Quinn v IG Index Ltd [2018] EWHC 2478 (Ch)

Case No D30MA822

[2018] EWHC 2478 (Ch)

IN THE HIGH COURT OF JUSTICE

Venue PROPERTY AND BUSINESS COURTS IN MANCHESTER

BUSINESS LIST (Ch.D)

Venue Manchester Civil Justice Centre, Manchester M60 9DJ

Date Judgment Date: 12 October 2018

Before

HIS HONOUR JUDGE PELLING QC

SITTING AS A JUDGE OF THE HIGH COURT

Between

PETER QUINNClaimant

IG INDEX LIMITEDDefendant

Mr Mark Cawson QC and Mr. Richard Peat (instructed by TLT LLP Manchester) for Claimant

Mr David Mayall (instructed by Martin Shepherd Solicitors LLP) for Defendant

Hearing Hearing dates: 20 – 23 August 2018

Judgment

HH Judge Pelling QC:

Introduction

[1]Between March 2010 and June 2014, the claimant placed spread bets with the defendant first on particular shares and then on stock market indices here and abroad during the course of which he lost over £2 million. Although the claim has been pleaded in a number of different ways, at trial his claim was that he had been induced by the employees of the defendant to spread bet and encouraged to continue to spread bet when it was neither appropriate nor in his best interests to do so. It is alleged that by such conduct the defendant acted in breach of statutory duty under s.138D(2) of the Financial Services and Markets Act 2000 (“FSMA”) and that in consequence he is entitled to recover some or all of the losses he made over the period that he placed spread bets with the defendant. The defendant denied that it owed a duty to do anything other than assess whether spread betting was appropriate for the claimant, that it had not breached its duty by assessing spread betting as appropriate for the claimant and in any event the losses claimed were not in law caused by the alleged or any breach of duty by the defendant.

[2]The trial took place between 20 and 23 August 2018. I heard oral evidence adduced on behalf of the claimant from:(a) The claimant;

(b) Mr. Gary Chong, a friend of the claimant, who was employed as a stock broker by WH Ireland until 2013, who acted for the claimant in relation to some share dealing and who introduced him to the defendant; and

(c) Mr. Mark Rabone, another of Mr. Chong’s clients who he introduced to the defendant. I heard oral evidence adduced on behalf of the defendant from: (a) Ms Bridget Messer, a director of IG Group Holdings Limited, the ultimate holding company of the defendant and the IG Group’s Chief Commercial Officer; (b) Mr. Tim Howkins, who was the Chief Executive Officer of IG Group Holdings Limited during the period material to these proceedings; (c) Ms Agnes Skibniewski, who is employed by the defendant as its Market Data Supervisor but who at the time material to these proceedings was employed by the defendant as an Account Set Up and Rebates Assistant in the department of the defendant that handled the opening of new accounts;

(d) Mr. Ryan Arnold, a Credit Risk Supervisor employed by the defendant;

(e) Mr. Robert Dunne, a Marketing Technology Technical Manager employed by the defendant;

(f) Ms Lucy Foot, who is now a qualified solicitor and a legal Counsel employed by the defendant but in 2010 was employed in the department of the defendant concerning with the setting up of introducing broker contracts;

(g) Ms Niamh Byrne, one of the defendant’s sales and client managers,

(h) Mr. Matt Brief, a Dealing Director employed by the defendant; and

(i) Mr. Michael Murray, who was employed by the defendant in 2010 as its Head of Premier Trading but who is now retired. Background 3. Financial Spread Betting

[3]Financial spread betting is a bipartite contract for differences between a person wishing to bet (“bet placer”) and a spread betting operator such as the defendant by which the bet placer can bet on the forward movement of securities, commodities, foreign currency values relative to other currencies or market indices by notionally “buying” or “selling” against a spread between a low fixed figure (“floor”) and a high fixed figure (“ceiling”). If the bet placer “buys”, he or she is betting that the relevant market will rise higher than the ceiling and if he or she “sells” that it will fall below the floor. The concepts of “buying” and “selling” when used in a spread betting context are artificial because in truth the bet placer does not buy or sell anything.

[4]How the bet is denominated depends on the subject of the bet. If what is being bet on is the movement of a share then typically the bet will be denominated in £x per penny (or cent) of share price movement upwards or downwards depending on whether the bet placer is buying or selling. If the bet placer is betting on the movement of a market index such as the FTSE 100 Index, the bet will typically be denominated in £x per point by which the index moves below the floor for a seller and above the ceiling for a buyer. If there is no movement then the bet placer will lose his initial bet.

[5]The defendant makes its profits by adding a margin to the spread. Mr. Murray explained the mechanism in his statement by an example: If the client was being charged 15 basis points each way (i.e. 15 basis points on opening the trade and 15 basis points on closing the trade) that would be 30 basis points overall, which equals 0.3% of the total consideration of the underlying trades. Therefore, for example, if a client was buying 100,000 Vodafone shares, IG would charge 0.3% of the consideration of the position. The consideration of the position would be calculated as the number of shares multiplied by the share price so for example 100,000 multiplied by a share price of £1.80 would be 180,000. The commission in my example would be 0.3% of the consideration, so 0.3% multiplied by 180,000 would be £540. Two consequences flow from this – first, the client is not betting against the service provider so that no conflict arises and secondly the service provider is paid whether the client wins or loses so the service provider has no interest in whether the client wins or loses other than that if the client wins he or she is likely to continue betting.

[6]This form of dealing has very serious downside risks for the bet placer. If the market concerned is for example the FTSE 100 Index, and it falls 100 points beneath the floor, a bet placer who is a buyer will be £100 worse off for every £1 per point of movement bet. If the bet is at £10 per point then the loss will be £1,000 and if the bet is £100 per point, the loss will be £10,000. Subject to closure of a bet, as to which see further below, the only cap on loss making is the relevant index or share or commodity price falling to nil.

[7]There are collateral advantages to spread betting on securities, which include not having to purchase the securities concerned thereby reducing the amount that has to be invested at the outset of a speculation (something that would otherwise operate as a restraint against over exposure) and not having to pay stamp duty on the purchase of the shares, because no shares are bought. No capital gain tax is payable on any profits made from spread betting.

[8]The gain or loss is crystallised when the bet is closed. This can happen in a variety of ways. The bet placer may agree with the spread bet operator to hold an open position for a fixed period of time. It may be that the bet placer wishes to take advantage of some gains that have been made while holding an open position or it may be that he or she enters into a stop loss arrangement with the spread betting operator concerned to the effect that the position will be closed in the event that there is an adverse move beyond pre-fixed parameters. Finally, spread betting operators reserve the right to close loss making positions where the losses exceed the proportion of loss covered by the bet placer’s deposit and margin – something I refer to in more detail below.

[9]Spread betting operators in general will hedge, and the defendant in particular hedges, bets both internally and externally. In consequence the defendant argued and I accept that the bet placer placing spread bets with the defendant is not betting against the defendant thereby eliminating at least that potential conflict of interest between a bet placer and the defendant. Although the degree to which the defendant hedges bets placed with it was questioned in cross examination, in my judgment it is almost self evident that a spread bet operator will operate in this manner since otherwise it would be exposed to enormous and unsustainable risks. Although the defendant’s witnesses implied that the defendant adopted a hedging programme in order to avoid a conflict of interest with its customers, in my judgment the predominant purpose was to avoid the commercial risks I referred to above. I also accept the point made on behalf of the defendant that the primary method of hedging is by notionally setting off bets by different bet placers betting in opposite directions in the same market and externally hedging any potential losses not covered by this method. This too makes obvious commercial sense since it minimises the defendant’s costs of operating its hedging programme.

