Neutral Citation Number: [2009] EWHC 346 (QB)
Case No: HQ04X04199
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 27 February 2009

Before: 
The Hon Mr Justice Simon
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Between :

	Byblos International Fund LLC
	Claimant	
	
and 	

	IFX Markets Limited
(formerly known as IFX Limited)	Defendant

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Mr Paul Darling QC (instructed by Blake-Turner & Co) for the Claimant
Mr Francis Tregear QC and Mr Alexander Pelling (instructed by Streathers) for the Defendant
Hearing dates: 28-30 January, 2-5 February 2009
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Judgment
Mr Justice Simon : 

Introduction 
1.	In this action the Claimant (‘Byblos’) seeks an account of profits which it contends are payable by the Defendant (‘IFX’) pursuant to the terms of an Introducing Broker Agreement dated 27 November 2000 (‘the IBA’).

Background
2.	IFX is a company providing trading services in the foreign currency market (‘forex’) and in Contracts for Differences (‘CFDs’). It is sufficient at this stage to identify two trading activities which were carried out at IFX. The first was centred on the area from which forex traders traded with their customers (usually, but not always) on the basis of quoted prices provided by the IFX main trading desk (‘the IFX main desk’). The second was the IFX main desk itself whose functions included (1) quoting prices to the forex traders which might form the basis of the trade between the forex traders and their customers; and (2) transacting ‘equivalent’ transactions with (mostly) banks. I have used the words ‘equivalent’ as a neutral term; however a more precise and detailed analysis is called for later in this judgment. 
3.	It is also convenient to note at this stage, that the nature of trading at IFX changed during the course of the period in question. This change reflected the increasingly wide availability of information about prices, and a general move in the forex markets towards internet dealing. Both of these had the potential for narrowing the margins available to brokers.
4.	Byblos is a company incorporated in Nevis. It was the vehicle used by Mr Raymond Hachem to conduct a business of providing services to a number of primarily Middle East based clients who traded in these markets. Under the terms of the IBA Byblos was described as ‘the Introducing Broker’.
5.	The uncontroversial background to the IBA was that Mr Hachem and Byblos wished to move to IFX so as to be able to provide market information to clients and earn commission from their market transactions. IFX was a relatively small broking company at the time, and was keen to attract the business which it believed Mr Hachem and Byblos would bring. The general scheme of the agreement was that Mr Hachem and a group of traders with whom he had worked previously were to join IFX as ‘Associated Employees’. This expression described the special position of Mr Hachem and his group: they were employees of IFX but dealt only with Byblos clients. The Byblos team were under the day-to-day supervision and control of Mr Hachem. 
6.	Under the terms of the IBA Byblos was to receive a share of the profits generated by its clients’ dealings. It might be thought that such an arrangement would be relatively easy to reduce into contractual form. However, at the core of the present dispute is an issue as to how the applicable clause of the IBA (clause 10) is to be construed. The difficulties are partly due to the nature of the transactions themselves; but to a greater extent due to the poor drafting of the IBA and the changing nature of the business transacted.
7.	The terms of the IBA provided, so far as material:
1. Executions
IFX will, on the terms described in this Agreement, undertake general investment and dealing services with Customers … introduced to IFX by the Introducing Broker, including, without limitation, execution of transactions both on exchange and off exchange (which may include margined transactions), in or in connection with the following investments and other assets and interest in them: Foreign exchange, currencies, certificates of deposit, securities … Contracts for Difference … and any spot transaction, forward, futures, option … swap, index or derivative, whether or not relating to any of the foregoing, or combination of these; and any other services agreed upon between IFX and the Customer.
2. Compliance
The Introducing Broker will comply with all applicable provisions of law and regulations …
3. Services to be Performed by IFX
In addition to the obligations required by paragraph 1 and 2, IFX will perform the following services provided IFX and the Introducing Broker have been duly authorised by the Customer where appropriate and subject always to IFX’s Terms of Business, a copy of which is attached:
…
3.2 [a] IFX will maintain an accurate set of books and records of all transactions executed or cleared through it. Inadvertent omission or inaccuracy in such prescribed books and records shall not be deemed a breach of this Agreement provided such omission or inaccuracy is promptly cured after discovery.
3.2 [b] IFX shall have no obligation to the Introducing Broker or Customers to investigate the facts surrounding any transaction that it may have with the Introducing Broker or Customers or that the Introducing Broker may have with the Customer or other persons. Notwithstanding the foregoing, IFX may take any action it deems necessary and proper on behalf of any Customer’s account, without prior notice to the Introducing Broker, as IFX, in IFX’s discretion and judgement, deems necessary for the protection of such Customer’s account.
…

