IS Prime Ltd v TF Global Markets (UK) Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Salter |
| Judgment Date | 17 March 2022 |
| Neutral Citation | [2022] EWHC 605 (Comm) |
| Docket Number | Claim No CL-2020-000264 |
| Court | Queen's Bench Division (Commercial Court) |
[2022] EWHC 605 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Royal Courts of Justice. Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Richard Salter QC
Sitting as a Deputy Judge of the High Court
Claim No CL-2020-000264
and
Mr Adam Al-Attar (instructed by Harbottle & Lewis LLP) appeared for the Claimant
Mr Farhaz Khan and Ms Kate Holderness (instructed by Cooke, Young & Keidan LLP) appeared for the Defendants
Hearing date: 25 February 2022
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Salter QC:
Introduction
In this action, the Claimant (“ IS Prime”) seeks damages for alleged breaches of a “liquidity agreement” dated 19 January 2017 (“ the Liquidity Addendum”) under which the Defendants (“ Think”) undertook for a period of 3 years to “trade any Available Products” exclusively with IS Prime.
By their application notice issued on 16 July 2021, Think seek summary judgment under CPR 24.2 and/or the striking out under CPR 3.4(2)(a) of IS Prime's claim:
.. insofar as the alleged breach relates to index swaps, and the period from 18 December 2017 onwards ..
on the basis (as Think alleges) that, by an email sent on 8 December 2017, IS Prime stated that it was transferring its index swap business to a Hong Kong affiliate with effect from 18 December 2017, and thereafter ceased itself to trade index swaps, thus discharging Think from any continuing obligation under the Liquidity Addendum in relation to that class of product.
Think's application is supported by the Second and Third Witness Statements of Mr Stephen Elam, a partner in the firm of solicitors acting for Think. IS Prime's opposition to the application is supported by the First Witness Statement of Mr Matthew Leverton, who is a partner in the firm of solicitors acting for them, and by the First and Third Witness Statements of Mr Jonathan Brewer, who is a director of IS Prime. At the hearing before me on 25 February 2022, Think was represented by Mr Farhaz Khan and Ms Kate Holderness. IS Prime was represented by Mr Adam Al-Attar. I am grateful to all counsel for their submissions.
Background
The background to this dispute can be shortly stated. I take the following summary from the updated Case Memorandum.
IS Prime is part of the ISAM Capital Markets group and offers full service multi-asset brokerage execution. Amongst other services, it also contracts to provide matched principal brokerage services.
The Liquidity Addendum was agreed and negotiated alongside an asset purchase and sale agreement agreed between US affiliates of IS Prime and of Think. In that agreement (amongst other things), one such affiliate of IS Prime agreed to buy and an affiliate of Think agreed to sell certain parts of its business and assets. The consideration for that sale included the agreement of the Liquidity Addendum.
IS Prime alleges that Think breached the exclusivity terms of the Liquidity Addendum between 19 January 2017 and 19 January 2020 by using the services of other brokers. The defences advanced by Think (apart from that which is the subject of this application) include a claim to set aside the Liquidity Addendum on the grounds of fraudulent misrepresentation, and a claim that IS Prime acted in breach of contract by taking risk and making a profit through the application of a spread mark-up. Think also asserts that IS Prime is not entitled to enforce the exclusivity terms in relation to certain products or in relation to certain parts of the three-year period.
The Liquidity Addendum and the Terms of Business
In the “Background” section of the Liquidity Addendum, it was recited that:
(A) IS Prime provides matched principle brokerage services.
(B) [Think] has agreed to trade exclusivity with IS Prime on the terms set out in this document.
