[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	England and Wales High Court (Queen's Bench Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> IG Index Plc v Leung -Cheun & Ors [2011] EWHC 2212 (QB) (17 August 2011) URL: http://www.bailii.org/ew/cases/EWHC/QB/2011/2212.html Cite as: [2011] EWHC 2212 (QB)

[New search] [Printable RTF version] [Help]

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		17/08/2011

Judge Mackie QC:

1. The Claimant seeks £773,152.09, sums including contractual interest allegedly due, on spread bets placed by or on behalf of the Defendants. The transactions are not denied. The issue in this case is in effect the counterclaim. The Defendants claim damages, more than the sum sought by the Claimant, alleging that they have suffered loss as a result of the Claimant's alleged breaches of contract in failing to close out open bets within five business days of margin call. The main question is whether there were margin calls at all. The Defendants also claim damages because under some accounts they say bets were opened only because the Claimant failed to obtain from them the required deposit in advance.

Background

2. The Claimant ("IG Index") is a company specialising in spread betting. The first Defendant was born in 1945 and worked in the IT Departments of several banks before retiring in 2004. He has been trading in shares and options since about 1980. In 2005 he started dealing with IG Index. In 2007 his wife Brigitte and children Christine, Donald and Angela, the second to fourth Defendants, also became clients of IG Index but their bets were run by Mr Leung-Cheun under powers of attorney. In time each client had two accounts all ten being run by Mr Leung-Chun. Mr Leung-Chun was a very demanding and active client of IG Index. While Mr Leung-Chun disagreed with the way his accounts were handled from time to time and IG Index apparently found him sometimes too demanding the relationship worked satisfactorily until September 2008 when market falls caused by the banking crisis led to the events in issue in this case.

Spread Betting

3. I am not the first Judge gratefully to adopt the explanation of spread betting set out in the judgment of Rix LJ in Spreadex Ltd v Battu [2005] EWCA Civ 855

"SPREAD BETTING

[2] Spread betting is not so much or not merely a bet, although it can be described as such, as a form of contract for differences. It enables a customer to take a position on a market (or an event) for a very small stake. Thus if the Dow Jones index is, say, at 10,000, one can "buy" or "sell" the market at a spread around the index of, for the sake of example, 10 points either way, 9990 to 10010. If one buys, one is betting that the market will rise above 10010. If one sells, one is betting that the market will fall below 9990. If one buys and the market rises, one stands to gain £1 for every point that the index exceeds 10010. If one sells and the market falls, one stands to gain £1 for every point that the index drops below 9990. If, however, one calls the market wrong, then one will stand to lose £1 for every point that the index exceeds the spread point in the wrong direction. Thus if one sells at 10,000 with a sell spread point at 9990, one will make £1 for every point the market falls below 9990 and lose £1 for every point the market rises above 9990. Until the bet or "trade" is closed, the gains and losses are merely "running" gains or losses. They are real enough, but constantly changing with every change in the index, and have not yet been fixed. Closing the bet will fix the position, win or lose. Unlike a classic bet, the customer can of course lose more than his stake. Indeed, on the example given, of a sale spread point of 9990 when the market is at 10,000, if the market does not move an inch, the customer will lose £10 for every £1 staked. Nor, again unlike a classic bet, are his winnings fixed at the outset by an agreement on odds. In theory winnings based on rising markets are infinite (in practice of course they are not) and losses based on falling markets are limited only in so far as they cannot exceed the consequences of a fall in the index to zero.

[3] Normally, of course, to gain by £1 for every rise (or fall) of a single point in a stock market index such as the Dow Jones would take an investment of significantly more than £1. In effect, one's £1 bet commands a position in the market significantly greater than the stake. In other words, there is a large element of gearing in the trade, and the situation is correspondingly volatile. Where the market in question is itself in a volatile phase, the risks become even greater. Thus, if the Dow Jones is capable of moving within a range of 100 or 200 points in a single day, the customer can be £100 to £200 richer or poorer per £1 stake within a matter of hours of his trade. On a trade of £100, those figures become £10,000 to £20,000.

[4] The spread betting operator who accepts these trades does not bet against the customer, but lays off the trade elsewhere. Ultimately, I suspect, the trade is accumulated in some form of derivative transaction on a futures exchange, but I do not know. The operator, however, by laying off the bet elsewhere seeks to profit by means of the spread. The means by which it does that, and the terms on which it does that, however, are not a matter for the operator's customer: nor, in the present case, have the applicable terms been disclosed."

