, which could establish a figure over and above that awarded by the arbitrators.
68. At paragraph 85 at the commencement of the passages in the judgment where the judge is dealing with non-Alcatel losses generally, he said:-

"It seems that the parties now agree that extrapolation from the arbitrators' findings is an acceptable method of quantifying [non-Alcatel] losses and hence arriving at a figure to be deducted from the total benefits received under the Settlement Agreement. If I am wrong then I hold that it is. I accept there is no expertise called extrapolation and, even if there is, neither expert in this case claimed it."

No criticism is made of that finding as such.

69. Mr Clifford called on behalf of Mr Davies was of the view that on the misuse and front running aspect of the non-Alcatel losses, it was unsafe and inappropriate to seek to extrapolate from the findings of the arbitrators. The logic behind Mr Clifford's approach was that front running and misuse of confidential information could only occur on days when the volume to be traded was such that it would be expected to affect the market price. On most days this would not be the case. This it is argued is borne out by the arbitrators identifying only 3 days out of the 7 heavy days examined.
70. Mr Freedman's $10 million was a figure calculated on the basis that the judge was entitled to look at trading over all metals over the whole period. It is suggested that the judge failed to appreciate that this figure was for all metals when quoting it in paragraph 90 and that he was in error in using the figure at that stage, having held in paragraph 88 (on the mis-pricing aspect of the calculation of the non-Alcatel losses) that it would not be right to extrapolate in respect of mispricing over all metals.
71. The first question as it seems to us is whether there was material before the judge on which he was entitled to conclude that front running or misuse of confidential information had taken place on more than simply the three days found by the arbitrators, and thus whether there was material on which he could conclude that the settlement had covered such claims. If there was such material then clearly an extrapolation was going to be fairly broad brush. The question must then be whether there is any error in his reasoning or any failure in his reasoning, which demonstrates that his calculation is too high.
72. We are quite clear that there was material on which the judge was entitled to conclude that front running did occur on more than the three days. The respondent's skeleton points out that the SFA found front running on almost all the 31 days selected. The taped conversations between dealers showed a willingness and intention to misuse confidential information. It would not have been appropriate to try out the contest as between Brandeis and Mr Black, and it was appropriate for the judge to make a proper apportionment.
73. Did he make any error in his reasoning? We do not think that he did. He found the abuse occurred on about one in ten days and that an average figure somewhat lower than $88,000 should be taken. It is that calculation which reaches $5 million, and the reference to Mr Freedman's $10 million is simply because that was Mr Freedman's figure. It does not show that the judge has now included metals other than copper in his calculation.
74. We would accordingly have upheld the judge's conclusion on this aspect.

Refco

75. The judge's conclusion on Refco was as follows:-

"97. Mr Black's evidence was that he had a trading account with this entity which he operated for himself and a partner. Mr Black said that he was left with half the losses after his partner had paid his share and it is that half-share which is included in his claim. Mr Saini's submission here was simply that there was no sufficient evidence to identify this account or the entity with whom any such account was held. In those circumstances Mr Black had failed to demonstrate or produce sufficient evidence that he actually sustained a loss under this head.

98. There was evidence that Mr Black and AIMCO had paid about $6,000,000 to some such account in 1997. There is scant if any documentary evidence to establish that that sum was paid in respect of copper trading losses, although I am inclined to accept Mr Black's evidence that it was. However, the documents produced in support of this part of the claim were confusing and contradictory. It remained unclear precisely what this account was, for whose benefit and with whom it operated. Mr Black's evidence as to his arrangement with his partner, a Mr Dittmer, was vague. To find that Mr Black personally lost money on this account as a result of Mr Davies' misrepresentations would be a step too far on the evidence that was placed before me. This is a serious matter, large sums of money are involved and tempting as it may be simply to include this sum on Mr Black's say-so in view of the earlier findings I have made, I think it would be inappropriate to do so. The evidence is simply insufficient."