There is a degree of dispute between the parties as to the precise nature and ambit of the “matched principle brokerage services” to be provided under the Liquidity Addendum: but some general flavour of the concept can be gleaned from the definitions (derived from MiFID article 4(1)(38)) in the FCA's Glossary:
matched principal trading
a transaction where the facilitator interposes itself between the buyer and the seller to the transaction in such a way that it is never itself exposed to market risk throughout the execution of the transaction, with both sides executed simultaneously, and where the transaction is concluded at a price where the facilitator makes no profit or loss, other than a previously disclosed commission, fee or charge for the transaction.
matched principal broker
a firm with permission to deal in investments as principal other than: (a) a bank, a building society or an ELMI; or (b) a UCITS management company; or (c) an insurer; or (d) a local; and which satisfies the following conditions: (e) it deals as principal only to fulfil customer orders; (f) it holds positions for its own account only as a result of a failure to match investors' orders precisely; (g) the total market value of the positions is no higher than 15% of the firm's initial capital; and (h) the positions are incidental and provisional in nature and strictly limited to the time required to carry out the transaction in question.
Clause 2 of the Liquidity Addendum provided (relevantly) as follows:
2. EXCLUSIVITY
2.1 During the Applicable Period, [Think] shall, and shall ensure that each of its Affiliates, trade any Available Products exclusively with IS Prime (and not with any other person) in accordance with and subject to the terms and conditions of the Agreements and of this document, except for:
(a) back-to-back transactions between [the Second Defendant] and an Affiliate;
(b) trades between [Think] and a client of [Think]; and
(c) trades that fall within the exceptions listed in either 2 2 to 2.5 below
2.2 ..
2.3 [Think] may trade all transactions that are a class of Available Product with a third party if IS Prime states that it does not trade that class of Available Product.
Clause 1 of the Liquidity Addendum contained the following definitions:
11.1 “Agreements” means “any IS Prime Terms of Business including applicable schedules and appendices, as amended, supplemented, restated or replaced from time to time entered into with [Think]”;
11.2 “Applicable Period” means “the period commencing on the date of this document and expiring on the date 3 years after the date of this document”; and
11.3 “Available Products” means “any foreign exchange or metal products (including spot or rolling spot), index swaps or contracts for difference or any other financial product of a class that is traded or offered or to be traded or offered by IS Prime at the time of entering into this document or that is subsequently agreed to be an Available Product by IS Prime and [Think]”.
Clause 3 further provided that:
IS Prime agrees not to charge [Think] the monthly commissions set out in the Trading Conditions of the Agreements or any other fees and charges not disclosed in the Trading Conditions of the Agreements as at the date of this document for a period of two (2) years commencing on the date of this document (the “Commission Holiday Credit”) provided that the aggregate monetary value of such Commission Holiday Credit does not exceed of $1,215,000. For the avoidance of doubt, interest on cash balances, swap profit and loss and financing costs on index swaps charged by IS Prime will not be covered by the Commission Holiday Credit.
Clause 9 provided that:
No variation to this document shall be effective unless made in writing executed by the parties hereto.
and clause 10 provided that:
In all matters relating to this Agreement, the parties will act with the [sic] good faith towards one another.
The “Agreements” referred to in clause 2.1 of the Liquidity Addendum included (inter alia) the “IS Prime Limited Terms of Business (Regulated Business)” (“ the Terms of Business”), the Appendices to those Terms of Business (including the “Index Swaps Appendix III”), and IS Prime's “Trading Conditions — Index Swaps”.
Clause 1.1 of the Terms of Business stated that IS Prime will provide Think:
.. with a matched principal brokerage service in relation to swap transactions and such other services as may be agreed between us ..
Clause 3 then provided that:
3.1 We will provide brokerage services in swaps on equity and commodity indices and potentially other products ..
3.3 When carrying out Transactions with you under the Agreement, we act as principal and therefore carry out Transactions with you in our own name. We will not act as your agent to carry out Transactions on your behalf.
The Index Swaps Appendix III deemed an ISDA 2002 Master Agreement to exist between IS Prime and Think, and incorporated by reference the 2002 ISDA Equity Derivatives Definitions and the 2006 ISDA Definitions. Together with the Trading Conditions — Index Swaps, it contained the provisions that would normally be found in the Schedule to the ISDA 2002 Master Agreement, leaving only the specific terms of each particular transaction to be dealt with in the Confirmation.
The Terms of Business also contained, inter alia: in clause 7, an...
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