JP Morgan Chase Bank & Ors v Springwell Navigation Corporation

In this action although Springwell Navigation Corporation (“Springwell”) is the defendant, it is effectively the claimant. It is a Liberian Corporation. It is controlled by Mr Adam and Mr Spiros Polemis – AP and SP respectively. AP and SP, together with their mother, are the shareholders in the company. The Polemis family, which is of Greek nationality, has been involved in the shipping business for over 100 years and it is well known in the international shipping community.

The claimants in this action, who are effectively the defendants, are companies within the JP Morgan Chase Group of companies. They are concerned with banking and, amongst other things, trading in securities and other forms of commercial paper. I will refer to the claimants collectively as “Chase”.

The current action was begun by Chase in 2001, seeking declarations of non-liability to Springwell. There have already been many contested interlocutory applications in the action. The case has been before the Court of Appeal on at least three occasions so far. The trial of the action is due to start in April 2007. The estimated length of the trial is 16 weeks. There will be large quantities of documents in the trial bundles and the witness statements of the principal characters in the story run to hundreds of paragraphs. Gloster J has been nominated as the trial Judge.

I will have to consider some of the particular allegations made by Springwell against Chase and Chase’s responses in more detail below. But, in broadest outline, the complaint made by Springwell against Chase is that from 1987 Chase acted as the “private banker” of the Polemis family and the companies concerned with the Polemis family’s shipping business. Springwell, which was acquired by the Polemis family interests in 1986, was the “treasury” of the Polemis group of companies. Springwell alleges that Chase, principally through its employee Mr Justin Atkinson, gave advice on the investment of profits that were generated in the shipping business of companies within the Polemis group and passed to Springwell as “treasurer” company of the group. Springwell alleges that from 1987 to 1998, on the advice of Chase, it purchased very large quantities of debt instruments which were principally linked to so called emerging markets, in particular those of South East Asia and Russia. By August 1998, these investments had a face value of some US$724 million.

Springwell alleges, but Chase vehemently denies, that all these debt instrument purchases were made on the advice of Mr Justin Atkinson. Springwell alleges that this advice was negligent because it was contrary to Springwell’s known and stated investment objectives, which were capital preservation and liquidity and were conservative. Springwell also alleges that Chase treated it as a “Stuffee”. That expression describes a client who is “stuffed” with commercial paper that no-one else will buy. It is further alleged that between May 1998 and August 1998 Chase acted fraudulently because it made implied representations as to the suitability of various investments in emerging markets, particularly those of Russia and Indonesia, whilst knowing them not to be suitable for Springwell’s stated investment purposes.

In mid 1997, there was a collapse in the liquidity of the South East Asia market. Then in August 1998 there was a collapse of the Russian rouble and Russia defaulted on certain debt. Springwell says that as a result of that collapse it has suffered very large losses in the value of the portfolio it held as a result of advice that it received from Chase.

The collapse in the value of the Springwell portfolio gives rise to two principal heads of claim. The first is for the decline in value of the portfolio itself. The claim is for the difference between what Springwell alleges the portfolio would have been worth had the portfolio followed Springwell’s alleged investment objectives and instructions, compared with the actual value of the portfolio. The second is a claim for the profits that Springwell says that it would have made on trading new ships that the Polemis group would have purchased with the Springwell investment portfolio if it had maintained its value, which it would have done if Chase had followed Springwell’s instructions and investment objectives. This second head of damages has been called “the shipping losses” claim.

The total sums claimed by Springwell are well in excess of US$500 million. Interest is claimed on the principal sums claimed.

Chase denies that it ever gave advice on investments to Springwell. Its case is that it carried out orders to buy and sell investments as requested by Mr Adam Polemis. Chase also alleges that if, contrary to its primary case, it gave advice, then it did so competently and without negligence. Chase also says that Springwell was, for regulatory purposes, a “non – private” customer and that Springwell was treated as such. Therefore Chase was entitled not to give Springwell advice in relation to purchases that Springwell instructed Chase to make on its behalf.

There is a dispute as to the terms and conditions on which Chase acted for Springwell in relation to the Russian and Indonesian securities. Those that are particularly in issue are set out in a series of letters. These are known as the DDCS (“Dealings in Developing Country Securities”) letters. Chase relies on them to avoid any liability. Chase also strenuously denies all allegations of fraudulent misrepresentation. There are many issues as to damages.

There are two applications currently before the Court. The first, dated 14^th September 2006, was issued by Chase. The application concerns expert reports which have been served by Springwell. The application seeks an order that three of the expert reports and one section of a fourth expert report served by Springwell be excluded from evidence at the trial. In each case the ground is that the evidence concerned is inadmissible and/or inappropriate and/or is not reasonably required to resolve the proceedings. I will describe the experts’ reports concerned and the grounds on which it is said that they should be excluded in more detail below.

The second application arises out of an Application Notice that was issued by Springwell on 2^nd October 2006. This Application Notice relates to a number of matters, but only paragraphs 1 and 2 of it are relevant for present purposes. These paragraphs seek an order that paragraph 390(d) of the Re-Amended Reply to the Re-amended Defence and Re-Amended Defence to Re-Amended Counterclaim (“RRDC”) dated 13^th July 2006 (and consequential passages) be struck out on the ground that it discloses no reasonable grounds for defending Springwell’s claim for damages. Alternatively Springwell seeks summary judgment pursuant to CPR 24.2 on the issue raised by paragraph 390(d) of the pleading, on the ground that Chase has no real prospect of successfully defending that issue. Chase submits that I should order that this part of the application by Springwell should not be heard and determined in advance of the trial of this action which, as I have said, is due to start in April 2007.

The first Case Management Conference (“CMC”) in the case was held before Gloster J on 12^th November 2004. At that CMC, Springwell sought permission to call four expert witnesses at the trial. The fields of these experts were identified as “Russia and emerging markets”, “private banking”, “portfolio analysis and risk analysis” and “derivatives”. At the CMC counsel for Chase accepted the admissibility of evidence on “Russia and emerging markets” but questioned whether expert evidence was, on the facts of this case, admissible or appropriate in relation to the other fields of expertise identified by Springwell. There was a long discussion at the CMC on the question of whether there should be expert evidence on “private banking”. The Judge expressed considerable scepticism about the need for such evidence and suggested that the issues that would be likely to be covered by an expert report on that field would, upon analysis, prove to be issues of fact.

