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David Rocker v Full Circle Asset Management

Posted on 22/12/2017 · Posted in Expert Witness, Financial Litigation, Investment, Structured Products

David Rocker, now aged 72 and retired, had had a long and successful business and legal career holding senior and board level positions in several well-known companies. Previous to his dealings with the defendant company (‘FCAM’) he had had a number of years’ experience investing in the stock market, operating through his own stockbroker.

He first became a client of FCAM in August 2005 in his role as trustee of a private trust. He later invested on a private basis in various funds offered by the defendant and elected to be a ‘medium risk investor’. In 2009 he was invited to invest in the IC Portfolio, which was reserved for those clients with higher levels of funds. The defendant company emphasised the objectives of capital preservation, outperforming cash on deposit and applying an aggressive stop loss policy to prevent further losses. It was also explained that the strategy of the Portfolio was to take advantage of falling equity markets worldwide i e a ‘bear strategy’. After careful consideration Mr Rocker agreed to sign up to the Portfolio in May 2009 and invested some £1.5m.

Although there were some periods of financial success within the Portfolio, overall the value declined and ultimately fell substantially. When Mr Rocker finally removed his investment from the Investment Manager in March 2014, its capital value was £681,443 – less than half what it had been some 5 years ago. He decided to commence proceedings against FCAM for his losses, alleging negligence, breach of contract and breach of statutory duty.

Success is not final, failure is not fatal: it is the courage to continue that counts.”
Sir Winston Churchill

A few days prior to trial at the Queen’s Bench Division, Mr Rocker applied for specific disclosure of an FSA (Financial Services Authority) report on how the Defendant company had conducted its business, as well as correspondence between the FSA and the Defendant regarding the FSA report. The application was successful. By way of background, s.166 Financial Services and Markets Act 2000 (‘FSMA’) gives the FSA and its successors, the Financial Conduct Authority (‘FCA’) and Prudential Regulation Authority (‘PRA’) power to commission reports by a “Skilled Person” to give an external view on any aspect of a firm’s activities. Such reports are typically undertaken by an independent consultant, accountancy or law firm and have been increasingly used by the regulator to identify suspected problems, monitor progress or as part of an overall strategy for improvement within a company. A point which is particularly relevant to this case is that s.166 reports are not protected by legal advice or litigation privilege. Such a report had been made on HCAM in 2012 and in July 2016 Mr Rocker was refused a copy on the basis that it contained non-disclosable information. During the court proceedings however, it was held that the s.166 report was a highly relevant document which revealed significant shortcomings within FCAM: there was insufficient documentary evidence of client attitude to risk and concerns about the general running of the company. It could not be withheld from the claimant, and the Court also took care to remind parties of the continuing duty to disclose which solicitors owe, even after formal disclosure of documents has been completed.

In upholding Mr Rocker’s claim, the Court found that, despite the fact that he had signed up for a medium risk profile, FCAM had breached its mandate by placing much of his capital into higher risk assets. Further it had not operated the stop loss policy which it had contracted to do. The policy required that any investment making a loss of 5% would be automatically sold.

Having found in the Mr Rocker’s favour, the Court had to consider the quantum of loss. He was entitled to be compensated for his capital loss, but the Court rejected his claim for further damages. The further damages he sought were to reflect the growth that his portfolio might have made if it had been managed in accordance with his instructions. The Court considered that any award under this head would effectively remove any element of risk for the claimant who must have known that his portfolio might not prosper, even if properly managed.

After much discussion between lawyers and expert witnesses, calculations for Mr Rocker’s award evolved. The Judge had held that he was entitled to damages for loss caused by breach of mandate and failure to operate the stop loss policy but was not entitled to damages for opportunity loss.

He stated that both the actual periods for which there was breach of mandate, and the risk scores for those periods differed from those forming the basis of Mr Rockers calculation and therefore the quantum would require recalculation. He left the quantum to be agreed between the parties, with the proviso that if they could not agree, he would hear further argument in Court.

Expert Evidence Limited prides itself on assisting throughout the legal process where required and is a professional firm concentrating on the four main areas of dispute resolution; acting as expert witnesses in financial litigation, mediation, arbitration and adjudication. The firm has a civil, criminal and international practice and has advised in many recent cases. Areas of specialisation include banking, lending, regulation, investment, and tax.

Link: David Rocker v Full Circle Asset Management Limited [2017] EWHC 2999 (QB)

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