- The Claimant is a company regulated by the FSA providing (inter alia) on-line services for trading in financial derivatives on the stock market, known as Contracts for Differences (CFDs).
- The Defendants are father (Tommy) and son (Declan) who held CFD accounts between 2004 and 2007 with a competitor company, Cantor Fitzgerald.
- There is no dispute that in August 2007, these accounts were closed and that CFD accounts in the names of Tommy and Declan were opened with the Claimant. These accounts ran into difficulties in mid 2008 and were closed in heavy debt in February 2009.
- It is the Claimant's case that its claims against both Defendants are essentially straightforward claims in debt. The Claimant claims the following sums against each Defendant:
a. In claim no. 1BM40042 the Claimant claims €824,074.18 (plus interest and costs) against Tommy Crinion in respect of account CB805 ("the Tommy Crinion Claim");
b. In claim no. 1BM40043 the Claimant claims €1,386,045.03 (plus interest and costs) against Declan Crinion in respect of accounts CB804 and CB988 ("the Declan Crinion Claim").
- There is no dispute about the figures. The essential issue between the parties is whether the debt claims are enforceable against the named Defendants.
- During the course of the trial, the List of Issues between the parties was narrowed substantially as a result of sensible concessions made by both Defendants. As a result, it was agreed that the issues which remain for determination by the Court are as follows:
a. There are four issues specific to the Tommy Crinion Claim:
i. (a) Did Declan Crinion complete and submit the application form in respect of account CB805? (b) If so, did he do so with his father's authority and if not did Tommy subsequently ratify Declan's actions?
ii. Is Tommy Crinion bound by the Power of Attorney signed by Declan on his behalf and if so what is the effect of this?
iii. Was account CB805 opened initially as a limited risk account and if so was it validly upgraded to a standard, non-limited risk account?
iv. Did the Claimant act in breach of contract as alleged at paragraph 6 of Tommy's Amended Defence?
b. There are three issues specific to the Declan Crinion Claim:
i. Did Declan inform the Claimant that account CB988 was held by him as agent or nominee for TJC Ltd?
ii. Is Declan personally liable in respect of account CB988?
iii. Did the Claimant represent to Declan that he would not be personally liable in respect of account CB988?
c. There are 7 issues common to both claims in relation to alleged breaches of the FSA Rules:
i. Did the Claimant provide the Defendants with its terms of business in good time (within the meaning of COB Rule 4.2.5) and/or take reasonable care to provide them with a proper opportunity to consider them before allowing any trading to take place on the accounts?
ii. Did the Claimant's terms of business include the Power of Attorney for the purposes of COB Rule 4.2.5?
iii. Did the Claimant correctly classify the Defendants as Intermediate Customers or take reasonable steps to do so under COB the Rules and/or COBS?
iv. Did the Claimant breach COB Rule 8.1 and/or COBS 16.2 or 16.3 by failing to provide records to Tommy Crinion in relation to account CB805? However, it is accepted on behalf of Tommy that regular statements were sent to Declan so this point falls away if the Court finds that Declan was validly appointed as agent or attorney to receive statements of account on behalf of his father.
v. Did the Claimant fail to act in the Defendants' best interests in breach of COBS 2.1.1?
vi. Was the Claimant in breach of COBS 10.2 or 10.3 by failing to request sufficient information about the Defendants' knowledge and experience?
vii. Is the Claimant liable to either Defendant on the Counterclaims?
- The relevant history of the accounts has helpfully been set out by Mr Chirnside, Counsel for the Claimant, in his closing written submissions. The following is uncontroversial, or relatively so, as it is culled from contemporaneous electronic records, e-mails, written documents, telephone transcripts and accepted witness evidence.
- Between 2004 and August 2007, four CFD trading accounts were opened by Declan Crinion with Cantor Fitzgerald. One of these accounts was opened in the name of Tommy Crinion, the other three were opened in the names of Declan Crinion and two companies, TJC Ltd and Crinvest Ltd.
- It is common ground that the account with Cantor Fitzgerald in Tommy Crinion's name (account DVY253) was opened on 1 August 2007. It is also accepted that in around July 2007, prior to opening the account, Declan told Tommy that (i) the account would be in his name; and (ii) it would be for Tommy's benefit. It appears that the arrangement was that Declan would operate the account on behalf of his father and Tommy would receive the profits in order to repay him for his support to Declan over the years.
- However, shortly after this account was opened, Cantor Fitzgerald raised its margin rates significantly and as a result Declan decided to move all four accounts to another CFD provider.
- On 9 August 2007 there was a recorded telephone discussion between Declan and Ramy Soliman, an Institutional Sales Manager of the Claimant, during which Declan enquired about moving all four of the Cantor Fitzgerald accounts to the Claimant. Declan explained that the reason he wanted to transfer the accounts to the Claimant was because Cantor Fitzgerald had recently raised its margin rates for equity CFDs. During the course of the conversation Declan stated that he currently held around €6m of stock and added that at any one time he usually held at least €5m. He also had a relatively detailed and technical discussion with Mr Soliman about margin rates and commission levels on CFDs. As a result, the Claimant alleges that it was clear from the conversation that Declan was a sophisticated trader with extensive experience of CFDs.
- During this conversation Declan also stated that he sometimes traded under the name "TJC". However, at no point during the conversation is it recorded that TJC was a company or that he held any of the four accounts as agent for or on behalf of any company; nor was there any suggestion by Mr Soliman that a company account could be opened in Declan's name and then transferred into the company's name at a later date. Mr Soliman did, however, explain that in order to open an account with the Claimant Declan could go to the Claimant's website and either print out and complete the application form and send it to the Claimant marked for his attention or he could complete the application form online.
- The is no dispute that Declan chose the latter option and shortly after 6pm on 9 August 2007 two online application forms were submitted to the Claimant on behalf of the Defendants. The first application form in respect of account CB804 was submitted at 18.13 and the second in respect of account CB805 was submitted at 18.24.
- It is common ground that the first application (in respect of CB804) was submitted by Declan Crinion on his own behalf. However, there is a dispute in relation to the circumstances in which the second application (in respect of CB805) was submitted. In his original Defence dated 28 August 2009, Tommy stated that Declan had completed and submitted the application form "on his behalf" (see Defence para 3a(iii)). However, on 7 October 2011 (over 2 years later and only one month before trial) Tommy served a response to a Request for Further Information from the Claimant stating that Declan had submitted the application without his instructions and "on his own initiative and for his own purposes" (see Response 1.1). As a result, on 24 October 2011 Tommy Crinion served an Amended Defence stating that the application had been submitted "in his name" rather than "on his behalf" (see Amended Defence para 3(a)(iii)). In cross-examination Tommy accepted that this represented a fundamental change to his case but was unable to provide any explanation as to why he had only sought to amend his Defence one month before trial.
- The Claimant's online application form had fields that required the following information: (i) the Defendants' personal and contact details; (ii) their employment details; (iii) their financial details including approximate annual income and the estimated value of their savings and investments; and (iv) their knowledge and experience of CFDs. The application form also required the Defendants to chose between a standard account and a limited risk account and to tick a box confirming that they had read and understood the following documents: (i) the CFD Risk Disclosure Notice (ii) the CFD Customer Agreement ("the Initial Customer Agreement") and agreed to be bound by its terms (iii) the Intermediate Customer Notice.
- The information submitted indicated that both Defendants had significant assets (€10m each) and extensive knowledge and experience of CFDs. Both accounts were requested to be limited risk accounts. The box indicating that they had read and understood the Risk Disclosure Notice, the Initial Customer Agreement and the Intermediate Customer Notice and agreed to be bound by them was also ticked on both application forms. Both application forms specified the same email address "email@example.com" which belonged to Declan Crinion.
- Mr Soliman and Mr Russell, the Treasurer of IG Group Holdings Plc the Claimant's parent company, explained that the process for classifying customers and opening CFD trading accounts is a highly automated and proven one which is reliant on information provided by the client. In the majority of cases applications can be approved without any human involvement on the part of the Claimant's employees. Such involvement is only required in exceptional cases. In this case, the only reason the Defendants' applications did not automatically pass the account opening checks was because they were not resident in the UK but in Ireland.
- As a result, on 10 August 2007 Mr Soliman sent an email to Declan timed at 09.28 requesting proof of identity in the form of a copy of (i) his passport and (ii) an original utility bill showing his name and address as set out in his application form. By an email timed at 12.43 Declan replied attaching copies of both his and Tommy's passports and copies of utility bills and bank/credit card statements for each of them. On receipt of these documents the Claimant carried out URU authentication checks on the Defendants' passports which they passed.
- At 12.58 on 10 August 2007 (before either of the accounts was opened) Declan faxed a signed copy of a Power of Attorney allowing him to open and operate his father's account (CB805). In his original Defence dated 28 August 2009 Tommy appeared to accept that he had signed the Power of Attorney (see Defence para 3a(v)). However, in his witness statement dated 7 October 2011 Tommy Crinion denied (for the first time) that he had signed it (see Tommy para 20). In light of this very late change in Tommy's case, both parties obtained expert evidence from handwriting experts. The agreed statement from the experts confirms that Tommy did not sign the Power of Attorney, although the experts agree that the signature was sufficiently similar that an unsuspecting person may not have realised that it was not a genuine signature. Accordingly, the Claimant accepts that Tommy did not sign the Power of Attorney personally, but denies that it must have known that this was the case as suggested at para 21 of Tommy's witness statement.
- Significantly, however, Tommy confirmed in cross-examination what he had said at paragraph 20 of his witness statement, namely that Declan had told him that a Power of Attorney was required in order to carry out trading on the account and that he expressly authorised Declan to sign the Power of Attorney on his behalf on that basis. Declan also confirmed in cross-examination that he had explained to his father that the Power of Attorney was required to open the account in Tommy's name.
- At 13.19 on 10 August 2007 Mr Soliman sent an email acknowledging receipt of the Power of Attorney and stating that he was waiting for the accounts to be "signed off". The accounts were subsequently opened and by emails timed at 15.27 and 15.28 the Defendants, per Declan, were notified that both accounts had been opened as limited risk accounts (as requested in both application forms) and that on the basis of the information provided in the application forms they had been classified as intermediate customers under the FSA Rules. Both accounts were initially opened under the terms of the Initial Customer Agreement which was in force at that time.
- At around 15.30 on 10 August 2007 there was a further recorded telephone conversation between Declan and Ramy Soliman to discuss the transfer of the Defendants' CFD positions from the four accounts at Cantor Fitzgerald to the Claimant. During this conversation Declan stated that all four of the accounts with Cantor Fitzgerald were non-limited risk accounts (i.e. they were not operated with a guaranteed stop loss). This was confirmed by Declan in cross-examination. As a result, Mr Soliman pointed out that in order to trade in the same way with the Claimant both accounts would need to be upgraded to standard accounts. The conversation concluded with Declan stating that he would send an email to Mr Soliman confirming that he wanted to upgrade his account and that he would get Tommy to send one as well. Again, there was no mention during this telephone call that any of the Cantor Fitzgerald accounts were held by a company (let alone TJC Ltd specifically) or that a company account could be opened in Declan's name initially and then transferred into TJC Ltd's name at a later date.
- At 15.41 Declan Crinion sent an email as promised requesting that his account (CB804) be upgraded to a standard account from a limited risk account. At 15.45 a further email was sent from Tommy Crinion's email account (firstname.lastname@example.org) making a similar request and confirming that "As per my power of attorney, you will be dealing with Declan for all trades". On 7 October 2011 Tommy Crinion stated for the first time in his witness statement that he had not in fact sent this email and asserted instead that it had been sent by Declan who had access to his email account. However, he accepted during cross-examination (in answer to a question from the Court) that he recalled having seen the email at the time:
"Q. So at some stage you'd have seen this email wouldn't you?
A. Yes I've got a recollection of seeing it. Yes."
- In light of the evidence, the Claimant accepts that this email was sent by Declan's personal assistant Sharon Sheehan on Declan's instructions: it appears that Declan gave her a hand-written note of what to say in the email. However, it is the Claimant's case that the email was expressly authorised under the Power of Attorney. It is common ground that the email was sent after the Claimant had received the Power of Attorney authorising Declan to deal with the Claimant on Tommy's behalf. Thus, the Claimant alleges, that if the email was sent by Declan (or on his instructions) it was expressly authorised under the Power of Attorney. At the very least, the Claimant says Tommy impliedly authorised Declan to send the email on his behalf. In this regard, it points to the fact that nowhere in his written or oral evidence does Tommy suggest that Declan did not have his authority to use his email account or to send the email on his behalf.
- By a letter dated 10 August 2007 sent to both Defendants the Claimant notified them that their respective accounts had been opened. The letter in respect of account CB805 was sent by post to Tommy Crinion at his home address of 17 Sutton Castle, Sutton, Dublin 13, Ireland. This letter made clear that the Defendants had been classified as Intermediate Customers under the FSA Rules and attached a copy of the Intermediate Customer Notice explaining what that meant.
