Noble Resources SA & Anor v Gross

The First Claimant, Noble Resources SA (“NRSA”), is a company incorporated in Switzerland and engaged in the business of trading commodities, including aluminium. The Second Claimant, Noble Resources Limited (“Noble (HK)”), is incorporated in Hong Kong. The Part 20 Defendant, Noble Europe Limited (“Noble (UK)”), is a company incorporated in England. I shall refer to all three collectively as “Noble”, where it is not necessary to differentiate between them.

Noble is part of the Noble group of companies (“the Group”), the top holding company of which is Noble Group Limited, which is quoted on the Singapore Stock Exchange. In February 2006 the Group had shareholders’ funds of US dollars (“$”) 849.2 million, and described itself in its Annual Report as “a market leader in managing the global supply chain of agricultural industrial and energy products”. The Group’s metals, minerals and ores segment at the relevant time is described in its 2005 annual report as follows:

“[the] segment encompasses the sourcing, transport and physical delivery of steel products, iron ore, ferro-alloy, manganese ores and chrome, alumina and aluminium metal. … This is a logistically complex set of businesses involving several steps to aggregate product tonnage, challenging port conditions on both the load and discharge bases.”

The Group’s Global Aluminium Division comprised the following offices spread over three countries:

Mr. Richard Boulton and Mr. Richard Mott, instructed by Reed Smith Richards Butler, appeared on behalf of Noble.

There are two types of aluminium: primary and secondary. Primary aluminium is high grade metal produced from smelting aluminium used for high specification, high-tech products such as aeroplanes. Secondary aluminium is re-cast aluminium from scrap metal and is used in lower grade products such as motor vehicles.

Physical aluminium trading takes place when traders enter into either purchase contracts (from aluminium producers or suppliers) or sale contracts (to customers and end users) for delivery. If a physical sale contract has been entered into, a trader will look to match this with a physical purchase contract (or vice versa), so that there is no risk in not being able to dispose of aluminium, or fulfil an order. If a physical sale contract cannot be matched with a physical purchase contract, the trader will look to hedge the risk of the sale contract by entering into a futures purchase contract on the London Metal Exchange (“LME”), until such time as a physical purchase contract has been entered into (or vice versa). Speculative trading on the other hand is entirely separate from physical trading. Essentially it involves placing bets on movements in the LME. So, for example, a trader who thinks that the market will go up, will buy futures contracts at a lower price (and take a “long” position) hoping to sell such contracts when market prices have increased; conversely, a trader who thinks that the market will go down, will sell futures contracts at a higher price (and take a “short” position), hoping to buy such contracts back at a much lower price.

In this action, Noble contends that its principal business, as it related to aluminium, was trading physical aluminium for delivery to manufacturers, and that aluminium futures were used primarily to hedge physical trades. This was disputed by Mr. Gross, who contended that the principal business of Noble was trading in aluminium futures for speculative purposes.

Mr. Gross is a marketing expert in the metals trade. His evidence was that his expertise lay in identifying physical sources of aluminium, recruiting such sources as sellers and finding buyers. He was employed in Noble’s aluminium trading division from April 2003 until he was suspended in January 2006, and then dismissed in May 2006. He had an employment contract with NRSA governed by Swiss law, and also had an employment contract with Noble (UK), governed by English law (Footnote: ¹). He was recruited by Elliot Spitz (“Mr. Spitz”), who, at all material times, was the President of NRSA and responsible for the metals side of the business, including the aluminium division. Mr. Spitz, who had previously worked with Mr. Gross at his previous employers, Crown Resources, was, at all material times, Mr. Gross’ boss and both men were based in the London office, although both frequently went to Lausanne and travelled abroad on Noble’s business. Mr. Gross was recruited to build aluminium trading for Noble in Europe. Mr. Spitz and Mr. Gross at all material times lived near each other in London, and they were friends and members of the same orthodox Jewish community.

On 7 April 2008, Mr. Gross petitioned for his own bankruptcy. However, this did not bring an end to these proceedings. At a hearing on 1 May 2008, Walker J gave leave to Noble to continue the proceedings notwithstanding the bankruptcy. He described Mr. Gross’ position as:

“… no more than a cynical attempt to put an end to these proceedings.”

and made an unless order requiring Mr. Gross to serve a witness statement setting out his evidence for trial by 16 May 2008.

Mr. Gross was acting in person from April 2008 (having, until 25 March 2008, previously been represented by solicitors and counsel). However, in the week of 5 January 2009, some two weeks before the trial was due to start, Mr. Gross instructed Kramer & Co to act on his behalf. On 8 – 9 January 2009, Kramer & Co instructed Mr. Richard de Lacy QC to appear for Mr. Gross. I was told that the money for funding Mr. Gross’ legal representation in these proceedings has been provided by his wife, who had managed to borrow limited funds for that purpose and that Mr. Gross, his wife and family are supported by means-tested benefits provided by the State. Despite a question from the court, no information was provided as to the person who had lent Mrs. Gross the relevant funds. Indeed, Mr. Gross has declined at any stage of the litigation to say who has been funding his defence. The possible significance of this, in the wider context, will be referred to below.

The precise role of Mr. Gross was not agreed. However it was common ground that he lived in London, travelled widely in the course of his employment with Noble, conducted aluminium trades (both physical and futures) personally and had management responsibility to some extent for the operations in Lausanne and the USA.

The allegations made by Noble against Mr. Gross are that he participated in, or, at a minimum, knew about and condoned, the build up and maintenance, by Mr. Penin, of large speculative positions in aluminium futures, which positions were to Mr. Gross’ knowledge (i) significantly in excess of authorised speculative limits, and (ii) fraudulently concealed from Noble’s management in Lausanne and Hong Kong.

Noble contended that the evidence showed that Mr. Gross and Mr. Penin were engaged in unauthorised speculative trading of aluminium futures from February 2004 onwards until early 2006. However, for the purpose of narrowing the issues, Noble only relied upon three unauthorised specific speculative positions in its Amended Particulars of Claim, which it contends that Mr. Penin and Mr. Gross established. These were:

Noble alleged that Mr. Gross and Mr. Penin agreed that Mr Penin would cause false transactions to be entered in the physical trading book (“NTS”) in Lausanne, in order to conceal their speculative positions and to hide the losses that arose from those positions. Noble contended that, in the main, the false transactions purported to show that effective long physical aluminium contracts had been entered into by Noble, when, in fact, that was not the case.

Thus, Noble alleged that:

Noble contended that the principal manipulations to the NTS system (Normet, Hydro, and Egtal) created what appeared to be a priced risk long position in the physical book, thereby helping to hide the short speculative position which would otherwise have been shown by the Craig Reports; and that such manipulations also generated profits (when the contracts were marked to market) that helped offset the substantial unrealised losses on LME futures.

Mr. Gross’ pleaded position as to the allegations of taking unauthorised speculative positions was not entirely clear. The Defence stated that:

“… it is denied that Mr. Gross took speculative positions in the aluminium futures market, with Mr. Penin or otherwise, without the authority or knowledge of Noble from February 2004, or at all” (emphasis added) (Footnote: ⁵).

He admitted that: “… he was aware through communications with Mr. Penin that Mr. Penin had taken a short position at the end of 2004”, but he:

“… denied that [he] knew the specific extent of the net position or any unrealised loss which had resulted.”

And that, even if he had known about it:

“… he would not have regarded it as a great cause for concern, or for there to be a need to conceal the said loss. (Footnote: ⁶)”

He denied that he had any knowledge of Mr. Penin’s “alleged” concealment, by means of the First Normet Contract, of the short position and unrealised loss as at the December 2004 year end.

Likewise, in relation to the speculative long position taken towards the end of June 2005, and the alleged speculative short position built up in July 2005, and maintained thereafter, Mr. Gross pleaded:

“… that whilst he did have knowledge of certain trades being conducted by Mr. Penin at the time he was not aware of the precise details of those trades or the extent of the net speculative position taken by Mr. Penin” (Footnote: ⁷)

Thus, effectively, he denied any involvement in the building up of the long position in June 2005 or the building up of the short position in July 2005, and its maintenance thereafter.

His overall position, both in his Defence, and at trial, was that he denied that he was engaged in any unauthorised speculative trading; that he denied that he had any knowing part in the concealment of Noble’s exposures, either in 2004 or 2005; or that he had any knowledge of the false transactions that concealed the true position before 15 January 2006, when he alleged that Mr. Penin, for the first time, informed him of the exposure on the Normet Contracts or before the week beginning 16 January 2006, when his own investigations into the matter began.

He claimed that he was in the same position as all other Noble executives concerned with aluminium, who were not auditors or responsible for the maintenance of records; that it was not his responsibility to break off from his active function of seeking aluminium sources and buyers, in order to investigate Mr. Penin; and that he had no “foreknowledge” of any concealment of exposures to brokered short positions which necessarily were known to the management of Noble, and set out in the LME cards for each broker and which would have triggered margin calls, as the market turned against those positions.

Mr. Gross contended that Mr. Penin’s account of his role (which was to the effect that Mr. Gross had requested Mr. Penin to instigate the false transactions, and was fully aware of them) was entirely fabricated, and that Mr. Penin had recorded the false transactions for reasons of his own; most probably because he “… received concealed benefits from those of his clients who stood to gain from alleged trades, if the market moved in the right direction”.

There were also subsidiary, but important, factual disputes concerning the alleged knowledge of Noble’s management and the alleged involvement of Mr. Gross in Mr. Penin’s flight to Brazil in January 2006, once the speculative positions and recording of the false transactions had been discovered. In particular, Noble alleged that Mende Gertner (“Mr. Gertner”), Mr. Gross’ brother-in-law and a wealthy businessman, had been instrumental, at Mr. Gross’ request, in ensuring that Mr. Penin fled from Switzerland in order to protect Mr. Gross’ position.

Noble claims the following relief:

Noble recognised that its constructive trust claim was academic, since, even if well-founded, the evidence appeared to show that Mr. Gross had spent the sum in question on living expenses.

Mr. Gross counterclaims for monies owed to him following the termination of his employment contract, and claims against Noble UK for wrongful dismissal and unpaid salary.

My conclusions are as follows;

Mr. Penin is subject to separate legal proceedings (both civil and criminal) in Switzerland instituted by, or as a result of complaints from, Noble. It was Mr. Penin, who, after fleeing from Switzerland to Brazil in January 2006 and then returning to Lausanne, implicated Mr. Gross and alleged to Noble that the latter was involved with Mr. Penin in the taking of speculative positions and their concealment by means of false entries in the record of physical contracts, i.e. in the physical book, or NTS system. In other words, Mr. Penin admitted the fraudulent concealment of the loss-making speculative positions but contended that his activities were carried out at the instigation of, and with the knowledge and approval of, Mr. Gross.

Mr. Gross contended in his witness statement that Mr. Penin was “a self-confessed fraudster with a penchant for creating false evidence”. Similar allegations were repeated by him when giving oral evidence. Mr. de Lacy submitted that the court should therefore disregard Mr. Penin’s evidence in its entirety.

Mr. Penin made numerous statements in connection with these proceedings, and with the various proceedings in Switzerland. Noble also applied to this court for evidence to be taken from Mr. Penin in Switzerland, pursuant to a Letter of Request. After a hearing, contested by Mr. Gross, Walker J made an order to that effect on 27 November 2007. After initially having refused to cooperate, Mr. Penin agreed to be examined before the Swiss court. His examination took place before the Tribunale d’arondissment de l’Est Vaudois (Présidente Sorel de Haller) (“the President”), in Nyon on 15 and 16 December 2008. The Letter of Request appended a long list of questions for the Swiss court to put to Mr. Penin at the instigation of Noble and Mr. Gross respectively. Under the Swiss procedure, both Noble and Mr. Gross were entitled to be present at the examination, to be represented by lawyers, and, with the leave of the court, to ask supplementary questions arising out of the questions in the Letter of Request.

In the event, Noble appeared at the examination, represented by Swiss lawyers, Mr. Boulton and Ms. Chloe Carswell of Reed Smith Richards Butler. Mr. Gross, who at the time was unrepresented by lawyers in the United Kingdom, did not choose to be present or to be represented by lawyers at the hearing. Pursuant to the order of Walker J, and with the permission of the Swiss court, I attended the examination of Mr. Penin as a spectator. Mr. Penin was also represented by a lawyer at the hearing.

The hearing was conducted in French, although Mr. Penin was clearly a fluent English speaker. The President read the questions to Mr. Penin and he gave his answers. The President sought to clarify the answer where necessary and then dictated a summary answer to the court clerk who typed the answer. The Swiss advocates for Noble and Mr. Penin interjected as they felt necessary to clarify answers and to ask follow on questions by reference to the documents before the court and the answers given. The President then read back the answer to Mr. Penin who corrected or added to the answer recorded. At the conclusion of the examination I was permitted to ask two or three questions, through the President. My knowledge of French is sufficiently good that I was able to follow and understand everything that was said.

Once all the questions had been asked, Mr. Penin was invited to review a draft of the answers and to make any further corrections that he wished. After an adjournment of an hour or so, his proposed changes were then gone through in open court. As shown by the note of the hearing taken by Noble’s solicitors, very few corrections were made. I was not present for this last session.

Thus, as part of the evidence in these proceedings, Noble relied upon the following statements made by Mr. Penin, translated, where necessary, into English:

Mr. de Lacy criticised Noble for seeking to rely on only selected paragraphs from the June and August witness statements of Mr. Penin. Mr. Boulton submitted that this criticism was misplaced; he pointed out that the June statement was in draft only, and was not finally approved by Mr. Penin, although the content upon which Noble relied, was expressly approved by Mr. Penin in the course of his examination before the Swiss court; the August statement was prepared by Mr. Penin in the context of criminal proceedings initiated by Noble against Mr. Penin in Switzerland, and it was therefore unsurprising that Noble did not accept everything which he has to say. Further, Noble only sought to rely on those passages which were relevant to the claim against Mr. Gross; unsurprisingly, the statements submitted in Switzerland dealt with a number of other matters which were relevant only to the position of Mr. Penin. Mr. Boulton also referred to the fact that the Notice of Evidence served by Noble pursuant to Section 2(1)(a) of the Civil Evidence Act 1995 was served at a time when Mr. Penin had refused to co-operate with Noble and there was no certainty that he would agree to participate in the Letter of Request procedure; as it was, Mr. Penin did consent to be examined in Switzerland, and thus the primary evidence on which Noble relied was that obtained via that procedure, plus the contents of the Minutes of Declaration of 19 January 2006.

In the circumstances, I have to decide what, if any, weight to give to the written and oral evidence of Mr. Penin in the absence of its being tested by hostile cross-examination from Mr. Gross or counsel on his behalf. I also have to decide whether I should prefer Mr. Penin’s evidence or that of Mr. Gross, since both of them cannot be telling the truth about Mr. Gross’ involvement in Mr. Penin’s fraudulent activities.

A brief procedural history of this matter is as follows:

There was little dispute between counsel on issues of law. Accordingly, I can deal with the relevant legal principles relatively briefly.

In Mr. de Lacy’s written opening submissions he submitted that Noble must prove its case “… to a high standard of proof practically equivalent to the criminal standard”. (Footnote: ⁹) However, as Mr. Boulton submitted, the authorities show that the standard of proof in fraud cases is precisely the same as the standard of proof in other civil proceedings, namely, that a party must show that an alleged fact is more likely than not to have occurred.

Thus, in Hornal v Neuberger Products Ltd, (Footnote: ¹⁰) a fraud case, at pages 263-4, Hodson LJ cited with approval the following words from the judgment of Denning LJ (as he then was) in Bater v Bater (Footnote: ¹¹):

“In criminal cases the charge must be proved beyond reasonable doubt, but there may be degrees of proof within that standard. As Best C.J., and many other great judges, have said, ‘in proportion as the crime is enormous, so ought the proof to be clear.’ So also in civil cases, the case may be proved by a preponderance of probability, but there may be degrees of probability within that standard. The degree depends on the subject-matter. A civil court, when considering a charge of fraud, will naturally require for itself a higher degree of probability than that which it would require when asking if negligence is established. It does not adopt so high a degree as a criminal court, even when it is considering a charge of a criminal nature; but still it does require a degree of probability which is commensurate with the occasion.”

Denning LJ himself made similar observations in Hornal at page 258.

The leading case on the standard of proof applicable in all civil proceedings, including fraud cases, is Re: H (Minors) (Sexual Abuse: Standard of Proof), (Footnote: ¹²) where Lord Nicholls stated that:

“Where the matters in issue are facts the standard of proof required in non-criminal proceedings is the preponderance of probability, usually referred to as the balance of probability. This is the established general principle.