76. The burden lay upon Mr Freedman and Mr Mallin to persuade us that the judge's conclusions were wrong. We were not persuaded.

Conclusion

77. We would allow Mr Davies' appeal to the limited, albeit significant, extent indicated.

The Black parties' cross-appeal on compound interest

78. By paragraph 1 of his order dated 10 May 2004, Mr Justice Buckley entered judgment for the claimants (hereafter called "the Black parties") on their claim in deceit for damages, together with interest to be calculated at the prevailing USD prime rate. By paragraph 1(a) directions were given for the calculation of the judgment sum, and by paragraph 1(b) it was directed that there should be a further hearing before Mr Justice Buckley "in order to resolve the issue as to whether the interest to be applied in calculating the judgment sum and thereafter to the judgment sum so calculated should be calculated on a simple or on a compounding basis". Subsequently, Mr Justice Buckley directed that the issue could be heard by another judge.
79. The issue was heard by Mr Justice McCombe on 8 June 2004, when judgment was reserved. On 22 June 2004, that judge ordered that simple interest should be applied in calculating the judgment sum and thereafter to the judgment sum itself. He gave the Black parties permission to appeal his decision and, in particular, the holding in paragraph 37 of his judgment "that the Court does not have jurisdiction to award compound interest in respect of a judgment for damages for deceit." He also made a declaration that, pursuant to paragraph 1 of Mr Justice Buckley's order, the judgment was for the sum of $18,711,307 together with interest thereon from 29 April 2004 at the applicable USD prime rate. The Black parties duly appealed Mr Justice McCombe's decision. We have been informed by Mr Saini, for Mr Davies, that, if compound interest had been applied, the judgment sum would have been increased by about $5m.
80. The consequence of our disposal of Mr Davies' appeal is that the judgment will be set aside and the compound interest issue will become academic. However, since the question is one of general importance, it is appropriate that we should express a view on it. Owing to a shortage of time, we were unable to hear oral submissions on this question. The parties were content to rely on their written submissions, which have been supplemented since the date of the hearing.
81. Being of the opinion that the decision of Mr Justice McCombe was correct, we propose to deal with the matter relatively briefly. In his judgment, having given a brief summary of the facts, the judge identified (para 5) the two questions to be resolved and (para 6) three basic principles of law accepted by both sides. The first question was the general question whether the court has jurisdiction to award compound interest in respect of a judgment for damages for deceit; the second was, if so, should the court exercise its discretion to do so on the facts of the present case. The basic principles of law are, first, that at common law the courts have no powers to award interest, whether simple or compound, by way of damages on a money claim; second, that under statute (s 35A of the Supreme Court Act 1981) the courts have only a power to award simple interest on a debt or damages; third, that courts of equity have a power to award interest in certain specified types of case as part of their general jurisdiction. The judge added that it was agreed that the present case turned on the extent of the court's power under the third principle and, in particular, the extent of the power to award interest, simple and compound, in cases involving "fraud".
82. The leading decision on the power to award compound interest is that of the House of Lords in Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669. The judge considered that decision with great care and also earlier authorities including Johnson v R [1904] AC 817 (PC), Wallersteiner v Moir (No.2) [1975] QB 373 (CA), and President of India v LaPintada Compania Navigacion SA [1985] AC 104 (HL). As to Johnson v R, we agree with the judge's analysis of that case and his view that there is nothing in it to support the notion that there is an equitable jurisdiction to award compound interest on damages for deceit at common law, apart from cases in which money has been obtained and retained by fraud.
83. In the LaPintada case, Lord Brandon of Oakbrook, at p 116A, having observed that the chancery courts had regularly awarded simple interest as ancillary relief in respect of equitable remedies, continued:

"Chancery courts had further regularly awarded interest, including not only simple interest but also compound interest when they thought that justice so demanded, that is to say in cases [(1)] where money had been obtained and retained by fraud, or [(2)] where it had been withheld or misapplied by a trustee or anyone else in a fiduciary position."

