IG Index Ltd v Aryeh Ehrentreu

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Lewison,Lord Justice Toulson,Lord Justice Laws
Judgment Date22 February 2013
Neutral Citation[2013] EWCA Civ 95
Date22 February 2013
Docket NumberCase No: A2/2012/1712

[2013] EWCA Civ 95

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM QUEEN'S BENCH DIVISION

Mr Justice MacDuff

QB201210150

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Laws

Lord Justice Toulson

and

Lord Justice Lewison

Case No: A2/2012/1712

Between:
IG Index Limited
Appellant
and
Aryeh Ehrentreu
Respondent

Mr Alan Gourgey QC (instructed by DAC Beachcroft LLP) for the Appellant

Mr David Mayall (instructed by Martin Shepherd Solicitors LLP) for the Respondent

Hearing date : 5 February 2013

Lord Justice Lewison

Introduction

1

In the summer of 2008 Mr Ehrentreu, who was a successful property developer at the time, was interested in betting on movements on the Stock Exchange. He entered into a written agreement ("the Customer Agreement") with IG Index Ltd which is a spread-betting company authorised and regulated by the FSA. One of the bets, on the movement of the share price of Royal Bank of Scotland ("RBS"), went disastrously wrong. IG Index say that the result of this bet was that Mr Ehrentreu's account was over £1.2 million in debit. They say that Mr Ehrentreu acknowledged the existence of the debt in another written agreement ("the Settlement Agreement"); and that they are entitled to summary judgment for that sum. In a nutshell the suggested defence is this. Mr Ehrentreu says that IG Index were in breach of the Customer Agreement in not closing out his position at a time when his account was still in credit. He says that he has a claim for damages for breach of contract in respect of that breach. In addition he says he has a claim for damages for breach of statutory duty. Those claims were not extinguished by the Settlement Agreement with the result that he is entitled to pursue them against IG Index. What is more, not only are those claims surviving claims, they also operate by way of equitable set-off so as to defeat IG Index's claim.

2

Master Fontaine gave judgment for IG Index on most of its claim and allowed Mr Ehrentreu to defend the balance. On appeal from Master Fontaine Macduff J gave summary judgment for IG Index for the whole of its claim. With the permission of Sir Richard Buxton Mr Ehrentreu brings this second appeal.

The Customer Agreement

3

The Customer Agreement that governed the relationship between Mr Ehrentreu and IG Index took effect on 15 December 2007. The introductory terms described IG Index as "a spread-betting bookmaker authorised and regulated by the Financial Services Authority". Term 1 (3) went on to say that:

"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 Act") or the FSA Rules and if there is any conflict between this Agreement and the FSA Rules, the FSA Rules will prevail."

4

Term 6 of the Customer Agreement explained how a punter could open a bet; and term 8 explained how he could close a bet. Term 14 enabled IG Index to require a punter to provide deposits and margin in cleared funds. Term 14 (6) explained that the margin would be a payment sufficient to cover a loss on a bet if it were closed. Term 14 (9) provides:

"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 that the margin payment has been satisfied."

5

A failure to make a required margin payment was an event of default under term 16. Term 16 (2) gave IG Index the discretion to close any bet if an event of default occurred. Term 16 went on to provide:

"(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…

(5) Subject to the FSA Rules in the event of your failing to meet a demand for deposit or margin … 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 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."

6

Term 28 says:

"(1) If any Financial Index becomes subject to possible adjustment as the result of any of the events set out in Term 28(2)below (a "Corporate Event") affecting a related financial instrument, we will determine the appropriate adjustment, if any, to be made to the size and/or value and/or number of the related Bet(s) (and/or to the level of any Order) to account for the diluting or concentrating effect necessary to preserve the economic equivalent of the rights and obligations of the parties in relation to that Bet immediately prior to that Corporate Event, to be effective from the date determined by us.