The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. Deliberate physical injury is usually less likely than accidental physical injury ... Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation.” (Footnote: ¹³) (Emphasis added)

Mr. Boulton accepted that, in many fraud cases, the civil standard of proof will in practice be harder to discharge, due to the inherent unlikelihood of the alleged acts having occurred, but, he submitted, the present case was not such a case.

It is clear from the passage cited above, that the court’s approach to whether an alleged set of facts is likely or unlikely to have occurred depends, not just on the inherent unlikelihood of those facts, but on the circumstances of a particular case. This was emphasised by the House of Lords in the recent case of Re B (Children) (Care Proceedings: Standard of Proof) (Footnote: ¹⁴). In considering the comments of Lord Nicholls from Re: H (supra), Lord Hoffmann stated:

“Lord Nicholls was not laying down any rule of law. There is only one rule of law, namely that the occurrence of the fact in issue must be proved to have been more probable than not. Common sense, not law, requires that in deciding this question, regard should be had, to whatever extent appropriate, to inherent probabilities. If a child alleges sexual abuse by a parent, it is common sense to start with the assumption that most parents do not abuse their children. But this assumption may be swiftly dispelled by other compelling evidence of the relationship between parent and child or parent and other children. It would be absurd to suggest that the tribunal must in all cases assume that serious conduct is unlikely to have occurred. In many cases, the other evidence will show that it was all too likely. If, for example, it is clear that a child was assaulted by one or other of two people, it would make no sense to start one’s reasoning by saying that assaulting children is a serious matter and therefore neither of them is likely to have done so. The fact is that one of them did and the question for the tribunal is simply whether it is more probable that one rather than the other was the perpetrator.” (Footnote: ¹⁵)

In the present case, there is no doubt that a fraud was perpetrated by Mr. Penin. That fact was accepted by Mr. Gross. The issue is therefore, taking into account all the evidence, whether it is more probable than not that Mr. Gross was party to Mr. Penin’s fraudulent conduct. And, in considering this question the court has, as Mr. de Lacy submitted, to take account of the unlikelihood, or otherwise, in all the circumstances, that Mr. Gross would have imperilled his position at Noble, his reputation as an expert in aluminium trading and his position in his community, in the manner suggested by Noble for the sake of increasing his anticipated bonus or his reputation at Noble.

Noble, on the other hand, submitted that, on the evidence before the court, it is far more likely that Mr. Gross and Mr. Penin – who, Noble contended, had a very close professional and personal relationship and who constituted the entire trading arm of Noble’s European aluminium desk – participated in a joint fraud upon Noble, than that one of them was entirely unaware of the other’s fraud and has been falsely implicated by the other for reasons unknown. Thus, Noble submit that it would in the circumstances of this case be inappropriate to give the general factor of fraud’s “inherent unlikelihood” any more than notional weight.

In my view, however, both competing factors have to be taken into account in my evaluation of all the evidence, given the serious nature of the allegations of fraud against Mr. Gross. Thus I do have to be satisfied to a high degree of probability that the balance lies in Noble’s favour before concluding that Mr. Gross participated in Mr. Penin’s fraud, as Noble alleges.

The decisive factual issue in the case is whether Mr. Gross had actual contemporaneous knowledge of the fraudulent conduct of Mr. Penin and the extent to which, if at all, Mr. Gross was party to it. It is not necessary for Noble to establish that Mr. Gross knew about, and was party to, all of Mr. Penin’s fraudulent conduct, but merely that the former knew about, and was party to, sufficient of such conduct to render him liable for Noble’s losses arising out of the taking, and concealment, of the speculative trading positions.

It was common ground that, factually, a number of sub-issues arose, which were necessary for the purposes of the determination of the principal issue. These may be summarised as follows:

The documentary evidence

In this case Noble relied upon a vast amount of contemporaneous documentary evidence to support its claim. It is relevant to set out what documentation was available and what was not. The chronological bundles ran to some 16 files; in addition, there were approximately 34 further ring binders, comprising case statements, witness statements, exhibits, accounting records, contracts, and other materials which were referred to during the course of evidence. Noble also, importantly, relied inter alia upon: Mr. Penin’s notebook, which Noble contended contained a contemporaneous record of certain of his trades (“the Notebook”); telephone records showing not only dates and times of telephone conversations between Mr. Gross and Mr. Penin, but also dates and times of telephone conversations between each of them and others; records of numerous SMS messages sent between Mr. Gross and Mr. Penin and others on their mobile phones; and various different contemporaneous internal accounting reports at Noble. Mr. Gross did not, it appears from the evidence, keep a written record or other document setting out his trades. I find this somewhat surprising. Mr. Penin and Mr. Sharp recorded their trades in a physical notebook, which appeared to be the normal practice at Noble, and, indeed, of traders universally.

There was a large quantity of SMS messages, the majority of them being between Mr. Gross and Mr. Penin. These were disclosed by Noble. Mr. Gross’ primary means of communication with Mr. Penin was by telephone, Yahoo, MSN messenger and SMS, but above all they used SMS to communicate with each another. They were constantly in touch, often on a daily, and sometimes even minute by minute, basis, even when one or other, or both, of them were abroad. They kept in touch by SMS about pretty much everything, from, on the one hand, their trading activity (both physical and futures) and their frequently disparaging views on emails from Mr. Spitz and others in Noble management, to their dinner arrangements and intimate details of their personal lives.

There were however considerable gaps in the personal documentary records which one might have expected Mr. Gross to have maintained. This was the subject of evidence at trial. I find as a fact that Mr. Gross attempted to destroy evidence that might have incriminated him. In support of this conclusion I rely upon the following:

It was common ground that, on the day that he was suspended, someone deliberately deleted over 20,000 items off Mr. Gross’ work laptop computer, which was configured to Noble’s network. It was also common ground that, on that day, he handed the laptop in to staff at Noble’s offices in Lausanne; that the laptop recorded that someone had apparently logged on with his user name and password at what the computer purported to record as 13:52pm on 23 January 2006; and that the 20,000 items were purportedly deleted shortly after this time. Mr. Gross’ evidence was to the effect that he had already handed his laptop to Noble by that time; that the timing on his retained train tickets showed that the deletions could not have been made by him at 13:52pm; and that he had asked someone at Noble, on handing it over, to save and return certain personal files to him on a CD, which was duly done. It was Noble’s case that it was “overwhelmingly likely” that the deletions had in fact been made by Mr. Gross earlier in the day; that, with the assistance of one Jimmy Weston, an IT expert, Mr. Gross had deliberately changed the time settings on the laptop to conceal the fact that he himself had made the deletions; and that the last recorded logon time with his user ID reflected this.

I am not satisfied that Noble has proved this last serious allegation to the requisite standard. The evidence relating to the issue was murky but it would in my view be disproportionate to engage in a meticulous analysis of the various aspects of it, not least because none of the deleted files were alleged to have been crucially relevant to the issues in the case, and the most incriminating evidence against Mr. Gross was in any event contained in SMS messages. Moreover Noble did not call any witness to testify as to precisely what had happened in Lausanne in relation to the laptop after Mr. Gross handed it over; nor did Noble call a witness to testify whether Noble’s network system afforded Mr. Gross, as a network user, the privilege of being unilaterally able to change time settings on his laptop. I should say that I also found Mr. Gross’ explanation of what had happened on 23 January to be unconvincing. At the end of the day, however, I do not find it necessary to determine this issue; I simply conclude that Noble has not established the allegation on the balance of probabilities. But I also reject Mr. de Lacy’s contention in his closing submissions that Mr. Spitz had deliberately attempted to frame Mr. Gross by making these allegations of deletion.

In the light of the above evidence, Mr. Boulton submitted that Mr. Gross probably believed that he had not left a trail; that what Mr. Gross did not anticipate was that a large quantity of SMS messages would be recovered from backups of his own personal phone and Mr. Penin’s BlackBerry; that Mr. Penin would hand over his Notebook to Noble; and that Mr. Penin would return from Brazil and make a full confession to Noble. Thus, submitted Mr. Boulton, without these vital sources of information, it is likely that Mr. Gross’ part in the fraud would not have been discovered.

So far as the SMS messages were concerned, Noble, in summary recovered and disclosed:

The messages referred to at subparagraphs (i) and (ii) above were recovered from back-ups of Mr. Penin’s BlackBerry, which apparently were made by Noble’s IT department when Mr. Penin was having trouble with his BlackBerry. The messages from Mr. Gross’ personal phone (referred to in subparagraph (iii) above) were found by Noble in a backup file on Mr. Gross’ laptop shortly before trial. They were also on the forensic image of Mr. Gross’ laptop taken by his forensic experts on 17 March 2006, and on a CD of personal files which Mr. Gross only disclosed during the course of the trial. The messages referred to in subparagraph (iv) above were of no practical importance given the discovery of the Treo messages and were in large part fragments from the other messages in disclosure which had been obtained by performing forensic searches on Mr. Gross’ and Mr. Penin’s laptops.

As part of its evidence at trial Noble produced a detailed reconciliation of the SMS messages to the telephone records. This analysis, which was not challenged, focused on a key period, 11-13 July 2005, in the course of which Mr. Gross and Mr. Penin exchanged 227 SMS messages (despite being together for much of the day on 13 July). In summary, Noble was able to show that every single SMS recovered from Mr. Penin’s BlackBerry for those three days appeared in the telephone records; all but one of the SMS messages sent by Mr. Penin, according to the telephone records, appear in the SMS analysis; and there were a handful of texts sent by Mr. Gross to numbers unknown which do not appear on Mr. Penin’s BlackBerry. As Mr. Boulton submitted, so far as those messages were concerned, the obvious inference was that they were SMS messages sent by Mr. Gross to persons other than Mr. Penin.

Prior to the start of the trial Mr. Gross attempted to cast doubt on the reliability or authenticity of the SMS evidence. However the technical evidence subsequently served by Noble explaining: (a) how the SMS messages were identified and recovered; (b) that it was not possible to alter an SMS message on a BlackBerry once it has been received or sent; and (c) that it would be very difficult to alter data on a server back-up, meant that when it came to trial there was no realistic attack by Mr. Gross on the reliability or authenticity of the SMS messages or any suggestion to the effect that they had been doctored or deleted.

In summary, Mr. Gross’ position with respect to specific messages was as follows:

So far as these points go, they have some superficial validity. However, having myself read, if not the entirety of the SMS messages, at least a great part of them including, in particular, those passages that are relevant to the issues in the case, I conclude that they are compelling evidence as against Mr. Gross. On analysis, they provide a detailed picture of the relationship between him and Mr. Penin and the knowledge which each had of the other’s activity. Of course one has to be careful to put each message in context and to give due weight to the fact that much of the language is in shorthand and that many of the messages are banter. However, none of the points made by Mr. Gross in my judgment explain why he was unable to give adequate explanations of many series of messages which went to undermine his defence. Because there are so many SMS messages in evidence, the reader obtains a very clear idea of the manner in which Mr. Penin and Mr. Gross were conversing with each other. On many days there were 50 or 100 SMS messages between Mr. Gross and Mr. Penin, and thus it was not difficult to identify and understand the specific context in which the relevant message had to be considered. Moreover, Mr. Gross’ memory was highly selective; in certain cases he seemed perfectly able to recall what he said was the exact (but, to an independent reader of the message, a far from obvious) meaning of a message, which on its face appeared adverse to his defence; in other cases, he asserted that he could not recall what were obviously significant points in context.

The next important point about the SMS messages that Noble was able to recover, is that they related to the key periods for the purposes of this claim: namely, the period in June and July 2005 when the long speculative position was sold and the short speculative position taken, and the two months or so leading up to the discovery of the fraud when the aluminium market was moving against the July 2005 short position. Furthermore it was only in the course of giving oral evidence that Mr. Gross sought for the first time to explain any of the SMS messages that were on their face damaging to his defence. This was despite the fact that Mr. Gross has known that Noble were relying on the SMS messages since the Freezing Order was obtained, and had had copies of the majority of the SMS messages covering the period between 15 June and 30 August 2005, prior to the exchange of witness statements.

Noble relied upon Mr. Penin’s Notebook as showing the speculative positions taken by Mr. Gross and Mr. Penin at various dates (including the specific speculative positions pleaded in the Amended Particulars of Claim). Mr. Penin described his Notebook in paragraph 43 of his August Statement in the following terms:

“I also kept a physical notebook. I had learned to do this from my days at Gerald [previous employers]. I took it everywhere with me and updated it daily. When I was travelling it provided me with an idea of the position. I would enter in it the physical contracts (and their pricings) and, later, the spec position Phil and I were running”.

He also gave evidence in relation to the entries in the Notebook during the course of his evidence before the Swiss court.

Mr. Gross’ position was that the Notebook had been fabricated in order to support Noble’ case against him. He said in a witness statement:

“The fact is that had Noble even bothered to check the “notebook” in the most cursory fashion they would have seen clearly that the notebook is in fact inaccurate, missing trades, fabricating trades, missing dates and most importantly completely disappears after the July 2006 [sic] alleged speculations.”

This allegation was not supported by the evidence. I examine what the Notebook shows in relation to the speculative positions in greater detail later in this judgment. However, in my judgment there is no reason to suppose that the entries in the Notebook were anything other than authentic entries made by Mr. Penin at or about the same time as the dates which are shown in the Notebook next to the particular trading position. There are several reasons for this conclusion:

At the relevant time Noble used a reporting system called “NTS” which recorded physical trades carried out by its aluminium division, and valued the different contracts against the aluminium market on a mark to market basis, for the purposes of feeding into Noble’s profit and loss account in its monthly management accounts. It was, for technical reasons, not possible to record aluminium futures trades in NTS and thus only the physical aluminium trades were recorded in that system. Reports were generated from NTS on a monthly basis by the Noble Accounts Department, which were known as “TB Reports”, and which contained monthly profit and loss information about the physical book of business. Until the end of 2004 the aluminium future trades were fed into the profit and loss management accounts directly from the daily confirmation (or “recap”) statements provided by the LME brokers through whom the trades were transacted. The evidence showed that this was unsatisfactory not only because the brokers often made mistakes and mis-reported the trades, but also because the broker statements were provided the day after a trade was placed with the result that the information was always out of date. The result was that in August 2004, when Mr. Sharp joined Noble, the reporting mechanisms were not ideal. They comprised a mixture of several different reports and systems, which did not complement each other and did not provide a readily understandable, coherent or reliable analysis of the business done in, or all the positions taken by, the aluminium division. In particular it did not enable there to be any coherent analysis of the risk or exposure of the aluminium division to the market.

At the end of November 2004, Noble’s management in Hong Kong pushed to implement properly integrated reporting and accounting procedures. As at that date, the aluminium division was the only division within Noble that did not regularly report its position. At that date reporting was done only on an ad hoc, irregular basis which was considered unsatisfactory by Noble’s management. Thus at the end of November 2004, Mr. Sharp began to develop a reporting system for the aluminium division that would identify reconciled futures and options with the physical book of business. The aim was to identify mark to market exposure both in relation to physical trades and futures trades and therefore ultimately the net metric tonnage position, for risk monitoring purposes. The issue was that any net metric tonnage position that was not “flat” represented an exposure to the market which needed to be identified in order that management could monitor the aluminium division’s exposure to market movements.

With some difficulty, due in particular to lack of cooperation from Mr. Gross, Mr. Sharp developed a system which was designed to extract data from the NTS system, relating to the physical trades, and to combine that information with the data relating to the futures trades, which was contained in a new database set up by Mr. Sharp that was meant to capture and record futures trades. By such means Mr. Sharp became able to report the overall metric tonnage position in the aluminium division in Lausanne (Footnote: ²⁸) by means of a report formally known as the “Global Aluminium Position Report”, and colloquially known as “the Craig Report”. The quality of the information contained in such reports, and their accuracy, improved over time.

There was in evidence the Craig Reports produced by Mr. Sharp between December 2004 and January 2006 as well as a summary of them.

The witnesses

In addition to Mr. Penin, who, as I have already said, gave evidence on commission before the Swiss court, Noble called six witnesses at the trial. These were (i) Mr. Spitz, (ii) Mr. Favre, (iii) Mr. Sharp, (iv) Ms. Winchel, (v) Avi Feld (“Mr. Feld”), and (vi) Ian Manning (“Mr. Manning”). With the exception of Mr. Feld, whose evidence I consider below, I found the five remaining witnesses to be manifestly honest and that they were, to the best of their recollection, clearly trying to assist the court.

Mr. Spitz was at the relevant time President of NRSA and responsible for the metals side of the business (principally aluminium and steel). He was Mr. Gross’ boss. He gave evidence as to the relationship between Mr. Gross and Mr. Penin; Mr. Gross’ role; the speculative trading limits in place over the relevant period; the events between December 2003 and January 2006 with particular reference to his repeated attempts to obtain proper reporting from Mr. Gross; the discovery of the fraud; and the bonus payments made to Mr. Gross and Mr. Penin. Mr. Spitz is still employed by Noble and spends most of his time in Brazil.