The counterclaim initially included a claim for damages for breach of the FSA Rules as set out in the Conduct of Business Source book. This claim was wisely dropped before trial so it is unnecessary to set out the detailed facts about the circumstances of the Defendants and the opening of the accounts.

Spread Betting Customer Agreement ("The Agreement")

4. Dealing between the parties was on the terms of the Agreement a document containing 31 Terms set out in 13 pages. After 1, an introduction, 2 deals with "the services we will provide in dealings between you and us", 3 with "Conflicts of interest", 4 with "Our charges and tax" and 5 with "Providing a quote".
5. 5(4) provides as follows "If, before your offer to open or close a Bet is accepted, we become aware that one of the factors set out at Term 5(5) has not been satisfied at the time you offer to open or close a Bet, we reserve the right to reject your offer at the level quoted. If we have, nevertheless, already opened or closed a Bet prior to becoming aware that a factor set out in Term 5(5) has not been met we may, at our absolute discretion, either treat such a Bet as void from the outset or close it at our then prevailing price. However, we may, at our absolute discretion, allow you to open or, as the case may be, close the Bet in which case you will be bound by the opening or closure of such a Bet, notwithstanding that a factor in Term 5(5) was not satisfied.
6. 5(5)(k) provides "when you offer to open a Binary Bet, or you offer to open a Spread Bet on a Deposit Account you must always have sufficient funds in the relevant account to cover your maximum potential loss on the relevant Bet.
7. Clause 6 deals with "Opening a Bet" and 6(4) provides "Each Bet opened by you will be binding on you, notwithstanding that by opening the Bet you may have exceeded any credit or other limit applicable to you or in respect of your dealings with us".
8. Clauses 7 to 13 are irrelevant to this case.
9. Clause 14 deals with Deposits and Margin and the relevant parts read as follows

"[1] From time to time we may require you to provide deposits and margin which may only be provided in the form of cleared funds in our bank account, unless, by separate written agreement, we accept other assets from you as collateral for a deposit or margin payment. If assets other than cash are accepted, we will be entitled to realise such assets, in circumstances as defined in the separate agreement. In the event that any applicable debit card authority or other paying agent declines to transfer funds to us for any reason whatsoever then we may, at our absolute discretion, treat any Bet entered into by us in reliance upon receipt of those funds as void from the outset or close it at our then prevailing price, and recover any losses arising from the voiding or closure of the Bet from you. We reserve the right to stipulate the method of payment to be used by you.

[2] In making any calculation of the deposit or margin that we require from you under this Term 14, we may, at our absolute discretion, have regard to your overall position with us including any of your net unrealised losses (i.e. losses on open positions).

[3] If a written demand is Communicated to you it will be deemed to have been made as soon as you are deemed to have received such notice in accordance with Term 13(10).

Deposits

[6] Unless otherwise agreed by us on the business day on which you open a Bet, you will pay a deposit in respect of each Bet, which will be due and payable immediately upon opening the Bet. When you open a Bet the amount of deposit payable by you will be the amount which we notify to you (which will be set by us at our absolute discretion) or if we do not notify you of the amount:

(a) the amount of the Stake multiplied by the deposit factor specified in respect of that Bet in the Information Tables or as otherwise specified in advance to you by us; or

(b) In the absence of such specification:

(i) if the Bet is a Financial Bet, the amount of the Stake multiplied by 10% of the Opening Level of the Bet; or

(ii) if the Bet is a Binary Bet, or a Spread Bet under a Deposit Account, the maximum amount which you would be capable of losing in respect of the Bet at the time when you open the Bet taking into account any Automatic Stop Figure which applies.

[7] If we agree that you are not obliged to pay a deposit on opening a Bet, we may nevertheless require payment of a deposit in respect of that Bet at any time thereafter. We will at any time be entitled to require you to make additional deposit payments on open Bets. You agree that, regardless of the normal way in which you and we communicate, we will be entitled to notify you of an Increase to deposit payments by any of the following means: post, fax, email, text message, our Electronic Betting Service or by posting notice of the Increase on our website.

Margin

[8] Unless otherwise agreed by us on the business day on which you open a Bet, you will immediately, make margin payments sufficient to provide us with an amount which, when a movement adverse to your Bet has taken place, you would lose on the Bet if it was closed on the basis of our current quotation for the Index concerned.

