“The futures, options and arbitrage derivative traders in Japan were put into one group and I was put in charge of them”
“if BFS received a large order on SIMEX and the liquidity the volume of transactions on an exchange was not available to execute it immediately, BFS would offer to execute the customer’s order by taking on the other side itself and laying off the risk with the equivalent number of contracts on the more liquid Japanese exchange. BFS would charge the customer an extra price tick The minimum unit of the price of a futures contract. For Nikkei 225s this was approximately US$25 on SIMEX (US$50 on the Japanese markets, as futures contracts traded on the Japanese markets were twice the size of those traded on SIMEX). For JGBs a tick was approximately US$50 on SIMEX (US$100 on the Japanese markets). for doing this..... and would seek to unwind it later on when both markets had liquidity.”
“... [Mr Killian] and I did not communicate with each other, okay. That was a fault okay, maybe... That is what really the problem is, you know it, everybody knows it, that is where the fault lies” day 112 page 132 . Mr Baker too was willing to accept that “... if I had seen both sides of that puzzle, it would have helped me to be able to pick up what was going on”
“Nick would talk every day to Fernando. People seem to forget Fernando’s role in this. He had been there for two or three years and his role was to talk to Nick every day about his intra-day risk. That was his managerial responsibility. He was in the same time zone as Nick, he was on the other end of the market phone and Nick in the pit, and Fernando’s job was to monitor the intra-day risk”
“The Equity Derivatives Group in the Tokyo office, managed by Fernando Mr Gueler, is part of the Structured Products Group, headed by Mary Ms Walz... Nick Leeson, who trades futures and options on Simex, also reports to Fernando... The Tokyo Risk department is responsible for the daily collation and reporting of trading positions for business executed by both Equity Derivatives and Nick Leeson in Singapore. Tokyo Risk department are primarily responsible for monitoring all trades against the risk limits as approved by the Risk Committee, independently verifying revaluation prices which are supplied by the front office, and reporting risk positions and MOF [Ministry of Finance] capital utilised in a summary report for the daily London Risk Committee meeting. The department was headed by Kevin Clarke until 1 November when he transferred to the Equity Derivatives trading team. Kevin has been replaced by his assistant, Vincent Sue... .... detailed risk monitoring of the Simex business is undertaken by Tokyo Risk department and in addition Fernando is kept informed of all positions and p&l on a daily basis.”
“we requested … the shortfall between the funds available in the bank accounts and the amount which had to be paid to SIMEX and the customers.”
“Brenda, Due to the holiday in Singapore on Monday, SIMEX have asked for additional margin. Kindly send us USD 16,000,000 to our a/c with Citibank for good value11 March 1994 . Kindly confirm. Can you check also whether you paid us USD 14,000,000 for value9 March 1994 since there was no such funds received on that date. Regards, Linda.”
“Q. What reconciliation did you understand the settlements department was doing, at that stage [before June 1994]? A. I do not think that is a question I ever asked myself, what reconciliations they were doing. I trusted them to be doing their job and to be – and to know for what purpose the dollars were required. Q. So that is what you mean when you say that you did not have any idea about how little they really knew? A. Yes.”
“To enable us to express our opinion [on the statutory accounts], we shall make such tests and enquiries as we consider necessary. The nature and extent of our tests will vary according to our assessment of the company’s systems of internal accounting control. We shall report to the directors or to the appropriate level of management any material weaknesses in the company’s systems of internal accounting control which come to our notice and which we believe should be brought to their attention. Our audit is designed, in accordance with normal practice, to enable us to express an opinion on the accounts. It should not be relied upon to disclose defalcations or other irregularities, although their disclosures, if they exist, may well result from the audit tests we undertake. The foregoing does not cover maintaining the accounting records and the preparation of accounts, these being the responsibility of the company’s directors.”
“No specific risk has been identified during the planning stage and the course of our audit.”
“2. Subject to the matters noted in paragraph 4 below, in our opinion all the consolidated schedules, as attached, were prepared in accordance with the [BSL] group accounting policies and consolidation instructions. The information in them is presented fairly in conformity with accounting practices generally accepted in the United Kingdom”. 3. We intend to give an unqualified audit opinion on the local statutory accounts which will be based on the consolidation schedules, adjusted as necessary to comply with local legal or fiscal requirements or accounting practices generally accepted locally; and to include any adjustments considered necessary when the matters in paragraph 4 are resolved. 4. Material unresolved matters (a) The bank confirmation for this year ended September 30 1992 is outstanding. (b) The confirmations for the intercompany balances are outstanding as at September 30 1992. (c) Local statutory accounts.”
