Redmayne Bentley Stockbrokers v Isaacs & Ors

A stockbroker providing an Execution Only service is not generally required to assess the suitability of transactions or prevent a client from taking excessive risks. Where advice is given as a personal recommendation, the suitability obligations in the Conduct of Business Sourcebook may apply to that transaction. They do not, however, necessarily require the broker to prevent the client from proceeding against advice.

A contractual term is implied only where necessary for business efficacy and contract workability. Regulatory requirements and expert evidence do not, without more, establish that necessity.

Redmayne Bentley Stockbrokers claimed sums outstanding on five share-trading accounts operated by Mr Martin Isaacs and related defendants. Claims against the corporate defendants had resulted in summary judgment, and Mrs Isaacs had accepted a settlement offer. The remaining claim against Mr Isaacs was for £588,176.42 plus interest.

Mr Isaacs alleged that his account was Advisory rather than Execution Only, that Redmayne Bentley had breached an implied contractual duty by permitting excessive exposure, and that certain share-rolling transactions lacked authority. The issues were whether an Advisory agreement had been made, whether the alleged term was implied and breached, and whether the rolls were authorised or ratified.

1. Nature of the account. The parties’ dealings established that Mr Isaacs had an Execution Only account, albeit one on which the broker occasionally gave dealing advice. The Advisory Service Agreement Form did not objectively establish an Advisory Portfolio Service. The absence of an agreed management fee, the failure to confirm suitability, the historical relationship with SP Angel, and the overwhelming number of contract notes marked Execution Only were significant.
2. Regulatory framework. The suitability requirements in COBS 9 apply where a broker makes a personal recommendation or manages investments and makes a decision to trade. They do not prevent a broker from providing both advisory dealing and Execution Only services. Where no advice or personal recommendation is given and the transaction is designated Execution Only, COBS 9.2 is not engaged, although other regulatory requirements may apply.
3. Implied term. Applying the principles concerning implication of contractual terms discussed in Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 and Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce Inc [2009] 2 Lloyd’s Rep 639, the alleged term was not necessary for business efficacy or contract workability. An advisory broker’s obligation is ordinarily to give suitable advice. It does not extend to positively preventing a client from investing contrary to that advice.
4. Clause 1.10 of the Terms applied where Redmayne Bentley accepted responsibility for the suitability of advice or a transaction, normally where advice was sought or given. It did not generally apply to an Execution Only transaction. In any event, no breach of the alleged term or clause was established.
5. Redmayne Bentley was entitled to rely on the financial information supplied by Mr Isaacs unless it knew that the information was manifestly out of date, inaccurate or incomplete. The evidence did not establish the alleged breach or causation.
6. The share rolls were authorised. Mr Isaacs gave clear instructions on 26 September 2008 without restricting rolls into his personal account, and later conduct confirmed that position. No issue of ratification therefore arose.
7. The defences and counterclaim were dismissed. Redmayne Bentley was entitled to judgment against Mr Isaacs for £588,176.42 plus interest.