Neutral Citation Number: [2013] EWHC 631 (Comm)
Case No: 2010 Folio No. 1331
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
The Rolls Building
Fetter Lane 
London  EC4A
Date: 27/03/2013
Before :
MR JUSTICE FIELD
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Between :

	(1) Stokors SA
(2) Lucien Selce
(3) Phoenicia Assets Management (Holding) SAL
(4) Alexis Kuperfis	

Claimants	
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 and –
		
	IG Markets Limited
	Defendant 	
	
and
		
	Craigcrook Management Services Limited	Part 20 Defendant	
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Jonathan Nash QC and Rajesh Pillai (instructed by Laytons Solicitors LLP) for the Claimants
Paul Downes QC, Emily Saunderson and Joseph Sullivan (instructed by McClure Naismith LLP) for the Defendant
George Spalton (instructed by Berrymans Lace Mawer LLP) for the Part 20 Defendant

Hearing dates: 20, 21, 22, 26, 27, 28, 29 November; 3, 4, 5, 6, 10, 11, 12, 13, 19 & 20 December 2012 
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Judgment

Mr Justice Field:
Introduction
1.	The claimants are four investors who in March 2008 entered into agreements with a small Scottish brokerage, Echelon Wealth Management Limited (“Echelon”), under which Echelon was to enter into contracts for difference (“CFDs”) on each of their behalves with the Defendant (“IG”). Under these agreements, money paid to Echelon by the investors to fund their CFD trading was to be held in segregated accounts and was to be used only for their own separate trading and not for any other purpose. However, instead of placing the investors’ trades as their agent, Echelon placed matching trades with IG under a contract that provided that both parties would deal with each other as principals, and the individuals at IG handling the Echelon account dealt with Echelon on this basis. These individuals knew that Echelon was not carrying on proprietary trading and that the trades placed by Echelon mirrored the trading of its clients. Under its contract with Echelon, IG provided daily spread sheets which showed not only the overall position on the Echelon account and the current position on a Header Account through which incoming and outgoing aggregated payments were first booked, but also the current position on a large number of anonymous sub-accounts allocated by Echelon to its individual clients. 
2.	The Echelon account was opened on 19 March 2008 and ended on 23 October 2008, Echelon having gone into liquidation on 17 October 2008. At the time of the liquidation Echelon owed the first three claimants €7,973,909/57, £214,780.14 and €4,153,398.73 respectively in relation to their CFD trading and there is no prospect of these sums being recovered in the liquidation. It is these sums, plus damages for loss of profits that are sought to be recovered in the action. 
3.	Echelon’s collapse was due to it having allowed one of its CFD clients, a Mr Shami Ahmed, to run up a deficit of £16,000,000 on sub-account E4376, during which time it used the funds paid by and due to others of its clients, including the claimants, to finance its liabilities to IG. 
4.	As at 20 October 2008, Echelon’s margin account with IG was in deficit to the extent of (£3,317,833). Between April and October 2008, Echelon had been on margin call on 55 out of 135 trading days which included 9 consecutive margin calls between 1 and 11 July 2008 and the continuous period between 29 September and close of trading on 16 October 2008. The growing deficit on sub-account E4376 was recorded in the daily spread sheets produced by IG. 
5.	In this action, the claimants seek to recover from IG their losses incurred in Echelon’s liquidation, plus lost profits, on the basis that three IG employees, Mr Tobin Utley, Mr David Russell and Mr Ashraf Elgarf, each dishonestly assisted in breaches of fiduciary duty by Echelon arising out of Echelon’s failure to hold the claimants’ funds on a segregated basis and to use those funds only for the purpose of supporting their individual trading and for no other purpose. The claimants contend that it matters not that these three individuals did not know that the claimants contracted with Echelon on the basis that Echelon was to act as their agent in placing CFD trades and was obliged to keep the claimants’ funds in segregated accounts. Their case is that it is enough that from about 24 June 2008 the three employees knew or suspected or turned a wilful blind eye to the fact (as the claimants allege) that Echelon was trading by using funds received from some of its clients to fund cash withdrawals and deficits on the Header Account and the E4376 account when Echelon did not have cash or collateral elsewhere to cover the shortfall on the accounts in deficit. The claimants argue it was to be discerned that Echelon was trading in this fashion from the state of the margin account, the deficits on the Header Account and the increasing deficit on sub-account E4376.
6.	Echelon did not have FSA permission to trade as a principal. The claimants allege that Mr Utley was aware of this and claim in the alternative that by reason of his dealings with Echelon armed with this knowledge he dishonestly participated in the breaches of fiduciary duty identified above. The claimants say that Mr Utley was dishonest because he would have known that Echelon was acting in fraud of its clients by trading as a principal and there was a high likelihood, if not a certainty, that it was dealing with its clients on a false basis as an agent or arranger and therefore misapplying the funds it received on the basis that it was acting as an agent by using them on its own behalf. 
7.	The claimants also advanced an alternative claim that IG is liable on the basis that it knowingly received trust property and it is unconscionable for IG to retain it. For the purposes of this claim the trust property is said to be the money deriving from the claimants’ funds that was paid to IG by Echelon, the receipt occurring when IG acknowledged a debt in its books to Echelon. The facts relied on to establish the necessary unconscionability are the same as those said to found liability for dishonest assistance. Accordingly, if the dishonest assistance claim fails due to a failure to establish the necessary dishonesty, the knowing receipt claim will fail also.
Dishonest Assistance - the applicable legal principles 
8.	The legal requirements for a claim in dishonest assistance are summarised as follows in Lewin on Trusts (18th Ed) at paragraph 40-09:
(i) there is a trust; 
(ii) there is a breach of trust by the trustee of that trust;
(iii) the defendant induces or assists that breach of trust;
(iv) the defendant does so dishonestly.
9.	The claimants contend that fiduciary obligations in relation to the property of another person come within the reference to a trust. IG accepts that in certain cases a fiduciary (for example a company director) is equivalent to a trustee for the purposes of accessory liability. Like Hamblen J in Brown et al v InnovatorOne plc et al [2012] EWHC 1321, I shall assume (without deciding) that there is no requirement that there be a breach of trust stricto sensu in respect of trust property. 
10.	The leading authorities on the test of dishonesty are Royal Brunei Airlines v Tan [1995] 2 AC 378; Twinsectra v Yardley [2002] 2 AC 164 and Barlow Clowes International Ltd v Eurotrust International Ltd [2006] 1 WLR 1476. In the last of these authorities Lord Hoffmann explained that the test has two elements: 
(1) The subjective element - the Court must consider the defendant's subjective state of mind and what the defendant actually knew and understood;
 (2) The objective element - the Court must consider whether or not, with that state of mind, knowledge and understanding, the relevant conduct is dishonest, applying an objective standard of dishonesty.
11.	The following principles are derived from the authorities: 
(1) It is not necessary for the Court to establish whether or not the defendant considered that he was acting dishonestly. Instead, the defendant’s knowledge of the transaction has to be such as to render his participation contrary to normally acceptable standards of honest conduct.
(2) An honest person does not deliberately close his eyes and ears, or deliberately not ask questions lest he learn something he would rather not know and then proceed regardless where there may be a misapplication of trust assets to the detriment of beneficiaries.
(3) A dishonest state of mind may consist in suspicion combined with a conscious decision not to make inquiries which might result in knowledge. 
(4) In a commercial setting dishonesty can be found on the basis of commercially unacceptable conduct.
(5) Acting in reckless disregard of others’ rights or possible rights can be a tell-tale sign of dishonesty.
(6) Recklessness is a species of dishonest knowledge and is therefore relevant to the Court’s consideration of dishonesty in this context. “Not caring” does not mean “not taking care”, rather it means indifference to the truth. The moral obliquity of this position is in the wilful disregard of the importance of truth. 
(7) Someone can know, and can certainly suspect, that he is assisting in a misappropriation of money without knowing that the money is held on trust or what a trust means. 
12.	As stated above, the claimants do not allege that IG knew that Echelon was acting in breach of fiduciary duty in the way in which it was in fact so acting i.e. dealing with IG as a principal rather than as an agent and using non-segregated funds rather than keeping the claimant’s funds in segregated accounts. It is submitted on the claimants’ behalf that they do not need to establish that IG had this knowledge and it is enough if they can show that Mr Utley and/or Mr Russell and/or Mr Elgarf knew or suspected that Echelon was trading by using funds received from some clients to fund cash withdrawals and deficits on the header account and the E4376 account, in circumstances where Echelon did not have cash or collateral elsewhere to cover the shortfall on the accounts in deficit, and did not make any enquiries about this but rather allowed Echelon to continue to open positions and withdraw funds on the basis that the overall position was secure for IG. 
13.	Mr Downes QC for IG agreed that the alleged dishonest assister does not need to know the precise fraud or breach of trust alleged, nor the identity of the victim or victims; and nor does he need to understand what a “trust” is. However, he submitted that the touchstone for establishing liability for dishonest assistance is knowledge that the trustee/fiduciary was not free to deal with monies it was paying over as its own, and here there was no such knowledge. Echelon had contracted to deal with IG on a principal to principal basis and on terms that full ownership of all money transferred to IG passed from Echelon to IG, and Messrs Utley, Russell or Elgarf did not know that Echelon had agreed to hold funds received from the claimants in segregated accounts. 
14.	The point raised by Mr Downes is an interesting one of some difficulty. However, the issue only has to be decided if, assuming that the claimants are right on the point, Messrs Utley, Russell or Elgarf were dishonest as the claimants allege, and I think in the circumstances it is appropriate in the first instance to proceed on the basis (without deciding the point) that the claimants do not have to show that IG knew or suspected that Echelon was not free to deal with monies it was paying over as its own.
The Echelon and IG White Label Agreement (Omnibus Partner Branded Version)
15.	Mr Utley joined the IG group in August 2006 when he took up the position of Institutional Sales Director with IG Index plc. Prior to that he had held a similar position with another CFD provider, MF Global UK Ltd (“MF Global”) previously known as Man Financial Ltd (“Man”) and had signed Echelon’s corporate predecessor, Direct Sharedeal Margin Products Ltd (“DSMP”) up to an agreement with MF Global under which MF Global would provide CFDs and spread betting contracts.  It seems that this agreement did not provide that DSMP/Echelon would deal with MF Global on a principal to principal basis, but I am satisfied on the evidence that this was how MF Global operated the contract, even though quo ad their clients DSMP/Echelon purported to act as agents only.
16.	When he joined IG Mr Utley was bound by restrictive covenants but as soon as he was legally free to do so, he approached Echelon’s Managing Director, Mr Steven Alexander, on 6 November 2006 to try to persuade Echelon to move its CFD business to IG. On 3 January 2007, Mr Utley assured Mr Alexander that the process would be straightforward: “Because you’re FSA registered there’s no supporting documentation needed.” On 15 January 2007, Mr Utley emailed a draft “White Label Agreement (Omnibus Partner Branded Version)” to Mr Alexander who on the same day replied that the terms looked “fine”. On 17 January 2007, two senior IG executives signed the agreement (“the WLA”) and it was signed by Mr Alexander on behalf of Echelon on 23 January 2007. The fully signed agreement was received back by IG the following day, 24 January 2007.
17.	The agreement was styled an “omnibus” agreement because it contemplated individual clients placing trades with Echelon as a principal who in turn, as a principal, would place a matching trade with IG (the CFD provider or “prime broker”). IG was therefore to have no direct contractual relationship with Echelon’s clients and would not know their identity.  The credit risk for Echelon was therefore the risk of its clients defaulting and the credit risk for IG was the risk of Echelon defaulting.
18.	 A “White Label Agreement” in the CFD industry is one under which the CFD provider provides documentation to the intermediary or “Introducing Broker” (“IB”) which the intermediary can brand with its own name and logo and pass on to its clients. Thus under the WLA, IG were responsible for producing the daily spread sheets referred to above, which relieved Echelon from undertaking this onerous back -office function. 
19.	Under clause 7 of the WLA, Echelon, as “the Counterparty”, warranted, represented, acknowledged and agreed, inter alia, that: (i) it was acting on its own behalf in relation to all business it transacted with IG; (ii) in relation to all business it transacted with IG it acted on its own behalf and not as agent on behalf of any client notwithstanding that it may enter into transactions with its clients that are identical or similar to those into which it enters with IG; and (iii) it was authorised by the competent regulatory authorities to carry on the business contemplated by the WLA.
20.	The WLA incorporated the terms of IG’s Margin Trading Customer Agreement and IG’s Contracts for Differences Product Module. The former repeated the provision in the WLA that IG’s counterparty was contracting as a principal and set out the counterparty’s obligations in respect of margin which had to be provided when a transaction was entered into. It also gave IG a right to set off against sums held to the credit of the counterparty any debit balance or loss of the counterparty. It was provided in the latter set of terms that the counterparty (Echelon) agreed that any money it transferred to IG did not have to be held in accordance with the Client Money Rules and that IG were authorised to treat any transfer of money transferred “as the transfer of the full ownership of money by you to us for the purpose of securing or covering your present, future, actual and prospective obligations.” 
Events following the execution of the WLA to the start of trading under that agreement on 19 March 2008
21.	It is necessary at this stage to record in some detail parts of conversations in this period between Mr Utley and Mr Alexander over the telephone.
22.	On the day Mr Alexander signed the WLA there was a  conversation which included the following:
S.A. Quick question to pick your brains. We as a firm are not currently authorised to trade as a principal right? 
T.U. Yes
S.A. So do you think, well like our agreement we would want to kind of set up basically the same way we do with Man, i.e. Echelon contracts with IG and we have all our sub-accounts, you know, but …. they’re anonymous. I mean as far as we are concerned, we’re sort of just standing in the middle between our clients and yourselves.
T.U. Yes.
S.A. You’ve got our client money.
T.U. Yes. But I mean you can hold client money.
S.A. No, we don’t hold, we cannot hold client money at the moment.
T.U. Because under the arrangement you’ve got with Man, you are holding client money.
S.A. No, we don’t hold, Man hold the client money. 
T.U. Yes, in an account for yourselves.
S.A. Is that right?
T.U. Because when you request money back from Man, they send it back to you and you send it on to the client…. At that point, you’re holding client money. … I mean from my point of view and the way I understand it … again I could possibly have a word with your compliance chap, but from my understanding and from my sort of experience at sort of Man and sort of IG … where we contract with people, I’ve never contracted with anyone who can’t hold money in the way we’re contracting with you … or the way we want to contract with you at the moment.
S.A. …. Okay, suppose then, if we change our authorisation and it’s just a separately minor financial resource and we could then upgrade to that which we are probably going to do anyway. We wouldn’t have to be authorised to trade as a principal though, would we?
T.U. I mean that’s part and parcel, I mean because we’re contracting with  you … So far as we’re concerned, I mean you are our clients but I think you’re acting as principal to your clients …. I mean the way I always understood it is … if you can’t hold client money, I mean I think if you do hold client money, then you can be classified as principal. Yes, because I’m sort of, because obviously when you work through the Direct Share deal, they were authorised to be a principal.
The conversation ended with Mr Alexander telling Mr Utley he needed “to get this” and Mr Utley saying he would call back after lunch.
23.	Mr Alexander had been prompted to raise the question at the start of this exchange by a query from MF Global as to whether Echelon was permitted by the FSA to deal as principal, which Echelon was not. 
24.	Later on 23 January 2007, Mr Utley sent an email to IG’s then Head of Compliance, Mr Steve Brazil, stating that Echelon was looking to open an omnibus account but, although they were FSA registered, they did not have permission to hold client money or act as a principal.  Mr Utley’s email concluded: “We are OK for them to open an account as long as we send them an addendum detailing that we will treat them as agent and that they hold client money for no longer than 24 hours. (This will probable (sic) have to be checked/drafted by Legal).” This email was copied to Mr Matthew Tooth, Mr Utley’s ultimate line manager, who expressed surprise that Mr Utley’s suggested solution to the problem was possible and recommended that advice be sought from one of IG’s in-house lawyers, Bridget Messer or Andrew MacKay. 
25.	On the day IG received the signed WLA from Echelon (24 January 2007), Mr Utley told Mr Alexander:
“I have a report … you know what, the conversation we had yesterday, they’ve got some legal involved a bit now because obviously we don’t …. of an open account …. you know what we’re talking about, the sort of holding of client money, etcetera … The group of guys in legal, all senior legal guys are sort of just having a quick once over, right. Obviously, whatever happens, we’ll tell you and that’s as far as it will go. … you’re not sort of authorised …. so I just thought I mean I’ll ask the … guys to have a look. Hopefully I can be able to come back to you…”.
26.	Mr Utley next telephoned Mr Alexander on 6 February 2007 “to touch base” in respect of “the old compliance thing” and asked if Mr Alexander wanted to discuss the “IB (Introducing Broker) route.” Mr Alexander was too busy to talk and so Mr Utley sent him an email containing an IB proposal as follows:
(i) IG would register Echelon CFDs as a trading name of IG and rebrand all paperwork all software and back office systems as Echelon CFDs. (ii) IG would have an online account opening process rebranded as Echelon CFDs including a power of attorney in favour of Echelon. 
27.	Ms Messer has no recollection of talking to Mr Utley about Echelon’s permissions but thinks that Mr Utley may have spoken to her about the fact that Echelon did not have permission to deal as a principal and that she may have suggested the IB proposal advanced by Mr Utley. Ms Messer is of this view because: (i) it is unlikely that Mr Utley would have come up with the IB proposal himself; (ii) the wording of the proposal sounds like something she may have suggested; and (iii) the proposal is couched in the type of language she would tend to use. 
28.	The next contact between Echelon and IG was on 22nd February 2007 when Mr Utley again telephoned Mr Alexander to see how matters were progressing. Mr Alexander said: “So remind me again, the thing is the client money thing?” to which Mr Utley replied:
“Yes, well it’s two things. So the first thing is because these are OTC products, you are, in fact, dealing as principal or an agent …. that’s one thing  that we thought …. But you know, that’s one thing. The other thing is client money. Because we’re contracting, we’ll be contracting directly with you …. Obviously we think you are holding client money because we’ve got no sort of recompense to the sort of end client so to speak”. 
          Mr Alexander then said:
“… I’m actually, the agency principal thing I’m looking into, at the moment I’ve got someone who’s coming back to us in that - … Yes. Well, basically, we’ve got Linklaters are looking into that for us so, because they helped set the company up. … So as soon as they come back I’ll let you know … And the client money thing I think we’re going to go for anyway so that’s not, you know …”
        Mr Utley replied: 
“Yes, but I think the principal agency thing and that, obviously that’s where you need a serious sort of …. you need to have sort of a lot of money in the bank .. to do that.”
Mr Utley also told Mr Alexander that IG had an agency agreement with a large stockbroker and that it was for Mr Alexander to decide.

