Black & Ors v Davies

An appellate court may reverse a finding of primary fact only when, after re-examining the evidence and respecting the trial judge’s advantage in seeing the witnesses, it is sure that the finding was wrong. Contemporaneous records may outweigh witness recollections reconstructed many years later.

Equity cannot award compound interest merely because damages arise from deceit or a concurrent equitable claim. The jurisdiction is confined to money obtained and retained by fraud, or profits made through misuse by a trustee or other fiduciary. Market-trading losses caused by a fraudulent representation fall outside those categories.

The respondents claimed damages from the appellant for deceit arising from copper-futures trading. Buckley J found that the appellant’s false information about a possible delivery of copper had induced the first respondent to reverse an earlier decision to close his short positions. The judge awarded damages exceeding the amount recovered in an earlier settlement with the appellant’s company.

The appellant challenged the findings concerning the alleged decision and representation on 8–9 October 1996, causation after 6 November, and the assessment of other trading losses. The respondents cross-appealed against the exclusion of losses on a Refco account. They also appealed from McCombe J’s decision that compound interest was unavailable on damages for deceit.

The principal questions were whether the trial judge’s critical findings of primary fact could stand and whether equity permitted compound interest for deceit which caused market losses rather than the fraudulent acquisition and retention of money.

1. The appellant’s appeal was allowed to the extent that the damages judgment was set aside. When reviewing a finding of primary fact, the Court of Appeal must re-examine the evidence while recognising the trial judge’s advantage in seeing and hearing the witnesses. It may interfere only when sure that the finding was wrong, but must do so when that standard is met.

2. The contemporaneous recordings were inconsistent with a firm decision on 8 October to close all short positions. They showed continuing consideration of the market and, before the alleged representation, a developing decision to remain short. Given the seven-year interval before trial, the safe approach was to begin with undisputed facts and contemporaneous records, consider the probabilities, and then assess the witnesses’ reconstructed recollections. The finding that a firm instruction was reversed because of information supplied on 9 October could not stand.

3. The judge was nevertheless entitled to find that no firm instruction to close the entire position was given on 6 November. The uncorrected fraudulent representation continued to influence the decision to remain short. The recordings contained repeated references to the promised copper delivery, and powerful evidence would have been required to show that the information had ceased to play any sensible part.

4. The judge was entitled to estimate front-running losses by broad extrapolation because there was evidence that the practice extended beyond the sampled days. The exclusion of the Refco losses also disclosed no reversible error because their ownership and connection with copper trading were insufficiently proved. Those quantum matters did not alter the result after the critical inducement finding was reversed.

5. The compound-interest question had become academic, but the court held that McCombe J’s conclusion was correct. Section 35A of the Supreme Court Act 1981 authorised only simple interest. Under Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, equity could award compound interest only where money was obtained and retained by fraud, or where a trustee or fiduciary was accountable for improperly made profits. Fraud causing market-trading losses did not satisfy either category. A concurrent equitable cause of action did not enlarge that jurisdiction.

6. The respondents’ cross-appeal and interest appeal were dismissed. The freezing-order issue was remitted to a High Court judge.

1. Court of Appeal (Civil Division): By [2005] EWCA Civ 531, allowed the appellant’s appeal on the decisive finding concerning the events of 8–9 October 1996 and set aside the damages judgment. It dismissed the respondents’ cross-appeals, including the compound-interest appeal.

2. High Court, Queen’s Bench Division (McCombe J): Held that the court lacked jurisdiction to award compound interest on damages for deceit and ordered simple interest.

3. High Court, Queen’s Bench Division (Buckley J): Entered judgment for the respondents in deceit and awarded damages. He found that the false representation had caused the first respondent to reverse a decision to close his short positions, but excluded the alleged Refco losses.