4. Duties of the Introducing Broker with Respect to Customer Accounts
In addition to the obligations required by paragraph 2, the Introducing Broker will be responsible for the following: 
4.1 … prior to introducing any Customer account to IFX, the Introducing Broker shall explain in writing  … to each Customer the relationship between the Introducing Broker and IFX, including, but not limited to, the fact (i) that IFX and Introducing Broker are separate business entities and are not affiliated in any way, (ii) that IFX will execute transactions for Customers solely as principal and that IFX will deal on an execution only basis and will not provide or be under any obligation to provide ‘best execution’ or any advice on the merits of any transaction …
6. Independent Intermediary/Supervisory Responsibilities
IFX and the Introducing Broker will, independent of one another, supervise the activities and training of their respective … employees … in the performance of their functions, and neither shall be responsible for the other’s officers …
Nothing in this Agreement shall constitute a partnership or joint venture between the parties or constitute either party hereto the employee or agent of the other and, in particular, shall not constitute the Introducing Broker as the agent of IFX for any purpose, the Introducing Broker [is] acting as agent of or advisor to the Customers ...
10. Fees
The Introducing Broker will be entitled to receive 50% of the Net Income generated by accounts directly introduced to IFX by either the Introducing Broker or by one of the Introducing Broker’s clients or contacts, to be paid monthly in arrears, during the term of this agreement. Net Income is defined as gross income generated by such clients (including, but not limited to, any trading, mark up, commission, rebate and/or fee income), less any trading errors, third party commissions and any [Account Executive] and/or [Introducing Broker] payouts.
Associated Employee Costs will be deducted from the Introducing Broker’s 50% share of the Net Income. Associated Employee Costs are defined as the salaries and the Employer’s National Insurance Contributions of, and any travel and entertaining costs incurred by, any employees of IFX who are employed specifically by IFX to service accounts introduced by the Introducing Broker, each to be agreed on a case by case basis.
11. Indemnities
IFX shall have the right to set-off and apply any Net Income not yet paid by it to the Introducing Broker against any amounts in respect of which the customer is in default to IFX.
12. Confidential Information
 … IFX represents and warrants that the names and addresses of the Customers of the Introducing Broker which come to the attention of IFX under this Agreement are confidential.
13. Entire Agreement, Termination, Assignment, Waiver
13.1 This Agreement contains the entire Agreement of the parties with respect to the subject matter hereof … This Agreement may be modified only in writing signed by both parties. This Agreement may be terminated without cause by either party on 45 days’ prior written notice to the other … [The obligations set forth in paragraphs 9-12 will survive termination] … Failure or delay in exercising any right under this Agreement is not a waiver thereof …   
13.2 Notwithstanding the above, IFX undertakes to continue to pay to the Introducing Broker any Net Income due to the Introducing Broker, under the terms described in clause 10 above, on all accounts already introduced to IFX, either by the Introducing Broker or by one of the Introducing Broker’s clients or contacts, and for as long as such accounts continue to trade with IFX.
13.3 In the event that this Agreement is terminated by either party, for whatever reason, for as long as there are accounts trading with IFX, which have been introduced to IFX either by the Introducing Broker or by one of the Introducing Broker’s clients or contacts, then the Introducing Broker … will be entitled, subject to giving reasonable notice, to review the books of IFX in order to verify the calculation of the Introducing Broker’s 50% share of Net Income and any subsequent deductions.
8.	A number of points may be noted.
(1)	The transactions covered by the IBA (which were defined in Clause 1) are expressed widely, and included Contracts for Differences and Swaps. 
(2)	IFX was under an obligation (Clause 3.2[a]) to maintain an accurate set of books and records of all the Byblos transactions executed or cleared through IFX. 
(3)	IFX was described (in Clause 4) as executing business for customers ‘on an execution only basis’ and without any obligation to provide ‘best execution’, or advice on the merits of any the transaction. 
(4)	Although they were employees of IFX, the work of the Associated Employees in the Byblos team was to be supervised by Byblos, in the person of Mr Hachem (Clause 6).
(5)	There was an inherent tension between the confined role which the members of the Byblos team were obliged to perform under their FSA authorisation, and the terms of Clause 6, which envisaged Byblos advising clients. 
(6)	The general intention of Clause 10 was that, although the Byblos team were employees of IFX, as a matter of accounting, the costs of the Byblos team would be deducted from Byblos’s 50% share of the net income. 
(7)	The entitlement to remuneration under Clause 10 was drawn widely.
9.	On 15 January 2001 Mr Hachem and the Byblos team joined IFX. 

