FXCM Securities v Digby

This is an application by FXCM Securities Limited for summary judgment in the sum of £544,029.12, and also for interest, but I leave aside the matter of interest for the time being. There is also an application to strike out the defendant’s pleadings, but I need not consider that separately. The claimant has been represented by Mr Peters, and I am grateful for the way he identified the lines of potential defence that should be considered. Mr Digby has appeared in person.

I say at the outset that there has been some suggestion in the past that Mr Digby’s presentation of his arguments has been characterised by wild allegations. I cannot speak about the past, but there was no such indication in the points that he made today, which were properly presented. One point that Mr Digby made is that application for summary judgment is made at a relatively late stage in the exchanges concerning the dispute. The rules allow an application for summary judgment at a relatively late stage. It is possible that I shall have to consider the timing when I come to costs. I also bear in mind Mr Digby’s observation that the timing may reflect upon the merits of the application, not least because of the history by way of a statutory demand that was compromised, and the similarity between the test for a justified statutory demand or a statutory demand being set aside, and the test for summary judgment and permission to defend being refused. Although I bear that consideration in mind, it does not excuse me from examining the evidence as it is before me.

I do not need to expand upon the test that I have to apply. Suffice it to say, the question is whether Mr Digby has a real, as opposed to fanciful, chance of success of his defence or his counterclaim, or both. It does not seem to me that there is another reason for trial, and I do not think that has been suggested.

The nature of the dispute is this. The claimant carries on business as a foreign exchange derivatives, equities and commodities broker and is a member of the London International Finance Futures and Options Exchange. Since, I think, 2004, Mr Digby was a client of the claimant and dealt in instruments, including, in particular, option contracts, using the claimant’s services and paying commission – he has told me significant amounts of commission – to the claimant. I refer to the claimant because the same claimant company has been in existence since the 1990s, as I understand it, although, from time to time, it has changed its name and in particular (as I shall mention later) in 2011 it changed its name to the present name in which it sues. Previously it had carried on business as ODL Securities Limited. The change of name in 2011 reflects the acquisition of the claimant by a Delaware company called FXCM Holdings LLC, which I understand is its indirect parent.

The nature of the business between Mr Digby and the claimant was that Mr Digby would instruct the claimant to execute trades. The claimant, having the right to deal on the Liffe Exchange, would then enter into a trade on its own behalf, and entered into a matching back-to-back trade with Mr Digby. The claimant did not act as Mr Digby’s advisor, but executed contracts on instructions. From what I can, for practical terms at any rate, regard as the start of their relationship in 2004, the contract was governed by written terms (“the 2004 terms”). In 2007 the claimant began to use in their business generally a new set of terms (“the 2007 terms”). The introduction of those new terms reflected changes in the regulatory regime, the introduction of what is generally known as MIFIT, and the 2007 terms were introduced by the claimant accordingly. There is an issue (to which I will revert) as to whether the 2007 terms replaced the 2004 terms so as to govern the dealings between the claimant and Mr Digby.

The 2007 terms themselves are said by the claimant to have been replaced in 2011 by another set of terms (“the 2011 terms”). There is an issue between Mr Digby and the claimant as to whether the contract between them was amended so as to incorporate the 2011 terms, displacing the previous terms. Mr Peters accepts that, for the purposes of summary judgment, I should proceed on the basis that the 2011 terms were not introduced into the contract, and should proceed on the basis that the defendant is correct in his denial that they were.

What then of the question as to whether the 2004 or the 2007 terms governed their relationship? It was a provision of the 2004 terms that FXCM (as I shall anachronistically call them) provided in 2004 that they might amend the agreement by not less than ten business days’ written notice to Mr Digby, except where it was impractical in the circumstances. The claimant’s case is that they did give such notice by sending an email to Mr Digby on 17 October 2007, which purported to give notice of amended terms of business which would “automatically take effect on 1 November”. A number of questions arise about that. First, was it written notice within the meaning of clause 29.1 of the 2004 terms? According to Mr Digby, he has no recollection of receiving this email, and he suggests that because it was sent to somewhere other than his regular email address, it is possible that it was treated by the recipient address as spam. It does not seem to me that I can reject that as impossible on the information that I have. Mr Peters, understandably, draws to my attention a document which is presented as indicating that Mr Digby’s computer accessed parts of the new 2007 terms and appears to record some sort of acceptance. The evidence about that given by Mr Wass of the claimant’s solicitors does not seem to me satisfactory. Firstly, it is third-hand hearsay, and, secondly, it does not explain in any detail what the word “acceptance” on the printout connotes. It is said in general and vague terms that it indicates acceptance of the terms, but whether that means more than receipt remains obscure. Questions as to the interpretation of the computer printout might have been suitable for determination at summary judgment, but only with more detailed and cogent evidence.