- On 13 August 2007 a further letter was sent to both Defendants confirming that both accounts had been upgraded to standard accounts as requested with a total deposit limit of €50,000. Again the letter in respect of CB805 was sent by post to Tommy Crinion's home address of 17 Sutton Castle. The letter made clear that the effect of the upgrade was that the account was "no longer restricted to controlled risk bets" and the Defendants would be required to pay additional margin if their positions were running at losses. It also included the express salutary warning: "Please be very careful not to risk more than you can afford to lose".
- At paragraph 23 of his witness statement Tommy denied ever having received either of these two letters. However, there was no evidence that either letter had been returned to the Claimant undelivered. Moreover, Tommy admitted receiving the only other two letters that the Claimant sent to him by post at his home address in January 2009. In cross-examination he was unable to offer any explanation at all as to why this was the case and accepted that it would be a very odd coincidence if both the two letters sent in August 2007 had been lost. Declan suggests that he would have intercepted these two letters when looking after his father's post whilst he was away in South Africa and filed them at his office. However, such suggestion is inconsistent with the fact that the only other two subsequent letters posted to Tommy by the Claimant in January 2009 remained untouched in Tommy's letter box until April 2009 and leaves unexplained why they were not included in Declan's disclosure list.
- The reference to a "total deposit limit" (TDL) of €50,000 in the letter dated 13 August 2007 was explained by both Mr Soliman and Mr Russell. When a customer opens a standard risk account, the Claimant also imposes an automatic limit on the maximum deposit/margin permitted in respect of all open trades on the account (in this case €50,000). The effect of this is to cap the maximum size of open trades on the account (to limit the risk to both the customer and the Claimant) but it does not necessarily restrict the amount which can be lost: the account is still an unlimited risk account. The TDL can however be increased if the customer provides evidence of sufficient assets to support trading on a larger scale. As Mr Soliman explained, in this case the size of the Defendants' positions on the Cantor Fitzgerald accounts was such that it would not have been possible to transfer those positions into a limited risk account or even a standard risk account unless the TDL was raised above €50,000.
- As a result, the Defendants provided statements of assets from their accountants, Deacy & Associates, in order to enable the TDL on both accounts to be increased. Accordingly, on 14 August 2007 a Mr Quinn of Deacy & Associates sent current statements of the Defendants' assets direct to the Claimant. These documents showed Declan's net assets to be €13.2m and Tommy's net assets to be approximately €14.8m. Following receipt of these statements of assets, the TDL on Tommy's account CB805 was increased to €200,000 and the TDL on Declan's account CB804 was increased to €500,000.
- Also on 14 August 2007 the positions from the Cantor Fitzgerald accounts were transferred to accounts CB804 and CB805.
- On 30 August 2007 Declan Crinion sent a further email to Mr Soliman asking him to "arrange a duplicate account/another account to be opened under my name – so effectively I would be left with two account numbers for me personally" . As a result, the Claimant opened a further account (CB988) in Declan Crinion's name and confirmed this by email the same day. The first transaction on account CB988 was on 5 September 2007.
- On 9 October 2007 the Claimant sent an automated email to all of its customers advising them of changes to its terms of business as a result of the entry in to force of the Markets in Financial Instruments Directive ("MiFID") on 1 November 2007. This email contained a link to the Claimant's new MiFID compliant terms and conditions ("the COBS Customer Agreement") and notified customers that the new customer agreement would come into force on 1 November 2007. The email also confirmed that both Defendants would be classified as Professional Clients under the new post-MiFID COBS regime, although they had the right to request classification as Retail Clients.
- On 30 October 2007 the Claimant sent a further automated email to all its customers, including the Defendants, in advance of the introduction of MiFID on 1 November 2007. Again this email contained a link to the Claimant's new terms and conditions as set out in the COBS Customer Agreement.
- From 1 November 2007 the FSA Conduct of Business Sourcebook ("COBS") came into force together with the COBS Customer Agreement. Accordingly, from 1 November 2007 all three accounts were governed by the terms of the COBS Customer Agreement.
- Between November 2007 and January 2008 the Claimant made several margin calls in respect of the various accounts, all of which were covered promptly by transfers made or arranged by Declan Crinion. It is the Claimant's case that Declan was expressly authorised to pay margin in respect of his father's account under clause 2(c) of the Power of Attorney. However, from around January 2008 onwards the Defendants began have trouble meeting margin payments required on the accounts and subsequently defaulted on the margin obligations in relation to all three accounts.
- The first indication of such problems came on 16 January 2008 when Declan informed the Claimant that he was in discussions with Bank of Ireland to arrange a loan to cover the margin requirements on the accounts. Two loans of €250,000 were provided by Bank of Ireland on 17 January 2008 and 11 February 2008. However, these loans proved insufficient and on 19 February 2008 Declan sent an email stating that he needed further time to organise additional funds to meet the margin obligations on the accounts. It was around this time that margin calls started not to be met promptly or at all.
- Under clauses 14(1) and 15(1) the COBS Customer Agreement all margin payments requested by the Claimant were due immediately on demand, failing which under clause 16(2) the Claimant was entitled to close out all or any of the Defendants' positions at its absolute discretion without further notice.
- Between around March 2008 and January 2009 the Claimant and Declan Crinion entered into discussions as to how the outstanding margin obligations would be met. During these discussions, Declan repeatedly assured the Claimant that he was in the process of selling assets which would raise sufficient funds to pay off the margin required and the Claimant refrained from closing out the accounts on that basis. However, despite Declan's repeated reassurances, no payments were forthcoming. Moreover, at no point during these protracted discussions did Declan suggest that he was not personally liable in respect of account CB988: he accepted in cross-examination that the first time he suggested that this was the case was in his Defence dated January 2010.
- On or around 18 March 2008 a Notice of Acceptance of Transfer was sent to the Claimant apparently signed by Tommy allowing funds to be transferred from Declan's account CB988 to cover margin calls on Tommy's account CB805. Although Tommy did not suggest in his witness statement that the signature on this document was not genuine, the handwriting experts appear to agree that this was probably not his signature (and therefore it is to be inferred that it was signed by Declan on Tommy's behalf in the same way as the Power of Attorney).
- On 14 April 2008 Declan emailed the Claimant stating that he was working with his bank on "a finance restructuring package" and they were awaiting the closing of an asset sale which was expected within the next 7 days and which would release funds to cover the margin payments due. On 15 May 2008 Declan emailed the Claimant again to say that the closing had been delayed and that he was awaiting a new closing date and in the meantime he thanked the Claimant for its patience.
- On 28 May 2008 Declan sent a further update on the "pending asset sale". He followed this up on 12 June 2008 with an email stating that he expected the asset sale to close within the next week and that he expected to be able to raise €1m from this and the sale of another investment. On 27 June 2008 the Claimant received a letter from Patrick F O'Reilly Solicitors stating that they were acting for both Declan and Tommy in connection with a property sale which was expected to release €400,000.
- On 30 June 2008 Declan sent a further email to the Claimant explaining that the closing had still not taken place but that they were pressing the purchaser and stating that they were owed in excess of €1.1m from this investment and expected to receive €500,000 by the end of July 2008.
- On 17 July 2008 there was a slight change in the tone of the correspondence in that Declan sent a further email suggesting that the reason he had not yet paid anything towards the outstanding amounts due was because he was concerned that if he did so the Claimant would simply close out the positions and crystallise losses on the accounts.
- The Claimant's position during these protracted negotiations is neatly encapsulated by an email sent on 23 October 2008 stating:
"… we have been maintaining open positions across the three accounts for quite some time on the understanding that funds are being sent, which we have not yet received. I understand that in the current economic climate you have found it more difficult than expected to liquefy the necessary assets, and you have informed us of at least one asset sale that is being stalled from the purchaser's side. I feel that it is in the best interests of both parties to come to an agreement over a plan of action going forward…"
- By November 2008, however, the Claimant was starting to run out of patience. On 7 November 2008 Mr Russell on behalf of the Claimant wrote to Declan stating that given the repeated failures by Declan to honour commitments, the Claimant was left with no other option but to close out all positions on all of the accounts unless a concrete proposal for payment was received by 10 November 2008. On 10 November 2008 Declan replied repeating that assets sales were "in progress" and stating that he was "doing everything possible to get completed".
- On 13 November 2008 Declan sent an email attaching current statements of assets for himself, his father and TJC Ltd. According to the attached spreadsheets, Tommy's net assets were just over €10m and Declan's were just over €8m at that time which suggested that they had more than sufficient assets to cover the outstanding margin due on the accounts. It was accepted during cross-examination that these statements of assets were accurate.
- Thereafter nothing much appears to have happened until January 2009. On 20 January 2009 the Claimant requested an urgent meeting. However, it appears that no response was received and as a result the Claimant sent letters dated 27 January 2009 by post and email to both Defendants pointing out that they were in default and demanding payment of €250,000 in respect of accounts CB804 and CB988 and €150,000 in respect of CB805 by 4pm on 30 January 2009 or it would commence closing out the accounts.
- On 28 January 2009 there was a meeting between David Russell and Guy Abbi (a solicitor working in the Claimant's legal department) and Declan Crinion at which Declan confirmed that the Defendants were unable to fund their margin obligations. On that basis the Claimant stated that it would most likely close out the positions on all three accounts. During cross-examination Declan confirmed that the Claimant's note of the meeting in the bundle was accurate.
- On 30 January 2009 the Claimant wrote to both Defendants again by email and post confirming that it would commence closing out the accounts from 4pm on 30 January 2009. The Claimant commenced closing out the accounts on 2 February 2009 and the process was completed on 9 February 2009.
- It is the Claimant's case that the amounts due on the closing out of the accounts are: (i) €824,074.18 or £701,204.75 in relation to CB805; (ii) €498,784.55 or £424,515.65 in relation to CB804; (iii) €887,260.48 or £755,147.44 in relation to CB988. The Claimant now claims these sums as debts against Tommy Crinion in relation to CB805 and against Declan Crinion in relation to CB804 and CB988.
- Declan was unrepresented at trial but he presented his case clearly and well, if I may say so. His case is that all these accounts were operated by him alone but only CB804 was his personal but limited risk responsibility; CB988 was a company account. Furthermore, the Claimant was responsible for all or part of the losses on the accounts because they did not close them down sooner when it was obvious there was an economic downturn, a market crash and his positions were unsustainable. As he put it with a humour evocative of WC Fields "they should not open the bar and give an alcoholic the opportunity to drink more than was good for him".
- Tommy was represented at trial by Mr Stuart of Counsel and new solicitors instructing him. The essence of his case is quite simply that he did not authorise Declan to operate CB805 in his name and there is no personal liability on his part for it; nor one without limited risk.
- Both of them criticise the way that on-line accounts are set up without adequate human scrutiny or proper procedures to protect consumers against the risks of significant personal loss and impecuniosity: which are said to amount to breaches of FSA rules.
- Their defences necessitate a judicial evaluation of the witness evidence against the background facts rehearsed above.
Evidence evaluation method
- The guidance given in the extra-judicial writing of the late Lord Bingham of Cornhill approved by the courts is apposite. In "The Judge as Juror: The Judicial Determination of Factual Issues" published in "The Business of Judging", Oxford 2000, reprinted from Current Legal Problems, vol 38, 1985 p 1-27, he wrote:
". . . Faced with a conflict of evidence on an issue substantially effecting the outcome of an action, often knowing that a decision this way or that will have momentous consequences on the parties' lives or fortunes, how can and should the judge set about his task of resolving it ? How is he to resolve which witness is honest and which dishonest, which reliable and which unreliable? . . .
The normal first step in resolving issues of primary fact is, I feel sure, to add to what is common ground between the parties (which the pleadings in the action should have identified, but often do not) such facts as are shown to be incontrovertible. In many cases, letters or minutes written well before there was any breath of dispute between the parties may throw a very clear light on their knowledge and intentions at a particular time. In other cases, evidence of tyre marks, debris or where vehicles ended up may be crucial. To attach importance to matters such as these, which are independent of human recollection, is so obvious and standard a practice, and in some cases so inevitable, that no prolonged discussion is called for. It is nonetheless worth bearing in mind, when vexatious conflicts of oral testimony arise, that these fall to be judged against the background not only of what the parties agree to have happened but also of what plainly did happen, even though the parties do not agree.
