Target Rich International Ltd v Forex Capital Markets Ltd
| Jurisdiction | England & Wales |
| Judge | Adrian Beltrami |
| Judgment Date | 22 June 2020 |
| Neutral Citation | [2020] EWHC 1544 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: LM-2018-000237 |
| Date | 22 June 2020 |
[2020] EWHC 1544 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
LONDON CIRCUIT COMMERCIAL COURT (QBD)
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A, 1NL
Mr. Adrian Beltrami QC
Sitting as a Judge of the High Court
Case No: LM-2018-000237
Gerard McMeel QC (instructed by The Brooke Consultancy LLP) on behalf of the Claimant
Francis Tregear QC (instructed by Streathers Solicitors LLP) on behalf of the Defendant
Hearing dates 8, 9, 10 June 2020
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.
Adrian Beltrami QC:
INTRODUCTION
This is a claim for damages for breach of contract and negligence. The Claim Form was issued on 7 December 2018 and the trial was heard over the course of 3 days between 8 and 10 June 2020. The Claimant ( TRI) was represented by Mr Gerard McMeel QC and the Defendant ( FXCM) by Francis Tregear QC. I am grateful to Counsel for their assistance.
TRI is a private limited company registered in the Republic of Seychelles. It was incorporated on 20 March 2012 for the purposes of foreign exchange investment. Ms Wan-Hsien Yu ( Madame Yu) is the sole director and shareholder of TRI.
FXCM is a private limited company registered in England and Wales, which operates as the provider of an online foreign exchange trading platform. It is part of a wider group of companies carrying on business in several jurisdictions and which has been referred to in the evidence as FCM. FXCM is authorised by the Financial Conduct Authority ( FCA) under the Financial Services and Markets Act 2000 ( FSMA) to provide regulated products and services.
From 2012, TRI operated a series of accounts with FXCM, trading various currency pairs on margin. This included speculation on EUR/CHF (ie the Euro and the Swiss Franc), in respect of which TRI was, at least by 2015, ‘long’ on EUR. In other words, it held a number of open trades, the success of which was dependent upon an appreciation of the EUR against the CHF.
Prior to 15 January 2015, the Swiss National Bank ( SNB) had maintained an effective cap on the value of the CHF as against the EUR, at 1 EUR to 1.20 CHF. What this meant was that, whilst the CHF could depreciate against the EUR, the SNB would intervene to prevent it from appreciating beyond the 1.20 level. On 15 January 2015, the SNB announced the removal of this cap. This announcement, which appears to have taken the market by surprise, led to what has been termed the Swiss Flash Crash, an immediate period of great volatility, in which the value of the CHF soared against the EUR before eventually stabilising, at something just above parity, by the afternoon.
A decline in the value of the EUR against the CHF was damaging to TRI's open positions. It had for this reason put in place a “ stop loss order” ( SLO), or more accurately a series of SLOs, which were instructions that its open positions should be automatically closed out in the event that the EUR/CHF rate reached 1. 17911. It is common ground that exchange rates being offered to FXCM by its liquidity providers passed that barrier shortly after the SNB announcement. It is also common ground that the SLOs were not executed by FXCM at that time. The immediate reason for this was that the volatility in the market had (within 1 minute of the announcement) triggered “ system circuit breakers” ( SCBs) which temporarily suspended both pricing and trading on FXCM's platform. In the event, the SLOs were executed at around 1.30 pm on 15 January 2015, at rates of about 1.03. All the trades made losses.
As I explain below, there is a dispute as to the scope of TRI's claim. Put neutrally for the moment, the complaint is that FXCM acted in breach of contract and negligently in failing to execute the SLOs when they were triggered shortly after the SNB announcement. TRI seeks as damages the amount which it is said to have lost by reason of the later executions at disadvantageous exchange rates.
