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England and Wales High Court (Commercial Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Burford Capital Ltd v London Stock Exchange Group Plc [2020] EWHC 1183 (Comm) (15 May 2020) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2020/1183.html Cite as: [2021] 2 All ER 377, [2020] EWHC 1183 (Comm), [2021] 1 All ER (Comm) 1231, [2020] Lloyd's Rep FC 510, [2021] 1 BCLC 122 |
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
FINANCIAL LIST
Rolls Building, Fetter Lane, London EC4A 1NL |
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B e f o r e :
____________________
| BURFORD CAPITAL LIMITED |
Claimant |
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| - and - |
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| LONDON STOCK EXCHANGE GROUP plc |
Defendant |
____________________
Andrew Green QC, Thomas de la Mare QC and Harry Adamson (instructed by Bryan Cave Leighton Paisner LLP) for the Defendant
Hearing dates: 1, 2, 3 April 2020
____________________
Crown Copyright ©
Covid-19 Protocol: This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to BAILII. The date and time for hand-down is deemed to be 10.00 am on 15 May 2020.
Mr Justice Andrew Baker :
Introduction
"Muddy Waters is now in a blackout period until tomorrow 8 am London time [the AIM opening time] when we will announce a new short position on an accounting fiasco that's potentially insolvent and possibly facing a liquidity crunch. Investors are bulled up about this company. We're not."
"Good morning, London. Apologies for the delay. Wanted to check in with counsel. These $BUR guys sure do have a guilty look to them, don't they?"
The Claim
"The names of the natural or legal persons, or third party entities (including but not limited to natural persons, brokers, banks and other financial institutions) which submitted the Share Order Event, including the names of the members or participants of the trading venue who submitted the Share Order Event to the trading venue, and the names of the client on whose behalf the member or participant of the trading venue submitted the Share Order Event to the trading venue.";
together with a dozen specific pieces of information about the Share Order Event ("the Order Event Data") listed in paragraphs 1.2(b) to 1.2(m) of the draft Order. However, Burford does not need the Order Event Data, as they are in the anonymised data Burford obtained at the time. Therefore, if the Claim were to succeed, it would be enough for Burford (so that meaningful identification evidence were provided and not just a long list of names) if the Participant Identity details were listed by reference to Share Order Event identifiers sufficient to enable Burford to match those details to the Order Event Data already in its hands. As to that, I understand it would be sufficient for Burford to be given a list of Share Order Events sorted by timestamp (to nanosecond accuracy) that gave for each Event (a) the Order ID to which it related and (b) the Participant Identity details. Burford did not pursue at trial a claim for additional information under paragraph 1.3 of the draft Order.
(i) "seeking relief against any person or entity arising out of or in relation to each Share Order Event or the Order Event Data, whether by means of civil litigation, criminal proceedings, regulatory action or otherwise", and
(ii) "to apply to seek additional information from the [Stock Exchange] and/or from any of the individuals or entities who are identified in the information provided to Burford under the Order, if there are additional categories of material that could or should be produced and there are proper grounds for Burford to receive the further material."
(i) There is strong reason to think that there was spoofing or layering in the Share Order Event activity in respect of its shares after 1.30 pm on 6 August 2019, and across the day on 7 August 2019, on the AIM and Turquoise.
(ii) If there was unlawful market manipulation associated with the dramatic fall in Burford's share price, the ends of justice demand that Burford be assisted to know who was responsible for the unlawful behaviour, so that Burford might (a) pursue claims against them in tort, (b) bring a private prosecution for financial crimes, (c) seek to persuade the FCA and/or CPS to bring a prosecution, or (d) seek to persuade the FCA to re-consider the conclusion it has reached as market regulator that there is no basis for further action to be taken because there is no real basis to suppose that market abuse occurred.
(iii) There is no powerful reason against granting the order sought, as a matter of discretion, and weighty reasons in favour of doing so.
