Diamantides v JP Morgan Chase Bank & Ors

This is an appeal against an order of Morison J. made on 28^th January 2005 striking out the claim form and particulars of claim in action 2004 Folio 103 and refusing permission to amend the particulars of claim in both actions with a view to consolidating the proceedings.

The facts as I shall describe them for the purposes of this judgment are taken almost entirely from the proposed consolidated particulars of claim. For the purposes of this appeal the allegations set out in that document must be assumed to be true, although in many respects they are hotly contested. The claimant in the second action (2004 Folio 103), Mr. Diamantides, is a successful Greek shipowner and a wealthy man whose energies are directed to the management of his shipping business. The defendants in the second action and the claimants in the first action (2001 Folio 405) are all members of the JP Morgan Chase banking group and for the purposes of this appeal can be regarded as a single entity. I shall refer to them simply as “the Bank”. As part of its business the Bank offers a comprehensive range of private banking facilities to wealthy individuals around the world. I shall refer to that part of its activities as the “private bank”. The defendant in the first action (2001 Folio 405), Pollux Holding Ltd, is a Liberian company that was used by Mr. Diamantides as an investment vehicle from the latter part of 1996.

In 1987 Mr. Diamantides met Mr. Evangelos Mellis who was then a senior executive in the Bank’s Global Shipping Group. Later, Mr. Mellis became a Vice President of the private bank at its London office and sought to persuade Mr. Diamantides to become one of the Bank’s clients for investment purposes. He assured Mr. Diamantides that the Bank would provide him with exceptional service in the way of looking after his interests and maximising his returns. Some time around the middle of 1990 Mr. Mellis managed to persuade Mr. Diamantides to enter into a relationship with the Bank. On 28^th August 1990 he wrote to Mr. Diamantides in the following terms:

“I am writing to let you know how pleased I am that we have established a relationship with you. We have been trying for a long time to get you in the bank; we finally succeeded and I am delighted! I am confident that you will find the experience worthwhile. We look forward to an everlasting relationship for our mutual benefit.”

The letter from Mr. Mellis to Mr. Diamantides is the only record, as far as I am aware, of the establishment of a relationship of any kind between Mr. Diamantides and the Bank. However, by the time it was written Mr. Diamantides had already provided a fund of US$5 million to the bank for the account of Ursa Navigation Inc. (“Ursa”), another Liberian company which he was then using as an investment vehicle. At around the same time as he made the funds available to Ursa he caused it to enter into a discretionary management agreement with the Bank under which the Bank was given absolute discretion to make use of the fund to acquire and manage a portfolio of investments on its behalf. That management agreement was contained in a letter from the Bank to Ursa dated 26^th July 1990 which was counter-signed by Ursa on 2^nd August 1990.

From about August 1990 the Bank acquired a portfolio of investments in the name of Ursa using funds provided by Mr. Diamantides. Towards the end of the year Mr. Mellis introduced Mr. Diamantides to a Mr. Justin Atkinson, an employee of the Bank who, he said, would provide Mr. Diamantides with investment advice under his general supervision. Mr. Atkinson was not employed by the private bank but worked in a different part of the Bank as an institutional salesman selling emerging market investments. After that there was regular contact between Mr. Diamantides and Mr. Atkinson in the course of which Mr. Atkinson gave Mr. Diamantides investment advice which Mr. Diamantides invariably accepted and followed. All investments continued to be made in the name of Ursa. No one was surprised about that since it was, and no doubt still is, common practice among the Greek shipping community to make use of offshore corporate vehicles for investment purposes. Mr. Diamantides was the sole shareholder of Ursa and provided the funds for the investments made in its name. Insofar as Ursa made profits he enjoyed them and insofar as it suffered losses he suffered them. During this period Mr. Mellis and Mr. Atkinson regularly visited Mr. Diamantides in Piraeus. They also communicated with him frequently by telephone. Mr. Mellis often told Mr. Diamantides that he was a very important customer of the Bank.