29.	On 2 May 2007, Linklaters produced a memorandum dealing with Echelon’s permissions and their dealings with MF Global. Based on the Echelon Terms of Business provided to them, Linklaters concluded that Echelon was not dealing with MF Global as a principal and was not holding client money, but they noted that MF Global had set up the account with Echelon on the basis that each side was dealing as a principal. A discussion with MF Global was recommended to resolve these issues and it was pointed that the current arrangements might need to be re-documented. In the event, no change was made to the contractual documentation and Echelon and MF Global continued to transact business as before.
30.	Mr Utley maintained sporadic contact with Echelon throughout the rest of 2007. During a telephone call on 4  May 2007, Mr Alexander told Mr Utley:
“Well, we’re just about … we’ve put them … we’ve sent the VOPs (Variation of Permissions) off actually for client money and for dealing as agents, so probably best to wait until those are actually through, which should be maybe three to four weeks, the compliance officer reckons.”
31.	Mr Utley replied: “Oh that’ll be good”.
32.	 On 19 June 2007, there was the following conversation: 
“TU. “I mean nothing’s changed with the, I mean are you quite happy to, I mean you signed all those or both forms. I mean, and I know this from my point of view, I was slightly worried on the FSA registration side, and if you’re sort of happy on that –”
SA. “As it happens … we also sent off for client money and dealing as agent”
TU. “ Oh have you? Okay.”
SA. Yes … the compliance officer … two to three weeks, should be.”
TU. “I’ve got the signed forms and once that’s in, we’ll get things sort of moving forward.”
33.	In a call on 17 July 2007, Mr Alexander said to Mr Utley: “If we get this thing through, I will let you know straight away” to which Mr Utley replied: “No worries. Once we get it through, I can sort of schedule the white labelling … and we’ll get our platform sort of … we’ve got, as you know, the two platforms so only one of them is the white label, but I’ll try and come up before then anyway.”
34.	On 27 September 2007, Echelon’s FSA permissions were enlarged. Prior to that date it had been authorised to advise on instruments including CFDs; to arrange deals in investments, including CFDs; and to make arrangements with a view to transactions, including in CFDs. Henceforth, Echelon was permitted to deal in investments as agent, to manage investments, and to hold client money.
The WLA goes active – the transfer of Echelon’s position with Man to IG on 19 March 2008.
35.	In the morning of 19 March 2008, Mr Alexander telephoned Mr Utley and asked if IG could take over the business that Echelon had previous transacted with MF Global. MF Global had increased their margin rates and he could only assume they were about to go out of business. 
36.	The conversation proceeded as follows. 
TU: … But we can certainly do the, we can certainly do the CFDs. As for the spread betting we can certainly take the hedges across, because … the slight problem with the spread betting is that because we don’t do it on a wholesale basis – 
SA: - yeah, yeah, yeah. 
TU: The clients will have the contract with us, provided they are UK clients they can open accounts with us, if they’re UK clients they should be able to open an account with us (inaudible) - 
SA: - the CFD we can just move as a – 
TU: - yeah as one client in effect, so we can take that on. And with money transferred would obviously (inaudible) which is going to be a bit late today but we can do that tomorrow. Certainly on the CFDs we can do all the CFDs. 
…
SA: We need to (inaudible) I mean we would be on millions of pounds margin call overnight (inaudible) CFD side. 
TU: Yeah but I can certainly … just give me a second because I need to check because obviously we do some back to backing with [Man] and it just depends on what we need to do, So I think obviously we’ve got other UK providers.” 
37.	Mr Utley telephoned Mr Alexander back eight minutes later, at 12:06, and said that there would be no problem with the CFD positions, and he asked for a spread sheet of all the positions that Echelon wanted to move across because he would need to show it to Mr Russell, IG’s Credit Director, and get it “signed off by risk”. 
38.	Mr Utley then spoke to Mr Cohen of Echelon at 13:57 who was keen to have access to IG’s trading platform for CFDs and something similar for spread bets. 
39.	Echelon’s CFD and collateral positions were emailed in spread sheet form to Mr Utley at 13:58 who forwarded them to Mr Russell at 14:08. By an email timed at 14.38 Mr Alexander informed Mr Utley and Mr Russell that there was £2,999,299 cash and £2,003,584 collateral at MF Global. This email was copied to MF Global. At 16:58, Mr Alexander asked Mr Utley by email if IG would place the first trade for Echelon in the US overnight and Mr Russell emailed IG’s Institutional Support Desk at 17:20 to ask that the Echelon account be set up with an initial daily TDL (Total Deposit Limit) of £5m. IG’s Institutional Support Desk emailed Mr Russell and Mr Utley at 17:27 to say that a second account for Echelon (E4349) had been set up and asked if a “non-seg” (non segregated) was all right. Mr Russell responded “Non-seg all the way”. 
40.	On 20 March 2008 Mr Russell requested IG’s Institutional Support Desk to set up 495 sub-accounts for Echelon each with a TDL of £100,000. Also on that day, Mr Utley told Mr Alexander that account E4349 would be Echelon’s main account and “Ash” (Mr Elgarf, IG’s Head of Institutional Broking) was to be their contact for dealing enquiries. Mr Utley also emailed to Mr Elgarf Echelon’s CFDs and collateral positions with MF Global stating: “These are the positions coming across – we can kick back anything that we do not want. Can you liaise with squeak [James Blackmore, a dealer at MF Global].” The transfer was interrupted by the Easter Bank Holiday weekend – 21 March to 24 March 2008 -- and work began at IG on setting up sub-accounts on Tuesday 25 March 2008 which was completed on 28 March 2008. On 2 April 2008 work began opening and transferring positions into the sub-accounts.
41.	As stated above, the claimants allege that Mr Utley was fully aware when Echelon’s CFD positions with Man were taken over by IG and throughout the operative life of the WLA that Echelon was not permitted to act as a principal with a CFD provider when acting on behalf of clients. It is not alleged that anyone else at IG concerned with the operation of the Echelon account, including in particular Mr Russell and Mr Elgarf, knew or suspected that Echelon did not have FSA permission to contract as a principal. Indeed, it is clear on the evidence that, Mr Utley aside for the moment, everyone at IG who was involved in the operation of the Echelon account genuinely and honestly believed that Echelon had the necessary permission to contract as a principal.
The claimants’ agreements with Echelon
           Mr Lucien Selce
42.	Mr Selce is based in Geneva, Switzerland. He began trading in CFDs in 2005 using MF Global as the CFD provider. 
43.	On 19 March 2008, after MF Global raised its margin requirements, Mr Selce spoke to Marc Demane, a social acquaintance, who arranged for Mr Shami Ahmed to provide Mr Selce with the contact details of Mr Alexander of Echelon. Mr Selce spoke to Mr Alexander on 19 March 2008. On 20 March 2008 Mr Alexander emailed Mr Selce stating:“It was very good to talk to you yesterday. Please find our account opening form attached as requested.” Mr Selce responded the same day, pointing out that the form he had received was the wrong one and asking whether he should open an individual as opposed to a corporate account, for the sake of speed. Mr Selce’s email continued: “When we spoke yesterday you said that accounts are segregated. On your website when you download the account opening form, section 9 says that for cfds accounts as intermediate customer the money does not need to be segregated. It states that it is Echelon’s intention to keep it separate, but how can one be sure?” 
44.	Mr Selce looked at the Echelon website and noted that it said the firm was FSA-regulated and “registered as agent with the FSA”.  
45.	Mr Alexander sent another email on 20 March 2008 in which he stated that he was attaching a corporate opening form and a copy of the relevant terms because the terms on Echelon’s website were pre-MiFID. Mr Alexander went on: “I will also get my compliance officer to write a letter to you, which will outline your protections for your records.” The documents sent by Mr Alexander were a corporate account opening form and the “Retail Client Terms of Business”. 
46.	When Mr Selce read the attachments he realised that Mr Alexander had sent the wrong terms and conditions. Mr Selce recollected that this was principally because the Retail Client Terms of Business did not mention the segregation of accounts (whether at section 9 or elsewhere), did not mention the Royal Bank of Scotland as custodian (being the entity which Mr Selce understood would hold client money) and did not mention CFD trading. Accordingly, Mr Selce concluded that these terms could not apply to his relationship with Echelon, unlike the Terms of Business for Margin Products which were available on the Echelon website and which Mr Selce considered after 25 March 2008.
47.	On 20 March 2008, Mr Selce chased for a letter regarding segregation, asking “Can you also send me the letter showing that accounts are segregated” and Mr Alexander responded: “Certainly – I will ask my compliance officer to produce one and I will send it to you as soon as I receive it”. 
48.	Mr Selce completed an individual account opening form on 20 March 2008. The form stated at Section 6:“I confirm the information given in this application to be correct and I have read and agree to be bound by the terms of business of Echelon Wealth Management that apply to the type of account I'm applying for.” 
49.	The Instructions at the end of the form stated “Enclosed with this form are the terms of business of Echelon Wealth Management for various Echelon accounts.  Please read the terms of business that apply to the account you wish to open.  If you agree to the terms, please carefully complete this form and return it with the following items.” In fact, as noted above, the relevant terms of business had not been provided to Mr Selce.
50.	Mr Alexander acknowledged receipt of the application on 20 March 2008 and received the hard copy application on 25 March 2008. 
51.	On 26 March 2008, Mr Selce received a letter dated 25 March 2008 signed by Mr William Macdonald, the Managing Director of the Part 20 Defendant (“Craigcrook”) which was in these terms.
Dear Mr Selce
Echelon Wealth Management Limited 
Your Client Account
We provide an outsourced Compliance Officer resource for Echelon Management Limited.
I can confirm that Echelon has opened a segregated Client Account for your funds which is subject to the FSA Client Money Rules and Protections. Your funds will be kept separate from other clients’ money and from Echelon’s own funds. If anything untoward happened to Echelon your funds would be ring fenced from Echelon and its creditors and from other clients. In that situation your funds would be handled and returned to you in due course in accordance with the FSA Rules.
                        I hope this confirmation is helpful.
52.	Mr Selce relied on this letter (“the Craigcrook letter”) in proceeding to do the business he did with Echelon down to 17 October 2008. If his request for such a letter had not been met by Mr Alexander I am quite satisfied that he would have placed no business with Echelon. On 28 March 2008, he instructed his bank to send €2 million to Echelon.
53.	Mr Selce accepted that at the time he executed the account opening form he did not know what terms applied. The applicable terms were in fact Echelon’s Terms of Business for Margin Products. A document bearing this title is in the trial bundle. None of the claimants included this document (“Echelon’s Margin Trading Terms”) in their individual disclosures. It came instead from documents made available by Echelon’s Liquidator and also from Burness LLP, the claimants’ solicitor in a Scottish action against Mr Alexander. Mr Downes argued that there was no evidence that the version of Echelon’s Terms Margin Trading Terms in the bundle was in existence in March 2008, as distinct from some later date. However, the claimants produced an email dated 18 February 2008 from Mr Alexander to a Mr Samer Sidawi which attached an account opening form and various of Echelon’s forms including the version of Echelon’s Margin Trading Terms that is in the bundle. On the basis of this evidence I find that the version of Echelon’s Margin Trading Terms in the bundle constituted the applicable terms when Mr Selce completed his application form. I further hold that these terms were incorporated into Mr Selce’s contract by virtue of the words in his signed application form recited in paragraph 48 above.
54.	The relevant provisions contained in Echelon’s Margin Trading Terms are as follows:
 The preamble stated that the document contained the terms that “shall govern broking transactions between you (‘Client’) and [Echelon]. [Echelon] will deal as agent for the Client in relation to contracts for differences entered into with the third party contracts for differences writer…”.
 The “Definitions” included:
“Banks” – Royal Bank of Scotland:
 “Echelon Wealth Management Client Account” - “The client account held by Echelon Wealth Management with the Banks on behalf of the Customer, equalling the money transferred by the Echelon Wealth Management Customers;”
“Margin Account” - “The account held with the Bank registered in the name of Echelon Wealth Management, into which Echelon Wealth Management will transfer Margins from the Echelon Wealth Management Client Account, in accordance with the terms of this Agreement, as security for payment of any losses incurred by the Customer as a result of a Trade.”
Clause 2.9 provided: “The monies lodged to the Client Account are segregated such that: (a) the Banks are not entitled to combine the Accounts with any other account or to exercise any right of set-off or a counter claim against the money in the Accounts in respect of any sum owed to the Banks on any other account of Echelon Wealth Management; (b) the Client Accounts are sufficiently distinguished from all other accounts containing money that belongs to Echelon Wealth Management.”
Clause 2.10 provided that the client could earn interest on monies “lodged or transferred to the Echelon Wealth Management Client Account”, which interest would be paid monthly. 
 Clause 2.14 provided that Echelon would only transfer money out of its client account “in the course of carrying out its activities and in accordance with this Agreement” and further only where “where money is transferred to (i) the Client or a third party upon the written instruction of the Client; or (ii) an account in the name of the Client with another credit institution; or (c) to discharge Administration Fees due and payable to [Echelon] pursuant to this Agreement.”  
Clause 6.1 provided that where a client wished to open a new position or maintain an open position, Echelon would request its bank to make a transfer from the Client Account to the Margin Account per the margin requirement Echelon received from the third party CFD writer. 
 Clause 6.9 dealt with the position after a trade had been closed and provided that “Once a Client’s position in respect of a Trade has been closed…, the Margin and/or Additional Margin after the deduction of any fees due by the Client to [Echelon] pursuant to this Agreement, will be transferred by [Echelon] from the Margin Account to the Echelon Wealth Management Client Account for the benefit of the Client and will be retained in this account in accordance with this Agreement…” 
55.	In my judgement, by virtue of Echelon’s Margin Trading Terms, Echelon agreed: (i) to act as agent in placing CFD trades with a CFD provider for and on behalf its clients; and (ii) to hold money received into the Client Account on a segregated basis in an account held at the Royal Bank of Scotland. As for money paid from the Client Account into the Margin account, I agree with the submission of Mr Nash QC for the claimants that this money was not to be part of the assets of Echelon and on a liquidation it was to be paid out to the clients pari passu with their contributions into the account.
            Stokors SA
56.	Stokors SA (“Stokors”) is a Swiss Portfolio Management Company based in Geneva which has been dealing in CFDs since 2006. Its Administrator and Co-Founder is Mr Thierry Braha, who gave evidence. He was introduced by Mr Selce to Echelon in the week after 19 March 2008 when MF Global had drastically raised its margin rates. Mr Selce showed him a copy of the Craigcrook letter dated 25 March 2008. 
57.	The majority of the email communications regarding the opening of an account by Stokors with Echelon were between Mr Braha’s subordinate, Mr Zurini, and representatives at Echelon other than Mr Alexander, who was on holiday. IG alleged that Mr Braha had never himself spoken to Mr Alexander but I accept his evidence that around 19 March 2008 he called Mr Alexander (who may have taken the call on holiday) and was assured by him that Stokors would have segregated accounts if the company invested through Echelon. I also accept Mr Braha’s evidence that he reviewed Echelon’s permissions online and the contractual documents that accompanied the opening of the account and noted from that review that Echelon would operate as agent.
58.	 Mr Braha himself signed the account opening form dated 26 March 2008. Under the box containing his signature appeared the words: “I confirm that I have read and agree to be bound by the Terms and Conditions of Echelon Wealth Management”. In my judgement, given that Stokors intended to and did carry on CFD trading through Echelon, the effect of these words was to incorporate Echelon’s Margin Trading Terms into the agreement between Echelon and Stokors. 
59.	Mr Braha confirmed in cross-examination (and I accept) that he visited Echelon’s website on a number of occasions, looked at Echelon Terms governing margin trading and printed them out. He said that that printout is no longer on the Stokors’ file as it was subsequently lost, possibly in the course of a trip to Echelon’s offices in October 2008.
Phoenicia Assets Management (Holding) SAL (“Phoenicia”)
60.	Phoenicia is a Lebanese company that was established by Mr Franck Houdin in early 2008 to be a vehicle for his CFD trading through Stokors. Mr Braha arranged the opening of Phoenicia’s account with Echelon and Mr Houdin signed the account opening form on 9 April 2008. The same words appeared under the box where he signed the form as appeared in the form signed by Mr Braha, with the result that Echelon’s Margin Trading Terms were incorporated into Phoenicia’s agreement with Echelon also. 
Mr Alexis Kuperfis
61.	Mr Kuperfis is a wealthy individual who resides in Morocco and is a client of Stokors. On the advice of Mr Braha, Mr Kuperfis decided in March 2008 to cease trading CFDs with MF Global and to open an account with Echelon. Mr Braha told him that Echelon used segregated accounts and that he had seen a letter from Echelon’s compliance confirming that this was so. In the event, Stokors agreed to hold its account with Echelon for the benefit of Mr Kuperfis.