(i) There is no real reason to think that spoofing or layering occurred at all, or so as materially to affect the fall in the share price over 6-7 August 2019. The fall in the share price needs no explanation beyond sustained selling in response to the Muddy Waters tweets and the herd behaviour of the (genuine) market.
(ii) There is no serious argument that Burford (as opposed to investors or traders selling at abusively depressed prices) would have any claim in tort in respect of spoofing or layering. A desire to provoke a criminal prosecution or stimulate regulatory action is not a purpose served by the Norwich Pharmacal jurisdiction. Nor is a desire to bring a private prosecution, at all events unless the public prosecuting authority is inert. Here, the FCA is not inert, it just disagrees with Burford's suggestion that the order book history for 6-7 August 2019 provides real reason to think that abuse occurred.
(iii) There are powerful reasons why, as a matter of discretion, the order sought should not be granted. They outweigh (or at any rate are not outweighed by) any factors that might favour the grant of relief.
The Norwich Pharmacal Requirements
"… If through no fault of his own a person gets mixed up in the tortious acts of others so as to facilitate their wrong-doing he may incur no personal liability but he comes under a duty to assist the person who has been wronged by giving him full information and disclosing the identity of the wrongdoers. I do not think that it matters whether he became so mixed up by voluntary action on his part or because it was his duty to do what he did. It may be that if this causes him expense the person seeking the information ought to reimburse him. But justice requires that he should co-operate in righting the wrong if he unwittingly facilitated its perpetration";
and Mr Dhillon QC also reminded me of Lord Kilbrandon's statement of the basic idea, ibid at 203D-F:
"The plaintiff is demanding what he conceives to be his right, but that right insofar as it has patrimonial substance is not truly opposed to any interest of the defendants; he is demanding access to a court of law, in order that he may establish that third parties are unlawfully causing him damage. If he is successful, the defendants will not be the losers, except in so far as they may have been put to a little clerical trouble. If it be objected that their disclosures under pressure may discourage future customers, the answer is that they should be having no business with wrongdoers. Nor is their position easily distinguishable from that of the recipient of a subpoena, which, in total disregard of his probable loss of time and money, forces him to attend the court for the very same purpose as that for which discovery is ordered, namely, to assist a private citizen to justify a claim in law. The policy of the administration of justice demands this service from him."
(i) P v T Ltd [1997] 1 WLR 1309, but that is on a quite different point, namely whether the Norwich Pharmacal claimant in a tort case must be able to show that a tort has been committed against him (and that he lacks only the identity of the tortfeasor), or whether relief can be granted though the information, when provided, may show that no tort was committed after all. The case concerned a possible malicious falsehood against the plaintiff or defamation of his character.
(ii) R (Mohamed) v Secretary of State for Foreign and Commonwealth Affairs (No.1) [2008] EWHC 2048 (Admin), [2009] 1 WLR 2579; ibid. (No.2) [2010] EWCA Civ 65, 158, [2011] QB 218; and R (Omar) v Secretary of State for Foreign and Commonwealth Affairs [2013] EWCA Civ 118, [2014] QB 112. Those were cases of alleged rendition and torture of the respective claimants. As Norwich Pharmacal claims, they concerned the use to which the disclosure sought would be put. On the claimants' factual case, plainly torts had been committed against them.
"(i) a wrong must have been carried out, or arguably carried out, by an ultimate wrongdoer;
(ii) there must be the need for an order to enable action to be brought against the ultimate wrongdoer; and
(iii) the person against whom the order is sought must: (a) be mixed up in so as to have facilitated the wrongdoing; and (b) be able or likely to be able to provide the information necessary to enable the ultimate wrongdoer to be sued."
(i) but one strict pre-requisite (unless the cause of action issue creates a second, as to the nature of the wrongdoing that the claimant must be alleging), namely that the Norwich Pharmacal defendant must have been mixed up in so as to have facilitated that which the Norwich Pharmacal claimant alleges to have been wrongdoing against him; and
(ii) thereafter, a single question for the court, assessing and balancing all of the factors that bear upon it in any particular case, namely whether justice requires that the defendant provide the assistance that the relief sought would compel him to provide, to further the end of righting a facilitated wrong.
