Geniki Investments International Ltd. v Ellis Stockbrokers Ltd

A customer may authorise a stockbroker to exercise a degree of trading discretion despite contractual documents describing the account as execution-only. Authority may therefore arise from the parties’ actual course of dealing.

A customer who knows that unauthorised trades are being placed on the account may have a duty to notify the broker promptly. Continued silence and allowing the trading to proceed may prevent later repudiation of the transactions.

Inaccurate contract notes do not, without more, establish lack of authority. A contractual conclusive-evidence clause will not protect a broker where the notes contain manifest errors.

Geniki Investments International Ltd operated an investment account with Ellis Stockbrokers Ltd through Mr George Pavlides. Geniki claimed that 35 loss-making trades were unauthorised and sought reconstitution of the account.

Ellis contended that the trades were specifically authorised, alternatively authorised by an established course of dealing, and further that Geniki had affirmed or adopted them, was estopped from disputing them, or was bound by the contract notes.

The trial concerned the effect of inaccurate dealing records, the parties’ actual trading relationship, and whether Geniki could challenge trades after knowing of them but failing to notify the firm until losses had crystallised.

1. Authority and course of dealing. The contractual documents described the account as execution-only, but that description did not determine the parties’ actual relationship. The evidence showed that Mr Pavlides had allowed Mr Mason a measure of discretion in conducting trades. The disputed transactions were therefore either placed on specific instructions or were de facto authorised pursuant to that permitted discretion. The claim based on breach of contract, negligence and fiduciary duty consequently failed.
2. Defective records. The fact that dealing sheets and contract notes wrongly recorded dates and times was unacceptable, but it did not itself prove that the trades were unauthorised. The court found that some trades had been specifically instructed, although the defective records made it impossible to identify which ones.
3. Estoppel. Applying the principle in Greenwood v Martins Bank Ltd [1933] AC 51, and supported by the formulation in Tai Hing Ltd v Liu Chong Hing Bank Ltd [1986] AC 80, a customer who knows that a broker is placing orders without authority may be under a duty to inform the firm so that it can stop the conduct. Geniki’s failure to notify Ellis while continuing to receive statements and allowing trading to continue meant that, even if the trades lacked prior authority, Geniki was estopped from repudiating them.
4. Misrepresentation and contract notes. The alleged misrepresentations about bargain dates did not induce Geniki to accept the trades. Clause 5.6 of the contract terms did not make the notes conclusive because the errors in the bargain dates were manifest. The court therefore did not need finally to determine the proposed application of the Unfair Contract Terms Act 1977.
5. Regulatory rules. The SFA Rules provided background but were not determinative. There was no independent cause of action under section 62 of the Financial Services Act 1986 because Geniki was not a private customer.
6. Disposition. The claim was dismissed.