[10]The spread-betting operator will manage, and the defendant manages, its only real risk (that the bet placer will not be good for his or her losses) in part by requiring bet placers to deposit a relatively modest proportion (in the case of the defendant typically 10%) of his or her cumulative bet values (referred to either as a deposit or “margin”) with the spread-betting operator and to require that the bet placer maintain that minimum sum on deposit by requests for additional margin (known as “margin calls”) in respect of losses incurred by open positions. In default of a positive response to a margin call, the spread-betting operator will close some or all of the bet placer’s positions in order to control its credit risk. In the case of the defendant, the degree to which a bet placer is permitted to suffer losses on open positions in excess of those covered by his or her current margin depends on the nature of the account maintained by the bet placer with the defendant. I refer to this in more detail below. The existence of this difference between margin and cumulative bet value leads the defendant to describe spread betting as “… betting using ‘leverage’ or ‘gearing’…” – see the defendant’s Risk Disclosure Notice referred to in more detail below. This is euphemistic. In reality, it means that the spread-betting operator is extending credit to the bet placer to enable him or her to bet. It is this factor together with the exponential nature of the losses that can be made from financial spread betting that makes it a high-risk activity. It is also why it is a regulated activity within the meaning of s.22 of FSMA. Regulatory Framework

[11]It is common ground that that at all times the defendant was an authorised person carrying on designated investment business and thus had to comply with FSMA, its associated subsidiary legislation and the rules applied to it and its business as set out in what was known for most of the time material to this dispute as the Financial Services Authority Handbook (“FSA Handbook”) and in particular the rules contained in the Conduct of Business Sourcebook (“COBS”). On 1 April 2013, the FSA has changed its name to the Financial Conduct Authority but I refer throughout this judgment to the FSA because that was the name of the regulator during most of the period relevant to these proceedings.

[12]S. 138D(2) FSMA provides that: "A contravention by an authorised person of a rule made by the [FSA] is actionable at the suit of a private person who suffers loss as a result of the contravention, subject to the defences and other incidents applying to actions for breach of statutory duty.” It is common ground that at all times material to these proceedings(a) financial spread betting as provided by the defendant to the claimant was (i) designated investment business within the meaning of COBS 2.1.1R and (ii) a service to which COBS 10 applied,

(b) the claimant was a “retail client”of the defendant for the purposes of COBS 2.1.1R ,

(d) the provisions within COBS on which the claimant relies are rules within the meaning of s.138D (2). It is thus common ground that if the claimant is able to establish a contravention of a relevant rule within COBS then he is entitled to recover damages for loss caused by that contravention subject to any defences otherwise applicable to a claim for damages for breach of statutory duty.

[13]Although various alleged breaches of rules within COBS have been pleaded on behalf of the claimant, at trial the rules that it was maintained had been breached and which it was alleged entitled the claimant to recover the losses he had made were COBS 2.1.1R and COBS 10.2.1R.

[14]COBS 2.1.1R provides:

“2.1 The client's best interests rule 2.1.1R (1) A firm must act honestly, fairly and professionally in accordance with the best interests of its client (the client’s best interests rule). (2) This rule applies: in relation to designated investment business carried on for a retail client…..”

Exclusion of liability 2.1.2 R A firm must not, in any communication relating to designated investment business seek to: (1) exclude or restrict; or (2) rely on any exclusion or restriction of; any duty or liability it may have to a client under the regulatory system. 2.1.3 G (1) In order to comply with the client's best interests rule , a firm should not, in any communication to a retail client relating to designated investment business: (a) seek to exclude or restrict; or (b) rely on any exclusion or restriction of; any duty or liability it may have to a client other than under the regulatory system, unless it is honest, fair and professional for it to do so. (2) The general law, including the Unfair Terms Regulations (for contracts entered into before 1 October 2015) and the CRA, also limits the scope for a firm to exclude or restrict any duty or liability to a consumer.” in relation to designated investment business carried on for a retail client…..” Exclusion of liability

A firm must not, in any communication relating to designated investment business seek to:

[15]COBS 10 in so far as is material provides: “COBS10.1 Application and purpose provisions COBS 10.1.1 R This chapter applies to a firm which provides investment services in the course of MiFID or equivalent third country business other than making a personal recommendation and managing investments… _ COBS

10.2 Assessing appropriateness: the obligations COBS10.2.1 R

10.2.2 R The information regarding a client's knowledge and experience in the investment field includes, to the extent appropriate to the nature of the client, the nature and extent of the service to be provided and the type of product or transaction envisaged, including their complexity and the risks involved, information on: (1) the types of service, transaction and designated investment with which the client is familiar; (2) the nature, volume, frequency of the client's transactions in designated investments and the period over which they have been carried out;

10.2.3 R A firm must not encourage a client not to provide information required for the purposes of its assessment of appropriateness. Reliance on information COBS

10.2.4 R A firm is entitled to rely on the information provided by a client unless it is aware that the information is manifestly out of date, inaccurate or incomplete. Use of existing information COBS

10.2.5 G When assessing appropriateness, a firm may use information it already has in its possession. Knowledge and experience COBS

10.2.6 G Depending on the circumstances, a firm may be satisfied that the client's knowledge alone is sufficient for him to understand the risks involved in a product or service. Where reasonable, a firm may infer knowledge from experience. Increasing the client's understanding COBS

10.2.7 G If, before assessing appropriateness, a firm seeks to increase the client's level of understanding of a service or product by providing information to him, relevant considerations are likely to include the nature and complexity of the information and the client's existing level of understanding. No duty to communicate firm's assessment of knowledge and experience COBS

10.2.8 G If a firm is satisfied that the client has the necessary experience and knowledge in order to understand the risks involved in relation to the product or service, there is no duty to communicate this to the client. If the firm does so, it must not do so in a way that amounts to making a personal recommendation unless it complies with the rules in COBS 9 on suitability. COBS

(1) When providing a service to which this chapter applies, a firm must ask the client to provide information regarding his knowledge and experience in the investment field relevant to the specific type of product or service offered or demanded so as to enable the firm to assess whether the service or product envisaged is appropriate for the client.

(2) When assessing appropriateness, a firm: (a) must determine whether the client has the necessary experience and knowledge in order to understand the risks involved in relation to the product or service offered or demanded; … COBS

(3) the level of education, profession or relevant former profession of the client. COBS

10.3 Warning the client COBS10.3.1 R (1) If a firm considers, on the basis of the information received to enable it to assess appropriateness, that the product or service is not appropriate to the client, the firm must warn the client. (2) This warning may be provided in a standardised format.

10.3.2 R (1) If the client elects not to provide the information to enable the firm to assess appropriateness, or if he provides insufficient information regarding his knowledge and experience, the firm must warn the client that such a decision will not allow the firm to determine whether the service or product envisaged is appropriate for him. (2) This warning may be provided in a standardised format.

10.3.3 G If a client asks a firm to go ahead with a transaction, despite being given a warning by the firm, it is for the firm to consider whether to do so having regard to the circumstances. COBS

10.4 Assessing appropriateness: when it need not be done COBS 10.4.2 R If a client engages in a course of dealings involving a specific type of product or service through the services of a firm, the firm is not required to make a new assessment on the occasion of each separate transaction. A firm complies with the rules in this chapter provided that it makes the necessary appropriateness assessment before beginning that service. COBS 10.4.3 R A client who has engaged in a course of dealings involving a specific type of product or service beginning before 1 November 2007 is presumed to have the necessary experience and knowledge in order to understand the risks involved in relation to that specific type of product or service. COBS 10.6 When a firm need not assess appropriateness COBS 10.6.2 G A firm may not need to assess appropriateness if it is able to rely on a recommendation made by an investment firm (see COBS 2.4.5 G (Reliance on other investment firms: MiFID and equivalent business) COBS 10.1.1 R COBS 10.2 Assessing appropriateness: the obligations COBS 10.2.1 R COBS 10.2.2 R COBS 10.2.3 R Reliance on information COBS 10.2.4 R Use of existing information COBS 10.2.5 G Knowledge and experience COBS 10.2.6 G Increasing the client's understanding COBS 10.2.7 G No duty to communicate firm's assessment of knowledge and experience COBS 10.2.8 G COBS 10.3 Warning the client COBS 10.3.1 R COBS 10.4 Assessing appropriateness: when it need not be done COBS 10.4.2 R COBS 10.4.3 R COBS 10.6 When a firm need not assess appropriateness COBS 10.6.2 G The Facts 17. The Issues

[16]Much of the evidence in the written statements is taken up with issues that do not now arise. This is so because(a) the claimant accepts that his claim is statute barred for breaches of statutory duty that are alleged to have occurred prior to 8 August 2011,

(b) he does not maintain a free standing claim based on the allegation that the defendant gave unauthorised advice (it being accepted therefore that the claimant’s dealings with the defendant were on an execution only basis) and

(c) he does not maintain a claim based on the alleged receipt of secret commissions by Mr. Chong from the defendant. All this together significantly narrows the scope of the factual enquiry that I have to undertake.

