Spreadex Ltd. v Battu

Contractual security provisions for leveraged trading must be construed from the language of the agreement as a whole. Credit, deposits and margin payments may form one overlapping scheme where the terms make them available to cover both potential and running losses. An operator cannot demand advance security and security for the whole running loss cumulatively unless the contract clearly confers that right.

A demand exceeding the amount due does not excuse tender of the correct sum unless the creditor refuses to accept less. A power to close positions for non-payment cannot be exercised where the operator insists upon an excessive payment and refuses a sufficient tender.

A spread-betting operator obtained judgment against its customer for losses crystallised when it closed his positions. The operator had demanded £40,000 in additional security. It contended that security calculated by notional trading risk was cumulative with margin covering the entirety of the running losses.

His Honour Judge Chambers QC accepted that construction and entered judgment for the operator. The customer appealed. The operator also relied upon an alleged oral agreement, or estoppel, requiring payment of £40,000 regardless of the contractual margin provisions.

The central issues were whether the contractual forms of security were cumulative or overlapping, whether the excessive demand justified closure of the positions, and whether the customer’s counterclaim should be remitted for trial.

1. Appeal allowed unanimously. Lord Justice Rix, with whom Lord Justice Neuberger and Lord Justice Mummery agreed, held that the operator’s terms did not confer a right to cumulative security for notional trading risk and the whole of any running losses. Credit, deposits and margin payments were all forms of margin within a single security scheme. The language of Rules 6 and 8 showed that margin became payable for losses exceeding the trading limit. The expression “sufficient to meet” in clause 6 of the Two Way Customer Agreement did not mean an amount equal to the whole running loss regardless of security already held.
2. The operator was entitled to security, after credit, sufficient to cover the customer’s running losses. It was also entitled to security, after credit, supporting the customer’s trading. It was entitled to the higher of those figures, not their cumulative total. Its demand for £40,000 therefore exceeded the amount contractually due.
3. The principle in Campbell v The Commercial Banking Company of Sydney (1879) 40 LT 137 applied against the operator. Although the customer offered £7,000, which was sufficient on the relevant running-loss calculation, the operator insisted that only £40,000 would prevent substantial closure. It therefore refused to receive the lesser amount as sufficient performance.
4. The customer’s earlier statement that he would pay £40,000 did not create a binding agreement requiring that payment in all circumstances. The discussion proceeded upon an assumption of continuing or increasing losses. The market subsequently moved materially in his favour. Nor was an estoppel established, because he clearly objected to closure and the operator identified no prejudice making withdrawal from the earlier promise inequitable.
5. The closure of the positions was uncontractual and unauthorised. The operator’s claim consequently failed. The customer’s counterclaim raised unresolved questions concerning his ability to maintain the positions, mitigation and the proper measure of loss. It was remitted to the trial court and could not summarily be dismissed.

1. Court of Appeal (Civil Division): The court allowed the customer’s appeal unanimously, held that the closure of his positions was uncontractual and unauthorised, dismissed the operator’s claim, and remitted the counterclaim to the trial court: [2005] EWCA Civ 855.
2. Queen’s Bench Division, Cardiff District Registry, Mercantile Court: His Honour Judge Chambers QC entered judgment for the operator in the sum of £28,636.22. No citation is stated in the judgment.