Spreadex Limited v Dr Vijay Ram Battu

The Court of Appeal determined the dispute by construction of the parties' written terms of trade. The central question was whether sums described as "deposits" (linked to notional trading risk or NTR and to a customer's trading limit) were distinct from and cumulative with "margin payments" demanded to meet running losses, or whether the two overlapped so that deposits, credit and margin all formed part of a single pool of security available to meet running losses.

The court concluded that the contractual materials treated credit, deposits and margin as elements of a single margining scheme rather than as two insulated, cumulative forms of security. Relevant provisions included Rule 6 and Rule 8 of Spreadex's Rules and clause 6 of the Two Way Customer Agreement (TWCA). Because the contract language did not support Spreadex's contention that deposits were permanently insulated from being applied to running losses, any ambiguity was resolved against Spreadex.

On that construction the closure of the appellant's positions on 26 September 2002 was not authorised by the contract and the claim based on those closures failed. Spreadex's cross-claim that there had been a binding oral agreement to pay a demanded £40,000 also failed.

Background and parties:

• Parties: Spreadex Limited (claimant/respondent) and Dr Vijay Battu (defendant/appellant).
• Nature of business: Spreadex operated financial spread betting accounts; contracts governed by a booklet of "Rules and Agreements", a Two Way Customer Agreement and a Risk Warning Notice.
• Transactions: In September 2002 Dr Battu opened a series of short positions on the Dow Jones futures index; volatile market movement generated large running profits and then very large running losses.

Procedural history:

• The case reached the Court of Appeal on appeal from HHJ Chambers QC (Queen's Bench Division, Mercantile Court, Cardiff) following judgment for Spreadex dated 6 August 2004.

Relief sought:

• Spreadex sought recovery of losses crystallised when they closed out Dr Battu's positions; Spreadex claimed approximately £24,923 (pleaded figures vary), the respondent judgment below being for £28,636.22. Dr Battu counterclaimed for loss resulting from the alleged wrongful closure.

Legal issues framed:

1. Contractual construction: whether "deposit" (linked to NTR/trading limit) and "margin" (to meet running losses) were separate and cumulative or overlapping elements of a single margining regime.
2. Whether Spreadex could unilaterally vary NTR or trading terms in mid‑trade.
3. Whether there was an enforceable oral agreement/estoppel by which Dr Battu bound himself to pay £40,000 by 18:30 on 26 September 2002.
4. Consequences of construction for liability and any counterclaim for wrongful termination of positions.

Court's reasoning:

• The Court analysed the contractual documents (Rules, TWCA and Risk Warning Notice) and contemporaneous communications (a letter of 9 November 2000 and a January 2002 flyer). It concluded that the documents used "margin", "deposit" and "credit" interchangeably and that the documents collectively envisaged credit, deposits and margin as means of securing running losses, not as two insulated categories.
• Key textual points were Rule 6's phrase that "losses in excess of the trading limit will be dealt with by way of margin payments" and Rule 8's daily "mark to market" recalculation which may show that a customer has exceeded their trading limit. Those passages supported a construction under which running losses reduce available trading limit/security and additional margin is required only to the extent losses exceed that available limit.
• TWCA clause 6's requirement for "margin payments sufficient to meet" running losses was interpreted in context to mean payment only to the extent that existing credit/deposits did not already cover those losses; it did not show an intention that deposits be permanently segregated against future losses and so cumulative with any margin required to crystallise existing losses.
• The court rejected Spreadex's submission that it could lawfully require cumulatively both a full NTR deposit and, in addition, margin equal to current running losses. Ambiguities were resolved against Spreadex, which had drafted the terms.
• The alleged oral agreement/estoppel to pay £40,000 by 18:30 was not proved to bind Dr Battu in the strict sense alleged; the market had moved in his favour and he offered a lesser payment which he contended met the amounts properly due.

Disposition:

• The Court allowed the appeal, held that the closure of positions was unauthorised on the contractual construction adopted, rejected Spreadex's cross‑appeal based on an alleged binding oral promise or estoppel, and remitted the counterclaim for trial to determine any damages resulting from unlawful closure.

Appeal allowed. The Court of Appeal held that on construction of Spreadex's written terms credit, deposits and margin form part of a single margining regime and are not two wholly separate and cumulative obligations; accordingly Spreadex was not contractually entitled to demand both a full NTR deposit and a separate margin equal to running losses. The closure of the appellant's positions on 26 September 2002 was therefore unauthorised; the alleged oral agreement to pay £40,000 was not established; the appellant's counterclaim was remitted for further hearing to quantify any loss caused by wrongful closure.

Appeal from HHJ Chambers QC, Queen's Bench Division, Cardiff District Registry, Mercantile Court (judgment 6 August 2004). This Court of Appeal judgment: [2005] EWCA Civ 855 (11 July 2005).