ERIC DANIEL KURTZMAN v. ADRIAN PETTER

HCA 38/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 38 OF 2012

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J U D G M E N T

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A.  INTRODUCTION

1. The plaintiff (“Mr Kurtzman”) claims against the defendant (“Mr Petter”) for the return of US$250,280 which he placed with Mr Petter for the purpose of investment.

B.  THE FACTS

2. Save as indicated, the following facts are not in dispute.

B1.   How the parties came to have financial dealings

3. At the time of the events in question, Mr Kurtzman was an architect.  Mr Petter handled investments on behalf of himself and his family, although he held no professional qualifications in the investment field.

4. Mr Kurtzman and Mr Petter had met each other at the Jewish Club many years prior to the events in question.  From about 2008, they became close friends, speaking to each other almost every day.

5. In about 2008 or 2009, Mr Kurtzman learned that Mr Petter dealt with investments and was knowledgeable and experienced in doing so.  He saw that Mr Petter lived a comfortable lifestyle.  It appeared to Mr Kurtzman that Mr Petter lived a “life of leisure”, staying in an “attractive flat”, travelling business class, staying at five star hotels when travelling, buying “expensive apparel” and regularly dining at “trendy restaurants”.  Mr Petter mentioned his and his family’s ownership of various assets around the world, and spoke confidently of his ability to achieve good returns on his investments.

6. For his part, Mr Kurtzman was unhappy with the low returns he was obtaining with his funds at HSBC.

7. The parties had discussions about the possibility of Mr Kurtzman placing some of his money with Mr Petter in order to achieve returns better than those he had hitherto been obtaining.

B2.  The undisputed transactions

8. Subsequently, Mr Kurtzman provided funds to Mr Petter, and Mr Petter dealt with them, as follows.

B2.1  The First Transaction

9. Mr Petter (or a member of his family or family companies), owned a number of equity linked notes, linked to the shares of Cheung Kong (Holdings) Limited, which were to mature on 17 March 2009.  In about late February or early March 2009, Mr Kurtzman indicated that he would allocate the receipts from these notes to Mr Petter upon Mr Kurtzman depositing HK$1,000,000 into Mr Petter’s bank account.  Mr Kurtzman did so on 27 February 2009.  The investment apparently yielded a profit of HK$19,000 which Mr Petter paid over to Mr Kurtzman in cash.  The notes themselves were not at any time transferred to Mr Kurtzman; it was simply a case of Mr Petter treating the proceeds of the notes, or part thereof, as belonging to Mr Kurtzman.

B2.2  The Second Transaction

10. Mr Petter had retained the deposit of HK$1,000,000 from the First Transaction.  He and Mr Kurtzman had discussions some time prior to 17 March 2009 regarding the possibility of Mr Kurtzman purchasing some HSBC shares which Mr Petter had purchased some time earlier.  Ultimately, Mr Petter treated the HK$1,000,000 from the First Transaction as funds for “purchase” of that amount of HSBC shares from him.  There was in fact no actual transfer of the shares from Mr Petter to Mr Kurtzman; the parties proceeded on the fiction that Mr Kurtzman had “purchased” the shares at one particular price and then “sold” them at another:

(1)  By an email of 18 March 2009 to Mr Kurtzman, Mr Petter said “As instructed I have invested your funds (1 million HK$) in accordance with your instructions.  The value used was 4.55 Pound Sterling for the equivalent value price of HSBC stock being the opening price on the London market…”.

(2)  By an email of 26 May 2009 to Mr Kurtzman, Mr Petter referred to “the sale of your HSBC derivative at your agreed exit price of GB Pounds Sterling 5.40…”, and advised that Mr Kurtzman had made a profit of £21,597.31.

B2.3  The Third Transaction

11. On 26 May 2009, Mr Petter “invested” £80,000 of Mr Kurtzman’s funds into a one month Dual Currency Investment Contract with UBS, a bank.  Again, the financial instrument was not in fact purchased in Mr Kurtzman’s name; the purchase was made by Mr Petter in his own name, and he then emailed Mr Kurtzman on 26 May 2009 stating “GB Pounds Sterling 80,000 was subsequently invested on your behalf, in a DCI yesterday as requested, the details are attached for your reference”.  The email attached a termsheet from UBS headed “GBP Standard DCI on GBP/USD”.  According to Mr Kurtzman, Mr Petter called him on 29 June 2009 to tell him that the investment had matured and resulted in a profit of £1,089; Mr Petter does not dispute that Mr Petter earned a profit in this amount.

B2.4  Payment by Mr Petter to Mr Kurtzman

12. On 18 June 2009, Mr Petter transferred £22,503.45 (being £21,597.31 from the “sale” of the HSBC shares in the Second Transaction, together with £906.14 being the balance of the funds which were not retained by Mr Petter for the Third Transaction) to Mr Petter’s account.

B2.5  The Fourth Transaction

13. In mid to late July 2009, Mr Petter “purchased” another Dual Currency Investment Contract with UBS for Mr Kurtzman in the amount of US$130,736.  As with the previous Dual Currency Investment Contract, this was not in fact purchased in Mr Kurtzman’s name, but rather, in Mr Petter’s own name.  According to Mr Kurtzman, Mr Petter called him on 28 August 2009 to tell him that the investment had matured and resulted in a profit of US$544; Mr Petter does not dispute that Mr Petter earned a profit in this amount.

