PROVING THINGS 130: BY THE TIME OF TRIAL YOU SHOULD REALLY KNOW WHAT YOU HAVE LOST: SOME OF THESE CLAIMANTS MAY HAVE SUFFERED NO LOSS AT ALL

The final paragraphs of the judgment in Anderson & Ors v Sense Network Ltd [2018] EWHC 2834 shows that some of the claimants in that case were unable to establish their losses. Indeed two of the claimants may have suffered no loss at all, which is something that could have been considered prior to their becoming litigants…

THE CASE

The claimants were test claimants in an action against the defendant financial institution. The claimants had invested in what turned out to be a “Ponzi” scheme ran by a company called “Midas”. Midas ceased trading and the claimants suffered the loss of their investment. The defendant company provided a financial intermediary network which Midas worked through .  The claimants were unsuccessful in their action to establish that these defendants were liable to indemnify them for their losses.

QUANTIFICATION OF THE LOSS

Some of the claimants had agreed their losses. Other had not.  Mr Justice Jacobs considered the cases where the losses were disputed.  It was common ground that the loss had to be calculate don the “net loss” to the claimants, that is what they had invested less what they had taken out.  If this was taken over the whole period of investment (as the judge held it should be) then some of the claimants may have suffered no loss at all.  These issues had not been clarified at trial and, unusually, there were post-trial conferences and attempt to agree.   Mr Justice Jacobs observed:-