Mr. Mellis left the private bank in 1994 and appears to have had no further involvement with Mr. Diamantides or his affairs. He was replaced by a Mr. Ferrazzi who was in turn replaced by a Mr. Gager in 1996. At some time in 1996 Mr. Diamantides decided to rearrange his affairs. He caused the portfolio held by Ursa to be transferred to Pollux of which he was likewise the sole shareholder. No management agreement appears to have been executed between Pollux and the Bank, but in all other respects things continued exactly as before. Mr. Atkinson and Mr. Gager continued to meet Mr. Diamantides from time to time and to speak to him on the telephone, Mr. Atkinson continued to advise Mr. Diamantides on investments and to manage the portfolio which was now held by Pollux and Mr. Diamantides invariably accepted the advice he was given. It is to be inferred that it was agreed between all concerned that the relationship between the Bank and Pollux was to be governed by the terms of the original management agreement.

During 1997 Mr. Diamantides substantially increased the amount invested in the portfolio using leveraged finance made available by the Bank. On the advice of the Bank some of the funds were invested in notes issued by the Bank which were linked to rouble denominated bonds issued by the Russian government. In particular, between February and April 1998 Pollux purchased from the Bank four notes of this kind for a total of a little over US$40 million, 70% of the purchase price of which was provided by the Bank. It also entered into four corresponding repurchase agreements which were the means by which the finance was to be repaid and an agreement known as a Global Master Repurchase Agreement which was expressed to govern the repurchase by the Bank of all the GKO-linked notes. These notes together with their corresponding repurchase agreements are said to have been an unsuitable form of investment for Mr. Diamantides and one which he should not have been advised to undertake.

Unfortunately, in August 1998 the Russian government suspended trading in GKOs and shortly afterwards the rouble collapsed. As a result the value of the notes fell dramatically and the Bank called on Pollux to provide security in the form of margin payments for its obligation under the repurchase agreements. A dispute arose between Pollux and the Bank which closed out Pollux’s position at a very substantial loss. Pollux contends that in doing so the Bank acted in breach of the terms of the various contracts between them.

On 7^th December 1999 Pollux issued proceedings in New York in which it purported to rescind the notes and made a number of other claims in relation to them. Those proceedings have since been dismissed on the grounds of forum non conveniens.

In April 2001 while issues of jurisdiction were still being contested in New York the Bank started proceedings against Pollux seeking a declaration that it was not liable in respect of any loss Pollux had suffered in connection with the 4 GKO-linked notes (action 2001 Folio 405). Those proceedings were stayed by agreement pending the resolution of the jurisdiction issues. In that action Pollux has served a counterclaim seeking damages for breach of duty on the part of the Bank as its investment adviser.

On 6^th February 2004 Mr. Diamantides started proceedings against the Bank in his own name in England (2004 Folio 103) alleging that he personally and not merely Ursa (or later Pollux) was a client of the Bank for investment purposes and therefore a person to whom the Bank owed duties of care at law and in equity as well as duties of a fiduciary nature.

In paragraph 17 of his particulars of claim in the second action Mr. Diamantides made the following allegations:

“In accordance with common practice within the Greek shipping community, Ursa was an offshore corporate vehicle which was used exclusively for Mr. Diamantides’s investment interests. In substance, its interests were Mr. Diamantides’s interests: it was wholly owned and controlled by him and had no separate interests of its own. Mr. Diamantides was Ursa’s sole source of funding and all the funds that were invested in the Portfolio came from him; all the investment decisions were made by him; all of the profits or losses that were made, or suffered, in relation to the investments were enjoyed, or suffered, by him.”

Then in paragraph 18 he said:

“At all material times from the inception of the Portfolio, it was agreed and/or understood between Mr. Diamantides on the one hand and Mr. Mellis, Mr. Atkinson, [and the Bank] on the other, that:

18.1

The Private Bank . . . . . would regularly review the Portfolio, select investments for the Portfolio and provide Mr. Diamantides with disinterested advice and recommendations regarding the management of the Portfolio . . . . . .

. . . . . . . . . . . . . . . .

18.3

For the purposes of these services, the Private Bank’s client or customer was Mr. Diamantides (and not merely Ursa).”