After discussion it was agreed at that CMC that it would be more efficient to determine the question of admissibility of expert evidence once Springwell had served its expert reports in the contested areas. Therefore (as recorded at paragraph 5 of the Order), the Judge ordered sequential exchange of reports, without prejudice to the issue of admissibility of the evidence. A timetable for service of the reports was laid down.

On 29^th July 2005, Springwell served a report of Mr Eric Kraus on the subject of “Russia and emerging markets”. In response, Chase served a report of Mr Augusto Lopez-Claros dated 30^th March 2006. Springwell have served a further report of Mr Kraus which is said to be in reply to Mr Lopez-Claros’ report. There is a dispute about the status of this last report, although I was briefly referred to it in the course of the hearing before me.

Springwell served a report of Mr Thomas Dicker dated 7^th September 2006, on the topic of “private banking”. Then Springwell served a report of Ms Judith Morse dated 7^th September 2006 on the topic of “derivatives”. Lastly, Springwell served a report of Mr James Hass dated 12^th September 2006 on the topic of “portfolio analysis”. Sadly Mr Hass has since died. Nevertheless, Springwell wishes to use Mr Hass’ report at the trial as the foundation for evidence which Springwell anticipates will be given by a colleague of Mr Hass.

In further CMCs, I gave the parties permission to call expert evidence in two other areas. These are ship broking and Russian law. No issues arise in relation to the reports which have been served by Springwell in those areas.

The parties are also discussing whether there is a need for forensic accounting evidence in connection with the quantum of Springwell’s claim. That is also not the subject of the current applications.

Section 3 of the Civil Evidence Act 1972 states that the opinion evidence of a witness called in any civil proceedings on any relevant matter on which the witness is qualified to give expert evidence, shall be admissible in evidence. The admission of expert evidence is, of course, subject to the rules of court. CPR Part 35.1 provides that “expert evidence shall be restricted to that which is reasonably required to resolve the proceedings”. It is well established that in order to fulfil the requirement of CPR Part 35.1, a court must be satisfied that the expert evidence is properly admissible and will genuinely assist the trial judge in determining the matters which are in issue. The burden of establishing these two requirements rests upon the party that seeks permission to adduce the expert evidence concerned: see Clarke v Marlborough Fine Arts (London) Limited [2002] EWHC 11(Ch) at para 5, per Patten J.

The tests that must be satisfied before opinion evidence can be adduced by an expert were set out by Chief Justice King in the Australian case of R v Bonython [1984] SASR 45, at page 46. This test has frequently been acknowledged and adopted in English cases. Chief Justice King said :

Although in former years it was said that experts should not give opinions on “the very issue which the court has to decide”, that restriction is no longer in force, at least in civil actions: see Barings Plc (In Liquidation) v Coopers & Lybrand [2001] Lloyds LR (Banking) 85 at para 54 per Evans-Lombe J and the cases there cited. However, it is not for experts to attempt to make findings of fact. Instead, they should express their opinion on the area in which they have their expertise on the basis of assumed facts which should be clearly identified and stated in their expert report.

It was argued by Mr Hapgood QC, on behalf of Chase, that it is impermissible for an expert in a particular profession or trade to examine the acts and omissions of a party and express an opinion as to what he, the expert, would himself have done in similar factual circumstances. I accept that submission. However, an expert is entitled to examine an assumed set of facts, which can include assumptions as to what a particular person or party has or has not done, and then give an opinion on whether or not the actions (or inactions) of the relevant person fall below the standard of practice in that profession. Such an opinion can, indeed must, be based on the experience of the particular expert. But the expert’s opinion must not reflect what he would or would not have done in certain circumstances. Instead it should say what would reflect the proper standard of practice in the profession concerned in the circumstances being considered.

I should mention one further practical matter, which I think is relevant to large commercial disputes. It is inevitable when there is a dispute between commercial entities that covers a long period of time (as this case does) and concerns a very large sum of money, that a huge amount of documents will have to be considered. There is a natural tendency of parties and their advisors to consider employing experts to assist in digesting this material, particularly if it relates to any area that might be recondite, such as trading in Russian debt in the 1990s. There is a tendency to think that a judge will be assisted by expert evidence in any area of fact that appears to be outside the “normal” experience of a Commercial Court judge. The result is that, all too often, the judge is submerged in expert reports which are long, complicated and which stray far outside the particular issue that may be relevant to the case. Production of such expert reports is expensive, time – consuming and may ultimately be counter – productive. That is precisely why CPR Pt 35.1 exists. In my view it is the duty of parties, particularly those involved in large scale commercial litigation, to ensure that they adhere to both the letter and spirit of that Rule. And it is the duty of the court, even if only for its own protection, to reject firmly all expert evidence that is not reasonably required to resolve the proceedings.

Ms Morse is a Solicitor who currently works as a consultant for Merrill Lynch. She has worked in the past as a member of the team in the Legal and Compliance Department at Credit Suisse First Boston based in London and later as a Vice President and Chief Operating Officer of Global Fixed Income Sales including emerging market sales at CSFB in New York. In this latter position she was heavily involved with a type of commercial paper called “GKO-Linked Notes”. “GKO” is the short title given to a short term zero coupon Rouble denominated Treasury Bill that the Russian government began to issue from 1993. (In transliteration the full title of these instruments is Gosudarstvennye Kratkosrochniye Beskuponniye Obligatsii). At first GKOs could only be purchased and held by residents of Russia. From around August 1996 non-residents were permitted to purchase GKOs through special accounts held with licensed Russian banks. From this a new type of instrument developed, called the GKO-Linked Note. These were often issued and marketed by non-Russian banks and they took various forms. The vast majority of instruments were, in Ms Morse’s experience, based on an investment in GKOs, but also attached to a forward foreign exchange contract which would enable the rouble proceeds of the GKOs to be converted into US dollars.

Between April 1996 and July 1998 Springwell purchased 42 GKO-Linked Notes. On 17^th August 1998, which was the date when the Russian government announced its default of debt, including GKOs, Springwell was still holding 11 GKO-Linked Notes, which had not yet matured. On the same day Russia purported to impose various legislative measures in respect of the redemption of GKO-Linked Notes.