[9] Where, following margin payment becoming due and/or a margin call being made, positive movements in your open Bets result in you no longer being marginable, we may, at our absolute discretion, deem that the margin payment is no longer due or the margin call to have been satisfied.

10. The relevant parts of clauses 15, Payments and set-off and 16 Default and default remedies are as follows

15 Payments and set-off

[1] All payments to be made under this Agreement (other than payments under Terms 14(6) and 14(8) that are due and payable in accordance with those Terms respectively) are due immediately on our Communicating a demand. All payments must be paid by you, and must be received in full by us for value, by (a) where the demand is Communicated before 12 noon on any day, not later than 12.00 midday on the business day following the day on which our demand (including our deemed demand in accordance with Terms 14(6) and 14(8) is Communicated; or (b) where the demand is Communicated after 12.00 midday on any day, not later than 4.00pm on the business day following the day on which our demand…

(2)…[c] If you have a Deposit Account you will be required to deposit funds into the account before we accept any offer from you to open a Bet. Regardless of what type of account you have, if you offer to open a Binary Bet, you will be required to deposit funds into your account before we accept the offer. It is both a condition of having a Deposit Account and a condition of opening a Binary Bet that there are always sufficient funds in your account to cover the maximum potential loss under the Deposit Account Bet(s) of the Binary Bet (as applicable). We, acting in our reasonable discretion, may waive this condition from time to time however you should not take such waiver as a general waiver of the condition Imposed under this term. Unless the condition is specifically waived by us, you should always ensure your obligations under this term are satisfied…

16 Default and default remedies

[1] Each of the following constitutes an "Event of Default":

(a) your failure to make any payment (including any deposit or margin payment) to us or to an Associated Company of ours in accordance with Term 15;…

[4] You acknowledge that:

(a) where you have failed to pay a deposit or margin call in respect of one or more Bets five business days after such payment becomes due, we are (except as provided in Term 16(5) below) obliged to close out such Bets; and…

[5] Subject to FSA Rules, in the event of your failing to meet a demand for deposit or margin or your being In excess of any credit limit placed on your account, we may exercise our reasonable discretion to allow you to continue to place Bets with us, or allow your open Bet to remain open, but this will depend on our assessment of your financial circumstances…

11. Clauses 17 and 18 deal with Client money and Indemnity and Liability. Clause 19 deals with Representations and Warranties and provides at (2) "this agreement contains the entire understanding between the parties in relation to the Betting services offered by us".
12. In clause 31 dealing with Interpretation "Deposit Account" is defined as follows:

"Deposit Account" is a type of account you may open with us respect of which we will require you to credit the account with deposits prior to opening Bets, in order to cover your maximum potential losses. In respect of Financial Bets; a Deposit Account means the type of accounts currently described by us as either Limited Risk Deposit Accounts or Standard Accounts (Cleared Funds). In respect of Sports Bets, Deposit Account means the type of account currently described by us as a Deposit Account.

Facts agreed or not much in dispute

13. The trading activity and position under the 10 accounts was recorded in a daily statement sent out by IG Index to the Defendants by email in the early hours of the morning. The email would set out the position at close of business on the preceding day. The daily statement would indicate how much, if any, margin was due. If margin became due the statement would record "THE AMOUNT NOW DUE FOR IMMEDIATE PAYMENT IS…"

The statement itself starts with "ACCOUNT SUMMARY IN STERLING" this shows the cash held, the running profit or loss and nets this to show "Total surplus or deficits". The last line under that heading, "DEPOSIT INCURRED ON OPEN POSITIONS" shows the deposit required to maintain existing open positions. Beneath that is a box "ACCOUNT LIMITS". This would show a "total deposit limit", a "waived deposit limit" and a "credit limit". The waived deposit limit would reduce the amount of deposit incurred on open positions for the purpose of any margin call. The expressions "deposit" and "margin" are used loosely. Strictly deposit is what has to be put up to get an account going. Margin is what is required when positions deteriorate while accounts are active.