As well as providing a number of witness statements, Mr. Spitz also swore an affidavit in January 2006 in support of Noble’s application for a Freezing Order against Mr. Grossand made a witness statement in March 2006 dealing with Mr. Gross’ application for specific disclosure. His evidence, which I accept, and, indeed, in this respect was supported by Mr. Gross, was that they were very close. However, although I reject Mr. Gross’ evidence to the effect that he was closer to Mr. Spitz at the relevant time than he was to Mr. Penin, it was clear thatMr. Spitz and Mr. Gross had personal as well as professional ties going back many years. They lived close to one another and, indeed, Mr. Gross frequently drove Mr. Spitz to work in the early morning. I formed the impression that Mr. Spitz did not find it easy to give adverse evidence about someone who had been his protégé at Noble, who was a member of the same community, and who had been his friend. For this reason his evidence was all the more compelling as being restrained. I have no doubt at all that he was telling the truth to the best of his honest recollection.

Perhaps not surprisingly, given the passage of time, Mr. Spitz did not have a full recollection of every incident and every email. He freely admitted that he was a senior manager who preferred high level summaries to detailed spreadsheets and said that he had never been a full time aluminium trader himself. Given his senior management role, he was not involved in the day to day activities of the aluminium division. For accounting purposes, 33% of his costs were allocated to aluminium, reflecting the fact that only a proportion of his time was spent on the aluminium division.

During much of his cross-examination, he was questioned with some force by Mr. de Lacy as to whether he was right to complain that Mr. Gross was uncooperative in responding to requests for information from senior management (including Mr. Spitz himself). But that cross-examination relied almost exclusively on documents from late 2004 and early 2005, and their analysis did not assist my determination of the principal issues in this case. In fact, the subsequent cross-examination of Mr. Gross, by reference to numerous emails to which Mr. Spitz was never taken, and the SMS exchanges between Mr. Gross and Mr. Penin, established beyond any doubt that Mr. Gross was indeed uncooperative to a degree beyond that complained about by Mr. Spitz.

Mr. Spitz was also cross-examined about whether it was appropriate to report a net secondary aluminium position as setting off a net primary aluminium position in the Craig Reports, although this was not an issue that was raised in cross-examination with Mr. Sharp himself.

However, and I found this to be significant, Mr. Spitz was not cross-examined on numerous matters which were subsequently asserted for the first time in Mr. Gross’ oral evidence. These included an allegation by Mr. Gross that he “regularly” informed management (including Mr. Spitz) of the large speculative positions that he, Mr. Gross, “regularly” took. Likewise, it was not put to Mr. Spitz that the proposed risk limit contained in the Lausanne aluminium department’s business plan for 2005 had been pre-approved on “an unofficial basis” by management in Hong Kong before it was put forward (as Mr. Gross alleged, for the first time, in his cross-examination). I was left with the distinct impression, from the manner in which Mr. Gross gave his evidence (a subject to which I refer in greater detail below), that the reason that these and other matters were not put to Mr. Spitz was because Mr. Gross invented them during the course of giving his evidence.

Mr. Spitz was not cross-examined by Mr. de Lacy to suggest that there was any deal concluded between Noble and Mr. Penin to implicate Mr. Gross.

Mr. Favre was the Finance Director of NRSA, with responsibility for its finance and administrative operations, as well as Acting Chief Financial Officer for Noble’s operations in Europe, the Middle East and South America. He was responsible for four administration departments within NRSA (Treasury, Accounting, Risk and Administration), and he worked with the heads of Division for each of Noble’s nine separate commodities divisions, of which the aluminium division was but one. For accounting purposes, 18% of his costs were allocated to aluminium, reflecting the fact that only a minority of his time was spent on the aluminium division.

He gave evidence as to his role; the financial reporting system used at Noble; the discovery of the frauds; his investigation into what Mr. Penin told him in January 2006; the circumstances in which he came to meet Mr. Penin around lunchtime on 19 January 2006, before escorting him to the offices of Noble’s Swiss lawyers, Python Schifferli; and the closing out of the speculative position. Mr. Favre also, to the extent that he was able, confirmed evidence given by Mr. Spitz and Mr. Sharp. Mr. Favre had also sworn an affidavit in February 2006 in support of Noble’s application for a Freezing Order. Mr. Favre had not been employed by Noble since 2006. He explained that his only preparation for trial was to read his witness statements and the documents referred to therein.

He was extensively cross-examined over most of two days to the effect that he ought to have spotted the fraudulent or manipulated contracts in the monthly TB reports. Mr. de Lacy put two alternatives to Mr. Favre: either (i) Mr. Favre did his job properly and knew what the real position was, or (ii) Mr. Favre did not do his job properly at all. However, Mr. de Lacy then went on to make it clear that he was in fact only suggesting that Mr. Favre did not apply himself properly to his task. Thus, although at times Mr. de Lacy came quite near to it, he did not in fact suggest to Mr. Favre in cross-examination that the latter had actual knowledge of the fraudulent contracts and/or the short speculative positions. Mr. Favre maintained, in summary, that (i) it was perhaps arguable that he should have spotted the relevant entries in the TB reports and called for an explanation of them, but that (ii) in fact, he did not spot the relevant entries at the time. When Mr. de Lacy put to him that it was his duty to have spotted the manipulations, he frankly replied “It was not my duty, it was my responsibility”.

Mr. Gross also made a number of insinuations about Mr. Favre’s honesty and integrity. I shall have to examine Mr. Favre’s evidence in greater detail below, when determining particular issues of fact. But my assessment of Mr. Favre as a witness was that he was entirely honest, gave his evidence in an unbiased, consistent and moderate way, and was completely open about his and Noble’s accounting methods and procedures at the relevant time.

As with Mr. Spitz, Mr. Favre was not cross-examined to suggest that there was any deal concluded between Noble and Mr. Penin to implicate Mr. Gross.

Mr. Sharp was the Assistant Financial Controller (Corporate) at Noble. He was employed by NRSA from August 2004 to November 2005. His employment was transferred to Noble (UK) from November 2005 when he was relocated to London. He left Noble’s employment in July 2006. His witness statement described his attempts to develop a reporting system to provide better information to Noble’s management on the trading position in the aluminium division. He gave evidence, inter alia, on the relationship between Mr. Gross and Mr. Penin; his preparation of the “Craig Reports”; the introduction of a separate reporting system in September 2005 to monitor speculative trading; the discovery of the fraud and its subsequent investigation; and the close out of the speculative position.

Mr. Sharp conducted much of the investigation into how the true trading position was concealed and was therefore the person best placed to distinguish between what was known to Noble management at the time and what was found out subsequently. He was on occasion mildly frustrated at the questions being put to him, but this was not surprising, since he was far more familiar than anyone else with what the contemporaneous documents actually showed.

However, he was not in fact cross-examined upon the majority of his witness statement, which set out his account of the various manipulations: when they were entered into the books, by whom, and their effect on the reported position and the profit and loss. Accordingly, I accept that evidence.

However, he was asked numerous questions about Mr. Penin’s Notebook, and selected SMS messages to which he was not a party. I shall deal with such evidence in due course.

Mr. Sharp was also an obviously honest witness, with no axe to grind. He had given up four or five weekends and taken days off work to prepare a detailed witness statement. I was impressed with the manner in which he gave his evidence.

Ms. Winchel ran the US operation of the aluminium trading division. She gave evidence as to certain losses which arose in the US in the summer of 2005 and Mr. Gross’ involvement in resolving the issues that arose. Ms. Winchel’s evidence addressed Mr. Gross’ pleaded case that during the summer of 2005 his knowledge of the activities of Mr. Penin was “minimal” and “less than usual” as he was preoccupied with resolving the difficulties which had arisen in the US operations and that he had made five trips to the US in that period.

Ms. Winchel was cross-examined on the basis that her witness statement understated the gravity of the situation which the US business faced in the summer of 2005, and also failed to recognise the significant role that Mr. Gross had played in sorting it out. However, as to these two points:

I find Ms. Winchel to have been both an honest and credible witness. In the circumstances, however, her evidence is of only limited importance to the principal issues which I have to decide.

Mr. Feld is a travel agent, who traded under the name “Perfect Travel Ltd”, and who booked flights on behalf of Mr. Gross and Mr. Penin. He knows Mr. Gross and Mr. Gertner well, and is a member of Mr. Gross’ community in North London. Mr. Gross’ sister is married to his first cousin; Mr. Feld is also related to Mr. Gertner as the latter’s sister-in-law is married to Mr. Feld’s first cousin. He gave his evidence reluctantly. Noble had to serve a witness summons on him to ensure his attendance at trial. Mr. Feld gave evidence in relation to his telephone calls with Mr. Gross, Mr. Penin and Mr. Gertner on 16 and 17 January 2006 concerning Mr. Penin’s hurriedly arranged flight to Brazil. Mr. Feld’s witness statement was signed on 20 February 2006 and was therefore an almost contemporaneous account of the relevant conversations. He said that he told both Mr. Gertner and Mr. Gross on 16 January 2006 that he had booked flights for Mr. Penin to go to Brazil, and that he had confirmed to Mr. Gertner by SMS message that Mr. Penin had checked in for the flight to Sao Paolo the next morning.

In his oral evidence, and in a letter to Mr. Gross’ former solicitors dated 24 November 2006, Mr. Feld attempted to suggest that the telephone calls from Mr. Gertner to himself were coincidental and related to family matters. I found Mr. Feld’s attempt to marginalise Mr. Gertner’s role unconvincing. Save in this respect, however, I accept Mr. Feld’s account as set out in his witness statement and amplified in court by reference to the telephone calls which he had made. It was not challenged in material respects in cross-examination, although when he came to give evidence, Mr. Gross contended that Mr. Feld was wholly mistaken about certain matters. For example, he said that Mr. Feld would “never” call him to get approval for Mr. Penin’s flights, and said that he regarded Mr. Feld’s evidence on this point as “entirely false”. The fact remains, however, that Mr. Feld’s testimony was not challenged in this respect whilst he was giving his oral evidence.

Mr. Manning is the head of Forensic Analysis & Investigation at FoxData Limited, a company which had been engaged by Noble to assist with aspects of electronic disclosure. He gave evidence on the data recovered from devices used by Mr. Gross and Mr. Penin and the evidence of the mass deletions on Mr. Gross’ laptop. Mr. Manning was cross-examined as to why an employee at FoxData had failed to identify certain SMS messages and the fact of the mass deletions, when Fox Data was first instructed. However this was irrelevant since the SMS messages were in evidence and the fact of the mass deletions was in fact accepted. The critical feature of Mr. Manning’s evidence, which was accepted on behalf of Mr. Gross, was that it is not possible to amend SMS messages after they have been sent or received.

As I have already mentioned, I was present to observe Mr. Penin giving his evidence before the Swiss court. Although Mr. Gross had the opportunity of being present, or being represented, at the hearing and questioning Mr. Penin, he chose not to avail himself of this opportunity. I am left with the impression that this was a deliberate tactic on Mr. Gross’ part, since, only shortly thereafter he managed to secure substantial funding, via his wife, from an undisclosed source for legal representation by leading counsel and solicitors at trial. No explanation was given to the court as to why such funding had not been available at an earlier stage. As a result, the questioning of Mr. Penin before the Swiss court was a fairly gentle exercise. It cannot be equated to the rigorous sort of cross-examination to which he would have been subjected at trial in this court by Mr. de Lacy.

I have taken into account this fact and also the serious criticisms made by Mr. de Lacy on behalf of Mr. Gross as to the lack of integrity of Mr. Penin as a self-confessed fraudster. Nonetheless, I have concluded that, for the most part, and with some exceptions, his evidence before the Swiss court was in broad terms honest. He was obviously in a difficult personal position given the criminal and civil court proceedings which he faces in Switzerland. Some of his answers were somewhat equivocal; for example, although he appeared to be suggesting at times that others at Noble, apart from himself and Mr. Gross, must have known about the speculative positions, on analysis, he was saying no more than the fact, which was correct, that the futures trades conducted on the LME, which were the basis of the speculative positions, were recorded in Noble’s accounting records. He was not going so far as to say that anyone else at Noble, apart from himself and Mr. Gross, appreciated that there was a large unhedged position, which gave rise to a substantial net exposure. He also adopted the line that he and Mr. Gross were authorised to conduct speculative trades and that, accordingly, the use of the fraudulent and manipulated physical contracts was for the purpose of hiding the unrealised losses produced by the speculative trading, rather than for the purpose of hiding the existence of the speculative positions per se. For reasons which I give later in this judgment, I do not accept that the speculative trading was authorised. However for the purposes of examining the validity of Mr. Penin’s evidence, this is not a significant point, since the effect of the concealment in fact achieved both ends.

So far as the evidence he gave in relation to the knowledge and involvement of Mr. Gross in the taking of speculative positions, and their concealment by the fraudulent and/or manipulated physical contracts, his oral evidence before the Swiss court was clear, convincing and consistent with, and supported by, the documentary records and other documentary and oral evidence subsequently adduced at trial, including his own witness statements. Taking into account the fact that his oral evidence on this aspect was not subject to challenge by cross-examination, I nonetheless accept it, albeit with some reservations as to the detail.

In addition to the oral evidence of Mr. Penin before the Swiss court, there was in evidence a statement called “Minutes of Declaration”, which was signed by Mr. Penin on 19 January 2006. This statement was the most contemporaneous account by any witness of what happened. In large measure it supported the oral evidence which Mr. Penin gave on commission. Chronologically, the Minutes of Declaration came into existence as follows. The concealment of the short speculative position and the huge losses which it caused began to unravel over the weekend of 14/15 January 2006 as Mr. Favre and others worked to close the books before the arrival of the auditors on Monday 16 January 2006. It was common ground that, on the Monday evening, Mr. Gross stopped answering calls from Mr. Penin. Late that same evening, Mr. Penin says that he received a call on behalf of Mr. Gertner telling him to flee to Brazil; the fact of the call was not disputed, as Mr. Penin’s telephone bill recorded the call, but its subject matter was.

On Tuesday 17 January 2006, Mr. Penin travelled to Brazil via Lyons and Paris. On Wednesday, he returned to Switzerland, landing on Thursday 19 January 2006. By the end of that day, he had given his account to Mr. Favre and Mr. Spitz at the offices of Noble’s Swiss lawyers, and had signed the Minutes of Declaration. It was not therefore an account which was developed over a period of months or years in the knowledge of the surviving evidence. Although I accept that this was a confession made at a time when Mr. Penin, in a vulnerable state, was extremely concerned to preserve his job and to protect his own position, that the questions may have been slanted by Mr. Spitz or other interrogators, and that he signed it in the absence of his own lawyer (although after having spoken to his lawyer on the telephone), nonetheless the statement was made before Mr. Penin knew what evidence had been preserved, what Noble knew or might discover, and what Mr. Gross would say. As Mr. Boulton submitted, the evidence adduced at trial shows that the substance of this account has in all important respects – at least insofar as it relates to the role played by Mr. Gross – survived the process of preparing subsequent statements for the Swiss criminal investigation. Mr. Penin has over time sought to amend certain details of his account, and to shift greater responsibility onto Noble. But he has not changed the heart of the account he gave on 19 January 2006 and confirmed in his various statements thereafter: namely that he and Mr. Gross together took large speculative positions and hid them by entering various false or manipulated physical contracts in the system. Mr. de Lacy submitted that the statement was riddled with errors and inconsistencies, and was “an insult to the court’s intelligence”. I disagree. Noble’s analysis in its closing submission has cross-referred each paragraph of the Minutes of Declaration to corroborative evidence in the trial bundles and the transcripts. Although Mr. Penin was confused about a couple of dates (for example he recalled the key manipulations, but on occasion placed them in the wrong month), which is consistent with the fact that he was making his confession from memory, I accept that Mr. Penin’s account was substantially the truth.

Mr. de Lacy submitted that his account was not the whole truth; that there may have been earlier or additional manipulations; and that Mr. Penin said no more than Noble had already discovered. Although it may be right that Mr. Penin was silent about some matters (such as additional commissions which he had received from Normet), I do not accept that all Mr. Penin did was to tell Noble what it already knew. Mr. Penin told Noble about the speculative positions taken over a two year period, and provided a copy of his Notebook, which included details of his manipulations of the profit and loss account at various dates.