“…management’s attitude towards control is good. Mr James Bax (Managing Director) and Mr Simon Jones (Finance Director) are actively involved in the day to day operations of the companies. Pressure to ensure that proper controls are in place also comes from the regulatory bodies, SES [the Stock Exchange of Singapore] and SIMEX… The head office in London oversees the local operations and monthly management reports are sent to the head office.”
“No specific risk has been identified during the planning stage and the course of our audit”
“Nick Leeson has too dominant a role looking after both trading (agency and proprietary) and settlements aspects of the business; there is no deputy to challenge him… TH believes that SJ basically leaves NL to his own devices. While he has no evidence to suggest that NL has indeed abused his position, the potential for his doing so needs examining.”
"there is significant general risk that the controls could be overridden by the General Manager. He is the key manager in the front and back office."
“Specifically, the General Manager should not: retain sole responsibility for the supervision of BF(S)’s back office team; retain cheque-signing or journal-passing powers; review and sign off [reconciliations].”
“Other responsibilities relinquished by the General Manager should be taken on by the BS(S)’s Director of Finance and Operations. The main requirement is to ensure that the settlement and recording processes are adequately supervised including, for example: Daily contact with the futures settlement supervisor who should be refer [sic] all significant matters arising in the office for discussion; Daily review and sign off of SIMEX reconciliations; Occasional review of daily checks of trades recorded on the system to SIMEX reports and trade tickets; and Occasional review of standards maintained over standard procedures… Management Response: Nick Leeson, Simon Jones As agreed with Internal Audit these are not normal circumstances for BF(S) considering the current absence of third party customers. Should these emerge, the role of General Manager will obviously change. However, with immediate effect the General Manager will cease to perform the functions itemised… The Director of Finance (BS(S)/BS(F)) will ensure the adequate supervision of all settlement and recording processes.”
“Substantive procedures are designed to obtain evidence as to the completeness, accuracy and validity of the data produced by the accounting system. “They are of two types: • tests of details of transactions and balances; • analysis of significant ratios and trends…”
“The auditor… needs reasonable assurance that transactions are properly recorded in the accounting records and that transactions have not been omitted. Internal controls… may contribute to the reasonable assurance the auditor seeks.”
“3. The audit evidence should, in total, enable the auditor to form an opinion on the financial information… “4. The auditor’s judgement as to what is sufficient appropriate audit evidence is influenced by such factors as: (a) the degree of risk of misstatement. This risk may be affected by: (i) the nature of the item, (ii) the adequacy of internal control, (iii) the nature of the business carried on by the entity…” (a) the degree of risk of misstatement. This risk may be affected by: (i) the nature of the item, (ii) the adequacy of internal control, (iii) the nature of the business carried on by the entity…”
“5. …the auditor seeks reasonable assurance that fraud or error which may be material to the [financial] information has not occurred… The auditor therefore should plan his audit so that he has a reasonable expectation of detecting material misstatements in the financial information resulting from fraud or error… “6. Due to the inherent limitations of an audit there is a possibility that material misstatements of the financial information resulting from fraud and, to a lesser extent, error may not be detected. The subsequent discovery of [such material misstatements] does not, in itself, indicate that the auditor has failed to adhere to the basic principles governing an audit… “8. The risk of not detecting material misstatement resulting from fraud is greater than the risk of not detecting a material misstatement resulting from error, because fraud usually involves acts designed to conceal it… Unless the auditor’s examination reveals evidence to the contrary, he is entitled to accept representations as truthful and records and documents as genuine. However the auditor should plan and perform his audit with an attitude of professional scepticism, recognising that he may encounter conditions or events during his examination that would lead him to question whether fraud or error exist… “11. In planning and performing his examination, the auditor should take into consideration the risk of material misstatement of the financial information caused by fraud or error. “13. If circumstances indicate the possible existence of fraud or error, the auditor should consider the potential effect on the financial information. If the suspected fraud or error could have a material effect on the financial information, he should perform such modified or additional procedures as he determines to be appropriate.”