In paragraph 86 of the particulars of claim one finds the following case set out in relation to damage:

“By reason of the wrongful conduct of which complaint is made in this action, Mr. Diamantides has suffered loss and damage. The precise amount of his loss and damage cannot be particularised now, not least because it may be affected by the recoveries made by Pollux in the Pollux proceedings [action 2004 Folio 405].”

Then, after setting out the amounts claimed, it continues:

“If and to the extent that the Defendants are liable to Pollux in respect of wrongdoing which is equivalent to the wrongdoing for which the Defendants are liable to Mr. Diamantides as pleaded above, Mr. Diamantides will not claim damages which are merely a reflection of the losses which Pollux is entitled to recover, in accordance with the principles discussed in Johnson v Gore Wood & Co [2002] 2 AC 1.”

That statement of case, which is undated, was served on 28^th May 2004. On 17^th June 2004 the Bank issued an application to strike it out under CPR 3.4(2)(a) or (b) or in the exercise of the court’s inherent jurisdiction on the grounds that it disclosed no cause of action. In substance only two points were put forward: that the primary facts pleaded were not sufficient to support the existence of a duty to Mr. Diamantides of the kind alleged, or, if they were, that on the facts alleged any loss he had suffered was purely reflective of the loss suffered by Pollux, to which similar duties were owed, and was therefore irrecoverable in accordance with the principles identified in Johnson v Gore Wood [2002] 2 A.C. 1. It may be that of the two the latter was regarded at the time as the Bank’s primary point.

The response of those acting for Mr. Diamantides and Pollux was to issue an application to amend the particulars of claim in each action and to consolidate the two actions. To that end they produced a draft of a proposed consolidated particulars of claim which was used as the primary vehicle for argument when the matter came before the judge. On an application to strike out particulars of claim on the grounds that they disclose no cause of action the court will normally consider any proposed amendment since, if the existing case can be saved by a legitimate amendment, it is usually better to give permission to amend rather than strike out the claim and leave the claimant to start again. Not surprisingly, therefore, the judge considered the arguments by reference to the proposed amended and consolidated particulars of claim and we have done the same on this appeal.

As one would expect, the new statement of case follows very closely the lines of the two earlier documents which it replaces, but it departs from them in certain important respects. Since it is a consolidated pleading it is necessarily framed in a way that encompasses both claims, but for present purposes the main point of interest is what is said about the relationship between them. The first indication of that is to be found in paragraph 1.4(1) which reads as follows:

“It is Mr. Diamantides’s and Pollux’s primarycase . . . . . that, for the purpose of the advisory and other services and actions referred to in paragraphs 11, 21 and 27 below, Mr. Diamantides was a customer or client of the Private Bank in his own right, that Mr. Atkinson’s advice and recommendations were given to, accepted and relied on by, Mr. Diamantides acting in his own right and that, in relation to these services, these actions, this advice and these recommendations, Mr. Diamantides was owed duties in his own right. Alternatively, should this primary case not be correct, Mr. Diamantides’s and Pollux’s secondarycase . . . . . is that, for the purpose of these services, Ursa (until 1996) and Pollux (from 1996) was the customer or client of the Private Bank, that Mr. Atkinson’s advice and recommendations were given to, and relied on by Mr. Diamantides acting on behalf of Ursa (until 1996) and of Pollux (from 1996) and that, in relation to these services, this advice and these recommendations, Ursa (until 1996) and Pollux (from 1996) was owed duties. In this statement of case the phrases “Mr. Diamantides/Ursa” and “Mr. Diamantides/Pollux” are used to convey and to reflect these two alternative cases . . . . . ” (emphasis added)

Paragraph 18 of the earlier statement of case is now replaced by paragraph 21 which reads as follows:

“At all material times from the inception of the Portfolio, it was agreed and/or understood between Mr. Diamantides/Ursa on the one hand and Mr. Mellis, Mr. Atkinson, [and the Bank] on the other, that:

21.1

The Private Bank . . . . . would regularly review the Portfolio, select investments for the Portfolio and provide Mr. Diamantides/Ursa with disinterested advice and recommendations regarding the management of the Portfolio

. . . . . . . . . . . . . . . .

