IG Index Ltd v Ehrentreu

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.

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 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.”

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.”

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.”

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…”

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.

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.

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.

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 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 about anything he should take legal advice. Its relevant terms are as follows:

“Terms of Settlement

▪ You hereby irrevocably acknowledge and agree that the Debt is properly due and owing to IG in its entirety.

▪ You agree to pay IG the sum of £125,000... which shall be received in cleared funds by IG before 5pm on Thursday 30 April 2009.

▪ You agree thereafter that you will pay IG a minimum of £15,000... each month, which shall be received in cleared funds by IG before 5pm on the last banking day of each month. …

▪ In the event that you fail in any way to meet any part of the obligations set out within this Settlement Agreement, you … acknowledge that IG shall immediately be entitled to commence any action against you that it shall see fit, including legal action and the pursuit of your bankruptcy without further reference to you.”

Mr Ehrentreu countersigned the letter under the rubric:

“I have read, understood and hereby agree to the terms set out in this legally binding Settlement Agreement.”

The principles to be applied in deciding whether or not to give summary judgment are well-known: see AC Ward & Son v Catlin (Five) Ltd [2009] EWCA Civ 1098, [2010] Lloyd's Rep IR 301. For present purposes it is only necessary to mention two:

Mr Ehrentreu’s Defence essentially took three points:

The Counterclaim repeated the Defence and then went on to plead a breach of regulatory requirements and a breach of the Customer Agreement each of which was alleged to give rise to a claim for damages.

Logically, it seems to me that the issues that arise should be considered in the following order:

There is no order either of the Master or the judge which actually dismisses Mr Ehrentreu’s counterclaim. However, Mr Gourgey accepted that, for practical purposes, the effect of the judge’s order was that Mr Ehrentreu could not pursue his counterclaim.

In his skeleton argument Mr Mayall, appearing for IG Index, repeated the submission he had made to the judge to this effect:

“It is not disputed that, had the Claimant been suing on the Customer Agreement, the Defendant would have been entitled to set off such damages as were awarded on his counterclaim (whether for breach of contract or breach of duty).”

It was thus accepted that (a) the facts alleged by Mr Ehrentreu amounted to a counterclaim, rather than merely a denial of primary liability (b) that the claims were based both on breach of contract and breach of statutory duty and (c) what he would recover on that counterclaim were properly described as “damages”.

After some questioning from the court Mr Mayall again appeared to me to accept that the facts asserted by Mr Ehrentreu in the counterclaim could amount to a valid claim (in the sense that it was not demurrable). If, for example, Mr Ehrentreu had immediately paid what IG Index said he owed he could have brought his claim on the following day. But what he appeared to me to be saying was that a claim which can operate as a set-off cannot also exist as a free-standing claim. I reject that submission. The starting point is the existence of a cross-claim. Whether a cross-claim can operate as a set-off is governed by well-known principles. But the important point is that cross-claims that can be deployed by way of set-off are a sub-set of cross-claims. They do not cease to be members of the set of cross-claims merely because they are also part of the sub-set of cross-claims capable of being set-off. Halsbury’s Laws of England (vol 11 para 641) puts the point this way:

“In its effect set-off is essentially different from counterclaim in that set-off is a ground of defence, a shield and not a sword, which, if established, affords an answer to the claimant's claim wholly or pro tanto, whereas counterclaim as such affords no defence to the claimant’s claim, but is a weapon of offence which enables a defendant to enforce a claim against the claimant as effectually as in an independent action. Where facts pleaded by way of counterclaim constitute a set-off they may be additionally pleaded as such.”

In the course of oral submissions Mr Mayall began to develop an argument based on the construction of the Customer Agreement to the effect that the facts alleged by Mr Ehrentreu did not amount to a counterclaim at all. They operated only as a denial of liability arising under the Customer Agreement. That was not the way that the case was put before the Master or the judge, neither of whom referred in detail to the terms of the Customer Agreement. Nor was there any Respondent’s Notice seeking to uphold the judge’s decision by reference to that argument. I note also that the Application Notice which gave rise to the hearing before the Master referred only to the claim and simply asserted that Mr Ehrentreu “has no real prospect of defending the claim”. The argument, if correct, would lead to the conclusion that IG Index were not entitled to the debt acknowledged by the Settlement Agreement. But in that event the claim for breach of statutory duty might well gain added force. This was not explored in the course of the hearing.

Particularly in the context of an application for summary judgment, I do not think that it would be fair to allow the point to be taken for the first time in this court. The argument was raised too late to enable Mr Gourgey proper time to respond to it or to enable the court to consider it. I proceed, therefore, on the basis that there is a real prospect of success in establishing that the facts alleged by Mr Ehrentreu give rise to a valid claim for damages, properly so-called.