B2.6  Payment out by Mr Petter to Mr Kurtzman

14. On 12 January 2010, Mr Kurtzman asked that Mr Petter remit US$23,000 to him, and Mr Petter did so.

B2.7  Further deposit by Mr Kurtzman

15. On 22 May 2010, Mr Kurtzman deposited a further US$100,000 into Mr Petter’s account.  Mr Kurtzman says that he was encouraged by Mr Petter to do so; Mr Petter says that Mr Kurtzman wanted to carry out currency trading and he told Mr Kurtzman that further funds would need to be deposited for this purpose.

B2.8  The Fifth Transaction

16. On 31 May 2010, Mr Petter placed a sterling Forward Purchase Limit Order with a strike price of US$1.43, in the amount of US$250,000, using Mr Kurtzman’s available funds of US$208,000 and (although Mr Kurtzman says he was unaware of it at the time) US$42,000 of Mr Petter’s own funds.  The transaction was a leveraged one.  A profit would have been made if the pound sterling had fallen to the strike price of US$1.43 and then risen thereafter; however, the pound sterling did not fall as low as the strike price before it started and continued to rise.  There did not appear to be any prospect of profit and Mr Petter cancelled the Forward Purchase Limit Order on 7 June 2010.

B2.9  Final deposit by Mr Kurtzman

17. On 4 August 2010, Mr Kurtzman deposited a further US$42,000 into Mr Petter’s account.  Mr Kurtzman says that he was asked by Mr Petter to do so; Mr Petter has not denied this.

B2.10 Total funds deposited and/or earned by Mr Kurtzman pursuant to the First to Fifth Transactions

18. It is common ground that the amounts of the three deposits made by Mr Kurtzman into Mr Petter’s account, added to the profits made on the First to Fifth Transactions, less the payments made by Mr Petter to Mr Kurtzman, come to a figure of US$250,280, and that this sum represented the amount of Mr Kurtzman’s funds in Mr Petter’s hands as at 4 August 2010.

B2.11 Manner of “investment”

19. It is undisputed that Mr Petter did not acquire any financial products in Mr Kurtzman’s name; rather, the investments were all acquired in the name of Mr Petter, his family members or family companies, and were notionally “attributed” to Mr Kurtzman.  Whilst at times in the course of their evidence Mr Kurtzman and Mr Petter referred to the profits made by Mr Kurtzman from these products, in reality, Mr Kurtzman’s funds were “invested” only with Mr Petter, who would then allocate “profits” to Mr Kurtzman.  The issue of what the actual proceeds from the financial products were was not explored at trial.

B3.  How the disputes between the parties arose

20. Mr Kurtzman says that in about September or October 2010, he asked for the return of his funds of US$250,280 for various reasons, including a desire to invest them into a Canadian land banking company (“Walton”).

21. Mr Kurtzman says that Mr Petter, however, refused to return the funds, initially on the grounds that they were “locked up” with UBS as they had been committed to a leveraged transaction (the Fifth Transaction) and although that transaction had fallen through, it was UBS’ policy to “lock in” the money for a future leveraged transaction.

22. Mr Kurtzman further says that sometime in February 2011, Mr Petter advanced a different reason for the refusal to return the funds, and that was that in November 2010, he had notionally attributed the entirety of Mr Kurtzman’s funds of US$250,280 to a trade which he had made back in 2008 on behalf of his family company Chepstow Investments Limited (“Chepstow”) and which would have yielded profits had the pound sterling reached the exchange rate of US$1.655 (“the Disputed US$1.655 Transaction”).  Mr Kurtzman says that he was never consulted about this and was only told about it in February 2011.

23. For Mr Petter’s part, he says that no request was made for the return of the money in September or October 2010. He acknowledges that there was an email from Mr Kurtzman on 24 February 2011 asking for his funds, but he says that it was at a meeting at Cova restaurant in Pacific Place on 11 April 2011 that Mr Petter went “crazy” and “exploded”, all of a sudden demanding his money back as his wife had found out what had happened and was threatening to divorce him.  Mr Petter told him that he could return the funds, but subject to Mr Kurtzman bearing a loss of about £40,000 which would be incurred in the “unwinding” of the Disputed US$1.655 Transaction.  Mr Kurtzman refused, and instead asked Mr Petter to attribute the funds to a transaction which did not involve a currency trade.

24. Mr Petter says that he therefore attributed the funds to part of his purchase of a flat at Larvotto, a residential development (“the Disputed Larvotto Transaction”).

25. Previously, and separately, in December 2010, on the advice of Mr Petter, Mr Kurtzman had remortgaged his home and provided a loan of HK$2,000,000 to Mr Petter at his request for the purchase (by Chepstow) of the same Larvotto unit.  The terms of the loan were formalised in a written document.  No part of the loan has been repaid, despite payments having fallen due under the written agreement.

C.  MR KURTZMAN’S CLAIM

26. Mr Kurtzman says that:

(1)  There was an oral agreement between the parties that any investments made were to be on a trade by trade basis, that all investments had to be subject to Mr Kurtzman’s prior authorisation, and that Mr Petter would return all the money deposited with him on demand if it was not already subject to an authorised trade.

(2)  Mr Kurtzman asked Mr Petter for return of his funds in September or October 2010, at a time when they were not committed to any investment, and Mr Petter ought to have repaid Mr Kurtzman then.

27. Mr Kurtzman’s principal claim is for the sum of US$250,280 as damages for breach of contract; alternatively, as money had and received by Mr Petter to Mr Kurtzman’s use; alternatively, as damages for breach of fiduciary duty and/or trust.

