Jersey Unreported Judgments

2000/144

11 pages

 

                                                         COURT OF APPEAL.

 

Judgment reserved: 11^th April, 2000.

Reserved Judgment delivered: 24^th July, 2000.

 

 

Before: Sir John Nutting, Bt., Q.C., President,

                                                         P.D. Smith, Esq., Q.C., and

                                                         J.P.C. Sumption, Esq., Q.C.

 

 

Between	Michael Matthew Godfray Voisin and Abacus (C.I.) Limited (as the Trustees of the Mrs. W.M.I. Prior Settlement)	Plaintiffs/APPELLANTS
And	Matheson Securities (Channel Islands) Limited	Defendant/RESPONDENT

 

Appeal by the Plaintiffs/APPELLANTS against the Judgment of the Royal Court of 14^th July, 1999, dismissing their claim against the Defendant/RESPONDENT for negligence and/or breach of contract in its rôle as stockbroker to the Plaintiffs/APPELLANTS, in connection with their investment in the Confederation Life 9.875% bond.

 

Advocate A.D .Hoy for the Plaintiffs/APPELLANTS.

Advocate T.J. Le Cocq for the Defendant/RESPONDENT.

 

 

 

JUDGMENT.

 

SMITH JA:

 

1.      In this appeal, the Appellants, the trustees of the Mrs. W.M.I. Prior Settlement, seek to reverse a decision of the Royal Court, set out in a Judgment of the former Deputy Bailiff delivered on 14^th July, 1999.

 

2.      In their Order of Justice, the Appellants allege that the Respondent acted for reward as investment adviser and stockbroker to the Appellants and complain of breach of contract and negligence.  Specifically, the Appellants' claim relates to an investment made by them in a £100 million Sterling 9 7/8 % 2003 Eurobond ("the bond") issued by Confederation Life Assurance Company which, at the material time, was one of the largest insurance companies in Canada.  The investment was made on the recommendation of the Respondent and involved the purchase of a holding with a nominal value of £215,000 at a cost of approximately £231,284.

 

3.      The purchase was completed on 9^th March, 1994.   On 16^th March, 1994, Standard & Poor ("S&P"), one of the major credit rating agencies in the United States placed Confederation Life's credit ratings (including its rating of subordinated debt which included the bond) on what it described as "credit watch with negative implications."   On 14^th April, 1994, S & P lowered its credit rating on Confederation Life subordinated debt from A to A- and indicated that its ratings remained on credit watch.

 

4.      In  August, 1994, Confederation Life collapsed and the Appellants' investment became worthless.   Although the Order of Justice complains of the Respondent's failure to react appropriately to the crisis when it came, this point was resolved against the Appellants by the Royal Court and has not been pursued on appeal.   The Respondent's advice to make the investment has never been the subject of complaint in these proceedings.   The issue in this appeal is the Respondent's alleged failure to monitor the bond properly between the date of purchase and the emergence of the crisis and collapse of the price on 8^th August, 1994.   That the Respondent had a duty of care to the Appellants, which included monitoring the investment during the period it was held, was not disputed at the Trial nor before us.

 

5.      As it happened the monitoring system employed failed to pick up S & P's credit watch or downgrading or background information on Confederation Life which caused S & P to act as it did and which was in the public arena during the material period.   This included news that Confederation Life was in negotiation with another company with the object of an infusion of capital from it - negotiations which, in the event, did not bear fruit.   Nevertheless, the Royal Court held that the system utilised by the Respondent was adequate and acquitted it of negligence and breach of contract.   The main thrust of the Appellants' submissions on appeal challenged these conclusions.

 

6.      Unfortunately, it is not absolutely clear from the decision of the Royal Court what its findings were in relation to the monitoring system.   However, it would seem that the system included following the financial press, referring to an internally generated weekly valuation report on the Appellants' portfolio, scrutinising a daily publication taken by the Respondent called Midland Global Market report (which purported to give and update current data relating to the bond among other Sterling Eurobonds) and "talking to the market."

 

7.      These tools (particularly the weekly valuation and the Midland Report) enabled the Respondent to follow accurately relevant information in relation to the Confederation Life bond such as price, price relative to its comparable gilt, and yield spread.   During the period between the purchase of the Appellants' holding and 8^th August, 1994, none of this data altered in such a way as to signal a need to carry out any further, specific investigations.

 

8.      Before us, it was accepted on behalf of the Respondent that the system ought to have picked up S & P's credit watch and, therefore, the background information before the crisis.   The Royal Court held that had it done so the Appellants would have been informed and that they would have sold, findings that were not challenged before us.

