IG Index Plc v Colley & Ors

Fraud may be established on the balance of probabilities by compelling circumstantial evidence. The seriousness or inherent improbability of the allegation affects the assessment of probabilities, but does not create a heightened civil standard of proof.

An employee entrusted with responsibility for setting prices may owe fiduciary duties where his functions require him to act solely in his employer’s interests. Dishonestly manipulating prices to benefit clients breaches those duties and the employee’s duty of good faith and fidelity.

A contractual manifest-error clause may permit correction of a price based on objectively obvious information errors, including errors caused deliberately by an employee. The court may consider relevant extrinsic information, including underlying market prices.

IG Index alleged that a senior shares dealer, James Colley, fraudulently inserted and removed false dividends in its pricing systems. The manipulation depressed prices offered for US shares futures. The other defendants allegedly placed spread bets at those prices and closed them after the false dividends were removed.

The claims included fraud, breach of fiduciary and other duties, dishonest assistance, knowing receipt, vicarious liability for agents’ fraud, and contractual claims under manifest-error provisions in the Spread Betting Customer Agreements. The trial concerned Mr Colley, Mrs Benn, Mr Osborn, Mr Regan, Mr Slaney and Mr Teller. The central issues were whether the fraud occurred, who participated in it, the legal consequences, and whether the relevant prices were based on manifest errors.

1. Fraud and Mr Colley. The court found that 415 large and obviously false dividends were deliberately inserted and removed over several years. The timing of the insertions, the close proximity of clients’ bets, the subsequent removal before closure, the absence of innocent positions, the audit evidence and the connections between participants provided compelling circumstantial evidence. Mr Colley was responsible and acted dishonestly to benefit accomplice clients.
2. Employee duties. Mr Colley’s entrusted responsibility for updating prices placed him in a fiduciary position requiring him to act solely in IG Index’s interests. His conduct breached fiduciary duties and, in any event, his contractual duty of good faith and fidelity. IG Index was entitled to damages for resulting loss.
3. Client defendants. Mr Regan, Mr Slaney and Mr Teller dishonestly assisted Mr Colley’s fraudulent breach of fiduciary duty and were liable in damages. Their conduct also constituted actionable fraud. Their profits, or reduced losses, resulted from bets placed at manipulated prices. Knowing receipt was available in respect of profits representing IG Index’s assets, subject to the qualification that a reduced loss might not involve receipt of IG Index assets.
4. Agents. Mr Osborn and Mrs Benn were not shown personally to have known of the fraud, but were vicariously liable for fraudulent acts committed by their authorised agents, Mr Teller and Tom Benn, in operating their accounts.
5. Manifest error. The relevant clauses allowed IG Index to amend bets based on an obvious or palpable error. The court could consider underlying cash prices, futures prices and audit information. Deliberate falsification could constitute a manifest error, and correction was reasonable even where the client was innocent. The claim against Mr Teller under this clause failed because his version required a request by him to amend, which had not been made.
6. Orders. The claims succeeded on the substantive bases identified above. Quantum was not determined at trial and was to be agreed, or otherwise resolved by the court.