The Facts

[17]The primary issues which arise in this case are whether, in the events that happened, the defendant acted in breach of its duty:(a) Under COBS 10.2.1 R by failing: (i) to warn the claimant that financial spread betting was not appropriate for him and/or (ii) to ask the claimant to provide information regarding his knowledge and experience in the investment field relevant to spread betting so as thereby to prevent it from assessing appropriateness properly; and/or

(b) under COBS 2.1.1 R by failing to act honestly, fairly and professionally in accordance with the best interests of its client by causing or permitting the claimant to continue spread betting after a time at which (on the claimant’s case) the defendant’s employees with whom the claimant dealt on a regular basis either knew or ought to have known the claimant was betting recklessly. Since FSMA s.138D (2) creates a cause of action only in favour of a person who suffers loss as a result of an alleged contravention, it is necessary for the claimant to plead and prove that the losses claimed have been caused by the alleged breaches of duty relied on by the claimant. Findings Factual

Background

[18]The claimant alleges that both his father and grandfather had serious gambling problems and that this made him vulnerable to developing similar problems. I am willing to accept that the claimant’s father and grandfather had serious gambling problems although there is no evidence to support it other than the claimant’s oral evidence. In my judgment however it is immaterial to the issues I have to decide. First, there is no evidence that a propensity to gamble recklessly or even addictively is an inheritable condition. Secondly, whether it is or is not is irrelevant because it is not suggested that the defendant was aware of any of this until long after the claimant had ceased trading with the defendant. Thirdly, it is not suggested that the claimant developed a diagnosable condition of gambling addiction until after he had ceased trading with the defendant – see the claimant’s pleaded case, summarised by Mr. Cawson QC in paragraph 58 of his written opening submissions on behalf of the claimant, that the claimant ceased spread betting with the defendant finally on 12 June 2014, when he closed his account on a self excluding basis, and the claimant’s reply to the defendant’s request for further information, where it is asserted by or on behalf of the claimant that it was “ … after July 2014, he became addicted to spread betting and gambling …”

[19]The claimant had been a very successful businessman, who was able to sell his interest in his business (a reprographics supply and support business) for about £10 million prior to the events with which this claim is concerned. Prior to his involvement with the defendant, the claimant’s investments had consisted of an intermediate AXA offshore bond valued at just under £2.7 million, an ISA valued at just under £58,000, a SIPP valued at just over £382,000, and a portfolio of shares, valued at about £725,000, which the claimant managed on the advice of Mr. Chong, by which I mean that Mr. Chong proffered advice to the claimant as to what to buy, hold or sell, which the claimant was free to accept or reject as he chose. Those investments had been funded from the proceeds of sale of the claimant’s share of his business either directly or indirectly. Aside from the sale by the claimant of his interest in his business and that the claimant had an investment portfolio of substantial value, none of this was known to the defendant at the time it permitted the claimant to open a spread betting account.

[20]The claimant maintains that prior to him opening a spread betting account with the defendant he had no knowledge or experience of spread betting nor had he participated in such activity. Whilst I accept that he had not participated in spread betting prior to him opening his account with the defendant, I do not accept that he had no knowledge of the process. As I explain below, there had been at least one conversation between him and Mr. Chong that took place prior to the claimant applying to open an account with the defendant when at least the fundamentals of, and risks posed by, the spread betting process had been explained to him by Mr. Chong and that he had understood what he had been told.

[21]Aside from spread betting with the defendant, the claimant opened other spread betting accounts. As he put in his statement:

“I opened an account with lntertrader in or about December 2012. I opened the account after I had received an unsolicited telephone call in which lntertrader offered £5,000 credit to begin spread betting. The account was a spread betting account. I traded on the account for a short period before resuming spread betting on my account with the Defendant in March 2013. After a break of 18 months from spread betting, I started to purchase traditional shares again through my bank Coutts. In December 2015 I spoke to Mr Chong about my positions and under his guidance and under a power of attorney I asked him to open me a spread betting account with Spreadex. Up until June 2016 I opened numerous spread betting accounts and I even tried to open an account with Defendant in April 2016 as my addiction took hold.”

Opening of the Claimant’s account with the Defendant

[22]On 26 February 2010, the claimant had asked Mr. Chong to explain to him how spread betting worked in the context of a request from the claimant for advice about a speculative share purchase then being considered by the claimant. Mr. Chong had advised him by email that it would be cheaper if he (Mr. Chong) dealt on his behalf at Spreadex or IG. This caused the claimant to ask Mr. Chong by email “Can you tell me how it works. What would you have to do to make £20k for instance.” Mr. Chong replied asking the claimant to call him. In cross examination, the claimant accepted that he had done so, that Mr. Chong had then explained to him how spread betting worked, what were the benefits and risks and as the claimant put it, that he did not have to put up the money or pay any tax on the gains. The claimant confirmed that Mr. Chong had told him that spread betting was a geared transaction, which meant that you could put up £70,000 and lose £700,000. In my judgment the claimant was aware of the risks posed by spread betting by no later than that date because (as the claimant accepted in cross examination) Mr. Chong had explained them to him during this conversation.

[23]The claimant opened his trading account with the defendant on 10 March 2010 by completing a series of forms on line on the same day and after the conversation with Mr. Chong referred to above. The form that the claimant had to complete before he could open his account with the defendant included a section headed “Relevant Experience”. It contained the following question:

“ “Over the past three years, how often have you traded the following products (not necessarily using Spread Bets)? - Shares and Bonds - Exchange traded Derivatives (eg. Warrants, Futures or Options) - OTC Derivatives (e.g. CFDs, FX or Spread Bets)”

In each case the claimant was given a choice of one of three answers – “frequently”, “sometimes”, or “rarely/never”. He answered Frequently to the first and rarely/never to the second and third.

[24]The next question was “How have you mostly traded these?” There were three alternative answers offered – “I make my own trading decisions and/or take advice”, “I have only ever use managed funds” or “I have never traded”. The claimant selected the first of these options. This was accurate given that he had a portfolio of shares, which he managed with advice from Mr. Chong. Although the claimant said in paragraph 11 of his witness statement that “ I occasionally purchased shares through Charles Stanley and WH Ireland (WHI) (wealth management and brokering companies), both advised and non-advised, which proved to be profitable. I was an investor that would makea decision and forget about it until the next meeting with one of my financial advisers …” he accepted in cross examination (correctly in my judgment) that this was not the impression that he gave to the defendant by the answers that he gave to the questions that he had been asked. This was so because he had informed the defendant in his application for an account that he had dealt frequently in shares and bonds making his own trading decisions or doing so after taking advice. In fact the answer he gave was substantially accurate in my judgment. One particular example of that was his initial email to Mr Chong on 26 February 2010, referred to above, where in relation to shares in “AVN & PRU” the claimant had asked Mr Chong “Would they be worth a T20 play” by which he meant would it be worth purchasing them for a period of a day or less in the hope or expectation of a worthwhile capital gain to be realised by sale. The terms of this email are not consistent with occasional activity.

[25]At the conclusion of the form that the claimant had to complete, there was a declaration to which the claimant had to signify agreement before an account could be opened. It was in these terms: I understand the nature and risks of spread betting. I consent to the following information being provided to me on line via the IG Index website: the Risk Disclosure Notice, the Order Execution Policy and the Summary of Conflicts of Interest Policy. I hereby confirm that I have read understood and agree to be bound by the terms of these documents. I agree I understand the agreement I am entering into with IG Index. I consent to the following information being provided to me on line via the IG Index website: the Customer Agreement and I hereby confirm that I have read understood and agree to be bound by the terms of this document. I agree.” I agree I agree.”

