Agreements – breach of contract – contracts for differences – financial services – spread betting – liability for losses – contributory negligence

Spreadex Ltd v Sanjit Sekhon: ChD (Mr Justice Morgan): 23 May 2008The claimant spread betting company (C) brought a claim against the defendant (D), seeking payment for sums owing on his account with C. D counterclaimed on the basis that C was liable to him for his losses under section 150 of the Financial Services and Markets Act 2000 for breach of rule 7.10.5 of the Conduct of Business Rules made by the Financial Services Authority (FSA).

D was an experienced spread- better. D had entered into a standard trading agreement with C in October 2005, so that he could enter into transactions in contracts for differences. The agreement provided that the transactions could result in him having to provide margin payments. Initially, D’s accounts did very well but by 14 September 2006 his account showed a substantial deficit. C sent D a letter for margin. Following further discussions regarding D’s account deficit, his account status was changed to an intermediate customer, which meant that the protective FSA rules on margins no longer applied to him. C expressed concern about keeping D’s positions open and D asked C to give him more time. On 22 November, 2006 C closed all of D’s betting positions, including his profit-making positions, at a time when his account with C showed that he was substantially in deficit. D alleged that C ought to have closed his open positions in September 2006 after they had made margin calls that he failed to meet, and that if C had done so, D would then have owed C less or no money.

D further alleged that the deterioration in his account with C between a date in September and 22 November 2006 was loss and damage that he was entitled to claim from C as damages for breach of statutory duty. C denied that it breached the rules and argued that, even if it did, such a breach did not cause D any loss; and that in any event the greater part of D’s losses were attributable to his own decision to keep his positions open, so that he was contributorily negligent in relation to the losses for which he now claimed against C.

Held: (1) On the evidence, D had failed to meet the margin call from C for the purposes of the agreement. C was therefore obliged to close all of D’s positions early on 14 September, unless it gave him credit in accordance with rule 7.9.3. C had not given D credit in accordance with the requirements of rule 7.9.3 and was therefore in contravention of the requirements of rule 7.10.5.

D was entitled to claim damages for any loss he had suffered as a result of C’s contravention of rule 7.10.5. D was right to say that the loss he had suffered as a result of the contravention involved comparing the position he would have been in if all of his positions had been closed on 14 September, with the position he was actually in where his positions remained open thereafter, in some cases until 22 November.

D was given sufficient time to consider the implications of being classified as an intermediate customer and C had taken reasonable steps to reclassify D. C was entitled to treat D as an intermediate customer on and after 5 October 2006. The chain of causation between the breach of duty on 14 September and the deterioration in D’s position after 5 October was therefore broken as of 5 October. From that date, any deterioration in D’s position was exclusively caused by his decisions as to whether to keep his positions open or to close them.

(2) As to causation of loss, if C had closed all of D’s open positions on 14 September, then he would not have suffered a deterioration in his position up to 22 November. However, D could have closed his positions at any time between those two dates. D was the principal source of his own misfortunes and was much more the moving force than C was. D had not lost the ability to make rational decisions and was not an inexperienced or vulnerable person. His contributory liability was set at 85%. C was liable to D for the deterioration in his open positions in relation to the period from 14 September 2006 to 5 October 2006, but subject to D being 85% contributorily negligent for that deterioration.

Judgment for claimant in part.

Francis Tregear QC (instructed by Streathers) for the claimant; Mark Vinall (instructed by Mishcon De Reya) for the defendant.