Legal commentary
| DOI | https://doi.org/10.1108/13581981111162228 |
| Published date | 26 July 2011 |
| Date | 26 July 2011 |
| Pages | 298-306 |
| Author | Joanna Gray |
| Subject Matter | Accounting & finance |
Legal commentary
Joanna Gray
University of Newcastle, Newcastle upon Tyne, UK
Abstract
Purpose – The purpose of this paper is to discuss the High Court’s rejection of claims made against a
UK bank by a US-based customer in relation to foreign exchange dealing it carried out as agent for its
US affiliate based on common law and breaches of COBS Rules (BankLeumi (UK) plc v. Wachner,
Queens Bench Division, Commercial Court; Mr Justice Faux).
Design/methodology/approach – The paper discusses this action and counterclaim by the
defendant.
Findings – The Judge did not find any of the three causes of action underlying the counterclaim to
have any foundation, and he found the defendant liable for the full amount of the claim.
Originality/value – This paper draws attention to investors’ attempts to shift trading losses onto
the counterparties with or through whom they dealt through the use of common law, fiduciary
principles or statutory tort claims. Such claims have no chance of succeeding unless the claimants can
establish that they were incorrectly classified as an expert customer. Another point of interest to draw
from this decision is to recall that product design and pre-emptive restrictions on product innovation
are once again a prominent feature of current debates on regulatory reform.
Keywords Legal decisions,Financial services, Banks
Paper type General review
High Court rejects claims made against UK bank by US-based customer in relation to
foreign exchange dealing it carried out as agent for its US affiliate based on common
law and breaches of COBS Rules.
(Bank Leumi (UK) plc v. Wachner, Queens Bench Division, Commercial Court:
Mr Justice Faux).
Date of Judgment: 22 March 2011
Facts
The determination of this action and counterclaim from the defendant involved the
Court in embarking on an exhaustive analysis of transcript evidence of conversations
and notes of meetings and correspondence between the claimant and defendant over a
period that spanned the years between 2005 and 2008 in order to gauge whether or not
the allegations grounding the defendant’s counterclaim were supported by the
evidence. However, before embarking on that analysis the Judge summarised the
background to the claim and counterclaim thus:
This case concerns trading in foreign exchange options conducted by the defendant, Linda
Wachner, (to whom I will refer as Ms Wachner), with the claimant bank, (to which I will refer
as “BLUK”, to distinguish it from its affiliate company Bank Leumi USA, “BLUSA” with
which Ms Wachner also traded during the relevant period). The dispute is focused on one
particular type of Euro/dollar foreign exchange option which Ms Wachner traded in 2008,
both in the form of calls and puts, namely reverse knock-in options (“RKIs”). The nature of
these options is discussed in more detail below. No complaint is made about other foreign
exchange trading in which Ms Wachner engaged during the relevant period, including in
vanilla options. Ms Wachner had traded foreign exchange with BLUSA since 2003 pursuant
The current issue and full text archive of this journal is available at
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JFRC
19,3
298
Journal of Financial Regulation and
Compliance
Vol. 19 No. 3, 2011
pp. 298-306
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581981111162228
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