(i) the strength of the case that there has been wrongdoing against the claimant (Lord Kerr referred to the strength of the "possible cause of action contemplated by the [claimant]", but again I wish to leave open the cause of action issue);
(ii) the strong public interest in allowing a claimant to vindicate his legal rights;
(iii) whether the order sought will have a deterrent effect;
(iv) whether the information sought can be obtained from another source;
(v) whether the defendant knew or should have known he was facilitating possible wrongdoing, or indeed was himself a joint wrongdoer;
(vi) whether the order sought might reveal the names of innocent parties as well as (alleged) wrongdoers, and if so whether such innocents would suffer harm as a result;
(vii) the degree of confidentiality of the information sought;
(viii) (if relevant) the privacy rights of any individuals whose identity would be disclosed under Article 8 ECHR;
(ix) (if relevant) the rights and freedoms of such individuals under data protection laws;
(x) (if relevant) the public interest in maintaining the confidentiality of journalistic sources (as recognised in s.10 of the Contempt of Court Act 1981 and Article 10 ECHR).
(xi) the extent to which the order sought would cut across, or is not required because of, a regulatory regime for investigating and taking action in relation to suspected market manipulation; and
(xii) the possible impact on the UK as an equity trading venue of the court intervening under the Norwich Pharmacal jurisdiction (having a care for unintended detrimental consequences in the exercise of what is an exceptional court power).
The Alleged Wrongdoing
"4. As set out in the evidence served with this Part 8 Claim, the fall in the price of Burford's shares during the Relevant Period was caused or contributed to by trading patterns known as "layering and spoofing". This involved very large numbers of sell orders for Burford shares being submitted to and advertised via the LSE's trading platforms, without any genuine intention to trade, and which gave or were likely to give a false or misleading impression as to the market for Burford's shares and thereby negatively influencing their price. [my emphasis]
5. The persons responsible for such spoofing and layering ("Manipulators") acted unlawfully and in breach of at least:
a. section 12 of Regulation (EU) No 596/2014 (" Market Abuse Regulation");
b. section 90 of the Financial Services Act 2012;
c. the tort of deceit; and/or
d. section 2 of the Fraud Act 2006.
6. Further it is to be inferred that Manipulators were acting in combination with each other and/or others with a financial interest in Burford's share price falling during the Relevant Period, so as to commit the tort of conspiracy by unlawful means."
(i) whether there is on the evidence a good arguable case that on 6 and/or 7 August 2019 Burford's ordinary shares were the subject of spoofing or layering, as alleged by Burford, i.e. whether a very large number of sell orders was posted in respect of which there was no genuine intention to trade;
(ii) whether, if so, there is on the evidence a good arguable case that such spoofing or layering caused or contributed materially to the fall in the share price on either or both of those days, as further alleged by Burford;
(iii) whether, in the light of the answers to the first two questions, there is in law a good arguable case that Burford was the victim of wrongdoing on 6 and/or 7 August 2019, and if so what kind of wrongdoing.
Market Manipulation
"(a) entering into a transaction, placing an order to trade or any other behaviour which: (i) gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of, a financial instrument …".
Mr Dhillon QC also referred me to Article 12(1)(b) (behaviour affecting or likely to affect price "which employs a fictitious device or any other form of deception or contrivance"), but that adds nothing in this case as the only form of deception suggested is the sending of false or misleading signals already caught by Article 12(1)(a)(i). He also referred me to Article 12(2)(c)(iii) which spells out that placing, cancelling or modifying orders on a trading venue by any available means of trading (including by electronic means such as algorithmic or high-frequency trading strategies), if it creates or is likely to create a false or misleading signal about supply, demand, or price, "in particular by entering orders to initiate or exacerbate a trend", "shall, inter alia, be considered as market manipulation".