It is Springwell’s case that the GKO-Linked Notes were bought for Springwell upon the advice of Chase, in particular that of Justin Atkinson. Springwell says that this advice was negligent. Springwell also asserts that from May 1998 Justin Atkinson knew that it was highly speculative to invest in GKO-Linked Notes, which were high risk, illiquid and highly structured investments, yet he continued to advise Springwell that it was appropriate to make substantial purchases of GKOs by means of GKO-Linked Notes. Springwell pleads that these representations were fraudulent.

One of Chase’s defences to the allegation of negligent advice in respect of the GKO-Linked Notes is that Chase is entitled to rely upon the terms of two letters dated 28^th May 1993 and 17^th September 1997, the so called DDCS letters. These are letters that were sent by Chase to Springwell. For present purposes they all had the same wording. The relevant parts of the letters are as follows:

The matter on which Ms Morse was asked to express an opinion is set out at paragraph 19 of her report. This states:

On behalf of Chase, Mr Hapgood QC submits that Ms Morse’s expert report was produced for one reason only, which is to assist Springwell in its argument that the DDCS letters do not apply to the GKO-Linked Notes or the VW Note. (No separate point arises on the VW Note and there is no need to go into any details on this product separately). This argument is made to support a case that Chase cannot rely upon those letters as the basis of excluding liability in respect of any alleged negligent advice given in respect of GKO-Linked Notes and the VW Note.

I agree with this submission. Therefore, it seems to me, the issue to which Ms Morse’s report is directed is the proper construction and scope of the DDCS letters. The construction of commercial contracts is a question of law for the court. I entirely accept the submission of Mr Brindle QC, for Springwell, that if the parties to a commercial contract have used technical expressions in a contract and those technical expressions are outside the expertise of the judge, then the evidence of an expert in the particular technical area concerned will be admissible and may well be helpful to the Judge. For an example see Kingscroft Insurance Co Ltd v Nissan Fire & Marine Insurance Co Ltd (No. 2) [1999] Lloyd’s Insurance and Reinsurance Reports page 603 at 622 per Moore-Bick J.

However that is not the position in this case. First, neither party has pleaded any particular technical meaning for the words that are used in the DDCS letters, especially those used at the end of the first paragraph of the letters: viz. “…various debt and equity securities of public and private sector issuers located in developing countries (“Instruments”)”. Secondly, the court will, in any case, be hearing evidence from other experts, in particular Mr Kraus and Mr Lopez-Claros, on Russia and emerging markets in the context of investments in those markets. Thus Mr Kraus, in Section 3 of his report, sets out a description of GKOs, GKO – Linked Notes and trading in Russian Debt in the 1990s.

By contrast, Ms Morse is, essentially, a lawyer. I accept that Ms Morse has had considerable experience in dealing with products such as GKO-Linked Notes. But, in my view, her report will not be of any material assistance to a judge who (having had expert evidence on the commercial background from Mr Kraus and Mr Lopez-Claros) has to decide, as a matter of law, on the proper construction of the DDCS letters and their scope.

Accordingly, I rule that Ms Morse’s report cannot be used in evidence at the trial.

Mr Kraus is currently Managing Director at Sovlink Securities, where he works as chief strategist and head of asset management. Sovlink is a Moscow Investment Bank/Brokerage house which has been active in the Russian financial market since 1990. Mr Kraus’ experience is in “emerging market” debt sales, Moscow equity sales and Russian fixed interest sales, amongst other things. His report consists of six sections. Section 1 describes “emerging market investment”. Part 3 of section 1 describes various types of emerging market debt Instruments. Part 5 of section 1 describes the “types of investor in emerging market debt”. Mr Kraus characterises investors in emerging market debt as “a heterogeneous lot”.

Section 2 of Mr Kraus’ report describes how the former Soviet Union re-entered the international capital markets in the mid 1990s. He identifies the particular political, economic and financial risks which investors in sovereign and sub-sovereign bonds and derivatives issuing from this environment faced. The section also describes the economic and financial history of Russia between 1995 and 1998 and deals in some detail with the crisis of liquidity in August 1998 and its aftermath.

Section 3 of Mr Kraus’ report describes the various debt instruments available to international investors in Russia and the former Soviet Union in the period after 1993 up to the crisis in August 1998. He identifies the specific risk factors associated with this market, in particular in relation to the GKO market and Credit-Linked Notes such as the ones that Springwell purchased. He deals in detail with GKOs and Credit Linked Notes. He also deals in detail with the Russian banking system and the GKO market.

In Section 4 of his report, Mr Kraus deals with the risks associated with investing in Indonesian assets in October 1997.

In Section 5 of his report, Mr Kraus considers the financial market’s understanding and evaluation of emerging market and also of Russian risk from May 1997 to August 1998. In paragraph 198 of his report he says that for this purpose he has asked himself the question:

This section of his report considers four particular aspects. These are (1) the sources of information available to an emerging market professional; (2) the measures of market sentiment in the period May 1997 to August 1998; (3) the market’s understanding of the key risks of investment in emerging markets during the period; and (4) a chronological account of developing market understanding of events in the Russian financial markets over this period.

Chase has no objection to any of the material in sections 1 to 5 of the report going before the Court at the trial. Chase accepts that the Court will be assisted by expert evidence of the events in Russia and the market perception of Russia and emerging markets as dealt with in those sections of Mr Kraus’ report.

However, Chase objects to section 6 of Mr Kraus’ report. This is headed “Justin Atkinson and Chase”. At the outset of this section of his report in paragraph 269, Mr Kraus states:

For the purposes of section 6, Mr Kraus has considered some, but by no means all, of the transcripts of the conversations which took place between Mr Justin Atkinson and Mr Adam Polemis. All the transcripts will be available at the trial and will doubtless be the subject of careful scrutiny in the examination and cross-examination of Mr Atkinson and Mr Adam Polemis. Mr Kraus has also examined and considered some but not all of the Chase research department’s publications. These materials will also, of course, be available at the trial. Once again, the research department materials will doubtless be put to Mr Justin Atkinson as part of his cross-examination.

In section 6 of his report, Mr Kraus makes general criticisms of statements made by Justin Atkinson to Adam Polemis, based upon the transcripts that he has reviewed, both in respect of what Mr Atkinson did say and what he did not say. Mr Kraus examines a number of the 150 transcripts that he has reviewed and he makes comments upon them.