D.  MR PETTER’S DEFENCE

28. Mr Petter says that:

(1)  The parties had an informal understanding that Mr Petter would have complete discretion as to what investments would be made with Mr Kurtzman’s funds, the amount of the investments, and when they would be made and realized.

(2)  There was no enforceable contract between the parties supported by consideration.

(3)  Mr Kurtzman did not ask for the return of his funds in September or October 2010, but only in February 2011.  Meanwhile, the funds had already been committed to the Disputed US$1.655 Transaction in November 2010 and therefore could not be released to Mr Kurtzman in February 2011.

(4)  On 11 April 2011, Mr Kurtzman agreed to the attribution of his funds to be transferred to the Disputed Larvotto Transaction.

(5)  Mr Kurtzman’s funds cannot be released until such time as the Larvotto unit is sold.

E.  THE ISSUES

29. The following main issues arise for my determination:

(1)  whether there was any binding agreement between the parties as to how Mr Petter would use the funds provided by Mr Kurtzman for investment, and if so what the terms of that agreement were;

(2)  whether Mr Kurtzman authorized the commitment of his funds to the Disputed US$1.655 Transaction and the Disputed Larvotto Transaction;

(3)  in the light of the answers to the factual issues above, whether Mr Kurtzman is entitled to the return of his funds on the grounds of breach of contract, breach of fiduciary duty and/or trust, and/or as money had and received.

F.  WHETHER ANY BINDING AGREEMENT BETWEEN THE PARTIES AS TO USE OF MR KURTZMAN’S FUNDS

F1.  Whether any oral contract as claimed by Mr Kurtzman

30. Mr Petter’s pleaded case was that the arrangement between the parties was purely informal.

31. Mr Kurtzman’s pleaded case was that an oral agreement was made on or about 24 February 2009, governing the basis on which Mr Petter was to conduct investments on his behalf.  However, in his oral evidence, he explained that the parties had not sat down and worked out the specific terms of an agreement, but rather, that the nature of their dealings had been worked out along the way as the First to Fifth Transactions were carried out.  It “materialised” and “developed” as successive transactions were carried out.  The thrust of Mr Kurtzman’s evidence was that there were extensive discussions between the parties about the investments proposed to him, but such discussions related to the details of each particular transaction, rather than to any overarching arrangement between the parties as to how investments should in general be conducted by Mr Petter for Mr Kurtzman.  Apart from the Third and Fourth Transactions which involved financial instruments of a similar nature, each of the transactions was fairly different in nature, and the parties dealt with them on an ad hoc basis, as and when each arose.

32. I therefore find that in the present case, there was no oral agreement between the parties as to how investments for Mr Kurtzman would generally be conducted, as contended for by Mr Kurtzman.

33. Much time was spent in cross examination of Mr Kurtzman over a draft written agreement which he had prepared and emailed to Mr Petter on 24 February 2009, but which Mr Petter had refused to sign.  Mr Petter relied heavily on clause 2 of the draft, which stated “The broker will have discretionary control over the Client’s deposit to trade only in Equity Linked Notes (ELN) of Hang Seng Index stocks, with full fiduciary care to his client”, in support of his argument that the parties’ agreement was that Mr Petter should have full discretion over the deployment of Mr Kurtzman’s funds.  At the same time, however, his pleaded case is that there was in fact no overarching agreement between the parties.  In any event, the draft is of little, if any, relevance to the issue of what overarching agreement was made between the parties, not only because it was a draft, but also because Mr Kurtzman’s evidence was to the effect that there was in fact no such agreement.  Indeed the draft itself appeared to be directed towards the First Transaction rather than towards the general conduct of transactions, as it referred to a trade in Equity Linked Notes.

34. Mr Petter also challenged Mr Kurtzman’s evidence that the First to Fifth Transactions were, as a matter of actual fact, carried out only after Mr Kurtzman had been consulted about, and consented to, them.  It was Mr Petter’s case that Mr Kurtzman “left all the decisions to him”, that he carried out the transactions without recourse to Mr Kurtzman and simply informed him of the same, after the event, as a matter of courtesy.  On this issue, I accept the evidence of Mr Kurtzman and reject that of Mr Petter for the following reasons.

(1)  The contemporaneous email correspondence for some of the transactions indicates that the parties dealt with each other on the basis that Mr Kurtzman was the one who made the decision as to whether or not his funds should be allocated in accordance with a particular proposal put forward by Mr Petter:

(1)  In relation to the Second Transaction, an email from Mr Petter of 18 March 2009 reads:

“As instructed I have invested your funds (1 million HK$) in accordance with your instructions …. As discussed you will receive a positive return once the said shares reach a price of 5.20 Sterling Pounds or above. If you decide to sell at a lower price then you will suffer a loss. The chart illustrates the amount you will receive in respect of the relevant chosen sale price.” (Emphasis added.)

(2)  In relation to the Third Transaction, an email from Mr Petter of 26 March 2009 reads:

“Based on the previous … HSBC derivative you purchased a conversion of 12.36 was executed, in accordance with your instructions yesterday, such that the initial 1 million HKD investment is equivalent to GB Pounds Sterling 80,906.14. … GB Pounds Sterling 80,000 was subsequently invested on your behalf, in a DCI yesterday as requested….” (Emphasis added.)