“No specific risk has been identified during the planning stage and the course of our audit.”
“the inherent risks associated with a futures trader could reasonably be seen by the auditors to be considerably reduced in the case of BFS. D5/94 ”
“Nick Leeson has too dominant a role looking after both trading (agency and proprietary) and settlements aspects of the business; there is no deputy to challenge him… TH believes that SJ basically leaves NL to his own devices. While he has no evidence to suggest that NL has indeed abused his position, the potential for his doing so needs examining.”
“It was quickly apparent from my work that Leeson had an all-embracing role within BFS which put him in charge of the trading of the company, for both house and clients, and in charge of the settlements department… Leeson had sole responsibility for the supervision of BFS’ back office team, he had cheque-signing and journal-passing powers, he was reviewing and signing off SIMEX deposit, variation margin and collateral reconciliations and he was reviewing and signing off bank reconciliations. It was also clear that Simon Jones had little, if any, role in the running of the settlements department of BFS. The indications that Leeson was in charge with little supervision by Jones, which I had received during my audit planning… were confirmed. I also found that, although Rachel Yong, the Financial Manager for BSS, prepared the accounts for BFS, she had no proper involvement in the accounts for BFS, but simply took whatever trading balances Leeson gave and produced BFS’ accounts from the figures given to her by Leeson. B1 page 9 ”
“we had no reason to identify the possibility of BFS entering unrecorded [which he explained as including unauthorised] transactions as a risk, and did not do so. Accordingly there was no reason for us to devise procedures to test for such transactions”
“[A professional man] must bring to any professional task he undertakes no less expertise, skill and care than any other ordinarily competent members of his profession would bring, but need bring no more. The standard is that of the reasonable average. The law does not require of a professional man that he be a paragon, combining the qualities of polymath and prophet.”
“Baring Futures took into their books the receipt of funds based on customer advice that they will transfer funds value 30/9/92. However cash was not received as at 30/9/92. “Sighted Citibank fax advising the receipt of$670m [sic] value 1/10/92”
“In identifying specific risks, we need to identify how material mis-statements might occur. There are six types of possible mis-statements…: …Cut-off: Transactions are recorded in accounts in the wrong period.”
“The incidence of misstatements is greater for transactions recorded (or improperly omitted from recording) at or near the end of an accounting period (i.e. cutoff)”
“the process by which transactions are recorded before the year end but then reverse or mature soon after the balance sheet date. The purpose and substance of such transactions is to alter the appearance of the balance sheet.”
“1. Unusual transactions, especially near the year end, that have a significant effect on earnings. 2. Transactions with related parties.”
“The fact that we have not identified a specific risk relating to an account does not mean that a misstatement in that account cannot exist. Our audit plan is designed to ensure that, if a material misstatement exists, we are reasonably likely to detect it. Therefore, in developing our audit plan, we need to ensure that none of the six types of potential errors that may relate to each significant account balance or to the financial statements as a whole [one of which is cut-off] is overlooked.”
“Select material payments from bank statement and ensure that these are recorded in the correct accounting period. Basis: amounts above$5,000 .”
“study of relationships among elements of financial information that would be expected to conform to a predictable pattern…”
“Investigating unusual fluctuations and items 13. When analytical procedures identify unusual fluctuations and items, that is, relationships that are unexpected or inconsistent with evidence obtained from other sources, the auditor should investigate them. 14. The investigation usually begins with inquiries of management and the auditor should: corroborate management’s responses – for example by comparing them with his knowledge of the business and other evidence obtained during the course of the audit; [and] consider the need to apply other audit procedures based upon the results of such inquiries. 15. Further investigation… would be required if management is unable to provide an explanation or if the explanation is not considered adequate. Analytical procedures used in the overall review 16. In forming his overall conclusion that the financial information as a whole is consistent with his knowledge of the entity’s business…, the auditor should perform analytical procedures at or near the end of the audit. The conclusions drawn from the results of such procedures are intended to corroborate conclusions formed during the audit on individual items of financial information and assist in arriving at the overall conclusion as to the reasonableness of the financial information. However they may also identify areas requiring further procedures.”
