Aryeh Ehrentreu v IG Index Ltd
Jurisdiction | England & Wales |
Judge | Lord Justice Flaux,Lord Justice Davis,Lord Justice Lindblom |
Judgment Date | 31 January 2018 |
Neutral Citation | [2018] EWCA Civ 79 |
Court | Court of Appeal (Civil Division) |
Docket Number | Case No: A2/2015/4219 |
Date | 31 January 2018 |
[2018] EWCA Civ 79
Lord Justice Davis
Lord Justice Lindblom
and
Lord Justice Flaux
Case No: A2/2015/4219
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
THE HONOURABLE MR JUSTICE SUPPERSTONE
Royal Courts of Justice
Strand, London, WC2A 2LL
Michael Wilkinson (acting pursuant to the Bar Council's Public Access Scheme) for the Appellant
David Mayall (instructed by Martin Shepherd Solicitors LLP) for the Respondent
Hearing date: Wednesday 17 January 2018
Judgment Approved
Introduction
The appellant appeals, with the permission of Lewison LJ, against the Order of Supperstone J dated 24 November 2015 dismissing the appellant's counterclaim for breach of contract and breach of statutory duty. The appeal is limited to a challenge to the judge's findings in relation to causation and mitigation in the breach of contract claim. There is no appeal against the judge's findings that the respondent was not in breach of statutory duty.
Factual and procedural background
The respondent is a spread-betting company regulated at the material times by the Financial Services Authority (“FSA”). The appellant had been a customer since 2001. The relationship between the parties was governed by a Customer Agreement in writing which took effect on 15 December 2007. Over the years the appellant had placed a number of substantial spread bets on the movement of the market. One such bet placed in the summer of 2008, on the movement of the share price of Royal Bank of Scotland (“RBS”), went disastrously wrong and by 14 October 2008, when the respondent closed out the bet, his account was over £1.2 million in debit.
The nature of spread betting and the risks it involves were helpfully explained by Rix LJ in Spreadex v Battu [2005] EWCA Civ 855 at [2] to [6] which the judge cited at [6] of his judgment. It is not necessary to repeat the citation here.
The terms of the Customer Agreement which are relevant for the purposes of this appeal provided as follows:
“Term 1 Introduction
(3) Nothing in this Agreement will exclude or restrict any duty or liability owed by us to you under the Financial Services and Markets Act 2000 [‘the 2000 Act’] or the FSA Rules and if there is any conflict between this Agreement and the FSA Rules, the FSA Rules will prevail.
Term 14 Deposits and Margin
(1) From time to time we may require you to provide deposits and margin which may only be provided in the form of cleared funds in our bank account…
(2) In making any calculation of the deposit or margin that we require from you under this Term 14, we may, at our absolute discretion, have regard to your overall position with us including any of your net unrealised losses (i.e. losses on open positions).
(8) Unless otherwise agreed by us on the business day on which you open a Bet, you will immediately, make margin payments sufficient to provide us with an amount which, when a movement adverse to your Bet has taken place, you would lose on the Bet if it was closed on the basis of our current quotation for the Index concerned.
(9) Where, following margin payment becoming due and/or a margin call being made, positive movements in your open Bets result in you no longer being marginable, we may, at our absolute discretion, deem that the margin payment is no longer due or the margin call to have been satisfied.
Term 16 Default and default remedies
(1) Each of the following constitutes an ‘Event of Default’:
(a) your failure to make any payment (including any deposit or margin payment) to us or to an Associated Company of ours in accordance with Term 15;
(b) your failure to perform any obligation due to us;
…
(2) If an Event of Default occurs in relation to your account(s) with us or in relation to any account(s) held by you with any Associated Company of ours, we may at our absolute discretion at any time and without prior notice:
(a) close all or any of your Bets at a Closing Level based on the then prevailing quotations or prices in the relevant Underlying Markets or, if none, at such levels as we consider fair and reasonable;
(e) close any or all of your accounts held with us of whatever nature and refuse to accept further Bets from you.