 

9.      I turn, therefore, to those components of the monitoring system which might have been expected to reveal the credit watch or something else which would have stimulated inquiry and therefore led to that revelation.

 

10.    The Midland Report purported to list the S & P credit rating for the bond but it did so inaccurately.   Throughout the material period it showed it unchanged at A+, a rating it had in fact lost on 10^th June, 1993.  But even if it had shown the S & P credit rating accurately, in my view, this would not have been sufficient to signal the change.   This is because an individual daily Midland Report did not include any relevant comparative data.   In other words, in order to notice a change the reader had to remember the S & P credit rating recorded in an earlier edition of the Midland Report or elsewhere.   On any view this could not have been a reliable means of monitoring this particular, but important, information.

 

11.    The weakness of relying on recollection is illustrated by the fact that at one point during the material period (on 14^th July, 1994) a Mr. Nicholas Marston, a stockbroker employed by the Respondent, who played a part, although not the principal one, in servicing the Appellants' portfolio, accurately referred to the equivalent of the then current S & P credit rating of the bond in a fax to a Mr. Stanley Butterworth concerning Mr. Butterworth's own portfolio.   Mr. Buterworth is the husband of one of the beneficiaries of the Settlement and was actively involved in the relationship between the trustees and the Respondent.  Indeed, he had been the link with the Respondent at the time of the purchase of the holding in March, 1994.

 

12.    According to Mr. Marston's evidence he had known of the correct S & P credit rating at the time of the Appellants' purchase of the bond.   He had obtained this information from a weekly publication, the International Securities Market Association ("ISMA") guide which the Respondent also took.   In their Contentions on this appeal (although not at trial) the Appellants sought to argue that from these two pieces of evidence we should conclude that the Respondent either knew or ought to have known of the reduction in the credit rating of the bond.

 

13.    It is not clear from the judgment whether the Royal Court considered that the ISMA guide was utilised by the Respondent as a monitoring tool.   Furthermore, the judgment incorrectly suggests that the ISMA guide showed an inaccurate and unchanging S & P rating of A+ during the material period when in fact it showed the rating accurately, including the change.   However, clearly the Royal Court did not conclude that when Mr. Marston sent his fax on 14^th July, 1994, he was actually aware that a downgrade must have occurred.   Again, the ISMA guide contained no comparative data on credit ratings and in my judgment this point serves to confirm that a monitoring system relying on human memory in relation to this kind of information is bound to be flawed.   In making these observations I also reject the Appellants' argument in relation to Mr. Marston's fax that he, and therefore the Respondent, must be deemed to have known of the change in the credit rating.   Accordingly, I need not deal with the points understandably raised by the Respondent as to the circumstances in which an appellant may be permitted to argue a point not taken in the court below.

 

14.    Before us, it was argued on the Respondent's behalf that monitoring credit ratings using the Midland Report would have been limited to picking up the reduction in the credit rating to below investment standard (the bond only fell below investment grade when the crisis came.)   This seems to me to be inconsistent with the unchallenged finding of the Royal Court that "Mathesons were let down by an error (the only one that has come to light) in the Midland Global Marketing Report."   However, my conclusion as to the irrelevance of the Midland Report (and, for that matter, the ISMA guide) in this context makes it unnecessary for me to say anything further on this point.

 

15.    The Respondent had in its offices two "Bloomberg screens."   These carried news stories on securities in the form of text which passed across the screen in flashes lasting, on average, five seconds.   During the material period all the relevant information on Confederation Life was comprised either in these stories or in the form of further information both of which could have been accessed and printed out as required.

 

16.    Clearly, the Respondent's staff was unaware of any news flash relating to Confederation Life during the material period.   The implication of the Royal Court's judgment is that those members of staff could not fairly be criticised for failing to notice any such flash.   In my judgment it would not have been feasible to require staff to stare at Bloomberg screens all day in order to pick up news flashes on the many securities held by clients.   Therefore, the presence of the Bloomberg screens, as such, could not have provided an appropriate means of monitoring information relating to a particular security such as the Confederation Life bond.

 

17.    The internally generated weekly valuation report did not include credit ratings or any other information dealing directly or indirectly with factors such as companies on credit watch etc.   As far as the financial press was concerned nothing of relevance was noticed by the Respondent during the material period although it seems that the final crisis was first detected by the Respondent from a report in the Financial Times.   However, by the time this report appeared (on 8^th August, 1994) it was too late for anything to be done which would have been effective in terms of salvaging the Appellants' investment.

