City Index Ltd (t/a Finspreads) v Balducci

In an execution-only spread-betting relationship, general market information, commentary and the exchange of views do not become personal investment advice merely because they may influence a client. The court must assess the communications in their contractual and factual context, including the parties’ established dealings. Advice requires communication which objectively goes beyond information and is likely to influence the client’s decision on a particular transaction. A firm may infer knowledge and experience for the purposes of assessing appropriateness where the client’s trading history demonstrates understanding of the relevant risks. Claims under the Financial Services and Markets Act 2000 require loss caused by the relevant contravention.

The claimant sought payment of £313,067.02, representing the negative balance on the defendant’s spread-betting account. The defendant counterclaimed substantial damages, alleging unauthorised investment advice, breach of statutory rules, negligence, breach of contract, breach of confidence and psychiatric injury.

The court considered whether the claimant had proved the contractual account and its entitlement to close positions after unpaid margin calls. It also considered whether the claimant had breached the appropriateness and risk-assessment requirements under the Financial Services and Markets Act 2000 and associated FSA rules, whether its communications had created an advisory relationship, and whether information obtained from a bank employee caused actionable loss.

1. Claim and contract. The claimant proved the account, the applicable customer terms and the outstanding balance. The defendant had failed to meet margin calls, so the claimant was entitled under the margining terms to close the positions. A contractual relationship with the claimant arose from the parties’ dealings and the defendant’s acceptance of the new terms.
2. Risk and appropriateness requirements. The risk warning and surrounding documents satisfied COB Rule 5.4.3. The defendant’s objections concerning the earlier IFX relationship could not establish liability against the claimant. By the relevant time he had traded extensively, with more than 900 spread bets over two and a half years, and the requirements in COBS 10 for assessing appropriateness were satisfied. The suitability rules in COBS 9 did not apply because the claimant was not making personal recommendations.
3. Unauthorised advice. Under s 20 of the Financial Services and Markets Act 2000, the essential issue was factual. The court adopted the contextual approach illustrated by Walker v Inter-Alliance Group plc [2007] EWHC 1858 (Ch) and Wilson v MF Global [2011] EWHC 138. The contractual execution-only framework remained relevant, although the court had to consider the reality of the relationship. The recorded conversations consisted of prices, general market comments and the exchange of ideas. They did not amount to recommendations concerning particular bets, timing or exposure. The defendant also failed to prove reliance or causation.
4. The negligence and breach of contract claims therefore failed. The breach of confidence claim also failed: the relevant disclosure was authorised, did not disclose confidential information by the claimant, and did not cause the decision to close the positions.
5. Judgment was entered for the claimant and the counterclaim was dismissed.