(2)  Whilst not all of the First to Fifth Transactions were accompanied by such correspondence, the two emails above are inconsistent with the scenario described by Mr Petter whereby he took all the decisions and simply told Mr Kurtzman of them afterwards.  Mr Petter sought to explain that the use of phrases such as “in accordance with your instructions” were simply a gesture of assurance between friends, but this is contrary to the plain meaning of “instructions”.

(3)  Mr Kurtzman accepts that the cancellation of the Forward Purchase Limit Order in the Fifth Transaction took place without formally seeking his approval.  However, he explains (and I accept) that the parties had first discussed the fact that the circumstances were such that there was simply no prospect of the pound sterling reaching the strike price, and that in such circumstances, the cancellation of the Forward Purchase Limit Order would have been done as a matter of course.

(4)  It is common ground that the parties discussed extensively each of the transactions proposed, and that Mr Kurtzman was a “details man” and asked many questions about each before it was actually conducted.  In his testimony, Mr Kurtzman pointed out that the very reason why he thought that Mr Petter was such a good friend and advisor was that he was extremely patient and detailed in responding to the many queries which Mr Kurtzman had.  Again, all of this is not consistent with a scenario of Mr Petter making unilateral decisions without first consulting Mr Kurtzman.

(5)  Mr Petter relies on the fact that Mr Kurtzman deposited funds with him, and that he, rather than Mr Kurtzman, was the one with the relevant expertise and knowledge, for saying that he had full discretion as to how Mr Kurtzman’s funds should be deployed.  However, both of these facts are equally consistent with Mr Kurtzman’s version of events.

35. It follows that I do not accept that that there was any agreement as contended for by Mr Kurtzman, and that at the same time, I do not accept that there was any informal arrangement as contended for by Mr Petter that he would have complete discretion as to the investments to be made with Mr Kurtzman’s funds.

F2.  Consideration

36. Given that I have found that there was no agreement as contended for by Mr Kurtzman, the issue of whether there was consideration for that agreement does not arise for determination.

G.  WHETHER MR KURTZMAN AUTHORISED THE DISPUTED US$1.655 TRANSACTION AND THE DISPUTED LARVOTTO TRANSACTION

37. Given my finding that there was no overarching agreement or arrangement between the parties, whether or not any particular transaction had been authorised by Mr Kurtzman depends on what was discussed and done by the parties in relation to that particular transaction.

G1.  The Disputed US$1.655 Transaction

38. In his oral testimony, Mr Petter said that Chepstow had borrowed some £1.7 million from the Royal Bank of Scotland (“RBS”).  When the financial crisis in late 2008 happened, the pound sterling fell sharply against the US dollar, and Mr Petter saw an opportunity to profit.  He arranged for the denomination of the loan to be changed from sterling to dollars, and made a contract for the advance purchase of US dollars such that Chepstow would receive a financial benefit when sterling went back up to US$1.655.

39. Mr Petter’s case is that:

(1)  he attributed Mr Kurtzman’s US$250,280 to this “deal” in November 2010 and that Mr Kurtzman knew about this and agreed to it at the time; and

(2)  in any event Mr Kurtzman’s authorisation was not needed because he, Mr Petter, had full discretion to allocate Mr Kurtzman’s funds as he wished.

40. The latter allegation must fail in the light of my earlier finding that there was no overarching agreement or arrangement between the parties as to how Mr Petter would in general use Mr Kurtzman’s funds.

41. As to the former allegation, I reject Mr Petter’s case and find that Mr Kurtzman was not told of the Disputed US$1.655 Transaction in November 2010 and therefore did not consent to his funds being attributed to it.  Indeed, and insofar as it may be necessary, I do not accept that there was any notional attribution carried out by Mr Petter in November 2010 in terms of the Disputed US$1.655 Transaction at all, and that the Disputed US$1.655 Transaction was in fact an excuse put forward by Mr Petter to Mr Kurtzman in February 2011 to put off repaying Mr Kurtzman’s funds.  My reasons are as follows.

(1)  Prior to the Disputed US$1.655 Transaction, there had always (with the exception of the Fifth Transaction) been some form of contemporaneous record between the parties when Mr Kurtzman’s funds were allocated to a particular transaction.  In the case of the First Transaction, Mr Kurtzman sent a confirmatory email to Mr Petter on 1 March 2009.  In the case of the Second and Third Transactions, there were the emails from Mr Petter of 18 and 26 March 2009 as already referred to above.  In the case of the Fourth Transaction, there was an email from Mr Petter to Mr Kurtzman on 22 August 2009 attaching a copy of the relevant Dual Currency Investment Contract termsheet.  Whilst there was no such contemporaneous record in relation to the Fifth Transaction, this transaction was somewhat different in nature as the strike price in the Forward Purchase Limit Order was never achieved so that Mr Petter never in fact purchased any currency pursuant to the order.

(2)  More tellingly, when Mr Kurtzman sent an email to Mr Petter on 24 February 2011, complaining that Mr Petter had only a few days ago mentioned for the first time the Disputed US$1.655 Transaction, and accusing him of being a liar in claiming that Mr Kurtzman had agreed to the transaction back in November 2010, Mr Petter sent no email in response to set the record straight on what he now claims to be the true version of events.  Mr Kurtzman’s email was in strong and clear terms:

“… In a nutshell I was surprised to hear for the first time a few days ago that you had committed my 250 K to taking over your 1.65 unleveraged currency trade that you took back in 2008. In fact I still do not know when you committed me to this trade.

