Failure to follow up fax costs investor $1 million

A disgruntled investor has failed to convince the Court of Appeal of the Supreme Court of New South Wales that he was entitled to compensation and damages of around A$1.5 million as a result of the failure by the Commonwealth Bank of Australia's subsidiary, Colonial First State Investments, to redeem units in a CFS fund when instructed to do so.

The investments in question were highly geared and rated high risk, and indeed later fell sharply in value when the global financial crisis started to bite, and were then all but wiped out through a margin call.

The case dates back to 2007 when, on numbers supplied to the court, Simon Anish Chand's investment was valued at slightly more than A$2.9 million, and the balance of his margin loan was $1.9 million, giving him a "breakeven" of around $1 million for the third quarter of 2007.

In late September 2007, Chand decided to redeem the CFS fund units and pay off the loan, leaving a net amount of around $1.034 million - returning his initial investment plus a small profit. He faxed a redemption form to CFS, but the request was not acted upon.

The case turned on the fact that after Chand realised that his redemption request had not been implemented (probably by 5 November 2007 at the latest) he did not lodge a further request.

Instead, he let the investment run and saw the value of his CFS units continue to rise throughout October and into November 2007. The value of Chand's holdings remained in excess of his $1 million "breakeven" target on all but 14 days, until 13 December 2007, the court noted.

Chand, for his part, said the delay was because he needed to "monitor" the market, knowing that if the market dipped on the day the redemption was processed, he could lose out.

After 13 December 2007, however, as a result of the financial crisis beginning to bite, the redemption value of Chand's investments steadily fell and margin calls (totalling $500,000) were made on his bank loan. Ultimately, he lost most of the money invested.

Chand brought proceedings against the CBA alleging, amongst other things, that the bank was in breach of contract in failing to implement the redemption request. The CBA admitted that it was in breach but denied that it was liable for more than nominal damages.

Further, the CBA countered, any loss suffered by Chand was caused by his "intervening conduct" in failing to issue a fresh redemption request when he became aware that his request of 25 September 2007 had not been acted upon.

Alternatively, the bank contended, Chand had failed to take reasonable steps to mitigate his loss.

The primary judge agreed that Mr Chand was not entitled to more than nominal damages as no actual loss was suffered on 25 September 2007, and the "prospective loss" flowing from the breach of contract could have been entirely avoided by Chand in the period up to 13 December 2007.

On appeal, Mr Chand challenged certain factual findings made by the primary judge, including that his conduct was unreasonable, and the ultimate conclusions in relation to causation and mitigation of loss, as well as the approach taken by the primary judge in the assessment of loss for damages for breach of contract.

In dismissing the appeal the NSW court of Appeal observed that Chand's conduct, in adopting his previous market monitoring process and not pursuing any further enquiry or lodging a further redemption request, was unreasonable "having regard to the high risk nature of the investments, the volatility of the market and his knowledge of the facts giving rise to the breach."

Chand's conduct was "an intervening act breaking the chain of causation," the court said, adding that he "was the author of his own misfortune".