On behalf of Chase, Mr Hapgood has a number of criticisms of section 6 of Mr Kraus’ report. He submits that all of these demonstrate clearly that this section should not be admitted as evidence in the trial. The first criticism is that the whole section is premised upon the assumption that there was, in law, a duty upon Chase to give advice to Springwell on what investments to purchase and retain. I appreciate that this is challenged by Chase. However, that, in itself, is not sufficient reason to exclude this section if it is otherwise acceptable as expert evidence.

Mr Hapgood submits that if this section remains, it will be necessary to cross-examine Mr Kraus in detail on whether or not his interpretation of the transcripts of the conversations between Mr Atkinson and Mr Adam Polemis is correct. Mr Hapgood says it will be necessary to put to Mr Kraus other transcripts which he has apparently not considered. It would then be necessary to question Mr Kraus on whether the views of Justin Atkinson are consistent with the views of a reasonably careful and competent market professional specialising in emerging markets, taking into account the points made on behalf of Chase about the actual statements of Mr Atkinson.

Mr Hapgood submits this is an exercise which will not assist the Court, despite the fact that Mr Kraus is an expert on Russia and emerging markets and that this is an area on which the court otherwise needs expert assistance. Mr Hapgood also submits that section 6 of Mr Kraus’ report goes beyond the pleaded case of Springwell.

Mr Brindle QC submits that in section 6 of his report, Mr Kraus is providing a commentary on the conduct of Mr Atkinson in relation to the advice he is said to have given in relation to Russia and emerging markets, set against a standard of conduct which has already been identified earlier in the report. Mr Brindle submits that section 6 of the report does not step outside the pleaded case of Springwell as set out in paragraph 209 of the Re-Amended Defence and Counterclaim (“RDC”) at paragraphs 219, 221, 224, 225, 226 and 226A.

I have come to the conclusion that section 6, in its present form, will not genuinely assist the judge in determining matters which are in issue in this case. The first issue is going to be what is the scope, if any, of Chase’s duty to give advice about the purchase of emerging market investments, including GKO-Linked investments. That will depend principally upon the facts although I accept, for present purposes, that the Judge may be assisted by some expert evidence of a banking expert (see the section on Mr Dicker’s report below). On the assumption that there is some duty to advise, then depending on the nature and scope of that duty, the next issue for the Court will be to decide what a reasonably careful and competent market professional specialising in emerging markets, would advise on the facts as found. That issue can only be resolved once the Court has determined what a reasonably careful and competent market professional specialising in emerging markets would have known about Russia, Russian investments and so forth, during the relevant period. That issue is covered in Section 5 of Mr Kraus’ report. The next issue that the Court will have to decide is whether or not, on the facts that are found and on the assumption that Chase had a duty to give advice to Springwell, the advice given, particularly by Mr Justin Atkinson, was advice that was consistent with being a reasonably careful and competent market profession specialising in emerging markets.

Section 6 of Mr Kraus’ report does not and cannot deal with this last issue. This is because no expert can say at this stage what the court will determine is the scope of the duty to advise that was owed by Chase to Springwell. Nor can any expert work upon the basis of actual facts as to what was said by Mr Justin Atkinson in the very many conversations he had with Adam Polemis. This means that Mr Kraus’ opinion on whether any particular advice that he says was given by Mr Justin Atkinson was consistent with advice that would be given by a reasonably careful and competent market professional specialising in emerging markets is entirely speculative. A judge will not be assisted by speculative views.

The judge will have Mr Kraus’ opinion on what a properly informed professional in emerging markets will know and will think on certain issues. The judge will decide, on the factual evidence, what advice (if any) Mr Atkinson or others at Chase gave to Adam Polemis. In my view it will not be helpful for the judge to have speculative views from Mr Kraus, based upon assumptions as to what advice was given, on whether that was or was not competent. On this practical basis I have concluded that section 6 of Mr Kraus’ report should not be adduced as part of his expert evidence at the trial.

Mr Dicker’s report is on the topic of “private banking”. Mr Dicker has worked in various sections of the banking industry since 1977, when he began his career with Kidder Peabody as a trainee. He has worked in equity sales, Eurobond and convertible sales. He has worked at Morgan Stanley in its Individual Investor Services Department, later renamed the Private Client Services Department. Whilst at Morgan Stanley he was responsible for advising clients, both on particular investment opportunities and on the make-up of their portfolios as a whole. Subsequently, Mr Dicker worked in DLJ/Credit Suisse as Managing Director of the Private Client Services Department, giving investment advisory and other wealth management services to wealthy individuals and their corporate investment vehicles. Since 2002, he has acted as advisor to various entities concerning investment and portfolio management and has become Chairman and Shareholder of a Paris based regulated private equity firm.

In Section 2 of his report, Mr Dicker outlines what “private banks” do. In a sentence, it is to provide wealth management services to wealthy individuals and their vehicles for investments, such as trusts or companies or foundations.

Section 3 of Mr Dicker’s report states his opinion on what the reasonably competent bank or advisor providing private banking services should do in order to discharge its duty towards his customer when there is an investment advisory relationship between the private bank and the customer. Paragraph 29 of his report sets out his view on what the minimum duties of the private bank are in those circumstances. These requirements are very similar indeed to those pleaded in paragraph 74 of the RDC. In that paragraph Springwell sets out what it says were the necessary “incidents” of Chase’s duties of care to Springwell. The remainder of Section 3 of Mr Dicker’s report sets out detailed reasons why he concludes that the particular duties listed in paragraph 29 are required of a private banker giving investment advice to a customer.

Section 4 of Mr Dicker’s report sets out to “apply” the minimum standards identified in section 3 to Chase’s relationship with Springwell. It does this by considering first the way in which the relationship was conducted. Then the section considers each of the duties set out at paragraph 29 of the report by reference to facts or assumed facts concerning the history of the relationship between Chase and Springwell during the relevant period.

Section 5 of the report considers “portfolio construction”. It sets out some principles of proper portfolio construction and then sets out the structure and characteristics of Springwell’s portfolio at various dates. Lastly, this section considers “whether Springwell’s portfolio was, or could have been considered by a competent advisor to be appropriate in the light of alternative sets of investment objectives”.

Section 6 of the report considers the topic of investment in Russian debt in 1997/8. Mr Dicker accepts that he is not, and was not, an expert in the economic position in Russia or the market’s perception (in 1997 and 1998) of that macro - economic position. He states that in order to produce this section of his report, he has read the reports of Mr Kraus and Mr Lopez-Claros. Mr Dicker considers various questions upon two alternative bases. The first basis is that Mr Kraus’ views on the Russian market are correct. The second is that Mr Lopez-Claros’ view is accurate.

