IG Index Ltd v Robert Tchenguiz

Hearing dates: 4 th, 5 th, 6 th and 7 th June 2024

(Draft judgment circulated to the parties on 19th July 2024)

Approved Judgment

This judgment was handed down remotely at 10.00am on Wednesday 31 st July 2024 by circulation to the parties or their representatives by e-mail and by release to The National Archives.

HHJ Russen KC:

A. INTRODUCTION

The Claimant (‘ IG’) is a specialist margin trading broker whose services include the provision of spread betting accounts for its customers. The spread bets IG offer relate to financial instruments. In these proceedings IG seek to recover from their former client (‘ Mr Tchenguiz’) the balance of £6,549,430.34 which IG claim was due from him on the closing out of his spread betting account on 19 March 2020. Mr Tchenguiz had used that account to take out spread betting positions on the share price of FirstGroup Plc.

By the date of the Claim Form (24 June 2022) IG were also seeking to recover from Mr Tchenguiz contractual interest on the principal sum quantified at £592,398. By the time of the trial before me in June 2024 the claim for interest had risen to just over £1.5m.

Mr Tchenguiz denies he is liable for these sums. He says he only became exposed to paying them because IG had re-categorised him as an Elective Professional Client (‘ EPC’). Had he remained a retail client (which is what he was for about 3 ¹/₂ hours between the opening of his account with IG on 11 December 2019 and being re-categorised as an EPC later that day) he would not have become so exposed. That is because retail clients of such business benefit from negative balance protection (‘ NBP’) which means that they cannot be liable for anything more than the funds in their account.

NBP is a protection afforded to retail clients under the rules of the Financial Conduct Authority (‘ FCA’). The rules which are material to the present claim are contained within the FCA's Conduct of Business Sourcebook ( ‘COBS’). COBS 22.5.17R provides NBP for retail clients.

As an EPC, Mr Tchenguiz was not entitled to that protection. However, the defence that he benefits from NBP is based upon the contention that he is to be treated by the court as having remained as a retail client. This, he says, is because his re-categorisation as an EPC by IG was not done in accordance with other provisions of COBS, specifically COBS 3.5.3R and 3.5.6R (“ the Re-categorisation Issue”). It is the alleged breach of COBS by IG in re-categorising him as an EPC which he relies upon in saying he remained a retail client with the corresponding protection of NBP (“ the NBP Defence”).

By his Amended Defence dated 22 January 2024, Mr Tchenguiz had also alleged that IG owed him certain duties in connection with the closing out of his positions in March 2020; and he had also required IG to prove certain matters in relation to the hedging positions (in relation to his bets) which IG said it held and the unwinding of those positions. IG's Re-Amended Reply said that Mr Tchenguiz had not pleaded any breach of duty on the part of IG in this regard nor made any counterclaim for loss allegedly suffered by him. There would have been issues for me to decide about the existence of the pleaded duties in relation to close-out and what consequences, if any, flowed from them but those issues disappeared upon a further amendment of the Defence. By his Re-Amended Defence dated 30 May 2024, Mr Tchenguiz abandoned that part of his defence relating to the close-out issue. The Re-categorisation Issue and the NBP Defence were, therefore, the remaining issues for trial and for determination by this judgment.

IG's position is that the Re-categorisation Issue does not provide Mr Tchenguiz with the basis of a defence to the claim. IG deny they acted in breach of COBS in re-categorising him as an EPC. However, even if a breach in that regard was established, it would not follow that his debt as an EPC was extinguished. Instead, the position under the Financial Services and Markets Act 2000 (‘ FSMA’) is that any such breach would potentially provide him with a cause of action for damages but “ no such contravention makes any transaction void or unenforceable” (to quote from section 138E(2) of FSMA). Mr Tchenguiz has not sought to bring a counterclaim for such damages in extinction or reduction of IG's debt so, IG contend, there is no defence (not even one of set-off) to what the firm claims from him.

In response to Mr Tchenguiz's application (dated 26 September 2023) to amend his Defence to plead the allegations in relation to close-out (which, as explained, he duly did but then later abandoned by the Re-Amended Defence) IG had applied, by an application dated 5 October 2023, for the defence to be struck out and/or for summary judgment against Mr Tchenguiz. IG's application was founded largely upon the contention that (even assuming IG failed on the Re-categorisation issue) the absence of a counterclaim meant that, in the light of section 138E(2) of FSMA, there could be no defence to the claim. Even Mr Tchenguiz's then proposed re-amendment did not include a counterclaim.

By an order dated 17 November 2023 HHJ Keyser KC directed that the applications be heard together. HHJ Jarman KC heard the applications on 18 January 2024. In support of IG's application, Mr Mayall, for IG, relied upon section 138E(2) and the authorities I address below in Section G of this judgment. Ms Barton KC and Mr Lewis, on behalf of Mr Tchenguiz made the argument that the particular statutory provision and earlier authorities addressing it (or its predecessor in what was then section 151(2) of FSMA) now had to be read subject to the protections (including NBP) introduced in 2018 for retail spread betting clients by the first of a number of Decisions of the European Securities and Markets Authority (‘ ESMA’) and reflected in COBS 22.5.17R with effect from 1 August 2019.

By his judgment dated 18 January 2024 ( [2024] EWHC 216 (Comm), at [33], HHJ Jarman KC concluded:

“Mr Mayall says that this is a very simple issue. The statute provides for a claim for breach of statutory duty and so I should grapple with the contrasting and conflicting submissions of the parties. In my judgment, it is not appropriate to do this on a summary judgment or strike-out application. This is not just a short point of law or construction. In my judgment, the defendant has a realistic prospect of showing that this is a novel point which should be resolved in his favour in light of the changes made in 2018. I accept the submission that the authorities relied upon by Mr Mayall, which predate this time, must be approached with caution.”

Although that was sufficient to dispose of IG's application, the judge went on to say that he did not accept IG's reasons for the delay in making the application (so close to a trial which was then due to take place before me in February but which was soon after vacated by agreement between the parties) to be good ones.

The judge also had before him Mr Tchenguiz's application to re-amend the Defence in relation to close-out issues. He granted that application though, as already noted, he did so in vain. In their written opening submissions for trial, Ms Barton KC and Mr Lewis said the matters pleaded in relation to close-out had been advanced to obtain disclosure showing the process adopted by IG and, having reviewed that disclosure, the decision had been made not to make a counterclaim.

At this introductory stage of the judgment following the trial, I express my gratitude to counsel and their respective instructing solicitors for their clear and comprehensive written and oral submissions, made by reference to authorities confined to a number which obviously reflected their deep thought about the arguments to be made on the Re-categorisation Issue and the NBP Defence, and also a very well-ordered trial bundle. As I explain in Section G below, there was a little bump in the road to judgment on the last day of trial (arising out of the potential impact of section 137D of FSMA on the NBP Defence and disagreement between counsel as to whether that was “in play” on the NBP Defence) but, for the reasons given in that section, I believe I have been able to overcome that while still doing justice to the parties without further recourse to them.

B. BACKG...