21.3

For the purposes of these services, the Private Bank’s client or customer was Mr. Diamantides/Ursa.”

This may appear to be a minor alteration, but when properly understood in the context of paragraph 1.4(1) it represents a fundamental change in the nature of the case that Mr. Diamantides is seeking to advance. Whereas he was formerly contending that the Bank owed what have been called “advisory” duties to him as well as Ursa or Pollux, as the case may be, the effect of the new pleading is that the Bank owed such duties to him alone, whereas what have been called the “transactional” obligations arising out of the contracts between the Bank and the companies were owed to the companies alone. Only if he is wrong about that do he and Pollux say that the Bank owed any advisory duties to the companies. Although Mr. Briggs Q.C. submitted that for the purposes of the application before the judge, and indeed the appeal, all that matters is whether the facts alleged in the particulars of claim are sufficient to disclose a cause of action on the part of Mr. Diamantides personally, I do not think that one can ignore the fact that it is part of his case that the relevant duties were owed only to him and not also to Ursa or Pollux. That is a critical aspect of the relationship that is said to have existed between him and the Bank and one that lies at the heart of his case.

C.P.R. Rule 3.4(2) under which the application was made provides as follows:

“The court may strike out a statement of case if it appears to the court –

(a)

that the statement of case discloses no reasonable grounds for bringing or defending the claim; [or]

(b)

that the statement of case is an abuse of the court’s process or is otherwise likely to obstruct the just disposal of the proceedings;”

Although, as Mr. Hapgood Q.C. pointed out, the application was formally made under both limbs of the rule as well as the inherent jurisdiction of the court, it was treated by both parties and the judge as in substance an application under paragraph (a) alone. Having said that, however, it is right to say that the expression “discloses no reasonable grounds for bringing the claim” is wide enough to encompass a case in which, although the statement of case discloses a cause of action, it is plain that the claim is bound to fail. That is reflected in the commentary at the end of paragraph 3.4.2 of Civil Procedure 2005 in which the learned editors refer to the degree of overlap that exists between sub-paragraphs (a) and (b) of this rule and between rule 3.4(2) itself and Part 24. However, I would not expect the court to strike out a statement of case under rule 3.4(2) on those grounds save in the clearest case and it was not the basis on which the matter was argued before the judge or before this court.

Having said that, Morison J. certainly took a clear view of this case. He accepted Mr. Hapgood’s submission that the allegation that Mr. Diamantides was a customer or client of the Bank in his personal capacity was quite unsupported by any allegation of primary fact and observed that the consolidated pleading was “impossibly vague” about the nature of the relationship said to exist between Mr. Diamantides and the Bank. He said in paragraphs 27 and 28:

“ . . . . . . This is a fanciful claim in my judgment; without factual basis and would be doomed to fail. I take a much more simple view of the case than Mr Briggs QC. The question is whether Mr Diamantides has a claim at all. That depends upon a credible case being advanced that Chase and he were in a contractual relationship: banker and customer. The facts pleaded show clearly that at all times Pollux was the customer and Mr Diamantides, the principal behind the company and sole shareholder and controller was the voice for and asset provider to the company. Had Mr Diamantides wanted to trade in his own name and had, which I doubt, the Bank been willing to accept him as a private investor for trading in risky emerging market instruments, then he would have bought and sold instruments in his own name. Instead, and possibly necessarily, the Bank dealt with all transactions for and on behalf of the company, Pollux. Because Pollux is a company which carried on the business of investing for its sole shareholder’s benefit, it did not have the protection afforded by the statutory scheme then in force to a ‘private investor’. The discussion in Johnson as to reflective loss is not pertinent, in my judgment. Pollux has a cause of action against the Bank; if that claim fails because of some exclusionary clauses in contractual documents then that does not give Mr Diamantides a good claim against the Bank. If Pollux succeeds then Mr Diamantides own losses will be reflective of the losses for which Pollux is making its claims; if Pollux fails then the shareholder will bear the loss. And that reflects the reality of the position. As was pleaded in paragraph 20 of the Amended pleading, what Pollux gained, Mr Diamantides gained and conversely what it lost he lost.