14. On 8^th September 2008 the daily statement for seven of the accounts stated that amounts were due for immediate payment (for margin although the documents did not use that word). The statement for the other three accounts contained this request on 9^th September. These three accounts had waiver deposit limits which caused margin to be apparently due and the wording to appear on their statements a day later than the other seven.
15. The Defendants say that these statements were margin calls and that since they were not paid within five business days the open Bets should have been closed out under Term 16(4) on 12^th September 2008 for the first seven accounts and on the 15^th September for the other three (13^th and 14^th September being a weekend). If they had been closed out as required by the contracts the Defendants would not have sustained these losses. IG Index says those statements were not margin calls and were never understood by the Defendants to be so because of the agreed application of Standard Portfolio Analysis of Risk ("SPAN").
16. SPAN is an acronym known and used in the markets and familiar to both parties. The purpose of a SPAN calculation is to take account of offsetting positions within accounts in a way which the standard process for assessing margins does not. Offsetting positions can reduce the overall risk and thus the requirement for margin. Statements of account automatically generated by IG Index showed the position before any SPAN calculations were being applied to the accounts. Any adjustments had to be made manually.
17. The key events in September 2008 need to be seen in the context of earlier and later events.
18. On 10^th December 2007 Mr Nasr of IG Index sought payment by email from Mr Leung-Cheun of a margin of £7,054. Mr Leung-Chun responded that day saying that he disagreed with the calculations because "your computer system does not take into account my long positions for calculating the deposit required", a point which he then develops. Later that day Mr Leung-Chun reiterated the point and said that he had been told that IG Index has "to do manual adjustments to the calculations because your computer system cannot automatically recognise long positions and make the necessary adjustments".
19. On 11^th January 2008 an email exchange began between Mr Leung-Chun and Mr David Russell then Credit Director of IG Index and now its Treasurer. Mr Russell expressed some concerns about margin. Mr Leung-Chun replied on 13^th January at length disagreeing with Mr Russell's calculations. He refers to having been given a "detailed method of calculating the deposit required taking into account my long position" the previous month. He added "the problem lies with your computer system, I have been told by Philip Nasr that it cannot automatically handle my long positions on the Call and Puts. The credit dept has to carry out a manual adjustment to take into account these long positions". He attaches two Excel sheets explaining how various transactions can be offset and, in effect, applying a STAN analysis.
20. On the 17^th January 2008 Mr Russell replied to Mr Leung-Chun. His email included the following:

"You are correct that our system does not automatically generate the margin which reflects the risk on the positions – it does not recognise option strategies and offsets, and will treat long positions and short positions independently. It also has limitations in how it treats short positions (it will never change less than 50% of the outright or futures margin rate, so in effect even if the delta is much lower than this it will put a 50-delta floor on it).

It is for this reason that the Credit department does indeed do a manual override, using the scenario-based approach which has previously been explained to you. This is manual, prone to some error as noted above and time consuming, but we do set out to calculate an appropriate deposit requirement for the risk on each account."

21. IG Index margin sheets, disclosed late, indicate that on days when the computer generated statements showed that margin or deposit was payable, the company ran the SPAN process. If, after this process was run, no margin was then payable this was recorded on the margin sheet. The employee would write "ok with SPAN", occasionally with other remarks. From time to time the sheets would show "ok small" which, Mr Russell volunteered, showed that SPAN had not been carried out but that the potential sum in question was too low to cause concern. "Ok with SPAN" is frequently shown for more than five consecutive days.
22. Mr Mallin makes the point that the authors of these margin sheets were not called to give evidence. However I accept the evidence of Mr Russell that all the documents are what they appear to be. Further it is as improbable that there would have been very extensive fabrication as it is that IG Index would voluntarily forgo opportunities to seek valuable margin by applying SPAN when Mr Leung-Cheun did not require it.
23. Transcripts were produced of telephone conversations between the parties. The most relevant call in September 2008 was between "Tom" of I G Index and Mr Leung-Cheun starting at 10-55 on the 17^th. There is no suggestion from either side that Mr Leung-Cheun has failed to pay margin calls or that anything is due at that point. Mr Leung-Cheun does not suggest that he should have been closed out. The speakers refer to the closing date of positions being the 19^th and Mr Leung-Cheun explains that there should be no problem clearing the balance.
24. On 19^th September 2008 IG Index closed out all the accounts.
25. On 4^th May 2010, after this action had started, Mr Leung-Chun, who was at that point representing himself, submitted to the Court copies of a letter which he had sent to the Claimants solicitors setting out the "Main Outstanding Issues of the Litigation". In the course of that impressive document Mr Leung-Chun said this at paragraph 5.1

"The Claimants failed to run a proper computer system that would provide vital details on the bets held by their clients in real time. The computer system could not calculate the overall margin requirements on the open bets on an account if there is a mixture of "long" and "short" bets. I.e. where bets have been bought and sold at different strike price level. The Claimants had to span the positions manually to calculate the total margin requirements." These remarks presuppose that a SPAN system was being operated.