The most compendious statement known to me of the judicial process involved in assessing the credibility of an oral witness is to be found in the dissenting speech of Lord Pearce in the House of Lords in Onassis v Vergottis  2 Lloyds Rep 403 at p 431. In this he touches on so many of the matters which I wish to mention that I may perhaps be forgiven for citing the relevant passage in full:
''Credibility' involves wider problems than mere 'demeanour' which is mostly concerned with whether the witness appears to be telling the truth as he now believes it to be. Credibility covers the following problems. First, is the witness a truthful or untruthful person? Secondly, is he, though a truthful person telling something less than the truth on this issue, or though an untruthful person, telling the truth on this issue? Thirdly, though he is a truthful person telling the truth as he sees it, did he register the intentions of the conversation correctly and, if so has his memory correctly retained them? Also, has his recollection been subsequently altered by unconscious bias or wishful thinking or by over much discussion of it with others? Witnesses, especially those who are emotional, who think that they are morally in the right, tend very easily and unconsciously to conjure up a legal right that did not exist. It is a truism, often used in accident cases, that with every day that passes the memory becomes fainter and the imagination becomes more active. For that reason a witness, however honest, rarely persuades a Judge that his present recollection is preferable to that which was taken down in writing immediately after the accident occurred. Therefore, contemporary documents are always of the utmost importance. And lastly, although the honest witness believes he heard or saw this or that, is it so improbable that it is on balance more likely that he was mistaken? On this point it is essential that the balance of probability is put correctly into the scales in weighing the credibility of a witness. And motive is one aspect of probability. All these problems compendiously are entailed when a Judge assesses the credibility of a witness; they are all part of one judicial process. And in the process contemporary documents and admitted or incontrovertible facts and probabilities must play their proper part."
Every judge is familiar with cases in which the conflict between the accounts of different witnesses is so gross as to be inexplicable save on the basis that one or some of the witnesses are deliberately giving evidence which they know to be untrue . . . . more often dishonest evidence is likely to be prompted by the hope of gain, the desire to avert blame or criticism, or misplaced loyalty to one or other of the parties. The main tests needed to determine whether a witness is lying or not are, I think, the following, although their relative importance will vary widely form case to case:
(1) the consistency of the witness's evidence with what is agreed, or clearly shown by other evidence, to have occurred;
(2) the internal consistency of the witness's evidence;
(3) consistency with what the witness has said or deposed on other occasions;
(4) the credit of the witness in relation to matters not germane to the litigation;
(5) the demeanour of the witness.
The first three of these tests may in general be regarded as giving a useful pointer to where the truth lies. If a witness's evidence conflicts with what is clearly shown to have occurred, or is internally self-contradictory, or conflicts with what the witness has previously said, it may usually be regarded as suspect. It may only be unreliable, and not dishonest, but the nature of the case may effectively rule out that possibility.
The fourth test is perhaps more arguable. . . ."
- The following guidance of Lord Goff in Grace Shipping v. Sharp & Co  1 Lloyd's Law Rep. 207 at 215-6 is also helpful:.
"And it is not to be forgotten that, in the present case, the Judge was faced with the task of assessing the evidence of witnesses about telephone conversations which had taken place over five years before. In such a case, memories may very well be unreliable; and it is of crucial importance for the Judge to have regard to the contemporary documents and to the overall probabilities. In this connection, their Lordships wish to endorse a passage from a judgment of one of their number in Armagas Ltd v. Mundogas S.A. (The Ocean Frost),  1 Lloyd's Rep. 1, when he said at p. 57:-
"Speaking from my own experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses' motives, and to the overall probabilities, can be of very great assistance to a Judge in ascertaining the truth." [emphases added].
That observation is, in their Lordships' opinion, equally apposite in a case where the evidence of the witnesses is likely to be unreliable; and it is to be remembered that in commercial cases, such as the present, there is usually a substantial body of contemporary documentary evidence."
In that context he was impressed by a witness described in the following terms.
"Although like the other main witnesses his evidence was a mixture of reconstruction and original recollection, he took considerable trouble to distinguish precisely between the two, to an extent which I found convincing and reliable."
That is so important, and so infrequently done."
- This approach to fact finding was amplified recently by Lady Justice Arden in the Court of Appeal in Wetton (as Liquidator of Mumtaz Properties) v. Ahmed and others  EWCA Civ 610, in paragraphs 11, 12 & 14:
11. By the end of the judgment, it is clear that what has impressed the judge most in his task of fact-finding was the absence, rather than the presence, of contemporary documentation or other independent oral evidence to confirm the oral evidence of the respondents to the proceedings.
12. There are many situations in which the court is asked to assess the credibility of witnesses from their oral evidence, that is to say, to weigh up their evidence to see whether it is reliable. Witness choice is an essential part of the function of a trial judge and he or she has to decide whose evidence, and how much evidence, to accept. This task is not to be carried out merely by reference to the impression that a witness made giving evidence in the witness box. It is not solely a matter of body language or the tone of voice or other factors that might generally be called the 'demeanour' of a witness. The judge should consider what other independent evidence would be available to support the witness. Such evidence would generally be documentary but it could be other oral evidence, for example, if the issue was whether a defendant was an employee, the judge would naturally consider whether there were any PAYE records or evidence, such as evidence in texts or e-mails, in which the defendant seeks or is given instructions as to how he should carry out work. This may be particularly important in cases where the witness is from a culture or way of life with which the judge may not be familiar. These situations can present particular dangers and difficulties to a judge.
14. In my judgment, contemporaneous written documentation is of the very greatest importance in assessing credibility. Moreover, it can be significant not only where it is present and the oral evidence can then be checked against it. It can also be significant if written documentation is absent. For instance, if the judge is satisfied that certain contemporaneous documentation is likely to have existed were the oral evidence correct, and that the party adducing oral evidence is responsible for its non-production, then the documentation may be conspicuous by its absence and the judge may be able to draw inferences from its absence.
- This judgment will follow all this guidance in the relevant fact finding concerning witness testimony relating to the issues in dispute
- Mr Soliman is a former employee of the Claimant who left the Claimant in April 2010. In August 2007 he was employed as a "Liaison Dealer" essentially looking after new business sales for spread betting and CFDs. He was the Claimant's primary point of contact with Declan Crinion in relation to setting up the accounts in August 2007. He gave his evidence robustly but also made concessions where appropriate. He stood his ground when questioned repeatedly over whether there was anything odd about the similarities between the two application forms submitted on 9 August 2007 or that should have put the Claimant on notice that Tommy had not filled in his application form yet he was prepared to concede that it was unusual to see the same mobile telephone number in both application forms. Equally, he was at pains to distinguish where he was relying on his actual recollection and where he was reconstructing events. His evidence had the important hallmarks of consistency, probability and disinterest. He was an impressive witness and I accept his evidence.
- Mr Russell is qualified accountant and the Treasurer of IG Group Holdings Plc, the Claimant's parent company. He was involved with the Defendants' accounts principally after they went into default in respect of their margin obligations. He gave two witness statements on behalf of the Claimant, although his first statement was largely overtaken by the late changes in Tommy Crinion's case. He gave his evidence clearly, honestly and confidently. He was consistent in his answers in the face of repeated questioning about the Claimant's classification procedures and why the Claimant did not contact Tommy Crinion directly but dealt only with Declan: Mr Russell never wavered in his evidence that the Claimant dealt with Declan in reliance on the Power of Attorney. Equally, however, he was ready to make concessions in relation to certain matters where appropriate. For example he accepted that the Claimant could theoretically have done more to ensure that Tommy Crinion had signed the Power of Attorney e.g. by having it notarised or witnessed by a solicitor but it is the case that such measures were unnecessary or inappropriate in the circumstances arising in my judgment. His evidence had the hallmarks of consistency, probability, common sense and probity. He was a very impressive witness and I accept his evidence.
- Mr Miah is an employee of Wragge & Co LLP, the Claimant's solicitors. He gave a witness statement confirming that the Claimant had disclosed all records of telephone calls between the Claimant and Declan Crinion in relation to the Defendants' accounts that it had been able to locate. His evidence (as set out in his amended statement) was accepted by both Tommy and Declan Crinion.
- Declan's "demeanour" both as a self represented advocate and as a witness were exemplary but 'demeanour' is a poor guide as to truthfulness or reliability. Whilst Declan appeared to be doing his best to assist the Court and to answer questions honestly – he was charmingly frank about his addictive gambling nature and of his sad financial demise - there are several indicia that his evidence was unreliable and self interested:
a. First, a number of matters in his pleaded Defence were clearly inaccurate, despite the fact that Declan acknowledged in cross-examination that the importance of his Defence being complete and accurate was explained to him before he signed the statement of truth. For example:
i. He accepted that the reference to transferring only two accounts (rather than four) from Cantor Fitzgerald to the Claimant at para 5.1 of his Defence was wrong.
ii. At para 5.11(c)(II) of his Defence it was alleged that the Claimant only gave him 4 hours' notice that it would commence closing out the positions on the accounts at 4pm on 30 January 2009. However, this assertion is clearly contradicted by the contemporaneous documents. The Claimant first put him on notice that it would close out the accounts in November 2008 unless a concrete proposal for payment was received. Secondly, on 27 January 2009 the Claimant expressly wrote to both Defendants stating that it would close out all positions on the accounts without further notice unless it received payment by 4pm on 30 January 2009. Thirdly, the note of the meeting on 28 January 2009 (made by a solicitor and which he accepted was accurate) showed that he was informed at that meeting that it was likely that the accounts would be closed out.
iii. At para 16.2 of his Defence it was alleged that on or about 9 August 2007 the Claimant expressly told him that (i) it would be possible for him to open an account for TJC Ltd in his own name and (ii) that he would not be personally liable in respect of that account but that he would be the agent of TJC Ltd. However, he was unable to point to anywhere in the transcripts of the telephone calls on 9 or 10 August 2007 where such representations were made. Insofar as he sought to assert that there was another telephone conversation with another representative of the Claimant at the time (but now untraceable), Ben Butterworth, during which such representations are made, this must be wrong in light of Mr Miah's unchallenged evidence that the Claimant has not been able to locate any record of any other telephone calls involving Declan at that time with Ben Butterworth or at all.
iv. Numerous breaches of the COB Rules and COBS were asserted in his Defence but were conceded during the course of the trial on the basis that Declan conceded that they were unsustainable. Declan must have known that some or all of these allegations were unsustainable at the time he signed the Defence: for example, he must have known that he received regular statements in relation to his accounts.
b. Secondly, Declan made at least one assertion in his witness statement which he must have known was not true. At para 32 of his statement he stated that he left the meeting with the Claimant on 29 January 2009 "in the belief that, subject to ratification by Peter Hetherington, an agreement not to close [the accounts] out had been reached…" [emphasis added]. However, in cross-examination he accepted that the Claimant's note of the meeting was accurate and the meeting note stated the exact opposite, namely that subject to discussions with Mr Hetheringon closing out seemed the best/most likely option.
c. Thirdly, his disclosure was clearly deficient despite the fact that he was represented by solicitors at the time disclosure took place. He gave evidence that he had taken notes of the meeting on 29 January 2009 but had failed to disclose them. Similarly, he gave evidence that he kept files in his office in relation to the accounts with Cantor Fitzgerald and in relation to his father's account with the Claimant (in particular the letters posted by the Claimant in August 2007). However, no such documents appear in his disclosure list.
- He was plainly not an independent witness so far as his father is concerned.
- In my judgment, his evidence was contradictory, unreliable and self serving. I reject his evidence where it is in conflict with contemporaneous e-mail and transcript records, disclosure lists and the evidence of the Claimant's witnesses.
- Tommy was a poor witness in giving his testimony.
- The Claimant highlights the following features to his detriment:
a. Concerned to argue his own case: On numerous occasions during his oral evidence it was clear that Tommy was more concerned to argue his own case than to answer the questions actually being put to him. He was evasive.
b. Gave confused and contradictory evidence: He was frequently confused and contradictory. For example, initially in cross-examination Tommy asserted that he had no understanding at all of the concept of "leverage" – an important feature of CFDs - in August 2007. However, in his witness statement at paragraph 9 he had stated that at the relevant time he had "vaguely understood that instead of buying the shares themselves Declan's trading involved the trader putting up a loan and Declan putting up the deposit". He was asked about this apparent inconsistency in cross-examination and his evidence in response was confused, evasive and in parts completely contradictory:
"Q. Right. We can see what it says in your witness statement. If you flip forward to paragraph 9. -- A. Right.
Q. So you told us just now that you had no idea of the concept of leverage until proceedings started. The bottom of page 28 you said, you say: "I vaguely understood" - so that's at the time both of the accounts were opened in August 2007: "I vaguely understood that instead of actually buying the shares themselves, Declan's trading involved the trader putting up a loan and Declan putting up the deposit." -- A. Yes.
Q. So you did understand the concept of leverage? -- A. Not really no.
Q. Well ... -- A. I still don't.
Q. ... whether you called it by that word or not you were aware of the concept of borrowing - putting down a deposit and borrowing the rest, that's right isn't it? -- A. Yes that's right.
Q. So do you want to correct the evidence you gave just now that you didn't have any idea about leverage until proceedings started? -- A. No I didn't have any idea about leverage.