The nature of trading at IFX and the claims in the Action

Forex trading 
10.	Foreign exchange dealing does not involve central exchanges. There is no single market or market-maker. It is a market in which there are a number of traders offering to buy and sell currencies at quoted rates. The market is fluid, in the sense that quoted rates can change very quickly, and it is worldwide, in the sense that it is possible to trade in the various worldwide markets (Far East, London, New York) almost continuously throughout the day. 
11.	It is convenient to take an example of a trade used by the parties during the course of the hearing. A Byblos customer (C) telephoned the Byblos desk at IFX and asked for a quote for $½m ‘dollar/yen’. At that stage the dealer at the Byblos Desk (D) would not necessarily know whether the customer wished to buy or sell. D would seek a quote from the IFX main desk, either directly or by looking at prices on a screen. The price he was quoted was 60-63. This meant that the IFX main desk was offering to sell $½m of $ and buy yen at 118.63 yen to the $, and to buy $½m of $ and sell yen at 118.60. The difference is described as 3 ‘pips’. Pip is an acronym for ‘percentage in point’ and represents the smallest value of measurement for currencies in the forex market. Customers would sometimes agree that Byblos was to be remunerated by a fixed number of pips on a particular trade. In the present example C chose to buy $½m and sell yen at 63. This trade was then recorded on the customer’s numbered account as purchase of $ at 64. The difference between 63 and 64 was the agreed mark-up of 1 pip that C had agreed with the Byblos desk. The sale of $ at 64 was also recorded on the Byblos ‘house account’ ZZZZN (for convenience, ‘the 4ZN account’).
12.	At that stage D needed to match the sale of $ at the price that he had received from the IFX main desk. However, in the meantime the price had moved and, if he chose to buy, he had to buy $½m and sell yen at 62. This is what he did; and the purchase was recorded in the 4ZN account and the IFX main desk account ZZZZZ (for convenience, ‘the 5Z account’). At this stage there was a profit on the sale of $ of 2 pips (the difference between 64 and 62). 
13.	The dispute does not relate to this profit. It is agreed that this falls to be allocated according to the terms of Cl.10 of the IBA. The dispute (Claim 1) relates to the ‘equivalent’ trade by the IFX main desk based on the quote which had been received from the Bank. Byblos contends that since the IFX main desk was an independent profit centre within IFX, it is reasonable to assume that the equivalent trade was at lower price than 62. It is the difference between this lower price and the price of 62 in the example given which forms the basis of the claim under this head.
14.	I should also mention what has been referred to as the ‘Wash’ or ‘2006 account’. This was an accounting mechanism to effect the transaction between the Byblos House account (4ZN) and the IFX main desk account (5Z). 
15.	There were two circumstances in which the Byblos desk was not manned and where a trade might take place directly between the customer and the IFX main desk. 
16.	The first situation might occur at night or at other times when the Byblos associated employees were absent. In these circumstances the customer might, of necessity, have to transact a trade with the IFX main desk, which was always manned until the close of the New York market at 10.00 pm and from the opening of the first Far East market at 11.00 pm.  It is common ground that these trades took place and that they were not entered on the Byblos 4Z account by the IFX main desk. The first part of claim 2 concerns the way in which IFX was bound to account to Byblos for such profits. 
17.	It is also common ground that Byblos’s customers transacted business with IFX after the termination of the IBA and that there must be an account of profits to Byblos in respect of such trades. The second part of claim 2 focussed on how IFX should account for such profits. Byblos, consistently with its general approach under claim 1, submitted that there must be a detailed investigation into the profits made by the IFX main desk and that an account should be taken of such profits. IFX contended that the profits, which IFX accepted it made, should be calculated on a ‘volume based credit system’. In other words, rather than investigating the actual income generated by the customer’s transactions, a pro rata percentage should be applied to the overall volume of such transactions. It is unnecessary to resolve this issue since, during the course of the closing submissions, the parties agreed to settle this claim in relation to forex transactions after 10 September 2003 for a lump sum inclusive of interest. 
Roll-over charges