 

18.    This leaves "talking to the market".   This encompassed many daily telephone conversations by various members of the Respondent's staff with London financial institutions including those that dealt in bonds.   At the trial particular reference was made to Barclay de Zoete Wedd ("BZW") from whom the Appellants' holding had been purchased.   The Respondent's case is that it expected and was entitled to expect that the market and BZW in particular would alert it to significant information such as that Confederation Life had been placed on credit watch with negative implications which would, in turn, have led to further investigation using Bloomberg.   In the event the market did not convey this crucial information to the Respondent.   The Royal Court held that "They were let down by BZW who surely should have given them some indication of a problem..."

 

19.    As none of the other components of the monitoring system to which I have referred could reasonably have been regarded as reliable in terms of disclosing vital information such as a credit watch, if the Royal Court's conclusion that the Respondent took reasonable care is to be supported, this component - talking to the market - must be held to have been sufficiently reliable in terms of meeting this requirement.   To my mind the fact that it was not effective in this particular case is some evidence of its ineffectiveness.   However, in my opinion there is another, perhaps more telling, criticism that can be levelled.

 

20.    Nowhere in the evidence was it suggested that BZW or any other element in the market had any duty or responsibility, whether contractual or otherwise, to keep a stockbroker such as the Respondent informed of anything.   According to the Respondent's expert witness at the trial, Mr. Peter Leahy, the force motivating the market maker in particular (in this case BZW) would have been a desire to retain the custom of clients by "looking after them" by providing post-purchase information.

 

21.    I have no doubt that a great deal of information would have been received from the market by stockbrokers such as the Respondent.   However, in my judgment an unstructured relationship not devolving any identifiable duty or responsibility on the market maker or any other element of the market and leaving it to the market to choose according to its own interests what and whether to disclose did not provide the essential component required to render the monitoring system reasonable in this particular case.

 

22.    I have not overlooked the Respondent's entirely proper reminder that the Royal Court had the advantage over this Court in seeing and hearing the witnesses.   However, I do not believe that my reasoning involves the overturning of any finding of the Royal Court founded on that advantage.   Furthermore, although I have very carefully considered the expert evidence, particularly that of Mr. Leahy, I consider that in the circumstances of this particular case I am entitled to analyse the monitoring system in place and come to my own conclusion as to its efficacy.

 

23.    Before us, the Respondent was critical of the Appellants' lack of precision in relation to what the Respondent should have done.   However, careful scrutiny of the evidence in this case does not suggest to me that any great trouble or expense would have been involved in a regular, not necessarily frequent, review of the information on Confederation Life accessible through the Bloomberg system.   Suffice to say if this had been done by the Respondent even once in the months between 16^th March, 1994 and the crisis the disaster that overtook the Appellants would not have occurred.

 

24.    I would reverse the decision of the Royal Court and substitute a finding of breach of contract and negligence on the part of the Respondent.   I emphasize that my decision is founded on the specific facts of this particular case and, I believe, has no wider application.

 

25.    May I thank counsel - Advocate A.D. Hoy for the Appellant and Advocate T.J. Le Cocq for the Respondent - for their most helpful and well argued submissions.

 

26.    I should add that I have had the advantage of reading the judgment of my colleague Sumption JA in draft and am gratified to note that he has reached the same conclusion as I have.

 

SUMPTION JA:

 

27.    I agree for reasons which I express in my own words only because we are disagreeing with the Royal Court on what is largely an issue of fact.

 

28.    A stockbroker professes expertise in buying and selling stock, managing investment portfolios and giving investment advice to clients, but the extent to which he undertakes to use this expertise is a matter of agreement.   At one extreme, he may transact business for a client on an execution only basis, in which case his duties are limited to effecting transactions and require very little in the way of skill.   At the other, he may act as a discretionary portfolio manager, with the whole conduct of his client's investment business in his hands within broad limits fixed according to criteria which are generally agreed with the client at the outset.   Between these extremes there is a variety of possibilities.  A  client may require advice when he asks for it, or at stipulated intervals, or when the broker judges that he needs it.   There is no single standard of service which is implicit in the mere retainer of a stockbroker.