Lastly, in Section 7, Mr Dicker considers the question of whether or not a competent advisor would have advised an investor with Springwell’s investment objectives to purchase and hold Indonesian investments in and after October 1997. Once again, Mr Dicker accepts that he has no expertise with regards to Indonesia and investments in that market. Therefore he bases his conclusions on the two same alternatives as he does for Russia.

The basis on which Mr Hapgood objected to the admissibility of Mr Dicker’s report changed in the course of the hearing before me. Initially the argument was that “private banking” was not a recognised and definable section of the banking industry with its own well recognised standards and procedures on which there could be based an expert opinion. Mr Hapgood also submitted that Mr Dicker’s report ignored the distinction between the private and non – private client that is so fundamental to the regulatory framework of the FSA that existed during the relevant time. Mr Hapgood submitted that Mr Dicker largely ignored the regulatory regime in his report. It was also said that Mr Dicker could give no useful assistance to the judge because the question of what Chase’s duties were towards Springwell would depend entirely on the judge’s findings of fact about the nature of the relationship as agreed between the parties. However, Mr Hapgood did appear to accept that the part of Section 5 of the report that dealt with the “appropriateness of Springwell’s portfolio” (ie. para 148 to 163) might be relevant, because it could assist a judge with the issue of what a hypothetical “benchmark” portfolio might contain, on the assumption that it was the duty of Chase to advise Springwell on the content of its portfolio.

In his reply, Mr Hapgood maintained his submission that Section 2 of Mr Dicker’s report was of no use to the judge, because it is too general. However, this section is only two pages long and in my view it could be useful background material for a judge to have available. So I rule that this section is admissible.

With regard to Section 3 of the report, Mr Hapgood indicated that, in advance of the trial, Chase would set down particulars of what it accepted would be the constituent parts of the duty of a private bank if it was obliged to give advice to a client on the scope and contents of the client’s portfolio and on the maintenance of such an “advisory” portfolio. This should obviate the need for Section 3 of the Dicker report. But, as I understood it, Mr Hapgood accepted that if there cannot be agreement between the parties on this aspect, then it would be legitimate to have expert evidence on that topic. Nevertheless, he emphasised that the precise scope of Chase’s duties to advise, if any, must depend on the facts as found by the judge. I agree with that. In my view the assistance that an expert on private banking can give on the scope of Chase’s duty to Springwell (if any) is strictly limited to what the possible scope might be; the maximum at one end and the minimum at the other. It is not the expert’s job to try and work out what the scope of Chase’s duty to Springwell was. That will depend on the facts as found by the judge. Nor will it be helpful to a judge to be told what the scope of Chase’s duty was on the assumption of certain facts. Inevitably, the facts found will differ from those postulated by the expert. So, to the extent that Section 3 of Mr Dicker’s report goes beyond an identification of the possible maximum and minimum scope of Chase’s duty, it will not be of assistance to the judge in this case and will not be admissible.

Mr Hapgood maintained his submission that Section 4 of Mr Dicker’s report was objectionable. However, in relation to Section 5, he accepted that the passages that dealt with issue (c), as defined in paragraph 137 of the Report, was admissible and useful. He also accepted that issue (b) was not objectionable, although he pointed out that the parties should be able to agree the structure and characteristics of the Springwell portfolio at various dates. He submitted that Mr Dicker’s remarks on issue (a), ie. principles of proper portfolio construction, were so hedged with caveats as to be of no practical use to the trial judge.

I agree with Mr Hapgood that the remarks on issue (a) are heavily qualified. But overall it seems to me that Section 5 will be helpful and Mr Hapgood does not object to parts (b) and (c) at all. However, I urge the parties to agree the structure and characteristics of the Springwell portfolio at relevant dates and to put it in a schedule. That will avoid the need for any expert evidence on that matter.

Mr Hapgood maintained his view that Sections 6 and 7 of the report were not useful or admissible because of Mr Dicker’s lack of expertise on Russia and Indonesia, as stated by Mr Dicker himself in his report.

The main area of contention is Section 4 of Mr Dicker’s report. This Section is 13 pages long and comprises 66 paragraphs. Mr Brindle submits that this Section will be helpful to the trial judge. He submits that this Section assumes various facts about what happened between AP and Mr Atkinson and assumes that Springwell/Chase’s relationship was “an investment advisory relationship”. On those bases, it analyses the facts (admitted or assumed) against the minimum standards applicable to such a relationship and tests whether Chase’s conduct meets the minimum standards set out by Mr Dicker.

I have concluded that Section 4 of Mr Dicker’s report will not be helpful to the trial judge and ought not to be admitted. I consider the matter on the assumption that the trial judge will have to analyse the factual evidence on the hypothesis there was an “investment advisory relationship” between Chase and Springwell. Therefore, the scope and standard of Chase’s duty as advisor will be as set out in paragraph 74 of the RDC and paragraph 29 of Section 3 of Mr Dicker’s report or some variation on that. On this basis it seems to me that the trial judge will have to ask: did Chase fulfil the duties imposed on a private bank when there is an “investment advisory relationship” with Springwell? That will involve a close examination of what actually happened between bank and client; in particular between Mr Atkinson and Mr Adam Polemis. It will also involve an analysis of the information that Mr Atkinson (and others at Chase) did have and could have had concerning Russia and other emerging markets and the potential investments available. But, having identified the scope and standard of the duties, I fail to see how an expert can assist the judge in deciding whether, on the facts, the action (or inaction) of Chase fulfilled those duties. The expert cannot comment on the facts themselves. Once the facts are established by the trial judge, the judge has to measure whether what was or was not done by Chase met the standard of a reasonably competent professional “private banker” in order to fulfil its duties as “investment advisor” to Springwell. Those standards and requirements will either be agreed or found by the judge, based on material in a modified Section 3 of Mr Dicker’s report and its equivalent as submitted by Chase. Having determined what the standards and requirements are, the judge has to apply those to the facts as found. It seems to me, therefore, that there is simply no scope for expert evidence on this topic. At best, all that Mr Dicker could do was to say, in relation to a particular piece of advice (either admitted, proved or assumed), that in his opinion it does or does not meet the relevant profession standard. That standard itself will either be agreed or will be determined by the judge on the basis of Section 3 of Mr Dicker’s report and/or the report of his opposite number. Section 4 of Mr Dicker’s report will not, in my view, help the judge at all. Indeed I think that it would only complicate the judge’s task in this case.

