Patton and Cook v Bank of Bermuda Ltd

• Jurisdiction: Bermuda
• Judgment Date: 03 June 2011
• Date: 03 June 2011
• Docket Number: Civil Jurisdiction 2007 No. 246
• Court: Supreme Court (Bermuda)

In The Supreme Court of Bermuda

Civil Jurisdiction 2007 No. 246

BETWEEN:

John Macmillan Stevenson Patton (as trustee of the JMS Patton Will Trust)

First Plaintiff

Stephen P Cook (as trustee of the JMS Patton Will Trust)

Second Plaintiff

and

The Bank of Bermuda Limited

Defendant

Mr T Marshall for the Plaintiffs

Mr N Hargun for the Defendant

The following cases were referred to in the judgment:

Henderson v Merrett Syndicates LtdELR [1995] 2 AC 145

Tai Hing Cotton Mill Ltd v Liu Ching Hong Bank LtdELR [1986] AC 80

Kessler v HillBDLR [2005] Bda LR 57

JB Astwood & Son Ltd v Marra and Marra Civil Appeal 1979 No. 28 (unreported)

Midland Bank Ltd v SeymourUNK [1955] 2 Lloyd's Rep 147

Phoenix Global Fund Ltd v Citigroup Fund Services (Bermuda) LtdBDLR [2009] Bda LR 68

Wilson v Secretary of State for Trade and IndustryUNK [2003] UKHL 40

Abstract:

Breach of contractual duties - Sale of shares - Reasonable care and skill - Ambiguities of instructions - Alternative claim in tort

JUDGMENT of Kawaley, J

Introductory

1. The Plaintiffs are Trustees of a family Will Trust who complain that the Defendant Bank acted in breach of contractual and/or tortious duties owed to them as customers by virtue of the way in way they sold certain shares held in the relevant account. The Plaintiffs seek damages in the amount of $176,559, being the amount which would have been received by them had the shares been sold after a quarterly dividend was paid, as they contend ought to have occurred.

2. The amount in dispute is a modest one in Commercial Court terms, but is significant to both sides of the present dispute for different reasons. The Plaintiffs as Trustees are (or were at all material times) obliged to maximize the income generated by the Trust assets. The Bank is concerned to ensure that a generic form of contract in relation to a custodial banker/customer relationship is not construed in so liberal a way as to open the floodgates to litigation of a far higher financial order in future cases.

3. One peripheral point seemed obvious at the outset. With the benefit of hindsight, the First Plaintiff, Dr. Patton, demonstrated excellent financial judgment in deciding in July 2005 to sell 37,486 Butterfield Bank shares ("the Shares") with a view to diversifying the Trust's assets, at $42.50 per share in a rising market. Those shares today would likely sell at less than $1.40 per share. However, the present claim merely requires the Court to analyse the narrow issue of whether or not the Bank is liable to the Plaintiffs for failing to ensure that the Shares were sold on such date as would allow the Plaintiffs to receive the benefit of the dividend which was announced on July 26, 2005 and paid effective August 5, 2005.

The issues in controversy

4. The Plaintiffs' primary claim is pleaded as follows in paragraph 10 of their Amended Specially Endorsed Writ of Summons:

"It was a specific term of the Underlying Agreement that the Defendant would only deal with the Shares in accordance with the instructions of the Trustees, and in breach of that term and contrary to the Instruction, the Defendant sold the 37,486 Shares prior to the receipt of the dividend, the details of which are set out in the following paragraph."

5. The Defendant in paragraph 7 of its Amended Defence avers that:

"…the sale of the Shares was in accordance with the written instructions contained in the fax dated 26 July 2005…Further and in any event, the faxed instruction dated 26 July 2005 superseded the Instruction and/or Agreement, the existence of which is in any event denied."

6. The Plaintiffs' main1 alternative claim is set out in paragraph 12 of the Statement of Claim in the following terms:

"Further and in the alternative, the Defendant owed the Plaintiffs a statutory duty under the Supply of Services (Implied Terms) Act 2003 as well as a common law duty to take reasonable care and exercise reasonable skill in interpreting, ascertaining, and acting in accordance with the Plaintiff's Instruction under the Underlying Agreement. The Defendant in selling 37,486 Shares prior to the receipt of the dividend failed to take reasonable care and skill in carrying out the Plaintiff's clear and unambiguous Instruction."