As I have said, Mr Gourgey also puts the counterclaim on the basis of breach of statutory duty. Since it was regulated by the FSA IG Index was required to comply with FSA Conduct of Business Rules (“COBS”). One of the statutory duties of the FSA is the protection of consumers: see Financial Services and Markets Act 2000 s. 5. But equally the FSA must have regard to the principle that the consumer should take responsibility for his decisions.

The rule that Mr Gourgey relies on in this connection is:

“A firm must act honestly, fairly and professionally in accordance with the best interests of its clients.” (Rule 2.1.1)

This rule, we were told, replaced an earlier rule which would have required IG Index to close out Mr Ehrentreu’s bets if he failed to meet a margin call (and is no doubt the origin of Term 16 (4)). Section 150 of the Financial Markets and Services Act 2000 provides:

“A contravention by an authorised person of a rule is actionable at the suit of a private person who suffers loss as a result of the contravention, subject to the defences and other incidents applying to actions for breach of statutory duty.”

Thus, the argument runs, by not closing out Mr Ehrentreu’s bets IG Index did not act in accordance with Mr Ehrentreu’s best interests. This is a rule that exists for the benefit of consumers. Had IG Index complied with its duty Mr Ehrentreu would not have suffered the losses that he did, with the consequence that he can recover those losses as damages for breach of statutory duty.

Again it was conceded before Master Fontaine that this claim (as a free-standing claim) had a real prospect of success, although quantum was disputed. She was impressed by the point that it was open to Mr Ehrentreu to close his bets himself, and that he could have done that at any time. She considered therefore that Mr Ehrentreu was guilty of contributory negligence in having failed to do that. If he had closed his bets at any time before 15 September he would have limited his losses to £146,877.39. She therefore permitted him to defend the claim to that extent and gave judgment for the balance in favour of IG Index.

Macduff J was not impressed by the breach of contract claim; and did not deal with the claim for breach of statutory duty. What impressed him most was that Mr Ehrentreu was the “author of his own misfortune” in not having closed out his bets. That, he said, was a question of causation and was fatal to Mr Ehrentreu’s counterclaim.

Whether this is a simple question of causation or a question of the scope of IG Index’s duty is not, to my mind, an easy question. It is a question of construction of the rule, in its regulatory context, whether breach of the rule renders IG Index liable for all such losses. As Lord Hoffmann said in Environment Agency v Empress Car Co (Abertillary) Ltd [1998] UKHL 5; [1999] 2 AC 22:

“… one cannot give a common sense answer to a question of causation for the purpose of attributing responsibility under some rule without knowing the purpose and scope of the rule.”

(Compare the discussion of scope of duty and causation by Rix LJ in the recent case of Zaki v Credit Suisse (UK) Ltd [2013] EWCA Civ 14). In Spreadex Ltd v Sekhon [2008] EWHC 1136 (Ch) [2009] 1 BCLC 102 Morgan J said that the prima facie measure of loss was to be ascertained by comparing the punter’s actual position and the position he would have been in if the bets had been closed as the spread betting company should have done. He went on to hold that that was the extent of liability but that the extent of the loss could be diminished by contributory negligence. This decision was referred to without disapproval in Zaki v Credit Suisse (UK) Ltd. Questions of causation were only touched on in the hearing before us. In the course of argument Toulson LJ also raised questions of quantum; and in particular whether Mr Ehrentreu’s failure to close the bet himself was a decision made by Mr Ehrentreu independently of the alleged breach based on his own perception of the market (compare Koch Marine Inc v D’Amica Societa di Navigatione [1980] 1 Lloyd’s Rep 75). In written submissions made after the hearing, Mr Gourgey pointed out that in the particular context of our case rules developed in the context of one-off repudiatory breaches of commercial contracts could not necessarily be directly applied to this case. So the questions raised involve: the scope of IG Index’s duty, questions of causation, questions of claims for avoidable loss and contributory negligence.

It may well be that the judge’s instinctive view will turn out to be right; but in my judgment these questions require fuller consideration than is possible on an application for summary determination. I consider that Mr Ehrentreu will be free to pursue his counterclaim even if he is not entitled to set it off against IG Index’s claim; unless the counterclaim itself has been extinguished by the Settlement Agreement.

In his written skeleton argument Mr Peters put this point in two ways:

The first of these points was developed orally by Mr Gourgey, who accepted that this was a question suitable for summary determination. The principles of interpretation are not in doubt. The exercise of interpretation is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other: Rainy Sky SA v Kookmin Bank [2011] UKSC 50 [2011] 1 WLR 2900. There are no special rules for interpreting compromise agreements, although a court will be slow to conclude that a party to a compromise has agreed to release claims or rights of which he is unaware and of which he could not be aware: BCCI v Ali [2001] UKHL 8 [2002] 1 AC 251.