 

29.    The first obligation of any stockbroker dealing on other than an execution only basis is to know his client and to ascertain what service he wants and what service he needs (so far as it is different).   For practical purposes, Mr. Butterworth was Mathesons' client when it came to the portfolio of the Prior Trust.   Mr. Butterworth was a man who was heavily dependant on the services of a broker, but wished to retain ultimate control in his own hands.   He was also a profoundly conservative investor.   He certainly wanted a higher income than gilts could yield, and to that extent had to accept a somewhat greater measure of solvency risk.   But the evidence of his dealings with Mr. Hillsden of Mathesons over the years makes it perfectly clear that although he accepted this, he regarded the conservation of the trust's capital as the first priority and was profoundly averse to any stock with a known risk potential, even if it was regarded by others in the market as investment grade stock.   The pattern of business had been that Mr. Hillsden would propose a switch whenever it would improve the portfolio.   And, as he pointed out in evidence, if one stock had a known potential problem, there was plenty of investment grade stock around which was affected by nothing more than the general level of risk inseparable from this kind of investment.   Mr. Butterworth had always made it clear that he was not troubled by the thought of a high turnover of stock in the portfolio, or by the large commission payments associated with it.

 

30.    It follows, as Mathesons have accepted, that they had an implied obligation to monitor the portfolio between transactions.   It also follows that the monitoring had to be such as could reasonably be expected to bring to Mr. Hillsden's attention, for transmission to Mr. Butterworth, any news disclosing a particular source of risk affecting a bond within the portfolio, which was known to the market generally.   That too is accepted, and the concession is plainly right.   It is true that merely by agreeing to act for a particular client a stockbroker does not undertake to satisfy his needs, whatever they may be.   The client's rights are limited to those services which can reasonably be expected of a stockbroker, i.e. to those which lie within the broad range of services which stockbrokers ordinarily provide.   But that only means that if Mr. Butterworth's expectations had been inordinate, the law would have disappointed them.  In fact, his expectations, although certainly demanding, were not inordinate.   I think it clear that satisfying them was part of the service that Mathesons impliedly contracted to provide.   If they could not do it, they could escape that obligation only by saying so in terms.

 

31.    The real question is what this implied in the circumstances of this case.

 

32.    The starting point is to identify what knowledge existed in the market that needed to be passed on to Mr. Butterworth.   It is common ground that the market did not know anything which suggested that Confederation Life was in danger of failing until after 5^th August, 1994, by which time the bonds had become unsaleable.   The market did know that the company's rating had been downgraded by Standard & Poors from A to A-.   But it is clear from the evidence that that was not in itself a source of known risk.   Confederation Life's bonds were investment grade at either rating and Mr. Butterworth would have bought them at either rating. The downgrading was significant only in conjunction with the reason for it.   This was stated by Standard & Poors when they put the company on credit watch on 16^th March, 1994, and again when they downrated its paper on 14^th  April and kept it on credit watch thereafter.   It was that the company had made substantial provisions for losses on mortgage investment business, that S & P's expectations for earnings and capitalisation had been lowered, and that there were known to be negotiations in progress for a 'sizeable capital infusion' and a 'possible strategic affiliation' (i.e. a merger).   In announcing the downrating, S & P stated that if these negotiations succeeded, the rating was unlikely to improve but that if they failed it would probably decline further.   The materiality of this information to someone of Mr. Butterworth's investment principles is obvious.   The price of the company's bonds was to some extent being sustained by expectations of a substantial capital injection  which although no doubt diluting its equity would reinforce the security of its bonds.   If the capital injection was confirmed the bonds could not be expected to rise on the news, but if it was not confirmed they could expect to fall.   The Plantiff's expert, Mr. Scholl, made this point very clearly in his evidence, and the Defendant's expert, Mr. Leahy, did not disagree.   Mr. Arraya, who ran Matheson's bond desk, would have sold his own and his father's holdings if he had known of the downrating and the reasons for it, and would have advised his clients to sell theirs.   The Royal Court has found that Mr. Hillsden would have given the same advice to Mr. Butterworth, who would have acted on it.   This is not at all surprising.   The information disclosed precisely the kind of risk which Mr. Butterworth could do without, if there were bonds available (as there were) of equivalent yield without the same blight.   Ultimately Advocate Le Cocq felt obliged to concede that Mathesons were obliged to have adequate procedures for making Mr. Hillsden aware of the facts.