18.	The customers of Byblos and IFX did not intend to take delivery of the currency they had bought or to deliver the currency they had sold. The intention was to take a short term profit. The ‘value date’ or delivery date for forex contracts is usually expressed as two business days after the date of the trade. Since the customers were speculating on the movement of a currency in a particular direction and were operating on a geared basis, they were prepared to pay for a delay to the settlement period in the hope or expectation of a movement in the market which would enable them to close their position favourably. By ‘rolling over’ the contract (usually overnight) the customer deferred delivery by him of the currency that he had contracted to deliver and deferred delivery to him of the currency which he had contracted to receive. The cost of delaying the settlement of the transaction involved either receiving or paying the difference in interest rates between the two currencies. The consequence of rolling-over the contract was that the customer would be charged interest on the currency that he had not delivered and would be paid interest on the currency he had not received. By off-setting the two sums of interest a differential payment would be calculated and then marked either as a credit or a debit in the customer’s account. 
19.	By Claim 3, Byblos seeks an account on the basis that IFX made a margin on the two rates of interest which form the basis of the roll-over calculation, and consequently income was generated by customers’ accounts within the meaning of Clause 10.
20.	IFX submits that the complexity and number of transactions which gave rise to the interest charges means that the amount or even the existence of a profit cannot be assumed. It points out that Byblos was fully aware of the roll-over charges since they appeared on the statements which were copied to Byblos each day, but that it made no complaint about a failure to account for income until after the contract was terminated. As a matter of construction, IFX submits that Byblos was entitled to share in income which derived from ‘active trading’, and that the roll-over charges resulted not from any active trading by the customer but from the existence of open positions.  
Profits from CFDs
21.	Contracts for Differences allow investors to speculate on share price movements without the need for ownership of the shares. The parties to a CFD agree to pay each other according to the rise or fall in the price of a specified quantity of a specified share. Trades are conducted on a leveraged basis, with required trading margins varying between 10% and 30%. Thus a customer who is required to put up a 10% margin and deposits $1m in his account can trade $10m worth of derivatives.
22.	A customer who trades CFDs is charged in two ways by the broker: first, a commission charge on the transaction; and secondly, a financing charge. The commission is expressed as basis points: thus a commission charge of 15 basis points is 0.15% of the value of the shares underlying the transaction. In addition there is a daily financing charge which represents interest on the value of the shares which the customer has not paid for, but which is treated as being ‘lent’ to him.
23.	The claim in relation to CFDs (Claim 4) is confined to the period after January 2004.
24.	There is no issue that the commission, representing the difference between the commission which is paid to IFX and commission paid by IFX qualifies as income for the purposes of the IBA and was therefore accountable to Byblos under the IBA. There is an issue, however, as to the extent to which IFX is entitled to deduct the entirety of its costs, including trading and administration costs. IFX calculates that, after these deductions the resulting profit is 2-3 basis points which it has agreed to share 50:50 (ie 1-1.5 basis points). Byblos accepts that the brokerage costs should be deducted, but does not accept that trading and administration costs (effectively overheads) should be deducted. Byblos calculates that on this basis it is entitled to approximately 3 basis points. IFX contends that it makes no commercial sense that the costs of generating the income should be entirely transferred to IFX after termination of the contract.
25.	So far as the financing costs are concerned, IFX contends that, as in the case of roll-overs, the profits from financing charges do not result from trading, are outside the scope of Clause 10 and are (in any event) subject to set-off under Clause 11, including sums due from one particular customer.
Profits deriving from ‘Further Interest Charges’.
26.	In the course of (or in anticipation of) trading, customers were required either to deposit funds by way of margin with IFX or to pay interest on sums notionally borrowed. Income could be generated in two ways.  First, IFX might charge customers interest and be paying a lower rate of interest themselves. Secondly, IFX might pay interest to customers and be receiving a higher rate of interest.
27.	Byblos submits that such income falls within the terms of Clause10; and makes a claim in respect of it (claim 5).
28.	IFX contends that the position is not straightforward. Interest was credited to or debited from customers’ accounts on a monthly basis, and was separately itemised for each currency. The monthly adjustments for interest were the cumulative result of daily calculations for each day in the preceding month. Each day a composite notional interest rate was calculated, based on the various rates made available to IFX by counterparties with which it had money deposited. Customers were usually paid or charged -1% or +3% of this figure. As in relation to other claims, IFX submits that profits on interest charged are not caught by Clause 10. Although the profit was calculated on a percentage basis, the percentage was applied to a purely notional figure: the ‘composite rate’, calculated by working out the net result of all the counterparty deposit rates. In these circumstances IFX submits that one cannot say that anything is being ‘marked up.’  