    1. In relation to the other 5 Lead Claimants, however, there were disputes. The detail of the disputes emerged subsequent to the hearing after the parties had sought to agree quantum. I was provided with a letter from Sense’s solicitors dated 2 August 2018, a response from the Claimants’ solicitors dated 21 August 2018, and a written submission on quantum from Sense’s counsel.
    2. Mr. Lucas. The Claimants contended that Mr. Lucas had invested £ 72,941.06 in the scheme, and withdrawn only £ 6.93, resulting in a difference of £ 72,934.13. This calculation focused on the investments made by Mr. Lucas after March 2012. Sense contended that the amount invested was substantially greater (£ 188,690.44), and that the withdrawals were £ 127,111.75, resulting in a difference of £ 61,578.69. The reason for these higher figures, and the lower difference, was that Sense took into account all of Mr. Lucas’s deposits from 2008 onwards. This was important, because Mr. Lucas was repaid the earlier investments, including the beneficial rate of interest resulting in what Sense properly described as a “profit” to Mr. Lucas. Sense contended in their closing submissions, and in their post-hearing submissions, that this profit should be taken into account; specifically a profit of £ 18,868.12 arising on a withdrawal in November 2011. The Claimants argued that there was no legal requirement for such credit to be given.
    3. I accept Sense’s submission on this issue. It is right to look at Mr. Lucas’ investment in the scheme as a whole. If he received profits as a result of his investment in the scheme, then those should be brought into account. The relevant test in this connection is that of Sir Andrew Morritt VC in Needler Financial Services v Taber [2002] 3 All ER 501, approved in Rubinstein v HSBC Bank PLC [2012] EWCA Civ 1184, para [135]:
“In my view the authorities to which I have referred establish two relevant propositions. First, the relevant question is whether the negligence which caused the loss also caused the profit in the sense that the latter was part of a continuous transaction of which the former was the inception. Second, that question is primarily one of fact”.
  1. In the present case, I agree with Sense that all the deposits and withdrawals form a “continuous transaction” in the necessary sense. All the monies were placed in the same scheme. The deposits were all attributable to the same defaults of which complaint is made in the action. The profits made by Mr. Lucas were not attributable to some decision, or event, which was extraneous to the scheme. The fact that there was a short period between the maturity of one deposit in November 2011, and Mr. Lucas’ decision to make a further deposit in March 2012, does not affect the conclusion that this was a continuous transaction.
  2. A similar issue arose in relation to Mr. and Mrs. Baylis where, on Sense’s case, Mr. and Mrs. Baylis had not lost any money. Looking at the period from 2004 to 2014, the deposits were £ 121,575 and the withdrawals were £ 133,088.32. The relevant profits were made on maturities in June and July 2009, whereas the Claimants’ loss calculation started in December 2009 and omitted these maturities. Again, I conclude that all the deposits and withdrawals formed part of a “continuous transaction”, notwithstanding the short period of time between June and July 2009 and December 2009.
  3. It was not clear to me whether the Claimants accepted that Sense’s figures were correct if (as I have held) the profits should be taken into account. It appeared from the Claimants’ post-hearing letter of 21 August 2018 that this may have accepted as far as Mr. Lucas was concerned. Had the Claimants succeeded on liability, I would have sought clarification on that issue before reaching a final determination.
  4. Mr. Lee. The Claimants contend that Mr. Lee’s losses (amounts invested less amounts withdrawn) were £ 164,027. Sense contended that the correct figure is £ 140,140.75. There is no dispute that the amounts invested were £ 190,277. The dispute concerned the amounts withdrawn: the Claimants contending for £ 26,250, and Sense contending for £ 50,116.
  5. In their letter dated 2 August 2018, Sense’s solicitors requested the Claimants to comment on the various detailed “Loss Schedules” which had been produced as part of their closing submissions, and had specifically drawn attention to the position in relation to Mr. Lee, where Sense alleged that the Claimants had not taken into account various withdrawals. The Claimants declined to do so in relation to Mr. Lee, relying upon the fact that Mr. Lee had not been challenged during cross-examination on either (i) the figures which he had produced in a schedule referred to in his statement or (ii) the additional withdrawals relied upon by Sense in the loss schedule produced as part of its closing submissions.
  6. I consider that the position on the Claimants’ evidence relating to Mr. Lee’s figures is not satisfactory. The schedule of loss referred to by Mr. Lee in his evidence gives a figure for withdrawals of £ 30,250. It is not clear to me why the Claimants now contend that the withdrawals were £ 26,250: they appear to have omitted a withdrawal of £ 4,000 which Mr. Lee accepts was made. In addition, the schedule of loss omits a withdrawal of £ 2,500 in June 2013 which Mr. Lee, in paragraph 46 of his witness statement, admits was paid. That withdrawal is also evidenced by an encashed cheque contained in the trial bundles, and the bank statement of the scheme account. A further encashed cheque in the trial bundles, for a smaller amount of £ 68.75, is also omitted from the Claimants’ schedule (and indeed Mr. Lee’s evidence was that he “did not believe” it was paid. Again, however, the cheque in the trial bundles is also evidenced by payment out of the scheme bank account.
  7. Sense’s loss schedule also includes a number of other payments which can be identified as having been made from the scheme bank account, and which are said to have been paid to Mr. Lee. The bank statements do indeed evidence the payments, but it is not clear why Sense contends (in the absence of the cheques) that these payments were made to Mr. Lee. Mr. Lee was not asked about any of these other withdrawals in evidence.
