Byblos International Fund Llc v IFX Markets Ltd

Commercial contracts are construed against their factual background and in accordance with business commonsense, but the court must not rewrite an agreement to achieve a commercially preferable result. An estoppel by convention may arise where the parties share an unambiguous and unequivocal assumption of fact or law and it would be unjust or unconscionable to allow either party to depart from it. The estoppel does not govern future dealings after the assumption is shown to be erroneous.

Where an agreement provides for a share of income generated by introduced customer accounts, its scope depends on the contractual language and context. A subsequent common assumption may nevertheless prevent recovery for categories of income which the parties consistently treated as outside the accounting arrangement.

Byblos International Fund LLC claimed an account of profits from IFX Markets Ltd under an Introducing Broker Agreement. The claims concerned profits from internal foreign exchange transactions, direct customer trades with IFX’s main desk, rollovers, contracts for differences, and differential interest charges.

The central issues were the proper construction of the agreement’s profit-sharing clause and whether the parties’ conduct created an estoppel by convention preventing Byblos from pursuing some categories of income. The action was determined at first instance in the High Court.

1. Construction. The Introducing Broker Agreement was construed against its factual background and the commercial setting known to both parties. Applying the principles in Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, Prenn v Simmonds [1971] 1 WLR 1381 and Antaios Compania Naviera SA v Salen Rederierna AB [1984] AC 191, the court preferred a sensible commercial construction but declined to rewrite the agreement.
2. The broadly expressed profit-sharing clause covered income generated by introduced customer accounts, including rollover profits, CFD income and differential interest income. It did not extend, on its proper construction, to diffuse profits and losses generated by the IFX main desk’s own downstream trading.
3. An estoppel by convention arose where the parties acted on a shared, unambiguous and unequivocal assumption as to the treatment of a category of income, and departure would be unjust and unconscionable. The parties’ established accounting practice and knowledge of the relevant statements supported estoppel in relation to internal main-desk profits, rollovers, CFD financing charges and further interest charges. The assumption ceased to govern after it was revealed to be erroneous, identified generally as 31 January 2004.
4. Byblos was entitled to declaratory relief for unaccounted internet trades made directly between its customers and the IFX main desk before termination of the agreement on 3 November 2003. The court considered that a fair volume-based method could be used to calculate recovery.
5. For post-termination CFD commission, IFX could not deduct overheads or other costs beyond those authorised by the express agreement. The court declined to imply or construct a term permitting such deductions.
6. The claim therefore succeeded only in part. The court made declarations on the limited categories identified and adjourned the precise form of the order.

Not an appeal. No prior decision is stated in the judgment.