City Index Ltd (t/a Finspreads) v Balducci

The claimant recovered a debt of £313,067.02, the negative balance on the defendant's spread betting account, because the claimant proved the contractual relationship, the margin calls had not been met and clause 4 of the margining terms entitled the claimant to close positions. The defendant's counterclaim under section 20 and section 150 of the Financial Services and Markets Act 2000 failed because the court found that the communications from the trading desk were market information and commentary, not personal advice or a personal recommendation. The court also rejected claims in negligence, breach of contract and breach of confidence for lack of causal link or legal basis.

This was a first instance trial of a claim for the sum of £313,067.02 plus interest, the negative balance on the defendant's spread betting account with the claimant (Finspreads). The defendant counterclaimed for $1.625m and damages for breach of confidence and psychiatric injury on the basis that the claimant had wrongly given advice and otherwise failed in regulatory duties.

Background and parties:

• The claimant provided execution-only, margined spread betting in energy products. Trading was conducted under terms which included a clear risk warning notice and margining provisions. The defendant had traded intensively with the claimant's predecessor and continued trading after a business transfer.
• Key factual matters included numerous recorded telephone communications between the defendant and the trading desk, a history of margin calls which the defendant failed to meet in May 2008, the claimant's hedging with brokers, and certain account accounting points including rollovers.

Relief sought and issues:

• The claimant sought judgment for the outstanding debt and interest. The defendant sought damages under FSMA s.20 (unlawful giving of investment advice), FSMA s.150 (breach of FSA rules), and tort and contractual damages, and alleged breach of confidence contributed to loss.
• The court framed the principal issues as: whether the claimant had proved the debt and its contractual right to close positions; whether prohibited personal advice or recommendations had been given (engaging FSMA s.20 and the FSA handbook rules such as COBS/COB and COBS 10 appropriateness requirements); whether any breach of regulatory rules gave rise to liability under s.150 FSMA; and whether there was negligence, breach of contract or breach of confidence causally linked to the loss.

Reasoning and conclusions:

• The court found the contractual relationship and acceptance of terms established, including the defendant's electronic acceptances and long trading history. The claimant had validly made margin calls which were not met and was entitled under the margin clause to close positions.
• On FSMA causes of action the court applied the distinction between mere market information/commentary and a personal recommendation. Having reviewed transcripts and recordings, the court concluded the trading desk exchanged market information and views, not tailored investment advice; the factual pattern corresponded with the approach in Wilson v MF Global rather than Walker v Inter-Alliance. The defendant was an experienced trader whose knowledge and trading history meant COBS 10 appropriateness requirements were met and he was not misled into treating the relationship as advisory.
• Accordingly the s.20 and s.150 claims failed. The negligence and breach of contract claims, founded on the same alleged advice, also failed. The breach of confidence claim failed because the defendant had authorised the enquiries and confirmation at issue and, crucially, the decision to close positions rested on the absence of the specific bank confirmation the claimant required.

The court therefore entered judgment for the claimant on the debt and dismissed the counterclaim.

The claim is allowed and the counterclaim is dismissed. The court held that the claimant proved the contractual relationship and entitlement to close positions for failure to meet margin calls, that the trading desk's communications were market information rather than prohibited personal advice (so there was no actionable breach under FSMA s.20 or s.150), and that related tort and contract claims and the breach of confidence allegation were not made out on the facts or causation.