High Court dismisses £3.75m claim against spread-betting firm

In Day v FXCM [2023] EWHC 1349 (Comm), following a 6 day trial the High Court (HHJ Bird) has dismissed Mr Day’s £3.75m claim against a spread-betting firm, FXCM, arising principally from the Claimant’s trading losses on oil derivatives. Emma Hughes acted for FXCM (led by Daniel Warents (XXIV Old Buildings) and instructed by James Lankshear of Keystone Law).

The case has attracted media attention, including an article in The Times: “Trader sues broker FXCM after suffering heavy losses”.

Mr Day applied to open a trading account with FXCM in January 2020. Thereafter, he made trading losses on his account of around £1.8m on oil and currency trades.

Most of Mr Day’s losses were suffered in the course of a single day of trading on 20 April 2020 as a result of him betting on oil prices rising on the day that oil prices in the underlying market fell dramatically and turned to negative values.  Mr Day’s oil trades were closed by FXCM at a price just above zero on the evening of 20 April 2020 so that Mr Day lost the vast majority of the funds he had deposited into his trading account.

Mr Day brought a claim for damages against FXCM for damages for alleged breaches of contract and also for compensation under s.138D of the Financial Services and Markets Act 2000 for alleged breaches of the FCA rules contained in the Conduct of Business Sourcebook (“COBS”). Mr Day alleged that:

• FXCM had failed to carry out a sufficient appropriateness assessment to determine if he had sufficient knowledge and experience of FXCM’s products (as required by COBS 10A) at the time that he opened his account, and that FXCM had failed to revise its assessment subsequently in the light of events which occurred after he had opened his account. Mr Day therefore claimed that FXCM should not have allowed him to trade and that FXCM should compensate him for all of his trading losses (“Appropriateness Claims”).
• FXCM had applied incorrect expiry dates to his oil trades and that, if the correct expiry dates had been applied, Mr Day’s trades would have remained open until 18 May 2020, by which time oil prices had risen substantially. Mr Day claimed that this would have resulted in him not only recovering all of his trading losses but making substantial trading profits (“Expiry Date Claims”).
• FXCM had been obliged, and failed, to warn him that it operated a system which would close out trades if the price of oil in the underlying market fell to zero and that, if it had provided such a warning, he would have avoided some of his losses (“Negative Price Claims”).

The Court rejected all three claims:

• The Court found that FXCM’s account opening procedures (including the information it sought from customers in the account opening process) to assess appropriateness were fully compliant with its obligations under COBS 10A. The Court also found that, objectively, Mr Day’s knowledge of the risks of trading was such that FXCM’s products were appropriate for him in any event so that any further investigation of Mr Day’s knowledge and experience would only have re-affirmed its original assessment.  Furthermore, the Court found that even if FXCM had been obliged to warn Mr Day that its products were not appropriate for him, that Mr Day would have chosen to trade anyway so that even if (which there was not) there had been any deficiency in the assessment process, Mr Day had not suffered any loss as a result.
• Pursuant to the terms of the contract between the parties the only legally relevant information concerning expiry dates was to be found on a pdf list of expiry dates to which links had been provided by FXCM in both its Product Guide and in a Key Information Document. The Court also found that, in any event, Mr Day in fact knew that his oil trades were due to expire on 20 April 2020 and was not misled by information provided on FXCM’s website into thinking that a later expiry date applied to his trades
• Finally, the Court also rejected the Negative Price Claims because on the proper interpretation of FXCM’s contractual terms, FXCM had been fully entitled to close Mr Day’s trades in the manner that it did.

HHJ Bird’s judgment is likely to be of particular interest to practitioners and to market participants as it contains a careful analysis of COBS 10A, and the scope and operation of the rules concerning the appropriateness assessment, by reference to the relevant guidance published by the European Securities and Markets Authority and existing case law on COBS 10A’s predecessor (COBS 10).