Ed&f Man Commodity Advisers Ltd & Anor v Fluxo-Cane Overseas Ltd & Anor

A contractual power to close out leveraged trading positions may be exercised where the customer is in default, or where the broker reasonably considers closure necessary or desirable for its own protection. A broker may rely on the latter contractual event of default even if it initially acted on an incorrect basis, provided the contractual discretion was in fact exercised and the circumstances justified it.

Where the customer is an eligible counterparty, applicable conduct rules may not impose a best-execution obligation. A partial assignment of accrued rights is permitted where the contract permits assignment of the agreement but contains no express prohibition on assigning accrued claims.

The claim concerned losses arising from the liquidation by a sugar broker of a customer’s substantial short futures position. The broker claimed approximately US$22 million under a Customer Agreement and the associated guarantee. The customer alleged that the liquidation was premature, contractually unjustified and mismanaged, and disputed the validity of the guarantee and assignments of accrued claims.

The issues included the timing of margin default, reliance on a contractual power to close out where closure was reasonably necessary or desirable for the broker’s protection, the effect of eligible-counterparty status on best execution, the standard governing liquidation, the conclusivity of unchallenged statements, and the validity of the assignments. An earlier interlocutory issue concerning an alleged coordination agreement had been resolved by the Court of Appeal in [2009] EWCA Civ 406.

1. Contractual default. The margin demand was deemed delivered 12 hours after transmission under clause 25.2. Under the proper construction of clauses 14 and 16, payment was due by the close of business on the next Business Day, calculated by reference to London time. The initial liquidation was therefore premature insofar as it relied solely on non-payment of that demand.
2. Protective close-out power. The broker could nevertheless rely on clause 16.1.14, which permitted closure where it reasonably considered closure necessary or desirable for its own protection. The clause did not require the broker to have identified it expressly when commencing liquidation, and no other provision prevented reliance on it retrospectively. The exchange’s instructions, the customer’s excessive position, the failure to reduce it, the scale of the exposure and the customer’s eventual refusal to meet margin requirements provided reasonable grounds. Closure after the meeting on 18 January was legitimate.
3. Conduct of liquidation. The contractual exclusion of best execution was effective in the circumstances. The customer was treated as an eligible counterparty, and the liquidation did not result from executing customer orders. In any event, the evidence did not establish that trading on 18 January was unreasonable. The broker acted in the context of exchange instructions, an approaching weekend and public holiday, simultaneous liquidation by other brokers, and the need to reduce risk.
4. Statements and allocation. Clause 25.3 made written accounts and statements conclusive in the absence of objection within five Business Days, subject to manifest error. The customer could not raise a new challenge to the disclosed trade allocation at trial.
5. Guarantee and assignment. The guarantee remained valid after the merger because the relevant credit facility continued and the broker relied on representations that the surviving company assumed the predecessor’s liabilities. Clause 24.8.1(i) permitted assignment of the agreement, while clause 24.8.1(ii) separately addressed rights under it. The clause did not implicitly prohibit assignment of accrued rights of action, and the assignments were valid.
6. Judgment was therefore entered for the claimants on the principal issues, including the validity of the guarantee and assignments.

• Court of Appeal: In an earlier interlocutory ruling concerning an alleged agreement to coordinate liquidation, the court held that no agreement had been reached: [2009] EWCA Civ 406.
• High Court (Commercial Court): The remaining issues were determined in favour of the claimants.