62.	Mr Kuperfis was not party to the Claim Form issued by the other three claimants. Instead he was made a party by order of the court to ensure that he would be bound by the court’s judgement on the claim brought by the other claimants. 
63.	After the collapse of Echelon and at a time when he was unknown to Mr Utley, Mr Kuperfis deceitfully approached Mr Utley with a proposal that he come to Morocco to discuss a possible CFD trading strategy to be implemented by his new employers, WorldSpreads Limited. The idea was that a scenario mirroring what had happened on the Echelon/IG account would be put to Mr Utley in the hope that he would make statements suggesting that he would dishonestly participate in such trading. Having first obtained the consent of his new employers, Mr Utley accepted Mr Kuperfis’ invitation and entered into discussions with Mr Kuperfis and two or three of his associates in a sumptuous Morrocan villa graced by the presence of three attractive young women procured by Mr Kuperfis. These discussions were secretly recorded and a number of the tapes were disclosed by Mr Kuperfis in the course of the trial. At no time did Mr Utley make any statements of an incriminating or discreditable nature.  
64.	Mr Kuperfis also thought it appropriate to take three heavily built men as body guards or enforcers with him when he went to see Mr Alexander in Scotland prior to Echelon’s collapse. 
The management of the IG/Echelon account
65.	 The amount of margin payable by Echelon to IG was calculated daily on a net basis by setting off accounts in deficit against accounts in surplus so that the margin calls were based on the overall deficit (if any) across the accounts operated by Echelon. This was in accordance with IG’s general practice. 
66.	Until 4 April 2008, Echelon was on margin call in respect of the CFD positions that had been transferred from MF Global. This was because the cash representing margin held by MF Global did not move across with the positions due to: (i) the fact that IG was not taking all of Echelon’s MF Global positions and time was needed for MF Global to work out the margin attributable to the transferred positions; and (ii) the chaotic state of MF Global’s administration which was having to deal with a rush of instructions from customers seeking to move their business away to escape MF Global’s steep increase in its margin rate and out of fears over MF Global’s solvency. 
67.	Echelon’s daily margin deficit was around (£2.5 million) until 28 March, rose to (£3,252,074) on 31 March and decreased to between (£774,835) – (£1,069,317) from 1 and 4 April 2008. Mr Russell, IG’s Credit Director in charge of credit risk, was content to allow this situation to continue for the period in question. In this period the following sums were received by IG from Echelon: US$135,985; US$408,000; £205,086.34; £2,500; £4,601; £63,640; £375,296; £12,000; £150,000; €1,999,946.34; and £53,301. Further, Mr Russell had been informed by the email on 19 March 2008 that £2,999,299 cash was due to come from MF Global in respect of margin and a further £2,003,584 by way of non-cash collateral. The fact that the email in question had been copied by Echelon to three individuals at MF Global gave Mr Russell additional assurance that these transfers would be made.
68.	On 20 March 2008, Mr Russell spoke to Mr Alexander about a copy of a US $3million guarantee that had been sent to Mr Utley by Mr Alexander. This guarantee was issued by UBS in favour of Royal Bank of Scotland (“RBS”) as security for a credit line to be granted to Echelon. Mr Alexander explained to Mr Russell that he intended RBS to grant a back-to-back guarantee in this sum in favour of IG in addition to the cash and collateral that was due to come over from MF Global. Mr Russell said that if IG were to take such a guarantee it would have to be in favour of IG and subject to English law. Subsequently there were discussions within IG, between IG and its bankers, Lloyds, and between IG and Echelon as to the guarantee’s wording which led to the issuance by RBS of a guarantee for US $3 million in favour of IG dated 16 April 2008. 
69.	On 4 April 2008, €4,903,533.44 was received by IG to be credited to sub-account E4702 which (unknown to IG) was the account opened for Stokors. The electronic notification of receipt of these funds would have been seen by someone in IG’s client bookings team but Mr Russell was unaware that this sum had been received in respect of a specific sub-account. Since: (i) IG was dealing with Echelon as a principal and calculated margin across all the accounts operated by Echelon; and (ii) title passed to IG in funds paid over by Echelon, the receipt of this sum brought Echelon’s margin position into surplus, which remained the position until 9 June 2008, save for 23-25 April and 29 April and 21 May 2008. And no-one at IG, least of all Mr Russell, thought that the arrival of the €4,903,533.44 betokened any wrongdoing or fraud on the part of Echelon.
70.	The non-cash collateral that came over from MF Global was in the form of shares. Depending on its assessed value, the collateral was given a “haircut” of varying severity i.e. it was booked at less than its quotable value (normally 50%). And it was taken into account only in respect of initial margins. Some collateral shares were given a nil value but were nonetheless taken by IG to avoid the difficulties Echelon might face if MF Global went into liquidation. In email correspondence on 8 and 9 April 2008 between Mr Russell and Mr Andrew Bole, the IG Credit Director responsible for market risk, Mr Russell agreed with Mr Bole that some of the collateral in respect of a particular Echelon sub-account was “crap” and that it was for consideration whether IG should adopt a general rule that shares in non -FTSE 250 companies should not be taken as collateral. Mr Russell pointed out to Mr Bole that Echelon was an omnibus client and that the amount of non-cash collateral being provided by Echelon was not large in the context of Echelon’s overall position.
71.	On 4 April 2008, Mr Leung, an IG dealer, notified the compliance department that Echelon was requesting that certain trades be re-allocated to accounts different from those in which they had been originally booked. This prompted an email later that day from the Head of Compliance, Mr Clivaz, to Mr Leung and Mr Utley which stated (inter alia): 
Echelon are operating omnibus accounts which we do not look behind as they are the customer. However we know there are underlying clients. Before instructing any trade they should have records to show how they are being allocated especially if they are to be split between the clients and themselves. It should be difficult for them to get it wrong therefore. But this is shortly after the account transfer so we can accept it as a genuine mistake.
So I think Tobin (Mr Utley) should speak to them along the lines that we don’t expect to see mistakes and corrections of this nature –either client to house or client to client. So please would they make sure their procedures ensure it does not happen again. If there are any further errors we will have to follow the usual process ….. by showing the book entries in full.
If their procedures appear not up to dealing with all the accounts, we’ll have to review the relationship with them. 
72.	On 9 April 2008, Mr Utley spoke to Mr Cohen, an Echelon dealer, who complained that an IG dealer had refused to reallocate a trade from the header account to a sub-account.  Mr Utley did not take the opportunity to say what Mr Clivaz proposed should be said in his email, although he told Mr Cohen that if there’s an improvement in the price a reallocation would be fine. He thought that compliance were getting confused between a general IB agreement and an omnibus agreement. Mr Utley asked for the name of the IG dealer so that he could go to talk to him. He jokingly said he “would slap them around the face”. He further said that going forward he would make sure that a trade could be reallocated where there was an improvement in the price. 
73.	The following day Mr Cohen was on the phone again to Mr Utley making a further complaint about a refusal by IG to reallocate a trade. Mr Utley responded by saying “we know that … there’s an underlying client behind … Echelon’s clients, we still have a duty of care anyway.” And he added that IG could be in trouble if a reallocation were picked up by its auditors. Mr Cohen said that the accounts concerned were owned by the same client and eventually Mr Utley said: “Well, leave that with me. I, I’m sure I can … get this through.” 
74.	On 11 April 2008, Mr Utley had to ring Mr Cohen to tell him that compliance had ruled that two requested allocations were not going to be permitted and if they were to be moved there would have to be a cash transfer. Mr Utley went on: “pissed me off, fucking compliance, compliance” and when asked by Mr Cohen “what’s the use of it?”  Mr Utley replied “business prevention.”
75.	On 15 April 2008, Mr Utley rang Mr Alexander to talk again about requests to reallocate trades. He told Mr Alexander that he had spoken to IG’s compliance officer (Mr Clivaz) who had said that trades should be moved at market price with a cash correction and he (Mr Utley) did not want Echelon coming through every five minutes arguing for an exception. He suggested that Mr Alexander should meet the compliance officer for a discussion and added “[i]t’s the same thing. Compliance putting their oar in, not knowing who you are.” Following this call, Mr Utley sent an email to Mr Cohen stating that compliance wanted all movements from the header account done in one go which would leave that account flat in the positions set out in an attached spreadsheet showing the stocks and the prices at which they were last booked to Echelon’s account. The email concluded: “Can we get the other movements finalised so we can get the head account flat.”
76.	By about 10 April 2008, IG’s Account View system had been set-up for the Echelon accounts. This system was a web-based tool that allowed Echelon and IG to see the details of all open positions and margins across the totality of Echelon’s accounts.
77.	On 17 April 2008, Mr Russell, Mr Utley and Mr Elgarf visited Echelon’s offices in Glasgow. They met Mr Alexander and two or three Echelon employees. The purpose of the visit was to get to know and understand the nature of Echelon’s business and to assess IG’s risk in dealing with them. Mr Russell wanted to know in particular, how Echelon risk-managed their client relationships: if Echelon managed their clients poorly that could result in Echelon lacking the funds required to support its trading with IG, which in turn could expose IG to financial risk. Mr Alexander told Mr Russell that Echelon was continuing to deal with MF Global under an omnibus agreement and Echelon was directly holding client assets including stocks and cash in nominee accounts for some clients. Mr Alexander also said that Echelon was managing clients’ positions across several types of business which involved Echelon making their own margin calls on clients where necessary; some of the stocks held by Echelon were not UK stocks. Echelon also held a number of guarantees in respect of some of its clients.
78.	Mr Russell took a look at Echelon’s dealing set-up. The company had IG’s dealing platform and MF Global’s trading platform; both were active. They also had Reuters and Bloomberg feeds. It was a small but well set up office.  Mr Russell explained the restrictions on trading that IG would impose. IG would not allow all of Echelon’s clients to hold the same position in one stock and positions in aggregate across the client base were restricted.
79.	The production of daily spread sheets showing the daily position across each account operated by Echelon began on 21 April 2008. These documents accordingly showed for the header account (E4349) and each sub-account the cash balance, current profit and loss, margin required on open positions, the value of collateral (if any) and the overall excess or deficit on the account. The spread sheets were usually produced by Holly Ashby in the Financial Credit Department who emailed them to Echelon with copies, inter alios, to Mr Utley and Mr Russell, and after 2 June 2008, Mr Elgarf. The covering emails tended to be in common form. “Good morning. Please find attached today’s spreadsheet. The surplus (deficit) is currently £ xx  (£xx).” The spread sheets were sent to Echelon in addition to the sub-account statements produced for Echelon with Echelon’s logo pursuant to clause 4 of the WLA.
80.	The first line of the spreadsheets showed the aggregated numbers for Cash, Current P&L, Equity, Margin, Haircut Collateral, Deposit due less collateral, and Excess/Deficit -- the Overall Position. Then below this line the details under each of these headings were given for each sub-account, starting with the header account (E4349), with deficits shown in red. As recorded above, the header account was a transit account through which incoming and outgoing aggregated payments were first booked. It was also used to book aggregated trades where a number of clients had each purchased CFDs in the same underlying stock. Strictly speaking, there ought not to have been a deficit on the header account, since matching cash movements ought to have been booked to the relevant underlying sub-accounts. However, for much of the time the IG/Echelon accounts were operated, the header account was substantially in deficit.
81.	On 24 April 2008, IG made a margin call on Echelon for £1,622,234 via an email from Holly Ashby to Mr Alexander. The first margin call after the transfer from MF Global had settled down had been made the previous day. In reply, Mr Alexander queried the size of the call and said that Echelon was waiting for some funds to arrive and would also cut some positions. Ms Ashby forwarded Mr Alexander’s email to Mr Good, a risk analyst in IG’s credit department, who emailed Mr Russell and Mr Utley: “Is this how they’re supposed to deal with margin calls? They are clearly on call and it’s a bit of a worry that they are disputing their first call… The figures look correct to me.” Although a broker would generally be expected not to challenge the size of a margin call and pay within 24 hours, the spreadsheets were a relatively new manual process and Mr Russell did not think Mr Alexander’s reaction to be particularly remarkable. He was also not concerned by Mr Alexander’s statement that positions would be cut. One or some of Echelon’s clients may not have been coming up with required margin. At this time JP Morgan’s take over of Bear Sterns had led to considerable market volatility and some of IG’s other customers were finding it difficult to meet margin calls. 
82.	As at 24 April 2008, sub-account E4376 was in deficit to the tune of (£4,218,380) whilst the sub-accounts for the first three claimants were in surplus -- £1,120,740 (E4511–Selce); £2,448,617 (E4702– Stokors); £663,741 (E4756 – Phoenicia). Mr Russell was looking at the overall position, not how Echelon administered matters between brokers with whom Echelon’s clients were also trading. He did not suspect that Echelon was doing anything wrong.
83.	In the period 18 – 23 April 2008, members of IG’s Institutional Support Desk asked IG’s Credit department if it was in order to make transfers out of the header account when that account was in deficit and they were assured that since the Echelon account was on an omnibus basis and the overall position was in surplus, the transfers could be made. Cash withdrawals were permitted by IG to be put through the header account when it was in deficit because there were surpluses on underlying sub-accounts sufficient to produce an overall surplus which exceeded the withdrawal. 
84.	In an email to Mr Alexander dated 22 April 2008, Mr Russell said that there could be trading on line in respect of accounts in funds but he still needed to work through accounts which did not have any funds (eg E4376/DS2016). 
85.	In an email sent on 13 May 2008, Mr Utley asked Mr Russell if Echelon’s ODL (Owed Deposit Limit – a limit on Echelon’s capacity to trade) could be reviewed because it was limiting Echelon’s ability to deal on the header account. Mr Russell replied: “They should be able to now. Not particularly happy with the way they’re managing (or not) the cash – all payments are going out of this account and there is a massive cash deficit”. Mr Utley asked if he should enquire why there was such a debit balance but this suggestion was not taken up by Mr Russell. 
86.	Mr Russell regarded the deficit on the header account as an administrative problem for IG: once the ODL was exceeded, time would have to be spent reviewing that limit and it could involve manual trading by the IG dealers. In Mr Russell’s mind, the deficit showed administrative laxity on the part of Echelon; it did not signal any wrongdoing or fraudulent conduct. 
87.	On 6 May 2008, Mr Elgarf asked Mr Clivaz, Mr Russell and Mr Utley for some definitive guidance on how to deal with requests from Echelon to move positions from account to account. In Mr Elgarf’s view, since Echelon was an FSA regulated firm and IG dealt with Echelon rather than its end-clients, there ought not to be a problem with moving positions across accounts: it was up to Echelon to treat their clients fairly. This was also Mr Utley’s view, and Mr Russell’s opinion was that, since there was one contractual relationship, moving positions was not a problem where there was no change in beneficial ownership, although it was administratively intensive for IG to do this. Genuine mis-bookings should not be a daily occurrence and trades in the header account should be allocable to the correct sub-account on a daily basis. 
88.	In his responsive email later that day Mr Clivaz agreed with much that Mr Elgarf had had to say. He went on: 
The main issue is that we know that there are different clients behind their sub-accounts.
We also know that if they shift a position from one account to another at the opening price that (usually) a profit or loss will be shifted from one account to another. So we cannot just allow them to shift positions between accounts at opening price. But we also know that there are legitimate reasons why they might first execute a trade on their header account and then reallocate out to another account (but, even here they should have details of the order and allocation first).
So my view is that the basic guidelines could be that we should accept:
•	a transfer out from the header account – definitely, if it’s shortly after the trade, and, usually always the same day, unless there is something suspicious.
•	they can also shift at opening price between two accounts if they have assured us in writing that the accounts are held by the same person with the same beneficial owners.
•	and, otherwise, they can shift a trade between two accounts at opening on the same day as the trade but only if with written confirmation that they made a mistake in giving us the order. (If we’ve made a mistake then obviously, we will correct it.)
Otherwise, we should generally not shift at market if the underlying market has closed and reopened.
Does that seem reasonable?