As for Sections 6 and 7 of the Report, Mr Brindle submitted that these were proper and helpful because Mr Dicker gives expert advice as the “generalist private banker” who takes advice from specialists, ie. Mr Kraus or Mr Lopez – Claros.

I am not satisfied that Mr Dicker is able to give any useful expert evidence on the questions of whether a competent “private banker” advisor would have recommended an investor with Springwell’s objectives to purchase and hold Russian or Indonesian investments in the relevant periods. Mr Dicker does not indicate that he has ever been in the position of giving such advice to clients of a “private bank”. He has to rely on the expertise of either Mr Kraus or Mr Lopez – Claros on both the actual economic position in Russia and the investment market’s perception of that at the relevant times. So, in my view, he lacks the proper experience to be able to give expert evidence on this topic. He is in the same position with regard to Indonesia.

The judge will have the expert evidence of both Mr Kraus and Mr Lopez – Claros on the economic positions, the market perception of them and what a reasonably competent emerging market professional would have been aware of at the relevant time. The question of what advice (if any) was given by Chase is one of fact. Once the judge has those elements of evidence, it seems to me that it will be comparatively straightforward to decide whether the advice given (if at all) was below the standard of advice to be expected of a competent advisor in the position of Chase. Mr Dicker’s evidence is therefore also unnecessary.

In summary, in relation to Mr Dicker’s report, I conclude that (i) Springwell may adduce Section 3 if there is not agreement as to the scope and standard of the duty of a bank where there is an “investment advisory” relationship; (ii) Springwell may not adduce Section 4; (iii) it may adduce Section 5, although I hope that the parties will agree the structure and characteristics of the Springwell portfolio at various points; and (iv) Springwell may not adduce Sections 6 and 7 of the report.

Until his untimely death, Mr Hass was a Director of LEGC, LLC, a litigation consulting firm providing expert testimony (amongst other things) in the fields of economics and finance. Before that his career included being a Director of MBIA AMBAC International, where he had advised governments and the World Bank on the use of risk analysis and management techniques, such as “Value at Risk”. He also worked as a partner of Hamilton, Rabinovitz & Alschuler Inc where he advised on bond issues amongst other things.

Mr Hass’ report runs to only 35 pages. But there are 4 appendices and the last one contains all the material that is referred to in Mr Hass’ report. There is a mass of material there, mostly on topics such as financial risk management and analysis and investment in particular markets.

In paragraph 1.1 of his report, Mr Hass identifies the subjects that he has been asked to consider by Richard Butler, solicitors for Springwell. He states that he has been asked to consider three topics. The first is: “questions relating to the risks and measurement of the risks of investments in fixed income (bond) portfolios generally, and more specifically, to apply this analysis to Springwell’s fixed income investment portfolio at Chase in the period from 1988 to 1998”. The second topic is the principles of bond portfolio construction and the adherence of Springwell’s portfolio to those identified principles. The last topic is: the most appropriate method of estimating the investment returns which Springwell would have received had it maintained a portfolio (a) in line with the investment objectives that Springwell says that it had; and (b) in line with the investment objectives that Mr Atkinson alleges that Springwell had.

His conclusions are, in summary, that (i) the Springwell portfolio became increasingly risky until it collapsed in August 1998; and (ii) the portfolio was poorly constructed in terms of diversification, credit risk and leverage, by comparison with “relevant benchmarks in the investment community and in the light of Springwell’s investment goals”.

In my view it is clear that there is a large degree of overlap between the topics discussed by Mr Hass and those discussed by Mr Dicker in Section 5 of his report. (It will be recalled that the three topics covered in the latter are: principles of proper portfolio construction; the structure of the Springwell portfolio and the appropriateness of the Springwell portfolio in the light of its investment objectives). But in discussing the nature and degree of the risk present in the Springwell portfolio and whether that risk could have been mitigated by appropriate portfolio construction, Mr Hass has gone into areas that Mr Dicker does not. First, he identified various specific portfolios as “comparators” or “benchmarks” against which to compare and measure the different characteristics of the Springwell portfolio (para 7 of the Hass report). Secondly, Mr Hass has taken the portfolio that Mr Dicker says would have been consistent with the Springwell investment objectives and then Mr Hass identified certain benchmarks which would together produce a model to show the returns that could have been achieved from such a portfolio (para 8 of the report). Thirdly, Mr Hass has discussed the topic of risk analysis for a fixed income portfolio such as Springwell’s and he has particularly considered the analytical tools that can be used to undertake this task. Under this head Mr Hass discusses (amongst other things) the “Sharpe ratio”, which is a measure of the trade – off between risk and return. He also considers a statistical method of assessing financial risk, particularly in relation to leveraged portfolios such as the Springwell portfolio was. This method is known as “VaR”. (See paras 9 and 10 of the report).

Fourthly, using the various tools that have been discussed in the previous paragraphs of his report, Mr Hass evaluates the risks inherent in the Springwell portfolio from 1992 to August 1998: see paragraph 12 of the report.

Mr Hapgood accepted that the court could be assisted by some aspects of Mr Hass’ report. Thus he accepted that the court would be helped if it had evidence (which he hoped could be agreed) of a hypothetical benchmark portfolio which would reflect the characteristics that Springwell asserts (although Chase denies this) should have been present in its portfolio with Chase. Mr Hapgood agreed that this would assist the court for two reasons. First, because (on Springwell’s case) the differences between the actual Springwell portfolio and the hypothetical benchmark portfolio would be clear. Secondly, if there was such a hypothetical benchmark portfolio then it would be easier to see the differences between the two in terms of performance and value. This, he submitted, would be useful in relation to quantum issues, at least so far as the first head of claim was concerned, but perhaps also the second, ie. the “shipping losses” claim.

However, despite this, Mr Hapgood objected to the Hass report on two grounds. The first was that it is wrong in principle to have two experts that cover much the same ground: viz. the nature and risks in the Springwell portfolio and its appropriateness or otherwise. The second was that insofar as Mr Hass delves into detailed methodologies such as the Sharpe Ratio and VaR to analyse the risks inherent in the Springwell portfolio or those in a hypothetical benchmark portfolio, it is an unnecessary distraction, which will simply generate “satellite litigation” on those topics.