The witnesses
29.	Since little turns on the credibility of the witnesses in this case I can state my impression of the witnesses shortly. Mr Hachem was a good witness. He was plainly shrewd; and the evidence of the IFX witnesses reinforced my view that he was a good-natured man who had tried to avoid confrontation. He was, however, acutely aware of the issues in the case, and his evidence reflected this in a way which sometimes led to his being an advocate in Byblos’s cause. 
30.	Each of IFX’s witnesses appeared to be straightforward; but they were more detached from the detail of the case than Byblos’s witnesses. This led to occasional inaccuracy and unguarded answers, which did not, in my view, always reflect the actuality.  

An account of the relationship between the parties
31.	Shortly before the Byblos team joined IFX in January 2001, Ms Ruth Elmer (Mr Hachem’s assistant and a member of the Byblos team) visited IFX’s office at 2 America Square, and spent two weeks familiarising herself with IFX’s accounting systems and the statements which were produced. The small size of IFX’s office and the lack of an office for Mr Hachem were to prove a continuing irritation for the Byblos team, as was the delay in the appointment of Mr Hachem as a director of IFX, as he had been promised before he joined.
32.	The period from January to July 2001 marked one of two unsatisfactory periods of the relationship so far as Byblos was concerned. Apart from Mr Hachem’s annoyance about his office and delays in his appointment as a director, he was concerned about the prices that the Byblos team was being offered by the IFX main desk. He recognised that the Byblos team and the IFX main desk were both profit centres within IFX, but felt that the IFX main desk was offering prices to the Byblos team which retained an unfair amount of profit within the main desk. He wanted the prices which were offered to Byblos to reflect more closely the prices which were being offered by banks to the main desk. I accept his evidence that he complained orally about the prices from the main desk from time to time during this period. However, I also accept the IFX witnesses’ evidence that the main desk was instructed to keep the prices offered to Byblos closer to the offered bank prices; and that Mr Hachem was informed of this instruction, and was told that the Directors of IFX would keep the situation under review. Although it mattered more to Byblos than to IFX where (as between the Byblos desk and IFX main desk) the profit was made, it was in IFX’s overall commercial interest to retain the goodwill of Byblos and to ensure that a reasonable profit could be attributed to the Byblos desk. There is an example of one of IFX’s directors (Mr Naldini) intervening to ensure what he regarded as a fairer distribution of profits between the Byblos desk and the IFX main desk in an email of 19 March 2001. 
33.	In my view Mr Hachem is mistaken in his recollection that an assurance was given that Byblos would be given access to offers from banks to the IFX main desk. It would have been directly contrary to the need to keep all profit centres (including the IFX main desk) contented with their share of business. As Mr Wellesley (at the relevant time the CEO of IFX) expressed it in §22 of his witness statement,
Complaints along these lines are commonplace to organisations where sales desks trade with each other because of the inherent conflict that arises in these situations … If we were satisfied that in fact the desk had not quoted a fair price either myself or the officer concerned (as appropriate) would see to it that the price was changed. 
34.	As already stated, the assurances which were given to Mr Hachem were that a director of IFX would give instructions to the IFX main desk so as to ensure fairness in what was quoted to the Byblos desk, and that this would be kept under review. I am satisfied that no further complaints about prices were made after about July 2001, and that this was due to the trading relationship having settled down, and to Byblos and the IFX main desk being content with the arrangements.
35.	Another feature of the developing relationship between IFX and Byblos was the latter’s concern that profits from direct trading by their clients with the IFX main desk, when the Byblos desk was not manned should be properly accounted for. Sometimes this was done by telling the main desk that trades with particular clients were to be subject to a pre-arranged mark-up (say 2 or 3 pips). Ms Elmer would also check overnight transactions in the morning so as to see what trades had been carried out by Byblos customers and ensure that the trades were properly accounted for. An example of Byblos’s oversight of such transactions is an email sent by Ms Elmer on 9 January 2002 in relation to a particular customer’s trade:
During the last hour of trading the day’s value date could you please book any deals done straight into the account number given by [the customer] and allocate the 3 pips mark-up to 48100. This way any late deals done appear on the customer’s statement. 
Another example is an email sent in relation to a different customer,
Could you adjust both trades by 1 pips pls and pay to ZZZZN.
36.	As Mr Hachem accepted, Byblos had a system for accounting for overnight trades. 
37.	Mr Graham Wellesley was frank in his explanation of the delay in appointing Mr Hachem as a director. Although IFX felt bound to honour its promise, the IFX Board were not keen on his appointment. In the event Mr Hachem was appointed as a Director on 6 July 2001 and resigned as a Director on 19 July 2001. In my view this part of the evidence threw no real light on the issues I had to decide. 
38.	The period between the summer of 2001 and the summer of 2003 saw a development in the trades carried out at IFX. Electronic trading was introduced and the Byblos desk began taking up positions (in effecting ‘trading against’ its customers), rather than seeking to ‘match’ the trades with the IFX main desk.
39.	By the summer of 2003, following the departure of Mr Wellesley as CEO, the relationship between Byblos and IFX was deteriorating. IFX sent letters to Byblos employees warning of likely redundancy due to a lack of sufficient income from Byblos’s business. This was followed by a partial improvement in income and profitability; but by the autumn Mr Hachem decided to leave. It is reasonably clear that IFX was keen to maintain a relationship with Mr Hcshem and Byblos; but was concerned with the regulatory implications of the current arrangements. 
40.	In the event, the parties agreed to separate their businesses. On 10 September 2003 Mr Hachem resigned from IFX giving the required month’s notice. The Byblos team subsequently moved to Man Financial Limited. Some of Byblos’s customers moved their accounts to Man Financial, others did not. I find that the IBA came to an end at the expiry of Mr Hachem’s notice period: on 3 November 2003; and was treated by the parties as terminated as at that date.  
41.	In a letter dated 10 September Mr Hachem set out in writing for the first time one of the complaints which he has made in the present action.
You have raised with us an issue concerning the proper calculation for monies due to us in respect of CFD trades and you have claimed that IFX have overpaid us £36,000.
We have been carefully looking into the position and in particular we have been considering the terms of our contract dated 27 November 2000.
It seems to us that a much wider issue is the calculation of monies due to us generally under the terms of the contract.  Clause 10 of the contract stipulates that Byblos is entitled to receive ‘50% of the Net Income generated by accounts introduced to IFX by either the Introducing Broker (Byblos) or by one of the Introducing Broker's clients or contacts …’, subject to certain deductions …
It seems to us on the basis of our investigations so far, for the purposes of your claim, that you have in fact only accounted for a proportion of Net Income.  For example, it seems to us you have not included trading profits from positions initiated as a result of client trades, or profits generated by "the desk" which are dealings within the agreed definition of Net Income.
We would therefore request a full account of all sums due to us to date.
The issue of any monies claimed to be due to IFX can of course be dealt with as part of that issue, but obviously the overall position is what we must arrive at.
The reference to £36,000 was to a claim which IFX had made against Byblos.
42.	On 27 January 2004 Messrs Blake-Turner wrote a letter before action which raised, in addition to the claim for a share of profits made by the main desk, further claims. After reference to the terms of Clauses 10 and 13.2, the letter stated,
Our client tells us that you have, since November 2000, only made payments to Byblos on the following basis. First, you only accounted to Byblos for Net Income from transactions where calls to IFX from Byblos’ clients were first taken by Mr Hachem and his team. An arbitrary proportion of the profits and losses from those transactions went into a special account. Half of the profits were then attributed to Byblos. You then purported to deduct Associated Employee Costs as defined in clause 10 of the Agreement. You have therefore only accounted to Byblos for a proportion of the Net Income which is due to it under clauses 10 and 13 in respect of foreign exchange transactions.
In addition, the following are activities carried out by you which are within the definition of Net Income and for which, we are instructed, you have never accounted for any profits:
(1) profits from positions initiated by you as a result of clients’ trades
(3) (sic) the profits generated by SWAPS (ie, rollovers of customers’ open positions)
(4) interest on clients’ money and other associated transactions
(5) profits generated by you from Byblos clients trading contracts for difference (‘CFDs’) …
43.	IFX points out that, even at this stage, no claim was made in respect of the financing charges in relation to CFDs. 