“seek corroborative audit evidence from sources inside or outside the entity, evaluate whether the representations… appear reasonable and consistent with other audit evidence obtained…, and consider whether the individuals making the representations can be expected to be well-informed on the matter.”
“At the end of the day the question is whether the circumstances under which a servant has made the fraudulent misrepresentation which has caused loss to an innocent party contracting with him are such as to make it just for the employer to bear the loss. Such circumstances exist where the employer by words or conduct has induced the injured party to believe that the servant was acting in the lawful course of the employer’s business. They do not exist where such belief, although it is present, has been brought about through misguided reliance on the servant himself, when the servant is not authorised to do what he is purporting to do, when what he is purporting to do is not within the class of acts that an employee in his position is usually authorised to do, and when the employer has done nothing to represent that he is authorised to do it.”
“the wrong of the servant or agent for which the master or principal is liable is one committed, in the case of a servant, in the course of his employment, and, in the case of an agent, in the course of his authority.”
“Certainly an employer may be vicariously responsible for acts which are intended or wilful, or which are dishonest or even fraudulent (see Lloyd v Grace Smith & Co), but the employees’ action in this case in concealing, not only their own frauds, but the frauds of each other, does not have about it the character of conduct which can be said to be undertaken in the course of employment. It was dramatically and deliberately hostile to the employer’s interest; it cannot be viewed as merely an unauthorised mode of performing an authorised duty; it cannot be said to be ‘acts to which the ostensible performance of his master’s work gives occasion or which are committed under cover of the authority the servant is held out as possessing or of the position in which he is placed as a representative of his master’ (see Deatons v Flew)…” “To my mind, therefore, the interests of the fraudsters in concealing the frauds and the interests of the company were antithetical in the extreme. It would be inappropriate to hold the company responsible pursuant to either the principle of corporate identification, the doctrine of imputed negligence or the concept of vicarious liability. These doctrines are notoriously elastic in their definition and application, but they are not so elastic that they must be extended to behaviour which was essentially part of a programme of fraudulently bilking the company.”
“If this approach to the nature of employment is adopted [that propounded by Salmon LJ in Rose v Plenty], it is not necessary to ask the simplistic question whether in the cases under consideration the acts of sexual abuse were modes of doing unauthorised acts. It becomes possible to consider the question of vicarious liability on the basis that the employer undertook to care for the boys through the services of the warden and his employment. After all, they were committed in the time and on the premises of the employers while the warden was also busy caring for the children.”
“Generally speaking, [the employee’s] act will be within his ostensible authority when it is within that class of acts which a person in his position usually has authority to perform; it will not be within his ostensible authority, either when it does not fall within that class of acts, or where, in the case of the particular servant, his authority is limited and the third party has notice of the limitation on his authority.”
“In most cases, how far the responsibility of the defendant ought fairly to extend evokes an immediate intuitive response. This is informed common sense by another name. Usually there is no difficulty in selecting, from the sequence of events leading to the plaintiff’s loss, the happening which should be regarded as the cause of the loss for the purpose of allocating responsibility. In other cases, when the outcome of the second enquiry is not obvious, it is of crucial importance to identify the purpose of the relevant cause of action and the nature and scope of the defendant’s obligation in the particular circumstances. What was the ambit of the defendant’s duty? In respect of what risks or damage does the law seek to afford protection by means of the particular tort? Recent decisions of the House have highlighted the point.”
“Concentrating on the tort measure, the remoteness test whether the loss was reasonably foreseeable had been authoritatively laid down in The Wagon Mound in respect of the tort of negligence a few years before… Doyle v Olby (Ironmongers) Ltd settled that a wider test applies in an action for deceit. The dicta in all three judgments, as well as the actual calculation of damages in Doyle v Olby, make clear that the victim of the fraud is entitled to compensation for all the actual loss directly flowing from the transaction induced by the wrongdoer. That includes heads of consequential loss.”
“‘the free, deliberate and informed act or omission of a human being, intended to exploit the situation created by the defendant, negatives causal connection.’ However, as Hart and Honoré also point out…, there is an exception to this undoubted rule in the case in which the law imposes a duty to guard against loss caused by the free, deliberate and informed act of a human being. It would make nonsense of the existence of such a duty if the law were to hold that the occurrence of the very act which ought to have been prevented negatived causal connection between the breach of duty and the loss.”