Mr Brindle accepts that the conclusion set out in paragraph 12.3 of Mr Hass’ report does not address the correct question, which is: what should the Springwell portfolio have contained, given its investment objectives. Springwell’s case on what the portfolio should have contained is set out at paragraph 188 of the RDC. Its case on what Chase should have done to ensure investment objectives were met is set out at paragraph 209(a)(ii) of the RDC. Springwell’s case on what the portfolio position would have been in August 1998 if Chase had fulfilled its duty is set out at paragraph 246. These allegations are denied by Chase at paragraphs 324, 346 and 383 of its RRDC. Mr Brindle submits that it is legitimate to have an expert’s report on what Springwell’s portfolio should have contained, because no judge can have that expertise. It is also legitimate for the expert to support the risk analysis by various methodologies (such as Sharpe Ratio and VaR) to demonstrate why this hypothetical portfolio would have been of an acceptable risk level for Springwell.

Mr Hass’ report is, ultimately, concerned with what the Springwell portfolio should have contained if Springwell’s investment objectives had been followed. That is the same subject matter as Section 5 of Mr Dicker’s report. The major difference between Mr Hass’ report and Mr Dicker’s is that the former backs up its conclusions by using various methodologies to confirm that the risks and returns of this hypothetical portfolio would have been consistent with the investment objectives of Springwell.

It is wrong in principle for there to be two different experts providing a report on the same topic unless there is a very good reason for needing two experts. I am not satisfied that there is a good reason for having two experts on this one topic. The fact that Mr Hass’ conclusions on risk and return is backed up by corroborative analyses is not, in my view, a sufficient justification for a second expert on the same topic. Therefore, in principle, if Section 5 of Mr Dicker’s report is to be admitted (as I have said it can be), then that of Mr Hass ought not to be.

However, I am conscious of the fact that Mr Brindle and Mr Hapgood agreed that it would be very useful for the trial judge to have identified a hypothetical “benchmark” portfolio which would reflect Springwell’s case on what it says should have been contained in its portfolio with Chase. That will be useful in three ways. First, on the assumption that Springwell is successful in demonstrating that there was an “investment advisory relationship” with Chase and it establishes its case on investment criteria and objectives, it may assist the judge in evaluating the extent to which the advice given by Chase and the resulting portfolio differed from that which should have obtained. Secondly, such a benchmark portfolio may well assist the judge on the question of assessing the first head of damages, assuming Springwell wins on liability. Lastly, the hypothetical benchmark portfolio may well assist the judge on the issue of the “shipping losses” claim by indicating what the value of the Springwell portfolio might have been, what “profits” from it might have been available to buy ships and when those “profits” might have been available to do so.

Mr Hapgood seemed reasonably confident that the parties could agree the characteristics and contents of a hypothetical “benchmark” portfolio. If they cannot do so, then in my view it will be necessary for both parties to put in short expert reports on that point. Because of the unfortunate death of Mr Hass, it will not be possible for his report to be modified to deal with this limited issue of “benchmark portfolio construction”. If the parties cannot agree this matter, then it seems to me that this topic would be best dealt with by Mr Dicker and the expert that Chase intends to ask to respond to the admissible parts of Mr Dicker’s report. If necessary, the precise way to deal with this issue will have to be the subject of further submissions.

The report of Ms Morse will not be admitted. Nor will Section 6 of the report of Mr Kraus. Sections 4, 6 and 7 of the report of Mr Dicker will be excluded, but the remainder of his report will be admitted. The report of Mr Hass will not be admitted.

The parties must attempt to agree, by 1 December 2006, the scope and standard of duty of Chase on the assumption that there was an “investment advisory relationship” between Chase and Springwell, ie. the issue covered in Section 3 of Mr Dicker’s report. If there is agreement, this section of Mr Dicker’s report will not be admitted. But if there cannot be agreement, then that section will be admitted and Chase’s equivalent expert will have to deal with the issue in his report. But I would expect this topic to be agreed and both sides must be at risk as to costs on this point if it is not.

The parties should attempt to agree a hypothetical benchmark portfolio that reflects the portfolio that Springwell should have had if, on the basis of Springwell’s case, its investment objectives had been followed by Chase in giving advice and trading investments on Springwell’s behalf. This will be the equivalent to what Mr Hass’s report describes as “Springwell’s Alternative Portfolio A”. There should also be agreement on a “Springwell Alternative Portfolio B”: see paragraphs 8.2 and 8.4 of the Hass report. If the hypothetical benchmark portfolios cannot be agreed, then Mr Dicker will be permitted to deal with that issue and Chase’s expert in response to Mr Dicker will be able to deal with that issue.

On 2^nd October 2006, Springwell issued an Application Notice which sought several Orders. I am only concerned with the first two. These are:

The remainder of the Application Notice seeks orders for further information and that other paragraphs of Chase’s pleading be struck out or alternatively that disclosure be given. At the hearing before me on 4 - 6 October, I was told that it was Springwell’s intention to have this application listed for hearing in December this year, that is some four months before the trial of this action is due to start. There is some dispute as to how long the application will take, but it is in the region of 1 to 2 days.

Paragraph 390 of Chase’s RRDC is concerned with the issue of damages. That paragraph is pleading to paragraphs 251 and 252 of Springwell’s RDC. Those paragraphs appear in the section of Springwell’s pleading headed “Losses arising from breaches of duty in relation to investment advice”. In paragraph 250 of its pleading, Springwell pleads the financial losses that it suffered on its investments in Russia, the former Soviet Union and Indonesia. It is said that the total of those losses is US$290,850,185.

Paragraphs 251 and 252 of Springwell’s pleading state as follows:

So it is Springwell’s case that the date for assessing the loss in value of the portfolio as a result of Chase’s various breaches of duty is 14 January 1999. Any fluctuations in value after that date are said to be irrelevant. In fact, in general terms, the value of emerging market investments, including Russian and Indonesian paper, increased after early 1999.