26. Evidence was produced and skilful submissions made, particularly by Mr Mallin, about technical aspects of the SPAN process. As I see it this detail is irrelevant to the main issue. This is whether or not the statements of 8^th and 9^th September, despite their wording, were not margin calls because the parties allegedly knew that they were subject to the application of SPAN which resulted in things being "ok" that day.
27. When writing to the Court in 2010 Mr Leung-Chun also stated that when, during September 2008, positions were open and he was asked to deposit more funds to meet margin calls he told IG Index that there were no funds available to meet these. He said that this could be confirmed by the telephone transcripts. His recollection is at fault. In fact the transcripts show no such thing. The most relevant transcript is that at 10.55 on Wednesday 17^th September. During this conversation with "Tom" Mr Leung-Chun says that he is closing a few positions "they are all finishing off. Tomorrow is the last day, I think". When asked about funds available to clear the balances Mr Leung-Chun responds, as I have already mentioned, "there should be no problem on that. Ok?"

Witness Evidence

28. Mr David Russell was the only witness for IG Index at the trial. He had provided two witness statements and I permitted a third one to be served late. The only contentious issue was SPAN. Mr Russell accepted that the daily statements stated that margin was payable but insisted that these were incorrect because of the practice between the parties that the Claimant would apply a SPAN calculation, if a statement indicated that margin was payable. The statements of account, which were automatically generated, showed the position before any SPAN calculation had been made and Mr Leung-Chun was well aware of this. Mr Russell described the limitations of the margin calculation if SPAN was not applied. It was as a result of that process that on the 8^th and 9^th September 2008, despite the daily statements, no margin was actually asked for or required because the SPAN process had not shown this to be due.
29. In his third witness statement Mr Russell disclosed the daily margin sheets to which I have already referred. He also produced, on a spreadsheet, an exercise he had carried out taking the Defendants' positions from 8^th to 17^th September 2008. The exercise was intended as a reconstruction to support IG Index's claim that if SPAN were applied none of the accounts would have been on call on 8^th or 9^th September. The exercise shows that none of the accounts were on call on either date, that five accounts were on very small calls on 10^th September, that none of the accounts were on call on 11^th or 12^th September and that on 15^th September very small calls on some accounts were due. Mr Russell says that the conclusion for 15^th September is consistent with the comment "ok with SPAN 15/09". He says that on 16^th September the accounts were on call even after the SPAN process. However the margin sheets do not record that any call was made that day. On 17^th September the accounts were, according to the exercise, all on call. A margin call was made that day.
30. Mr Russell readily accepted the shortcomings in his exercise. First it is a reconstruction since the original data upon which staff at IG Index would have done the exercise has not been retained. The SPAN process was run by credit controllers "on the fly". They looked at an account each morning and would start with the largest potential margin calls and would work through to the smaller ones. It was therefore not possible to work out at what time in the morning the SPAN process was run. The live market prices at the time could have been different from those in the reconstruction based on the previous night's closing. Secondly Mr Russell accepted that he had to make an assumption about volatility at 35%. While insisting that volatility would have been in that general area he accepted that it was only an assumption. He was cross-examined not only about alleged short-comings in the exercise but about suggested flaws in using SPAN.
31. Mr Leung-Chun gave evidence on behalf of the Defendants. As he traded on behalf of the members of his family under a power of attorney and clearly took the decisions it was unnecessary for them to give evidence too. Mr Leung-Chun referred to the correspondence in December 2007 and January 2008. He recalled that Mr Russell had told him that the computer system would be updated in the near future. Indeed he said that he continued to trade on the strength of those assurances. He said that while he was incurring losses and coming under margin call in September he could not be certain about the date or amounts because the computer was not capable of calculating these automatically.
32. Mr Leung-Chun claimed that whenever he saw a daily statement requesting payment "immediately" he took that to mean that a margin call had been made. He accepted that he had taken no steps to pay any of the September margin calls and had not been chased for payment by the Claimant. He said that he was aware of the SPAN process but this was an analysis which would only be carried out if he requested it. If it was carried out and it showed no or less requirement for margin the call would be adjusted accordingly. He saw the SPAN process as taking effect when he had long call or put positions in the accounts. As far as Mr Leung-Chun was concerned the SPAN process and its consequences did not supplant or replace the margin calls made by the daily statement. As he saw it even if the SPAN process overrode the effect of the margin requirements in the daily statements it would only have had an effect on calculations if there had been long positions. Mr Leung-Chun did not have long positions at the relevant time.