“To ensure that open positions, unrealised gain/loss and realised gain/loss are reflected properly in their system”
“it would need to be a very special case before carelessness by … the representee would make it just and equitable to reduce the damages payable to compensate [the representee] for loss suffered by it in consequence of doing the very thing which, in making the representation, [the representor] intended should happen.”
“Accordingly, subject to proof of loss, Gran Gelato has established a good cause of action for damages against Richcliff undersection 2(1) of the Misrepresentation Act 1967 .”
“It was said that during the whole of the negotiations Captain Sprye not only left Sir Thomas Reynell at perfect liberty to consult his friends and professional advisers, but even on several occasions recommended him to do so. To a great extent this certainly was the case; and if the relief sought in this suit had rested on mere mistake, if Captain Sprye had not by misrepresentations of fact, which I cannot treat as unintentional, led Sir Thomas Reynell to believe that his rights were different from what in truth they were, it may be that the argument to which I am now adverting would have prevailed. In such a case, perhaps, this court might have considered that it was the folly of Sir Thomas Reynell to have acted without advice, and might have refused to assist any person who was so singularly little alive to his own rights. Qui vult decepi, it is said, decipiatur. But no such question can arise in a case like the present, where one contracting party has intentionally misled the other…”
“if someone came down from Mars and looked at what happened in Barings in 1993/1994, they would think that the behaviour in London in respect of the flow of funds out to Singapore was far more apparent than what Leeson did in BFS. It is far more weird.”
“It is a fundamental principle of bank management that payments should never be authorised without a clear and verifiable understanding of the purpose for which the monies are required. …cash should only be paid out of [an omnibus client account] if it is verifiably on behalf of one of the identified individual clients and reflected in the information presented to that client. “…I would have expected any competent back office settlements manager to follow up on [the first Dollar Funding margin call] to get a precise definition of what it was for and how it was to be allocated to clients… I do not believe any competent settlement manager should have authorised the second payment if he had not been able to reconcile fully the first payment. I would have expected in these circumstances the settlements department to contact the relevant senior manager to discuss the issue with him.”
“human conduct, which is not entirely reasonable, for example, where it is itself careless, but is within the range of human conduct that is foreseeable and normally contemplated as not unlikely, may add a further cause of the relevant subsequent event but would not normally mean that an earlier event ceases also to be a cause of that later event. Careless conduct may ordinarily be regarded as being within the range of normal human conduct when reckless conduct ordinarily would not.”
“Q: There came a time – and I am still seeking to summarise your evidence – which I think you would put as either January or February 1994, when you associated at least part of the K2 funding with the funding of Singapore? A: I would say it was later than that. I think it was March/April 1994. Q: I do not want to go back over that, Mr Hawes; but your evidence was you asked particular questions of Mr Leeson about this when you went on your visit to Singapore in 1994. You told my Lord yesterday that he gave you the same sort of answers as he gave Deirdre O’Donoghue in June and you in October. A: Yes, that was particularly in connection with his requests for additional dollar funding. Q: There came a point, whenever it was, in the first quarter of 1994 you associated the K2 problem with funding of Singapore, but before that you say you did not know what it was? A: That is correct, yes.”
“if you add up the client debtors’ report on a daily basis, it didn’t take a rocket scientist to see that the debtors did not equal the loan account. I did that in the beginning, when the funds started going up. Look at my debtors. Look at the amount of money that was in Singapore. It wasn’t a proper record. That information was available to everybody.”
“Nick Leeson has too dominant a role looking after both trading (agency and proprietary) and settlements aspects of the business; there is no deputy to challenge him… TH believes that SJ basically leaves NL to his own devices. While he has no evidence to suggest that NL has indeed abused his position, the potential for his doing so needs examining.”
“fundamentally there has been a sea change in the nature of this book. Most of the volatility up and down has been removed; and its level of profitability is extremely significantly higher than what we saw before. So my view, if I was a derivatives risk manager of this book, there would be a trigger then, you know, to say, ‘Given this sea change in the book, you know, what is going on? What are the new strategies being followed? Is a whole new approach to the business being taken?’ Or whatever. It would be a trigger to ask questions, I think. Now, if we go further, the next graph updates that through February 1994… And I would say on that, I guess my view as a derivatives risk manager is the evidence from the extra couple of months would certainly have considerably reinforced my view on the different nature of the book and the need for investigation would be bolstered, in my mind.”