In paragraph 390 of Chase’s RRDC Chase takes various points on Springwell’s paragraphs 251 and 252. In particular, at paragraph 390(b), Chase denies that the relevant date for the valuation of the Springwell claim portfolio is 14^th January 1999. Then, at paragraph 390(d), Chase pleads its positive case, as follows:

That is not the only positive case that Chase makes on damages. It has an alternative case, which is pleaded in paragraphs (c), (e) to (j) of paragraph 390 of the RRDC. The effect of this alternative case is that January 2001 is the correct date for assessing Springwell’s loss. Chase also asserts that in any case (whatever date for assessment is adopted) Springwell must give credit for the value of investments that are in the Springwell portfolio that have recovered since the August 1998 debácle. Chase alleges that if it is right about the “credit” point, then on either its primary or secondary cases on damages, Springwell would have suffered no loss at all. It would only be if Springwell’s assessment date, i.e. January 1999, is adopted by the court that Springwell would suffer a loss.

All these alternatives are summarised in the table at the end of paragraph 390(p) of Chase’s RRDC.

Springwell’s Application Notice does not seek an order that Chase’s secondary case on damages (ie. a January 2001 assessment date) should be struck out. Accordingly, even if the application to strike out were to go ahead and be successful, there would remain an issue between the parties as to whether: (a) the correct date for valuation is January 1999 or January 2001; and (b) whether, on either of those two dates, Springwell has to give credit for any increase in value of investments by that relevant date.

On behalf of Chase, Mr Adrian Beltrami submitted that the Court should exercise its case management powers and refuse to allow this application to strike out to go ahead in advance of the trial date. He submitted that there are several reasons why the issues raised in the strike out application are not suitable for determination in such a hearing.

First, he submitted that the issues of calculation of loss throw up particular difficulties in legal analysis on the facts of this case. He reminded me of a few of the cases which show that the courts have employed related concepts to reach their conclusion on decisions in this area. The concepts, all well known of course, include “scope of duty”, causation, remoteness and mitigation.

Mr Beltrami also submitted that the cases that deal with principles of causation, mitigation and scope of duty in relation to the assessment of damages, all emphasise that the correct application of these principles is heavily dependent upon the facts of the case. Mr Beltrami reminded me that the true nature of Springwell’s investment objectives is at the heart of both the liability issues and the damages issues in this case. He emphasised that although Chase has pleaded (in paragraph 390(d) of the RRDC) what it sees as Springwell’s case on its investment objectives, this appears to be in issue.

Mr Brindle, on behalf of Springwell, submits that it is useful and practical to determine the points raised in paragraphs 1 and 2 of the Application Notice in advance of the trial. He submits that the question of whether the date for assessment should be the trial date, the date of sale of the investment or its maturity date is one of law. He submits that the determination of that issue will not involve any, or many, facts. He submits that it is convenient to decide that issue in advance of the trial, as it will be one less issue (out of very many) with which the trial judge will have to deal.

I have come to the conclusion that it would be inappropriate for this strike out application to be heard and determined in advance of the trial. This is largely for case management reasons. Springwell’s application applies only to paragraph 390(d) of the RRDC, that is Chase’s case that the assessment of loss should be made at the date of maturity of investments or, if earlier, the date of sale, or if earlier, the date of judgment after the trial. There is no application to strike out Chase’s alternative case that January 2001 is the correct date for the valuation of both the claim portfolio and the credit portfolio. On this alternative case, Chase submits that Springwell has suffered no loss; indeed it asserts that Springwell has made a profit of some US$113 Million.

Accordingly, if the strike out application goes ahead in advance of the trial, the judge who decides that issue will, inevitably, have to consider two things. First, the correct principles of law to be applied in relation to the facts of this case in order to decide which, in law, could possibly be the dates at which the losses should be calculated. Secondly, whether, on the facts of this case, as a matter of law it is unarguable that the correct date could be the maturity date of the investment, or the date of their sale, or the date of judgment after the trial.

But the judge hearing the strike out application would have to decide these issues in the absence of any findings of fact about losses or the events after the debácle in August 1998. It seems to be that the events after August 1998 may be very important in deciding the date for the assessment of loss. Soon after 1998, Springwell re-financed the borrowings which had provided leverage for the purchase of the investments. This re-finance under a Term Loan Agreement prohibited Springwell from selling or transferring or otherwise disposing of the investments that were held as security, save for limited exceptions. This Term Loan continued until January 2001 when it was repaid and 26 remaining investments were transferred by Springwell to Standard Bank.

In my view, it is impossible for a Judge to arrive at any useful conclusion on whether all dates for the assessment of loss, other than January 1999 or January 2001, are unarguable as a matter of law, unless some findings of fact are made. That will involve evidence which is going to be given at the trial in April 2007. There is no point in having evidence on this point alone some 4 months in advance of the trial, quite apart from the fact that the application would inevitably take longer than the proposed 1 to 2 days.

Even more importantly, the trial Judge would be bound by the conclusions of law made by the Judge hearing the strike out application. The same principles of law will have to apply, yet they will have been settled in the absence of any facts. This is very unsatisfactory for the trial Judge, even if it is the same Judge that hears both the application and the trial itself. In Kuwait Airways Corporation v Iraqi Airways [2002] 2 AC 883 at paragraph 70, Lord Nicholls of Birkenhead referred to the need of a court to make a “value judgment” in assessing recoverable loss. That can only be done once the facts have been ascertained. In Prima Vera v Allied Dunbar Assurance plc, a decision of the Court of Appeal on 4^th October 2002, Simon Brown LJ considered the question of whether profit had to be taken into account in assessing recoverable loss. He regarded that as a matter of causation and stated that the question to be asked is “whether those gains or losses are properly to be regarded as a part of the continuous transaction of which the relevant breach or tort was the inception”: (see paragraphs 20 -22).

Both those principles apply to this case. Therefore I do not see how it would be right to determine the legal principles applicable in this case in advance of the facts. It is even more unsatisfactory to determine the legal principles in relation to some possible dates but not others that will remain in issue at the trial.

The determination of this application to strike out in advance of the trial will not save a great deal of time at the trial itself. At best, it will save 1 to 2 days of legal argument. Moreover, before me each side admitted that if it lost on the strike out application, then there would be an attempt to appeal the point in advance of the trial. Therefore there is the danger of the application itself and any appeal being a massive distraction from the preparation of the trial due to start in April 2007.

Given all these circumstances, I have concluded that it is not in the interests of justice nor is it a proper and efficient use of judicial time and resources to allow this application to go ahead in advance of the trial. Accordingly, I accede to Chase’s submission that the matters raised in paragraphs 1 and 2 of Springwell’s application notice dated 2^nd October 2006 should not be listed before the start of the trial of this action.