Mr. de Lacy also pointed to the fact that it appeared that Mr. Penin was receiving some sort of improper payments or commissions from Normet, and accordingly argued that there may well have been some other unexplained motive for Mr. Penin’s manipulations of the physical book (particularly insofar as they concerned the Normet contracts). Mr. de Lacy also pointed to the fact that Mr. Penin had been dismissed from his previous job at Toyota for having fraudulently and deliberately overstated the value of certain goods, “because the market values had not developed as [he] had thought”; and to the fact that, in the Swiss criminal proceedings, Noble had contended that, during his prior employment by Toyota, Mr. Penin had been in receipt of fraudulent secret commissions from Normet.

On the other hand, Noble submitted that it was plain that the manipulations were intended to, and did in fact, conceal the existence of the speculative positions and the losses that resulted from those positions and that accordingly it was irrelevant that Mr. Penin may in addition have been receiving improper commissions from Normet unbeknownst to Mr. Gross.

I have necessarily been extremely cautious in my approach to the evidence given by Mr. Penin, and my analysis of his credibility, given that, as Mr. de Lacy repeatedly emphasised, he is a self-confessed fraudster, who placed himself in a position of acute conflict of interest with his employer and was in receipt of dishonest secret commissions. I do not accept Mr. Penin’s evidence in its entirety; for example, it is clear that he has been considerably less than frank in his account of certain Normet and Egtal payments and that he has, over time, sought to minimise his own role and emphasise the knowledge of others. However the key thrust of his evidence, so far as the issues in these proceedings are concerned, is that Mr. Gross was a participant in the fraud. And ultimately it is in this respect that I prefer Mr. Penin’s evidence to that of Mr. Gross.

My reasons may be shortly summarised as follows:

Mr. Gross’ credibility as a witness

I heard Mr. Gross give evidence in the witness box for over five days. He had clearly prepared extensively before giving evidence. He was familiar with all of the documents, and frequently cited additional emails and SMS messages that he said were consistent with his case. He is obviously an intelligent and numerate man. There was, however, a marked distinction between his apparent clear recollection of some telephone calls, SMS messages and emails, and his apparent, and convenient, total lack of memory when it came to other significant issues (such as the timing and amount of the speculative positions that he said he had taken). His oral evidence relied very little on the witness statements which he had previously given before the trial started. Effectively, the details of his defence were developed in the witness box. The excuse given for this was that Mr. Gross was a litigant in person, but this was the case only for the period from late March 2008 to early January 2009. For the first 26 months of this action, he was represented by Peters & Peters, solicitors, and counsel.

I found Mr. Gross to be a highly unsatisfactory witness, whose evidence in relation to the significant disputed matters was totally lacking in credibility. Unless his evidence was supported by contemporaneous documents or records, or the testimony of other witnesses, I have had to approach it with great care. In relation to the critical evidential issues in dispute, I have for the most part rejected it. I deal later in this judgment with my specific findings in relation to the particular factual issues in dispute. However my general reasons for my adverse conclusion as to Mr. Gross’ credibility may be shortly summarised as follows:

Noble served a hearsay notice in relation to the “Minutes of Declaration” of Ms. Grin dated 1 February 2006. She was responsible for the back office of the aluminium division, which was in Lausanne, and which was normally known as “Traffic”. She worked in the Lausanne office near Mr. Penin. She made the relevant entries, on Mr. Penin’s instructions, in the physical trading book known as the NTS system. Mr. de Lacy complained that she would have been an important witness, in particular in relation to the events of January 2006, and that she should have been called to give oral evidence. I doubt whether any live evidence by her would have been of any real assistance to the court in determining the principal issues of fact. It was not suggested in Mr. Gross’ defence that she was party to any fraudulent conduct on the part of Mr. Penin; if, and to the extent, during the course of his evidence, Mr. Gross implied that she was aware of the falsity of any of the manipulations, there was no evidence to support it. She was clearly in a subordinate role to that of Mr. Penin and Mr. Gross. Her Minutes of Declaration merely supported Noble’s case, shown by other documentary and witness evidence, that Mr. Gross was head of the traders in the aluminium department and “the Boss”. She also stated, in a somewhat exaggerated fashion, but which nonetheless had the ring of truth about it, that Mr. Penin and Mr. Gross would telephone each other “about 500 times a day” and that Mr. Penin informed Mr. Gross of everything he, Mr. Penin, did. The telephone records and SMS messages are entirely consistent with her evidence.

Mr. de Lacy also commented about the absence of any witnesses from highest levels of management at Noble. He said this was important because Mr. de Fries might have been questioned on the mechanics of putting in place the alleged trading limits and the alleged absence of any attempted enforcement of alleged trading limits. Likewise he complained that a Mr. Gary Mize, chief operating officer of the Noble Group, and a member of the risk committee for some of the relevant time, could have been questioned about the change in reporting requirements. I do not accept these criticisms. The contemporaneous documents clearly show the position in relation to the trading limits and senior management’s repeated concerns to understand the exposure of the aluminium division to the market and other risks, and to insist upon more transparent reporting requirements. They also show Mr. Gross’ repeated attempts to frustrate such requests. The critical representatives of senior management at Noble, who were involved in this matter (and who were originally alleged in Mr. Gross’ defence to have had knowledge of “large net speculative positions on a regular basis, which were in excess of the recorded notional limits”) were Mr. Spitz and Mr. Favre, both of whom were called as witnesses.

These witnesses might have been in a position to give evidence in relation to the issue as to whether Mr. Gross was instrumental in Mr. Penin’s flight to Brazil. I deal with the fact that Mr. Gross did not call them as witnesses below.

Noble’s case was that Mr. Penin reported to and was supervised by Mr. Gross.

Mr. Gross’ case, as pleaded in paragraph 6 of his Defence, was that, although he was technically Mr. Penin’s superior, Mr. Penin did not report to, and was not supervised by, Mr. Gross. The latter’s pleaded position was as follows:

“(i)

Mr Penin was based primarily in the Lausanne office of the Noble Group, whereas the Defendant would rarely attend the Lausanne office;

(ii)

Mr Penin was the Defendant’s equal in terms of trading experience and was significantly autonomous of the Defendant;

(iii)

Mr Penin did not seek the Defendant’s approval or consent for any aspect of his employment, including his trading and expenses - although Mr Penin did discuss some of his trading strategies and/or trades some of the time with the Defendant;

(iv)

Mr Penin was supervised by, and directly reported to, Mr Spitz and Mr Favre;

(v)

Mr Penin made the actual European aluminium trades for the Noble Group, and the Defendant’s primary role was to generate and develop business for the aluminium division.”

Mr. Gross was cross-examined at trial about this issue. In argument Mr. de Lacy submitted that the evidence showed that Mr. Penin was employed as an autonomous trader, a man who was supervised for risk and accounting purposes by Mr. Favre and reported for commercial purposes in parallel with Mr. Gross to Mr. Spitz. He submitted that the fact that Mr. Penin was travelling with Mr. Gross frequently on business was a matter of business practicality, and did not support Noble’s case that Mr. Penin was reporting to, and being supervised by, Mr. Gross. He further submitted that Mr. Gross’ visits to Lausanne represented a trivial period of the working year.

In his evidence before the Swiss court Mr. Penin gave evidence which supported Noble’s case. He said that he was not autonomous but that he answered to Mr. Gross with whom he had significant contact, in order to discuss trading; and that “everything went through” Mr. Gross. He made it quite clear that he was supervised by Mr. Gross and reported to him only, and that he did not report either to Mr. Spitz in London, or to Mr. Favre in Lausanne. He told the court that Mr. Gross went to the office in Lausanne three or four times a month and that he Mr. Penin went there five or six times a month. He said that Mr. Gross and he spent most of their time travelling together, and that his main costs were travelling expenses which had to be approved by Mr. Gross, so much so that the travel agency would telephone Mr. Gross whenever Mr. Penin made a flight reservation for a business trip. He said that, although he had some autonomy with certain direct clients of Noble, any decision to talk with a particular client was made by Mr. Gross who directed the Department’s strategy. Part of Mr. Penin’s work consisted in concluding European contracts, but Mr. Gross was responsible for supervising such contracts. In general terms, I accept this account by Mr. Penin, because it is, to a large measure, supported by the other evidence in the case, other than that given by Mr. Gross.

In my judgment the evidence, much of which is documentary, supports Noble’s case as to Mr. Gross’ role and his responsibility for Mr. Penin. It shows, amongst other things, as follows:

I should also say that I was not impressed by Mr. Gross’ attempts, during the course of his cross-examination, to deny, in relation to what was, in fact, a minor issue, that he had formal responsibility at Noble for supervising Mr. Penin.

As I have already mentioned, although there was a hotly contested dispute between the parties as to the extent to which Mr. Gross and Mr. Penin were authorised by Noble to enter into speculative trades, the issue was of secondary importance, since in any event Mr. Gross denied any knowledge of the speculative position that caused Noble’s loss. Thus the relevance of the issue was whether Mr. Gross would have had a motive to hide any speculative position of which he was aware.

Noble’s case was that its principal business insofar as it related to the aluminium division was trading physical aluminium, and that traders were authorised to enter into futures contracts principally to hedge existing physical commitments; however, in order to give traders some flexibility as to the timing of when they hedged their physical trades, they were given a small trading limit on their net position. As to speculative trading limits, Noble’s case was that initially, Lausanne had a flat price limit of 2,000mt (Footnote: ³⁰), but that, by September 2005, this had increased to separate speculative trading limits of 5,000mt for each of Lausanne and the US.

Mr. Gross’ case was that Noble had downplayed the extent of speculative trading that was going on in the Group and that traders employed by it were at all material times actively encouraged by senior management figures such as Mr. Spitz and Mr. Favre to enter into futures contracts in relation to all commodities, including aluminium, for non-hedging (i.e. speculative) purposes, on the grounds that this form of speculative trading had the potential to be a significantly more profitable activity than physical trading. So far as limits on speculative trading were concerned, Mr. Gross’ case was that any purported limits referred to in the contemporaneous documents were not contractual, were not enforced and were no more than window dressing to enable management in Hong Kong to state to third parties, including auditors, that limits had been notified and observed. He pointed to the difficulties that would arise in practice in relation to a combined limit of 10,000mt as between the Lausanne and US offices. He stated that he had put forward a proposed limit of 10,000mt in January 2004 and was not contradicted; that when substantial excesses in excess of that limit appeared after June 2004, no complaint followed. He also said that he had put forward a proposal of 25,000mt in a business plan in November and December 2005 and that this had been carried forward into an internal draft audit report of 17 January 2005 and also in the final internal report dated 16 February 2005 without question. He contended that such limit had never been contradicted by senior management and he relied on evidence given by Mr. Sharp in a witness statement to the effect that, in January 2005, Mr. Sharp was not aware that any formal limits on trading had been imposed on the traders in the Lausanne office.

I am satisfied, having reviewed the evidence, both documentary and oral relating to this issue, that speculative trading limits were imposed by Noble on the aluminium division in Lausanne and the US; that during 2004 the limits imposed in relation to Lausanne was 2,000mt and that at some time in 2005, such limits increased to 5,000mt. Because the evidence does not show the precise date upon which the increase in limits took place in 2005 (an e-mail dated 22 September 2005 shows that it had certainly been increased by that date), I have assumed in Mr. Gross’ favour that the increased limit was in force throughout 2005. Mr. Boulton agreed that I should make such an assumption. However the existence of such speculative trading limits is consistent with the contemporaneous documentary evidence, which showed that management in Lausanne and Hong Kong were consistently keen to understand the risks to which the aluminium division was exposed, and to manage that risk by reference to approved limits.

Mr. Gross’ evidence at trial did not, on analysis, support his case on the subject of speculative trading limits. It showed that Noble’s management (particularly Mr. Spitz but also Mr. Mize and Mr. de Fries in Hong Kong) had made frequent attempts to obtain the information on Mr. Gross’ trading position that would have enabled them properly to review the amount of risk to which the Lausanne operation was exposed. It also showed that Mr. Gross and Mr. Penin had frequently reported to management what was essentially a flat position, which in itself was surprising, if they had indeed thought they were not subject to speculative trading limits.

Further support for the fact that Mr. Gross and Mr. Penin knew that they were expected to trade within the published limits was provided by Mr. Sharp’s summary of the draft and final Craig Reports sent out by Mr. Sharp between 7 December 2004 and 5 January 2006. Mr. de Lacy, as part of his closing submissions, conducted a detailed analysis of these reports and other chronological documents in an attempt to demonstrate that there can have been no limits because certain of the Craig Reports showed positions over the limits, and there was an absence of any adverse reaction from Mr. Spitz or anyone else, to what were positions apparently in excess of limits. I do not accept the submission. Mr. Sharp’s summary of the draft and final Craig Reports clearly demonstrates that, although the draft Craig Reports sent to Mr. Penin (and commonly copied to Mr. Gross) frequently showed speculative positions well in excess of the published limits, the final Craig Reports, (which were sent to senior management), did not. Of the final Craig Reports, only those sent on 26 January 2005 and 18 February 2005 reported a net position of over 10,000mt; and the first of these in fact showed an adjusted position of 4,875mt which was misreported by Mr. Sharp in his covering email and corrected by Mr. Penin within a matter of hours. From March 2005 onwards, by which time the Craig Reports were considered more reliable, only one of the final Craig Reports showed a net position of more than 7,000mt. Given the extensive evidence of the manipulations that were made to the physical book, and the additional adjustments made to the draft Craig Reports, I accept Mr. Boulton’s submission that it can be inferred that (on the assumption that he had knowledge of these speculative positions, which is a subsequent issue) Mr. Gross and Mr. Penin were indeed concerned that the Craig Reports should not report a significant speculative position; and that they ensured that the final reports showed a flat position.

Moreover Mr. Gross’ assertion that Noble management were aware of the extent of the speculative trading positions taken in Lausanne, was not borne out by either the documentary evidence or the oral evidence of the Noble witnesses. In the second half of 2005, the chronological documents show the increasing concern of management to understand exactly what the position was and to minimise Noble’s exposure to a volatile market. Moreover there was no example where Mr. Gross reported a speculative position of any size in writing. Although Mr. Gross said at the beginning of his oral evidence that he had taken large speculative positions at various times, he was unable to refer to specific times or quantities, and could only say that he had informed Mr. Spitz of them in person. However this assertion was not put to Mr. Spitz in cross-examination and there was nothing in any of the documents to indicate that any such position was ever reported to him (or anyone else). The emails in which Mr. Gross reported his position to management consistently sought to reassure Mr. Spitz and others that the Lausanne position was “flat” or “square”. Nor was there any support in the contemporaneous documents or in the evidence of the witnesses for Mr. Gross’ assertion that the aluminium risk limits sent out by Mr. de Fries were a “charade” created to satisfy the auditors and investors. Not only was itnot put to Noble’s witnesses in cross-examination but it was also inconsistent with Noble’s attempts to monitor breaches of those limits.

Similarly, I could find no support, whether in the audited accounts or elsewhere, for Mr. Gross’ claim that the increase in the Group’s profits from $23 million in 2001 to $283 million in 2004 was “entirely to do with speculative trading”; or that Noble made “all” or “a majority” of its profits from speculative trading. In any event, the division with which I am concerned is the Noble aluminium division; it may well be that in other divisions the speculative limits were different. Mr. Gross said that the numerous references to futures trading in a particular email from Mr. Spitz were evidence that the aluminium division was engaged in speculative trading with the full knowledge of Mr. Spitz; however, there was nothing in that e-mail to support this suggestion. The fact that, as was the case, Mr. Gross was engaging in futures trading did not predicate that such trading was speculative; it was equally consistent with a hedging activity. Moreover the e-mail made it perfectly clear, as did others, that both Mr. Spitz and senior Noble management were concerned to monitor risk and to ensure that limits were not exceeded. Mr. Gross’ attempted reliance on other e-mails, whether from Mr. Spitz or from others, in an attempt to establish this assertion, was equally misplaced.

I also reject Mr. Gross’ claim that the proposal in his 2005 business plan for a speculative trading limit of 25,000mt had been approved. His evidence was somewhat unclear on this, but he appeared to be saying that the limit had been approved not only by Mr. Spitz but also that Mr. Spitz had obtained some kind of vague “pre-approval” from Hong Kong for the new limit. There was no documentary evidence of such approval; indeed the documentary evidence that there was contradicted the idea of any such approval; Mr. Spitz said it was not approved; and Mr. Spitz was not cross-examined on the suggestion that he had obtained some kind of pre-approval.