89.	Mr Elgarf emailed Mr Clivaz’s guidelines to Mr Leung and Mr Ryan on the dealing desk the following morning (7 May 2008). On 8 May 2008, Echelon asked for a position in Anheuser-Busch to be moved between accounts three days after it had been first booked, at the price at which it had been opened. Mr Clivaz’s response in an email to Mr Elgarf was that without a very good explanation he did not see that IG could move a $5m position three days later at the opening price. The position should be moved at the mid-market price.
90.	Later that day (8 May 2008) Mr Clivaz spoke to Mr Alexander who explained that the header account was used in respect of aggregated customer orders which were then broken down by sub-account and for clients with more than one account who then wanted the trades broken down between accounts. Mr Alexander assured Mr Clivaz that where aggregated orders were put through the header account, trade allocation had already been determined and he added that the trade that had been moved three days late was his fault; he had missed it. Mr Alexander said that Echelon was going to reconcile the header account twice a day so that any positions on the header account would be moved.
91.	Following this conversation, Mr Clivaz emailed Mr Alexander (copied to Messrs Russell, Utley and Elgarf) stating:
“I am please we could speak together at last. This is just a short note to set out what we discussed. If I haven’t got the details right then please let me know. Echelon use the header account for a number of different purposes:
(i) as a staging post for aggregated trades, some of which are worked in the market. Where this is the case you will have the basis of allocation decided before the trade.
(ii) for deals for clients who hold two or more accounts in the same name and with the same beneficial owner;