At p116E, he added:

"Two points of importance are to be observed about the law relating to the award of interest by courts of law [in 1981]. The first point is that neither the Admiralty Court nor Courts of Chancery, have awarded interest, except in respect of monies for which they were giving judgment. The second point is that the Admiralty Court never, and Courts of Chancery only in two special classes of case, awarded compound, as distinct from simple, interest."

It is evident that the two special classes of case referred to in the second passage were those we have enumerated in the first.

84. Having considered all five speeches in the Westdeutsche Landesbank case, Mr Justice McCombe said (para 36):

"Thus, it appears to me that in the Westdeutsche Landesbank case, two of their lordships were firmly of the view that the equitable jurisdiction was limited to the categories of case expressly identified by Lord Brandon in LaPintada (viz. Lord Slynn and Lord Lloyd). Two of their lordships, (Lord Goff and Lord Woolf) thought that the equitable jurisdiction was quite general, or was capable of legitimate extension to be quite general. Lord Browne-Wilkinson took fraud cases out of his analysis of the equitable jurisdiction. He did not expand upon that type of case, but otherwise he stated the law along the traditional lines to be found, for example, in the judgment of Buckley LJ in Wallersteiner v Moir (No. 2). Moreover, when faced with the submission that the equitable jurisdiction should be expanded to apply to a common law claim to which it had not been previously applied, the majority of their lordships held that they should not do so in an area where parliament had twice declined to authorise the award of compound interest."

85. While it is correct to say that, as a matter of language, Lord Browne-Wilkinson took fraud cases out of his analysis of the equitable jurisdiction, Mr Justice McCombe had earlier expressed the view (para 9) that he could not be taken to have been deciding that all cases of fraud fell within that jurisdiction. We entirely agree. But since it is as important for this court as it was for the judge to understand the full import of Lord Browne-Wilkinson's views, it is necessary to refer to the material passage in his speech more closely.
86. At [1996] AC 701C, under the heading "Compound interest in equity", Lord Browne-Wilkinson said:

"In the absence of fraud courts of equity have never awarded compound interest except against a trustee or other person owing fiduciary duties who is accountable for profits made from his position. Equity awarded simple interest at a time when courts of law had no right under common law or statute to award any interest. The award of compound interest was restricted to cases where the award was in lieu of an account of profits improperly made by the trustee. We were not referred to any case where compound interest had been awarded in the absence of fiduciary accountability for a profit."

He proceeded to read passages from the judgments of Lord Hatherley LC, sitting in the Court of Appeal in Chancery, in Burdick v Garrick (1870) LR 5 Ch.Ap. 233, 241, and of Buckley LJ in Wallersteiner v Moir No.2 [1975] QB 373, 397. Having then read the first passage and the second part of the last sentence of the second passage (sc. "Courts of Chancery only in two special classes of case, awarded compound, as distinct from simple, interest") we have quoted from the speech of Lord Brandon in LaPintada, Lord Browne-Wilkinson continued, at p.702D:

"These authorities establish that in the absence of fraud equity only awards compound (as opposed to simple) interest against a defendant who is a trustee or otherwise in a fiduciary position by way of recouping from such a defendant an improper profit made by him."

