Wilson & Anor v MF Global UK Ltd & Anor

In financial-services claims, the court assessing whether a client was properly classified as an intermediate customer asks whether the firm took reasonable care to determine that the client had sufficient experience and understanding. It does not substitute its own view of the correct classification. Relevant guidance factors and the required warning, consideration period and informed consent must be considered separately for each account. An execution-only contract remains non-advisory where market information and informal trading discussions are incidental to client-directed dealing. Suitability and risk-warning rules applying only to private customers are not engaged by a proper intermediate classification. A statutory claim also requires proof that the breach caused a different adverse outcome. Ordinary broker communications do not displace clear contractual terms.

The claimants sought recovery of trading losses incurred through contracts for difference, futures, options and spread betting accounts operated with the defendants. The claims alleged breaches of the Financial Services and Markets Act 2000, the Conduct of Business Sourcebook, contractual duties and common-law duties. The principal issues were whether the claimants had been wrongly classified as intermediate rather than private customers, whether the execution-only relationships had become advisory through communications with a broker, whether statutory and common-law duties were breached, and whether any breach caused recoverable loss.

The claims were dismissed and judgment was entered for the defendants.

1. The statutory framework distinguished authorised persons, regulated by the Conduct of Business Sourcebook, from approved persons, regulated by APER. The claimants had no statutory cause of action for breach of APER. Nor could obligations governing approved persons be implied into contracts with authorised persons where the statutory and contractual framework already dealt with the relevant duties.
2. Under COB 4.1.9R, the question in a classification challenge was whether the firm had taken reasonable care to determine that the client had sufficient experience and understanding to be classified as an intermediate customer. The court did not make its own objective assessment of the correct classification. The guidance factors in COB 4.1.10G and the procedural requirements concerning warning, time for consideration and informed consent were relevant. The process was to be assessed separately for each account. There was no default private-customer status before classification was complete.
3. The defendants had taken reasonable care in classifying the claimants for the CFD and futures and options accounts. The documents, the information supplied, the claimants’ trading experience and their written consents supported the classifications. The claimants’ inaccurate or incomplete answers did not make the process unreasonable where the defendants were entitled to rely on the information provided.
4. The accounts were expressly execution-only. The surrounding conversations involved market information, exchanged views and trading ideas, but did not amount to personal recommendations or create an advisory relationship. The court considered the approach in Geniki Investments International v Ellis Stockbrokers [2008] EWHC 549 (QB) and applied the advisory-relationship considerations in JP Morgan Chase Bank v Springwell Navigation Corporation [2008] EWHC 1186 (Comm).
5. The suitability and risk-warning rules applied only to private customers. They were therefore not engaged by the correctly classified accounts. Even assuming a breach of the risk-warning rule, Mr Wilson’s evidence that he would not have read such warnings and already knew the risks defeated causation.
6. COB 2.1.3R required communications to be clear, fair and not misleading, but did not impose a duty to advise or communicate on every particular subject. The common-law advisory and implied-term claims also failed. The contractual exemption provisions were upheld as fair and reasonable in the circumstances.
7. The claims concerning unauthorised trading, failure to monitor markets and failure to notify market movements were unsupported or failed on causation. The loss models were hypothetical and did not prove the alleged losses. The issue of contributory negligence did not arise.