THE WITNESSES
Madame Yu gave evidence on behalf of TRI. That evidence was conveyed over Skype and through a translator. Madame's Yu's witness statement set out the background facts, from TRI's perspective. For whatever reason, I did not gain very much assistance from Madame Yu's oral evidence, which was rather argumentative and, at times, confused. It is clear that she feels strongly about the merits of TRI's case. However, I am satisfied that she gave her evidence honestly. One particular area of confusion concerned the extent of her or TRI's experience in foreign exchange trading, where the answers she gave did appear to vary, although it may be that the questions put to her were not fully understood. For the purposes of my Judgment, and to the extent that it matters, I proceed on the basis of Madame Yu's witness statement and the Particulars of Claim, to the effect that TRI and/or Madame Yu had experience of foreign exchange trading from 2006 to 2015.
FXCM's sole witness was Mr Marco Konte ( Mr Konte), whose evidence was also given over Skype. Mr Konte is an employee of FCM Global Services LLC, which provides back office support to customer facing entities in the FCM group. His witness statement explained in detail the operation of FXCM's platform, the events of 15 January 2015 and the impact on TRI's positions. His oral evidence confirmed and supplemented that material. It was plainly given honestly and with a view to assisting the court.
In truth, this is not a case in which there are any material disputes of fact. Both witnesses provided helpful factual background, which enabled me to consider the legal issues which then arise.
NARRATIVE
FXCM's business
FCM began trading in New York City in 1999. It was one of the early developers of electronic, retail trading platforms in the foreign exchange market. It operates as what Mr Konte describes as a “ mini exchange”. It gathers in market prices to buy or sell currency from liquidity providers, such as banks, and offers those prices to customers through the trading platform. FXCM was the UK customer facing entity within FCM.
There were (and still are) two models, “ no dealing desk” and “ dealing desk”. The former was the most common model and that which operated on TRI's accounts. On that model, FXCM would pass on to its clients the best prices offered by the liquidity providers with a fixed mark up for each currency pair. It would not itself act as market maker or take unhedged positions (which could be done under the dealing desk model). FXCM also offered its clients the facility to trade on margin, with a comparatively small security deposit. This meant that for every one unit of currency held on its account, the client could hold exposure equivalent to a multiple of thousands.
The key to FCM's operations was its matching engine software. Liquidity providers would send quotes in live streams of digital information which were then fed into the matching engine. Each quote would contain a bid or ask price and an amount in respect of a currency pair (such as EUR/CHF). The amount is the volume of the first currency in the pair that the liquidity provider is willing to trade at the specified price. Bid prices on EUR/CHF are prices for the sale of EUR against CHF. Ask prices on EUR/CHF are prices for the purchase of EUR against CHF.
The quotes received from the liquidity providers would be sorted and re-sorted through the matching engine into a book of quotes so that the highest bid and lowest ask were then made available to the client (with the price also at this stage including the mark up). This was referred to internally as the “ best bid/offer” ( BBO). It is in the nature of foreign exchange that availability and prices would change on a continuous basis and so the BBO would be regularly updated.
In the event that a client chose to trade an available amount and at an available price it would submit an order to FXCM. A completed transaction would involve two trades: a trade between the client and FXCM and a “ back to back” trade between FXCM and the liquidity provider on the same terms, but for the mark up. I shall have to consider below precisely when it was that each contract between FXCM and the client was concluded, and what were its terms.
FXCM produced, and provided to TRI, an “ Order Execution Policy” ( OEP). This is one of the documents said by TRI to constitute its contract with FXCM and I consider its contractual significance below. For present purposes, it is helpful to refer to its descriptions of the nature of the business undertaken by FXCM and the different sorts of orders that could be placed..
Under the heading “ Application of Best Execution Obligation”:
“ FXCM is obliged to take all reasonable steps to obtain, when executing orders, the best possible result for its clients (‘best execution’) taking into account the execution factors (noted below) where FXCM acts on behalf of a client.
“In circumstances where FXCM acts as principal on own account and does not consider it acts on a client's behalf and does not assume responsibility to provide best execution, FXCM will notify a client so that they are properly informed.
“Whenever there is a specific instruction from a client FXCM shall execute the order following the specific instruction and compliance with that specific instruction will be treated as satisfaction of the best execution...
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