(iii) as a staging post for larger deals where an individual sub-account credit limit may not adequately reflect the financial strength of your underlying client.

You also said Echelon would be starting up procedures to reconcile and to empty the header account twice a day.

IG should be content to accept:
(a)	an order to transfer out from the header account to another account or accounts at opening price if Echelon give IG the allotment/allocation details before the next trading day on that market;
(b)	an order to shift at opening price between two accounts if Echelon has assured us in writing that the accounts are held by the same person with the same beneficial owner.
(c)	an order to shift at opening price a trade between two accounts on the same day as the trade, if we are provided with written confirmation Echelon made a mistake in giving us the instructions (which should be very rare).
Of course, if IG has made a mistake we’ve got to put that right too.
Although we don’t have knowledge of Echelon’s underlying clients we would not generally be happy to:
transfer out from the header account to another account or accounts (at opening price) outside the time limits of (a) above; 
shift a trade between two accounts, other than in the circumstances of (a), (b) or (c) above.
Generally, therefore, IG would carry out instructions that are not within (a) (b) or (c) at the market price. These are essentially an order to close the position on one account and to open a new trade on another.….. The reconciliation procedures you are bringing in should ensure this does not happen in the future.
I think that as we discussed these guidelines are pretty clear and straightforward and should give a good basis to work from. Let me know if you are happy with this.

92.	Later that day Mr Russell emailed Mr Clivaz to say that the guidelines sounded “eminently sensible” and Mr Elgarf informed Mr Clivaz he would forward the guidelines to his team, which he did. Following the promulgation of the Clivaz guidelines, Mr Utley continued to argue for exceptions if asked to do so by Echelon.
93.	The header account and sub-account E4376 remained in deficit throughout May 2008. Thus on 29 May 2008 the deficit on the former was (£5,135,920) and on the latter was (£5,092,436). However, across all the Echelon accounts, there was an overall surplus of £1,755,854 reflecting large surpluses of £3,563,677, £3,974,959 and £1,390,204 on E4511, E4702 and E4756 respectively. Mr Russell accepted that by this time, looking only at the state of the Echelon accounts as shown in the daily spread sheet, Echelon was not in a position to repay those clients to whom it owed surpluses. Mr Russell believed, however, that Echelon held other collateral from its clients and that its clients were also trading with other entities through Echelon. 
94.	On 20 May 2008, Mr Russell called Mr Bole via instant message to ask if he had anything to discuss at the Risk Committee. In the course of this conversation Mr Bole said: “Echelon does worry me. It is a crappy company with some massive positions. How is the collateral review going”? Mr Russell replied: “It was rather held up by our Reuters breaking down for 3 days, but progressing; there is quite a bit of crap, but we have identified it.” In a later telephone conversation on 2 June 2008, Mr Bole and Mr Russell began by discussing the fall in value of various bank stocks. Mr Bole then asked: “Are we happy with Echelon?” to which Mr Russell replied “I’m happy we are on top of them”. Mr Bole then asked: “Is the collateral reasonable quality?” to which Mr Russell replied: “There is hardly any collateral, it is nearly all cash…. across 370 accounts …. The collateral has a lot of crap, but it is diverse and no huge holdings of rubbish but irrelevant in the overall scheme.” “OK” said Mr Bole. 
95.	On 27 May 2008 and 28 May 2008, IG received respectively £1 million and £2 million from MF Global for the credit of Echelon’s header account (E4349). Mr Russell had been expecting £3 million from MF Global after he received the email dated 19 March 2008 referred to in paragraph 39 above stating that £2,999,299 cash was due to come from MF Global. At one point in his evidence he said he thought these funds were received at the end of April 2008, but when questioned in detail about these end of May payments he was not sure that they represented the money due to come from MF Global as part of the transfer of positions that occurred on 19 March 2008. Mr Nash accepted that the position was unclear but argued that the balance of the evidence was in favour of these sums being connected to new, non-transferred, positions that some of Echelon’s clients had with MF Global. He also submitted that the sums received by IG prior to the €4,903,533.44 received on 4 April 2008 had all come from MF Global so that less than £3 million was due at the end of May 2008 in respect of the transferred positions, and he pointed to the period of time that had elapsed since 20 March 2008. Although the position could be clearer, I conclude that the payments on 27 and 28 May 2008 did indeed cover the sum then remaining due by way of margin held by MF Global in respect of the transferred positions. Echelon had not been pressed to get the money in from MF Global because, after 4 April 2008, the account on an aggregate basis was in surplus from that date to 6 June 2008, save only for 23-25 & 29 April and 21 May 2008. And I think it probable that Mr Russell was unaware of the payments (or at least their source) that arrived on 27 and 28 May 2008, since he was interested in the overall position. 
96.	On 27, 28 and 29 May 2008, the surplus on the Echelon account was respectively £1,452,508, £1,588,237, and £1,757,023. Thereafter, save for 9, 10, 11, and 12 June 2008, the account was in surplus until 24 June 2008 when it went into deficit until 18 July 2008, save for 30 June and 14 July 2008. The account was also in deficit between 24 and 29 July 2008, including the weekend of 26/27 July, the respective figures being (£3,071,805), (£3,176,764), (£1,311,225) and (£2,442,493). 
97.	On 3 June 2008, Mr Singh, a Senior Management Accountant with IG, asked Mr Russell if the deficit on the header account should be provisioned. That account, without reference to the overall position across the Echelon accounts, had been picked up by the system being operated by Mr Singh. Mr Russell confirmed that it was in order for no provision to be made. The surplus across the Echelon accounts at this point was £2,401,554. 
98.	On 27 June 2008, Mr Russell emailed Mr Alexander pointing out that the margin call was £1.27 million and asking for urgent advice on fresh cash or significant reduction of positions. On the same day he emailed Ramy Soliman in Institutional Sales, under the subject Echelon margin: “Tobin is off. Does this mean you’re looking after this shower?” I accept Mr Russell’s evidence that he thought Echelon’s administration was not up to standard and this was causing additional administrative work for IG – hence his use of the word “shower”. He did not think Echelon was running its business in a way that meant that it was not in a position to satisfy debts it owed to its clients; he was not looking at individual sub-accounts in any detail and his take on the situation was that Echelon was unable to keep up with market activity.
99.	On about 25 June 2008, Mr Alexander told Mr Utley that Echelon was in a position to have RBS issue a further guarantee for US $2million, but Mr Russell was of the view that IG must have cash rather than further collateral. Mr Alexander then forwarded to Mr Russell an email from RBS that stated that an agreement had been obtained for the issue of a US $2 million guarantee to MF Global which Mr Alexander said would lead to the release of cash that could be paid over to IG; and on 27 June 2008 Mr Alexander received confirmation that UBS were increasing their standby letter of credit in favour of Echelon to US $5 million. 
100.	On 1 July 2008, a request by Mr Alexander for a withdrawal of £30,000 from the header account was refused by Ms Ashby. 
101.	On 4 July 2008 Mr Good sent an email to Institutional Broking ccd to Mr Russell: “Echelon have been on call for about a week now – they have promised funds that have not materialised. Please don’t take any further trades until their margin call is cleared as this can’t continue indefinitely….”
102.	In an email dated 7 July 2008 to Mr Russell and Ms Ashby, Mr Alexander stated that he would sort out the margin call that day, but he did not do so, prompting Mr Elgarf to refuse to accept opening trades the following day.
103.	On 10 July 2008, Mr Alexander informed Mr Russell that MF Global had raised its margin requirement on a couple of stocks thereby preventing Echelon from getting several million to IG. He had also sent Arab Emirate Dirhams to be converted into dollars or sterling for payment to IG. He was on the case and would make big headway tomorrow at the very least.
104.	There was considerable market volatility at this time and IG itself was finding it difficult to call in margins from other clients. Mr Russell therefore took a lenient view and did not order that Echelon’s positions be closed out. 
105.	On 11, 21, 25 and 29 July 2008 respectively, the following significant total sums were received by IG from Echelon: £250,000, £500,000, £1,297,782 and £500,659; and the Echelon account was in surplus from 1 August to 9 September (save for 5 September). 
106.	On 6 August 2008, Ms Ashby sent the daily email to Mr Alexander (copy to Mr Russell) this time reporting a surplus of £5,092,366, prompting Mr Russell to respond: “Looking healthy. What are the big changes?” Later, Mr Russell asked “if there had been any cash in (remember we’re expecting millions!)” and Ms Ashby replied: “We got in a grand total of £55k yesterday, so I guess the wait continues for the mythical millions!” 
107.	From 10 September to 17 October 2008, the account was in deficit in amounts generally between £3 – £4 million, save for 22-25 September when it was in surplus. 
108.	Mr Utley visited the Echelon offices on 11 September 2008. He had not been to see the Echelon team for a while and he felt it was important to maintain a relationship with members of staff other than Mr Alexander. On 30 September 2008, in an email responding to IG’s margin call email, Mr Alexander said that he was working on “many different sources of funds”, which included £2 million he had been expecting the previous week, and he would be closing positions throughout the day. Mr Utley later that day asked Mr Alexander on the telephone to let IG know what exactly was going on: it was difficult for the credit department who were run off their feet. Mr Alexander also told Mr Russell on the telephone that a payment was coming to IG from Dubai but it was being held up because of Ramadan. After this call, Mr Russell discovered that due to the Eid holiday these funds probably would not arrive until the following week and so he asked Mr Alexander to look for alternative funds.  Mr Alexander replied that he had instructed £300,000 to be sent to account E4349 and he was talking to someone who was potentially sending £5m. £300,000 was received into an IG bank account from Echelon later that day.
109.	It was Mr Russell’s evidence, which I accept, that it was chaos in the markets at this time and IG itself was approaching operational meltdown, with the number of margin calls becoming overwhelming for the credit team. 
110.	On Monday 6 October 2008, Mr Russell told Mr Alexander by email that IG needed “action on the cash” that day and the following day Mr Alexander came to IG’s offices in London to discuss the outstanding margin. Mr Russell raised the possibility of calling in the RBS guarantee for £3 million. Mr Alexander responded that he was confident that funds were coming in from the Middle East and that funds would be produced from a family trust, but this would take time. Mr Alexander agreed that IG should realise the most liquid collateral that it was holding, and this was done later that day. 
111.	On 8th October 2008, IG received from Echelon US$275,000 and US$2,718,171.87.
112.	Echelon was on a margin call of over £3m on 9th October 2008 and Mr Utley told Mr Alexander on the telephone that Mr Russell was under a lot of pressure to get the margin call cleared: it would be really helpful to get some payments and Swift confirmations because Mr Russell’s hands were going to be “pretty tied pretty soon”. Mr Utley also said that IG was increasing its margins on some stocks. 
113.	Later that day Mr Alexander emailed Mr Utley and asked that Echelon be given until the next day to resolve matters; they had managed to get in around US $3million  the day before and he was extremely confident of getting funds in that day or the next. In subsequent emails to Mr Utley, Mr Alexander said that: (i) Echelon would be getting stock and cash in from Direct Sharedeal and he would send a list of what was coming in; (ii) the person who had sent funds the day before had confirmed he would send at least another US $10million by the end of next week. Mr Alexander also emailed a list of cash he said he knew was coming in over the next few days. There was then a further conversation in which Mr Utley told Mr Alexander that he had spoken to Mr Russell who had asked that Mr Alexander put an email together explaining what was being done to recover what was due on the account that was on call for £16 million (E4376). Mr Alexander then emailed Mr Utley and Mr Russell in respect of sub-account E4376 saying:
“Further to my last email, please let me expand upon a specific account, E4376. Without divulging the name of the underlying client, I can assure you that I am working extremely closely with him and I can also guarantee without doubt that he has a large degree of wealth which far outweighs the deficit. He is in the process of releasing funds through one of his family trusts, which are worth over £200 million alone. This process, to be honest, will probably take two to three weeks as it has to be signed off by several parties and then the funds brought in from offshore. For our comfort, the client has signed a charge over some properties to ourselves.

He does also have some other accounts with us, with some funds in them.

All I can say guys is that I realise that we are in a very tenuous position at the moment but I can assure you that we have a long term plan for Echelon, and our audited accounts show a net profit of £2.3 million for last year. We have recently signed with Sharewatch who have approx. 5,000 clients, as well as Pershing who handle our equity business.”

114.	Mr Russell responded half an hour later to say that his main concern was the effect from an FSA perspective that a debt that size in Echelon’s books would have after it became 30 days old and what it would do to Echelon’s capital adequacy. Mr Alexander said that the client did have other funds and assets with Echelon and asked if Mr Russell would feel more comfortable if Mr Alexander gave the client a strict two weeks to rectify the matter, to which Mr Russell replied:
“… I guess it is up to you – you are omnibus to us and need to manage the situation, but if you’re asking me in general what I think, the sooner this is cleared the better.”