The Claims and the issues
44.	The claims which are in issue are now as follows:
(1)	Profits generated as a result of internal transactions ie, the IFX main desk transactions.
(2)	Profits from foreign exchange transactions directly between the IFX main desk and Byblos’s customers. 
(3)	Profits from swaps/rollovers.
(4)	Profits from CFDs. 
(5)	Profits deriving from ‘further interest charges’.
45.	To a greater or lesser extent IFX denies these claims on the proper construction of the IBA; and to a greater or lesser extent, it contends that, whatever may have been Byblos’s entitlement under the IBA, the parties clearly conducted themselves on a basis which now precludes Byblos successfully advancing the claims.
46.	Although IFX’s Defence relies on estoppel by convention, estoppel by representation and equitable forbearance, Mr Tregear accepted that, if IFX could not succeed in its defence of estoppel by convention, it was unlikely to succeed in the other two defences.

The applicable law
47.	Two areas of law are relevant to the determination of the issues: first, the proper approach to the construction of the IBA; and secondly, the principles to be applied in relation to estoppel by convention. Neither was significantly controversial.
Approach to construction
48.	It is clear that an agreement must be construed against its factual background or surrounding circumstances. The factual background includes anything which was reasonably available to the parties and would have affected the way in which the terms of the document would have been understood by a reasonable man in the position of the parties, see Reardon Smith Line Ltd v. Yngvar Hansen-Tangen, ‘The ‘Diana Prosperity’ [1976] 1 WLR 989 (Lord Wiberforce at 997), and Investors Compensation Scheme Ltd v. West Bromwich Building Society [1998] 1 W LR 896 (Lord Hoffman at 912). It excludes evidence of previous negotiation or drafts, and evidence of the subjective intent of the parties, see Prenn v. Simmonds [1971] 1 WLR 1381. 
49.	Commercial contracts must be construed in accordance with business commonsense, see Antaios Compania Naviera SA v. Salen Rederierna AB, ‘The Antaios’ [1984] AC 191 (Lord Diplock at 201). Although the contract cannot be effectively rewritten to make it accord with the Court’s conception of business commonsense, if the language used is reasonably capable of an interpretation which attributes to the parties a sensible and businesslike approach, such a construction should be favoured, see Chitty on Contracts 30th Ed. §12-056.
Estoppel by convention
50.	The law in relation to estoppel by convention is also conveniently summarised in Chitty at §3-107
Estoppel by convention may arise where both parties to a transaction ‘act on assumed state of facts or law, the assumption being shared by both or made by one and acquiesced in by the other.’ The parties are then precluded from denying the truth of that assumption, if it would be unjust or unconscionable to allow them (or one of them) to go back on it. Such an estoppel differs from estoppel by representation and from promissory estoppel in that it does not depend on any representation or promise. It can arise by virtue of a common assumption which was not induced by the party alleged to be estopped but which was based on a mistake spontaneously made by the party relying on it and acquiesced in by the other party. It seems, however, that the assumption resembles the representation required to give rise to other forms of estoppel in that it must be ‘unambiguous and unequivocal.’
The estoppel does not, however, apply prospectively: once the common assumption is revealed to be erroneous, the estoppel does not apply to future dealings, see Chitty §3-112.

Discussion and Conclusion

The factual background
51.	In my view the factual background to the IBA was as follows.
(1)	The parties were operating in a market with which they were both familiar and experienced. 
(2)	There was a common understanding that forex transactions might involve,
a)	large trades (up to $200million), 
b)	relatively small profits for Byblos and IFX on each transaction, 
c)	a large number of transactions so as to yield profits, and 
d)	high market volatility, with prices changing in a matter of seconds. 
It was, to use Mr Tregear’s phrase, ‘a high speed market’.
(3)	The extent to which either party could ‘adopt a position’, or trade as a principal, was confined by mandates.
(4)	A main trading desk would have a large number of different positions with many customers and market counterparties which would make it difficult to determine a profit from any particular transaction in which it engaged. The evidence of Mr Owens, which both sides relied on, was that it would be virtually impossible in the case of relatively small trades.