28.

I accept Mr Hapgood QC’s submissions. In particular I think he rightly submitted this is an unprincipled attempt by an individual, who chose to invest through a corporate vehicle, to pierce the veil of his own company. That is not in law permissible: see Trustor AB v Smallbone [2001] 1 WLR 1177. The beginning and end of this case is that Pollux was the customer; Mr Diamantides was not. . . . . . . ”

Mr. Briggs submitted that in reaching that conclusion the judge failed to observe one of the cardinal principles that apply when dealing with an application of this kind, namely, that all the primary facts alleged in the statement of case must be assumed to be true. Only if those facts clearly do not disclose a cause of action is it appropriate to strike it out. The judge undoubtedly took a robust approach to the case, but I do not think this criticism is justified. On several occasions he referred to the primary facts pleaded and to the inferences that could and could not properly be drawn from them and having posed in paragraph 27 the question whether a credible case was being advanced that Mr. Diamantides was in a contractual relationship with the Bank, he clearly set out to answer it by reference to the facts as pleaded. If he occasionally expressed himself in terms which might appear to be more appropriate to an application for summary judgment, I think that is to be explained by the fact that he regarded the claim by Mr. Diamantides as wholly artificial. Whether he was right about that is, of course, another matter.

In my view it is helpful to begin by identifying the allegations of primary fact that are said to support the existence of a cause of action on the part of Mr. Diamantides. For this purpose it is necessary to examine the individual allegations with some care and also to have regard to the statement of case as a whole. I say that because, whereas in a simple pleading it may be sufficient for a claimant simply to allege that he was a customer of the defendant bank, leaving further elucidation of the basis of that allegation to the service of further information, in a pleading such as the one before us, which in 162 paragraphs containing a wealth of detail occupies 107 closely typed pages, one can properly assume that all the primary facts said to support an allegation of that kind have been set out.

The following facts, all of which are clearly primary facts, are pleaded in the proposed consolidated statement of case:

Mr. Briggs also placed a good deal of weight on the following allegations which he submitted should be regarded in the same way:

One of the main planks of Mr. Briggs’s argument was that the Bank was courting Mr. Diamantides personally, not whatever company he might choose to use as the vehicle for making his investments, which is why Mr. Mellis wrote to him in the terms one sees in the letter of 28^th August 1990 and why he was repeatedly assured that he was a very important customer. No doubt in one sense he was a very important customer, because the whole point of the exercise as far as the Bank was concerned was to acquire the opportunity to provide investment services in respect of the considerable private wealth which Mr. Diamantides was believed to command. That could only be done by approaching him personally and obtaining his confidence and approval, since, although the Bank probably assumed that any investments would be made through an offshore company, it was obvious that any decisions that had to be made in relation to those investments would be made by Mr. Diamantides himself. I do not think that it necessarily follows, however, that either or both parties contemplated that the Bank would owe him personally the duties that it would ordinarily owe to a customer to the exclusion of the company. It would be unusual for an investment manager acquiring and managing a portfolio of investments under a formal management agreement not to owe duties of care and duties of a fiduciary nature to the other party to the agreement, whether or not it also owed duties of a similar nature to the person who was known to be taking decisions on behalf of that party. Having regard to the existence of the management agreement entered into between the Bank and Ursa at the beginning of the relationship, I think one is entitled to view with some scepticism, therefore, the suggestion that the Bank did not owe Ursa duties of a kind that would normally be owed to an investment client.

Mr. Briggs drew our attention to a number of authorities in support of his submission that it is possible for a relationship of client and confidential adviser to arise between a solicitor or other professional adviser and the person who gives instructions on behalf of the client for whom the adviser is engaged to act. In Groom v Crocker [1939] 1 K.B. 194 Scott L.J. pointed out at page 222 that the relationship of solicitor and client may be established informally by conduct and I am prepared to accept that the same may be true of the relationship between investment manager and investor, but all that means is that a relationship of that kind between Mr. Diamantides and the Bank could have arisen without the need for any formal agreement, not that it actually did so. To determine whether such a relationship may have arisen it is necessary to examine the facts which are said to have given rise to it.