…
(4) You acknowledge that:
(a) where you have failed to pay a deposit or margin call in respect of one or more Bets five business days after such payment becomes due, we are (except as provided in Term 16(5) below) obliged to close out such Bets;
(b) where one or more bets exceed the credit or any other limit placed by us upon your dealings; and you remain in excess of your credit limit for five or more business days, we will:
(i) close any or all of such Bets; and
(ii) refuse to open any further Bets until payments sufficient to bring you within your credit limit have been received by us…
(5) Subject to the FSA Rules, in the event of your failing to meet a demand for deposit or margin or your being in excess of any credit limit placed on your account, we may exercise our reasonable discretion to allow you to continue to place Bets with us, or allow your open Bets to remain open, but this will depend on our assessment of your financial circumstances.
(6) You acknowledge that, if we agree to allow you to continue to place Bets or to allow your open Bets to remain open under Term 16(5), this may result in your incurring further losses.”
In August 2008 the appellant placed two spread bets on the RBS share price going up over the quarter expiring on 16 September 2008. On 9 September 2008, he informed the respondent that he wanted to roll over those bets until the end of the next quarter. The existing “up” bets were closed and a new equivalent “up” bet expiring on 16 December 2008 was opened.
On 15 September 2008, the respondent made a margin call on the appellant for £197,195. Thereafter, margin calls with changing margin requirements were made on the appellant on a daily basis. A list of the calls and amounts between 15 September and 14 October 2008 is set out at [55] of the judgment. From that list it emerges that, whereas the margin call as at 19 September 2008 was £676,202, it then dropped to between £211,000 and £352,000 in the period until 29 September 2008 (reflecting that in that period the share price rallied). It was only on 30 September 2008 that it went back to over £600,000 and it then fluctuated at around that level until rising steeply to £877,680 on 7 October and £1,290,905 on 8 October 2008.
During that period, there were frequent communications between Mr Helal of the respondent and the appellant, the detail of which is set out at [33] to [54] of the judgment. During the course of those communications, Mr Helal pressed the appellant to pay funds to satisfy the margin calls and on a number of occasions the appellant indicated that funds would be forthcoming, but they did not appear. The appellant's evidence was that as at about 9/10 October 2008, he thought that he would find the funds to pay the calls by refinancing property in the United Kingdom and he hoped that the RBS share price would recover.
In a conversation on 13 October 2008, the appellant told Mr Helal that he was proposing to refinance property to release equity of £1.2 million and asked him not to close the appellant's position. As recorded in [49] of the judgment, the appellant said:
“… I'm really sorry, please bear, don't close my position… Please leave, you've got to understand one thing… if you close my position, … because it's in my own name, it's not my company, if I've not got the money I could go bankrupt so I will send you the money, please bear with me a couple of days.”
In his witness statement for trial, the appellant said: “I was desperate for the positions to stay open in the hope that the RBS bets might come good.”
On 14 October 2008, the respondent closed the appellant's position, leaving his account in debit in the sum of £1,270,350.75. On 30 April 2009, the parties entered into a settlement agreement for the payment of that debt, by which the appellant was to pay £125,000 straightaway and then £15,000 a month in instalments. The appellant made payments totalling £200,000 but then defaulted and, on 4 January 2011, the respondent commenced proceedings for the outstanding balance of £1,070,350.75. The appellant filed a Defence and Counterclaim denying liability. The basis of both his defence and the counterclaim was that the respondent was in breach of Term 16(4) of the Customer Agreement in not closing the appellant's bet sooner and in breach of statutory duty, namely the FSA Conduct of Business Rules (“COBS”).
On 20 July 2011, Master Fontaine gave summary judgment for the respondent on most of the claim and gave the appellant permission to defend the balance. On appeal, on 29 June 2012, Macduff J gave summary judgment for the respondent on the whole claim. On 22 February 2013, the Court of Appeal dismissed the appellant's appeal from that decision, holding that any right of set-off was excluded by the settlement agreement (see [40] and [47] of the judgment of Lewison LJ at [2013] EWCA Civ 95). However, the Court of Appeal held that the settlement agreement did not preclude the appellant's cross-claim which could be pursued as a separate counterclaim (see [41]–[42] and [48] of Lewison LJ's judgment). It was the trial of that counterclaim which was heard by Supperstone J.
The statutory regulatory framework
Before considering the relevant parts of the judge's judgment which are the subject of the present appeal, it is of some importance to look at the relevant regulatory regime imposed by the FSA pursuant to its Conduct of Business Rules.
Prior to 1 November 2007, COB 7.10.5R imposed a requirement on firms such as the respondent in these terms:
“A firm...
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