Q. If Declan was putting up the deposit only and there was a loan for the rest, who did you think would be responsible for repaying the loan? -- A. I didn't know. I didn't open this account, I have nothing to do with this account.
Q. Did you even think about - so you were aware, you say you were aware that Declan was putting up a deposit and somebody else was putting up a loan? -- A. No.
Q. Who did you ... -- A. No, sorry, I wasn't aware anyone was putting up a loan.
Q. Well you said that in your witness statement, we've just looked at it, paragraph 9: "I was vaguely aware", that's exactly what you said, are you saying that's wrong? -- A. No I'm vaguely aware of it.
Q. So your witness statement is wrong is it? -- A. No.
Q. So which is right, you were either aware or you weren't? -- A. Yeah.
Q. Will you answer the question? -- A. Yes. Aware yes.
Q. You were aware in August 2007 that Declan was putting up the deposit and somebody else was putting up the loan, the trader was putting up the loan? -- A. No I wasn't ..."
c. Exaggerated his evidence in order to help his own case: On occasion Tommy demonstrably exaggerated aspects of his evidence seemingly in order to help his case. For example, in his witness statement he gave the impression that he was not at all knowledgeable about business matters except for some limited experience gained from involvement in his toyshop and newsagency business. However, in cross-examination he revealed himself to be a highly sophisticated businessman who had run a successful business importing toys from China and who had a working knowledge of complex financial instruments such as bills of lading, letters of credit and foreign exchange transactions. Similarly, in his witness statement he made wide ranging and extremely serious (and so far as the Claimant is concerned potentially defamatory) allegations that the Claimant had dishonestly colluded with Declan to keep him in the dark about the status of his account (see Tommy para 42) but accepted in cross-examination that the allegation of dishonesty was unfounded and he was exaggerating the true position.
d. Made implausible assertions: Tommy also made various implausible assertions. For example, despite the fact that he claimed that he could not remember having signed his own Amended Defence on 24 October 2011 only two weeks earlier, he claimed he could definitely remember not receiving the two letters from the Claimant dated 10 and 13 August 2007 over 4 years previously.
e. Refused to accept obvious propositions: He also refused to accept obvious propositions. For example, (initially at least) he refused to accept that he was aware that there was even a theoretical possibility that since account CB805 was in his name he might be personally liable in relation to it. Similarly, he would not accept that opening an account with a new CFD provider would have required an application form to be completed.
f. Unable to explain matters in his own documents: At paragraph 7 of his witness statement, Tommy referred to account opening documents in respect of his Cantor Fitzgerald account. However, in cross-examination he stated that he had no such documents in his possession and could not explain why he had referred to them or even what documents he had meant. In addition, extraordinarily he denied ever having seen his own disclosure statement before, despite having apparently signed it .
- Finally and most importantly of all, Tommy was unable to give any credible explanation about why he had radically changed his pleaded case at the last minute or how his original Defence came to be pleaded as it was. He accepted that his case as set out in his witness statement and which he sought to advance at trial involved at the very least a serious betrayal of trust by his own son and at worst a deliberate fraud on him by Declan. However, he suggested that it had never occurred to him to mention this to his previous solicitors, Thrings, or to anyone else until one month before trial, even though by that stage proceedings had been on foot for well over two years. Moreover, this is despite the fact that he attended a two day mediation in June 2010 with Mr Sear, a partner at Thrings, at which he accepted that they discussed his case (the inference must be they did so in some detail). His cross examination is revealing about this testimony:
"Q. ... you are saying that at the very least there was a serious betrayal of trust by Declan? -- A. Yes.
Q. And at worst a deliberate fraud by him on you, is that right? -- A. Yes.
Q. You said just now that you left your defence up to Declan, you let him handle the lawyers and basically you left everything up to him, is that the explanation for ... -- A. Yes.
Q. ... how your defence is wrong in, or was wrong until you corrected it? -- A. Yes but I never met anyone from Thrings either, whatever you call it, Thrings.
Q. What I suggest to you is that makes no sense. If your case is correct ... -- A. Mm.
Q. ... and you really thought from the outset that Declan had seriously betrayed your trust ... -- A. Yes.
Q. ... or possibly even defrauded you ... -- A. Yes.
Q. ... and made you liable for 800,000 Euros ... -- A. Yes.
Q. ... there is no way that you would have allowed him to deal with your legal affairs and there is no way your lawyers, Thrings, would have been prepared to represent both you and him? -- A. Well they did it for a while and then they said it was conflict of interest in the case.
Q. Yes, that was in October 2011? -- A. Yes.
Q. So you never mentioned to Thrings until ... -- A. No I had no correspondence with Thrings.
Q. You never mentioned to anyone at Thrings until October 2011 that in fact what had happened was Declan had seriously betrayed your trust or defrauded you? -- A. Yes.
Q. You never thought to mention that very important ... -- A. I didn't.
Q. aspect when you met ... -- A. Well he was standing ...
Q. ... Mr Sear? -- A. ... he was standing ...
Q. When you met ... -- A. He ultimately transferred shares and did all that himself with his money, so I didn't think I was liable for anything, but the letter came.
Q. When you met Mr Sear to discuss your case - this was after proceedings had been issued - if you're right you must have known by that stage ... -- A. I didn't meet Mr Sear.
Q. You've told us already today twice that you did? -- A. A mediation, I spoke to him on, on the telephone I didn't meet him.
Q. You spoke to him on the telephone and you met him ... -- A. Yes.
Q. ... and you discussed the case with him? -- A. I'm sorry I met him in mediation.
Q. And you spoke to him on the telephone? -- A. Yes.
Q. And when you spoke to him you talked about the case? -- A. At the conference yes.
Q. And he asked you questions presumably about your case - I don't want to know what advice he gave you, but I presume your evidence here, it had never occurred to you that you ought to point out that in fact what happened was it's all Declan's fault, he betrayed your trust, possibly even defrauded you, and that's how you got into this mess - it never even occurred to you to tell him that? -- A. Well I would expect probably reading the case he would have known that.
Q. But you never, it never occurred to you ... -- A. I never said it.
Q. ... to tell him ... -- A. No.
Q. ... explicitly that that's what had happened? -- A. No.
Q. And that's your evidence to his lordship, it never ... -- A. Yes.
Q. ... occurred to you? -- A. No."
- Mr Stuart submits that Tommy is a simple ageing innocent pawn of his son and that these criticisms are unfair.
- In my judgment, the criticisms are fair. His evidence was externally and internally inconsistent, self serving and incredible on all the key points in the case against him. His motives are obvious for he stands to lose all that his son managed to win for him and more. His very comfortable existence is at stake. The only credible explanation for Tommy's last minute change to a cut throat defence blaming Declan for everything is that it was a tactical and cynical decision to try and preserve as much money as possible for the family as a whole and prevent the Claimant from recovering monies due to it. From the point of view of the family, it would clearly be better to blame Declan because he is essentially bankrupt anyway (and certainly will be if he loses the present claim against him) and therefore a further debt of €800,000 would not really matter to him, and it would allow Tommy to preserve what assets he has left (including a property in South Africa). However, a judgment against both Tommy and Declan would effectively leave the Defendants as a family with little or no assets.
- I find him to be an untruthful witness. I disbelieve the evidence he gave to the court.
- Sharon Sheehan is Declan Crinion's personal assistant. Tommy Crinion was granted permission out of time to rely on her statement dated 26 October 2011 in which she gave evidence that Declan, not Tommy, had signed the Power of Attorney and that she had sent the email on 10 August 2007 asking for Tommy's account to be upgraded to a standard account based on Declan's handwritten instructions. The Court did not hear oral evidence from her because her evidence on both these points was accepted by the Claimant.
- The issues which were relatively prolix can now be more simply resolved after these findings upon the witness evidence against the background of contemporaneous documents rehearsed above.
Issues specific to Tommy Crinion Claim
- As set out above, there are four issues to be determined which are specific to the Tommy Crinion claim.
Issue 1: (a) Did Declan complete and submit the application form in respect of account CB805? (b) If so, did he do so with his father's authority and if not did Tommy subsequently ratify his son's actions?
- In light of the evidence at trial, there is no dispute that the answer is "Yes": the application form in respect of account CB805 was completed and submitted by Declan, not Tommy. However, it is the Claimant's case that the application form was submitted with Tommy's (i) express or at the very least (ii) implied authority, and in any event Tommy (iii) ratified Declan's actions.
(i) Express Authority
- The Claimant's primary case on this issue is that Tommy expressly authorised Declan to submit the application form on his behalf. This was what was pleaded in Tommy's original Defence and Tommy was content to run his case on that basis for over two years until only one month before trial.
- Mr Stuart submits that as there is (1) an absence of contemporaneous evidence, such as e-mails, or witness evidence, linking Tommy with the application and (2) agreed forensic evidence that he did not sign any application, then the court must accept Tommy's evidence at trial. He further submits that these were Declan's accounts based on Declan's conversation with Mr Soliman and Tommy would not have authorised anything which put him at personal risk.
- In my judgment, Tommy did play a passive role in the application. This was a situation where his son was merely moving his, not Declan's authorised account from Cantor Fitzgerald to the Claimant and this was done with admirable efficiency. Both Declan and Tommy gave evidence that this was Tommy's money and assets enhanced by his grateful son's share dealings and development business. He was an experienced businessman and his son had great expertise and success with investment at the time. It was a situation where both had trust in each other and were in it together. The reason there was no e-mail trail leading to Tommy's door or contact by him with the Claimant was simply that it was more efficient for Declan to look after the accounts as he had done in the dealings with Cantor Fitzgerald that Tommy accepts were with his authority. It is perverse of him to say that dealings with his account with Cantor Fitzgerald were with his authority but the switch to the Claimant was not.
- I accept Tommy's admission in his original Defence dated 28th August 2009 as being true and his Amended Defence and testimony to the court as false. There is no credible explanation as to why he changed his case in this regard at the last minute, save to avoid the judgment consequences where there was no other real defence to the claim on his account.
- Accordingly, I find that the Tommy's original pleaded case was correct and Declan submitted the application form on Tommy's behalf, i.e. with his express authority.
(ii) Implied Authority
- In any event, the Claimant submits that at the very least Declan was acting with Tommy's implied authority. The relevant principles in relation to implied authority are as follows:
a. Implied authority is that "inferred from the conduct of the parties and in the circumstances of the case": Hely-Hutchinson v Brayhead Ltd  QB 549 at 583.
b. Authority will be implied where one party has conducted himself towards another in such a way that it is reasonable for that other person to infer from that conduct assent to an agency relationship. Consent by the principal to the agency relationship need not be express (and may even be denied) but is often inferred by the Court from the circumstances. The test is an objective one: Bowstead & Reynolds on Agency (19th ed) at para 2-030 et seq.
- Mr Stuart submits that Tommy did not impliedly authorise Declan to open an unlimited risk account and to enter into a contract on a completely different basis. He submits that he thought Declan was going to trade on the new account and pay the margins.
- In cross examination, Declan accepted that he was authorised by Tommy to submit the application form on behalf of his father:
"Q. Who completed the application form on behalf of your father? -- A. I did.
Q. Did you tell your father that you were going to complete it? -- A. No.
Q. But he knew you had opened an account with Cantor Fitzgerald for him? -- A. Yes.
Q. And ... -- A. Well he knew I had opened an account for him ...
Q. Okay. -- A. ... I won't say where it ...
Q. Okay so ... -- A. ... I wouldn't have needed to.
Q. ... he knew you'd opened an account for him, you told him you were going to transfer it to another provider, a company in England? -- A. Yeah again I, I, I wouldn't say I'll transfer it, I would've said I'm, I'm moving, I'm moving away.
Q. Okay. So you told him you were going to move that account. You must have thought he would be happy or agree to you completing an application form for the company, whichever one it was, to which you moved to the account - is that fair? -- A. I suppose it is fair to say that yeah."
- Similarly, Tommy confirmed that it was reasonable for Declan to assume that he was happy for him to submit the application form on his behalf :
"Q. Right, let's leave that, we'll move on. The position was this, you knew he'd opened an account with someone? -- A. Yes.
Q. It was in fact Cantor Fitzgerald? -- A. Yes.
Q. You knew he'd opened an account in your name? -- A. Yes he told me that.
Q. And he told you he was going to move that account to a new provider, that's right isn't it? -- A. Yes.
Q. And you agreed, or at least didn't object, to him doing so, that's right ... -- A. No I didn't object.
Q. Any reasonable person in Declan's position would have thought you were happy for him to present an application form for that new account with the new provider? -- A. Yes I suppose that's right."
- In my judgment, this evidence clearly indicates that both Declan and Tommy knew that Tommy's account, as well as Declan's accounts, were going to be opened and transferred. At the very least Declan had the authority of Tommy to act on his account. Tommy's real complaint is that it was an unlimited risk account but that does not go to authorisation but to exceeding authority, this implicitly admitting there was authority in the first place. He would have been happy for any limited risk account to be opened in his name.