The case of Johnson v Gore, Wood & Co [2002] 2 A.C. 1 is best known as the leading authority on the principles of reflective loss and abuse of process, but when the case was before this court ([1998] EWCA Civ 1763) there was considerable debate about a different point, namely, whether the claimant, Mr. Johnson, had a personal claim of any kind against the defendants. The judgment is reported at [1999] BCC 474.

Mr. Johnson was an entrepreneur whose practice was to use single purpose companies which he owned and controlled to carry out individual business projects. He instructed a firm of solicitors, Gore Wood & Co. (“GW”), to act on behalf of one such company, Westway Homes Ltd (“WWH”), in connection with the exercise of an option which it had acquired to purchase a piece of land for development purposes. Mr. Johnson, whose business interests extended well beyond that particular project, said that he had also instructed GW to advise him personally in relation to four business ventures, one of which was the development project. A dispute arose between WWH and the vendor over the exercise of the option. GW gave certain advice about the likely course and outcome of any litigation knowing that, if Mr. Johnson decided to proceed with it he would have to fund it, that it would stretch his financial resources and that his other business interests would suffer as a result. In reliance on GW’s advice Mr. Johnson instructed GW to commence proceedings on behalf of WWH against the vendor. Those proceedings did not take the course that GW had led Mr. Johnson to expect and although they were ultimately successful, by the time they were concluded the collapse of the property market had rendered the option worthless. As a result WWH brought an action for professional negligence against GW which was settled during the course of the trial. By that time Mr. Johnson had given notice that he considered that he had a personal claim against GW quite apart from that being made by WWH and a few months later he began proceedings against them in his personal capacity.

In his statement of claim Mr. Johnson alleged that, in addition to the retainer by WWH, GW had also accepted a retainer from him personally in relation to a number of ventures of which the development project of WWH was only one. As far as one can tell, neither in his statement of claim nor in any of the further and better particulars did he set out the primary facts said to support the conclusion that he had retained GW on his own behalf rather than simply on behalf of WWH. Indeed, at one point he pleaded that he did not explicitly differentiate between the affairs of WWH and his personal affairs when giving instructions and that GW had not differentiated between them when giving their advice.

As was recognised both in this court and the court below, the essential question for decision was whether GW had accepted a retainer to advise Mr. Johnson personally as well as, and quite separately from, the retainer it had accepted to advise WWH. It was not suggested that it was impossible for it to have done so and the court, upholding the decision of Pumfrey J. below, held that it could not say that the facts pleaded were incapable of giving rise to the inference that GW had been retained to act on behalf of Mr. Johnson personally as well as on behalf of WWH.

The next case to which Mr. Briggs drew our attention was the recent decision of this court in Ratiu v Conway [2005] EWCA Civ 1302 (unreported, 14^th November 2005). The defendant, Mr. Conway, had been retained to act as solicitor for a company, Regent House Properties Ltd (“Regent”), seeking to acquire a development property through a wholly-owned subsidiary, Pristbrook Ltd (“Pristbrook”). Pristbrook duly acquired the property which it subsequently resold. Mr. Conway also acted for Pristbrook in connection with the sale. Sometime later another property came on the market which both Regent and Mr. Conway were interested in acquiring. Regent wrote to the vendor’s agents complaining that Mr. Conway had misused confidential information that he had acquired as solicitor for Regent when acting in relation to the earlier transactions. Mr. Conway considered that to be defamatory and brought proceedings against Regent and two individuals, Mr. Ratiu and Mr. Karmel. In the context of those proceedings the question arose whether Mr. Conway owed fiduciary duties to Regent; he said he did not because his client for the purposes of the earlier transaction was Pristbrook, not Regent. At the trial the judge directed the jury that although Mr. Conway had originally been instructed by Regent, his client for the purposes of the purchase and sale of the property was Pristbrook alone and that at the time of his attempt to purchase the second property he therefore owed no fiduciary duty to Regent.