The reality here was wholly inconsistent with Mr. Gross’ allegations that speculative trading was rife and that there were shadow risk limits (presumably communicated orally) that overrode the documented risk limits. The reality was that the large speculative trading positions taken by Mr. Gross and Mr. Penin in December 2004, June 2005 and July 2005, and maintained during the period from July 2005 to January 2006, were never reported to management, and that Mr. Penin and Mr. Gross went to great lengths to ensure that they were not reported. One asks rhetorically why, if the position in relation to risk limits for speculative trading was indeed as relaxed as Mr. Gross asserted, such positions were not reported on a regular basis. Finally, in so far as Mr. Penin sought to suggest in his evidence that there were no speculative trading limits in place, I reject such suggestion as being inconsistent with the other evidence. Actually, the thrust of his evidence was to the effect that the manipulations and false contracts were to conceal losses.

I have already described the Craig Reports. To recapitulate, these were reports that were intended to show the net metric tonnage trading position of the aluminium division in Lausanne (both physical and futures). The report evolved over time. Initially it focussed on physical trading of primary aluminium (which was the biggest book of business), being extended to cover secondary aluminium trading from about 25 February 2005. It was not until April 2005 that the Craig Reports could be regarded as reliable. The Craig Reports were always intended to be produced on a weekly basis, but in fact could only be produced when Mr. Sharp was working in Lausanne. There was very little challenge to Mr. Sharp’s evidence.

Mr. Gross claims that he was not required to check or approve the Craig Reports and that his readership of the Craig Reports was limited “at best” to the summary of the net position contained in Mr. Sharp’s covering email. Mr. Gross’ evidence was to the effect that he helped to set up the format of the initial reports, but that he did not in fact review the draft reports. He contended that he left that to Mr. Penin.

There was no dispute that the detailed management and manipulation of what the Craig Reports, or draft Craig Reports, showed, was performed by Mr. Penin rather than by Mr. Gross himself. However, Noble’s case was that Mr. Gross was aware of what was being done by Mr. Penin (I address this specific issue below).

In my judgment, an analysis of the evidence clearly shows that Mr. Gross did indeed review the draft Craig Reports to ensure not only that he and Mr. Penin had input into the draft reports, but also to ensure that the speculative positions, and the correlative losses, were concealed. For example, on 28 July 2005, shortly after Mr. Gross and Mr. Penin had taken out the 50,000mt short position, Mr. Gross texted Mr. Penin to ask “Is the Craig report going to be ok”. Mr. Gross’ explanation for this message, and for Mr. Penin’s reply “will make it ok”, is that he and Mr. Penin were concerned to get the Craig Report out to management in Hong Kong. In the context of Mr. Penin and Mr. Gross’ usual indifference to requests for information from Hong Kong management, this was a surprising explanation. Later the same day, Mr. Gross and Mr. Penin had the following exchange of SMS messages:

28 July, 17.59 onwards:

MP: “Cba selling 6k”

PG: “Will do it”

MP: “Discount? We need something to mark up”

MP: “Just bought 2k at 1840.....balance he is coming back in 30 mins”

PG: “What month”

MP: “Sept ship”

PG: “And the rest”

PG: “2k oct, 2k nov”

PG: “We should hedge”

MP: “Tmrw am 1^st thing”

PG: “Or after Craig does his report ... What happened to the 2k that had no price”....

PG: “Make sure Craig doesn’t get too eager and send it before you see it”

MP: “He knows that.”

Mr. Gross purported to explain this exchange as showing his attempt to ensure that the Craig Report would show an accurate position. But, in my view, in this passage, Mr. Gross was suggesting that Mr. Penin should delay hedging an existing physical purchase until after the Craig Report was sent, which would have had the effect of lengthening the net position shown in the Craig Report. The chronological documents show many requests by Mr. Spitz and others for Mr. Gross to ensure that Hong Kong was sent an up to date position report in relation to the aluminium division’s trading. In his role as head of the aluminium division, it is inconceivable that Mr. Gross was not required to review or approve the reports. In his Defence Mr. Gross contended that the Craig Reports showed “large speculative positions on a regular basis”. But as I have already mentioned, this was true of a few draft reports sent to Mr. Gross and/or Mr. Penin, but was not true of the final Craig Reports sent to Noble management. The largest speculative position shown in a final Craig Report between the end of February 2005 and the end of 2005 was a short position of 8,747mt for Lausanne on 10 August 2005 (the actual short speculative position at that date was over 50,000mt).

Accordingly, in conclusion on this issue I find that Mr. Gross was required to, and did indeed, review the Craig Reports.

The issues which arise under these two heads are the critical issues in the case and are obviously linked. I propose to deal with them together.

The first series of issues are whether Mr. Gross and/or Mr. Penin took speculative positions in excess of trading limits in December 2004 (i.e. the December 2004 short position), June 2005 (i.e. the June 2005 long position) and July 2005 (i.e. the July 2005 short position); whether those positions gave rise to a substantial unrealised loss; and, if the positions were taken by Mr. Penin, to what extent Mr. Gross knew or approved the net position, and the maintenance of the short position from July 2005 to January 2006. Essentially, two separate issues arise; first whether Mr. Gross and/or Mr. Penin built up the speculative positions of which Noble complains; and second, if it was Mr. Penin who decided to take a speculative position, did Mr. Gross know about or approve it?

The second series of issues are the extent to which, if at all, Mr. Gross knew about, or was involved in, the various manipulations to the physical book, including the Normet, Egtal, and Hydro contracts; in particular, whether the false contracts were entered into for the purpose of concealing the speculative positions, and/or the losses arising from the speculative positions, or were recorded for some other entirely separate, or private, purpose of Mr. Penin’s related to the commissions which he had received from Normet, or others, both before and after he joined Noble.

In his Defence Mr. Gross pleaded in summary as follows:

During his cross-examination Mr. Gross changed his position from that pleaded in his Defence. Right at the start of his cross-examination, he admitted that he had taken large speculative positions, albeit of indeterminate sizes and at unknown dates. Subsequently he also said that he had been told by Mr. Penin on 21 June 2005 that Mr. Penin had taken a long position of 1,525 lots (38,125mt) in June 2005, which he claimed to have reported to Mr. Spitz^.. Once again, this point was not put to Mr. Spitz in cross-examination; the inference which I draw from this fact, and the manner in which Mr. Gross gave his evidence, is that the suggestion that he had reported the matter to Mr. Spitz was one which Mr. Gross thought up in the witness box. I did not believe his evidence on this point.

It also appeared, during the course of his cross-examination, that Mr. Gross accepted the evidence of Mr. Favre and Mr. Sharp that there had indeed been manipulations to the contracts, or so-called contracts, recorded in the physical book. He thus accepted for all practical purposes the accuracy of the document prepared by Mr. Sharp entitled “Summary of false contracts/manipulations of genuine contracts in Noble’s physical book” (Footnote: ³¹), which set out the false contracts and manipulations to genuine contracts, which Noble contends were entered in the physical book.

During the course of his submissions, Mr. de Lacy strongly submitted that Mr. Gross could have had no possible motive to engage in unauthorised speculative trading with Mr. Penin, or to be party to a dishonest concealment of the losses arising from such trading. He asked rhetorically, if Mr. Gross’ bonus was not exclusively related to trading performance, but also reflected his managerial responsibilities, why would Mr. Gross have risked his career at Noble, any future business career outside Noble, and his professional reputation, simply for the sake of an increase in that part of his bonus attributable to financial performance. However, Mr. Spitz’s evidence showed, that although Mr. Gross’ bonus did to a certain extent reflect his managerial responsibilities and performance, as well as his trading results, the calculation of Mr. Gross’ bonus, as with other employees, was by reference to, and depended upon, the gross trading profits, and financial performance, of the aluminium division.

I have, in assessing Mr. Gross’ evidence, and the probability of his engaging in the conduct of which Noble complains, carefully considered Mr. de Lacy’s submissions as to motive. However there was no doubt that the cash proportion of Mr. Gross’ total remuneration was substantial; for example for the year ended 2004, his salary was $250,000 and his bonus was $750,000. I have little doubt that his desire to earn a substantial bonus was a motivating factor in his conduct. I also consider, based on Mr. Penin’s evidence, that Mr. Gross was extremely keen to demonstrate that the aluminium division under his control was generating substantial profits, in particular when compared with the results of the Hong Kong division, and that this also provided a strong motive for him to behave in the manner alleged. Moreover, as Mr. Boulton submitted, this was not a case where either Mr. Gross or Mr. Penin embarked on their speculative trading activities, and the initial concealment of the consequential losses, with the deliberate idea of defrauding Noble, or exposing it to risk, in an amount of approximately $40 million. This was a classic case where the consequences of the fraud grew incrementally; Mr. Gross no doubt genuinely hoped and believed that if the speculative position was concealed for a short time, the market would turn in his favour, and that substantial unrealised losses would turn into substantial realised profits. Indeed Mr. Gross and Mr. Penin had managed to trade out of the 2004 position. But the problem here was that, in the second half of 2005, the market continued to rise, against Mr. Gross’ expectations, and with the exception of a window in mid-September 2005, there was no opportunity for Mr. Gross and Mr. Penin to close out their short position without incurring losses. Accordingly, I reject Mr. de Lacy’s submission that there can have been no realistic motive for Mr. Gross to have behaved in the manner alleged by Noble.

The evidence specifically relating to the December 2004 short position comprised:

There was no evidence available of the SMS messages passing between Mr. Gross and Mr. Penin during the relevant period, although I have no doubt that they were, as in later periods, constantly in touch not only by SMS, but also by telephone and other means. In his evidence, Mr. Penin referred to the frequent communications between them and the fact that he was “always” providing information about “our business” (i.e. trades) to Mr. Gross; that, if Mr. Penin forgot to do so, Mr. Gross, having checked the “recaps”, would get on to Mr. Penin to ask him about it; and that Mr. Gross read everything, and would pick Mr. Penin (and other traders) up, if he (or they) failed to inform Mr. Gross of what they were doing.

Noble also relied, in relation to the position as at the December 2004 year-end, upon the more specific evidence in relation to the positions established in June and July 2005. Mr. Boulton submitted that, once the active involvement of Mr. Gross in the June and July positions is established, that evidence can be relied upon to corroborate Mr. Penin’s account of Mr. Gross’ involvement, and what Mr. Penin described as a joint scheme between himself and Mr. Gross in December 2004.

Mr. Penin’s Notebook clearly records the change from a net long position in late November 2004 to a net short speculative position of 455 lots at 25 mt per lot, as at the December 2004 year end. His notebook contained a profit and loss analysis of the short position as at the year end, showing a loss of approximately $1 million.

In his various statements Mr. Penin explained how, on the instruction of Mr. Gross, they had decided in November 2004 to build up a short speculative position, until April 2005 when the market crashed. He said that the speculative positions taken by him were taken under Mr. Gross’ orders and that he, Mr. Penin, always kept Mr. Gross informed of all levels of the positions. He said that his attitude was different from Mr. Gross’, in that Mr. Penin always preferred to take a profit little by little on the speculative trades entered into, whereas Mr. Gross’ attitude was generally to maintain the position and hope to maximise profits. On several occasions in 2004 Mr. Penin said that he’d actually closed out the speculative positions against Mr. Gross’ instructions. He said that he’d been criticised for that and was given clear instructions to the effect that it was Mr. Gross who decided on the speculative trading strategy. He went on to say that, towards the end of 2004, after they had maintained a long speculative position, Mr. Gross’ approach completely changed. He had told Mr. Penin that enough was enough, that the market would not rise any more, and that it was time to go short. Mr. Penin said that he complied with his instructions, but, by the end of 2004 their speculative short position was showing an unrealised loss of approximately $1 million, as the market had in fact continued to rise.

Mr. Penin went on to explain that Mr. Gross was very concerned that the Lausanne office should not show a bad result. In May 2004, when Mr. Gross had been appointed head of the aluminium department, he had made it very clear to Mr. Penin that he wanted to increase the profits of the Lausanne office from around $350,000 a month to $1 million a month; and that he wanted to make sure that the Lausanne office was making more profit for the company than the Hong Kong office was making each month. Mr. Penin said that, although the unrealised loss would have only a small impact on the results of the Lausanne office for the year, which were approximately $8-9 million of profit, Mr. Gross was adamant that they could not show a mark to market loss on the speculative position. According to Mr. Penin, Mr. Gross said “we had to do something with it” and “we had to put a contract there which hides the loss”. Mr. Penin said that he and Mr. Gross, either on the phone or when they were together, discussed a number of potential solutions. In a telling passage of his statement, Mr. Penin said

“I do not believe that Phil’s actions were driven only by his desire to have a higher bonus. I think they were driven by his desire to make money for the division, which for the reasons I have given he was keen to do. This in turn fed his ego, strengthened his position and no doubt also would contribute to his being awarded a larger bonus.”

I accept that evidence.

Mr. Penin went on to describe how he and Mr. Gross decided that Normet, a supplier of secondary aluminium, with whom Noble had a good relationship, and normally dealt with on spot, fixed price terms, should be approached to provide a “frame” physical contract, and supporting documents; a frame contract was one that contained no actual contractual obligation upon Normet to supply aluminium to Noble, but rather referred to indicative or approximate quantities and prices, for anticipated delivery over a six-month period. He explained that he discussed with Mr. Gross the size of the so-called frame contract that was needed to generate a profit that would hide the loss on the short speculative position, as well as the period, the price and the tonnage. Mr. Penin further explained that together he and Mr. Gross calculated the size of the profit that would be required and “divided it up” over a period of six months. The contract was, according to Mr. Penin, completely different from any contract that Noble had previously concluded with Normet and, in Mr. Penin’s view, ought to have stood out as unusual. All other contracts with Normet had small tonnages, prompt deliveries and were at a fixed price. Mr. Penin explained that, on Mr. Gross’ instructions, he had approached Mr. Pavlov at Normet who was a long-standing contact of Mr. Penin, whom he did not think that Mr. Gross had ever met. Mr. Penin called Mr. Pavlov and said he needed to ask him a favour; that the contract was “for internal Finance or banking purposes” and asked for Normet to put in current prices, to a total figure of $29 million. Mr. Gross was copied in on an internal Noble e-mail setting out the terms of the contract. Mr. Gross, according to Mr. Penin, instructed Mr. Penin to enter into the NTS system the First Normet Contract at a fixed price, which thus appeared to contribute a substantial sum to the profit and loss account as at the year end. In fact the apparent profit was completely false. According to the undisputed evidence of Mr. Sharp, the amount of the false profit purportedly contributing in this way to Noble’s profit and loss account as at the 2004 year end was $2,296,875.

Mr. Penin went on to state that the First Normet Contract was taken out of the accounting records regularly during the first quarter of 2005, when the short speculative position as at the December 2004 year end started to make a profit and was closed out. This evidence was supported by the contemporaneous accounting records which showed various metric tonnages of the contract being removed from the NTS system during the early months of 2005 so that, by 24 June 2005, the entire contract quantity had indeed been removed. The Notebook also contained an analysis of the fact that the year end speculative position of 455 lots went into the money in January 2005 and was sold at an average price of $1848. His account is also supported by the fact that the evidence of the LME market prices in the relevant period showed that the price fell sharply from a year-end close of $1958 on 31 December 2004 to $1803 on the first day of trading (4 January 2005) and remained in the low $1800s, allowing the short position to move from loss to profit.

The account given by Mr. Gross in his witness statements about the issues relating to the December 2004 speculative short position and the concealment of the losses by means of the First Normet Contract was extremely sparse. Nor did the evidence which he gave in cross-examination on the topic provide me with any basis for accepting his defence or rejecting the detailed account given by Mr. Penin. He contended that Mr. Penin’s evidence about the First Normet Contract was unreliable, because it wrongly referred to the fact that such contract was the first false contract entered in the system, (Footnote: ³²) and that it omitted to disclose that there was already an “earlier fake Normet contract” in the system. However, as Mr. Boulton pointed out, no evidence was adduced by Mr. Gross at trial to show that any such “earlier fake Normet contract” was used in a fraudulent way. Although there was an earlier Normet frame contract shown in the TB Report for November 2004, such contract did not appear to have been used to generate a false profit.

I find proved, on the balance of probabilities, to the requisite standard, that Mr. Gross indeed gave instructions to Mr. Penin as to the strategy of building up the short net speculative position held as at the December 2004 year-end, albeit that the former would not have given instructions as to the execution of every single trade; that Mr. Gross was fully aware of the extent of the position, as it was built up, and the unrealised loss to which it gave rise; that he suggested to Mr. Penin the expedient of deploying the false First Normet Contract to conceal the loss arising from the speculative position; and that he knew that Mr. Penin had procured the entry of that contract, as a purportedly genuine fixed-price contract, in Noble’s physical book. For reasons which I have already given, I prefer Mr. Penin’s account, which is corroborated by other evidence, to that of Mr. Gross.