- In the further alternative, the Claimant submits that Tommy ratified Declan's actions in completing and submitting the application form. The relevant principles in relation to ratification are as follows:
a. Ratification may be express or by conduct: see Bowstead at para 2-070 et seq.
b. Express ratification is a manifestation by someone on whose behalf an unauthorised act has been done that he treats the act as authorised. It need not be communicated to the third party or agent: see Bowstead (above).
c. Ratification will be implied whenever the conduct of the person on whose behalf the act is done is such as to amount to clear evidence that he adopts or recognises the act. It may be implied from the mere acquiescence or inactivity of the principal: see Bowstead (above).
d. It is irrelevant whether the principal is aware of the legal consequences of ratification: AMB Generali Holding AG v SEB Liv Holding Aktiebolaget  1 Lloyd's Rep 318 at .
- Mr Stuart submits that Tommy did not have the necessary full knowledge to be able to ratify the contract and did not in fact do so.
- However, in my judgment the evidence demonstrates otherwise. It shows that Tommy ratified Declan's actions in completing and submitting the application form by inter alia (1) allowing the account to remain open and (2) authorising Declan to sign the Power of Attorney on his behalf to allow trading to take place on the account.
- In cross-examination, Tommy admitted this:
"Q. But just on page 232, we've seen this already: "I was aware the account was opened in August 2007." -- A. Yes.
Q. So in August 2007 you were aware it had been opened? -- A. Yes.
Q. But then on, over the page you say because you didn't think you had any risk in relation to the account, you didn't think it necessary to inform the claimant of such matters, i.e. that Declan had opened it without your knowledge or authority? -- A. Well surely they should have known that, it wasn't for me to inform them.
Q. Well, so what you're saying there is that you were happy - once you found out Declan had opened the account - you were happy for him to keep it going provided that you thought it was only him ... -- A. That there was no risk to me.
Q. You were happy for him to have opened the account and operate it in your name provided there was no risk to you, is that right? -- A. Yes.
Q. So if the account had remained a limited risk account, which means that only the deposits made by Declan were at risk ... -- A. Yes.
Q. ... you would have been happy for him to keep the account and operate it in your name? -- A. Yes."
- Then again in the following exchange he admitted this in relation to the Power of Attorney:
"Q. So when you told Declan that he could sign the power of attorney on your behalf ... -- A. Yes.
Q. ... you must have known then that he had applied for an account with the claimant ... -- A. Yes.
Q. ... on your behalf, and you agreed to him signing the power of attorney on that basis? -- A. Yes but he was going to trade shares, I only did it for the shares only.
Q. Exactly, so you agreed, so you knew he'd opened an account, applied for it in your name and opened it, and you thought the power of attorney was required for him to be able to trade on the account? -- A. Yes.
Q. So when you said to Declan yes you can sign it on my behalf, you didn't qualify it in any way did you? -- A. No."
- In my judgment, Tommy was well aware and had the necessary full knowledge that Declan had submitted an application form in his (Tommy's) name in order to open the account and he acquiesced in that by allowing the account to remain open and/or not telling Declan to close the account or informing the Claimant that the account had been opened without his authority. Moreover, it was not necessary for Tommy to communicate his approval or agreement to either the Claimant or to Declan at the time. It is sufficient that he tacitly agreed to and/or acquiesced in what Declan had done. Tommy's actions in authorising Declan to sign the Power of Attorney on his behalf, specifically on the understanding that it was required to allow him to trade on the account, amounted to an unequivocal act by Tommy, which ratified the submission of the application form and the opening of the account.
- It is important to remember in this regard that when the application form was submitted only a limited risk account was requested in Tommy's name. Similarly, when the Power of Attorney was signed and the account was opened, it was on the basis of a limited risk account as requested in the application form. The request to upgrade the account to a standard account was only made after the account had been opened. Thus, even if as Tommy suggested in his oral evidence was only prepared to allow the account to be opened on a limited risk basis (i.e. with only Declan's money at risk) there was nothing that Declan did in completing and submitting the application form or signing the Power of Attorney which Tommy would have objected to.
- Accordingly, I find that the contract was in any event ratified by Tommy.
Issue 2: Is Tommy Crinion bound by the Power of Attorney signed by Declan on his behalf and if so what is the effect of this?
- This issue sub-divides into two issues: (a) Is Tommy bound by the Power of Attorney; and (b) if so, what is the effect.
(a) Is Tommy bound by the Power of Attorney?
- The Claimant accepts in light of the expert evidence that Tommy Crinion did not personally sign the Power of Attorney. However, the Claimant submits that the evidence is clear that Tommy expressly authorised Declan to sign the Power of Attorney on his behalf.
- Mr Stuart submits to the contrary that Declan did not explain the contents of the Power of Attorney and he never saw it. It was not a deed and not binding on him.
- However, the evidence is that Declan spoke to Tommy before he signed the Power of Attorney and told him why the Power of Attorney was required. Tommy expressly authorised him to sign it on his behalf :
"Q. So do you accept that's accurate, that you called him before you signed it to ask for permission, he said yes? -- A. Yeah my only, my only point would be I did call him, I did discuss it with him briefly. Whether I discussed it with him before I opened the account or just after I opened the account I'm not sure. I would assume it was just before to say I need a power of attorney to open the account.
Q. That's - that's what I was going to say - it must have been before? -- A. I would, I would assume but I, but it's because obviously it's four years ago and even, I know the witness statements some of them are done since 2009 or 10, it's very hard to know did you do it, you know, at five o'clock that evening or at half seven that evening, I suppose that's my point.
Q. Did you explain to him why you needed a power of attorney? -- A. I said it was to open the account."
- This was confirmed by Tommy in his evidence:
"Q. The next thing is the power of attorney. -- A. Yes.
Q. Now your evidence is that Declan told you that a power of attorney was needed ... -- A. That's right.
Q. ... for the account? -- A. Yes.
Q. This is at paragraph 20 of your witness statement. -- A. Yeah.
Q. "My son did mention to me that a power of attorney was required" - do you see that? -- A. Yes.
Q. Then a few lines down: "I simply presumed" - the next line: "I simply presumed the accountants somehow or other had got together, I assumed that it was therefore necessary for me to provide a power of attorney to enable him to carry out the trading." -- A. Yes.
Q. Next line down: "So I was content to authorise him to have the power of attorney." -- A. Yes.
Q. Then you say ... -- A. Yes just to trade in the shares not to incur any losses ...
Q. Yes so you were ... -- A. ... which is ...
Q. ... content to have him on that basis ... -- A. Yes.
Q. ... as your power of attorney? "I confirm that I did not personally even sign the power of attorney ..." -- A. Mm.
Q. "... Declan told me that he would sign the power of attorney for me and I allowed him to do so." -- A. Yes.
Q. Then at the bottom of the page: "I can, I recall Declan phoning me and mentioning the power of attorney ..." -- A. Yes.
Q. "... he didn't explain it to me ..." -- A. No.
Q. "... but I allowed him to sign it on my behalf." -- A. Yes.
Q. So you expressly told Declan to go ahead and sign the power of attorney? -- A. Yes. Understanding that it was just about the shares not to incur me in any loss."
- Tommy was also clearly aware that the purpose of the Power of Attorney was to allow Declan to operate the account on his behalf:
"Q. Well of course you would know it wasn't because you didn't sign it. I mean, are you familiar with the concept of a power of attorney? -- A. No.
Q. You're not? -- A. No.
Q. Well it authorises someone to act on your behalf. -- A. Yes I know that, yes - sorry I know that.
Q. Yes so you knew it was needed for Declan to operate the account on your behalf? -- A. Yes."
- It is irrelevant whether or not Tommy in fact read the Power of Attorney before authorising Declan to sign it on his behalf. The position is the same as if Tommy had signed the Power of Attorney himself. It is well established that a party signing a contract is bound by the terms of the written agreement whether or not he has read them and whether or not he is ignorant of their precise legal effect: L'Estrange v Graucob Ltd  2 KB 394. There is no need for a formal deed: Bowstead & Reynolds para 2-035. Mr Stuart's technical objections are rejected.
- It appears from Tommy's evidence that he was only prepared to authorise Declan to open and operate his account on the basis that he would not incur any personal liability in relation to the account. Thus, in the extract from the transcript above he stated that he authorised Declan to sign the Power of Attorney on the "understanding that it was just about the shares not to incur me in any loss."
- However, there is no evidence that Tommy ever communicated any such understanding or limit on his authority to Declan. On the contrary, his evidence was clear that he did not communicate any limit on his authority to Declan:
"Q. Exactly, so you agreed, so you knew he'd opened an account, applied for it in your name and opened it, and you thought the power of attorney was required for him to be able to trade on the account? -- A. Yes.
Q. So when you said to Declan yes you can sign it on my behalf, you didn't qualify it in any way did you? -- A. No."
- Moreover, at the time when Tommy authorised Declan to sign the Power of Attorney on his behalf all dealings with the Claimant had been on the basis of a limited risk account. That was what had been requested in the application form. It was only later that the question of upgrading the account to a standard account was raised.
- This is significant because if the account had remained and been operated as a limited risk account, the effect would have been to limit any losses to amount of the margin paid into the account by Declan and Tommy would not in practice have incurred any liability. This was confirmed by both Mr Soliman and Mr Russell. Tommy expressly confirmed that he would have been happy to allow the account to remain open and for Declan to trade on it on that basis:
"Q. You were happy for him to have opened the account and operate it in your name provided there was no risk to you, is that right? -- A. Yes.
Q. So if the account had remained a limited risk account, which means that only the deposits made by Declan were at risk ... -- A. Yes.
Q. ... you would have been happy for him to keep the account and operate it in your name? -- A. Yes."
- Thus, again Tommy's real complaint appears to be not that he did not authorise Declan to open and operate the account under the Power of Attorney but that Declan exceeded his authority by subsequently sending the email asking for the account to be upgraded to a standard risk account and thereby exposed him personally to risk in relation to the account.
- However, it is clear from the evidence that when Tommy authorised Declan to sign the Power of Attorney on his behalf he intended to do so and accordingly he is bound by its terms.
(b) If Tommy is bound by the Power of Attorney, what is its effect?
- The effect is drastic:
a. First, it gave Declan express authority to do the following (see clause 2 of the Power of Attorney):
i. Open and operate Tommy's account. In this regard, it should be noted that the account was only opened after the Power of Attorney was signed and received by the Claimant and therefore Declan was expressly authorised under the Power to open the account on Tommy's behalf.
ii. Deal with the Claimant on Tommy's behalf which included giving oral and written instructions. In this regard, Tommy also expressly authorised the Claimant to accept all instructions from Declan and the Claimant was not obliged to make any further inquiries of Tommy before acting on such instructions.
iii. To pay margin on Tommy's behalf in relation to the account.
iv. To do anything else contemplated by the customer agreement which was reasonably necessary for the purposes of Tommy's dealings with the Claimant, including the upgrading of the account from a limited risk account to a standard account.
b. Secondly, Tommy ratified Declan's actions in completing and submitting the application form in respect of the account. By authorising Declan to open and operate the account with the Claimant, he must necessarily have (at least retrospectively) authorised the completion and submission of the application form in order to do so. Indeed, Tommy accepted as much in cross-examination. In those circumstances, he must also be taken to have ratified (and therefore be bound by) the representations made in the application form about his knowledge and experience of CFDs because the terms of the application form and the Intermediate Customer Notice were clear: the Claimant's CFD trading services were only available to customers with sufficient knowledge and experience to be classified as intermediate customers.
Issue 3: Was account CB805 opened initially as a limited risk account and if so was it validly upgraded to a standard, non-limited risk account?
- It is clear from the email from the Claimant timed at 15.28 hrs on 10 August 2007 notifying Tommy that the account had been opened that the account was initially opened as a limited risk account in accordance with the request in the application form.
- The email from Tommy's email account requesting the account be upgraded was sent later at 15.45 on 10 August. This was therefore after the Claimant had received the signed Power of Attorney. The Claimant accepts that this email was sent by Mrs Sheehan on Declan's instructions, after Declan had written out exactly what she should say in the email.
- Mr Chirnside submits that the sending of this email was either expressly or implied authorised by Tommy. Alternatively, Tommy is bound by it because Declan was acting within his apparent authority.
- As set out above, the upgrade email was sent after the Power of Attorney had been signed and received by the Claimant. The terms of the Power of Authority are clear and Tommy accepted that he did not qualify or communicate any limit on Declan's authority under it. Under the Power of Attorney, Declan was expressly authorised to deal with the Claimant on Tommy's behalf and "To do anything else contemplated by the customer agreement which was reasonably necessary for the purposes of the customer's dealings with the firm".