(2) The events to which Term 28(1) refers are the declaration by the issuer of a financial instrument (or, if the financial Instrument is itself a derivative, the Issuer of the security underlying that instrument) of the terms of any of the following:

(a) a-subdivision, consolidation or reclassification of shares, a share buy-back or cancellation, or a free distribution of shares to existing shareholders by way of a bonus, capitalisation or similar issue…"

7

Mr Gourgey QC, appearing on behalf of Mr Ehrentreu in place of Mr Peters who had prepared the written skeleton argument, argues that term 16 (4) imposes a positive obligation on IG Index to close all open bets if the punter fails to make a requested margin payment. That obligation can only be avoided by a deliberate exercise of discretion under clause 16 (5), which in turn depends on an assessment of the punter's financial situation having been carried out. From that he goes on to argue that on the facts (or at least on an arguable version of the facts) IG Index were in breach of that obligation. Had they complied with it Mr Ehrentreu would not have incurred the losses that he did. IG Index are therefore liable in damages to Mr Ehrentreu; and the quantum of damages equals or exceeds IG Index's claim.

The facts alleged

8

On 3 September 2008, IG Index made a margin call for the sum of £97,000. The margin call was not said to be referable to any particular bet, but was said to relate to "your account". Mr Ehrentreu did not pay it. Under clause 16.4(a) of the Customer Agreement, IG Index was obliged to close out Mr Ehrentreu's bets by 10 September 2008. Had it done so, Mr Ehrentreu's account with IG Index would have been in credit to the extent of £58,881.06, although his bet on RBS (which he had placed on 9 September) was showing a loss of £143,910. Two days later, on 5 September 2008, IG Index made another margin call; this time for £220,000. Again the margin call was not said to be referable to any particular bet but was said to relate to "your account". Again, Mr Ehrentreu did not pay it. Under clause 16.4(a) of the Customer Agreement, IG Index was obliged to close out Mr Ehrentreu's bets by 12 September 2008. Had it done so, Mr Ehrentreu's account with IG Index would have been in credit to the extent of £95,191.31, although the loss on the RBS bet had by then risen to £148,877. On 15 September 2008 IG Index made another margin call; this time for £197,195. Again the margin call was not said to be referable to any particular bet but was said to relate to "your account". Yet again Mr Ehrentreu did not pay it. Under clause 16.4(a) of the Customer Agreement, IG Index was obliged to close out Mr Ehrentreu's bets by 22 September 2008. By this time Mr Ehrentreu's account with IG Index showed a deficit of £32,776.89.

9

It is important to note that the statements of Mr Ehrentreu's account need some explanation. The case was argued before the Master and the judge on the footing that Mr Ehrentreu had placed a new bet on the share price of RBS on 15 September, and that it was that bet which gave rise to the enormous loss. The statement appears to show that, on 15 September, a bet on RBS's share price in the sum of £7418.05 (serial number GNZ4VQ) was closed and a new bet in the sum of £7603.50 (serial number GNZ5GX) was opened. However, since the hearing before the judge both sides have appreciated that that was not what in fact happened. According to IG Index was happened was this. On 15 September 2008 RBS made a bonus issue of shares. This led to an automatic adjustment of Mr Ehrentreu's open position on the 15 September whereby the size of the bet was increased by 2.5% and the entry level was reduced by 2.5% to maintain the same economic exposure. It was no more than an administrative variation of the bet placed on 9 September 2008.

10

As things turned out, however, IG Index did not close out Mr Ehrentreu's bets until 15 October. By that time the deficit on his account had soared to the sum of £1,270,350.75.

The settlement agreement

11

The Settlement Agreement was concluded on 30 April 2009. It takes the form of a letter addressed to Mr Ehrentreu and countersigned by him. It began by quantifying what IG Index said that Mr Ehrentreu owed. The debit balance on his account was £1,270,350.75 (which the letter referred to as "the Debt"). It referred to negotiations that had taken place between Mr Asquith (IG Index's in-house counsel) and Deloittes who were acting for Mr Ehrentreu. The proposed settlement was that IG Index would suspend legal action, agree to accept staged repayment and waive interest. It tells Mr Ehrentreu that if he is in doubt...

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