Contrary to what you say, we never went through the offer, consideration and acceptance process for this 1.65 trade like we did for the 1.43 trade …

Back to the 1.65 trade, I’ve looked at the charts …

Based on this [information] I would certainly not have accepted your 1.65 long trade offer. This is not rocket science …

You say that you offered me this 1.65 trade sometime last year and that I accepted. There is nothing farther from the truth. As I mentioned earlier there was no offer, consideration and acceptance.

As you know, it was only a few days ago that I learned the details of the trade, that it is unleveraged and that it was really 1.655 not 1.6. …

It was only a few days ago that you informed me that I owned this 1.665 trade. But in contradiction to this you also told me a few weeks earlier in passing mention that you (not me) owned a 1.65 trade that can potentially give me my money.

…

I would not of [sic] hounded you repeatedly for my money back last year 3^rd and 4^th quarter if I was aware of my ownership of the 1.65 ownership you said I have. I do not have amnesia …

And when I did hound you repeatedly, you repeatedly responded that you didn’t want to ask for the release favor from the bank on my leveraged commitment … never once did you say … but Eric silly boy you are already committed to a 1.65 currency trade.  I presume you also do not have amnesia …”

(3)  In his witness statement, Mr Petter says that he did not reply to the email because it “seemed so inconsistent with what had gone on before”.  I do not find this to be a credible explanation for the silence, particularly as Mr Petter says that he was “shocked” and “a little annoyed” at the email.  The inconsistency would surely have been the very justification for a response.

(4)  There were a number of further emails from Mr Kurtzman to Mr Petter in April and May 2011 asking for the return of his funds, and complaining about the Disputed US$1.655 Transaction, including an email of 27 April 2011 in which Mr Kurtzman asked Mr Petter to state when he decided to assign the Disputed US$1.655 Transaction to him.  Mr Petter did not write back to any of these emails setting out the details of when the transaction was carried out.

42. Mr Petter says that Mr Kurtzman knew that his funds had been committed to the Disputed US$1.655 Transaction and that this is why he had not asked for repayment of funds.  He relies on the fact although Mr Kurtzman says that he asked for repayment in September or October 2010, there was no written demand until the email of 24 February 2011.  However, I accept Mr Kurtzman’s explanation of what was happening during this period, namely that:

(1)  he did make oral demands, but Mr Petter would tell him that whilst he wanted to return Mr Kurtzman’s money, he was unable to as UBS had locked in the funds and would only allow them to be used for a leveraged trade; and

(2)  he was charmed and reassured by Mr Petter’s efforts at friendship during this period that Mr Petter was not a cheat intending to run off and disappear with Mr Kurtzman’s money—they were in constant touch almost every day and socialized regularly.

From his oral testimony, it was apparent that Mr Kurtzman placed great faith in what he was told by Mr Petter, whom he considered to be his best friend.

43. Mr Petter also says that if Mr Kurtzman had wanted his funds back in September 2010, he would not have started discussions with him regarding the loan of a further HK$2,000,000 to Mr Petter at the time, remortgaging his home in order to obtain the funds.  However, I find Mr Kurtzman’s explanation perfectly credible:

(1)  to his understanding, it was UBS, not Mr Petter, who was holding on to the funds which he wanted to be returned;

(2)  in lending money to Mr Petter (who said he needed the money for an investment in Larvotto), he was both doing his good friend a favour, and hoping that his friend would return the favour by going to UBS to “call in a favour” which (Mr Petter had told him) would cause UBS to unlock the funds which Mr Kurtzman had thought were tied up by it; and

(3)  the terms of the remortgage were favourable to Mr Kurtzman in that he obtained a lower interest rate than he had hitherto been paying.

44. As to exactly when it was that Mr Kurtzman first asked for his funds back, I find that Mr Kurtzman has established that he made demands at the latest by mid‑October 2010.  There are emails from Walton of 29 and 30 September 2010 which indicate that by that time, Mr Kurtzman had already been presented with some proposals (and revised proposals) for investment.  Mr Kurtzman’s unchallenged evidence was that he was given only a week for accepting the proposal.  Even if there was some further toing and froing between Mr Kurtzman and Walton after the emails at the end of September 2010, it seems more likely than not that the final proposal offered by Walton for acceptance was made shortly thereafter (and Mr Petter did not suggest otherwise), so that if Mr Kurtzman had wanted to commit to the proposal, he would have asked Mr Petter for his funds back by about mid‑October.

G2.  The Disputed Larvotto Transaction

45. Mr Petter’s evidence was that the parties “reluctantly” agreed to this transaction in the course of their meeting at Cova on 11 April 2011.  He says that Mr Kurtzman “blew his top” at this meeting, as his wife had found out about his “investments” and was threatening to divorce him.  Mr Kurtzman was therefore demanding an immediate return of his money in order to save his marriage.  However, as the Disputed US$1.655 Transaction would at that point have been loss‑making and Mr Kurtzman refused to accept the loss which would have been some £44,000, Mr Petter suggested that Mr Kurtzman could shift his investment “into” the Larvotto unit instead.  The loss would then not be crystallised and merely be a “paper loss”, and in the event that the Larvotto unit could later be sold for profit, Mr Kurtzman could recoup his loss and perhaps even make an overall profit on his money.