The principal evidence upon which Noble relied in support of its case that Mr. Gross was actively involved in the taking of the large speculative long position in June 2005 comprised:

The evidence of Mr. Penin, as confirmed by the entries in his Notebook, show that he had taken a speculative long position in June 2005, which had given rise to unrealised losses on a mark to market basis of approximately $630,000, which together with finance charges amounted to some $1 million. Thus, for example, as at 14 June 2005 the Notebook showed a net long position of 1526 lots, which amounted to approximately 38,150mt. As at 22 June 2005, the Notebook showed an end of day position of 1363 lots long, which amounted to approximately 34,075mt. Although the Notebook did not show the exact position as at the end of June 2005, Mr. Penin’s evidence was that a long position was still held as at that date, but that on 6 July 2005 a start was made to sell the long position. I accept that evidence as it was confirmed by contemporary records, and indeed was also confirmed by Mr. Gross’ own evidence in cross-examination that he had known by 21 June 2005 that Mr. Penin had taken a long position of 1,525 lots (which amounted to 38,125mt) in June 2005.

Mr. Penin in his witness statements and testimony before the Swiss court, further gave evidence to the effect that he had built up the speculative long position in June 2005 in accordance with Mr. Gross’ instructions; that on about 15 June 2005 he had informed Mr. Gross that the position was long by about 40,000mt; and that he wanted to close the position, but that Mr. Gross disagreed with this course, because he was more bullish about the upward trend of the market, and was keen to buy more LME futures. He said that the market had been erratic and that by the end of June 2005 they knew that they had lost some $630,000, which together with financing costs would have been greater.

The evidence given in Mr. Gross’ witness statements as to this issue was not of much assistance. However Mr. Gross was cross-examined on each of the SMS messages that Noble contended demonstrate that he was aware of the taking of the June 2005 long position. The general thrust of his evidence was that the communications between himself and Mr. Penin during this period, as reflected in the SMS messages, were no more than general discussions about the market and its likely movements, rather than references to existing positions (with the exception of one message referring to a physical sale to an Italian consumer). He attempted to suggest that SMS messages, which appeared comprehensible on their face, had some other meaning than their obvious one. He also suggested that reference to futures trades were references to hedging transactions. Mr. de Lacy, in his closing submissions, by reference to his chronology, conducted a meticulous analysis of the contemporaneous records relating to the positions in June and July 2005, in an attempt to demonstrate that the Notebook could not be regarded as a reliable record and that Mr. Penin’s account was wrong.

It is not necessary for me to rehearse any detailed analysis of the SMS messages between Mr. Gross and Mr. Penin in June 2005. I conclude that they provide the clearest corroborative support for the evidence given by Mr. Penin in his statements and before the Swiss court. I conclude that it is clear that Mr. Gross and Mr. Penin were involved in a joint speculative strategy in June 2005 to take a long position, in the hope that the market would continue to rise. The SMS messages show without doubt that Mr. Gross was directing the strategy, was himself involved in transacting speculative futures trades as part of that strategy, and was fully aware, on a day-to-day basis, of the net long position. I reject Mr. Gross’ attempts in cross-examination to explain away the SMS messages, which most closely implicated him in that strategy, as wholly unconvincing. I regard it as significant that he admitted in cross-examination that Mr. Penin specifically told him on 21 June 2005 about the existence of a 1,525 lot long position, when his pleaded case, maintained in his defence until cross-examination, was that he did not know of such a position. The Notebook, contrary to Mr. de Lacy’s submissions in this regard, is in my judgment a reliable record, in that it records simply the speculative trades being transacted by Mr. Penin and Mr. Gross, not the entirety of all trades, both physical and futures, in which they were involved.

I am also satisfied that Mr. Gross instructed Mr. Penin to conceal the unrealised loss arising from the June 2005 long position, by obtaining a further frame contract from Normet, and that Mr. Gross knew, if not the precise details of the Second Normet Contract, nonetheless that such contract had been entered in the NTS system so as to report a position to management that was broadly flat.

In his evidence Mr. Penin said that, by the end of June 2005, he and Mr. Gross knew that approximately $630,000 had been lost in respect of the long position, which, together with financing charges, was much more. He said that Mr. Gross once again asked him to contact Normet to produce another frame contract; and that he and Mr. Gross had discussed the matter at great length, including the tonnages and amounts which needed to be shown in the Second Normet Contract, in order to show a profit in the NTS report for the month ended June 2005 of approximately $1.5 million for the month and thereby conceal the losses on the speculative position. He said that there was no doubt that Mr. Gross knew about the Second Normet Contract and what it achieved.

I find Mr. Penin’s testimony to be entirely plausible on this issue. It is clear that Mr. Gross knew of the existence of both the First and Second Normet Contracts. On 15 July 2005 he sent an SMS message to Mr. Penin saying

“how come aj never announced the 18 K Normet contract?”

Perhaps not surprisingly, in cross-examination he admitted for the first time that he must therefore have been aware of the Second Normet Contract at the time. This undermined his attempt to profess ignorance as to who Normet was, when the fraud came to light in January 2006. In my judgment it is inconceivable, given his knowledge, as I have found, of the speculative trading strategy in June 2005 that he was not also fully involved in the method deployed to conceal the losses arising from it. In coming to this conclusion I also rely on the subsequent evidence relating to the July 2005 short position.

It did not appear from Mr. Gross’ first and second witness statements served in February and March 2006 that he was disputing that a large short speculative position had indeed been taken by Mr. Penin in July 2005 and maintained thereafter. The existence of a short speculative position of over 50,000mt was discovered by Noble in January 2006, at a time when Mr. Gross was involved in the investigation. Rather it had appeared that the key issues were whether Mr. Gross had known of or approved the taking of the positions at the time, and whether such positions were in excess of authorised limits. However at trial, during the course of his cross-examination, it appeared that Mr. Gross was not in fact admitting that any short speculative position had been taken in July 2005 at all, as well as denying that he had any knowledge of such position.

Mr. Penin’s evidence in his June statement, as confirmed by his testimony before the Swiss court, (Footnote: ³³) was that, by early July, the market had started to fall and that he and Mr. Gross were again showing a loss on their long speculative position of about US$300,000; that accordingly they started selling strongly as the market turned against them so that their position was about square at the end of the first week of July. He said that on 8 July 2005 he and Mr. Gross were communicating by SMS, phone and Yahoo messenger; that Mr. Gross decided that they should switch strategy and go short, as Mr. Gross felt that the market had rallied and that it would now start to fall; that on 11 July they started to build their short position with the brokers; that he did not know how large a short position Mr. Gross wished to establish and that he had just said “sell”. Mr. Penin went on to say that by mid-afternoon on 11 July Mr. Gross had texted him to say “keep building”. By the evening of 12 July Mr. Gross had asked Mr. Penin what their position was and the latter answered: “Have to calc but guess ard -1200 at 85”. Mr. Gross answered “Getting there”, which suggested to Mr. Penin that the former had a specific target figure in mind. He said that over the period Mr. Gross himself carried out about 30% of the trades, and Mr. Penin carried out the rest. According to Mr. Penin, the following day, 13 July, Mr. Gross said “Enough” and they stopped. Mr. Penin said that by 13 July they were short 2097 lots at an average price of $1788 per mt.

In all his evidence Mr. Penin confirmed that the July 2005 short position was maintained until it was discovered by Noble Management in early 2006. He said that he and Mr. Gross had had a few opportunities to close out the position, or to reduce it, in particular in September 2005. He explained that, on one occasion, he thought around 19 September 2005, the market had dropped to $1,780, and, if they had closed the short speculative position at that point, they would have made a profit of approximately $1 million. Mr. Penin, who said that he was with his wife in Berlin at the time, tried to persuade Mr. Gross to do so, but he refused to let Mr. Penin close out the position. Mr. Penin explained that they had 24 hours to react to the market situation; that he was very frustrated by Mr. Gross’ refusal to let him close out the position, as that would have meant an end to the worries which Mr. Penin had about the short position. He said that he and Mr. Gross had had a real argument about it and that he was extremely upset with Mr. Gross, who, at the time, was convinced that the aluminium market would drop further, following Mr. Gross’ forecast as to how the copper market would perform.

At paragraph 31 of his Minutes of Declaration Mr. Penin said:

“Since June-July 2005, the matter of the short position was a constant topic of conversation between Philip and myself and we were worried that after the problems that occurred in the US aluminium department such news of our own problems would have caused the company to shut us down completely. The level of communication between Philip and myself was extensive and constant. We talked about 30 times a day or exchanged SMS.”

Mr. Penin’s account is to a large extent corroborated by other evidence. Thus, for example, market data figures show that the aluminium market dipped below $1700 on 1, 4 and 5 July 2005, thus justifying their change in strategy. The Notebook records that the net speculative position changed from a long position of 1,363 lots at the close of June 2005 to a short position of 2,097 lots (52,425mt) at the close of July 2005. Likewise, the fact that there was a large selling operation beginning on 1 July was confirmed by a “LME Trades” spreadsheet sent by Mr. Sharp on 4 August 2005. Likewise Mr. Sharp’s evidence clearly demonstrated that the short speculative position was maintained throughout the rest of 2005. Thus the Craig Reports showed a broadly flat position throughout the second half of 2005 because those reports were being manipulated by the inclusion of the Normet, Egtal and Hydro contracts in the physical book, which meant that the actual position was some 50,000 mt shorter than appeared. Mr. Sharp himself confirmed in re-examination that the manipulations that covered the short position in January 2006 had affected the physical book (and therefore the Craig Reports) from September 2005 onwards, such that it would be possible to estimate that the true position was indeed some 50,000 mt shorter than was being reported.

However the clearest corroboration of Mr. Penin’s account, and, in particular, his evidence that Mr. Gross knew about, was involved in, and directed, the trading strategy of the building-up of the short position, is to be found in the SMS messages passing between Mr. Penin and Mr. Gross during late June and July 2005. The SMS messages themselves, in turn, are consistent with the position as shown in the Notebook. They clearly show a plan to build a speculative short position of 2,000 lots (50,000mt); that, although Mr. Penin was not slow to make suggestions of his own as to the course that should be taken, the ultimate responsibility for, and the direction of, the trading strategy lay with Mr. Gross; and that he personally conducted a significant proportion of the trades. In his cross-examination, Mr. Gross once more attempted to explain away the SMS messages that so clearly implicated him. It is not necessary for me to set out in detail an analysis of the relevant messages, and the purported explanations which he gave in order to exculpate himself, which ranged from assertions that he and Mr. Penin were simply “kidding around”, to assertions that references to trades were to physical, or hedging, trades that had nothing to do with a speculative trading strategy, to assertions that the texts contained typographical errors. It suffices to say that I found his explanations, which were often directly contrary to the clear thrust of the SMS message, wholly unconvincing.

I need only refer to a few of the key SMS exchanges (Footnote: ³⁴) to give a flavour of Mr. Gross’ involvement:

In addition to the SMS messages, it was also the case that Mr. Gross had full access at all times to all the information that fed into the position reports; i.e. physical trades, pricings and future contracts. As head of aluminium trading, he was the person best placed to see that the volume of futures trades in July 2005 could only have been consistent with speculative trading. From his demeanour in the witness box, and descriptions of his management style given by other witnesses, I have no doubt that Mr. Gross was clearly not the sort of man who would let his subordinates run a position of their own, without himself knowing what was going on. Accordingly, I have no hesitation in concluding that Mr. Penin is to be believed on this issue and that Mr. Gross was not only well aware of the build up of the July 2005 speculative short position, but was also directing its strategy.

Likewise I also conclude that Mr. Gross must have known that the short speculative position of over 50,000mt was maintained from July 2005 until it was discovered by Noble in January 2006. Having taken a short position of over 50,000mt, the rise in the market price for aluminium made it all but impossible for Mr. Gross and Mr. Penin to buy back the position without crystallising a substantial realised loss (Footnote: ³⁵). Contrary to what Mr. Gross said, a realised loss would have been much harder to conceal than an unrealised loss (and Mr. Gross would therefore have known about it).

As Mr. Penin described in his Minutes of Declaration, and in his June and August Statements, the one opportunity which Mr. Gross and Mr. Penin had to close out the position, without realising a loss, was in mid September 2005, when the market price briefly dropped below $1,800 whilst Mr. Penin was on holiday with his wife in Berlin. The market data indeed shows that the market low in the period from mid-July to end December 2005 was $1,780 on 19 September 2005. The telephone records for that weekend show a considerable amount of telephone communication between Mr. Penin and Mr. Gross, which is consistent with Mr. Penin’s account. I accept Mr. Penin’s account of this episode, and reject Mr. Gross’. It provides corroborative evidence of the entirety of Mr. Penin’s account as to Mr. Gross’ involvement .

Supporting evidence for Mr. Penin’s account includes an exchange of SMS messages between Mr. Gross and Keith Dunleavy, a trader and friend, on 15 September 2005 as follows:

KD: “how is your ali short??...”

PG: “Ali short is great…nearly back to break even!!”

When cross examined about this exchange, Mr. Gross’ explanation appeared to be that he and Mr. Dunleavy were engaged in some kind of fantasy or virtual trading, and that they were not discussing actual trades. I did not find such explanation credible.

Moreover it was plain from the SMS messages between Mr. Gross and Mr. Penin, that they were both very concerned about the aluminium price throughout the second half of 2005, which was only consistent with the fact that Mr. Gross and Mr. Penin were sitting on a large concealed short position throughout that period. The account given by Mr. Penin of their concerns (as already quoted in paragraph 160 above) is entirely consistent with the SMS messages. In addition, the large size of the margin calls that occurred in late 2005 must have been known to Mr. Gross as head of the aluminium department; in such capacity, he must have known why such large margin calls were being made, the reason for the large LME short position, and understood why profit was not being realised on the physical contracts that were being hedged by the LME position. It would have been inconsistent with Mr. Gross’ method of doing business not to have known such things.

Mr. Gross made the point that aluminium traders are always fighting the market. However, as Mr. Boulton submitted, that did not explain the extreme reactions of Mr. Gross and Mr. Penin, as shown in the SMS messages, to a rising aluminium price, particularly if their book was flat (as was consistently reported to management).

In his various statements and evidence before the Swiss court, Mr. Penin gave extensive evidence in relation to the need to conceal the ever-increasing unrealised losses arising from the July 2005 short position, and the joint decisions which Mr. Gross and he made to do so by means of the manipulations of the Hydro, Egtal and various Normet contracts. There was no dispute at trial that the contracts had indeed been dishonestly manipulated in the manner alleged by Noble, principally by the entry of false pricing and quantity figures in the physical trading book, which had the effect of concealing the losses and showing a purported profit. Appendix 1 to this judgment contains a summary of the effect of the manipulations as described in Appendix 2 to Mr. Sharp’s first witness statement and Appendix 1 to Mr. Favre’s first witness statement. In cross-examination, Mr. Gross accepted that the manipulations to the Hydro, Egtal and Normet contracts were indeed affecting the position as shown in the Craig Reports by November 2005.

Mr. Penin described how, when the July 2005 short position had been taken, it was the middle of the month so that he and Mr. Gross were not concerned - at that stage - about the month end figures. He said that he and Mr. Gross had hoped that, before the month end, the market would crash and they could take their profit. Unfortunately the market did not crash, and indeed rose, and went on rising, which meant that, unless they hid the unrealised losses, the end of month figures, even after taking into account the Second Normet Contract, would be showing a loss of over $3 million, which, taking into account financing costs, would push the figure to losses of around $3.8 million. Mr. Penin went on to explain that Mr. Sharp had developed a new position report system, which could calculate the overall net position taking into account both the physical contracts and futures trades. He described how some time around July 2005, Mr. Sharp had produced a draft report which suddenly “jumped” to reveal a large short position of around 21,000 to 24,000mt. He described how Mr. Gross was in a panic and was “very aggressive and paranoid that the short position was going to be found out” and thus the losses would be revealed to management. He said that Mr. Gross told him to sort out the problem, that he and Mr. Gross discussed various options to “cover” the losses on the short position, and decided to use the existing Hydro Contract, as it had the perfect tonnage to produce the figures that they needed.

He also described how the Egtal Contracts, and the Second and Third Normet Contracts (or manipulations to them) were likewise entered into the NTS system as a result of discussions with Mr. Gross, and decisions taken by both of them to do so in order to conceal the ever-increasing losses, arising from the maintenance of their short position, against a market that remained relatively stable between July and September 2005 (Footnote: ³⁶) at around $1950, and then rose thereafter. He described how during November 2005 he and Mr. Gross were running two separate positions, namely a true one and one that was reported to Noble. He also described how he told Mr. Gross of the various manipulations that he, Mr. Penin, proposed making in January 2006 in order to conceal the losses and that Mr. Gross agreed to them.