This court held that that was wrong. Auld L.J., who gave the leading judgment with which Laws and Sedley L.JJ. agreed, pointed out that although a solicitor’s fiduciary duty to his client is normally engendered by the retainer, it is distinct from the contractual obligations created by the retainer and arises out of the relationship of trust and confidence which comes into being as a result. It is therefore not necessarily confined to the terms of the contractual retainer: see paragraph 72. He concluded by saying in paragraphs 77-78

“77.

In short, I see strong jurisprudential support for the proposition that the answer to the question whether a fiduciary duty, which has its start in a solicitor/client relationship, may outlive it is highly fact-sensitive. Lord Millett’s distinction between fiduciary duty and a duty of confidence in Bolkiah arose, as I have said in a much narrower focus and one that was primarily concerned with the extent of the latter duty.

78.

There is, it seems to me, a powerful argument of principle, in this intensely personal context of considerations of trust, confidence and loyalty, for lifting the corporate veil where the facts require it to include those in or behind the company who are in reality the persons whose trust in and reliance upon the fiduciary may be confounded.”

The importance of this passage lies in the recognition that, in a case where a fiduciary relationship arises out of a contractual relationship, it does not matter whether the person to whom the duty is owed entered into the contract directly or through an agent or through a nominee company. What matters is whether a relationship of trust and confidence has come into being: see paragraph 80. As I understand it, Auld L.J. was seeking to emphasise in these passages that because a fiduciary relationship does not depend on the existence of contractual relations, there may be circumstances in which a duty of that kind may arise not only between the fiduciary and the client but also between the fiduciary and a third person who is closely connected with the client.

Mr. Briggs relied on these decisions as supporting his submission that in the context of a case such as the present it is perfectly possible for the Bank to owe fiduciary duties to Mr. Diamantides from whom it received its instructions and whom it knew to be the person behind Ursa and Pollux. If the submission went no further than that, I would be inclined to agree, but that is only half the story. As I have already observed, it is Mr. Diamantides’s case that advisory duties were owed to him and him alone, whereas what have been described as transactional obligations, that is, the obligations arising under the various contracts between the Bank and the companies relating to the purchase and management of the investments in the portfolio, were owed exclusively to the companies. This is a feature of the present case which distinguishes it from both Johnson v Gore Wood and Ratiu v Conway.

Inevitably, therefore, one is driven back to the same question: if one assumes that all the primary facts alleged in the consolidated particulars of claim were established at trial, is it possible that the court would hold that the Bank owed duties of care to Mr. Diamantides in contract, at common law or in equity, duties of a fiduciary nature or statutory duties under the Financial Services Act 1986?

In my view Johnson v Gore Wood is clearly distinguishable from the present case. In that case there was no doubt that Mr. Johnson had instructed GW to act on behalf of WWH; the only question was whether he had also instructed them to act for him personally. As GW knew, his personal interests were not limited to the WWH project and, given that they had acted for him in connection with other business ventures and were familiar with his personal financial position, it is understandable that he might have wished them to advise him personally on the wider implications of the WWH project. In the present case Mr. Diamantides expected the Bank to select and manage an investment portfolio, but he did not expect it to advise him in a more general way about his financial affairs. No doubt it had a duty to consider whether any particular investment was suitable for his purposes in the light of the instructions it had been given, but it was not expected to bring into the equation other aspects of his financial affairs. Moreover, since, as the Bank knew, Ursa and Pollux were nothing more than investment vehicles for Mr. Diamantides, any investment that was suitable for him was suitable for them and vice versa.

Ratiu v Conway was concerned with the circumstances in which fiduciary duties of a kind that normally arise out of a contractual relationship may arise between persons who are not in contractual relations or may continue after the contract has ceased to regulate their relationship. However, in that case the relationship originated in Regent’s retainer of Mr. Conway and continued as a result of its use of Pristbrook as a nominee. Since Pristbrook was formally his client, it could not be suggested that Mr. Conway did not owe it fiduciary duties as well. Accordingly, although the case provides some support for Mr. Briggs insofar as it emphasises that fiduciary duties may arise without any formalities, it does not really provide much assistance in answering the question with which we have to grapple.