46. I find that Mr Kurtzman did not agree to the Disputed Larvotto Transaction.  My reasons are as follows:

(1)  There were a number of conversations between Mr Kurtzman and Mr Petter in June 2011 which Mr Kurtzman recorded, transcripts of which were placed before the Court.  Larvotto was mentioned by Mr Petter several times, but as a potential investment option for Mr Kurtzman, rather than as a transaction already agreed upon in April.  The reason why Mr Petter was not returning the money was that he did not have funds to hand, and not because it was notionally committed to the Disputed Larvotto Transaction:

Transcript of conversation on 6 June 2011:

“[Mr Petter:] …the way that you will be able to get your money back … there are a number of ways, I’ve already told you. I can just sort of say, as and when I have the money I’ll give it to you back and that still stands, but—unfortunately, we don’t really know when that will be. So I don’t really think if I were you that this will be a particularly good option, OK—however there was another way that you could have got your money back [via the Disputed US$1.655 Transaction]—you insisted you didn’t want anything to do with it, so I took you out.

[Mr Kurtzman:] Well because I never authorised it!

[Mr Petter:] OK OK that’s fine—so that’s why you are not in that—so but in fact the good news is that—there are lots of other thing that you could invest in—loads of things.  I’ve actually mentioned some of them to you but every single time you just reject them all out of hand.”

Later on in the same conversation:

“[Mr Petter:] These are the options … You can take the money and run … But again I am not you, and you could always take the other option. So and what I am urging you … go and see Larvotto …”

In his oral testimony, Mr Petter said that he was merely asking Mr Kurtzman to see Larvotto so that he could be comfortable that it actually existed, but the rest of the conversation indicates that he was proposing it as a possible option for Mr Kurtzman:

“[Mr Petter:] … and that’s actually what I would do if I were you …

…

[Mr Kurtzman:] So those are the only two options …

[Mr Petter:] So those are the ones, but I actually think—that the second option is actually quite good …”

Later on:

“[Mr Kurtzman]: The first option you explained—uhh get my money back less profits …

[Mr Petter:] Correct yes.

…

[Mr Kurtzman]: The second option is to invest with Larvotto—and I mentioned to you that I don’t want to invest from a position of weakness—so I find that very distasteful, I don’t like it—uh I have the right to say that right?

[Mr Petter:] Of course you do, yes.

[Mr Kurtzman]: Ok—what I want—is to give you a loan at 10% per annum—in fact you have been using my money already for a year so you get the benefit of that, so that’s what I want—and uh I believe you don’t like that option right? …

[Mr Petter:] It’s not even, it’s not even [a] question [of] I don’t like it—I can’t afford it.

[Mr Kurtzman]: OK you can’t afford it, so that’s not an option, so so for instance if I don’t agree to Larvotto—then I am in fear that I don’t know when I am going to get my money back…

[Mr Petter:] OK—I accept everything that you’ve said—but but the good news is—the Larvotto deal is actually quite a good deal …

…

[Mr Kurtzman]: Why can’t I have my money back?

[Mr Petter:] I’ve told you because we don’t have it now.”

When these and other passages were put to Mr Petter by Mr Philip Ross, counsel for Mr Kurtzman, Mr Petter claimed that Mr Kurtzman was simply suffering from “buyer’s remorse” and trying to get out of the Disputed Larvotto Transaction, but when the passages are read in context, it is apparent that Mr Petter was offering the Disputed Larvotto Transaction to Mr Kurtzman, attempting to persuade him to accept it in lieu of asking for a repayment of funds.

Mr Petter has said that less weight should be given to the taped conversations as Mr Kurtzman was effectively manufacturing evidence by trying to entrap Mr Petter into saying something which he ordinarily would not have said.  I have considered this point and have reviewed the context of the passages relied upon by Mr Ross.  There were many references to the option of investing in Larvotto, in the course of more than one telephone conversation, and at various points during those conversations.  I am satisfied that Mr Petter was indeed proposing the Disputed Larvotto Transaction to Mr Kurtzman for consideration, rather than referring to it as a transaction which had already been agreed upon on 11 April 2011.

(2)  Mr Petter relied on a text message from Mr Kurtzman of 26 April 2011 which said “If this lavartto investment does not work out, will you give … back my money immediately?” as evidence of Mr Kurtzman’s agreement to the Disputed Larvotto Transaction on 11 April 2011.  But as Mr Ross pointed out, on the very next day, Mr Kurtzman wrote a lengthy email to Mr Petter complaining about the Disputed US$1.655 Transaction, without any reference to the Disputed Larvotto Transaction.  Read in context, Mr Kurtzman’s text message cannot be taken as an indication that he had already accepted the Disputed Larvotto Transaction.

(3)  As with the Disputed US$1.655 Transaction, there was no contemporaneous record of the transaction, unlike the earlier, undisputed transactions.  Furthermore, given that Mr Kurtzman had been hostile towards Mr Petter at the meeting at Cova, and reluctant to agree to the transaction, and given that Mr Kurtzman had (on Mr Petter’s case) wrongfully denied the existence of the Disputed US$1.655 Transaction, it is surprising that Mr Petter did not make a written record of the transaction so as to guard against a later denial.

(4)  When asked, Mr Petter said that email was not the way he communicated with Mr Kurtzman, but certainly Mr Kurtzman had sent him a number of emails in April 2011 asking for the return of his money, which did not mention the Disputed Larvotto Transaction.  Furthermore, the first of these on 17 April had specifically asked for email exchanges to avoid misunderstanding.  Yet Mr Kurtzman did not respond to those emails to correct what, on Mr Petter’s case, would have been an important omission.