Although a few of the dates and figures, particularly in Mr. Penin’s Minutes of Declaration, were inaccurate, and although, on occasions, he placed certain events in the wrong months, the substance of his account as to what occurred in relation to the trading and maintenance of the July 2005 short position, and the manipulations in relation to the various contracts (leaving aside for one moment his evidence in relation to Mr. Gross) is supported by the contemporaneous records and market data. But most importantly, his evidence as to the role, knowledge and involvement of Mr. Gross in the concealment of the short position and its correlative losses, is supported by strong circumstantial evidence contained in the contemporaneous documents and SMS messages. This evidence shows that, although, as Noble accepted, the actual detailed manipulation of what the Craig Reports showed, was carried out by Mr. Penin instructing Ms. Grin in the Lausanne office to make false entries in relation to false physical trades in the NTS system, not only was Mr. Gross aware of Mr. Penin’s manipulations of the system, the Craig Reports and the profit and loss figures, but also that he was instrumental in encouraging Mr. Penin to conceal the position.

I summarise salient aspects of this corroborative evidence as follows:

Accordingly I conclude that the evidence of Mr. Penin as to Mr. Gross’ knowledge of, complicity and involvement in, Mr. Penin’s manipulations of the NTS system, the Craig Reports and the profit and loss figures is to be believed. It is entirely consistent with other evidence, both circumstantial and direct. Moreover, even absent such corroborative evidence, I regard it as highly improbable, given Mr. Gross’ management style and his close relationship with Mr. Penin, that he would not have known of the speculative positions, the losses to which they gave rise, and the manipulations to the physical trading book.

I should mention, in the context of the issue of Mr. Gross’ knowledge, that he alleged that his knowledge of Mr. Penin’s activities was considerably less than usual in the summer of 2005, and that this was another reason as to why he could not have had any detailed knowledge of Mr. Penin’s positions. Thus in his Defence he pleaded that his knowledge of Mr. Penin’s trades and general activities was “minimal, and less than usual” as he was preoccupied with resolving difficulties which had arisen in relation to Noble’s United States operations, which had involved him travelling to the United States on five separate occasions “in that period”.

In reaching my conclusions as to the knowledge of Mr. Gross, I have taken into account the fact that he was involved in sorting out serious problems that had arisen in relation to Noble’s US operations during the summer of 2005. However, I am satisfied that, although there were serious problems in relation to the US operations during the summer of 2005, that did not prevent him from maintaining his normal level of contact with Mr. Penin. The evidence showed that the person primarily responsible for investigating what had happened in the US was Mr. Spitz; and that Mr. Gross was not in fact in the United States between 9 June 2005 and 18 July 2005, which was the critical period in relation to the change in strategy from the long position, to the building up of the July 2005 speculative short position. Furthermorethe evidence showed that he and Mr. Penin were together on seven days in that intervening period and were in the same location on 8 days in June 2005 and 4 days in July 2005. Most significantly, the telephone records show that Mr. Gross and Mr. Penin continued to have an extraordinary amount of telephone contact throughout the summer of 2005, including extensive SMS messaging even when the Defendant was attending the critical meetings in the US on 18-20 July 2005, during the course of which Mr. Gross was texting Mr. Penin with disparaging remarks about the other attendees at the meeting.

Accordingly, I am satisfied that Mr. Gross’ participation in resolving the difficulties arising in connection with the US business did not in any way reduce the level of his knowledge of Mr. Penin’s trades and general activities.

Mr. Gross contended that some or all of the false contracts, and the manipulations to valid contracts, effected by Mr. Penin, had nothing to do with the concealment of any speculative trading position, or the losses arising from that position; rather, he contended, that the manipulated entries to the physical trading book were recorded for Mr. Penin’s private and dishonest purposes, namely to ensure that he earned secret commissions from Normet both before and after he joined Noble. In cross-examination he suggested that:

In my judgment, the evidence is not consistent with such a hypothesis. First of all, the effect of the various manipulations was clear and is set out in Appendix 1 to this judgment. Second, the effect of the manipulations is consistent with the account given by Mr. Penin in his various statements and in his testimony before the Swiss court. Although initially, in his Minutes of Declaration, he focused primarily on the need to hide the short position, and then, subsequently, in his testimony before the Swiss court, he sought to emphasise that what he and Mr. Gross were attempting to do was to conceal losses arising from the speculative short position, rather than the speculative position per se, the distinction is actually immaterial. There is no real distinction between hiding the speculative position itself, and the losses that arose from that position. As Mr. Boulton pointed out, the discovery of one would have led to the discovery of the other, and the way to conceal both the position and the losses was to enter priced physical contracts that would offset the short tonnage and also the unrealised losses.

What is clear is that the effect of the various manipulations was to increase the long physical position shown in Noble’s physical trading book (the NTS system), thereby offsetting the short futures position, and resulting in a situation whereby the overall net speculative position, and the losses relating to that position, were concealed. In my judgment, it is immaterial that Mr. Penin somewhat changed the thrust of his evidence in this respect.

In his closing submissions, Mr. de Lacy submitted that there had been no real investigation by Noble of the activities of Mr. Penin in 2003 and 2004; and that any such investigation would have revealed that Mr. Penin was taking unauthorised dishonest commissions from Normet and Egtal from the start of his employment with Noble. He submitted that, in the absence of a full reconstruction of the relevant trades, over the entire period, it was not possible to discern Mr. Penin’s motive in relation to the relevant manipulations during the currency of the July 2005 short position. He may well, submitted Mr. de Lacy, have been engaged in such activity for his own motives.

I do not accept Mr. Gross’ hypothesis, or Mr. de Lacy’s submissions, to the effect that the relevant manipulations, which in fact concealed the losses on the speculative positions, were effected for Mr. Penin’s own private purposes to ensure that he received secret dishonest commissions from the relevant counterparty. My reasons can be summarised as follows.

It is relevant to deal at this juncture with Noble’s allegation that Mr. Gross himself was in receipt of dishonest secret commissions. As indicated above, as part of Mr. Gross’ case, he emphasised that Mr. Penin was receiving secret payments from Normet and Egtal. He contended that this showed that Mr. Penin had not told the whole truth to Noble, that his evidence could therefore not be relied upon, in so far as it sought to implicate Mr. Gross, and that the latter’s evidence should be preferred. He also relied upon Mr. Penin’s receipt of dishonest commissions, as evidence that Mr. Penin had arrangements with Normet and others which provided a motivation for his manipulations to the NTS system. Mr. Gross himself, in cross-examination, denied all knowledge of any secret commissions or payments to Mr. Penin.

In cross-examination, Mr. Boulton suggested to Mr. Gross not only that he was aware of the fact that Mr. Penin was in receipt of dishonest commissions but also that Mr. Gross dishonestly shared in the receipt of certain of the relevant cash payments. Noble relied upon the evidence as going to Mr. Gross’ lack of credibility. It did not rely upon it as providing any separate cause of action. Mr. Gross strenuously denied the allegation.

The evidence relating to this allegation comprised:

As shown in Appendix 2 to Noble’s closing submissions, the SMS messages between Mr. Gross and Mr. Penin, and between Mr. Penin and Mr. Marei, during 2005, frequently, and usually in the context of business trips taken by Mr. Gross and/or Mr. Penin, to Egypt or China, refer to the word “thingies”. The evidence showed that such term was never used by either Mr. Penin or Mr. Gross in an e-mail, or in a written document, however informal. The only context in which Mr. Penin ever used the word “thingies” was in SMS exchanges with Mr. Marei and with Mr. Gross. Likewise, the only context in which Mr. Gross ever used the word was in SMS exchanges with Mr. Penin.

Noble’s contention was that, on a proper analysis of the relevant evidence in context, the reference to “thingies” could only refer to secret commissions or bribes and that the SMS exchanges were capable of no other reasonable interpretation.

When the Defendant was initially asked about the usage of the word “thingies”, his evidence was:

“Q. Do you know what Mr. Penin is referring to by ‘thingies’ there?

A. No, so it’s a word he used a lot. It was a common word for him to use, like for anything, ‘thingies’.

Q. It could mean anything?

A. Yes.

Q. Is it a word you used a lot?

A.

It’s like a word, like if you can’t think of the word you want to say you say, ‘Thingies’ like how many tonnes, ‘How many thingies?’ You say ‘thingies’. I think it was a trendy word.”

Having reviewed all the evidence, and heard Mr. Gross’ evidence on the topic, I accept Mr. Boulton’s submission that, far from being a word that was “trendy” or multi-purpose, an analysis of the usage of the word “thingies” in the context of the documents and SMS messages in evidence, shows that it had a specific and corrupt meaning. I agree that in context the almost irresistible inference is that reference to the word “thingies” is a reference to secret commissions or payments. I also accept his submission that the evidence shows that Mr. Gross participated with Mr. Penin in the receipt of secret commissions, not only from Mr. Marei, of Egtal, but also from an unknown Chinese source, and probably from Normet too.

It is not necessary for me to refer to the entirety of the evidence on this topic, since I would have reached adverse conclusions as to Mr. Gross’ honesty even in the absence of the evidence relating to these secret commissions. I refer merely to certain passages of the evidence relating to this topic by way of example.

It is clear from a reading of the SMS exchanges as between Mr. Penin and Mr. Marei in June, July and November 2005 and the evidence relating to cash payments made into Mr. Penin’s bank account, that secret commissions in the form of dollar payments, referred to as “thingies” in messages between Mr. Penin and Mr. Marei, were paid by Mr. Marei to Mr. Penin. It is also clear from a reading of the SMS exchanges as between Mr. Gross and Mr. Penin that not only was Mr. Gross kept informed by Mr. Penin about the receipt of “thingies” but also that Mr. Gross shared in the receipt of such payments.

For example, there were exchanges clearly relating to secret commissions as between Mr. Marei and Mr. Penin, in the period 12 to 15 July 2005. Thus, on 12 July, at 7:35 Mr. Marei chased Mr. Penin to call him; at 7:36 Mr. Penin texted Mr. Marei to say that he would call in a few minutes; it appears that Mr. Penin called Mr. Marei at 7:42am; at 9:14 Mr. Penin texted Mr. Gross to say: “70k each agreed ... we need to go to that place and stayed three days, maybe to be done in two trips ...”. Mr. Gross replied “why not 100”. On 13 July, Mr. Marei confirmed that he had sent another debit note. Mr. Penin confirmed that it had been received and actioned for payment, and then asked what the total “thingies” were after that payment had been received. The exchange made it plain that the receipt of payment for the debit notes was directly related to the existence and size of the “thingies”. Mr. Marei then confirmed that the “thingies” were “about 30”, and Mr. Penin responded that he “might go there next week”. On 15 July he checked whether, as Mr. Marei would be on holiday, someone could be organised to give Mr. Penin the “thingies”. On 19 July 2005, Mr. Gross sent a message to Mr. Penin saying “we need thingies”, and confirmed his desire by saying “I am depressed and need some retail therapy” (thereby suggesting that “thingies” could be used to purchase goods or were otherwise connected with shopping). Mr. Penin agreed with both of these statements, and Mr. Gross then said “bring back 50 each”. Mr. Penin replied “lol” and the Mr. Gross responded “I am serious”. On that day Mr. Penin was in Cairo, having negotiated the receipt of secret commissions from Mr. Marei. Mr. Penin then sent a message to Mr. Gross the next morning, 20 July 2005, saying “got the thingies”. On 21 July 2005, the day after he returned from Cairo, Mr. Penin deposited $15,000 in cash into his bank account. Again, if “thingies” were dollars, that would be exactly half the suggested total amount of $30,000, apparently referred to by Mr. Marei.

There was considerable further evidence, based on SMS messages, their payments into Mr. Penin’s bank account and Mr. Penin’s notebook, as well as evidence summarised in Appendix 3 to Noble’s closing submissions relating to “Cyprus and the Nicosia project” (Footnote: ³⁷) from which the inference can properly be drawn that Mr. Gross, along with Mr. Penin, was knowingly receiving dishonest commissions from Egtal, Normet and at least one unknown Chinese company. I conclude, without making any specific findings as to any particular amounts, that the overwhelming probability is that this was the case.

This issue was not realistically pursued at trial by Mr. Gross. In his defence, Mr. Gross alleged that Noble was at all times aware of the net position of the Lausanne operations through the knowledge of Mr. Favre, Mr. Spitz and Mr. Sharp derived from the Craig Reports and an e-mail. Mr. Gross also did not admit that Noble was unaware of Mr. Penin’s manipulations; this was on the basis that Mr. Favre would have seen all the trades and the underlying documentation. However, at trial, it was not suggested to Noble’s witnesses that they had actual knowledge either of the speculative positions or of the accounting manipulations. It was suggested to Mr. Favre in cross-examination that he should have spotted the false manipulations, but that was a different point. In cross-examination, Mr. Gross conceded that he had no basis to assert actual knowledge on the part of Noble, and that his case on this point was mere speculation on his part.

I found no evidence to suggest that anyone on the part of Noble management (other than Mr. Gross and Mr. Penin) was aware before January 2006 of the true net speculative trading position of the aluminium division or the true nature of the various false or manipulated contracts, entered in the physical trading book. Whether or not anyone in Noble management should have spotted the true position is not a relevant issue for me to decide.

The huge losses accumulated on the speculative short position, and their concealment by the manipulations to the physical trading book, came to light in January 2006 in the context of the preparation for the audit for the year ended 31 December 2005. Mr. Penin’s evidence was to the effect that, in early January 2006, after Mr. Sharp had sent a draft Craig Report on 6 January 2006 to Mr. Penin and Mr. Gross, that showed a net short position of 21,144mt, he was told by Mr. Gross to ensure that the losses were concealed by reversing certain changes which Ms. Grin had (correctly) made in relation to the incorrect pricing of the Hydro Swap Contract. Mr. Gross told Mr. Penin that he should instruct Ms. Grin that she should leave the Hydro contract incorrectly priced in the NTS system for the time being. This resulted in the final Craig Report showing a net long position.

On Friday, 13 January 2006, the first draft of the profit and loss accounts for the year ended December 2005 showed a loss of approximately $10 million for the aluminium department. Mr. Favre expressed concern about the size of the apparent loss to Mr. Penin and asked the latter to investigate it. Mr. Penin’s evidence was that it was obvious to him that there was a massive problem; that he called and texted Mr. Gross immediately after his conversation with Mr. Favre; and that Mr. Gross told him that it was not possible to show such a loss in the book; Mr. Penin said that nothing was decided that evening except that he was to go through all the figures again. In his defence Mr. Gross however denied any communication with Mr. Penin about the losses on Friday, 13 January. He contended that he was informed by Mr. Penin on the evening of 14 January 2006 that the division was showing a $3.7 million loss. However Mr. Penin’s telephone records record a flurry of SMS messages to Mr. Gross starting at 2:30 PM on Friday 13 January followed by an eleven-minute telephone conversation at 3:26 PM, before the Sabbath started. I have no doubt that Mr. Penin indeed informed Mr. Gross on the Friday of the fact that the draft accounts were showing substantial losses.

Mr. Penin’s evidence was that he was in the office on Saturday, 14 January 2006 and called Mr. Gross late that afternoon, after the Sabbath was over and told him that they would need to make further adjustments to the false and manipulated physical contracts in order to hide the losses. Mr. Penin said that he specifically told Mr. Gross that he, Mr. Penin, would have to enter completely fake contracts to generate such profit. According to Mr. Penin, Mr. Gross agreed with this course. Mr. Penin said that he mentioned to Mr. Gross his growing concern that everything was going to explode because of the growing exposure which they had on the physical side to certain counterparties especially Normet.

According to Mr. Gross, who accepted that he had been telephoned by Mr. Penin that evening, there was no suggestion by Mr. Penin or by Mr. Gross, that any action should be taken to conceal the losses, and, if there had been, he would not have concurred in such a course of action. Again the telephone records show that Mr. Penin and Mr. Gross indeed had a conversation on Saturday 14 January 2006 at 20:58. The evidence also shows that the Second Normet Contract was re-amended over the weekend of 14 to 15 January 2006 reducing the so-called price to $1460 per mt, and that other fake physical contracts were entered in the system over that weekend. According to Mr. Penin, many of the adjustments to the system were done by him personally.