(i) the indicator is "the extent to which orders to trade given or transactions undertaken are concentrated within a short time span in the trading session and lead to a price change which is subsequently reversed"; and
(ii) the practice is "Submitting multiple or large orders to trade often away from the touch on one side of the order book in order to execute a trade on the other side of the order book. Once the trade has taken place, the orders with no intention to be executed shall be removed — usually known as layering and spoofing" (my emphasis).
The Proposed Claim
(i) at paragraph 7, that Muddy Waters failed to comply with short-selling and disclosure requirements, an allegation, as I have already said, that had no real substance;
(ii) at paragraph 8, read with paragraph 19, that
(a) Prof Mitts' analysis of publicly available trading data, in a report exhibited to East 1 ("Mitts 1"), provides strong grounds to consider that a large proportion of the decline in the share price on 6 and 7 August 2019 was the consequence of "the placing of large numbers of orders for shares …, without any genuine intention of such orders ever being executed, for the purpose of moving the share price", by way of "orders for Burford shares being submitted, almost immediately cancelled, and then replaced by new orders at slightly different prices, sometimes within nanoseconds", and
(b) there is good reason to consider that the traders involved in any such manipulation were acting in concert with each other and/or Muddy Waters.
General Observations
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Sequence 1 |
Sequence 2 |
Sequence 3 |
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● Create Order X ● Amend Order X ● Stop |
● Create Order X ● Cancel Order X; and ● Create Order Y ● Stop |
● Create Order X ● Cancel Order X ● Stop |
Spoofing and Layering
Sell-Side Cancellations
Tables 2 & 3
(i) Tables 2 and 3 listed substantial intra-millisecond sell-side order cancellations, some 20 on 6 August 2019 (Table 2) and 18 on 7 August 2019 (Table 3). Mitts 1 said they "shed light on the nature of the spike in sell-side order cancellations after the posting of the Muddy Waters tweet[s]". Thus they were presented as exemplars of the sell-side order cancellation activity by which to test the hypothesis that it involved wrongdoing by way of false signalling to the market.
(ii) Mr Smith, not limited as is Prof Mitts by the anonymity in the public data, was able to say that each instance was an amendment, not an outright cancellation, by a genuine seller not signalling falsely to the market. To be clear, the point Mr Smith made was not that there cannot be manipulation by the use of order amendments. Nor did he (as Prof Mitts wrongly suggested in reply) simply assume that amendments reflect a genuine trading intention. Rather, Mr Smith's response was just that – a response to the particular claims made by Mitts 1, and in the current respect a response specifically to the data presented in and conclusions said to be available from Tables 2 and 3, and it showed those claims to be hollow.
(iii) In reply, Mitts 2 misunderstood this criticism and provided no answer to it. Prof Mitts rightly insisted that he should not be criticised for treating Sequence 1 and Sequence 2 the same. But that was not the criticism. The criticism arose from the point I made at paragraph 68 above; as Mr Smith put it in his statement, "If an order is amended to a better price (as opposed to [being] simply cancelled and removed from the order book), that is highly relevant to the analysis as to whether that order is a spoof; and that important difference is erased by Prof Mitts' definition". Thus, Prof Mitts' claim for what his Tables 2 and 3 show is falsified by the fact that his analysis treats Sequence 2 (and Sequence 1) as equivalent to Sequence 3. Tables 2 and 3 could only illustrate the behaviour Prof Mitts said they illustrate if they comprised instances of Sequence 3. This criticism is therefore triply valid: first, it is a valid criticism that Prof Mitts stated an unjustified conclusion; second, it is a valid criticism because Tables 2 and 3 in fact list exclusively instances of Sequences 1 and 2 by genuine sellers, so that taking them as Prof Mitts did to exemplify the sell-side order cancellation 'spikes', the light they shed on the nature of the surge in sell-side order cancellations after the Muddy Waters tweets is that it was generated by lawful market activity; thirdly, it is a further criticism of Prof Mitts that, in reply, rather than seeking to answer to those valid criticisms, he instead accused Mr Smith of not appreciating that pricing amendments (Sequence 1 or Sequence 2) can be used manipulatively. Mr Smith plainly was not saying that amendments could not be used manipulatively. He was simply, and properly, explaining a basic error in the case advanced by Mitts 1 that Tables 2 and 3 provide evidence of manipulation in this case.