(5)  I do not find Mr Petter’s version of events, namely that the Disputed Larvotto Transaction was entered into following on from Mr Kurtzman suddenly “blowing his top” and demanding the return of his money because his wife had, shortly before the meeting at Cova, found out about the “investments”, to be a convincing one.  Mr Kurtzman had already asked for his money back in his email of 24 February 2011.  Moreover, he had already previously “blown his top” at Mr Petter, including at a meeting a week after Mr Petter’s birthday in late March 2011 at Mr Petter’s flat when Mr Kurtzman threw chairs at him, saying that he had found out that Mr Petter was lying when he claimed that Mr Kurtzman’s funds were locked in by UBS.  In this regard, I accept Mr Kurtzman’s evidence that it was on about 23 March 2011 when he met a director of UBS that he learnt that UBS did not have any policy of “locking in” funds, contrary to what Mr Petter had told him.  I therefore do not accept that Mr Kurtzman’s anger at the Cova meeting of 11 April 2011 was a sudden change of attitude on his part.

(6)  In his evidence, Mr Petter acknowledged that what Mr Kurtzman “really wanted” was to get his money back, “but I couldn’t do that just because you want to make up with your wife, why should I have to pay £44,000 for that?”  He went on to describe Mr Kurtzman as having gone “beserk” in demanding his money back.  If Mr Kurtzman had wanted his money back to that extent, it is highly unlikely that he would at the same time have agreed not to have his money back and instead to attribute it to the Disputed Larvotto Transaction.

H.  BREACH OF CONTRACT

47. At the start of the trial, I gave leave to Mr Kurtzman to re‑amend his Statement of Claim to include a claim for damages for breach of contract.  However, given that I have found that there was no overarching oral agreement as contended for by Mr Kurtzman, the claim for damages fails.

48. In his closing submissions, Mr Ross also submitted that the claim for return of Mr Kurtzman’s funds was akin to a claim for specific performance.  No claim for specific performance was pleaded. In any event, as there was no oral agreement, there can be no claim for specific performance of the same.

I.  BREACH OF FIDUCIARY DUTY

I1.  Whether Mr Petter owed fiduciary duties to Mr Kurtzman

49. This is not a case which falls into one of the established categories of fiduciary relationship, such as agency.  However, fiduciary relationships are not confined to these categories, and may be found in a wide number of situations.  The potential range of fiduciary relationships is infinite and the duties of the fiduciary will vary depending on the circumstances which generate the relationship.  Even if the relationship of two parties is generally non‑fiduciary, particular obligations may import fiduciary duties and equitable remedies.  A person may attract fiduciary duties where he undertakes an obligation to act in the interests of another.  Put another way, a relationship of ascendancy or influence by one party over another, or dependence or trust on the part of that other, may give rise to a fiduciary obligation on the part of the first party.  See Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681 at [56] to [66].

50. In “ascendancy” cases, the essential feature of the fiduciary relationship is an obligation on the fiduciary to exercise discretionary powers in the interests of the other party.  See Libertarian Investments Ltd at [67] to [68]:

“67. It is in the context of such ‘ascendancy’ cases that the courts have identified as an essential feature of the fiduciary relationship, an obligation on the fiduciary to exercise discretionary powers in the interests of another, highlighting the vulnerability of that other person to any potential abuse of such powers.

68. In Hospital Products Ltd v United States Surgical Corp, one of the questions was whether the relationship between distributor and supplier was such a ‘power‑dependency’ relationship and it was in that context that Mason J stated:

The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense.  The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position.  The expressions ‘for’, ‘on behalf of’ and ‘in the interests of’ signify that the fiduciary acts in a ‘representative’ character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal.  It is partly because the fiduciary's exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed …”

51. It is therefore important to consider the circumstances which generated the relationship between Mr Petter and Mr Kurtzman and led to Mr Kurtzman depositing funds with Mr Petter.  In my view, the following matters are material.

(1)  Prior to placing his money with Mr Petter, Mr Kurtzman had developed a close friendship with Mr Petter.  They were of the same religious faith, spoke on the phone virtually every day, and would regularly socialize together.  In this way, Mr Kurtzman came to trust Mr Petter.

(2)  As Mr Petter knew, Mr Kurtzman appreciated and wanted to benefit from Mr Petter’s expertise and experience of the financial industry and investments.  On the one hand (and as Mr Petter knew), he himself lacked the necessary expertise and experience, was not good at making money with investments, and in fact had been “burnt” before in his investment endeavours.  On the other hand, Mr Petter represented himself as being not only knowledgeable and experienced, but also successful, at conducting investments.  Mr Petter had also said that he acted for a number of other people in conducting their investments.  (Mr Petter disputed the latter point, but I accept the evidence of Mr Kurtzman on this point, given that in the taped conversation of 6 June 2011, Mr Petter repeated the representation.)

(3)  Mr Petter had spent a lot of time explaining the proposed First Transaction, answering the “million questions” which Mr Kurtzman had (Mr Kurtzman’s description) and speaking at “immense length” to him (Mr Petter’s description), thereby gaining Mr Kurtzman’s trust and confidence.  Mr Petter continued to spend a great deal of time discussing subsequent transactions with Mr Kurtzman, leading Mr Kurtzman to continue to trust and rely on Mr Petter for his expertise and experience in relation to such transactions.

(4)  A further attraction to Mr Kurtzman of dealing with Mr Petter was that through him, Mr Kurtzman would be able to have access to the products offered to private banking clients; he did not himself have a private banking account (as Mr Petter knew).

