JANUS CAPITAL MANAGEMENT LLC v SAFEGUARD WORLD INTERNATIONAL LTD (2016)

The claimant investment management company (J) claimed that the defendant payroll company (S) was in breach of contract. In the alternative, J made claims for breach of fiduciary duty and breach of duty of care.

J was based in the US but had employees in several different countries. S provided international payroll processing services to J for a five-year period, and acted as an intermediary between J and two successive foreign exchange and payment providers (T and C). It was J’s case that it was overcharged by S in relation to the foreign exchange and payment services it received. The foreign exchange margins charged by T and C were, on average, almost 3%. It was J’s case that a commercially reasonable margin would have been in the range of 0.2% to 0.5%.

J argued that (1) under the agreement, S agreed to provide not just payroll processing services, but also foreign exchange and payment services, in consideration of the fees and other charges specified in the agreement. It followed that S was not entitled to demand, whether by itself or by its contractor, any charges in excess of those specified in the agreement, so J was entitled to reimbursement of the foreign exchange margins charged by T and C; (2) S owed it wide-ranging fiduciary duties because it appointed T, then C, acting as J’s agent; (3) S owed it a duty of care to ensure that T’s and C’s charges were set at a commercially reasonable level.

HELD: (1) Foreign exchange and payment were not services which S agreed to provide under the agreement. S only agreed to provide payment processing services. Even if it could be assumed that S was obliged to provide foreign exchange and payment services under the agreement, no provision in the agreement regulated the foreign exchange margin charged by S or its contractor. The agreement made no mention of exchange rates or the margin to be applied (see paras 230-233 of judgment). J’s case was that S, or its contractor, was not contractually entitled to apply any foreign exchange margin at all, and was only entitled to charge an interbank rate. It claimed that it was overcharged by some $3.77 million over the duration of the agreement. When that figure was compared with the $1.2 million which J paid S under the agreement, of which just $21,000 came from the transaction charges specified in the agreement, and with the $775,000 which S received from T and C in commission payments, it was clear that J’s claim was based on a commercially absurd interpretation of the agreement (para.235). Even on the assumption that S was obliged to provide foreign exchange and payment services under the agreement, and that no provision of the agreement entitled S to charge anything more than the fees and charges specified in the agreement, it did not follow that S was in breach of the agreement. J had not identified any contractual promise which S had failed to perform. In substance, J’s claim was a claim for restitution. It would have been open to J to bring a claim for unjust enrichment, but it chose not to do so (para.236).

(2) S did not appoint T or C acting as agent for J. T and C were sub-contractors to S. Moreover, they were sub-contractors for a number of S’s customers, not just for J. S offered the services which it obtained from T and C to J by way of separate contracts between S and J. J was not a party to any contract made by S with T or C. S was not J’s agent, since it had no power to affect J’s relations with T or C. It was an arm’s length relationship between commercial parties, one of whom, with the knowledge and consent of the other, utilised the services of a sub-contractor. Each of the parties was entitled to have regard to its own commercial interests in that situation (paras 245-247).

(3) In relation to the alleged duty of care, firstly, J alleged a contractual, not a tortious, duty of care, but it had no case as to the contract into which such a duty of care was to be implied. Secondly, insofar as the imposition of the duty of care rested on the allegation of agency, S was not J’s agent. Thirdly, the term alleged by J could not be implied anyway, since it was neither necessary to give business efficacy to the relationship nor so obvious as to go without saying. Fourthly, even if such a term were to be implied, it would not amount to a requirement that the charges be objectively commercially reasonable, but rather a requirement that the charges were set through an exercise of discretion which was commercially reasonable. Even if S did owe J such a duty, the evidence did not establish that S had acted in breach of it. International payment processing was not a simple or trivial task, and providers such as T and C charged accordingly. The foreign exchange margins charged by T and C were commercially reasonable, and indeed fairly typical for a non-bank provider of foreign exchange and payment services (paras 250-251).

Claim dismissed

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