115.	On 10th October 2008 Mr Alexander telephoned Mr Utley and asked if IG’s client funds were segregated. Mr Utley said some were and some were not and a higher rate of interest was paid on non-segregated monies.
116.	On Monday 13th October 2008, the margin call across the Echelon accounts was £3.6m and Mr Alexander emailed IG, including Mr Russell and Mr Utley to say that Echelon would be sending a minimum of $3m that day. 
117.	Also on 13th October 2008, on Mr Alexander’s instructions, IG transferred all the positions on sub-accounts E4702 and E4756 to E4511 and transferred €2,980,952.40 from E4511 to the header account (E4349) and $4,057,672.40 from E4349 to E4495.
118.	On 14 October 2008, Mr Alexander again spoke to Mr Utley about segregated client accounts and was told by Mr Utley that this would make no difference as from IG’s perspective the account would still be part of Echelon’s net overall position (albeit segregated from IG’s other assets). Later, Mr Utley told Mr Cohen of Echelon that unless funds were forthcoming IG would have to start closing positions.
119.	On 15 October 2008 Mr Alexander was again told by IG that Echelon needed to start closing positions. 
120.	On 16 October 2008 (by which time Mr Russell was on paternity leave), Mr Alexander told Mr Utley that he did not think he could salvage the situation. 
121.	The following day, 17 October 2008, a provisional liquidator was appointed over Echelon. 
122.	On 21 October 2008 RBS paid out US $3million to IG under the guarantee that had been executed on 16 April 2008. 
123.	In the final outcome, IG lost about £600,000 on the Echelon account. 
The Expert Evidence
124.	The claimants called Mr Richard Fitch as an expert witness. Mr Fitch worked for a number of years in wholesale banking during which time his experience was predominantly in trading and risk management and associated systems and controls. From February 2009 to July 2011 he worked for City Index (a competitor of IG), during which time he looked at the commercial implications of all the partnership agreements City Index had as part of a full analysis of how each department was working. At the time, City Index was the biggest white label provider in the CFD industry. Mr Fitch also worked with most of the departments at City Index with a view to identifying improvements that could be made and thereby got to know how each department operated and interacted with each of the others. 
125.	The principal matter which Mr Fitch was asked to consider as an expert witness was: “having regard to usual management practices and known risks of omnibus arrangements, whether there were any features of the dealings between Echelon and IG prior to and during the period March to October 2008 which would have alerted IG to the possibility that Echelon was operating its business in an illegitimate way as alleged in paragraph 16 of the Re-Re-Amended Particulars of Claim.” 
126.	In the event, Mr Fitch did not limit his report to the wrongdoing alleged in paragraph 16 of the Re-Re-Amended Particulars of Claim which summarises the claimants’ case that Echelon acted in breach of trust and/or fiduciary duty by co-mingling their funds with the funds of other clients, contracting with IG as principals rather than as agents, and using clients’ money to support deficits on other sub-accounts, the header account and Echelon’s overall account with IG. Instead, Mr Fitch looked at the relationship between Echelon and IG with a view to identifying unusual or suspicious features (“red flags”) which “individually and cumulatively would have raised a suspicion to an honest and competent manager experienced in this industry that something very untoward was happening in this business.” In an answer to questions raised on his report by IG’s solicitors, Mr Fitch stated that the red flags listed in his report “would have suggested that, (a) Echelon was conducting its business in a manner that exposed individual clients to loss by reason of losses sustained by the client behind sub-account E4376 and/or by Echelon itself; and (b) Echelon did not have the consent of its clients to carry on business in this way. These two facts are linked to each other.” 
127.	Mr Downes made a number of criticisms of Mr Fitch in his closing submissions. He submitted that Mr Fitch had illegitimately gone beyond his instructions, failed to be even-handed, failed to investigate the receipt of the £1 million and £2 million payments from MF Global on 27 and 28 May 2008, failed to take into account the RBS US $3million guarantee and had failed to think through sufficiently a number of issues as he ought to have done. I do not accept this level of criticism of Mr Fitch.  He had no direct experience of running a white label omnibus account which detracted somewhat from some of his conclusions and to an extent, I think unconsciously, he allowed hindsight to affect his approach. He also failed to take into account the payments of £1 million and £2 million from MF Global made respectively on 27 and 28 May 2008 and the evidence that UBS was extending its guarantee to RBS by US $ 2 million which Mr Alexander said would free up US $ 2 million from MF Global for payment to IG. However, I found Mr Fitch to be a highly intelligent, clear-headed and articulate witness who had conscientiously set about his role intending to be fair.  
128.	The first of Mr Fitch’s red flags was IG’s knowledge (presumably through Mr Utley) that Echelon did not have FSA permission to act as a principal. In Mr Fitch’s view it is fundamental to a CFD trading business that the correct regulatory permissions are in place.
129.	 Mr Fitch’s second red flag was the receipt on 4 April 2008 of €4.9 million for the credit of sub-account E4702. As we have seen, it was this payment that took the Echelon account off margin call and in paragraph 1.2 (b) of his report Mr Fitch states that this payment should have prompted the question: where is the margin from the other clients? In cross-examination, he accepted that it was going too far to say that this matter would have raised a suspicion to an honest and competent, experienced manager in this industry that something very untoward was happening in Echelon’s business. He also accepted that he had overlooked the £1 million and £2 million payments received by IG from MF Global on 27 and 28 May 2008 and that on the basis that these represented the margin in respect of the positions transferred on 19 March 2008 and this was known by IG, “they changed the context” round this particular red flag. Indeed, having considered the matter overnight, Mr Fitch told the court that if the payments were received on the basis stated, he would not have expressed the view in his report that “[t]aking a cautious view …. by the conclusion of the visit to Glasgow on 17 April 2008, if not before, it was clear that something had gone seriously wrong.” 
130.	Mr Fitch further conceded in cross-examination on his second red flag that when considering IG’s reaction to the margin position one has to take into account the £3 million RBS guarantee which had been under negotiation since around 20 March 2008 and which was issued on 16 April 2008. 
131.	Mr Fitch’s third red flag was the failure of Echelon to meet margin calls promptly. In his report he said that the long periods of time that the overall Echelon account remained on call between 19 March 2008 and Echelon’s collapse in mid-October 2008, including over weekends, meant that Echelon was not able and/or not willing to manage its client margin and cash and probably not able to source funds. In Mr Fitch’s view (as set out in his report) IG personnel would have considered that Echelon’s response to margin calls was largely inconsistent with a firm managing clients’ investments and collateral in the manner and to the extent claimed by Echelon.
132.	In cross-examination, Mr Fitch accepted that that it was not until the period 24 June – 17 July 2008 that there was anything to be concerned about in respect of margin on the Echelon account and, as for that period, IG should have had a few concerns as to the efficiency with which Echelon were managing their funds: it was “odd” that IG had not asked Echelon more detailed questions about providing margin. Mr Fitch also agreed in answers given in cross and re-examination that Mr Russell’s receipt of the email dated 27 June from RBS to Mr Alexander confirming that UBS had increased the standby letter of credit by US $2 million, thereby allowing Mr Alexander to represent that this would lead to the release to Echelon by MF Global of US $2 million, gave IG comfort until it became clear in the course of July 2008 that the promised US $2 million had not been forthcoming. 
133.	Mr Fitch’s fourth red flag was the growing substantial deficit on sub-account E4376. In his report he stated that CFD businesses are run on the basis of very close monitoring of client positions principally to ensure that the CFD provider is not exposed to bad debt and clearly IG had done this by its production of the daily spreadsheets and should have asked: (i) why no margin was being transferred to support the deficit on E4376; and (ii) were Echelon’s other clients being exposed to loss by this situation. Whatever the client details, the overall picture was clear enough and there was nothing to suggest that the obvious explanation was not the right one: Echelon was accumulating a deficit for a client and/or itself which could wipe out all its other clients’ positions. 
134.	Mr Fitch further stated in his report that Echelon’s assurances to IG that it held collateral in a context where its clients had positions not only with IG but also with MF Global were implausible because: (i) MF Global had raised its margin rate to an unacceptable level; (ii) it made no economic sense for a client to have one sub-account in surplus and another in deficit since the interest earned on the former would be less than that charged on the latter; (iii) it was over-complex for Echelon to maintain multiple CFD sub-accounts for its clients; (iv) if clients were using multiple sub-accounts to deal in stocks in volumes not allowed by a single CFD operator, IG should have been on its guard due to the risk of a substantial impact on the underlying equity market; and in any event, such trading would be unlikely to produce deficits on some accounts and surpluses on others; (v) it was unusual and unlikely for a typical client to hold both a spread betting account and a CFD account; and (vi) if a client was trading CFDs and cash stocks with Echelon, Echelon could have lodged the stock portfolio with IG thereby releasing cash from IG. 
135.	Mr Fitch also stated in his report that Mr Russell would have found the “repurposing” of the US $3 million UBS guarantee in favour of Echelon into a guarantee in favour of IG “unusual”.
136.	In cross-examination, Mr Fitch accepted that it was possible that clients might have positions with more than one CFD/Spread Betting provider and that such a situation would not be strange, although it might be unusual. He also agreed: (i) that a good reason for a client to have positions with more than one CFD provider was to avoid the impact of a provider’s limit on the amount of stock a client could hold; (ii) that it was possible for an Echelon client to trade in two different stocks with two different providers and that one stock could be in surplus and the other in deficit, and in such a situation Echelon could set the one account off against the other; and (iii) it was not implausible for a client to trade in spread bets and CFDs at the same time.
137.	Mr Fitch also agreed in cross-examination that given the overall situation in August 2008 on the Echelon account, there was no trigger during this period to prompt IG to look at sub-account E4376. 
138.	In re-examination, Mr Fitch made it clear that his evidence in cross-examination as to the relevance of the £1 million and £2 million received from MF Global on 27 and 28 May 2008 depended on: (i) those sums representing the margin that had been promised to come over with the positions transferred from MF Global on 19 March 2008; and (ii) IG believing that this was the position. As to (i), I have already held that these payments did represent the margin held by MF Global in respect of the transferred positions. As to (ii), whilst Mr Russell accepted that it was not clear that the payments were in respect of the positions transferred on 19 March 2008, I find that he had in his mind down to about the end of April 2008 that £3 million was due from MF Global consequent on the transfer. Thereafter, with the Echelon account in surplus more or less continuously until 9 June 2008, he did not, I think, actively rely on the promised £3 million when assessing the situation with Echelon. However, had he enquired after the end of May 2008 whether the £3 million promised margin had come in, I find he would have accepted that it had indeed been received on 27 and 28 May 2008. 
139.	It was contended by Mr Nash that, to the extent that Mr Russell was aware after a relatively short time following the 19 March 2008 transfer of positions that the £3 million had not been paid, he ought to have been concerned as to why the payment had not been received. I reject this submission. MF Global was in considerable turmoil due to the flight of many of its clients and the calculation of the transferable margin was not straightforward since not all Echelon’s positions were transferred to IG.
140.	Mr Fitch also emphasised in re-examination in answer to a question from the bench that he had not expressed the view at any point that IG should have thought that Echelon was acting dishonestly or fraudulently and he made it clear that that was not his view.
Were Mr Russell and Mr Elgarf dishonest in their dealings with Echelon?
141.	The case against Mr Russell and Mr Elgarf is that by a point in the period 24 June – 17 July 2008 they knew of the deficits on the header account and the increasing deficit on sub-account E4376 and knew or suspected (but failed to make any inquiries) that Echelon did not have cash or collateral to cover the shortfall in respect of these deficits and therefore knew or suspected that Echelon could collapse into insolvency at any moment thereby exposing those clients whose accounts were in surplus to the real risk of substantial losses. The claimants accept that by 10 September 2008, such was the deficit on the overall Echelon position that a finding of knowledge and dishonesty at or after this date would not assist them financially. Also, by then the die was cast and there was little IG could do other than to press Echelon to raise cash (which IG did), and hope that Echelon could trade out of the position.