Facts - Decision of the Court

33. Mr Mallin suggests that the starting point must be the daily statements which on their face seek payment of margin calls. He suggests that there was, at worst, uncertainty about the position because a meeting proposed by his client in January had never taken place. He submitted that the absence of evidence of specific conversations during which the arrangement had been spelled out was consistent with his client's recollection of events.
34. In my judgment Mr Leung-Chun knew full well that the statements were not in truth an immediate demand for payment of money and that neither side saw them as such. I accept that the starting point is that the statements mean what they say. However from at least December 2007 Mr Leung-Chun refused to pay margin calls unless they took account of what he saw as appropriate off-setting. By no later than January 2008 a SPAN filter was in place. Mr Leung-Chun kept a very close eye on his positions and appears to have done large numbers of trades often very many in a single day. The internal records of IG Index show that margin calls were not made unless the statements had shown that these were due and SPAN had first been applied. The "ok with SPAN" notes are not consistent with anything else. The statements at issue in this case were not treated by Mr Leung-Chun as being margin calls, he did not question the statements or seek time to pay. He knew that they were subject to manual correction following the application of SPAN. Similarly IG Index did not itself pursue the matter as it would have done had a real margin call been due. The telephone call on the 17^th September proceeded, as the transcript shows, on the basis that payment would be due when positions closed in the ordinary way on 19^th September, without a suggestion of margin having being due previously. This reflects what both parties understood and had agreed the position to be. Mr Leung-Chun's submission to the Court in 2010 is not consistent with the position taken in his evidence. I do not accept Mr Mallin's intermediate submission that the parties had different understandings and were at cross purposes.
35. Mr Leung-Chun has been under tremendous strain since he became a casualty of the financial crisis in 2008 having incurred substantial potential liabilities to the Claimant and to others on behalf of himself, his wife and his three children. This is not a case where I have to choose simply between the unsupported oral evidence of Mr Russell on the one hand and that of Mr Leung-Chun on the other. The documentation and the undisputed facts make it quite clear that pressure and stress have led Mr Leung-Chun to misrecollect what was happening in 2008. I accept that the reconstruction carried out by Mr Russell has flaws and potential for inaccuracy. I also accept that it was served late and that Mr Russell is only an indirect witness of the events covered by the reconstruction. Nevertheless it does provide support for the Claimant's position and confirms the view which I have formed from the other material. I reach these findings of fact at this point in the judgment to focus the discussion on the legal submissions about the two defences raised by the Defendants.

Margin – Term 16 (4)(a)

36. Mr Mallin submits that the Claimants have failed to spell out a viable legal basis for proceeding as though the daily statements are not an accurate record of the parties' contractual obligations. He says that there is no room for an implied contract, or estoppel by convention or waiver or even for variation of the existing contract given the existence of the entire agreement clause.
37. Mr Mayall for IG Index submits that it is a matter of contractual interpretation applying the well known principles in Investors Compensation Scheme v West Bromwich Building Society [1998] 1WLR 896 at 913B. He also relies upon an observation by Morgan J in Spreadex v Sekhon [2008] EWHC 1136

"Accordingly, in my judgment, the minimum content of a communication which is required for that communication to qualify as a margin call is that Spreadex asks the client to pay money, whether a sum is specified or not, and the words used in the relevant context reasonably convey to a reasonable recipient the fact that Spreadex is asking for margin call, as that phrase is understood in the Agreement."

38. As I see the analysis is straightforward. Questions of margin are dealt with in Term 14. There is no formal definition of margin. The question is whether, under the contracts entered into between the parties, the daily statements were margin calls so as to set off the consequences of failure to pay set out in Term 16(4). For the reasons I have given it is clear that the daily statements were not understood to be margin calls. The position was understood throughout to be so by the parties as illustrated in their telephone conversation on 17^th September 2008.