If it be the case that the 2007 terms were sent but treated as spam, it does not seem to me clear that there was notice within the meaning of the 2004 terms so as to bring about their amendment. It is true that the inference of clause 29.2 is that electronic notice might be given and constitute written notice, but it is to be observed that, so far as notice to FXCM under the 2004 agreement is concerned, FXCM stipulate that electronic mail should constitute notice only if it is “actually received by us”. It seems to me questionable whether the intention of the 2004 terms was that the customer should have no similar protection in the event that FXCM resorted to electronic notice. That is my first concern about the 2007 terms.

My second is this. Ten business days’ written notice was to be given. The email was sent on 17 October. There were two weekends between 17 October and 1 November. Interpretation of time provisions in contracts is not straightforward. At first blush, it seems to me that the discussion in Chitty at paragraph 21-025 casts doubt upon whether the requisite notice was given. That is my second concern about the 2007 terms.

My third concern is that Mr Digby, I take it, is to be regarded as a consumer under the Unfair Terms in Consumer Contracts Regulations 1999. As I recall from the bank charges cases, the question of how those Regulations impact upon provisions where one party (in those cases, the banks) had reserved or purported to reserve to themselves the power to amend the contract, is far from straightforward. Suffice it to say, in circumstances where FXCM purported to exercise the power in the 2004 agreement by an electronic communication of this kind, it seems to me that real questions would arise as to whether Mr Digby has protection under the 1999 Regulations. I shall not go into that further. Mr Digby did not raise the point and, therefore, understandably, Mr Peters did not engage with it. But, in all the circumstances, it does not seem to me right to deal with this summary judgment application on the basis that the 2007 terms were effective.

Let us, therefore, proceed on the working assumption that it is the 2004 terms. The 2004 terms, like their successors, allowed a margin call to be made in certain circumstances. What happened was this. The dealings between the parties became difficult in August 2011, in the context, I would assume, of the crisis in the Eurozone. The open positions of Mr Digby were to prove loss making. The cash requirement to cover them increased dramatically in the first week or so of August, and by 8 August 2011 had reached something like £1.6 million. The claimant took steps to close out his position over the period between 8 and 10 August, and by the end of the process there was a net loss on the account of something like £540,000. On 3 August the claimant had made a margin call, and it was not met. That in itself entitled the claimant to close out the defendant’s position under the 2004 terms and equally under the later terms. There was also an event of default. It seems to me clear that, whichever terms are applicable, the claimant was entitled to close out the positions when they decided to do so. I add that the claimant also sought in argument and in the evidence to rely upon conversations that took place apparently, and as is not disputed, between Mr Digby and representatives of FXCM. Suffice it to say, it does not seem to me that the claimant need rely upon that argument, and it does not seem to me that I was sufficiently appraised as to the context in which exchanges took place to evaluate it.

In these circumstances, does Mr Digby have a defence to the entitlement which arose to the claimant upon closing out the position? The main argument that Mr Digby put forward is along these lines. When the company with which he had been dealing was acquired by the Delaware ultimate parent, he was unaware of that. He became aware of a change of name from ODL Securities Limited to FXCM Securities Limited, and was informed of that. The information that he was given did not go on to explain the context in which the name was changed. He contended that, had he been made aware of the change of ownership, he would not have continued to deal with the claimant.

He explained the reason that he would have taken that line. I mention two aspects of it. First, he thought that, given that the business was ultimately directed from abroad, there was likely to be a change of what might be called management style or management culture that did not appeal to him. It does not matter whether that was a view to which others would subscribe. It does not even matter whether it was irrational. I cannot determine summarily that he would not have taken that view. The second matter is that he has, he told me, become aware of background matters concerning the claimant, including fines which he understands have been imposed upon a parent or associated company in America, in what I take to be a regulatory context, which would have deterred him from dealing with them. I do not know anything about those fines, whether they were imposed, or why they were imposed. I mention them only to reinforce my view that I cannot reject what Mr Digby tells me about what his response to information about the takeover would have been, had he been aware of it.