“as early as November 1993 Leeson’s profits amounted to 34.1% of all the Financial Product Group’s profits, and to well over 50% in January and February 1994… I would have expected the individuals with direct responsibility for Leeson and Brindle, and members of senior management, to be aware of such levels of profitability and to obtain cogent explanations for them…. The average monthly P/L in the Volatility Book in 1993 up to October was£370,000 – then the figure reached£3,257,000 in November and£2,617,000 in December… this should have triggered an investigation into what was going on and what was new.”
“I find it inconceivable that nobody in April and May 1994 felt the need to question how an entirely new business could immediately start doing weekly trading volumes constituting between 38% and 91% of all exchange traded volumes, and generating an income of£3,840,000 in the first two months of operation. This profit figure constituted over 37% of the entire FPG income in the months of April and May 1994 for a totally new venture. I cannot conceive of any other investment bank in the world simply taking such figures for granted without verifying them by detailed further investigation.”
“Where any person suffers damage as the result partly of his own fault and partly of the fault of any other person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but the damages recoverable in respect thereof shall be reduced to such extent as the court thinks just and equitable having regard to the claimant’s share in the responsibility for the damage.”
“‘fault’ means negligence, breach of statutory duty or other act or omission which gives rise to a liability in tort or would, apart from this Act, give rise to the defence of contributory negligence.”
“whereas the defendant cannot be at fault unless in breach of duty owed to the plaintiff, the plaintiff’s contributory negligence may or may not involve a breach of duty owed to the defendant.”
“Directors have, both collectively and individually, a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company’s business to enable them properly to discharge their duties as directors. Whilst directors are entitled (subject to the articles of association of the company) to delegate particular functions to those below them in the management chain, and to trust in their competence and integrity to a reasonable extent, the exercise of the power of delegation does not absolve a director from the duty to supervise the discharge of the delegated functions.”
“…it is the fundamental task of the directors to manage the business of the company. Theirs is the power and the responsibility of that management. To manage the company effectively, of course, they must necessarily delegate much of their power to executives of the company, especially in respect of its day to day operations. Although constantly referred to as “the management”, the executives’ powers are delegated powers, subject to the scrutiny and supervision of the directors. Responsibility to manage the company in this primary sense remains firmly with the directors.”… “The directors may delegate powers and functions, using that term in a broad sense, but they cannot delegate the management function itself.” … “If a director negligently disregards the obligation to oversee the conduct of the company’s business, he or she has manifestly failed to perform that function with reasonable care.”
“This is most easily illustrated by taking an extreme case from a type of litigation which is tried daily in the courts. A dangerous machine is unfenced and a workman gets his hand caught in it. So far as causation alone is concerned it may be fair to say that at least half the cause of the accident is the fact that the workman put his hand into the danger. But so far as "fault" (and therefore liability) is concerned the answer may be very different. Suppose that the workman was a normally careful person who, by a pardonable but foolish reaction, wanted to save an obstruction from blocking the machine and so put his hand within the danger area. Suppose further that the factory owner had known that the machine was dangerous and ought to be fenced, that he had been previously warned on several occasions but through dilatoriness or on the grounds of economy failed to rectify the fault and preferred to take a chance. In such a case the judge, weighing the fault of one party against the other, the deliberate negligence against the foolish reaction, would not assess the workman's fault at anything approaching the proportion which mere causation alone would indicate.”
“In our opinion the reasoning of the Court of Appeal in Daniels is correct. There is no rule that apportionment legislation does not operate in respect of the contributory negligence of a plaintiff where the defendant, in breach of its duty, has failed to protect the plaintiff from damage in respect of the very event which gave rise to the defendant’s employment… “The duties and responsibilities of the defendant are a variable factor in determining whether contributory negligence exists and, if so, to what degree. In some cases, the nature of the duty may exculpate the plaintiff from a claim of contributory negligence; in other cases the nature of that duty may reduce the plaintiff’s share of responsibility for the damage suffered; and in yet other cases the nature of the duty may not prevent a finding that the plaintiff failed to take reasonable care for the safety of his or her person or property. Contributory negligence focuses on the conduct of the plaintiff. The duty owed by the defendant, although relevant, is one only of the many factors that must be weighed in determining whether the plaintiff has so conducted itself that it failed to take reasonable care for the safety of its person or property.”