[26]The phrases “Risk Disclosure Notice”, “Order Execution Policy”, “Summary of Conflicts of Interest Policy” and “Customer Agreement” were each clearly and obviously hyperlinks, which, if clicked, took the reader to the document concerned. The claimant accepted in the course of his oral evidence that he understood that to be so. The claimant signified his agreement to each of the paragraphs of the Declaration. In the course of his cross examination, the claimant acknowledged that if he was to open an account with the defendant, he had to certify that he had read the Risk Disclosure Notice but asserted that he had not done so. As was inevitable given this assertion, he acknowledged that in giving that indication to the defendant he was being untruthful. It is part of the claimant’s case that he did not understand that spread betting was betting. As the claimant accepted in cross-examination, had he read the document, he would have known that spread betting was betting. This is self evident from the use of the word “betting” throughout the document. It included (as the claimant accepted) the stark warning that Spread betting is a high risk financial product, which is not suitable for many members of the public. Under the heading “Appropriateness” it set out the following: Before we open a spread betting account for you, we are required to make an assessment whether it is appropriate for you and to warn you if, on the basis of the information you provide to us it is not appropriate. Anydecision whether or not to open an account and on whether or not you understand the risks is yours. We may also ask you for information about your financial assets and earnings. We do not monitor on your behalf whether the amount ofmoney you have sent to us or your profits or losses are consistent with thatinformation. It is up to you to assess whether your financial resources are adequate and what level of risk to take. This is highly significant information. It told the reader in clear terms that the assessment by the defendant of whether spread betting was suitable for an applicant depended on the information that had been provided by the claimant.

[27]In summary the position is this: the claimant had been asked for information about his securities trading experience and had been asked to certify that he had read a document that set out in summary form the risks posed by spread betting. An assessment of appropriateness depended on the accuracy of the information provided by the claimant as was made expressly clear in the Risk Disclosure Notice. The claimant chose to certify that he had read the document when (he alleges) he had not and had supplied information that to his knowledge was materially inaccurate – that he had read the Risk Disclosure Notice when in fact he had not and that he traded shares frequently when (he maintains in his witness statement) he traded only infrequently. In re-examination he accepted that had he clicked on the relevant hyperlink, the Risk Disclosure Notice would have appeared.

[28]Similar considerations apply to the Customer Agreement. As I have said, the on line form completed by the claimant provided a hyperlink to the relevant document. The claimant was required to certify that he had read it before he could open an account with the defendant. He so certified in the form that he completed. He maintained in cross-examination that he had not read the document even though he had certified that he had read it. He accepted that had he read it he would have known that spread betting was a variety of betting not least because the full title of the agreement is “Spread betting Customer Agreement” and because the defendant refers to itself for example in clause 2(2) of the Terms as acting as “… principal (and bookmaker) …”

[29]The claimant acknowledged in the course of his cross-examination that he was responsible for not reading the document. It was put to him but he denied that he had in fact read the document, claiming that he did not have time to do so. As I have said already, the claimant was a highly successful businessman who had established a business from nothing, who was able to sell his interest in that business for in excess of £10 million. His business had involved the supply and service of reprographic equipment. It is inconceivable in my judgment that someone who had been as successful as the claimant in his business life could have been so by failing to read the terms on which his commercial counter parties were prepared to do business. It is equally inconceivable that he would have failed to read the documents that were made available to him by the defendant, particularly when he was required to confirm that he had read them. In my judgment it is probable that in fact he did read them. That he would do so is consistent with his request for information about the process from Mr. Chong when Mr. Chong first suggested that the claimant participate in spread betting. Although he maintained in cross-examination that he acted as he did because Mr. Chong assured him that he could safely proceed, that is immaterial as between him and the defendant and does alter the untruthfulness of the answers he supplied to the defendant if in fact he had not read the documents.

[30]The defendant’s system for assessing appropriateness was a points-based system. The claimant was awarded 30 points for giving an answer of "Frequently" to the first question regarding Shares and Bonds.This was doubled following his answer that he made his own trading decisions and/or take advice, taking the total points awarded to the claimant for his answers to 60.

[31]Finally, page 3 of the form completed by the claimants contained the following:

“As an IG Index account holder you will be entitled to join TradeSense, our free six-week distance learning programme on spread betting. TradeSense membership enables you tostart placing bets at just 10 pence per point whilst you build your knowledge and experience. Would you like to join TradeSense? - Yes, please send me a link lo download the course - Yes, please send the pack to me by post - No thanks.”

As Mr. Robert Dunne explains in his witness statement, at this part of the form there appears a box in which the applicant is required to choose between a “Plus Account” or a “Limited Risk Account”. As is explained in the box appearing in the form, the difference between the two accounts is that Plus Accounts offer tighter spreads but the bet placer can lose more that his or her initial deposit while with a Limited Risk Account the bet placer could not lose beyond his or her chosen stop level. An applicant cannot proceed further with completion of the form without making a selection. The claimant selected the Plus Account option. Once that option is selected, all applicants were then required to select an answer to the Trade Sense question set out above. The default option was “Yes, please send me a link lo download the course”. Had the claimant responded “No thanks” then as Mr. Dunne explains in paragraph 18 of his statement:

“If an applicant ticked "No thanks" on this page and subsequently was awarded less than 69 MiFID Points, the applicant would have been asked the following question ….on Page 5: “Based on the information you have supplied, we recommend that you join our TradeSense programme. You will receive educational material to explain our services and you will be able to place deals with reduced minimum sizes. Would you like to join TradeSense? Yes. Please send me a link to download the course Yes, Please send the pack to me by post No thank you, I already understand your services”

The option "Yes. Please send me a link to download the course" would also have been selected by default on this page.” The data available from the application discloses that:

“Mr Quinn elected the option that said "Yes, please send me a link to download the course" either on Page 3 or Page 5.”

Would you like to join TradeSense? “Based on the information you have supplied, we recommend that you join our TradeSense programme. You will receive educational material to explain our services and you will be able to place deals with reduced minimum sizes. Would you like to join TradeSense? Yes. Please send me a link to download the course Yes, Please send the pack to me by post No thank you, I already understand your services”

Would you like to join TradeSense?

[32]At the time when the claimant was applying to open an account with the defendant, the defendant operated an Appropriateness Policy, which the claimant maintains was not sufficiently robust to test appropriateness, although the claimant does not criticise the fact that it was considered appropriate for him to open a Plus Account with the defendant on the basis of the information that was provided by him.

[33]Although that policy was criticised in cross-examination, in my judgment that criticism was misplaced. It was advanced primarily by reference to the guidance contained in the FSA’s COBS Fact Sheet. Mr. Cawson focussed his attack both in cross examination and in his closing submissions on the failure of the defendant to adopt a series of question such as those set out under the heading “Experience” within the part of the Fact Sheet entitled “Implementation of the COBS 10 Appropriateness Test”. However, there is nothing within this or any other part of the Fact Sheet that suggests this is the only method of gathering information about experience. The only example of poor practice identified was “Although firms asked about clients’ experience, one or two asked nothing about an inexperienced applicant’s knowledge, apart from asking them to self certify that they understood the risks of the type of transaction envisaged.” That is not what the defendant did. The defendant’s practice was that implicitly approved as good practice by the FSA under the heading “Warnings” within the part of the Fact Sheet entitled “Implementation of the COBS 10 Appropriateness Test”, where the FSA stated:

“All firms offering spread betting… continued to ask their clients to certify that they understood the risks associated with spread betting … All such clients … were referred to the firm’s standard product risk warnings and some firms specifically asked applicants to confirm that they have actually read the risk warnings. … The declarations can also be used to highlight key risks once more. One good example of this was where a firm’s application form required the applicant to agree that they ‘understand and accept the risks associated with spread betting …’ No firm we saw relies on self-certification alone. However, firms that place any degree of reliance on self certification … should ensure that explanations of relevant risks are readily accessible and signposted and clearly and fairly presented in a user friendly format … these explanation should not be ‘buried’ in a dense and small font Terms of Business document”

[34]In my judgment, the defendant complied with this guidance. Its “Risk Disclosure Notice” was clearly and obviously hyperlinked, which, if clicked, took the reader to the document concerned. The document was separate from the Terms of Business and other documents referred to in the Application Form, and was clearly expressed.

[35]In any event, in relation to the claimant’s submission that the questions asked concerning knowledge and experience were subjective rather than objective, I accept Ms Messer’s evidence given in the course of her cross examination that the FSA was satisfied with the approach adopted by the defendant to assessing appropriateness and that it was suitably robust. It is true to say that the defendant has altered its approach since the events with which I am concerned but that of itself does not lead to the conclusion that the system adopted by the defendant at the time when the claimant as applying for an account did not comply with the applicable Rules. I am satisfied that it did. That is not to say that other systems could not have been adopted with more objective questions and that such a system might arguably have enabled a more nuanced judgment to have been made concerning appropriateness. However, that is not the relevant question. The system in fact adopted was robust as long as the questions posed by the defendant were answered honestly.