  8. Against this background, and in particular the discrepancies in the Claimants’ figures to which I have referred, I would not have been inclined (had the issue arisen) to award Mr. Lee the figures set out in his schedule. I would have directed Mr. Lee to review Sense’s loss schedule (as Sense had invited the Claimants to do). I would also have asked Sense to identify the documents within the trial bundle showing how the payments from the scheme account, and where there is no encashed cheque, can be related to Mr. Lee. I therefore come to no final conclusions as to Mr. Lee’s loss, save that it seems to me that the withdrawals were at minimum £ 30,250 plus £ 2,500 plus £ 68.75 = £ 32,818.75.
  9. Mrs. Shepherd. The Claimants contend that Mrs. Shepherd’s losses are £ 119,200 comprising deposits in that amount, without credit for any withdrawals. Sense contend that the correct figure is £ 98,033 less an allowance of £ 744.21 for “profits” made from the scheme on a deposit in 2007. The parties’ submissions identified two issues between them.
  10. The first issue concerns the inclusion of a payment of £ 8,000 in February 2011. I agree with Sense that this figure should be excluded, because the scheme bank account clearly shows that the relevant cheque from Mrs. Shepherd was unpaid.
  11. The second issue concerns a number of withdrawals shown in a handwritten document, prepared by Kevin Alexander, and which was disclosed by the Procurator Fiscal. The entries showed deposits and repayments in 2007 and 2008. In her evidence, Mrs. Shepherd’s recollection was that she had not invested in the scheme until 2009. Mrs. Shepherd suggested, somewhat tentatively, that some of these entries might relate to a property bond investment made with Mr. Alexander. However, she went on to say that she was “unsure” about whether she had invested in 2007, and that it “appears so” that she invested from 2007 onwards.
  12. Since Mr. Alexander’s document as a whole clearly relates to the scheme, and since there is no documentary evidence of a property bond to which the entries might refer, I agree with Sense that these entries relate to the scheme. Credit must therefore be given for the withdrawals and any profits made.
  13. It was not clear to me whether these two issues comprised the entire difference between the parties on the figures concerning Mrs. Shepherd. Had the Claimants succeeded on liability, I would have asked for further assistance from the parties on the final figures.
  14. Mrs. Liddell. In her statement, Mrs. Liddell said that she was unable to quantify her losses without full disclosure from the Bank of Scotland and/or RBS and/or the help of a forensic accountant. However, she said that here losses were at least £ 309,825. This was quantified by reference to various acknowledgment letters dated between 10 September 2012 and 28 July 2014, all of which had maturity dates after 7 August 2014.
  15. Mrs. Liddell also said in her statement that she did not believe that she had received any money out of the scheme, although she modified this in her oral evidence: she said that she took interest on the odd occasion, but only small figures.
  16. In their written closing submissions, the Claimants contended that Mrs. Liddell had invested £ 271,500 in the scheme (i.e. a figure lower than that contained in Mrs. Liddell’s statement). It was not clear to me how this figure of £ 271,500 was calculated. The post-hearing quantum correspondence also referred to a schedule relied upon by the Claimants in relation to Mrs. Liddell, but it was also not clear to me what schedule was relied upon. In that correspondence, the Claimants accepted that there were “acknowledged difficulties with Mrs. Liddell’s early investments”. Various figures were referred to, and it was contended that various credits claimed were “all justified by bank statements”. However, the letter contained no references to where those bank statements were contained in the hearing bundles, or indeed to what the credits actually were.
  17. The Claimants did, however, accept that there had been a number of withdrawals, amounting to £ 27,615. The claim, at least as advanced in the Claimants’ written closing was therefore £ 243,885; being £ 271,500 less these credits.
  18. Sense contended that the lack of disclosure provided by Mrs. Liddell rendered a full calculation impossible. However, Sense accepted that the documents showed that she had deposited £ 240,750. But this figure was not comparable to the figure of £ 309,825 in Mrs. Liddell’s statement. The £ 240,750 referred to deposits made in 2002 and 2003, whereas the £ 309,825 referred to acknowledgment letters which were much later in time. Sense alleged that she had withdrawn £ 173,405, leaving a net balance of £ 67,345.
  19. Against this confused background, if it had been necessary to make findings as to Mrs. Liddell’s losses, I would have asked the parties, and in particular the Claimants, for some further assistance as to the figures being relied upon and what the documentary support for those figures was.
  20. I would, however, have been unwilling to accept Mrs. Liddell’s oral evidence as to what the figures were, at least without appropriate and comprehensible documentary support. This is because I did not regard Mrs. Liddell as a reliable witness in relation to the amounts invested and withdrawn. Mrs. Liddell’s evidence that she only received small sums of interest from the scheme was, clearly, not accurate. For example, a cheque for £ 20,400 was received and endorsed by her, and in evidence she accepted that this money had been received. She could not recall what she did with the money, but assumed that she reinvested it. But it is clear that the money was received, and thus withdrawn for a period of time. Another cheque was in the sum of £ 15,000, and this was not a small sum of interest. There was also documentary evidence which indicated, contrary to Mrs. Liddell’s evidence, that some £ 64,201 had been paid to her, albeit that she may possibly subsequently have reinvested it.
  21. The only other finding in relation to Mrs. Liddell which I can make at this stage concerns the question of whether she gifted £ 50,000 or £ 60,000 to her daughter. On the basis of a letter dated 2 June 2004, and Mrs. Liddell’s evidence in cross-examination, the appropriate figure is £ 60,000.