7. The Defendant's plea in response to this was in essential terms as follows:

"As regards paragraph 12 and 13 of the Statement of Claim, it is averred that the Account was a self-directed account. Only the Trustees could decide when to buy or sell the Shares….When Dr. Patton stated he wanted to sell the Shares on 26 July 2005 at $42.50 and confirmed his instruction clearly in writing, the Bank carried out his instruction and sold the shares for that price…"

8. The central issues to be determined turn upon the construction to be placed on the agreement pursuant to which the Plaintiff's account with the Defendant was operated as regards whether either:

i. the Bank had an implied contractual or a tortious duty in the event of any ambiguity to exercise reasonable care and skill to ensure that they understood the Trustees' instructions (and if so, whether they breached such duty); or, alternatively

ii. was any such implied contractual duty one which could not be contracted out of by virtue of the terms and effect of section 6 of the Supply of Services (Implied Terms) Act 2003?

The contract

9. The Shares were held, it is common ground, by the Bank pursuant to the terms of a Custodian Account Contract dated January 20, 1997 ("the Contract"). The key Terms and Conditions were the following:

"…

(2) The Bank will hold, disburse or otherwise deal with the Securities in accordance with such instructions as may be given by the customer from time to time. The Bank may require any such instructions to be in writing and the Bank will incur no liability in consequence of its acting or omitting to act on any such instructions should there be any doubt, error or ambiguity therein.

(3) The Bank is authorized without reference to the customer to take any action in relation to the Securities as it may in its discretion from time to time consider necessary or expedient and in particular but without in any way limiting the generality of the foregoing:-

(a) request payment of and receive all interest, dividends, bonuses and other distributions in respect of the Securities.

(b) deal with any Securities either as principal or agent through any such broker/agent as the Bank in its discretion thinks fit after receipt of instructions from the customer.

(c) utilize the services, including nominee facilities of any safekeeping agent with whom the Bank has established arrangements.

(d) in the absence of timely instructions from the customer, take up such rights or new issues of such shares in relation to the Securities or to sell such rights or to renounce the same as the Bank in its discretion thinks fit…"

10. The Plaintiffs' counsel pointed to paragraph (3) as an indication that the Bank had considerable discretion despite the nomenclature of the account. The Bank's counsel argued that paragraph (2) made it clear that the Bank was not liable for any ambiguities in the Plaintiffs' instructions.

Factual findings-what instructions did the Plaintiffs give in relation to the sale of the Shares?

11. Although oral evidence was given by Dr. Patton, the 1st Plaintiff, and by Martha Myron and Cole Simons on behalf the Bank, the central facts were not in dispute. It was common ground that:

iii. Martha Myron (now no longer employed by the Bank) in June 2005 became the Trust's Relationship Manager who met with Dr. Patton on July 18, 2005 to discuss, inter alia, his desire to sell the Shares before the dividend date in order to diversify the Trust's portfolio. He also stated at the meeting that his step-mother derived income from the Trust;

iv. although the precise dividend date was not known, Butterfield Bank dividends were at that time generally declared and paid on a quarterly basis;

v. Martha Myron offered to forward to the Bank's trading desk an anonymous expression of interest in selling a large bloc of Butterfield Bank shares, to which Dr. Patton agreed. She further told him that she would be away over the Cup Match holiday;

vi. Cole Simons was at all material times also a relationship manager with the Bank. On July 26, 2005 he was contacted by the Bank's trading desk in the absence of Martha Myron and was told there was interest in the market in a large bloc of Butterfield shares. Simons called Myron at home and Myron told Simons to contact Dr. Patton. Mr. Simons called Dr. Patton who said he wished to sell at $42.50 per share and the relationship manager requested written confirmation of these oral instructions, which were received by the Bank from Dr. Patton by fax later that same day;

vii. neither Mr. Simons nor Dr. Patton raised the issue of the timing of the sale when the client gave his oral and written instructions in relation thereto;

viii. on July 26, 2005, the Butterfield Bank announced its quarterly dividend, as reported in the Royal Gazette the following day, to be payable as of August 5, 2005 (a 41 cents dividend and a 1 for 10 stock split). Some of the Shares were sold on July 27; the vast majority were sold on August 1 with a settlement date of August 4, 2005, one day prior to the dividend payment date;

ix. Ms. Myron returned to work on August 4, 2005 and spoke to Dr. Patton by telephone, during which conversation he expressed concern about the timing of his trade;

x. at a meeting on September 21, 2005 chaired by Manager Barbara Tannock, Dr. Patton stated he felt the Trust was...