"Such Bets"

39. Mr Mayall submits that even if the statements did amount to margin calls and there was an obligation under 16(4) to close out bets open at the time that call was made the obligation is "to close out such Bets". If the first margin call was made on 8^th or 9^th September IG Index would be obliged to close those bets open on 8^th or 9^th September which were still open five business days later. In this case the great majority of losing bets were placed after the first "margin call" is alleged to have been made. They were therefore not "such bets".
40. Mr Mallin submits that that is the incorrect approach. Calculations of margin call are based on total or overall exposure. It follows that any demand obviously covers all the bets on the account at a particular time. The bets were known to be offsetting, some would lose while others gained. The deposit/margin calculation was to take account of the portfolio as a whole.
41. 16(4)(a) is explicit. The obligation is to close out the bets for which a deposit or margin call has been made without payment five business days later. As I see it "such bets" can refer only to those specific bets in respect of which a deposit or margin call had been made. The word "such" applies to specific bets not to an overall account. So I prefer the approach of Mr Mayall. As the issue does not affect my main conclusion I do not go into the details of the various bets.

Causation

42. The parties agree that if there had been a breach the question would then be whether that breach was the effective or dominant cause of the loss. They also agree that the judgment of Glidewell LJ in Galoo v Bright Graham Murray [1994] 1WLR 1360 @ 1374G (with which the other members of the Court of Appeal agreed), in which he held that the Court decides whether the breach of duty was the cause of the loss or simply the occasion for it by the application of common sense, supplies the test for this issue. Questions of causation have sometimes in the cases since been seen to be more complex but as the parties agree on the approach and this point is not necessary for my decision I do not address the principle further.
43. Mr Mayall says that there would have been no causal connection between the breach and the loss because the cause of the bets being still open by 16^th, 17^th or 18^th September was Mr Leung-Chun's decision to keep the bets open and to open many further bets. The breach by the Claimant, assuming it to be such, gave Mr Leung-Chun the opportunity to keep the bets open but it was his decision to leave them unclosed. This leads also to a claim by IG Index that if there had been a breach Mr Leung-Chun would have failed to mitigate his damage by taking reasonable steps to avoid or reduce that loss. Mr Leung-Chun admitted in evidence that he wanted to trade out of the losses developing in September and that he chose to keep bets open and to continue with this strategy. His failure to close out on the dates when he says the Claimant was in breach is, Mr Mayall argues, a classic breach of the mitigation duty.
44. Mr Mallin correctly draws a distinction between the facts of Galoo where the act of the auditors permitted the company to continue trading but were otherwise unconnected with the events that caused the losses and this case where the outcome arose from trading under the very agreement in respect of which the "breach" has occurred. The intervening act in this case, continued trading, is one which could reasonably have been expected to have occurred.
45. Mr Mallin submits that there is no evidence from the Claimant as to how Mr Leung-Chun could have taken steps to mitigate his loss. It is only with hindsight that it is clear that Mr Leung-Chun should have closed all bets immediately. A reasonable man may have concluded that it was better to keep them open.
46. If a breach of contract is assumed and the acts complained of were taken in isolation then it seems to me that Mr Mallin's view of causation might be preferred. If one assumes the breach (and also the absence of a "such bets" issue) then a loss caused because bets were closed out some days later than they should have been would have been caused by the breach. However this involves making assumptions about the facts in circumstances where Mr Leung-Chun was actively trading each day and would have been forcefully opposed to his positions being closed out five days after the "margin calls". I find it difficult to see how he could have successfully recovered damages for a failure to close out which he would have strongly opposed and which he could have remedied by closing out himself.

Deposit – Term 15 (2)(c)