(i) the different, obvious, but irrelevant point that manipulators can use trading algorithms as part of their manipulation; and
(ii) the legal argument I rejected in paragraphs 50 to 53 above, and which was not a matter for Prof Mitts anyway, that Article 12(1)(a)(i) of MAR does not contain a relevant requirement as to (trading) intention. (This legal argument would have been a bad reply point in any event, because the case advanced by the Claim Form and Mitts 1, which is the only case the Stock Exchange was trying to answer, alleges and depends upon a lack of genuine intention to trade.)
Tables 4 & 5
(i) a large number of sell-side orders are placed "to simulate the appearance of a wave of supply" to induce a downward revision of best bid on the buy-side of the book;
(ii) as a result, "an order is executed which was resting on the buy-side of the limit order book, generally at the best bid" because it matches an incoming sell order below best offer induced by the downward revision of the best bid;
(iii) the original sell-side orders ((i) above) "are cancelled, revealing their false nature".
Regression Analysis
(i) "because market makers are neutral suppliers of liquidity with respect to the direction of the underlying stock, in principle they should be no more likely to cancel sell orders than to cancel buy orders";
(ii) in fact, "market makers should be more likely to cancel buy orders than sell orders in response to genuine selling";
(iii) therefore, a large atypical sell-side order cancellation volume, (1) "is inconsistent with legitimate market making", and (2) "is consistent with manipulative creation of an artificial appearance of excess supply … inducing market makers to lower their bids, ensuring that the next sell order … will match against a lower bid, i.e., lowering the price".
Finding
New Case
Causation
Other Points
Conclusion
Statutory Exclusion?
Other Factors
(i) Merits
(ii) Vindication
(i) A tort claim against the manipulators founded directly upon Article 15 of MAR. This would be, as Mr de la Mare QC dubbed it, a 'euro-tort', created by EU legislation upon its proper interpretation, operating in the same way with the same constituent elements in all Member States, such as was recognised in Antonio Muñoz y Cia SA et al. v Frumar Ltd et al., Case C-253/00, [2003] Ch 328.
(ii) A claim for creating a false or misleading impression as to the market contrary to s.90 of FSMA 2000. But that is a claim actionable only at the suit of shareholders in Burford, not at the suit of Burford itself.
(iii) A common law deceit claim founded upon the making of false representations to the market by the false signalling involved in the manipulative Share Order Events. But that too would not be a claim actionable at the suit of Burford, but a claim to be pursued (if at all) by a market investor able to show loss caused to it by the false signalling.
(iv) A conspiracy claim, asserting a combination against Burford to use the unlawful market manipulation as a means to cause it harm.
(i) It was premised upon a view I have concluded is unjustified, and which was a matter for the court and not for Messrs Parry and de Gruchy to assess, that Mitts 1 (which they had read) discloses a strong prima facie case that market manipulation, including spoofing and layering, occurred on 6 and 7 August 2019.
(ii) Relatedly, it seems Burford did not show Messrs Parry and de Grucy the responsive evidence from the Stock Exchange, as it would have been entitled to do when exploring with them whether they were happy to write in support of the claim. Nor did Burford explain to them, but these have been the court's conclusions, that because the data available to him was anonymised, Prof Mitts was in fact unable to express meaningful, let alone firm, opinions about anything, and that for all Burford (or Prof Mitts) was able to say, the information sought, if disclosed, might well show that there was no case at all that unlawful manipulation occurred. (To be clear, this is not some finding that those were Burford's conclusions, uncommunicated to Messrs Parry and de Gruchy, it is merely to illustrate why those gentlemen's views could not assist.)