[36]More difficult from the defendant’s perspective is that on the same day and without any apparent reference back to him, the claimant’s account was upgraded from a Plus Account to a Select Account. As the defendant’s Appropriateness Policy noted, the defendant operated three levels of account – Limited Risk, Plus and Select. The policy summarised the difference between Plus and Select accounts in these terms “… Plus Account (for spread betting) - the most important feature of our Trader/Plus accounts is that IG actively monitors and manages clients' risk on these accounts. For each account, IG monitors the client’s cash balance such that the client always has sufficient funds on account to cover margin owing on open positions. Where the funds available drop below the required level, IG will email/text the client informing them of this. IG will generally send 2 such warnings. If the client does not increase the funds on account, the client's position will be cut back, either entirely or in part. The effect of this is that the client's position will normally be cut back before the running losses exceed the client's funds on account. Generally, although not always, clients will not lose more than their funds on account. Select account - unlike the Trader/Plus accounts, risk monitoring on the Select account is much more client led. On the Select account, IG will make margin calls and then accord clients a period of time to pay before the clients' positions are closed out. During the time that IG accords the client to pay margin, the position can get considerably worse and therefore it is entirely possible with Select accounts that a client will owe more than their funds on account. In addition, with some Select accounts IG may offer a credit facility.” The Policy acknowledged that:

“ … It will only be appropriate for a client who has frequent experience in execution-only trading of shares/bonds to open a Limited Risk Account or a Trader/Plus account with Tradesense. This is because shares and bonds do not generally have leverage risk and therefore the enforced stop loss feature of Limited Risk Accounts, and the active credit management on Plus/Trader accounts, allows a client to bulld up experience in leverage in a controlled risk environment.”

[37]Given the claimant’s points score of 60 points and that he had agreed to take the Tradesense course, it was appropriate for him to open a Plus account applying the defendant’s Appropriateness Policy. The decision to “upgrade” the claimant from a Plus account to a Select account engages two issues that arise on the face of the defendant’s own Appropriateness Policy. As paragraph 5.5 makes clear:

“If, following a client completing the Appropriateness assessment and being allocated an account, that client wishes to upgrade his account, IG will conduct another Appropriateness assessment to determine whether the client has the requisite knowledge and experience to understand the risks associated with the upgraded account. Experience and knowledge gained by the client in its dealings with IG since opening the initial account may be taken into account in the upgrade assessment.”

As is apparent from this (a) it is implicit that the pressure for an upgrade will come from the customer and (b) another Appropriateness assessment was to be undertaken before an upgrade decision was taken. It is not suggested that the claimant was pressing for a Select account. Rather it was driven by internal requests. It is accepted that there was no further Appropriateness assessment undertaken before the decision was made to ‘upgrade” the claimant’s account to a Select account.

[38]The Appendix to the Appropriateness Policy indicates that a Select account would require 100 or more points, but that customers scoring 60 -79 points who wanted a Select account were to be treated as follows:

“Client given this warning: ‘On the basis of the information you have provided us, we do not consider that a Select Account is necessarily appropriate for you. You may still open a Select Account but you should note that it may not be appropriate for you and that you may be exposing yourself to risks that fall outside your knowledge and experience. Alternatively, you may wish to open a Trader/Plus Account <link to explanation of Trader/Plus Account. Please select one of the following: - I wish to change my application to a Trader/Plus Application; - I acknowledge your warning that a Select account may not be appropriate, but wish to proceed with my application nonetheless. I confirm I understand the risks <link to Risk Disclosure Statement> associated with CFDs/spread bets - I do not wish to proceed with this application. We also recommend you enroll in our Tradesense <link to pop up explanation of Tradesense> programme. Click here if you wish to do so.’ Proceed as per client's Instructions. …”

Proceed as per client's Instructions. …”

[39]Ms Messer accepted that the defendant had not tested appropriateness for the claimant to be allocated a Select account. Although she was pressed in cross examination to agree that this meant that the claimant was allocated an account that was more risky than was appropriate, she declined to agree, saying only that it meant he had been allocated a Select account without an appropriateness assessment. This was less than frank and did her and the defendant no credit. Plainly Select accounts are more risky options than a Plus account for at least the reasons identified in the defendant’s own Appropriateness Policy quoted above. It is no doubt for these reasons amongst others that the defendant’s own Appropriateness Policy demanded a higher number of points for a Select Account than for a Plus Account.

[40]In principle, the failure to assess appropriateness before upgrading the claimant’s account to a Select account would be a breach of COBS 10.2.1 (a) because the defendant should have but failed to determine whether the claimant had the necessary experience and knowledge in order to understand the risks involved in relation to the product or service being offered namely a Select spread betting account. I do not understand Mr. Mayall to suggest otherwise. However, Mr. Mayall submits and I accept that the only difference between a Plus account and a Select account are those summarised in the part of the Appropriateness Policy quoted earlier. The claimant does not allege in these proceedings that he suffered any greater losses than would otherwise have been the case by being given a Select rather than a Plus account. Thus, whilst I accept that the defendant breached COBS 10.2.1 (a) by upgrading the claimant to a Select account without him requesting it and without a further appropriateness assessment being carried out, I accept that in order to succeed in a claim in respect of that breach the claimant must plead and prove that loss was caused by that breach either as the sole loss claimed or as an alternative claim for a lesser sum than the main claim. That has not been done in this case. It follows that whilst breach has been established, loss caused by that breach has not. Had any such claim been pleaded interesting issues concerning the relevant counter factual namely what the claimant would have done had he received the warning that the Appendix to the Appropriateness Policy required and limitation might have arisen but as things stand, they do not arise. The Claimant’s Trading Activity It is necessary to look at the claimant’s trading activity and the defendant’s treatment of it because the essence of the claimant’s claim for each period of trading that followed the opening of his account with the defendant is as summarised in paragraph 104 of Mr. Cawson and Mr Peat’s written opening – that “… [the defendant] failed … at any point to re-assess whether such services were appropriate for him… notwithstanding that it must have been manifest … that any information upon which any initial assessment on the opening by [the claimant] of his account was carried out was, in the light of what was subsequently known and ascertained, out of date inaccurate and incomplete (cf. COBS 10.2.4) …” According to Mr. Cawson’s written opening, this point was “ … reached by 25.11.11 when [the claimant] was enticed into recommencing placing with spread bets with IG, alternatively …” 9 July 2012, 22 March 2013, 3 October 2013 or 2 May 2014. Alternatively it is argued that the defendant acted in breach of duty by permitting the claimant “ … to make inappropriate spread bets and make inappropriate decisions in respect of spread bets when any fair and professional consideration of [the claimant’s] best interests would have come to the obvious and inevitable conclusion that it was manifestly not in [the claimant’s] best interests to continue spread betting using [the defendant’s] services.”.

[41]The obligation to assess appropriateness is as I have explained already, an obligation only to assess whether a retail client has the necessary knowledge and experience to understand the risks posed by the service being offered – in this case spread betting. Subject to that, as Mr. Mayall puts it in paragraph 79 of his written opening submissions, the defendant accepts that if it were found that the defendant was in breach of its duties under “ … COBS 10 for any relevant period then damages would in principle and subject to arguments about actual causation and contributory negligence, be recoverable. Allowing him to spread bet when it was not appropriate … would be the very thing the duty of care was imposed to guard against.”

Trading Activity to 1 August 2011

[42]In the trading period from the inception of his account until 1 August 2011, the claimant incurred a loss of in excess of £214,000. On the basis of the information supplied by the claimant to the defendant, the defendant was fully entitled to conclude that in principle spread betting was appropriate for the claimant. As I have said, the defendant was not entitled to conclude that a Select account was appropriate for him. However, the claimant does not allege and has not proved that he has been caused any losses by reason of this breach of duty.