1. Profits generated as a result of internal transactions: the IFX main desk transactions.

Construction
52.	The question whether the IFX main desk ‘down-stream’ income was generated by customer accounts within the meaning of Clause 10 can be looked at as a matter of impression and as a matter of analysis. Both in my view yield the same answer. 
53.	There might be a correlation with the customer account, in the sense that the downstream transactions ‘matched’ the customer transactions; but very often there was not. Sometimes this was because Byblos had taken a market position which it did not cover with the IFX main desk. On other occasions because the IFX main desk did not itself cover the customer transaction with a matching downstream transaction, since it was adopting its own trading position within agreed mandates and made its own price to Byblos. Even where there was a downstream transaction this was not necessarily a ‘matching’ transaction. More usually it covered a position on a number of upstream trades. This was the nature of the business, known to both sides at the date of the IBA, and reinforces a general impression that the income which was covered by Clause 10 was not intended to embrace profits generated by the IFX main desk’s diffuse trades. 
54.	In Clause 10 the parties were concerned with income generated by customers’ trading. This was what Byblos was handling within IFX. The impression that Byblos’s right to share income did not extend to the profits and losses of the IFX main desk is reinforced by business sense, the structure of the IBA and some of its detailed provisions: for example, the deductions for ‘trading errors’ and ‘third party commissions’ in Clause 10.  
Estoppel by Convention 
55.	Even if I am wrong in this view of the proper construction of Clause 10, I am quite satisfied that it was nevertheless a view shared by the parties, at least until a contrary view was expressed in Mr Hachem’s letter of 10 September 2003.
56.	The accounting system by which Clause 10 was operated was account 4ZN (and later 48000). It was a system which only accounted for the Byblos customers’ transactions; and was known to do so. Byblos received daily and monthly statements for this account as well as customers’ accounts. These statements were regularly reviewed by Ms Elmer; and Mr Hachem knew that they did not include income from IFX main desk trading. If there was an accounting system which could have accounted for the IFX main desk as a matter of generality (as to which I have very considerable reservations) it was never in place, as both sides well knew. The reasons for my reservations derive from the almost unanimous views of the IFX witnesses (whose evidence I accept on this point) that it was then, and certainly would now be, impossible to construct a system which would properly identify income generated by Byblos’s customers at the IFX main desk. The extrapolation of profit and (in some cases loss) among so may unmatched transactions was described fairly by Mr Wellesley as ‘impossible.’
57.	It was in recognition of the complexity of any attempt retrospectively to reconstruct the trading activity of the main desk that Byblos limited its claim to ‘transactions where identification is possible.’ Mr Darling QC submitted that ‘large’ transactions would have been hedged immediately and would be inherently easier to trace. That may be so; but it does not overcome the fact that the parties conducted themselves on a basis that was not limited to ‘small’ transactions. 
58.	Mr Hachem understood that the IBA was not being operated by IFX in the way Byblos now says it should have been; but the nature of his complaint was as to the prices that Byblos was being offered between January and July 2001. Although at one point in his evidence Mr Wellesley appeared to accept that Mr Hachem was making a complaint about a share of profits, I am satisfied that the complaints were about ‘the fairness’ of the prices offered by the main desk. The fact that Mr Hachem was complaining about prices is of course inconsistent with a claim for a share of profits. If better prices had been made available, it would have increased the profit in account 4ZN; and (on Byblos’s case) reduced the IFX main desk profits.
59.	The relationship was consistently conducted on the basis of a clear and unequivocal shared assumption as to the proper accounting of profits under Clause 10; and it would, in my view, be unjust and unconscionable to allow Byblos to go back on it. The terms of Clause 13.1, relating to waiver, do not affect this conclusion.
60.	For these reasons I find that Byblos’s claim under this head (Claim 1) fails.  

2. Profits from foreign exchange transactions directly between the IFX main desk and Byblos’s customers.
61.	This claim is now confined to those trades which occurred before 10 September 2003. There is no construction issue since IFX accepts that it would be liable to account for profits where the IFX main desk dealt directly with Byblos’s customers. 
Estoppel 
62.	As already set out above, Byblos established a system which was intended to ensure that profits on trades carried out directly with the IFX main desk, usually after the Byblos Associated Employees had left the office, were properly accounted for. Some of the out-of-hours trades would have been conducted through Mr Hachem; and such claims would fall within Claim 1. Where the trade was direct, the evidence showed that (apart from internet trades) Mr Hachem and his team were aware of when these trades were likely to occur. The IFX  main desk were informed of the number of pips which would need to be added to the price by way of agreed mark-up; and Ms Elmer would check the overnight record each morning so as to ensure that the transactions which gave rise to profits in which Byblos was entitled to share were properly accounted for. 
63.	No complaints were made by Byblos that this way of accounting for these direct trades was unsatisfactory. 
64.	It seems to me reasonably plain that the parties conducted themselves on an agreed basis in relation to the trades that I have described. However, I am not satisfied that the internet trades were conducted on an agreed basis or were properly accounted for. This was something that Mr Owens recognised in the course of his evidence.
65.	The difficulty with this head of claim, as with claim 1, is the difficulty in now extrapolating a profit or loss from single transactions among so many. In this respect I accept the evidence of Mr Wellesley and Mr Owens. However, that is not a reason for refusing to order an account in relation to a limited category of internet transactions between Byblos’s clients and the IFX main desk. I recognise a legitimate commercial objection from IFX that Byblos should not get 50% of a profit where it had not done anything to effect the trade. However, that was inherent from the terms of the IBA. Although I am concerned with whether, rather than how, an account should be taken, it seems to me that those experienced in this market would be able to calculate a fair basis for recovery on a volume based credit system.

