High Court Considers Exercise Of Contractual Discretion To Close Out A Customer's Position

• Published date: 09 February 2022
• Subject Matter: Finance and Banking, Financial Services
• Law Firm: Herbert Smith Freehills
• Author: Ms Ceri Morgan, Nihar Lovell and Catherine Bagge

The High Court has dismissed claims brought by a customer against a spread betting services provider alleging breach of contract, breach of fiduciary duty, misrepresentation and breach of the Conduct of Business Sourcebook (COBS) rules in relation to the close out of certain positions on his account when it fell into default: De Boinville v I G Index Ltd [2021] EWHC 3326 (Comm).

Although set in the context of spread betting services, the decision will be of broader interest to financial institutions given its potential application to other types of trading accounts. In particular, the court held that the customer was not owed a duty obliging the services provider to close out Mr de Boinville's positions within a certain timescale or at all (either pursuant to the customer agreement or statutory duty). The court noted that the customer agreement conferred an "absolute discretion" to the services provider to close all or part of any bet where there had been a failure to provide margin amounting to an event of default, which gave rise to an entitlement to the services provider, rather than obligation.

The decision contains some interesting analysis of established legal principles relating to contractual discretion and duties owed in the context of conducting a close out for a customer in default (see our previous blog posts here).

We consider the decision in more detail below.

Background

In January 2012, the claimant (Mr de Boinville) opened an account with the defendant (IGI), a provider of execution-only spread betting services. The account was governed by a customer agreement. Mr de Boinville used the account to open and close spread bets.

In June 2012, Mr de Boinville placed several spread bets online. However, the account was flagged by IGI as being in significant default. The market also moved against Mr de Boinville's positions around the same time. IGI, in reliance on its contractual discretion to do so under the customer agreement, subsequently closed out all of the spread bets linked to Mr de Boinville's account.

In 2018, Mr de Boinville commenced legal proceedings against IGI, which included a claim for: (i) losses arising from a transfer of funds out of his spread betting account (to his debit account) and the subsequent closure of his open positions (the Transfer Claim), which had been subject to a settlement agreement between the parties and which Mr de Boinville sought to rescind on the grounds of negligent misrepresentations by IGI; (ii)...