[43]It is alleged that in this period the claimant had demonstrated that his spread betting decisions were “… poor decisions and his spread betting was loss making as a result …”. He had behaved in a bizarre manner at a corporate event at Chester Racecourse arranged by the defendant to which the claimant had been invited. It is not necessary that I set out the details of that behaviour because it is not in dispute. It was bizarre and in my judgment was obviously drink fuelled. The closest the evidence comes to demonstrating any internal view formed by the defendant concerning the betting behaviour of the claimant comes from a transcript of a telephone conversation between Mr. Osborn and Mr. Chong in which Mr. Osborn describes the claimant’s betting activity as “ … look mate, I didn't realise you were away but look, It was just something about Quinney, cos obviously he's been ... you know, he has been punting like a demon and obviously over the last few weeks if not longer …” The claimant informed the defendant that he would be ceasing trading while on a three-week holiday – see his email to Mr. Osborn on 3 August 2011. This followed the reversal of £3,534.40 of losses made following a decision by the defendant to close one of the claimant’s bets at a stage when closure caused the claimant a loss. The claimant did not resume spread betting until 25 November 2011.

[44]Although it is alleged that the defendant communicated with the claimant in a manner that was designed to induce him to return to spread betting, in my judgment the material relied on does not show this to be so. Had the claimant closed his account and/or had he indicated an intention not any longer to participate in spread betting the position might arguably have been different but that was not the case. He had said simply that he was going on holiday and had not resumed spread betting thereafter. Most of the communications were market information emails, most if not all of which contained an expressly identified method of unsubscribing so that the flow of information could be stopped. The claimant did not avail himself of this opportunity. He did not resume betting immediately following delivery of any of this material. In addition there were at least two email requests for fresh evidence of funds available to the claimant. The claimant did not respond to any of this material. None of this material (including an email communication referring to the fact that the claimant had not used his account “… for a few weeks …”) appears to have been anything other than automatically generated credit control or market information material. On 31 October 2011, the claimant was sent an email informing him that his account had been changed to a Plus account.

[45]On 25 November 2011, the claimant recommenced spread betting activity. There is nothing that suggests that this decision was driven by any of the material that had been sent to the claimant by the defendant. The claimant had not closed his account and was not either opening a new account or re-opening a closed account. He simply resumed spread betting. There was a recorded telephone conversation that took place that day between Mr. Osborn and the claimant. Most of it was irrelevant to the issues material to this claim.

[46]The complaint made by Mr. Cawson and Mr Peat in their written opening is that in permitting the claimant to resume spread betting, the defendant did not reassess whether it was in his best interests or assess whether it was an appropriate activity for him. In my judgment both these points are mistaken. In relation to appropriateness there are two points that arise. First, there was no requirement within COBS that imposed on the defendant an obligation to re-assess appropriateness at that stage. To the contrary, COBS 10.4.2R provided that the defendant was not “ … required to make a new assessment on the occasion of each separate transaction. A firm complies with the rules in this chapter provided that it makes the necessary appropriateness assessment before beginning that service’.

[47]Secondly, had such an assessment been carried out it was inevitable that the outcome would have been as assessment that spread betting was appropriate for the claimant because all the answers he had previously given would have been repeated but with an additional reference to his previous spread bet trading, which would if anything have improved his points based score.

[48]Finally, in my judgment there was nothing in the circumstances known to the defendant on 25 November 2011 that rendered what it had been told by the claimant when opening his account with it originally that was “ … manifestly out of date, inaccurate or incomplete” in the sense that phrase is used in COBS 10.2.4. In particular, the fact that the claimant had been betting aggressively but unsuccessfully was not something that demonstrated the information that had been supplied that was relevant to the assessment of appropriateness was either inaccurate or incomplete. Success was not relevant to an assessment of appropriateness as that concept is to be understood in this context. The claimant’s bizarre drink fuelled behaviour during and in the immediate aftermath of his attendance at the Chester races meeting as a guest of the defendants does not alter that assessment. Whilst it might have been a reason for the defendant to refuse to deal with the claimant it does not lead to the conclusion that the claimant was in breach of duty either under COBS or otherwise to continue to do so. As I have said, the best interests rule did not extend to preventing the claimant placing spread bets when otherwise that activity was an appropriate one for him. Even if there was such a duty, the facts and matters relied on by the claimant would not have triggered an obligation to prevent the claimant from doing what he wished to do.

[49]Trading Activity 25 November 2011 to 13 March 2012 During this period the claimant placed a total of 2550 spread bets, averaging about 24 per day and incurred losses during the period of in excess of £498,000. On 13 March 2012, the claimant emailed Mr. Osborn and Mr. Dorward in these terms:

“I guess over the past few months I have proven to myself that game is not for me. Please can you close my account with immediate effect.”

The subject matter caption of the email was “Enough is enough”. Although the claimant says in paragraph 65 of his witness statement that he had concluded that spread betting was ruining his life and that in consequence he was becoming distant from his friends and family, it is not suggested that any of that was communicated to the defendant.

[50]Both addressees of the 13 March email acknowledged the claimant’s email. Mr. Dorward’s was to this effect:

“Been a tough market mate -you're not alone in being at the wrong end of things recently. We will get the account closed this morning. On another note, I think I mentioned we're doing a golf day in the coming months ... tried to call you the other day about it to confirm and despite the closure of the account it would still be good to have you there. Hoylake on Thursday 17th May. Gary also playing, hope you can too. Let me know as and when you can.”

The claimant declined the golf invitation by email to Messrs Osborn and Dorward dated 14 March 2012 and was he informed by email dated 14 March 2012 that his account had been closed with immediate effect. Immediately prior to this exchange an issue had arisen concerning the return of money to the claimant which had resulted in a complaint and which in turn had resulted in the recommendation by Mr. Osborn. His recommendation for the ex gratia payment of £10,000 to the claimant was:

“Due to the client being highly valued in terms of turnover and also in this instance the fact the e-mail normally sent relating to these corrections not being sent the gesture has been made as a complete one off.”

Let me know as and when you can.”

[51]The internal email traffic prior to this formal recommendation included an acknowledgement that the payment was being offered because the claimant was “… a great client …”and that even if the defendant paid the full amount being claimed by the claimant he would “ … no doubt trade and lose it and some so we maybe need to look at the bigger picture …” In this email traffic, the claimant was also described as being an “ … out & out punter …”.

[52]Trading Activity 9 July 2012 to 2 November 2012 The claimant opened and closed an average of about 34 transactions per day in this period of trading and incurred losses of in excess of £387,000. He maintains that he was induced to resume spread betting by the defendant and without carrying out an assessment of appropriateness.

[53]In the period from 13 March to 9 July 2012, the claimant’s evidence was that he suffered some serious personal difficulties. In February 2012, the claimant’s father became seriously ill. The claimant closed his account with the defendant on 13 March 2012 as I have said. The claimant’s wife developed serious pre-natal complications in April 2012. His father died on 6 May 2012. The claimant’s son was born on 1 July 2012, some 10 weeks premature. He remained in intensive care until the end of July 2012. The claimant’s wife remained in hospital until August 2012. I accept this evidence.

[54]The claimant maintains that:

“Had I not been dragged back into spread betting I believe that, at that stage, I could have moved on and avoided the catastrophe that followed from what Inow know as my gambling addiction. Unfortunately the Defendant continued to pursue me as they were aware l had sold my business for £10mand eventually I succumbed.”

The dragging back to which the claimant refers is alleged to have occurred in the course of a phone call between Mr. Dorward and the claimant on 9 July 2012. Although this is not made entirely clear in the claimant’s witness statement, it was what he identified in the course of his cross-examination. The conversation took place on the same day that the account was re-opened at the request of the claimant. The claimant’s evidence in relation to what happened on 9 July is at paragraphs 67 – 70 of his witness statement, where he states:

“67. On or about 9 July 2012, Mr Dorward telephoned me. I was in the car park at Withenshawe Hospital at the time visiting my son and wife. He had become aware of the above events regarding my family and offered his condolences for my father's death and support for my predicament with my son who was in intensive care from birth. 68. I cannot recall exactly what Mr Dorward said, and I note that there is no recording of my conversation with Mr Dorward at that time in the Defendant's disclosure, but l considered Mr Dorward's concern and sympathy to be genuine, and I was grateful for it. 69. However, with hindsight, I am concerned that when I asked Mr Dorward about his (Mr Dorward's) work, Mr Dorward used that as an opportunity to discuss market sentiment and how much money he had recently made or lost (most likely made). I now believe that opening a line of communication for the discussion of spread betting was one of Mr Dorward's purposes in making the call, and part of the Defendant's practice of encouraging and normalising high volume spread betting. 70. Mr Dorward's call had that effect on me and within a short time of the call, I had resumed spread betting with the Defendant. I cannot recall the events of how I reopened my account but having listened to the calls of that day I now understand that the Defendant was more than happy to help me through the process.”

