Noble Resources SA & Anor v Gross

Fraud allegations in civil proceedings are proved on the balance of probabilities. The seriousness of the allegation affects the assessment of inherent probabilities and the strength of evidence required in the particular circumstances, but it does not create a separate or heightened legal standard.

An employee who knowingly participates in unauthorised speculative trading and conceals the resulting exposure through false or manipulated accounting entries may be liable for breach of contract, deceit and conspiracy to defraud. The distinction between concealing the speculative position and concealing its losses may be immaterial where the same manipulation achieves both purposes.

Noble claimed damages, repayment of a bonus and related relief from Philip Gross, alleging that he participated with Marcos Penin in unauthorised aluminium futures trading and concealed the resulting losses through false or manipulated physical contracts. Gross denied knowledge of the trading, concealment and fraud, and brought a counterclaim concerning the termination of his employment.

The court determined whether Gross had contemporaneous knowledge of, and participated in, the speculative positions and accounting manipulations, whether those acts caused loss, and whether Noble was entitled to dismiss him.

1. Standard of proof. The court applied the civil standard of proof: whether the alleged facts were more likely than not. In assessing serious allegations of fraud, the court had to consider inherent unlikelihood and the circumstances of the particular case. Those considerations affected the evaluation of the evidence, not the legal standard.
2. Liability. The evidence established that Gross was responsible for supervising Penin, knew of and directed the December 2004 short position, the June 2005 long position and the July 2005 short position, and knew that the positions exceeded Noble’s authorised limits. The court rejected the contention that Noble’s management knew the true position.
3. Gross and Penin agreed to use false or manipulated physical contracts, including the Normet, Hydro and Egtal entries, to conceal the speculative positions and the resulting losses. The court held that there was no material distinction between concealing the positions and concealing their losses, since discovery of one would reveal the other.
4. The court found that Gross’ conduct amounted to breaches of his employment contracts, deceit and conspiracy to defraud. Noble was entitled to dismiss him without notice.
5. Causation and quantum. Had Noble known at the 2004 year end that the trading was unauthorised, exceeded the limits and had been concealed by fictitious contracts, it would not have paid the relevant cash bonus. The court awarded Noble $38,071,400, including the bonuses paid to Gross and Penin. It declined to make a constructive trust declaration at that stage.
6. Gross’ counterclaim was dismissed.