The fundamental difficulty in this argument of Mr. Digby’s, however, is that there was no obligation on the claimant to make full disclosure to their customers, including Mr Digby, of the takeover. Nor does it seem to me that the information about the change of name can be regarded as so incomplete as to be misleading. It is true that there are possible explanations for a change of name other than a takeover. But it does not follow that therefore the bare information of a change of name is misleading to the recipient or indicates that there has been no change of ownership. That view is reinforced to some extent by the fact that, before the change of name took place, ODL, in footers to their communications, referred to their parent company, but that does no more than reinforce the view which I would in any case have taken. It does not seem to me that that line of defence has any real prospect of success for Mr. Digby.

Secondly, I have referred to the 2007 and the 2011 terms. Mr Peters does not argue that I can conclude that, so far as the 2011 terms are concerned, they were effectively communicated. I have reached a similar conclusion with regard to the 2007 terms, but there was no obligation upon the claimant to provide amended terms. The worst consequence would be, from their point of view, that they remained dealing upon the 2004 terms, and any failure of communication does not give rise to a contractual claim for damages or any other such term.

I explored, with Mr Peter’s assistance, whether, if the 2007 terms were not communicated, this resulted in a breach of the regulatory regime on the part of the claimant that might afford a defence. I did so, firstly because potentially the point would have been one concerning public policy or illegality which I would have been obliged to take of my own motion, and, secondly, because, Mr Digby being in person, it seemed to me that I should probe the claim in greater detail. It was not a point that Mr Digby raised, and I mention that in view of what I said at the beginning of my judgment about suggestions that he has made wild allegations at times. If this be a wild suggestion, it was my own. But Mr Peters has assisted me by introducing me to relevant provisions of the FSMA, and it seems to me that, in the light, in particular, of section 151(2), there is nothing in that point.

What other potential defences are there? Firstly, it is suggested that the claimant might have refused to accept instructions which could have protected Mr Digby by allowing him to hedge. Let it be supposed that they did refuse instructions. The simple answer to that point is that they are entitled to do so. It could not be said that they acted mala fides, or arbitrarily, or otherwise in contravention of their contractual entitlements.

The final point to which I should refer is whether the claimant acted in breach of their obligations in carrying out the closing out of the processes adopted. My attention was drawn by Mr Peters to the decision of Gloster J in the Euroption Strategic Fund Limited v Skandinavoska Enskilda Banken AB [2012] EWHC 584. She explained there her reasons for her view that no duties are owed by a party closing out positions in the circumstances of this case. I do not want to say anything that suggests that I disagree with Gloster J’s analysis: on an application of this kind, I should say nothing that might be interpreted as taking a view one way or another on that point. Some considerations might suggest that a party closing out is under some duty to his counter party with regard to the price which he obtains for assets, just as a receiver or administrator or mortgagee might be under such duties. The cases are considered by Clerk & Lindsell at paragraph 10-210. But the hint of a complaint here in the defence and Mr Digby’s evidence is to do with the timing of the closing out rather than the terms of the contracts that were struck given the timing, and it does seem to me clear from those very cases to which I have referred, starting from Cuckmere Brick v Mutual Finance in the early 1970s, that there is no argument that the claimant owed a duty to Mr Digby with regard to the timing. That suffices, for present purposes, and that is all that I propose to say upon that point.

It was right that the court should examine with some care whether there is a defence available to Mr Digby on the claim against him, but I am driven to the conclusion that there is no defence or counterclaim that stands a real prospect of success, and, subject to the question of interest, to which I shall revert, it seems to me that the claimant is entitled to summary judgment on their claim.

Where are we on interest?

MR PETERS: The position is that my clients withdraw their claim for all interest other than statutory interest. I should say though that, given the relative modesty of the rate of interest that is claimed, which as I said before is only 1¾ percent above base calculated on the simple basis, the court should award interest in that amount, in that that is, at the very least, a fair reflection of the value of my client being kept out of its money.

MR JUSTICE ANDREW SMITH: I award 2 percent.

MR PETERS: My Lord, I can recalculate accordingly.