[55]In cross-examination, the claimant maintained that if Mr. Dorward had not called him he would not have re-opened his account with the defendant. His further explanation is that when the claimant had asked Mr. Dorward about his work, he should have responded that this was not the time. Whilst I accept that this is one of a range of responses that Mr. Dorward could have made, there was nothing in the background known to Mr. Dorward that ought to have led him to the conclusion that the claimant would resume spread betting when otherwise he would not have done so as a result of the conversation. The claimant was not suffering from gambling addiction at this stage on his own case. If he was, the defendant did not know that. As the claimant accepted in his cross examination, by 13 March 2012, he understood the mechanics and risks posed by financial spread betting and in response to a question from Mr. Mayall to the effect that the claimant’s case was that the defendant should have stopped the claimant spread betting because it was obvious he did not know what he was doing, the claimant replied “Not in 2012. In the first instance I should not have been allowed to do it because I didn’t know what I was doing”.

[56]The claimant asserted that he re-opened his account as soon as the call between him and Mr. Dorward ended. There is a dispute about that because of some emails that suggest the defendant was attempting to make contact with the claimant on that day. The defendants contend that I should assume this followed the attempts to open the account while the claimant asserts that this was the pre cursor to Mr. Dorward making contact with the claimant. Mr. Dorward did not give evidence. Although it was submitted that I ought to draw an adverse inference from this absence, I am not prepared to do so. The principles that are applicable are those set out in Wisniewski v. Central Manchester Health Authority [1998] PIQR 324, where at page 340, Brooke LJ summarised the applicable principles as being: Mr. Dorward offered an explanation for declining to become involved when the defendant approached him to give evidence in May 2018. His response was:

“Sorry for the radio silence! I've been deliberating this over In my mind for a little now. The problem I have is that there is a conflict of interest as Mr Quinn is a client of Sigma's, so unfortunately, I'm going to have to pass on giving a statement. Sorry to disappoint.”

There is no dispute that the claimant is a client of Sigma or that Mr. Doward works for that entity. In those circumstances, the explanation offered satisfies me that an adverse inference ought not to be drawn. Sorry to disappoint.”

[57]There is limited documentation that assists on resolving this issue. The first relevant email is dated 09 July 2012 timed at 0918. It comes from the “Admin” and is addressed to Mr. Murray. The email appears to follow a standard format and states that the claimant “… has re-applied for an account”. Mr. Murray responded at 0922:

“Ok – can u supply his contact details as we have been trying to contact him without success in the last few weeks”

The only other written material available is the transcript of a telephone conversation with Mr. Quinn. This suggests that the claimant first made contact concerning the re-opening of his account by a phone call at 10.04 on 9 July 2012. This leads to it being submitted by the claimant that he spoke to Mr. Doward prior to the recorded conversation in which it is said that he applied for the restoration of his account facilities. In my judgment this sequence is improbable. In the course of the telephone call the claimant says to the call handler (“Frank”):

“I closed, I closed my account so I just wanted to err. I tried to open one up this morning and it wouldn't let me so I don't know what, what it is.”

If this was what triggered the mail at 09.18, then on any view it preceded the mail response from Mr. Murray and on the balance of probabilities would therefore have preceded any contact between Mr. Dorward and the claimant. That is so because if contact had already been made, Mr. Murray would not have wanted his contact details. It is difficult to see how that could not be the sequence since the recorded call from the claimant to the help desk is timed at 10.04. It is possible that the conversation between the claimant and Mr. Dorward took place between 09.22 and 10.04 and therefore preceded the conversation at 10.04 but it is unlikely that it took place before the claimant’s attempt to re-open his account on line given the terms of Mr. Murray’s email at 09.22 and therefore before the claimant had decided to resume spread betting.

[58]Although it was suggested that the purpose of Mr. Dorward’s call was to encourage the claimant to resume spread betting, that strikes me as unlikely. First, at no other stage did the defendant’s employees adopt such explicit encouragement. It is unlikely that they would have done so on this occasion. Secondly, it is unlikely if that was the purpose that Mr. Dorward would have commenced the conversation by referring to the claimants very grave personal difficulties. Thirdly, it is the claimant’s own case that it was he who initiated the part of the conversation concerning spread betting. This is almost certainly to have been because the claimant had decided to return to spread betting having attempted to open his account earlier that morning. It is at least possible that Mr. Dorward wanted to contact the claimant simply because the defendant had learned of the death of his father and of his wife’s antenatal difficulties – which after all was the ostensible basis for the call.

[59]Mr. Murray was asked why the defendant was attempting to contact the claimant but he was unable to recall. I accept that evidence simply because it is unrealistic to expect Mr. Murray to recall this many years after the event, because there is nothing in the documentation that provides a trigger for such recollection and Mr. Murray was not the claimant’s main point of contact. Although it is possible that Mr. Murray was avoiding answering the question, that was not suggested to him and it is unlikely to be so since he is retired and thus has no obvious reason for dishonestly supporting the defendant with dishonest evidence. None was suggested to him.

[60]Even if this is wrong, and it was the conversation with Mr. Dorward that stimulated the claimant to attempt to re-open his account with the defendant, I do not accept that the call was the result of any conscious desire on the part of the defendant or Mr. Dorward to induce the claimant to re-commence spread betting. There is nothing in the disclosed material that suggests that such a marketing campaign was operated by the defendant either towards the claimant or any of its other clients. It sent out marketing material. It had invited the claimant in the past to corporate events. During the conversation, the claimant initiated the only discussion concerning business. It is inherently unlikely that someone seeking to induce someone like the claimant back to spread betting would have done so in the context of a call concerning the recent death of the claimant’s father and continuing serious health difficulties of his new born son.

[61]There was no re-assessment of the claimant’s appropriateness on 9 July, prior to the defendant permitting the claimant to re-open his account. In cross examination concerning the re-opening of his account, the claimant accepted that(a) the service provided was an execution only service,

(b) the defendant had a duty to stop the claimant from spread betting with the defendant only if they concluded that it was not appropriate for him but

[62]The claimant contends that there should have been a re-assessment at this stage because the claimant had directed the defendant to close his account. Whether a re-assessment is required before a subsequent request to re-open is acted upon is not a question that has been decided by a court at any rate as far as I am aware. In my judgment, where an account has been closed and (in this context, a returning bet placer) wishes either to re-open his old account or open a new account (there being no distinction of relevance between these two activities for present purposes) then the spread bet operator is obliged to carry out an appropriateness assessment. I reach that conclusion because the only relevant exception to the obligation to carry out such an assessment is that set out in COBS 10.4.2R. It distinguishes between a course of dealings on the one hand and the commencement of such a course of dealing on the other. In my judgment any course of dealings between a spread bet placer and a spread betting operator comes to an end at the point at which the operator closes the bet placer’s account for whatever reason. Thereafter any future dealing involves the provision of a new service. That requires a new appropriateness assessment before the provision of service can begin. Whether this will result in a provider assessing the provision of spread betting services to a bet placer is not appropriate when previously it had been assessed as appropriate will be fact sensitive. It is likely that the administrative burden of having to carry out such an exercise will be lightened by the entitlement of a provider to rely on information previously provided unless it is aware that it is manifestly out of date, inaccurate or incomplete – see COBS 10.2.4R – and its ability to use information already in its possession – see COBS 10.2.5G.