Mr. Penin then went on to say, that on Sunday 15 January he spoke with Mr. Gross several times and insisted that he should speak with Mr. Spitz, and inform him about the exposures in relation to Normet, Hydro, and Egtal because Mr. Penin was sure that Mr. Favre would report such exposures to the Hong Kong office. According to Mr. Penin, Mr. Gross was reluctant to speak to Mr. Spitz and wanted Mr. Penin to do so. Mr. Penin demurred at this suggestion, on the grounds that, on Mr. Gross’ instructions, he had not really spoken to Mr. Spitz in the last two years. Subsequently, as Mr. Spitz recounted, Mr. Gross contacted Mr. Spitz and told him that Noble had a $16 million “performance exposure” as a result of various contracts with Normet. Mr. Gross did not say that there was any difficulty with the enforceability of the contracts. Mr. Spitz and Mr. Gross then telephoned Mr. Penin on Sunday evening, but only questioned Mr. Penin about the $3.5 million loss for December and the exposure on the Normet Contracts, which suggested to Mr. Penin that Mr. Gross had not put Mr. Spitz fully in the picture. According to Mr. Penin, later that evening Mr. Gross called him alone and said that they should explain the Normet Contract to Mr. Spitz as legal non-performance of a proper contract; he said they spoke for a very long time that night and Mr. Penin said to Mr. Gross that they should tell literally everything to Mr. Spitz and that he, Mr. Penin, wanted to go to London on Monday to explain everything to Mr. Spitz; however Mr. Gross was insistent that Mr. Penin should not do so, as Mr. Gross said that Mr. Spitz would blow the matter out of all proportion and make it look worse than it was. According to Mr. Penin, Mr. Gross said that they should wait and that everything would be “ok”.

According to Mr. Penin’s account, on the morning of Monday, 16 January he went to the Lausanne office in the normal way and received a request from Mr. Spitz to provide copies of all the relevant contracts. He knew that if they provided the contracts, it would immediately be revealed that they were worthless. He subsequently received an e-mail from Mr. Sharp, asking for much more detail about the contracts. Mr. Penin said that he called Mr. Gross on his mobile and told him that it was “game over” and that they could no longer carry on like this. According to Mr. Penin, Mr. Gross told him under no circumstances to respond to the requests for further information and e-mails and to wait.

Mr. Penin went on to say that, during the frantic conversations which he had with Mr. Gross during the course of the day, the latter suggested to Mr. Penin that he should resign, and that he, Mr. Gross, would remain and sort everything out internally in order to limit the damage. Mr. Penin said that he told Mr. Gross that this was unacceptable as it would give the latter the opportunity to give the impression that it was Mr. Penin who was responsible for the situation when in fact it was both of them. The telephone records show that there was a large number of calls between Mr. Gross and Mr. Penin that day. The last substantive call by Mr. Penin to Mr. Gross was at 19:23 (Swiss time). Thereafter the records show that Mr. Penin continued calling Mr. Gross between 20:00 and 22:30 that day. Mr. Penin’s evidence was that he kept calling and texting Mr. Gross throughout Monday afternoon, but, unusually, Mr. Penin did not receive any response from him, which he found very strange, as usually Mr. Gross would always respond. Mr. Penin said that he finally managed to get through to Mr. Gross around 19:00-19:30, when Mr. Gross told him that he was going for a “bite to eat” and would call him back later. However that was the last time, according to Mr. Penin, that he spoke to Mr. Gross.

Mr. Penin’s account of the events leading up to the discovery of the fraud is not only consistent with the telephone records, and the evidence given by the other Noble witnesses, but is also entirely credible. The substance of it did not change from the date of his Minutes of Declaration to the dates of his later statements. If, as Mr. Gross contended, there had been no such discussion between them of the matters to which Mr. Penin referred, and Mr. Gross had indeed discovered for the first time, over the weekend of 14-15 January, that Mr. Penin had incurred substantial unrealised losses on a speculative short position, or had discovered, on Monday, 16 January for the first time that false entries had been made by, or on the instructions of, Mr. Penin in the physical book, I find it surprising, to say the least, that there was no contemporaneous, exculpatory email, or other communication, from Mr. Gross to Mr. Spitz and his superiors, setting out Mr. Gross’ position, absence of responsibility and lack of knowledge of the entire situation; or, likewise, any email to Mr. Penin rehearsing Mr. Gross’ lack of knowledge as to Mr. Penin’s activities and protesting Mr. Penin’s culpability.

Accordingly, I conclude that the evidence relating to the way in which the fraud came to light, supports Noble’s case that Mr. Gross was implicated in the fraud.

Contrary to Mr. Gross’ contention that this aspect of the case is irrelevant, if Mr. Penin’s evidence is to be believed, and Mr. Gross was indirectly instrumental in persuading Mr. Penin to flee to Brazil, the episode undermines Mr. Gross’ protestations that he knew nothing of the frauds.

Noble’s case is that Mr. Gertner, Mr. Gross’ brother-in-law, and an extremely wealthy businessman, based in New York, persuaded Mr. Penin to flee to Brazil; and that Mr. Gertner told Mr. Penin that he should not return to Europe, and that he, Mr. Gertner, would help Mr. Penin’s family to join him in Brazil, where they should start a new life. (Footnote: ³⁸) Mr. Gross’ defence was to the effect that this story had been fabricated by Mr. Penin in order to assist his own position and that of the Noble Group in their proceedings against Mr. Gross. Mr. Gross was cross examined about the Brazil episode in the course of the trial.

Mr. Penin first described his flight to Brazil on the day he arrived back from Sao Paolo, 19 January 2006, in paragraphs 60-77 of his Minutes of Declaration. He expanded on this account in his August Statement. Mr. Penin confirmed the accuracy of this account in his examination before the Swiss Court. Given the somewhat extraordinary nature of this episode, it is worthwhile setting out Mr. Penin’s evidence in his Minutes of Declaration verbatim (including his spelling):

“60.

Around 9:30 p.m., Philip stopped communicating with me. I tried to reach him by any mean.

61.

On Monday, at 10 p.m., I received a call from abroad by a non-identified man. He said he was calling on behalf of a close friend of yours, fat guy who lives in NYC, and smokes cigar, speaks Spanish.

62.

I immediately knew that he was referring to Mendy, the brother-in-law of Philip.

63.

I asked if the name of the guy was starting with “M”. He confirmed.

64.

He told me that a meeting took place in London in the afternoon and that the whole thing went very bad.

65.

He told me the police was on its way to arrest us (both Philip and myself). He advised me to leave the house immediately and go the Bresil and that I should contact him once I get there.

66.

He also asked me to get rid of the computer and the mobile phone among other things like not use credit cards, disappear.

67.

I asked about Philip. He told me not to worry and that similar arrangement was been done for him.

68.

I freaked up became of this phone call and the fact that Philip was not respond my calls any more. I called Avi and ask him a ticket to Sao Paolo.

69.

I called him after 10 minutes and asked him if he had done something for Philip. He told me that he did not heard from Philip.

70.

Between the two phone calls, Avi received a call from Mendy to make sure that he was booking the ticket.

71.

I went to France, from Lyon to Paris, and then from Paris to Sao Paolo.

72.

They told me to contact them from Sao Paolo without using mobile phone, using only calling cards or public phones.

73.

When I arrived in Sao Paolo, I called this person and I asked for Mendy. I finally got Mendy. He told me that they were arresting me if I was coming back to Europe, that I should start a new life in Bresil, that he would help me out, that I should forget coming back, that they will take everything away from my wife and that I should not worry for Philip.

74.

I called Avi and he told me that Philip was going to Lausanne with Elliot on Wednesday, January 18, 2006. So I suddenly realized that it was a mistake to fly away and that it was all a set up to make me carry the hat.

I asked him to find me a ticket back but there was no more place available that day. So I had to wait until Wednesday. When I was in the airport, I fainted and was cared by doctors.

75.

I went to a friend’s house and came back only on Wednesday, January 18, 2006.

76.

On Tuesday night, January 17, 2006, I had an extensive phone call with Mendy who gave me a very dark future if I was coming back and told me that Philip will deny everything and that he will protect himself. He gave me assurances that he will take care of me and my family in Brazil.

77.

I had various contacts with Mendy. He always advised me not to come back.

On Wednesday morning, after deciding to come back, I spoke with friend who confirmed my position. That’s what I did and why I am here.”

Mr. Penin’s account is corroborated by the following:

Mr. Feld said that:

The fact that Mr. Penin was called by someone on behalf of Mr. Gertner, namely Mr. Spector, was confirmed by a witness statement of Mr. Spector apparently provided to the Swiss authorities, although no notice was served by Mr. Gross indicating that he proposed to rely upon it. Mr. Spector did not give evidence.

Mr. Boulton submitted that Mr. Spector’s account was in other respects unbelievable:

Mr. Gertner was not called as a witness. At one time, Mr. Gross intimated that it was likely that Mr. Gertner would give evidence. This did not happen. Mr. Gross accepted that he was very close to Mr. Gertner (as can be seen from the SMS messages between them). The evidence showed that Mr. Gross made a loan of $900,000 to Mr. Gertner in the week of 23 January 2006. That was somewhat surprising given that Mr. Gertner is a very rich man; that Mr. Gross was lending him approximately 75% of Mr. Gross’ worldwide assets; that Mr. Gross said he had no idea what the loan was to be used for and that it could even have been to fund Mr. Gertner’s lifestyle rather than his businesses; and that the loan was made in the week that Mr. Gross was suspended. Noble invited the court to draw the inference that Mr. Gertner was funding Mr. Gross’ legal representation. At this stage of the proceedings there is no need for me to make any concluded finding on this last issue. What was manifestly clear however was that Mr. Gertner and Mr. Gross were extremely close.

Mr. Gertner’s lawyers wrote a letter to the Swiss authorities, in relation to his involvement in Mr. Penin’s flight to Brazil. The purpose of that letter was probably to ensure that Mr. Gertner was not joined into the Swiss criminal proceedings. In that letter Mr. Gertner sought to confirm Mr. Spector’s account that Mr. Gross had appealed to Mr. Gertner to stop Mr. Penin “harassing” him by phone. He does not explain why he asked Mr. Spector to intervene with Mr. Penin. Mr. Gertner confirms that he had a conversation with Mr. Feld in the course of which Mr. Feld said that Mr. Penin had booked a plane ticket to Brazil. He also confirmed that Mr. Penin had called Mr. Gertner from Brazil (which can also be seen from the telephone bill for Ana Paula Chiviotti, Mr. Penin’s friend with whom he stayed in Brazil).

At trial, Mr. Gross adopted the account of Mr. Gertner and Mr. Feld. He stated that he had asked Mr. Gertner to intervene with Mr. Penin because he was “panicked” after the latter “started talking about Russians and Mafia and people getting killed and what-not”. Mr. Gross said that Mr. Gertner advised him to speak to a lawyer, JackRabinowicz, who advised him not to communicate with Mr. Penin any more. He confirmed that he told Mr. Feld that he should not be having the conversation with him in the call at 21:49 on 16 January 2006.

I do not accept Mr. Gross’, Mr. Gertner’s and Mr. Spector’s account of this incident, in so far as their accounts differ from that given by Mr. Penin. I find Mr. Penin’s account to be far more convincing. I am sure that Mr. Gross was indeed telling the truth in cross-examination,when Mr. Gross described his state of mind on the evening of 16 January 2006 in the following terms:

“I was in a state at the time. I was in a complete and utter state. There is no way to describe it. I was – my world was crashing all around me ….”

But I conclude that his state of mind was brought about as a result of his appreciation that his and Mr. Penin’s activities at Noble were about to be discovered, and that his career was at risk of ruin. I further conclude that, in such circumstances, he enlisted the aid of his influential brother-in-law, who was known to Mr. Penin, and that they concocted a plan to put pressure on Mr. Penin to flee abroad, so that Mr. Gross would be free to blame the whole fraud upon Mr. Penin and maintain his own innocence.

My conclusion is supported inter alia by the following matters:

Accordingly I conclude, on the balance of probabilities, that Mr. Penin’s account of the background to his flight to Brazil is to be believed. I regard Mr. Gross’ evidence, based on the accounts of Mr. Gertner and Mr. Spector, as an attempt to come up with a story that would fit the evidence of the telephone records.

It was not realistically in dispute in counsel’s submissions that, if I found in Noble’s favour in relation to the critical factual issues on liability, in relation to which I have set out my determinations above, it would have succeeded in establishing that Mr. Gross was in breach of his contracts of employment with NRSA and Noble (UK); that he had conspired with Mr. Penin to defraud Noble by dishonestly misrepresenting its true exposure to the aluminium market; that he was liable for damages in deceit; and that Noble was entitled to dismiss Mr. Gross without notice. I so conclude.

There was a limited dispute on the evidence as to whether Mr. Gross would have been paid his full bonus of $750,000 in circumstances where Noble had discovered at the December 2004 year end that there had been a loss on speculative trading. Mr. Gross’ case was that his bonus was not merely attributable to trading results, but also reflected his wider managerial responsibilities. I have already dealt with the evidence on that point above. Be that as it may, the evidence of Mr. Spitz, which I accept, clearly showed that, had Noble appreciated at the 2004 year end that Mr. Penin and Mr. Gross were engaged in unauthorised speculative trading, in excess of their limits, and that the losses arising from such trading had been dishonestly concealed at the year end by the use of fictitious contracts, Noble would have taken the matter extremely seriously. I conclude on the evidence that Noble would not have paid the sum of $562,500 by way of bonus to Mr. Gross in such circumstances. (The balance of $187,500, which was to be satisfied in shares in Noble Group, had not been paid to Mr. Gross in any event.)

There was no dispute as to the relevant legal principles governing the measure of damages in deceit, conspiracy to defraud, or breach of contract. Thus, for example, it was accepted by Mr. de Lacy that the measure of damages in deceit was the loss directly flowing from the misrepresentation, regardless of whether that loss was foreseeable and that such damages were at large, and include consequential losses suffered by a representee. It was also common ground that there is no strict and inflexible rule that damages must be reckoned at the time of reliance on a representation. In particular, where a claimant is effectively “locked in” to a transaction induced by deceit, he will be able to recover such losses as arose at the time that he reasonably managed to exit that transaction. (Footnote: ³⁹)

It was also common ground that damages for conspiracy are at large (Footnote: ⁴⁰); that this meant the court is not limited to awarding that amount of loss which can be strictly proven; and that, in coming to a view as to the level of damages which a defendant ought to pay, the court will consider all the circumstances of the case, including the conduct of a defendant and the nature of his wrongdoing. (Footnote: ⁴¹)

Noble claimed to have suffered a loss of $37,071,400 in respect of the closing out of the short speculative position, plus $1 million in respect of bonuses awarded to Mr. Gross and Mr. Penin in respect of the year to 31 December 2004. In his defence, Mr. Gross denied that Noble had suffered loss as a result of the matters alleged against him, and put Noble to proof in relation to the amount of any loss suffered.

Essentially Noble’s losses arose on closing out the short speculative position in the spring of 2006, after the fraud had been discovered. Mr. Favre and Mr. Sharp gave evidence about the method of calculation in their witness statements and Mr. Favre was cross-examined on the issue. It was clear that Mr. Favre had calculated the loss based on the closing out of 46,500mt rather than the full position of 52,425mt, which was actually taken in July 2005. This was on the basis that the lower figure is what was actually closed out by Noble, and notwithstanding that the short position identified by Noble in January 2006 was in excess of 53,000mt. Mr. Favre calculated the loss arising on the difference between the initial price at which he understands that the trades were first placed in July 2005 ($1,725), and the prices at which the position was closed out in the period following the discovery of the fraud. Mr. Favre was cross examined on the basis for the figure of $1,725. He explained that $1,725 was the average price for selling the short position in July 2005 when it was first taken out, and that this price had been agreed by Mr. Kapoor, the Noble trader responsible for buying back the unauthorised short position in 2006. Mr. Favre made reference to various emails which he believed were relevant to how the figure of $1,725 was settled, and was asked by Mr. de Lacy to notify Noble’s solicitors if he could locate these emails after the conclusion of his oral evidence. The relevant emails subsequently came into evidence.

Noble’s calculation of its loss excluded any financing costs of rolling the position forward (which the evidence showed might have added a further $1-2 million), transaction costs, all consequential losses, and any claim for management time spent investigating the fraudulent conspiracy. Given that, in addition, it is based on a lesser tonnage than was held, the calculation probably underestimates Noble’s actual loss in having been exposed to the market, as a result of Mr. Gross and Mr. Penin’s conduct. Although foreshadowed, there was no argument that Noble had failed to mitigate its loss.

Accordingly, I award Noble damages in the amount of $38,071,400, which includes the amounts paid to Mr. Gross and Mr. Penin by way of bonuses in respect of 2004. I am not persuaded that in the circumstances there is any utility in making any declaration of constructive trust in relation to any balance of Mr. Gross’ bonus payments, but if Noble wish to pursue this matter I will hear further argument on the point upon formal delivery of this judgment.

In the circumstances Mr. Gross’ counterclaim does not arise for consideration and I dismiss it.

Finally, I should like to express my gratitude to the counsel and solicitor teams on both sides for the extensive work that went into the preparation for the trial and the presentation of closing submissions. The materials produced have been of great assistance.

I shall hear any argument as to the form of the order, and any consequential matters, upon formal hand-down of this judgment.