I think it is important to bear in mind why Mr. Diamantides seeks to divorce the advisory duties from the transactional obligations. He does so in an attempt to counter any suggestion that the loss he has suffered is merely reflective of the loss suffered by Pollux. However, unlike the position in Johnson v Gore Wood, he does not allege that the Bank owed him any duty in relation to matters falling outside the investment portfolio that it was creating and managing for Pollux. Nor does he allege that the various duties the Bank owed to him and Pollux, whether legal, equitable or fiduciary, were in aggregate any different from those that an investment manager would ordinarily owe to his client. In order to succeed, therefore, Mr. Diamantides must persuade the court that in his case these duties were divided between himself and Pollux, some being owed to him alone and others to Pollux alone. Moreover, contrary to Mr. Briggs’s argument, this is not a case in which it is alleged that the nature of the developing relationship between the Bank and Mr. Diamantides gave rise to the duties on which he now seeks to base his claim. If it were, it would be necessary to identify the facts which are said to have resulted in a transfer to him personally of duties that were originally owed to Ursa. If his argument is to succeed, it must be on the basis that from the very outset any advisory duties the Bank owed were owed to him rather than the company.

It is not necessary on this occasion to decide whether it is possible to create a situation in which the duties normally owed by an investment manager to his client are divided in that way between the person giving the instructions and the company which purchases the investments and I am content for present purposes to assume that it is. However, it would be an unusual situation which could only arise as a result of special arrangements between the personal client, the investment manager and the company defining the scope of the relationships between them. In a case where it was envisaged (as would normally be the case) that investments would be purchased in reliance on the recommendation of the investment manager, it would require particular care in the structuring of those relationships to ensure that the manager was under no advisory duty of any kind to the person whom he knew was going to acquire them.

In the present case, however, there is nothing in the facts alleged by Mr. Diamantides to support the conclusion that any such arrangements were made or indeed that this case was in any respect out of the ordinary. All that is said is that the company was known to be his personal investment vehicle, that he was the natural person who gave instructions to the Bank and who relied on the advice it gave and that various members of the Bank’s staff assured him from time to time that he was an important customer, as no doubt he was. It is accepted, however, that the agreement for the management of the portfolio, which in the ordinary way would bring about a relationship of a kind that could be expected to give rise to duties of care at law and in equity, as well as duties of a fiduciary nature, was made between the Bank and the company without containing any express modification of, or derogation from, the duties to which such a relationship would ordinarily give rise. Nor is it suggested that the Bank dealt with Mr. Diamantides in a way that was any different from that in which it would have dealt with him if he had been receiving advice and giving instructions on behalf of the company.

It has been said on many occasions that where the proceedings raise issues in a developing area of the law the action should be allowed to go to trial so that those issues can be determined in the light of all the facts. I have no doubt that that is right in a case where the facts set out in the statement of case enable one to see that the claim may succeed, if only as a result of an extension of existing principles. However, it does not absolve the court from deciding on an application of this kind whether the statement of case discloses reasonable grounds for bringing the claim. If the facts pleaded do not provide grounds for thinking that the claim might succeed despite any reasonably foreseeable extension of existing principles of law, I do not think that the case should be allowed to go to trial just in case something unexpected should occur. The judge described Mr. Diamantides’s claim as fanciful because he considered it plain on the facts alleged in the statement of case that Pollux and not Mr. Diamantides was the customer. For my own part I prefer not to ask whether Mr. Diamantides was a customer of the Bank but whether the facts set out in the consolidated particulars of claim are capable of supporting the case he seeks to make. For the reasons given earlier I do not think they are. This is a case, therefore, in which the statement of case discloses no reasonable grounds for bringing the claim that he seeks to make and I am therefore satisfied that the judge was right to strike it out on this ground. I would therefore dismiss the appeal.

This makes it unnecessary to consider the Bank’s alternative argument that the loss suffered by Mr. Diamantides is entirely reflective of the loss suffered by Pollux and irrecoverable for that reason. It raises questions of some complexity which were attractively argued on both sides, but since they do not affect the outcome of the appeal, I do not think that it is appropriate to extend this judgment in order to discuss them.

I agree.

I also agree