“The weaknesses of the current arrangement are: While the trading activities of BFS are subject to high level monitoring, there is no one to review day-to-day trading in detail; and BFS’ dealers and traders are not subject to independent compliance monitoring and review.”
“In a medium-sized investment bank like Barings, I believe it would have been normal practice for one or more representatives of the middle office to be resident in all the derivatives trading areas, reporting directly back to the middle office in London. I would certainly have expected any competent management of derivatives trading activities to insist on this being the case for a trading hub which was generating in normal circumstances over 50 per cent of the profits of the entire derivatives trading operation. Such a person based in Singapore would have been able to monitor Leeson’s trading directly as it occurred...”
“The fundamental principles of risk management in any competently run investment bank required that the precise structure of Leeson’s profits and the exact trading strategies that were being used to generate them be understood, analysed and reviewed in depth by Leeson’s superiors and senior management.”
“Any reasonably competent observer should have concluded that these profits on JGBs were not being generated by almost riskless arbitrage… Leeson’s trading profits and volumes were so extraordinary that any competent derivatives manager should have realised that either Leeson’s reported profits and trades were wholly unreliable, or Leeson must have been taking on intra-day risks in such enormous volumes that he needed to be stopped immediately before he bankrupted the bank. In other words, that Leeson was either a fraudster or a psychotic.”
“I guess if I was a... boss of Nick and Nick was making$2 million a day… I’d go down there and I’d stay there for a long time and I’d figure out everything he’s doing…”
“build up a detailed understanding of the strategies being undertaken by BFS and the nature of the risks being taken. …trading days producing unusual levels of profits or losses should be examined and discussed with the traders.”
“I remember when I was complaining about Nick Leeson to Tony Hawes, he says ‘What do you do with someone who has made’, I can’t remember, I think he said, ‘$10 million in a week’”
“The problem that has arisen in the present case is one which is most likely to arise in the context of the domestic affairs of a family group or the commercial affairs of a group of companies. How the members of such a group choose to arrange their own affairs among themselves should not be a matter of necessary concern to a third party who has undertaken to one of their number to perform services in which they all have some interest. It should not be a ground of escaping liability that the party who instructed the work should not be the one who sustained the loss or all of the loss which in whole or in part has fallen on another member or members of the group. But the resolution of the problem in any particular case has to be reached in light of its own circumstances.”
“It is sufficient that the necessary remedial work will obviously have to be carried out, and that it will have to be carried out at the expense of the group. Whether it is carried out directly or indirectly by or at the expense of Panatown itself or of another member of the group is not material. What matters is that the work will be done and that doing it will enable Panatown to obtain whatever benefit it sought to obtain as a member of the Unex Group by entering into the building contract. It will not, to use the language of Oliver J, obtain an uncovenanted benefit.”
“Where the previous recovery stems from the acceptance of a payment into court made and accepted, not only in respect of the claim for damages under consideration, but also in respect of other claims not relevant, the court must decide, and it is for the plaintiff to establish, by how much that part of the payment attributable to the instant claim falls short of the total value of the claim itself. For my part I cannot see how this exercise can be done without an investigation of the other claims… For these reasons the learned judge was perfectly correct to investigate the value of the claims between the appellants and [D1], as well as the claims between the appellants and [D2].”
“I am satisfied that [D1] would have been held liable in full for the agreed costs if the matter had proceeded to trial against [D1]. The principle appears to be that if a plaintiff who receives payment from one tortfeasor establishes an additional separate claim against that tortfeasor, the payment is allocated first to that claim, and credit must be given in favour of the second tortfeasor only for the excess necessarily referable to the overlapping claim. That seems to me the approach indicated by the Court of Appeal judgments in Townsend v Stone Toms… and by the actual decision in The Morgengry… It also appears to me to be the approach which is required by an application of first principles.”