(5)  The nature of the “investments” made by Mr Kurtzman is significant and reflects the degree of trust which he placed in Mr Petter. Mr Petter had told Mr Kurtzman that he would not be purchasing investments in Mr Kurtzman’s name.  Everything would be in Mr Petter’s name.  As Mr Petter put it in oral evidence: “So technically Eric didn’t make seven investments.  There were seven attributions.  He only made one investment, and that was in Adrian Petter.  In his experience, contacts, everything.”

(6)  Mr Kurtzman relied entirely on Mr Petter to allocate funds in accordance with what they had discussed, and to honour the commitment by returning Mr Kurtzman’s funds and faithfully allocating a return to Mr Kurtzman.

52. It was on that basis that Mr Kurtzman deposited his initial HK$1,000,000 with Mr Petter, and allowed Mr Petter to retain the funds and the amounts agreed to have been earnt by Mr Kurtzman.

53. In accepting Mr Kurtzman’s funds, Mr Petter took on an obligation to act in his interests.  Mr Kurtzman trusted and depended on Mr Petter for advice as to how to deploy those funds; once the funds were in Mr Petter’s hands, Mr Kurtzman relied on Mr Petter to act honestly in dealing with them.

54. I therefore find that in accepting Mr Kurtzman’s funds, Mr Petter came under a duty to act in good faith, not to make a profit out of his trust, not to place himself in a position where his duty and interest might conflict, and not to act for his own benefit without the informed consent of Mr Kurtzman.  See Libertarian Investments Ltd at [74].

I2.  Whether breach of fiduciary duty

55. In the light of my findings that (1) Mr Kurtzman did not authorise the Disputed US$1.655 Transaction; (2) Mr Petter did not in fact carry out any notional attribution in November 2010 in terms of the Disputed US$1.655 Transaction; (3) Mr Kurtzman did not authorise the Disputed Larvotto Transaction; (4) Mr Kurtzman asked for the return of his funds of US$250,280 by mid‑October 2010 at the latest; and (5) the fact that Mr Petter has not returned any of the funds despite Mr Kurtzman’s demands since that time, Mr Petter is plainly in breach of his fiduciary duty for having failed to return Mr Kurtzman’s funds.  There was simply no basis for Mr Petter to have retained the money.

I3.  Breach of trust

56. A claim for breach of trust was pleaded in the alternative to the claim for fiduciary duty.  In his closing submissions, Mr Ross said that this does not really add to his claim for breach of fiduciary duty and I say no more about it here.

I4.  Remedies for breach of fiduciary duty

57. Mr Kurtzman has suffered a loss of US$250,280 by reason of Mr Petter’s refusal to return Mr Kurtzman’s funds to him, and he is entitled to equitable compensation for the same: see Libertarian Investments, supra, at [85] to [87].

58. Mr Kurtzman is further entitled to an account of profits made by Mr Petter through the retention and use of Mr Kurtzman’s funds: see Libertarian Investments, supra, at [87].

J.  MONEY HAD AND RECEIVED

59. Mr Kurtzman also claims the return of his US$250,280 as money had and received to the use of Mr Kurtzman.  This is essentially a claim in restitution based upon the principles of unjust enrichment.  The questions I have to consider are:

(1)  whether Mr Petter was unjustly enriched;

(2)  whether the enrichment was at Mr Kurtzman’s expense;

(3)  whether the enrichment was unjust; and

(4)  whether any of the defences are applicable.

See Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at [67].

60. Here, it is clear that Mr Petter was enriched in having retained Mr Kurtzman’s funds.  (To the extent that Mr Petter gainfully used those funds, he was further enriched.)  It is also clear that such enrichment was at Mr Kurtzman’s expense, since the funds came from Mr Kurtzman and/or were the proceeds of “investments” which (Mr Petter does not deny) belong to Mr Kurtzman.  Given the breach of fiduciary duty which I have found, it must be unjust for Mr Petter to retain Mr Kurtzman’s funds.

61. Mr Petter has not put forward any separate defences to the restitutionary claim.  Insofar as he relies on the claim that Mr Kurtzman authorised the Disputed US$1.655 Transaction and the Disputed Larvotto Transaction as a basis for retention of Mr Kurtzman’s funds, I have already dealt with this above.

62. Thus under the principles of unjust enrichment, Mr Petter is liable to give restitution of Mr Kurtzman’s US$250,280, and to account for any profits made through the retention and use of the same.

K.  OTHER REMEDIES

63. In his pleadings, Mr Kurtzman also advanced a claim for “expectation loss”.  This was not pursued at trial, Mr Ross acknowledging that there was no evidence about this head of claim.

L.  ORDERS

64. Accordingly, I give judgment for Mr Kurtzman, and order that:

(1)  Mr Petter pay to Mr Kurtzman the sum of US$250,280 by way of equitable compensation for breach of fiduciary duty and/or by way of restitution, together with interest thereon at prime rate (as quoted by HSBC) plus 1% per annum from 15 October 2010 until the date of this judgment and thereafter at judgment rate until full payment;

(2)  Mr Petter do render to Mr Kurtzman an account of all profits made through his unauthorised retention of the said sum of US$250,280 since 15 October 2010 up to the present date, and do pay any amount found to be due from him to Mr Kurtzman consequent upon the taking of such an account; and

(3)  absent agreement thereon within 28 days from the date of this judgment, appropriate directions be made by a master for the taking of the aforesaid account.

65. There is no reason why costs should not follow the event, and I make an order nisi that Mr Petter should pay Mr Kurtzman’s costs, to be taxed if not agreed.