- Mr Soliman explained in evidence that the size of the Defendants' positions on the Cantor Fitzgerald accounts was such that it would not have been possible to transfer those positions into a limited risk account or even a standard risk account unless the TDL was raised above €50,000:
"Q. Given the size of the positions that were on the Cantor Fitzgerald accounts, would it have been possible to transfer those positions into a standard account at I G with the standard 50,000 maximum deposit? -- A. No.
Q. Would it have been possible, given the size of the Cantor Fitzgerald accounts in this case, would it have been possible to transfer those into a limited risk account? -- A. No."
- Thus, it was clearly necessary for Tommy's account to be upgraded to a standard account with an increased TDL before the positions from Cantor Fitzgerald could be transferred, which was after all the whole point of opening the account in the first place. Accordingly, by sending the email Declan was acting within his express authority under the Power of Attorney.
- Moreover, even if the Claimant had had any way of knowing that the email had not in fact been sent by Tommy, under the terms of the Power of Attorney the Claimant was not required to make any inquiries of Tommy to confirm the instructions.
- Mr Chirnside submits that in the alternative, Declan had Tommy's implied authority to send the email requesting that the account be upgraded. The Claimant relies on the following exchange in Declan's cross-examination:
"Q. Did you speak to your father before this email was sent? -- A. I don't believe I did.
Q. So you called him before filing the power of attorney, do you think it's possible that you also called him in a similar way before sending this email just to check? -- A. I, it may, may have been mentioned in the same conversation. I don't, I don't believe I ever mentioned that I need to send an email. I don't believe so.
Q. But the same applies doesn't it that you wouldn't have sent this email on his behalf if you thought he would object to it would you? -- A. Well again it comes back to the same if, if, if he definitely, he definitely would have asked more questions or would have asked questions if I had have asked him.
Q. Well let's put it this way ... -- A. I didn't believe I was doing anything wrong ...
Q. Yes ... -- A. ... because I was just ...
Q. ... he'd just authorised you under a power of attorney, so he agreed to let you have a power of attorney in relation to the account, you must have thought it would be okay to send this email? -- A. Well I did send the email so I must have thought at the time it was okay to send the email.
Q. And having discussed it was necessary to send this email to upgrade the account to standard account otherwise his positions from Cantor Fitzgerald couldn't have been transferred could they? -- A. Well it's, that's what Ramy Soloman says."
- In my judgment, it is clear from the above that Declan reasonably believed that he had authority to send the upgrade email because Tommy had only just given him authority to open and operate the account and otherwise it would not have been possible to transfer the positions from Tommy's account with Cantor Fitzgerald. Moreover, as set out above, Tommy's evidence was clear that he never communicated to Declan any limit on his authority under the Power of Attorney.
- It is also relevant in this regard to note that Tommy's evidence was that he recalled having seen the upgrade email but never objected to it or informed the Claimant that Declan had sent it without his authority. Similarly, he accepted in cross-examination, that if he had received either of the letters sent by the Claimant in August 2007 notifying him that the account had been opened and then upgraded, he would not have contacted the Claimant to challenge the contents of either letter.
- In the further alternative, Mr Chirnside submits that Tommy should be bound by the upgrade email pursuant to the doctrine of apparent authority, even if Declan somehow exceeded his authority in sending it.
- The relevant principles in relation to apparent authority are as follows:
a. Where a person (A) by words or conduct represents or permits it to be represented that another person (B) has authority to act on his behalf, A is bound by the acts of B with respect to any third party (C) dealing with B as an agent on the faith of any such representation, to the same extent as if B had the authority he was represented to have, even though he had no such actual authority: Bowstead & Reynolds (above) at 8-013 et seq.
b. The doctrine applies where a principal allows his agent to appear to have more authority than he actually has, or alternatively makes reservations to his agent's authority which limit the authority but fails to inform the third party of this: see Bowstead (above) at 8-027.
c. Moreover, the fact that the agent acted in his own interests and/or in fraud of his principal will not relieve the principal of liability if in fact the agent's act was in other respects within the scope of his apparent authority: Hambro v Burnand  2 KB 10.
d. The development of the doctrine has been based in part upon the principle that where the Court has to decide which of two innocent parties is to suffer from the wrongdoing of a third party the Court will incline towards placing the burden upon the party who was responsible for putting the wrongdoer in the position in which he could commit the wrong: Gurtner v Beaton  2 Lloyd's Reports 369 at 379.
- In this case, Tommy clearly represented or permitted it to be represented (by authorising Declan to sign the Power of Attorney on his behalf) that Declan had general authority to act on his behalf in respect of account CB805.
- No limitation on Declan's authority was ever communicated to the Claimant (or to Declan) and the Claimant acted in good faith in reliance on the email in upgrading the account to a standard account. Thus, it is submitted that Tommy should be bound by the upgrade email as if he had authorised it, even if in fact he did not.
- Applying the approach suggested in Gurtner v Beaton above, in a case such as this where both the Claimant and Tommy are arguably the innocent parties to Declan's reckless actions, the Court should place the burden on the party responsible for putting Declan in the position to commit the wrong. In this case, that party is clearly Tommy in allowing him to open the account and authorising him under the Power of Attorney.
- For the reasons set out above, I find that account CB805 was correctly opened by the Claimant in Tommy's name and validly upgraded to a standard account and that Tommy Crinion is personally liable for the losses incurred.
Issue 4: Did the Claimant act in breach of contract as alleged at paragraph 6 of the Tommy's Amended Defence?
- This issue relates solely to Tommy Crinion. No allegations of breach of contract have been pleaded in the Declan Crinion Claim.
- At paragraph 6(b) of his Amended Defence, Tommy alleges the following breaches of contract on the part of the Claimant:
a. The Claimant operated the account as an unlimited risk account and failed to agree a stop level with Tommy prior to commencing trading.
b. The Claimant accepted instructions from Declan which were not authorised under the Power of Attorney.
c. The Claimant failed immediately to close out all positions and the account upon margin calls failing to be met and instead (i) allowed Declan to persuade it to keep the account open without making any enquiries of Tommy; or alternatively (ii) allowed the account to remain open without making reasonable enquiries as to Tommy's financial position.
d. The Claimant failed to provide Tommy with regular statements in relation to the account to his home address of 17 Sutton Castle, Sutton, Dublin 13.
- It is submitted by Mr Chirnside that these allegations of breach of contract are unfounded for the following reasons:
a. The Claimant accepts that it operated the account as a standard as opposed to a limited risk account. As set out above, however, the account was validly upgraded following receipt of the upgrade email. Further, it is denied that the Claimant was under any obligation to agree a stop level prior to trading commencing. Clause 11 of the Initial Customer Agreement places the onus on the customer to request a stop level in relation to a specific transaction. Clause 12 of the COBS Customer Agreement was in identical terms. However, no such request was ever received.
b. For the reasons set out above, the Claimant was entitled to accept instructions from Declan pursuant to his actual or apparent authority under the Power of Attorney. Furthermore, under the terms of the Power of Attorney Tommy expressly agreed to ratify all acts done under the authority or purported authority of the Power of Attorney.
c. In relation to the third allegation, the Claimant submits as follows:
i. There was no obligation on the Claimant to close out all positions or the account when margin calls were made but not met. The Claimant had an absolute discretion as to whether to allow the account to remain open or to close it without prior notice under clause 16 of the COBS Customer Agreement. Clause 15 of the Initial Customer Agreement is in identical terms. Accordingly, in deciding whether to close out the accounts the Claimant was required only to act honestly and rationally and was entitled to consult primarily its own interests: Socimer International Bank v Standard Bank London  1 Lloyds Rep 558 at [60-66] and .
ii. Declan had authority under the Power of Attorney to negotiate with the Claimant about keeping the account open and the Claimant was under no obligation to make further enquiries of Tommy.
iii. It is admitted that under clause 16(4) of the COBS Customer Agreement the Claimant agreed that the exercise of its discretion to allow the account to remain open would depend on its assessment of Tommy's financial circumstances. However, at all material times the Claimant believed Tommy's financial circumstances were more than adequate to support the trading on the account. His estimated savings and investments were put at €10m in the application form. On 14 August 2007 his accountants sent a statement showing he had net assets of €14.8m. Further on 13 November 2008 the Claimant was sent a spreadsheet showing Tommy had assets of over €10m.
d. There was no requirement to send all statements to Tommy's home address. Under clause 13(9) of the COBS Customer Agreement all correspondence, written notices, confirmations and statements could be sent to the email address specified in the account opening form. This is what the Claimant did according to Mr Russell. In any event, under clause 14(5) of the COBS Customer Agreement Tommy acknowledged that it was his responsibility to be aware of any margin requirements whether or not the Claimant contacted him, details of which were available by telephone or via the internet.
- All these submissions are supported by the evidence and I uphold them.
Issues Specific to the Declan Crinion Claim
- The following three issues specific to the Declan Crinion Claim are only relevant to Declan's liability in relation to account CB988: he rightly accepted in oral evidence that account CB804 is his personal liability. Thus they do not affect his liability in relation to CB804.
Issue 5: Did Declan inform the Claimant that account CB988 was held by him as agent or nominee for TJC Ltd?
- It is Declan's pleaded case that at all material times the Claimant was aware that account CB988 was held by him as agent or nominee for TJC Ltd and therefore he is not personally liable in respect of CB988 on the basis that TJC Ltd was his disclosed principal for that account (see Defence para 5.4).
- As to the circumstances in which the accounts were opened, it is pleaded in Declan's Defence that during a telephone call on or around 9 August 2007 he told the Claimant (either Mr Soliman or Ben Butterworth) that (see paras 5.1 to 5.3 and para 16.2 of his Defence):
a. He wanted to transfer two CFD accounts from Cantor Fitzgerald to the Claimant and needed to do so urgently.
b. He explained that one account was his personal account and the other was held by TJC Ltd.
c. The Claimant stated that two accounts could be opened in his name and that TJC Ltd's account could be transferred into its name at a later date.
- Declan confirmed in his oral evidence that it was his case that this conversation took place on either 9 or 10 August 2007 . However, there were only two substantive telephone calls between Declan and the Claimant before the accounts were opened on 9 and 10 August 2007 respectively.
- The transcripts of these two calls are accurate so there no room for debate as to what was said. Declan accepted in cross-examination that his pleaded case is wholly unsupported by these transcripts:
"Q. ... there's no mention of TJC Limited, a company by that name, in either the 9th or 10th August conversations in the transcript is there? -- A. Well there is on my, on ...
Q. The only reference is at page 6? -- A. I know but you just said there's no reference, there is.
Q. It's a reference to TJC, the name I trade under is TJC, it doesn't say TJC Limited, it doesn't say that it's a company, there's no indication at all is there? -- A. No but, but there is no, but I would assume that the same way as you say I G, you don't always say I G Markets Limited - you say TJC and the person says TJC, no problem, and I'll have a quick look and I'll just type it in to see, now nothing's coming up under TJC.
Q. So ... -- A. I don't believe I, I hid, I hid behind the facts that we didn't discuss TJC from the outset.
Q. Well that's a matter for submission I think. But also we can see there's no suggestion by Mr Soloman in either of those two conversations that you could open an account for TJC Limited in your name is there? -- A. No there doesn't seem to be.
Q. And he never told you that you could do that and then transfer the account into TJC Limited's name at a later date? -- A. No Ra..., Ramy Soloman doesn't seem to do that."
- Although Declan asserted in his oral evidence that he had a further conversation with Ben Butterworth on 9 or 10 August 2007, he accepted Mr Miah's evidence that the Claimant had been unable to locate any record of any other telephone conversation involving Declan.
- Moreover, account CB988 (which is the account which Declan alleges was intended to be TJC Ltd's account) was not in fact opened until 30 August 2007 following Declan's email asking Mr Soliman to "arrange a duplicate account/another account to be opened under my name – so effectively I would be left with two account numbers for me personally".
- There is no evidence that Declan disclosed to the Claimant that he was opening CB988 as agent for TJC Ltd or that it was to be held by him in such a capacity. On the contrary, he expressly requested that CB988 was to be opened under his name and held by him personally. Declan conceded this in cross-examination and was unable to explain why he had requested CB988 to be for him "personally" if in fact (at least on his case) it had been agreed that it would be for TJC Ltd:
"Q. At page 75 in the bundle you sent an email to Mr Soloman asking for another account? -- A. Yes.
Q. And it says, you ask: "Would it be possible for you to arrange a duplicate account, another account to be opened under my name so effectively I would be left with two account numbers for me personally" - can you see that? -- A. Yeah.
Q. So there's no suggestion is there that CB988 would be for a company, specifically TJC Limited? -- A. There's no suggestion in that email no.
Q. So in fact it couldn't be clearer that you want it to be for you personally, that's right isn't it? -- A. Well I, no I don't, I disagree with that.