87. When this passage from Lord Browne-Wilkinson's speech is read as a whole, in particular his quotations from Lord Brandon's speech in LaPintada, it is demonstrated that his two references to "absence of fraud" cannot have been intended to go beyond the type of case referred to by Lord Brandon, that is to say a case where money has been obtained and retained by fraud; in other words, where the fraudster has had in hand a fund which he has, or is deemed to have, made use of for his own benefit. It follows that the correct view of the Westdeutsche Landesbank case is that three, not two, of their lordships were firmly of the view that the equitable jurisdiction to award compound interest was limited to the two categories of case identified by Lord Brandon. Like that case (where the claim was a common law claim for money had and received) the present case does not fall into either category. Mr Davies' fraudulent misrepresentation did not cause him to obtain and retain money belonging to the Black parties; it caused them to lose money by trading in the markets. In that state of affairs the present case is covered by the decision of the majority in the Westdeutsche Landesbank case. So far as this court is concerned, that is an end of the compound interest question. It cannot be reopened at this level of decision.
88. In the court below the sole claim made by the Black parties was for damages for deceit, their case being argued on the basis that, since there was a general jurisdiction in equity to award compound interest in cases of fraud, so interest could be awarded in respect of common law damages for deceit. However, in giving judgment, Mr Justice McCombe said (para 36):

"I can see the force in an argument of principle that the grant of the equitable remedy of compound interest should be ancillary to an equitable cause of action either personal or proprietary, whether concurrent with common law claims or not."

Encouraged by those observations, and relying principally on Nocton v Lord Ashburton (1914) AC 932, the Black parties, without objection from Mr Davies, sought leave to amend their notice of cross-appeal in order to enable them to submit, first, that there is a cause of action in equity for fraud which is concurrent with the cause of action in deceit, irrespective of whether money has been obtained and retained by fraud; secondly, that in respect of fraud where there is a concurrent cause of action in equity there is jurisdiction to award compound interest, irrespective of whether money has been obtained and retained by fraud.

89. While we could accept the first of these submissions, we reject the second. We do so on the simple ground that the existence of a concurrent cause of action in equity cannot per se bring a case within Lord Brandon's two categories. We still cannot depart from the decision of the majority in the Westdeutsche Landesbank case.
90. The following further points must be briefly mentioned:

(1) In paragraphs 15 to 17 of his judgment Mr Justice McCombe referred to the summary of the law set out in the Law Commission's Consultation Paper No. 167 of 31 July 2002, including their conclusion that compound interest is only awarded in four specified cases. In para 18 the judge said, correctly, that from none of the passages he had quoted from the paper could support be derived for a general jurisdiction to award compound interest on damages payable under a common law judgment for the tort of deceit. He recorded a submission by Mr Saini that, if there was such a general jurisdiction, its omission from the paper would be glaring. We agree with that submission.

(2) In his written submissions on behalf of the Black parties Mr Freedman QC has relied on a number of authorities which were either not cited to the judge or not referred to by him. None of them can affect our conclusion. They included the decisions of this court in Kuwait Oil Tanker SAK v Al Bader [2000] 2 AllER (Comm) 271 and of the New South Wales Court of Appeal in Harrison v Schipp [2001] NSWCA 13. There is nothing in the first of those cases which significantly assists the Black parties and the second, though it might possibly have assisted them had it been decided in this jurisdiction, is out of line with the English authorities.

(3) In a further note dated 13 April 2005 Mr Freedman has been good enough to draw our attention to the decision of this court in Sempra Metals Limited v Commissioners of Inland Revenue [2005] EWCA Civ 389, in which judgments were handed down on 12 April. That was a case about the award of compound interest pursuant to EU law. We agree with Mr Freedman that it has no direct application to the present case. It has not caused him to make any modification to his written submissions.

(4) In answer to the second question, the judge decided (paras 39 to 41) that if he had had jurisdiction to do so, he would have exercised his discretion so as to award the Black parties compound interest. If we ourselves had held that there was the necessary jurisdiction, we could not, on conventional principles, have interfered with the judge's exercise of his discretion.

91. The cross-appeal will be dismissed.

ORDER: Appeal allowed in part; cross-appeal dismissed; no order for costs as far the costs of the action are concerned; the Black parties to pay to Mr Davies 60% of his main appeal and the cross-appeal, and all of his costs of the interest appeal; payment on account of costs ordered in the sum of £50,000; the matter of the freezing order to be remitted to the High Court judge; permission to appeal to the House of Lords refused.

(Order does not form part of approved judgment)