 

33.    The next question is whether they did have such procedures.   If they did, then they will not necessarily have been in breach of their duties simply because the procedures failed on this occasion.   The system, if that is the right word for it, can fairly be summarised as follows.   Mr. Hillsden saw weekly portfolio valuations prepared by the firm.   He also considered possible switches, using as his shopping list a weekly bond listing published by ISMA.   He read the financial press and talked to market-makers, who would pass him market news.   Mr. Arraya at the bond desk did rather more.   He reviewed price movements recorded in the daily Midland Global Market Report, which was widely respected as an authoritative and up-to-date source of market information.   He also talked to market-makers, in particular BZW.   But Mr. Arraya knew nothing of Mr. Butterworth or his sensibilities.  The most that can be said is that if Mr. Arraya detected a problem of a kind which justified contacting the firm's clients, Mr. Hillsden would be told about it so that he could contact those clients whom he dealt with personally.

 

34.    There was another significant source of information available to Mathesons, namely the Bloomberg screen-based information service.   This was an on-line service which posted current prices and ratings and flashed news across the screen as it was published.   New items remained on the screen for a very short time, and would not necessarily be noticed.   But they could be retrieved from the database for up to five years afterwards.   The Bloomberg system was therefore potentially an extremely efficient monitoring tool, since it enabled historical data relating to a particular stock to be examined whenever it was required.   But it was not used for that purpose by Mathesons.   Searches in the historical database were carried out by the bond desk when it was recommending switches, and when it was alerted to some potential problem calling for further investigation.   But there was no system for regularly exploiting this great bank of information.

 

35.    There are a number of obvious problems about these arrangements.  In the first place, there is the lack of co-ordination between Mr. Arraya, who knew about bonds, and Mr. Hillsden, who knew about Mr. Butterworth.   Secondly, the system was not suitable for picking up changes in a bond issuer's rating unless either Mr. Arraya happened to remember when he read the current rating in the Midland Global report what it had been last time; or else the rating sank below BBB which marked the limits of investment grade, at which point alarm bells would start ringing even in the ears of less fastidious investors than Mr. Butterworth.   Thirdly, the only arrangements which existed for picking up sensitive market news which was not reflected in noticeable price movements was by reading the financial press and talking to market-makers, and hoping that they had something to say.

 

36.    Of these three defects, the first is irrelevant to the facts of this case.  The evidence showed, and the Royal Court found, that if Mr. Arraya had picked up the news of the downrating and the reasons for it, he would in fact have regarded it as calling for clients of the firm to be advised.   This would have started a chain of events which would have resulted in Mr. Hillsden telling Mr. Butterworth.   It follows that although the division of responsibilities might have given rise to difficulty in some circumstances, the real problem in this case is that Mr. Arraya did not pick up the news.

 

37.    It is tolerably clear from the evidence why he did not.   The market price did not fall with the downrating, presumably because rumours of Confederation Life's difficulties were already built into it before the Trust bought.   But whatever the reason for the relative immobility of the price, its effect was that merely by monitoring the price Mr. Arraya was not going to pick up either the downgrade or the reason for it.   Mr. Arraya's evidence was that if he had seen the bonds rated A- on the daily Midland Global report, he would have remembered that they had previously been rated A and would have looked into the reasons for the downrating on the Bloomberg database.  This seems perfectly plausible, since Mr. Arraya and his father had substantial holdings of Confederation Life in their personal portfolios.   It did not happen because for some reason which has never been discovered Midland Global showed the bond rated A+ until the company was on the verge of collapse and it was too late to sell.  That left, as the only means by which Mathesons were likely to notice the news, the financial press and their discussions with market makers, neither of which mentioned it.

 

38.    At the trial before the Royal Court, the thrust of the Defendant's case, supported by their expert Mr. Leahy, was that their obligation to have a monitoring system in place to pick up sensitive news was satisfied by Mr. Arraya's practice of studying the daily Midland Global reports of market prices and ratings, and that they were led astray by the immobility of the price and Midland's mistake about the rating.   I would accept, for my part, that a study of the Midland Global report was an adequate method of monitoring the particular kinds of information which it contained.   In view of the evidence given to the Royal Court of its authoritative status in the market, I do not accept that Matheson's had any obligation to cross-refer to the ISMA listings which, because they came out weekly, were less satisfactory as a monitoring tool.   The problem about the Midland Global reports was that they would not have been enough even if they had been accurate because they did not attempt to cover certain significant classes on information.   I am not impressed by the suggestion, much pressed in argument, that looking for potential problems through the price is 'reactive' and therefore too late for action.   All market reaction to news of this kind is 'reactive' except in the case of those with inside information, and in general they cannot lawfully deal at all.   The real problem, as it seems to me, about monitoring a stock through the price, is one of timing.   The impact of such news on the price will often occur before the news is announced, when the threat of it is being discounted by the market in advance.   As to the practice of following the ratings, there was a particular reason, personal to Mr. Arraya, why he would have noticed a fall in the rating of Confederation Life's bond if Midland Global had reported it.   But that cannot be enough to satisfy Matheson's contractual obligation, because it would not work in the generality of cases where Mr. Arraya and his father did not have holdings of their own.   I cannot accept that even someone of Mr. Arraya's undoubted intelligence would have remembered the past ratings of each of the large number of bonds in which his desk dealt.