142.	In respect of Mr Russell, the claimants’ also assert and/or rely on the following: 
(1) Mr Russell accepted, he knew that: (a) Echelon was conducting an investment strategy on behalf of its clients and not on its own behalf; (b) each Echelon sub-account was likely to be beneficially owned by an Echelon client; (c) each Echelon client necessarily relied on Echelon to conduct its business in an honest and prudent way and in accordance with the FSA regulatory regime; (d) Echelon could not risk having its trading with its CFD provider suspended, for this would be the end of Echelon’s business; (e) IG normally expected that a margin call should be paid by the close of business the following day; (f) as at 18 April 2008, Echelon could only be running the totality of its positions in a legitimate manner if it had other assets available to pay to its clients and he had not seen (and did not ever see) any evidence of such assets; 
(2) Mr Russell’s email of 22 April 2008 in which he noted that sub-account E4376 did not have any funds; 
(3) Mr Good’s email of 24 April 2008 to Mr Russell: “They are clearly on call and it’s a bit of a worry that they are disputing their first call.” 
(4) Mr Russell’s concern by 25 June 2088 about the ratio of cash to collateral in relation to Echelon’s margin positions and his rejection of further guarantees as collateral.
(5) By 1 July 2008, Mr Russell knew that Echelon was in the top ten revenue producers in IG Markets’ table of IB relationships. 
(6) Mr Russell was regularly aware of Echelon’s failure to meet margin calls, particularly when matters became severe from 27 June through into July 2008. 
(7) Mr Alexander’s failure to honour the promise made on 27 June 2008 to release cash from a guarantee that was being provided to MF Global via RBS. 
(8) Mr Russell’s reference to Echelon as “this shower” in the email to Mr Soliman of 27 June 2008 and in his email of 4 July 2008 “the riot act needs to be read on Monday.”
(9) Mr Good’s email of 4 July 2008: “Echelon have been on call for about a week now – they have promised funds that have not materialised. Please don’t take any further trades until their margin call is cleared as this can’t continue indefinitely.”
 (10) On 7 July 2008 Mr Alexander told Ms Ashby and Mr Russell (among others) he would be sorting the call out that day but that did not happen till much later in July and the promises Mr Alexander made were unsupported by any evidence. 
 (11) On 8 July 2008 Mr Elgarf refused to accept opening trades until margin was cleared. 
 (12) By 9 July 2008 and thereafter it was clear to Mr Russell that Mr Alexander was desperately closing positions to try and clear the margin call (as opposed to moving over cash) or relying upon market movements. 
(13) Despite Mr Russell’s discussions with Mr Alexander on 10 and 18 July 2008 and various promises on Echelon’s behalf, no further hard evidence of cash or collateral was requested or provided.
 (14) Ms Ashby’s email to Mr Russell of 6 August 2008: “We got in a grand total of £55k yesterday, so I guess the wait continues for mythical millions!” 
143.	In respect of Mr Elgarf the claimants assert and/or rely on:
(1) Mr Elgarf’s acceptance in evidence that: (a) it was IG’s rule of thumb that a client should meet a margin call next day; (b) if Echelon did not pay margin, trading was likely to be suspended leading to the destruction of Echelon’s business; (c) if Echelon had trouble meeting margin calls it would cause alarm bells to ring in respect of Echelon and its clients as happened between 7 and 14 July 2008; (d) if a broker runs up a deficit and cannot meet margin calls it was likely that from a short term working capital point of view he does not have the cash to meet the call; (e) he did not raise concerns about the Echelon accounts because of the nature of an omnibus agreement which meant that it was not IG’s concern because IG was secured on the overall position; and (f) Echelon was conducting an investment strategy on behalf of its clients and not on its own behalf and each Echelon sub-account was likely to be beneficially owned by an Echelon client;  
(2) The continued deficits on the header account after Mr Clivaz had said that Echelon would empty that account twice daily.
(3) Mr Elgarf saw no evidence of collateral held by Echelon.
(4) Mr Elgarf’s access to the daily balances on the daily spreadsheets sent to him by Ms Ashby and his access to a dealing screen and booking system that showed individual accounts.
(5) Mr Elgarf’s awareness that Echelon was precluded from trading whilst on margin call and that this “would not look fantastic for the clients.”
(6) Mr Elgarf’s knowledge that between May and September 2008 Echelon was in the top ten revenue producers in IG’s table of IB relationships.
Mr Russell
144.	In my judgement, the claimants have failed by a considerable margin to establish that Mr Russell dishonestly participated in the wrongdoing practised by Echelon on its clients. 
145.	Mr Russell was a truthful, reliable and accurate witness. I accept his evidence in every particular. As he was entitled to, he took the WLA at face value. He accordingly proceeded on the basis that Echelon was trading with IG as a principal and on terms that title in all monies transferred by Echelon under the agreement would pass to IG. He also trusted Echelon, believing that it had all necessary FSA approvals to enter into and trade under the WLA. 
146.	During 2008, he was IG’s Credit Director with responsibility for credit risk. He was a busy man. IG had many clients in addition to Echelon. I accept his evidence that he rarely opened the Echelon daily spread sheets attached to Holly Ashby’s daily emails. Instead, since Echelon’s account was an omnibus account, he looked simply at the overall position stated in the body of the email and only became involved with the Echelon account if Echelon was subject to a margin call or questions arose as to trading or deposit limits. To the extent that he occasionally looked at the spread sheets he was aware that sub-account E4376 was in substantial deficit but it was only after 10 September 2008 when the die was cast that he felt it necessary to press Mr Alexander to reduce the deficit of this account. Mr Russell did not think or suspect that Echelon was putting those of its clients in surplus at risk by allowing E4376 to be increasingly in deficit and by running a large deficit of the header account. Nor did he turn a blind to eye to such a possibility. 
147.	When the Echelon positions came over from MF Global in March 2008, he was entitled to conclude (as he did) on the basis of the email sent by Mr Alexander on 19 March 2008 (and copied to two MF Global executives) that £2,999,299 in cash and £2,003,584 collateral was to going be forthcoming from MF Global. He was also aware around this time that Echelon were proposing to procure a guarantee in favour of IG from RBS for US $3 million and that work was progressing on the guarantee’s wording. There was a delay in the £2,999,299 cash coming from MF Global, but Mr Russell knew that MF Global’s administration was in chaos in dealing with the departure of many clients worried about MF Global’s solvency and/or the steep rise in its margin rate. He also knew that time would be needed to calculate the precise amount of margin allocable to the transferred positions because IG was not taking all of Echelon’s MF Global positions. 
148.	I do not accept that the fact that Echelon came off margin call on 4 April 2008 due to the receipt of €4,903,533.44 to be credited to a sub-account (E4702) was anything that should have put Mr Russell on his guard as to the Echelon account. That account was an omnibus account: it was the overall position that determined Echelon’s liability to pay margin. Moreover, Mr Russell was still expecting £2,999,299 in cash from MF Global and he knew that the RBS US $3 million guarantee was in the works. 
149.	I accept Mr Russell’s evidence that he was told by Mr Alexander when he visited the Echelon office in Glasgow on 17 April 2008 that Echelon held collateral including stocks, guarantees and cash in addition to what had been transferred to IG and Echelon was managing clients’ positions across several types of business including MF Global.  In my view, Mr Russell was entitled reasonably to rely on these representations without demanding to be shown supporting documentary evidence. Whilst in Echelon’s office he saw MF Global’s dealing platform in active mode and Mr Fitch accepted in cross-examination that whilst it might be unusual, it was possible and was not strange for clients to have positions with more than one CFD/Spread Betting provider. 
150.	 I attach very little significance to Mr Good’s email dated 24 April 2008 to Mr Russell in which he said Echelon “are clearly on call and it’s a bit of a worry that they are disputing their first call…” Mr Russell thought it not unreasonable that Mr Alexander should want confirmation as to the correctness of the size of the margin call and I think he was entitled to take this view. I take the same approach to Mr Good’s comments about the collateral that had been furnished by Echelon. Not all of this was of poor quality and that which was represented a small proportion of the overall value of the portfolio.  
151.	Mr Russell was aware on occasion that there was a substantial deficit on the header account. He was also aware that Mr Alexander agreed with Mr Clivaz on 8 May 2008 that Echelon would set up procedures to reconcile and empty the header account twice daily but that this was not implemented. I accept Mr Russell’s evidence that these matters did not cause him to doubt Echelon’s solvency or to suspect that Echelon was putting its clients in surplus at risk. In my judgement, he was not dishonest in proceeding on this basis. He thought that the deficits on the header account were the result of poor financial management and he honestly and reasonably believed that Echelon had other substantial collateral available to it including cash, guarantees and stocks, and that numbers of its clients held other positions with other providers which Echelon could set off against deficits on their IG positions. In this connection it is relevant to note that Mr Fitch agreed in cross-examination that although he thought the deficit on the header account was “unusual”, he did not think it amounted to a free-standing “red flag”. 
152.	Turning to the period 24 June to 30 July 2008 when for the most part Echelon was allowed to be on margin call for substantial sums, I accept Mr Russell’s evidence that he did not believe or suspect that Echelon’s difficulties in providing margin indicated that it was insolvent or that clients in surplus were at risk of loss due to the deficits on the header account and on individual sub-accounts. In my view, Mr Russell was not dishonest in deciding not to close out Echelon’s positions or in failing to probe more deeply into the resources available to Echelon. During this period the markets were volatile, many of IG’s other clients were having difficulty in meeting large margin calls and Mr Russell believed Mr Alexander’s assurances that he was taking steps to meet the margin calls. Mr Russell declined to accept Mr Alexander’s proposal for an additional RBS US $2 million guarantee but he took comfort (as he was entitled to) from RBS’s email forwarded to him by Mr Alexander on 27 June 2008 and from Mr Alexander’s representation that the US $2 million guarantee would be used to free up an equivalent sum from MF Global that would then be paid to IG.  On 10 July 2008, Mr Alexander told Mr Russell that due to a rise in MF Global’s margin rate on a couple of stocks, he had been unable to pay several million to IG but he had sent a fund of AED to be converted into US dollars or sterling for payment to IG. Mr Russell again accepted these assurances and in my judgement he did not act dishonestly in doing so, even though from a credit risk point of view he may have been overly lenient. In time it became clear that the promised $2 million was not going to be forthcoming but £250,000, £500,000, £1,297,782 and £500,659 was received from Echelon on 11, 21, 25 and 29 July 2008 respectively and the Echelon account was in surplus from 1 August to 9 September (save for 5 September). 
153.	During the period 24 June to 30 July 2008 Mr Russell also continued to believe that Echelon held additional collateral and that numbers of its clients held positions with other providers that Echelon was setting off against deficits on their positions with IG. Mr Russell also understood that Echelon held matching positions as a principal with its clients and he was concerned to avoid the impact on Echelon’s business that would result from IG closing out Echelon’s positions. Taking all these things into consideration, he therefore decided to show leniency to Echelon in the belief that given time Echelon would bring the account back into surplus. As I have said, in my judgement he was not acting dishonestly in adopting this course. 
154.	From 1 August to 4 September 2008 the Echelon account was in surplus, often to a substantial extent and Mr Fitch agreed that there was no trigger during this period to prompt IG to look into sub-account E4376.
155.	The claimants do not rely on what happened in respect of the Echelon account from 8 September 2008 onwards. During this period, Echelon was permitted to take no or virtually no new positions and increasingly, Mr Russell as Credit Director was concerned to get Echelon to reduce the deficit on the account by transferring cash and reducing positions. In proceeding as he did in this period I am entirely satisfied that he acted honestly and that no justifiable criticism of him could be made by the claimants.
Mr Elgarf
156.	 I have also reached the clear conclusion that Mr Elgarf was not dishonest in the course of his work on the Echelon account. The allegation that he was guilty of dishonesty was not made in the original Particulars of Claim but by amendment. In my judgement, that amended case ought never to have been advanced.
157.	 Mr Elgarf was a transparently honest and reliable witness. I accept the entirety of his evidence. He was employed by IG as Head of Institutional Broking in which capacity he was responsible for the management of an execution team handling CFD trades placed by institutional clients, of which Echelon was one. He was told at an early point (7 April 2008) by Mr Russell that Echelon was an omnibus client and it was the overall position that had to be looked at. He received the daily emails from Holly Ashby but he tended to look only at the overall figure set out in the body of the email. He was aware of the intended function of the header account and occasionally that it was in deficit, both before and after Mr Clivaz agreed with Mr Alexander on 8 May 2008 that Echelon would set up procedures to reconcile and empty the header account twice a day. However, this did not cause him to doubt Echelon’s solvency or to suspect that Echelon was putting its clients in surplus at risk. He visited Echelon’s office in Glasgow on 17 April 2008 and understood that Echelon had securities and funds from its clients beyond what might be shown in the IG/Echelon account. He accepted that alarm bells rang when Echelon was unable to meet margin calls in July 2008 but believed (honestly in my judgement) that Echelon had other resources. In particular, being a man who was concerned only with the dealing end of the Echelon relationship – executing orders in accordance with Echelon’s wishes subject to prescribed limits --  he relied on the credit department headed by Mr Russell to ensure that everything else was in order on the Echelon account. In my judgement, this approach by Mr Elgarf was perfectly reasonable and was not dishonest. He did not believe or suspect that Echelon’s clients in surplus were being put at risk by deficits elsewhere on the Echelon accounts. He was simply doing his job within the hierarchy of responsibilities at IG. As I have said, the allegation that he acted dishonestly ought not to have been made.
Mr Utley
158.	As against Mr Utley, the claimants’ case that he was dishonest is two-fold. First, they contend that he was dishonest in that he knew throughout the operation of the WLA from 19 March to 17 October 2008 that Echelon was not permitted by the FSA to trade as a principal but nonetheless he allowed Echelon to trade on omnibus terms and thereby dishonestly assisted it to act in breach of fiduciary duty by using funds held on terms that they were to be kept segregated and used to fund trades entered into by Echelon as an agent to fund Echelon’s trading with IG as a principal. Second, the claimants allege that he was dishonest in the way alleged against Mr Russell and Mr Elgarf, namely that he was aware of the deficits on the header account and sub-account E4376 from which he should have realised or suspected that Echelon were putting at risk those clients who were in surplus.