(iii) Nor it seems were Messrs Parry and de Gruchy made aware that the Stock Exchange and the FCA both said they had conducted a comprehensive review of the fully reconstituted order book and were satisfied, independently of each other, that there was no indication of any unlawful activity. If (which I could not find in any event) the "admittedly small [Twitter poll] sample" were representative of some a priori concern that was at all widespread, the full evidence in this case should have served as reassurance that the concern was unfounded.
(iv) The primary evidence from the Stock Exchange, and the evidence from the correspondence of the FCA's approach to this case (some of which, for a time, Burford unattractively sought to exclude), made it quite clear that the Stock Exchange, as market operator and regulated entity, and the FCA, as regulator, take market abuse very seriously and are well-resourced and motivated to detect it, prevent it where possible and (in the FCA's case) prosecute where there is a case to pursue.
(v) The UKSA/ShareSoc letter was transparently partisan and built up to an unwelcome in terrorem conclusion that, unless Burford's claim succeeded, "the perception of private investors is likely to be that the preference of the authorities is to ignore, rather than investigate, market manipulation". The thought that the court could and should be trusted to assess the case for itself, independently and impartially, appears not to have occurred to the authors.
(iii) Deterrence
(iv) Alternative Sources
(v) Defendant's Fault
(vi) Collateral Damage
(i) per Mr Jenkins, the order sought by Burford "is unprecedented in the context of a UK and European exchange", and in his view "would result in one market participant having access to information on UK trading data contrary to the principles and protections provided in the legal and regulatory regime";
(ii) per Mr Jenkins again, in his view "the act of a trading venue disclosing information to a market participant would serve as a disruption to the UK financial markets and have a detrimental impact on trading securities in the UK", rendering UK markets "less favourable when compared to other European and developed country markets who maintain their participants' confidentiality according to the legal and regulatory regime"; and
(iii) per Mr Celic, so far as he is aware, "no major trading platform in any country in the world provides the identity of market participants, except to relevant legal and regulatory bodies", and the making of a Norwich Pharmacal order in this case, in his view "may cause concern to market participants and potentially incentivise them to trade on non-UK trading venues in order to preserve confidentiality".
(vii) Confidentiality
(viii) Privacy (Article 8)
(ix) Data Protection
(x) Journalistic Sources
Conclusion
(i) if indeed there were a good arguable case, it would be only just. On no view is there a clear case of wrongdoing; and there would be a strong likelihood that Burford would find it could not in fact put forward any actual allegation of wrongdoing at all;
(ii) there would not be a good arguable case that Burford had any cause of action to pursue against any alleged wrongdoer, and there would be no compelling or even substantial call, as a matter of justice, for the Stock Exchange to assist by providing the information sought for the purpose of any other form of vindication for Burford;
(iii) there would be significant collateral damage to many innocent parties and a risk of damage to public confidence in the FCA as regulator;
(iv) there would be no real basis for finding that intervention by the court in this case under the Norwich Pharmacal jurisdiction would in fact deter unlawful market conduct in the future, both generally and especially bearing in mind the signal it might give concerning the court's view of the FCA;
(v) there would be a finding that if wrongdoing were ultimately established, it might then be seen that there had been fault on the part of the Stock Exchange in relation to its facilitation, although no finding that there had been fault because it would still remain entirely uncertain whether there had in fact been wrongdoing;
(vi) I would have expected that ongoing confidentiality concerns might be satisfactorily minimised and managed, albeit there would have been a burden on Burford to provide detailed terms and to persuade the court that they fulfilled that expectation before any relief might be granted;
(vii) those final factors ((v) and (vi) above) favouring relief would have been heavily outweighed by the factors weighing against.
Result