There is one additional general principle of interpretation upon which Mr Gourgey relies. There is a starting presumption that neither party intends to abandon any remedies for breach arising by operation of law, and clear language must be used if this presumption is to be rebutted: Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) Ltd [1974] AC 689. Thus, applying this principle, in Connaught Restaurants Ltd v Indoor Leisure Ltd [1994] 1 WLR 501 the Court of Appeal held that a covenant by a tenant to pay rent “without deduction” was insufficient to preclude reliance on equitable set-off as a defence to a claim for the rent, where the tenant had a cross-claim for damages on account of flooding of the leased property from the landlord’s retained property. On the other hand, it is not always necessary specifically to use the phrase “set-off” in order to exclude the right. Thus in Esso Petroleum Co Ltd v Milton [1997] 1 WLR 938 this court held by a majority that a contract for the supply of petrol which required payment to be by way of direct debit was sufficient to exclude the right of set-off.

Before turning to the question of interpretation I need to say something more about cross-claims and set-off. In broad terms, there are two types of set-off. One arises by reason of statute, and is known as legal set-off. The relevant statute now is section 49 of the Senior Courts Act 1981. As Lord Hoffmann explained in Stein v Blake [1996] AC 243 legal set-off is confined to debts which at the time when the defence of set-off is filed were due and payable and either liquidated or in sums capable of ascertainment without valuation or estimation. Legal set-off does not affect the substantive rights of the parties against each other, at any rate until both causes of action have been merged in a judgment of the court. It addresses questions of procedure and cash-flow. As a matter of procedure, it enables a defendant to require his cross-claim (even if based upon a wholly different subject matter) be tried together with the claimant’s claim instead of having to be the subject of a separate action. In this way it ensures that judgment will be given simultaneously on claim and cross-claim and thereby relieves the defendant from having to find the cash to satisfy a judgment in favour of the claimant (or, in the 18th century, go to a debtor's prison) before his cross-claim has been determined.

Equitable set-off, on the other hand, may apply to unliquidated claims as well as to liquidated ones. Mr Ehrentreu’s claim is for unliquidated damages. The leading modern case on the subject is Hanak v Green [1958] QB 9. Mrs Hanak had sued Mr Green for damages for breach of a building contract. Mr Green counterclaimed for extras and other matters, and claimed to set off his counterclaim against Mrs Hanak’s claim. Mrs Hanak was held to be entitled to just under £75, and Mr Green was held to be entitled to just under £85. So there was a net balance in favour of Mr Green. The issue in the case was: who was entitled to costs? Morris LJ conducted a thorough review of the law and concluded that an equitable set-off operated as a defence to a claim. Thus Mr Green had succeeded in defeating Mrs Hanak’s claim and was entitled to his costs of the claim as well as the costs of the counterclaim. Thus the effect of equitable set-off is to produce a net balance in favour of one party or the other; and the original claims are subsumed into that net balance: see Stein v Blake (dealing with insolvency set-off). The essential point is that where equitable set-off is available the defendant relying on the set-off is not legally obliged to pay the claimant’s claim in full, but only has a legal liability to pay the net balance (if any) in the claimant’s favour.

It is not every cross-claim, however, which has this effect. The test for deciding which claims fall within the sub-set of cross-claims amounting to equitable set-off has been expressed in differing formulae. Rix LJ collected them together in Geldof Metaalconstructie NV v Simon Carves Ltd [2010] EWCA Civ 667 [2011] 1 Lloyd’s Rep 517. In the end, the formula he preferred was: cross-claims so closely connected with the claimant’s demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim.

I make these points because it seems to me that there are two distinct questions to be answered:

Thus if in Connaught Restaurants Ltd v Indoor Leisure Ltd the lease had expressly excluded set-off from the obligation to pay the rent, it could not have been suggested that the tenant was precluded from claiming damages for the flood damage. It would simply have had to have proceeded as a free-standing claim.

I find no escape from the conclusion that the Settlement Agreement did exclude the right of equitable set-off. As I have said where equitable set-off applies all that is legally due is the net balance; so an acknowledgement that the whole Debt is due certainly points towards that conclusion. Although that is in itself a pointer towards the conclusion, I can see the force of the argument that on its own it is not clear enough. However, the Settlement Agreement addresses not merely the amount to be paid, but also the mechanics and timing of payments. So as well as dealing with liability it also deals expressly with cash flow. All forms of set-off are concerned with cash flow. Even in a case in which set-off does not affect substantive claims, it undoubtedly affects cash flow and the timing of payments. In my judgment the combination of the parts of the Settlement Agreement dealing with both cash flow and quantum of liability point inexorably towards the conclusion that, as a matter of interpretation, the Settlement Agreement excludes any right of set-off in respect of the cross-claim.