159.	Mr Utley testified that, although following Mr Alexander’s call on 23 January 2007 he appreciated that Echelon did not have FSA permission to trade as a principal or to hold client money and he was aware that this was the situation on 22 February 2007, he failed to pick up in the conversations with Mr Alexander on 4 May, 19 May and 17 July 2007 that the permissions to trade as an agent and to hold client money that Echelon had applied for would not supply the necessary permission to enter into and operate the WLA. In his mind, the key FSA permission was permission to hold client money. When Mr Alexander called on 19 March 2008, seeking to transfer Echelon’s positions with MF Global to IG neither Mr Alexander nor Mr Utley mentioned anything about permissions. Mr Utley testified that at this time he remembered Echelon had been looking to get their permissions changed and had put in a request to change them several months before. He remembered that Echelon had not had permission to hold client money. He thought he probably checked the FSA Register on the FSA website whilst sitting at his desk after having received Mr Alexander’s first call on 19 March 2008, although he did not have a clear memory of this. He said that the page that comes up when you run a search on the FSA Register for a company name tells you whether that company is authorised to hold client money. He had a clear recollection that following Mr Alexander’s call he spoke to Mr Tooth, his ultimate line manager, in Mr Tooth’s office, before he called Mr Alexander back 8 minutes later. He spoke to Mr Tooth because he needed clearance from him as well as from the credit department for the transfer of Echelon’s MF Global business. He told Mr Tooth that Echelon wanted to transfer their MF Global positions to IG and explained that there had been a problem with Echelon’s permissions when the WLA was signed. He and Mr Tooth looked at the FSA Register online in Mr Tooth’s office. They looked at the first page that came up on a search for Echelon and he pointed out that this showed that Echelon was permitted to hold client money. Mr Tooth said he saw no reason why IG could not do business with Echelon and to go ahead with the transfers from MF Global. They did not check any other aspect of Echelon’s permissions. So far as Mr Utley was concerned, there had been an issue with legal/compliance with regard to the scope of Echelon’s permissions and this had now been resolved. He did not know or suspect when he went back to Mr Alexander to put in motion the transfer of positions from MF Global that Echelon did not have the right permissions to do business with IG under the WLA. His recollection had been of a problem with client money and he thought that that problem had been resolved. 
160.	Mr Tooth’s unchallenged evidence was that he remembered being told by Mr Utley on 19 March 2008 that the Echelon business was being moved from MF Global in a hurry and that Mr Utley showed him a spreadsheet of account numbers coming across. Whilst Mr Utley needed to get the credit department involved, he did not need his (Mr Tooth’s) authority to start moving the positions because IG had a signed agreement with Echelon. He did not remember Mr Utley mentioning anything about Echelon’s permissions in March 2008 before the positions came over and he had no recollection of the events that Mr Utley said took place in his office on 19 March 2008, but he was not saying they did not happen. He just did not remember either way.
161.	Mr Nash submitted that the above-recited evidence of Mr Utley was an untrue fabrication. He remarked that it was noteworthy that when IG’s Defence was served on 21 February 2011, in answer to a direct allegation that IG “must have known” that Echelon did not have permission to trade as a principal, IG denied that it had that knowledge and denied that the point was ever checked. This was a pleading prepared after input from Mr Utley (who was still employed by IG until May 2011 and admitted meeting the IG legal team five times between December 2010 and February 2011). It was only in the Re-Re-Amended version of the Defence filed on 3 August 2012 (almost 18 months after the original Defence was filed) that IG’s plea was developed at paragraph 43(b) to cover the full story that is now advanced. It was to be inferred, submitted Mr Nash, that when the proceedings began Mr Utley said nothing about the circumstances of the original signing of the WLA and of that agreement going active in March 2008 (either hoping that the details would not come out, or because he had forgotten them), and that his claim that he had a partial memory of the permissions problem was not true. It was a fiction created to explain the contemporaneous documents which reveal he was well aware of the specific problems with Echelon’s permissions. 
162.	Mr Nash further submitted that Mr Utley’s evidence that in March 2008 he thought Echelon’s problem with permissions was solely about client money was incredible. If he remembered that there was an issue surrounding Echelon’s permissions, why did he not go to the FSA website and click on the link marked “permissions” to check the position? Why stop at “client monies”?
163.	Mr Utley’s truthfulness and reliability as a witness and the probability or improbability of his evidence being true and accurate have to be assessed not only in light of what he said in his statements and in the witness box but also in light of: (i) the contemporaneous documents; (ii) the manner in which he gave his evidence; (iii) his attitude to regulatory compliance; and (iv) a number of matters which are to his discredit.  
164.	On 6 November 2007, prior to the WLA going active, Mr Utley suggested to Mr Alexander that he take on an Iranian bank as a client. An introducing broker by the name of Farzin Yazdi had requested that Mr Utley take this bank as a client of IG but Mr Utley had had to refuse because it was IG’s policy not to take Iranian business because of US sanctions and IG’s American interests. Mr Utley therefore thought he would do Mr Alexander a good turn by alerting him to the possibility of Echelon doing this Iranian business. The WLA was not yet active, but Mr Utley hoped that it would be in the future and he contemplated Iranian business coming through to IG from Echelon without him disclosing the situation to IG’s senior management. 
165.	On 8 May 2008, Mr Utley received an email from Mr Alexander asking that he send a headed letter stating that Echelon had £875,146.90 in the header account at close of business on 31 March 2008. In his email, Mr Alexander said: “I know that we had more than this but this is the appropriate figure for the audit as the other funds were client funds.” Mr Utley, without reference to the credit department or to anyone else at IG, duly sent the requested letter, misdating it 8 March 2008 when it should have been dated 8 May 2008. The statement in his letter that the Echelon header account held £875,146.90 at close of business on 31 March 2008 was false, as Mr Utley knew. Before sending the letter he had looked at the record of the header account for that date and saw that it contained a little over £1 million. In cross-examination he accepted that he should not have sent the letter and he knew it was wrong to do so.  He had thought that because £875,146.90 was less than the sum actually held in the account, it did not matter as it would have done if the position had been reversed.
166.	On 9 October 2008 when the Echelon margin call was £3½ million, there were several telephone conversations and emails between Mr Alexander and Mr Utley. In the course of one of these calls, Mr Utley, having suggested that Echelon start to close the positions of those clients on call and thereby reduce the margin by £½ million, said:“[W]e can start trying to work other stuff out then in clients which might not be on call but suggest it might be a good time to sell. That would be fantastic.” Mr Alexander replied: “Yeah, no problem.” Mr Utley agreed in cross-examination that he should not have made this suggestion, but added that the situation was desperate: clients not on call were going to get closed out by IG anyway if the margin deficit was not reduced.
167.	On 6 November 2008, in disobedience of an earlier instruction from Mr Tooth that any question concerning Echelon should be dealt with through him, Mr Utley agreed over the phone to send an email to Mr Alexander’s personal email address for use by KPMG in the allocation of a sum in the header account.
168.	Mr Nash submitted that not only did Mr Utley disregard internal rules within IG (eg the ban on Iranian business) but he also had “contempt” for compliance issues. In my opinion, this last assessment of Mr Utley goes significantly too far. Mr Utley in my judgement understood and accepted the importance of keeping on the right side of compliance requirements: he knew there were compliance lines that could not be crossed. Although he did not relay to Echelon chapter and verse the script proposed in Mr Clivaz’s email of 4 April 2008, he did make it clear that IG owed a duty to Echelon’s clients and that therefore trades could only be moved at the original or a better price; and in standing ready to argue the client’s corner on compliance issues he was only doing what one would expect a salesman to do. I also think that very little is to be read into Mr Utley’s comments to Echelon staff about the purpose of compliance being “business prevention” and “slapping the face” of the dealer who had refused to re-allocate a trade, since these were jokey remarks made to give reassurance that he would speak up for the client in discussing issues with the compliance department.  
169.	Mr Utley was cross-examined for the best part of two days. As the transcripts of his telephone conversations reveal, he is not an articulate man. Once he moves from the salesman’s chit chat, he tends to express himself long-windedly and confusingly. On occasion he shied away from answering difficult questions in cross-examination and had to be prompted by the court to deal with the point that was being put to him. Although no doubt capable of great charm, he is not good on detail and he has a disorderly mind. He certainly did not understand the circumstances in which an IB needed to have FSA permission to hold “client money”.
170.	 Having given due consideration to the matters referred to in paragraph 163 above, I have concluded that Mr Utley’s evidence was truthful and should be accepted. As is plain from his conversation with Mr Alexander on 22 February 2007, he believed that if IG were to deal with Echelon as a principal, Echelon needed permission to hold client money. (“The other thing is client money. Because we’re contracting, we’ll be contracting directly with you …. Obviously we think you are holding client money because we’ve got no sort of recompense to the sort of end client so to speak”.) He learned in the period 4 May to 17 July 2007 that Echelon was seeking to obtain permission to hold client money as well as to trade as an agent and knew that this was in the context of questions that had been raised about Echelon’s trading with MF Global (which he understood to be on a principal to principal basis) and about the WLA. His reaction to Mr Alexander’s statements concerning the pendency of Echelon’s VOPs application on 4 May, 19 June and 17 July 2008 show in my judgement that he thought if the permissions sought were granted the way would be open for the WLA to be implemented. Had he thought otherwise I am quite sure that he would have pointed out to Mr Alexander that permission to trade as a principal was required before the WLA could be implemented. 
171.	The conversation with Mr Alexander on 17 July 2007 was the last time the question of Echelon’s permissions were mentioned between the two men prior to 19 March 2008. (Mr Utley spoke to Mr Alexander on 6 November 2007 but this was all about the Iranian business opportunity.) The phone call from Mr Alexander on 19 March 2008 seeking to transfer to IG the positions held at MF Global therefore came 8 months after the last time there had been any mention of FSA permissions and it came out of the blue requiring an urgent response. I accept Mr Utley’s evidence that he and Mr Tooth looked at the FSA webpage for Echelon, saw that it had permission to hold client money and both concluded that that meant that the WLA could be implemented. If Mr Utley had appreciated on 19 March 2008 that Echelon lacked the necessary permission to trade as a principal, but kept this to himself, he would have been taking a serious risk since he knew Mr Tooth had directed in January 2007 that the WLA should go on hold until the problem with permissions had been resolved and thus might raise the issue after Echelon had come on board which would have been extremely embarrassing. Keen as he was to win Echelon as a client, I do not believe Mr Utley would have taken this risk.
172.	With the benefit of hindsight it can be said that Mr Utley (and possibly Mr Tooth) ought to have enquired further into Echelon’s FSA permissions but the failure to do so was not dishonest. Neither suspected that Echelon lacked a necessary FSA permission. 
173.	I accordingly find that Mr Utley was not dishonest in the first of the two ways the claimants allege against him.    
174.	As to the second limb of the dishonesty case against Mr Utley, I find that that limb also fails. 
175.	Mr Utley was part of the institutional sales team. Once the WLA had gone live, his role was to act as IG’s main point of contact for the Echelon staff, including in particular Mr Alexander. Mr Utley did not carry out any dealing function and it was not his job to make decisions as to the booking of trades or as to the application of IG’s margin requirements. He knew that Echelon was implementing its clients’ trading strategies and was not trading on its own behalf and that the sub-accounts were beneficially owned by Echelon’s clients. He also understood that Echelon ought to be in a position to meet margin calls promptly and that  it should not put itself in a position whereby one of its clients could not withdraw funds because those funds were needed to support the positions of other clients and Echelon. On the other hand, Mr Utley knew Mr Alexander quite well and trusted him, having dealt with him for a number of years. Further, Echelon was an omnibus client which to Mr Utley’s understanding meant that it was using non-segregated funds and was entitled so to do. (Mr Nash submitted that having answered Mr Alexander’s request for a letter to the auditors on 13 May 2008, Mr Utley knew that Echelon may have been paying what should have been segregated client monies over to IG, but I reject this submission. In my judgement, when Mr Utley dealt with Mr Alexander’s audit letter request he did not think about the implications of what he was being told about client funds.) 
176.	Mr Utley relied on the overall position stated in Holly Ashby’s daily emails. He looked at the spreadsheets perhaps once a week and was aware of the deficit on the header account and the deficit on E4376 but at no time did he analyse the position on the sub-accounts or seek to see if any pattern was discernible. He knew that the header account was a transit account and he was aware of Mr Clivaz’s guidelines but, as in the case of Mr Russell, he did not think that the deficit on the header account or any other aspect of the way Echelon was operating under the WLA was putting clients in surplus at risk of loss. He was one of the IG team which visited Echelon’s office on 17 April 2008. He understood that although Echelon was not a large brokerage it acted for some clients who continued to take positions with MF Global and was told by Mr Alexander and honestly, and in my view reasonably, believed that Echelon had: (i) collateral and cash in addition to that provided to IG; and wealthy clients. He did not ask for evidence or know the detail of Echelon’s resources and in my judgement he was not dishonest in failing to obtain corroborative information. He was aware of Echelon’s difficulty in providing margin in July 2008 but he knew that other clients of IG were having similar difficulties and until the final weeks of the Echelon account he believed that Echelon would bring the account back into surplus, as it did throughout August. The individual at IG with principal responsibility for gauging Echelon’s ability to provide margin was Mr Russell and, in my opinion, Mr Utley was entitled to rely on Mr Russell’s judgement on this issue. 
177.	In my view, proceeding as he was entitled to do on the basis that Echelon was an omnibus client and believing until late in the day that Echelon had: (i) collateral and other assets in addition to what had been transferred to IG; (ii) a number of wealthy clients; and (iii) the ability in July 2008 to come off margin call, if given some time, Mr Utley did not act dishonestly in dealing with Echelon as he did. At no time during the relevant period did he believe or suspect that the deficits on the header account and on E4376 were putting the clients in surplus at risk of going unpaid.
Conclusion on the claim against IG
178.	The claimants having failed to establish their case that IG, acting by each of Messrs Utley, Russell and Elgarf, dishonestly assisted in Echelon’s breaches of fiduciary duty, the claims against IG in dishonest assistance and knowing receipt are dismissed 
The Part 20 Claim
179.	By its Part 20 Claim against Craigcrook IG seeks a contribution and/or an indemnity in the event that the claimants’ case against it succeeds and it is found liable to compensate the claimants. 
180.	Mr Spalton for Craigcrook accepted that the Craigcrook letter negligently misrepresented to Mr Selce that his funds would be held in a segregated account but disputed that the letter was causative of the loss suffered by Mr Selce in his dealings with Echelon. Mr Spalton also contended that in any event the losses were too remote to be recoverable.
181.	IG conceded that the Craigcrook letter did not constitute a negligent misstatement actionable by the claimants other than Mr Selce but argued that Craigcrook were in breach of a general duty of care owed to the claimants to monitor Echelon’s trading and to check that Echelon was trading within the scope of its FSA permissions. In Mr Spalton’s submission, Craigcrook owed no such duty of care and, even if it did, the losses suffered by the claimants were not caused by any breach of the postulated duty. Mr Spalton also argued that IG and Craigcrook cannot be said to have caused the claimants the same damage for the purposes of the Civil Liability (Contribution) Act 1978 and further contended that it would not be just and equitable to require Craigcrook to contribute in circumstances where IG would have been found to have acted dishonestly and unconscionably. 
182.	The Part 20 Claim accordingly had the potential for giving rise to a number of interesting issues of no little difficulty but, the claimants case against IG having been dismissed, it is unnecessary to determine these questions and I do not propose to lengthen an already over-long judgement by doing so.