Redmayne Bentley Stockbrokers v Isaacs & Ors

The claimant, a firm of stockbrokers, obtained judgment against the defendant for the outstanding sums on his trading account. The court found that the account was an Execution Only account (albeit with occasional dealing advice), not an Advisory account, despite the defendant having signed an Advisory Service Agreement form. The judge rejected an implied contractual term that the broker must prevent "excessive risk taking" and held that regulatory provisions (MiFID and COBS) did not establish a contractual obligation to block trading where Execution Only transactions were involved. Clause 1.10 of the broker's terms did not establish liability in the circumstances, and the alleged lack of authority for certain "rolls" of share positions was not made out because the rolls were authorised or subsequently approved. The defendant's defences and counterclaim were dismissed and judgment was entered for the claimant for £588,176.42 plus interest.

Background and parties:

• The claimant, Redmayne Bentley, is a stockbroking firm. The first defendant, Mr Isaacs, was a client who operated five trading accounts (his own name, his wife's and three companies he controlled). Proceedings sought outstanding balances across those accounts; all but the claim against Mr Isaacs were resolved prior to trial.

Nature of claim and relief sought: The claim against Mr Isaacs was for £588,176.42 plus interest under his trading account. Mr Isaacs did not dispute the calculation but pleaded (1) breach of contract in allowing excessive credit and failing to block trading when collateral fell below the asserted 25% threshold, seeking loss on subsequent transactions as a counterclaim, and (2) lack of authority for certain share "roll" transactions and sought reinstatement of alleged losses.

Procedural posture: First instance Commercial Court trial. Evidence included witness and expert evidence on stockbroking practice and regulatory requirements (MiFID/COBS).

Issues framed:

• Whether an Advisory agreement had been concluded or whether the account was Execution Only;
• Whether an implied contractual term should be implied requiring the broker to assess and prevent excessive risk-taking, and whether Clause 1.10 of the terms imposed such an obligation;
• Whether the broker breached any such obligation and, if so, causation and loss; and
• Whether particular rolling transactions were unauthorised or ratified.

Court's reasoning and findings:

• The court placed significant weight on the extensive contemporaneous contract notes, almost all designated "Execution Only", and on the parties' prior dealings. Although occasional advice was given, the relationship was essentially Execution Only and there was no objective meeting of minds to create the Advisory service alleged.
• The court held that COBS (implementing MiFID) governs personal recommendations and suitability where advice or a personal recommendation is given; it does not generally require assessment of suitability for pure Execution Only transactions. The judge rejected the argument that the regulatory regime created a contractual obligation to prevent excessive risk-taking needing implication into the contract.
• The test for implication (necessity/business efficacy) was considered and the judge rejected implication of the alleged term; even if a duty to consider suitability could exist when advice is given, it would not extend to a positive obligation to prevent trades contrary to a client’s instructions.
• The claimant was not shown to be in breach of Clause 1.10 or any implied term. The alleged instruction not to roll certain shares into the defendant’s personal account was not made in terms that prevented the rolls and, in any event, the rolls were authorised; ratification was unnecessary to decide as the rolls were authorised.
• Causation and quantum of any counterclaim were not determined because the primary defences failed; accordingly the defendant's defences and counterclaim were dismissed.

Result: Judgment for the claimant for £588,176.42 plus interest.

The claim by Redmayne Bentley against Mr Isaacs is allowed. The court found that the account was operated on an Execution Only basis notwithstanding occasional dealing advice, rejected the implication of a contractual term requiring the broker to prevent excessive risk-taking, found no breach of Clause 1.10 of the Terms, and held that the contested rolling transactions were authorised. Accordingly the defendant's defences and counterclaim are dismissed and judgment is entered for the claimant in the sum of £588,176.42 plus interest.