Q. Well that's what it says: "for me personally", can you see that? -- A. Yes I, I see that.
Q. JUDGE BROWN: Well can you just tell me what it does mean then? -- A. Well no, but I think - why, why would you want to have two accounts in your own name with the one, the, the, my plan, my intention at the time was to move the shares that had been transferred from the company account, which was DBY791, into 988 - oh sorry into, is this, this it right, did I do that, yes?"
- If Declan's case were correct, this email would have said something along the following lines: "Please arrange another account to be opened under my name – so effectively I would be left with two account numbers one for me personally and one for TJC Ltd". However, that is not what Declan asked for and he was unable to offer any explanation as to why.
- In these circumstances, I find on the balance of probabilities there were no other telephone conversations between Declan and the Claimant on 9 or 10 August 2007 and Declan's evidence on this point is mistaken.
- In my judgment, it is clear from the evidence that CB988 was to be a personal duplicate account for Declan.
Issue 6: Is Declan personally liable in respect of account CB988?
- Even if, contrary to the above, the Claimant knew that account CB988 was to be held by Declan as agent for TJC Ltd as his disclosed principal, then Declan is nonetheless personally liable in respect of the account.
- The fact that a person is an agent, and is known to be so, does not necessarily prevent him incurring personal liability. Whether this is the case or not is a matter of construction of the relevant contract: Chitty on Contracts ...30th ed) vol 2 at para 31-085.
- The terms of the Initial Customer Agreement are clear in this regard. It provided as follows:
"3. Dealings between you and us
(1) We will act as principal and not as agent on your behalf. You will open each Transaction with us as principal and not as agent for any undisclosed person. This means that unless we have otherwise agreed in writing, we will treat you as our client for all purposes and you will be directly and personally responsible for performing your obligations under each Transaction entered into by you, whether you are dealing with us directly or through an agent. If you act in connection with or on behalf of someone else, whether or not you identify that person to us, we will not accept that person as an indirect customer of ours and we will accept no obligation to them unless specifically agreed in writing.
18. Representations and warranties
(1) You represent and warrant to us, and agree that each such representation and warranty is deemed repeated each time you open or close a Transaction by reference to the circumstances prevailing at such time, that:
(c) You will enter into this Agreement and open each Transaction as principal.
This Agreement contains the entire understanding between the parties in relation to the dealing services we offer. Any amendment to this Agreement must be in writing and signed on behalf of the parties by you and by an authorised person on our behalf…"
- Accordingly, on a proper construction of the contract Declan agreed to open account CB988 and open each transaction as principal and thereby agreed that he would be personally liable.
Issue 7: Did the Claimant commit an actionable misrepresentation by representing to Declan that he would not be personally liable in respect of account CB988?
- At para 16.2 of Declan's Defence and Counterclaim it is pleaded that in a telephone call on or about 9 August 2007 the Claimant misrepresented to him that he would not incur any personal liability in relation to account CB988.
- However, there is no evidence to support this allegation either in the telephone transcripts from 9 or 10 August 2007 or in Declan's witness statement. Moreover, in cross-examination Declan accepted that the first time he had made this allegation was in his Defence. Also he could not explain why he failed to mentioned this alleged misrepresentation at any point during the protracted negotiations with the Claimant between February 2008 and January 2009. In the circumstances, this allegation is dismissed.
Issues relating to FSA Rules
- It is common ground that all three accounts were governed by the relevant FSA rules in force from time to time. Prior to 1 November 2007, the relevant FSA rules were the COB Rules. From 1 November 2007 onwards the relevant rules were those contained in COBS.
- It is also common ground that a breach by the Claimant of one of the COB Rules or the provisions of COBS (but not guidance) is actionable under s.150 of FSMA 2000. However, this is subject to the requirement to prove causation and to any defences applicable to a claim for breach of statutory duty.
Issue 8: Did the Claimant provide the Defendants with its terms of business in good time (within the meaning of COB Rule 4.2.5) and/or take reasonable care to provide them with a proper opportunity to consider them before allowing any trading to take place on the accounts?
- Both Defendants rely on COB 4.2.4 to 4.2.6A in support of the contention that the Claimant was required to provide its terms of business to them before entering into any transactions with them and that the Claimant was not permitted to enter into any customer agreement with them unless it had taken reasonable care to ensure that they had had a proper opportunity to consider the terms.
- As at 9 August 2007 COB 4.2.4 provided general guidance only (and is not therefore actionable for breach under s.150) and 4.2.6 had been deleted and was no longer in force.
- Accordingly the rule is COB 4.2.5 which provided that:
"Unless any of the exemptions in COB 4 Annex 1 applies, a customer must, in good time before designated investment business is conducted, be provided with a firm's terms of business, setting out the basis on which the designated investment business is to be conducted with or for the customer" [emphasis added]
- COB Rule 4.2.5 should be read in conjunction with the guidance at COB 4.2.6A which indicates that the terms of business will be provided "in good time" if provided in sufficient time to enable the customer to consider properly the service or investment on offer before he is bound.
- It is the Claimant's case that the Defendants were provided with its terms of business (in the form of the Initial Customer Agreement) in good time and that they had sufficient time to consider properly its terms before they were bound. Tommy authorised Declan to submit the application form and open the account in his name, it therefore follows that if Declan was given a proper opportunity to consider the terms of the Initial Customer Agreement then Tommy's claim for breach of COB Rule 4.2.5 must fail.
- As can be seen from the Claimant's online application form , the Initial Customer Agreement was provided prior to the opening of the accounts by means of an easily visible hyperlink in the declaration section at the end of the form. Before submitting the application, applicants were required to confirm that they had read and understood the Initial Customer Agreement and agreed to be bound by its terms. In addition, the Claimant's terms and conditions are available on its website to the public at large and are not solely available once an application form is completed.
- Declan accepted in cross-examination that the Initial Customer Agreement was "there and available to read" and that there was no deadline set by the Claimant for the submission of the application form for either account. He could therefore have taken as much time as he wanted or required to consider the terms of the Initial Customer Agreement. The fact that he did not take that opportunity is irrelevant.
- Declan suggested in his oral evidence that he was under pressure to transfer the accounts from Cantor Fitzgerald to the Claimant and therefore he did not have time to consider the Claimant's terms properly. However, he accepted that he could just have closed the accounts with Cantor Fitzgerald and then opened an account or accounts with the Claimant at a later date: there was no urgent need to transfer the positions from Cantor Fitzgerald to the Claimant. In addition, even if he was under pressure then such pressure or urgency had nothing to do with the Claimant: at all times the Claimant gave the Defendants the opportunity to read its terms and conditions properly but they chose not to do so.
- Moreover, Declan confirmed on his own behalf and on behalf of Tommy that he had read and understood the terms of the Initial Customer Agreement. In the circumstances, both Defendants are now contractually estopped from claiming that they did not have a proper opportunity to consider the terms of business before agreeing to be bound by them: Peekay International Ltd v ANZ Banking Group Ltd  2 Lloyd's Rep 511, in particular at [56-60] and ; and JP Morgan Chase Bank v Springwell Navigation Corporation  EWCA Civ 1221 at .
- Furthermore, it is standard industry practice for the terms of business to be provided via a link on the website in this way. There is nothing to prohibit it under the FSA Rules and the FSA has not queried this practice during any of its regular inspections of the Claimant. Moreover, from a practical point of view, it would be impossible for a firm in the Claimant's position to do more or to ensure that its customers had in fact read and understood its terms and conditions before agreeing to them.
Issue 9: Did the Claimant's terms of business include the Power of Attorney for the purposes of COB Rule 4.2.5?
- The issue of whether the Power of Attorney formed part of the Claimant's "terms of business" for the purposes of COB Rule 4.2.5 only arises in relation to Tommy.
- The Power of Attorney did not form part of its terms of business. The Power of Attorney was a separate and distinct document from the Initial Customer Agreement which was concerned with the agency relationship between Tommy and Declan. It did not relate to the terms and conditions on which the Claimant was prepared to offer its CFD trading service to customers.
- In any event, the Power of Attorney was provided to Tommy (via Declan) in good time for him to be able to properly consider its terms. The Claimant did not impose any deadline as to when the Power of Attorney was to be signed and it could have been signed and returned at any time or not at all because it was unnecessary for the operation of the account. This was confirmed by Mr Russell in cross-examination.
- In these circumstances, Tommy Crinion could have taken as much time as he wanted to consider the terms of the Power of Attorney and their effect and/or take legal advice in relation to it but chose not to do so. Instead, it appears he simply authorised Declan to sign it on his behalf without even bothering to read it for himself. In the circumstances, it is he who must bear the consequences of his actions and not the Claimant.
Issue 10: Did the Claimant correctly classify the Defendants as Intermediate Customers or take reasonable steps to do so under COB Rule 4.1.4 and/or COBS?
- The Claimant submits that it correctly classified both Defendants as intermediate customers based on the information provided in their application forms; alternatively, it took reasonable steps to classify them and treated them accordingly.
- There are two aspects to the issue of classification: (i) initial classification under the COB Rules when the accounts were opened and (ii) classification under COBS from 1 November 2007 onwards.
Classification under COB Rules
- COB Rule 4.1.4 provided as follows:
"(1) Before conducting designated investment business with or for any client, a firm must take reasonable steps to establish whether that client is a private customer, intermediate customer or market counterparty
(2) A firm which takes reasonable steps to classify its clients, as required by the rules in this section, and treats a client in accordance with the classification it has established for that purpose, does not breach any other rule in COB to the extent that the breach arises only from inappropriate classification of that client"
- COB Rule 4.1.9 provided that the Claimant was entitled to classify a client who would otherwise be a private customer as an intermediate customer if certain conditions were satisfied as follows:
"(1) A firm may classify a client who would otherwise be a private customer as an intermediate customer if:
(a) the firm has taken reasonable care to determine that the client has sufficient experience and understanding to be classified as an intermediate customer; and
(b) the firm:
(i) has given a written warning to the client of the protections under the regulatory system that he will lose;
(ii) has given the client sufficient time to consider the implications of being classified as an intermediate customer; and
(iii) has obtained the client's written consent, or is otherwise able to demonstrate that informed consent has been given."
- The guidance at COB 4.1.10 sets out various factors which a firm should have regard to in taking reasonable care to determine that a client has sufficient experience and understanding to be a classified as an intermediate customer. COB 4.1.10(2) provides that: "It is likely that a firm will need to have regard to more than one of these criteria, or to other criteria, before it can be satisfied that a client, who would otherwise be a private customer, is eligible to be classified as an intermediate customer."
- Thus, in summary the regulatory framework was as follows:
a. Before allowing any trading to take place on the accounts, the Claimant was required by COB Rule 4.1.4 to take reasonable steps to establish whether the Defendants were intermediate customers.
b. As to what those reasonable steps were, COB Rule 4.1.9 required the Claimant to take reasonable care to determine that the Defendants had sufficient experience and understanding to be classified as intermediate customers and COB 4.1.10 sets out guidance as to the factors to which the Claimant should have regard in taking reasonable care.
- The above provisions of the COB Rules have recently been considered in Bank Leumi (UK) Plc v Wachner  EWHC 656 (Comm) and Wilson v MF Global UK Ltd  EWHC 138 (QB) from the following principles can be identified:
a. The COB Rules as to classification do not require a firm to arrive at an objectively correct classification of a client, but only to have taken reasonable steps to do so. Thus, even if Declan and/or Tommy did not in fact have sufficient experience and understanding to be intermediate customers, the Claimant will only be in breach of COB Rules 4.1.4 and/or 4.1.9 if it failed to take reasonable steps and/or reasonable care in classifying them as intermediate customers (see Wacher (above) at ).
b. The issue of whether the Claimant took reasonable steps and/or reasonable care to classify the Defendants is to be determined based on what was done and known at the time, not with hindsight by reference to the disastrous trades carried out by Declan on the accounts (see Wacher (above) at ).
c. Accordingly, compliance with the Claimant's duties under COB Rules 4.1.4 and 4.1.9 does not depend on the objective characteristics of the Defendants but on following the procedural requirements under the rules at the time the accounts were opened (see Wachner (above) at ).
d. The relevant procedural requirements are set out in COB 4.1.9R and COB 4.1.10G. In this regard, it is not necessary for the Claimant to have complied with all four criteria under the guidance at COB 4.1.10. COB 4.1.10G merely indicates that it is likely that in establishing that it has taken care for the purposes of COB Rule 4.1.9 that the firm will need to have regard to one or more of the criteria set out in COB 4.1.10G: see Wachner (above) at .
e. There is no requirement under COB Rule 4.1.9 or the guidance at COB 4.1.10 that requires a firm to interview or meet the client nor is it necessary to cross-check information provided by a third party with the customer: see Wachner (above) at .
f. Similarly, the Claimant was entitled to take statements made by or on behalf of the Defendants about their knowledge and expertise at face value unless and until there is some reason for further scrutiny: Wilson v MF Global (above) at .