“In Townsend, the Court of Appeal held that, once there is a prima facie case that the plaintiff has received money from a second tortfeasor which reduces his loss, it is for him to show that the payment relates to some separate claim against the second tortfeasor. That involves showing that the separate claim was sustainable on the facts and in law. In my judgement [the plaintiffs’] argument that they would have recovered against [D1] the costs which were disallowed against [D2] ought not to succeed. I do not regard it as a reasonably foreseeable head of loss, and its recovery in an action against [D1] is not demanded by the dictates of common sense or justice. It is too remote. In any event, [the plaintiff has] failed to discharge the burden of proving that this alleged separate claim would have been likely to succeed at a trial against [D1].”
“If in any proceedings for negligence, default, breach of duty or breach of trust against a person to whom this section applies [which includes an auditor], it appears to the Court before which the proceedings are taken that he is or may be liable in respect thereof but that he has acted honestly and reasonably and that, having regard to all the circumstances of the case including those connected with his appointment, he ought fairly to be excused for the negligence, default or breach, the Court may relieve him either wholly or partly from his liability on such terms as the Court thinks fit”
“It may seem odd that a person found to have been guilty of negligence, which involves failing to take reasonable care, can ever satisfy a court that he acted reasonably. Nevertheless, the section clearly contemplates that he may do so and it follows that conduct may be reasonable for the purposes of section 727 despite amounting to lack of reasonable care at common law.”
“[The defendants] submit that, if an auditor formed an honest judgement on a matter after due consideration of the question, or perhaps in accordance with prevailing practice, but the court nevertheless considered the judgement erroneous and negligent, the court could nevertheless find that the auditor had acted reasonably. They submitted the court might do likewise if the act of negligence found was casual or minor. It was conceded that the breach of duty would have to have some such quality as in these examples to make it reasonable. As on the defendants’ own interpretation of the section I think the defendants fail on the facts, it is not in point to determine the questions raised by the plaintiff, upon which I express no opinion… “I should add also that the provision in section 365 is that the person seeking the benefit of the section must have acted reasonably, there being no limitation as to the field in which he must act reasonably. It is not, for example, limited to acting reasonably in the actual discharge of his duty of care. There seems no reason why, when he comes to be excused, his conduct generally so far as it is relevant should not be looked at to see whether he acted reasonably…”, continued (at page 294): “In my opinion, it is in the foregoing dicta that the resolution of the dilemma earlier adverted to is to be found. Whilst it may well be that, in a particular situation, the very circumstances which give rise to a finding of negligence may be so pervasive and compelling as also to demand a conclusion that a person had acted unreasonably for the purposes of the exculpatory section, nevertheless that section is to be taken to directing its attention to a much wider area of concern – both in point of scope and time frame. The examples relied upon by the defence as cited by Moffitt J seem to me apt illustrations of the issues involved. “I am therefore content to construe s. 365(1) in that manner.”
“the court… ought not to shrink from giving effect to its sense of fairness and justice. It should not hesitate, in a proper case, to relieve a person from what, having regard to particular facts and circumstances – particularly where the person concerned has acted honourably, fairly, in good faith and in a commonsense manner as judged by the standards of others of a similar professional background – from what might otherwise be seen to be a harsh and oppressive consequence of the strict application of the law, if applied in the absence of the considerations identified by the section.”
“The Courts in the Colony have found that the appellants acted honestly and reasonably… Mr Terrell contended that, these two things being established, the right to relief followed as a matter of course; but that is clearly not the construction of the Act. Unless both are proved, the Court cannot help the trustees; but, if both are made out, there is then a case for the Court to consider whether the trustee ought fairly to be excused for the breach, looking at all the circumstances.”
“I now turn to the defendant’s submission that relief should be given on the basis that the defendant, being an equal owner of the plaintiff, has directly suffered half the loss arising as a result of trading with Promco. If it was correct that, by being an equal shareholder with Ampol, Greenslade suffered half the loss caused by Promco’s default, it would be reasonable, in my view, to afford the defendant some relief. Not to do so would result in a windfall to the other shareholder of the plaintiff. It would also cause the defendant's loss as a shareholder to be magnified. However, the facts are such that the extent, if at all, to which the defendant will be treated unjustly if some relief is not given having regard to the corporate structure is by no means clear... ”