The High Court has ruled that shares sold without clients’ authority by stockbroker W. & R. Morrough should be valued using the most frequently occurring price over the relevant period, where the date of sale cannot be established.
Mr Justice Roderick Murphy gave the decision on 21 March 2011 in a receivership proceeding under the Stock Exchange Act 1995. Receiver Tom Grace had sought directions on valuation for claims arising from shares sold without authorisation. The motion was heard on 18 January 2011.
The dispute concerned competing claims by clients represented by James Sheehan and Hugh and Barbara Hall. Sheehan represented clients whose shares were short of the amounts claimed. The Halls represented clients whose shares had never been purchased, although funds had been available for that purpose. The judgment records earlier court rulings that certain claims relating to missing, unpurchased or unauthorisedly sold shares could be made against the firm’s client bank accounts and rank rateably with other claims.
The Receiver said the movement of shares through the CREST system made it impossible in many cases to identify when a wrongful sale occurred. He proposed considering the highest price reached between acquisition and his appointment. Sheehan supported using that maximum, arguing it would avoid arbitrary dates and prevent the firm benefiting from uncertainty. The Halls opposed the proposal, saying it could overcompensate claimants and disadvantage clients with cash claims or shares that had not been acquired. They proposed using a statistical measure such as the mode, mean or median to approximate the likely sale price.
The court rejected the highest price as the benchmark. It found no evidence that the firm had sold shares at their peak, or followed a consistent pricing approach. A maximum-price method could also produce unequal results among clients whose shares had moved differently in value. The court said the competing claims required an equitable approach and that some form of averaging was indicated.
For Sheehan’s shares, the judgment cited a spreadsheet showing a maximum shortfall value of US$32,863 and a minimum of US$6,888. It gave the mean as US$18,360, median as US$19,362 and mode as US$21,164. The court considered the mode—the value appearing most often—the most likely measure in the circumstances.
Because the evidence did not establish an adequate basis to determine a unique sale date, the court directed valuation by the mode of prices from the shares’ acquisition to the date of receivership. It noted that ranges containing few prices might be less statistically significant and assumed no anomalies would arise. The court reserved implementation details for further submissions and granted liberty to apply; it did not determine those details in this judgment.