Master Fontaine held that the Settlement Agreement was not clear enough to extinguish the alleged counterclaim for damages. Macduff J disagreed. The argument that he accepted (and which Mr Mayall repeated before us) was that it would be circular to say, on the one hand, that Mr Ehrentreu had agreed to pay the Debt by the agreed instalments, and on the other to say that he could avoid payment by relying on his counterclaim. The judge accepted Mr Mayall’s submission that the counterclaim “seeks to assert that the debt was not properly due and owing”. There would be considerable force in that point if that were the result of Mr Gourgey’s argument. But I do not think that it is. The effect of the Settlement Agreement is that IG Index has the immediate right to payment in accordance with the agreed instalments. Each instalment is a clear and liquidated sum. But that is not incompatible with a right on the part of Mr Ehrentreu, at some time within the six years following the events of which he complains, from pursuing a claim for unliquidated damages for alleged breaches of the Customer Agreement or alleged breach of statutory duty. The fact that Mr Ehrentreu had not asserted a cross-claim by the time of the Settlement Agreement; and the fact (if it is a fact) that no one at the time of the Settlement Agreement thought that he might have such a claim is a pointer towards the conclusion that the Settlement Agreement did not extinguish that claim. So, too, is the fact that the Settlement Agreement did not contain any general words of release. Mr Mayall’s submission, which the judge accepted, overlooks the fundamental difference between a set-off and a counterclaim. The fact that the counterclaim was also pleaded as a set-off should not have been allowed to obscure the difference. There is no inconsistency in acknowledging the existence of a debt and simultaneously pursuing a cross-claim. In fairness to the judge, however, the case seems to have been argued before him on both sides with scant regard to the difference between the two. Mr Mayall submitted that this would be a very uncommercial result. But an agreement whose effect is “pay now and argue later” does not seem to me to be uncommercial; or at least not so uncommercial that we should bend the words of the agreement to produce the result for which Mr Mayall contends.

I would hold, therefore, that the Settlement Agreement did not extinguish Mr Ehrentreu’s cross-claim; but it does preclude him from relying on it as a defence to IG Index’s claim.

I turn next to the question of enforceability of the Settlement Agreement. As I have said, since it was regulated by the FSA IG Index was required to comply with COBS. In his skeleton argument Mr Peters relied on the following rules:

“A firm must act honestly, fairly and professionally in accordance with the best interests of its clients.” (Rule 2.1.1) and

“A firm must not, in any communication relating to designated investment business seek to:

(1)

exclude or restrict; or

(2)

rely on any exclusion or restriction of;

any duty or liability it may have to a client under the regulatory system.” (Rule 2.12)

Mr Peters’ argument under this head was that if and to the extent that the Settlement Agreement purports to preclude Mr Ehrentreu from pursuing his counterclaim, it is a document in which IG Index had purported to “exclude or restrict... a duty or liability it may have to a client under the regulatory system”. Accordingly, it would violate the prohibition contained in the rule, and would not be enforceable against him.

However, section 151 of the Financial Markets and Services Act 2000 provides:

“(1)

A person is not guilty of an offence by reason of a contravention of a rule made by the Authority.

(2)

No such contravention makes any transaction void or unenforceable.”

In my judgment the “transaction” with which we are concerned is the Settlement Agreement. It is plain from section 151 (1) that entry into the Settlement Agreement is not illegal in the sense of being a criminal offence. It is plain from section 151 (2) that it is not made unenforceable as a result of a contravention of a rule. Once Mr Gourgey’s attention had been drawn to section 151 he rightly abandoned this line of argument.

Since any right of set-off has, in my judgment, been excluded by the terms of the Settlement Agreement, and the Settlement Agreement is enforceable, it follows that IG Index is entitled to the judgment sum for which Macduff J gave judgment. The Master was wrong in giving leave to defend, because as a result of set-off having been excluded the counterclaim cannot operate as a defence to the claim.

As I have said, there is no order dismissing Mr Ehrentreu’s counterclaim. Accordingly in my judgment by dismissing his appeal against Macduff J’s order the effect will be that while IG Index is entitled to the judgment sum, Mr Ehrentreu will be free to pursue his counterclaim. If Mr Ehrentreu does pursue it, it will be open to IG Index (after proper amendment of its statement of case) to advance the argument on the interpretation of the Customer Agreement that Mr Mayall sought to develop; and to argue that the counterclaim is incompatible with the judgment in favour of IG Index. It may be that the precise terms of the order will need to be tailored to make both points clear. Subject to that, I would dismiss the appeal.

I agree.

I also agree.