- In cross-examination Declan accepted that the information he provided in relation to his financial circumstances and his experience and understanding of CFDs in his application form was correct:
"Q. Okay. So do you accept that the information that you typed into the application form about your financial position and your trading experience is correct? -- A. Yes.
Q. So all that information is correct. You also ticked a box in the declaration saying that you had read and understood the risk disclosure notice, the customer agreement and the intermediate customer notice, and you agreed to be bound by the terms of the customer agreement, and you agreed to being an intermediate customer - that's right isn't it? -- A. I, it's correct that I ticked the boxes - I didn't read it."
- On the basis of his answers to the questions in the application form (which mirrored the guidance at COB 4.1.10), it is clear that he had sufficient understanding and experience to be classified as an intermediate customer and the Claimant complied with the other procedural requirements under COB 4.1.9(b) by virtue of the fact that Declan ticked the box in declaration section of the application form.
- Further and in any event, Declan is contractually estopped from denying that he was correctly classified as an intermediate customer because he expressly consented to being classified as such in the application form.
- It is submitted by Mr Chirnside that the Claimant took reasonable steps and/or reasonable care to classify Tommy for the following reasons:
a. The Claimant complied with the guidance at COB 4.1.10 and took reasonable care to determine that Tommy had sufficient experience and understanding to be classified as an intermediate customer by asking the questions set out in the application form. In Tommy's application form it was clearly stated that he understood the nature and risks of margined products, which includes CFDs, and had over 12 months' experience of trading CFDs in an execution only capacity. It was also stated that during the previous 12 months he had traded CFDs on average more than 5 times per month and that he had assets of €10m. On the face of it, this information was sufficient to justify the Claimant in classifying him as an intermediate customer.
b. The Claimant was entitled to take the information in Tommy's application form at face value: see Wilson v MF Global (above). COB Rule 2.3.3 also states that: "A firm will be taken to be in compliance with any rule in COB that requires a firm to obtain information to the extent that the firm can show that it was reasonable for the firm to rely on information provided to it in writing by another person". In this case, there was no reason for the Claimant to doubt that the answers given in Tommy's application form were correct at the time when the application form was submitted (which is the relevant time because that was when he was classified). In the circumstances, it is it was reasonable for the Claimant to rely on the information in the application form in classifying Tommy as an intermediate customer.
c. There was no requirement under the COB Rules to contact Tommy directly (or for that matter to cross-check any information provided by Declan on his behalf). The Claimant's evidence from Mr Soliman and Mr Russell was clear that the Claimant's classification process was highly automated and relied on information provided by clients. There was no need for any human review of the classification process unless an exception showed up. Mr Russell confirmed that this was standard industry practice and has never been questioned by the FSA on its regular inspections of the Claimant. The only reason that there was any direct contact between Mr Soliman and Declan in this case was because firstly he called the Claimant on his own initiative before submitting the application forms and then later because he and Tommy failed the automated identification checks because they were resident outside the UK.
- Tommy is contractually estopped from denying he was correctly classified for the following reasons:
a. For the reasons set out above, Tommy authorised Declan expressly or impliedly to submit the application form on his behalf. He is therefore bound by the statement in the application confirming that he agreed to being classified as an intermediate customer.
b. Alternatively, Tommy ratified the opening of the account. The account could only be opened if Tommy agreed to be classified as an intermediate customer. Accordingly, he cannot now be heard to say that he was incorrectly classified.
c. The document headed "IG Markets Ltd Declaration" signed by Tommy on 7 September 2007 contains similar assertions as to Tommy's knowledge and experience and also a further express declaration which stated (inter alia) as follows: "I/we confirm that I/we have sufficient experience and understanding to trade CFDs and that I/we understand the risks of CFD trading. I/we confirm that I/we have read and understood the IG Customer Agreement, Risk Disclosure Notice and Intermediate Customer Notice and agree to be bound by its terms". The handwriting experts agree that the signature on this document "appears more similar to the signatures of Mr Tommy Crinion, suggesting that this is a copy of a genuine signature". Although in cross-examination Tommy denied that he had signed this document, this was the first time he had done so, in particular he did not deny signing it in his witness statement. Moreover, he could not even remember signing his own Amended Defence only two weeks earlier. In my judgment, his memory in relation to what documents he had or had not signed cannot be relied upon.
- Despite protestations to the contrary, Tommy did in fact have sufficient knowledge and experience to be classified as an intermediate customer:
a. Despite the impression given in his witness statement, Tommy Crinion was clearly a sophisticated businessman. In cross-examination, he accepted that he would not have been able to accumulate a personal fortune of over €13m without being "financially astute or commercially savvy" . He also accepted that in his role as managing director of TJC Ltd he had personally been responsible for visiting factories in China to discuss specifications and for dealing with all contractual negotiations with TJC Ltd's suppliers and that he was familiar with bills of lading, letters of credit and foreign exchange transactions.
b. Moreover, when he was taken to the Claimant's internal checklist for classifying customers, he accepted that he would have been able to tick 4 out of the 5 boxes. Although the Claimant's internal procedures required customers to tick all 5 boxes, this went further than what was required under COB 4.1.9 and 4.1.10. As set out above, the Claimant was only required to have regard to one or more of the criteria at COB 4.1.10 (see Wachner at ). Given the level of Tommy's business sophistication and extremely high net worth the Claimant was entirely justified in classifying him as an intermediate customer.
Classification under COBS
- The Claimant was entitled automatically to reclassify the Defendants as elective professional clients under COBS Transitional Provision 1.2 without more: see Wachner (above) at . This process is known as "grandfathering".
- Further and in any event, the Defendants accepted their new classification under COBS by their conduct in continuing to use the Claimant's services and the Claimant was entitled to treat them accordingly: ED&F Man v Fluxo-Cane Overseas Ltd  EWHC 212 (Comm) at  to .
Issue 11: Was the Claimant in breach of COB Rule 8.1 and/or COBS 16.2 or 16.3 by failing to provide records to the Defendants in relation to the accounts?
- COB Rule 8.1.3 and COBS 16.2.1 required the Claimant to provide the Defendants with a written record of the essential details of all transactions.
- Declan conceded this issue during the course of the trial and now accepts that he received regular statements in relation to all three accounts.
- In addition, Tommy also accepts that Declan received regular statements in relation to his account.
- Clause 12(9) of the Initial Customer Agreement and clause 13(9) of the COBS Customer Agreement permitted the Claimant to send all statements and correspondence to the email address specified in Tommy's account opening form (which was Declan's email address).
Issue 12: Did the Claimant fail to act in the Defendants' best interests in breach of COBS 2.1.1?
- The Defendants have both alleged a failure to act in their best interests under COBS 2.1.1, although different allegations are raised by each of them.
- In relation to Tommy, there are four main allegations which may be summarised as follows:
a. First, it is alleged that the Claimant failed to ensure that the account was opened as a limited risk account. As set out above, account CB805 was initially opened as a limited risk account and validly upgraded to a standard risk account subsequently.
b. Secondly, it is alleged that the Claimant failed to ensure that the account was closed when an exposure "greater than 10%" was reached or when the first margin call was made but not met:
i. Tommy has sought to explain the reference to exposure "greater than 10%" at Responses 9.1 and 9.2 of the Response to the Part 18 Request. It appears to be alleged that the Claimant should have closed the account when the margin of 10% had been lost in respect of any one trade. However, there is no rule under COB or COBS to that effect. A client may expressly request a guaranteed stop loss on a transaction which would have a similar effect but the Defendants chose not to do so in this case.
ii. Moreover, margin rates differ between stocks and between CFD providers (this was the reason Declan wanted to transfer the accounts from Cantor Fitzgerald). Thus, a blanket rule of this kind would be impractical.
iii. Further, such a draconian rule would be potentially unfair and not in the client's best interests for several reasons. First, a margin call might not be met immediately for any number of reasons beyond the customer's control. Secondly, it would be uncommercial and potentially unfair if a customer's whole account had to be closed as a result of one missed margin call in relation to a particular stock even though all other positions on the account were in profit. Thirdly, it might require a particular trade to be closed out at a loss even though the stock in question rose again almost immediately afterwards.
c. Thirdly, it is alleged that the Claimant failed to ensure that Tommy consented to continue trading on the account and/or that his financial circumstances allowed him to do so:
i. At all material times, the Claimant dealt with Declan as Tommy's authorised agent under the Power of Attorney or alternatively in reliance on Declan's apparent authority. Under the Power of Attorney there was no requirement to confirm instructions received from Declan.
ii. Further, the Claimant was under no obligation to (a) satisfy itself as to the suitability of transactions on the account; (b) monitor or advise Tommy on the status of the account; (c) make margin calls; or (d) to close any transactions on the account: see clause 3(2) of the Initial Customer Agreement and clause 2(4) of the COBS Customer Agreement.
iii. Finally, as regards Tommy's financial circumstances, at all material times the Claimant believed Tommy's financial circumstances were more than adequate to support the trading on the account. First, his estimated savings and investments were put at €10m in the application form. Secondly, on 14 August 2007 his accountants sent a statement showing he had net assets of €14.8m. Thirdly, on 13 November 2008 the Claimant was sent a spreadsheet showing Tommy had assets of over €10m.
d. Fourthly it is alleged that the Claimant failed to ensure that Tommy (as opposed to Declan) was aware of the state of the account and the losses being incurred: at all material times it dealt with Declan as Tommy's authorised agent under the Power of Attorney or alternatively in reliance on Declan's apparent authority.
- In relation to Declan the complaint is that the Claimant failed to act in accordance with his best interests: (i) by failing to advise him that he was personally liable in relation to account CB988 and (ii) in the manner in which it closed out his accounts.
- The Claimant was under no duty to offer advice to Declan. All dealings were on an execution only basis: clause 2(4) of the COBS Customer Agreement. Declan was well aware that he was personally liable in respect of account CB988. He had specifically requested that the account be opened in his name and for himself "personally". Further, all negotiations with him were on the basis that he was personally liable. The first time he denied he was so liable was in his Defence dated January 2010.
- In relation to the second allegation, the duty under COBS 2.1.1 does not apply to a closing out situation: see ED&F Man v Fluxo-Cane Overseas Ltd  EWHC 212 (Comm) at .
- Moreover, the Claimant did not close out the accounts on only 4 hours' notice to Declan. It gave notice of its intention to close out the accounts by letter dated 27 January 2009 prior to the meeting with Declan on 28 January 2009. In addition, it was made clear to Declan at the meeting on 28 January 2009 that it was most likely that the accounts would be closed out.
- In any event, the Claimant had an absolute discretion to close out the accounts without prior notice under clause 16(2) of the COBS Customer Agreement. Accordingly, in deciding whether to close out the accounts the Claimant was required only to act honestly and rationally and was entitled to consult primarily its own interests: Socimer International Bank v Standard Bank London  1 Lloyds Rep 558 at [60-66] and .
Issue 13: Was the Claimant in breach of COBS 10.2 and/or 10.3 by failing to request sufficient information about the Defendants' knowledge and experience?
- The Defendants allege that the Claimant failed to request sufficient information regarding their knowledge and experience relevant to CFDs in order for the Claimant to be able to assess whether its CFD trading service was suitable in breach of COBS 10.2 and failed to provide appropriate warnings in breach of COBS 10.3.
- Neither Defendant has particularised what questions the Claimant should have asked in relation to their knowledge and experience but failed to do so.
- The Claimant correctly classified both Defendants as intermediate customers under the COB Rules. As a result they were both automatically reclassified as elective professional clients under COBS. On that basis the Claimant was entitled to assume that they had the necessary knowledge and experience to understand the risks involved in trading CFDs so that no breach of COBS 10.2.1 could arise: see Wachner (above) at .
- In any event, the Claimant asked sufficient questions in relation to the Defendants' knowledge and experience in the application form. These questions mirrored the guidance at COB 4.1.10. Moreover, pursuant to COBS 10.2.4, the Claimant was entitled to rely on the information provided by the Defendants in the application forms unless it was manifestly out of date (which it was not case here – the information was less than 3 months old on 1 November 2007). On that basis the Claimant decided that its CFD trading service was suitable for them. Accordingly, no warning was necessary under COBS 10.3.1.
- The Defendants already had very large positions on their CFD trading accounts with Cantor Fitzgerald when they applied to the Claimant. Moreover, the Claimant also provided the Risk Disclosure Notice and Intermediate Customer Notices which the Defendants confirmed they had read and understood before opening the accounts.
Issue 14: Is the Claimant liable to either Defendant on the Counterclaims?
- In light of these findings, the Counterclaims in both cases must fail. The Defendants have failed to establish any breach by the Claimant or (in Declan's case) any actionable misrepresentation.
- Accordingly, the Claimant succeeds in both claims and the Counterclaims are dismissed.
His Honour Judge Simon Brown QC
Specialist Mercantile Judge
Birmingham Civil Justice Centre
Clerks: Alison Wood & Caroline Norman
Tel: (0121) 681 3035
3rd April 2012