47. It is common ground that seven of the ten accounts are within the definition of "Deposit Account" in the Agreement.
48. Mr Mallin submits that the requirement to deposit funds into the account before any offer to open a bet is a continuing one and not a one-off requirement when the account is first opened. He says that this is clear beyond doubt from the third sentence of Term 15 which requires, as a condition of having a deposit account "that there are always sufficient funds in your account to cover the maximum potential loss..." Mr Mallin rejects, as I see it correctly, Mr Mayall's submission that this provision can be of no effect as it is impossible to have a deposit of the "maximum potential loss" under a spread bet because this cannot be ascertained in advance. Mr Mallin submits that this must be read as meaning that the deposit account must always have sufficient funds to support the deposit or margin requirement imposed by the Claimant.
49. It is common ground that the Defendants opened new trades after 8^th September 2008 but paid no new deposits in respect of any of those. Mr Mallin puts forward an argument to suggest that there is a breach of the Term 15 even if the Defendants are wrong on the margin issue. He produces a calculation to show that there would have been a significant shortfall on the 8^th, 9^th and 10^th September so no new bets would have been covered by existing funds. Mr Mallin says that the conditions were not specifically waived by the Claimant in accordance with Term 15(2)(c) whether in the exercise of a reasonable discretion or otherwise. It therefore follows that IG Index is not entitled to claim for any losses suffered on the seven accounts in respect of bets placed on 8^th or 9^th September or after that. Further the second to fifth Defendants are entitled to damages in the amount of any loss claimed by the Claimant in respect of those bets.
50. Mr Mayall's response is that the Defendants had deposited funds into the account and that funds remained there. He says that the fact that it is a condition of having a deposit account that there are always sufficient funds to cover the maximum potential loss does not mean that it is a condition of opening a bet that a customer has any particular sum in his account. Furthermore by accepting the bet in circumstances where the background of trading was as it was and in a context where Mr Leung-Chun clearly wanted to carry out these trades IG Index was acting within a reasonable discretion to waive the condition and did so. Mr Mayall denies that there was a requirement that any condition be specifically (i.e. explicitly) waived. In addition he argues that the last sentence of Term 15(4) "however, we may, at our absolute discretion, allow you to open or, as the case may be, close the Bet in which case you will be bound by the opening or closure or such Bet notwithstanding that a factor in Term 5(5) was not satisfied" is of broad application and applies here. He also relies upon Term 6(4) which provides that each bet remains binding even if any credit or other applicable limit has been exceeded.

Deposit – Decision

51. Some particular features are relevant to the construction of the Agreement. First this is a standard set of terms produced by IG Index and ambiguous provisions will be read against it. Secondly I accept that to a degree the Terms are there to protect not just IG Index but also its clients. That is true with the requirement for closure of margin after five business days and may also be so with the provision of Deposit. Thirdly while clients of IG Index are within the umbrella of FSA protection, spread betting investments are for relevantly sophisticated investors, not the person in the street. Fourthly when interpreting particular provisions one must of course look at them as a whole and in context. For example an investor going on holiday cannot reasonably sleep safely in the knowledge that his positions will be closed out five business days after a margin call given that Term 16(5) provides IG Index with a discretion to keep positions open.
52. Term 15(2)(c) does, as I read it, envisage that the requirement for deposit will continue during the life of the Deposit Account and does not apply only when it is opened. Similarly "funds" must refer to sufficient funds to cover any potential deposit or margin call. The warning to the customer not to take a waiver as being of general application, does not diminish IG Index's right to waive requirements. Where, as in this case, an experienced client wanted to make bets notwithstanding any inadequacy of deposit, IG Index was indeed waiving the condition if it permitted that and also acting within a reasonable discretion. Mr Leung-Chun would have been dismayed if his bets had been refused. There was nothing to suggest that IG Index would not be acting within a reasonable discretion in waiving the deposit requirement. The fact that the Claimant did not in fact address waiver and discretion explicitly is not material.
53. Further IG Index has an absolute discretion under 5(4) to allow customers to open, or as the case may be, close the Bet. The customer is bound by the opening or closure of such Bets notwithstanding that a factor in Term 5(5) was not satisfied. This term seems to me to cover the situation broadly and not to be confined in the way suggested by Mr Mallin. Term 5 (5)(k) applies in this case. Mr Leung-Chun did offer to open a spread bet on a deposit account but did not have sufficient funds in the relevant account to cover maximum potential loss on the relevant bet. IG Index had an absolute discretion to open or close that bet which it exercised.
54. Mr Mallin puts forward an ingenious and very skilful argument but in my view, like so many points of interpretation not put forward until the first morning of a trial it lacks reality. To the extent that opening the bets would otherwise have been a breach of the deposit requirements compliance was waived by IG Index and the Defendants would have been surprised and outraged if it had not done so.
55. As the amendment occurred only on the first day of trial IG Index did not have time to look into the pattern of past trading. If the claim based on the Deposit provisions had been successful the Claimant would have argued that it was entitled to open up past transactions where, it claims, the Defendants had made substantial profits on bets without deposits being insisted upon.

Conclusion

56. These claims succeed because the counterclaims first on margin and secondly on deposit fail. I shall be grateful if Counsel will let me have a list of corrections of the usual kind and a draft order, both preferably agreed, not less than 72 hours before judgment is handed down together with a short note of any issues which they wish to raise at the hearing.