3. Profits from rollovers
66.	In my view the profits for roll-overs properly fell within the widely drawn Clause 10 definition, ‘income generated by accounts directly introduced to IFX by (Byblos)’ as a matter of construction.
67.	However, Byblos (in the person of Mr Hachem and Ms Elmer) saw the daily and monthly accounts, which showed the roll-over charges. It also knew that profits and losses on differential interest rates were not being accounted for. Mr Hachem accepted that he never made any complaint about the treatment of roll-overs; and I do not accept that the complaints which he made about pricing were intended to refer to roll-overs. There were a number of reasons why there was no accounting for the roll-overs and no complaint about this. First, quite clearly neither party thought that they were transactions to which Clause 10 applied. Secondly, the reason for this may have been that they regarded this as a ‘back office’ transaction with which neither trading desk was involved. Thirdly, the complexity and number of transactions would have made the attribution of profit or loss a daunting (if not impossible) task; as it would now, if such an exercise was to be attempted.  In my view this amounted to an unambiguous and unequivocal common assumption as to the treatment of any income.
68.	For these reasons the claim fails (as a matter of analysis) up to the point when the common assumption was revealed to be false. I take this to be 31 January 2004. I am very doubtful about the utility of any attempt to calculate profits under this heading after that date; but will hear the parties on the form of any Order. 

4. Profits from CFDs
69.	There is no question that income from CFD transactions carried out on behalf of Byblos’s customers falls within Clause 10 as a matter of construction (see for example the reference to CFDs in Clause 1 of the IBA). The issues are (1) the extent to which IFX can deduct sums from the income calculation to represent the costs of generating the income and (2) whether the financing costs must be accounted for. In each case the claim is limited to the period after termination of the IBA.
70.	In Mr Wellesley’s view the IBA did not properly provide for what was to occur after termination. I agree with that view. It would plainly have made good business sense to have had clear and certain terms as to how the costs of servicing Byblos customers’ transactions were to be accounted for; and such a term might have included a provision for IFX to deduct sums representing its costs of generating the income. However IFX’s argument that this should occur as a matter of construction or by implying a term amounts to an invitation to rewrite the contract so as to make it accord with the Court’s conception of business common sense. I decline that invitation on established principles. It follows that the commission must be paid according to the express terms of the IBA and without extra-contractual deductions.
71.	So far as IFX’s second point is concerned, for the reasons set out above, I have concluded that financing charges come within the very broad definition ‘income generated by accounts directly introduced’ by Byblos. However, again there was a clear and unambiguous common assumption that financing costs fell outside the terms of Clause 10; and this assumption continued after the period that the Byblos team left. I have therefore concluded that again estoppel by convention applies as a defence to this head of claim up until 31 January 2004. 
72.	I should note that I am not in a position to decide any set-off issues in the present action. 

5. Profits deriving from ‘Further Interest Charges’
73.	I have concluded that this claim based on the differential rates of interest fell within the very broad definition of income to be shared between the parties in accordance with Clause 10. However again, it is clear that the parties treated this category of income as not being something that had to be accounted for. Mr Hachem accepted in the course of his evidence that there was a common assumption that this category of interest was excluded from the commercial relationship. 
74.	A particular issue arose in relation to a particular customer (Mr N). In 2003 Mr Hachem persuaded IFX to credit Mr N’s margin account with an extra 1% interest. However Mr Hachem did not complain that IFX were not properly accounting for profits on differential interest rates, although this was a clear opportunity for him to have done so, if there had not been a common assumption. 
75.	There is, in addition, a further difficulty with this claim: namely, that information which might have enabled an account to be taken no longer exists in relation to the period up to December 2003. In relation to any subsequent period I accept that it would be a very difficult and time-consuming task to identify relevant income.  

Payment of bonuses
76.	During the course of the trial IFX sought to amend the Defence so as to rely on the payment of bonuses as showing a detriment of IFX for the purposes of the estoppel argument. For the reasons I have indicated I do not think this is a necessary averment for the defence of estoppel by convention; and I am very doubtful whether the payment of bonuses adds very much to the Defence. It seems to me that the important question is whether it would be unjust and unconscionable to allow either party to go back on the common assumption. In each case where I have found that there was a common assumption I have concluded that it would be unjust and unconscionable to allow either party to go back on the assumption, not least due to the extreme difficulty in unravelling the relevant transactions so as to identify what might legitimately be shared in accordance with the provisions of Clause 10. A separate argument based on the payment of bonuses adds nothing to this, and I therefore refuse leave to amend. 

Form of Relief
77.	Byblos’s pleaded claim includes a claim for an account; and the parties proceeded on this basis during the course of the trial. However they have recognised that a more convenient course would be for the Court to make a declaration as to entitlement and to apply for subsequent directions if necessary. 

Conclusion
78.	I have therefore concluded that:
(1)	Byblos is not entitled to any relief in relation to Claim 1.
(2)	Byblos is entitled to declaratory relief in relation to Claim 2.1 limited to unaccounted internet trades by Byblos customers with the IFX main desk, prior to 3 November 2003.
(3)	Byblos is not entitled to a declaration in relation to Claim 3, save in relation to the period after 31 January 2004.
(4)	So far as Claim 4 is concerned, (i) IFX are not entitled to deduct costs in respect of overheads in respect of commission payable after termination of the IBA; and, (ii) Byblos is not entitled to a declaration in relation to the financial charges in respect of CFDs, save in relation to the period after 31 January 2004.
(5)	Byblos is not entitled to a declaration in relation to Claim 5, save in relation to the period after 31 January 2004.
79.	I will hear the parties on the correct form of the order in the light of the findings set out above.