 

39.    I have to say that I am not at all sure that the shortcomings of Mathesons' practice of monitoring market developments through the Midland Global reports were properly explored in the evidence.   But I do not think that this matters, because as the evidence developed at the trial it became clear that Mathesons had not been relying exclusively on those reports.   They had proceeded on the basis that some news would not be picked up through the price and static lists of ratings but by talking to the market.   The real question on this appeal seems to me to be whether that was a sufficient system for monitoring the kind of developments, not after all particularly rare, which affected Confederation Life's bonds in March and April, 1994.   This was dealt with, both by the witnesses of fact and the experts.  It was also considered by the Royal Court, which found that Mathesons were entitled to rely on the market-makers, and particularly on BZW, to tell them about the downrating of the bond and the reasons for it and were not to blame when the market-makers' silence left them in ignorance.   This seems to me to be the real issue in the case.   Once it is accepted, as the facts of the case clearly show, that a study of price and ratings lists was not enough to disclose some significant classes of information, the question becomes whether it was enough to rely on talking to the market to fill the gap.

 

40.    Unlike the Royal Court, I do not think that it was.   The main evidence on this point was given by the Defendant's expert, Mr. Leahy.   Mr. Leahy, as I read his words, disclaimed any suggestion that a market maker had a duty to pass on market news to his broker clients.   His view was that the market-maker could be expected in practice to do so in order to cultivate his goodwill with them.  I do not doubt that this is so, but its limitations as a mode of monitoring will be immediately apparent.   A market-maker is a useful source of information, but not a systematic one.   A market-maker may mention news relevant to a particular bond if that bond is being discussed with a broker, but cannot be expected reliably to volunteer information when the subject is not expressly raised.   The market-maker cannot be expected to remember what he has sold to each broker when the broker rings, even if the same individual is on the line.   He cannot know what has since been sold, possibly through another market-maker.  He does not know the broker's clients.   There is a prodigious volume of news passing through the market every day relating to many thousands of stocks.   Relying on a market-maker to volunteer all the significant news about all the stocks is unrealistic.   Relying on him to pass on all the significant news relevant to the particular broker in circumstances where the latter has not raised the subject himself is impossible.   In the absence of a duty owed by the likes of BZW to monitor stocks for their broker clients, the latter could hope that they would pass on significant news but could not rely on their doing so systematically.   And if they could not be relied on to do so systematically, it must follow that relying on them is not a substitute for systematic monitoring within the broker's office.   It is right to add that if BZW and other market-makers had undertaken systematically to pass on significant news to Mathesons, they could only have done it by using the kind of database that Mathesons could access in their own office through the Bloomberg system.   In my judgment they slipped up in this case because they relied on inevitably casual exchanges with BZW to supply information which they could and should have monitored systematically within their office.   For that reason, they were negligent and in breach of their duty to the Plaintiffs.

 

41.    It is, I think, possible to detect in some of the evidence a feeling that a relatively small provincial stockbroker cannot be expected to devote to monitoring the resources which would be devoted to the task by major City of London firms.   Within limits, this is a fair point.   I would not, for example, expect a small provincial firm to produce original research of the same standard as one of the major securities houses.   But that is because of limitations which are apparent to both broker and client.   Monitoring may be expensive, but stockbrokers do not have to offer the kind of portfolio management services which require them to do it.   If they choose to offer them, as Mathesons did, it is because it generates fees and transaction commissions.   In my judgment, the appeal must be allowed.

 

42.    Unless damages can be agreed, we should hear Counsel on the correct amount to award.

 

THE PRESIDENT:

 

43.    I have read the Judgments of Smith and Sumption JJA in draft.  I agree with their conclusions and have nothing to add.

Authorities.

 

 

Dixon & Ors -v- Jefferson Seal, Ltd (1997) JLR 205.

 

Biogen Inc -v- Medeva PLC [1997] RPC 1 HL.