PARABOLA INVESTMENTS LTD V BROWALLIA CAL LTD

[2009] EWHC 901 (Comm), Queen's Bench Division, Commercial Court, Mr Justice Flaux, 6 May 2009

Financial services – Fraud – Inducement – Defendant trading companies trading in financial instruments on behalf of claimant – Misrepresentations as to trading gains – Whether claimant induced by misrepresentations – What identifiable heads of loss had been suffered – Measure of damages

The claimant companies were special purpose vehicles set up by their ultimate beneficial owner Mr G for the purposes of trading in financial instruments. For a period of time the trading was entrusted to the three defendants, two stockbroking companies trading on the London Stock Exchange and Mr B, a senior futures broker with the first defendant, who gave Mr G false statements of his account, not disclosing the losses made. Mr G’s trading was represented by Mr B to be progressing so that his assets were in the vicinity of £10 million whereas in fact there had been losses so that when the fraud was discovered, they were in reality about £817,000. Mr G and his claimant companies sued for damages. Fraud was admitted. The issues for determination were: (i) was the claimant induced by the misrepresentations made; (ii) what identifiable heads of loss had been suffered as a consequence of the fraud; and (iii) what measure of damages was recoverable as a direct result of the fraud. Flaux J held that there had been inducement and that damages were recoverable. The case for Mr G and the claimants having been induced by the numerous fraudulent misrepresentations made by Mr B, was an overwhelming one. Nevertheless, this was not an appropriate case for exemplary damages. The claimant was entitled to recover all its losses flowing directly from the fraud consisting not only of the depletion of its trading fund and loss of profits it would otherwise have made on that fund in the period of the fraud, but also of the loss of profits suffered up until the trial as a result of having had only a smaller fund with which to trade.