[63]In my judgment however, had the defendant undertaken an Appropriateness reassessment on or about 9 July 2012, it would have been entitled to rely on the information supplied to it by the claimant when the original application for an account had been made, its knowledge of the claimant’s previous trading activity which as he accepted in cross examination demonstrated that he understood the mechanics and risks posed by spread betting. It is inevitable that spread betting would have been assessed as appropriate for him. I say that because(a) his answers concerning previous experience that the claimant gave when first opening his account would have been the same and

(b) in addition he would have been entitled to rely on his trading experience of spread betting following the opening of his account. It is overwhelmingly likely he would have relied on his trading experience of spread betting because, as I have said already, in cross examination the claimant accepted that it was not part of his case that he did not understand what he was doing by this stage. Although the claimant relies on the fact that he had been unsuccessful in the bets that he had placed in the period down to 13 March 2012, that is not something that the defendant could, should or would have taken into account. Assessing appropriateness is about determining whether the applicant has the necessary experience and knowledge in order to understand the risks involved in relation to the product or service offered or demanded – in this case spread betting. It is not about assessing the degree to which an applicant is likely to win or lose.

[64]The claimant ceased trading on 11 November 2012. Prior to that, on 5 October 2012, the defendant invited the claimant to a football match due to take place on 9 February 2013, which the claimant accepted by an email sent by him that day. On 22 October 2012, there was an argument about loss caused by a delayed repayment by the defendant to the claimant that the defendant resolved by a correction in favour of the claimant of £4,057. The email traffic internally demonstrates that this was a commercial decision driven by the high value of business transacted by the claimant with the defendant. He was described in relevant correction form as being “… a valuable client in terms of B[usiness] V[alue]…” On 23 October 2012, Mr. Osborn emailed the claimant in these terms:

“Pete, I just want to make you aware that we have, over the past year, made similar goodwill gestures totaling approximately £20,000 in relation to your account. Whilst we greatly value your business and we/I will always look at any issues with regards to your account (such as slippage on stop fills for example if you feel you were unjustly slipped) we cannot continue to make such gestures and therefore must draw the line on these going forward, I hope understand. As you are a highly active intra-day trader I cannot stress highly enough the need to know exactly where you are not only with regards to your open positions but as talked about above the administrative side of your account too so that these issues do not arise again. If in any doubt Pete please call and run any questions past me or other members of the desk.”

On 2 November 2012, the claimant emailed Mr. Osborn and Mr. Dorward of the defendant in these terms:

“I think over the last 48 hours I have realised that I need a break from my activity in the markets. The final straw is being closed out on my last dow position can you have a look at the this as It seems a bit aggressive and maybe call it quits for the time being. Please can you close my account with immediate effect. I am sure we will speak again but for now I am taking a break. Stuart thanks for your support when needed and Lee thanks for all your help and being patient.” 67. In an email of 5 November to Mr. Osborn, the claimant said: “As I mentioned I am pleased to be having a break from this for a while. A number of events last week made me realise It was taking too much of my time.”

Ultimately the complaint made by the claimant resulted in a further goodwill gesture which involved writing of £1507 odd that was due to the defendant from the claimant on his trading account. Internally, when seeking sanction for the good will gesture, Mr. Osborn said of the claimant’s claim that it was “ … completely unfounded and its purely (yet again) a case of BV and in this case "potential future BV" if he comes back after a "break" “ in an email to Mr. Murray. Mr. Murray agreed in an email up the chain of command within the defendant in which he said:

“ … Quinn has blown up - - for the time being. His BV last month was in excess of £100k - - must come in top 10/20 IG clients I know we've "let him off'' several thousands of pounds before but he has now informed us that he's "taking a breather". He's a debit of £1500. + he believes that this should be cleared as he has 2 complaints from last week- see Lee’s email below · My view - -realise it's annoying but think we should clear it because if we don't we'll have trouble getting it anyway and more importantly have less chance of having him back as a client.”

Ultimately the goodwill gesture was sanctioned on the basis that the claimant was “… worth approx. £10m …” and that the defendant would earn “… all this + ten times more nxt time he trades Give a little to earn a lot!”. Mr. Murray reported that decision to the claimant by an email on 6 November 2012 in these terms:

“Hi Pete I'm sorry that the market has been brutal to you over the last week or so. And I can understand your annoyance in the way that you were stopped out over the "non-farms". The slippage was correct I'm afraid as the market did spike immediately. I've spoken to the people that need to be spoken to and agreed to write off the £1507.23 debit. This is about the 4/5 th. time we've acted on good will for you Pete+ I'm afraid lee+ I have run out of excuses to help you out. You're very much a valued client of the company+ I do hope that you'll have a successful return after a sabbatical. Best wishes Michael”

Best wishes Michael” Although the claimant relies on this material as being information leading to the conclusion that the defendant should have concluded that spread betting was not, or was no longer, appropriate for him, I do not agree. The material shows only that the claimant was one of the defendant’s top 10-20 customers in November 2012, that they expected him to return to spread betting in the future and that when he did he would place bets with a substantial value.

Best wishes

[65]Trading Activity 22 March 2013 to 29 April 2013 In the period between November 2012 and 22 March 2013, the claimant’s case is that “He opened an account with lntertrader [one of the claimant’s competitors] in or about December 2012. He opened the account after he had received an unsolicited telephone call in which lntertrader offered £5,000 credit to begin spread betting. The account was a spread betting account. He traded on the account for a short period before resuming spread betting on his account with the Defendant in March 2013. The Claimant does not know how lntertrader classified him as a client …” Although the claimant maintains that he was the subject of pressure during this period to resume spread betting with the defendant in my judgment that is not the effect of the evidence. There is no evidence that the defendant was aware during this period that the claimant was trading with Intertrader. Whilst it is true to say that the defendant’s employees with whom the claimant was most familiar maintained contact with him, for most of the time the claimant did not respond. Although some time was spent exploring this activity in the course of the trial for the purpose of demonstrating that it was all geared to seducing the claimant back to spread betting, none of this activity is alleged by the claimant to have been the trigger for his return.

[66]The claimant maintains that this was a lunch that he agreed to attend with Mr. Dorward on 21 March 2013. The claimant states in paragraph 81 of his witness statement that in the course of the lunch:

“… Mr Dorward discussed the markets and explained where he thought I had gone wrong when I was trading. He told me that I had been unlucky.He discussed what he thought should be my strategy, which basically involved listening to him and Mr Osborn and being a bit more controlled with my positions. He showed me his trading account on his mobile phone from which it appeared that he was trading successfully. It all sounded very plausible I could make a success of spread betting with their help. Regrettably, I fell for everything he said and I went back into spread betting with a vengeance.”

[67]In fact the correspondence makes clear that the claimant was considering a return from his “sabbatical” prior to the lunch and that it was he not anyone from the defendant that raised the issue. In response to an email from Mr. Osborn offering the claimant some tickets to a football match, the claimant had responded by email on 26 February 2013:

“Hello Lee Thanks for the invite they will be scarce tickets - much appreciated but can't make it. I may well be considering a position in March but would like to meet up first. I will be in touch. See ya soon Pete”

See ya soon Pete”

See ya soon

[68]Mr. Osborn forwarded the email string to Mr. Dorward, who invited the claimant to the lunch in Manchester. Following the lunch, the claimant emailed Mr. Dorward saying simply “Thanks for lunch today. See ya soon …”. There was nothing in the response that was consistent with the claimant having been told anything he didn’t know about spread betting or of him receiving assurances of the sort mentioned in the witness statement or indeed of an intention to resume spread betting even though the claimant had expressly mentioned the possibility in the email he had sent to Mr. Osborn on 26 February. When the claimant decided he wished to resume spread betting it was to Mr. Osborn (not Mr. Dorward) who he contacted on 22 March by email requesting that he “… re-open up my account please …”. Mr. Osborn confirmed to the claimant by email the same day that the claimant’s account had been “reactivated”. There is nothing whatsoever in the email traffic passing between the claimant and Messrs Osborn and Dorward that suggests any form of coercion or persuasion of the claimant to re-open his account much less start using it.

[69]The claimant started trading thereafter. There is no evidence that the claimant made contact with the defendant for the purpose of obtaining advice as to the trading positions he should or might adopt. Although it is suggested that there was extensive contact between the claimant and Mr. Doward and Mr. Osborn by mobile and unrecorded phone in which it is alleged that advice was given to the claimant concerning his trading, the total absence of any mention of such conversations (even in passing or inferentially or impliedly) leads me to conclude that it is improbable such conversations took place. Had they taken place and had the claimant made losses as a result he would have had every reason to complain about the outcome. After all, he complained on a number of occasions about the conduct of the defendant in relation to his trading positions. There are no such complaints. All the contact by email that is in evidence concerns attempts by the claimant to obtain concessions concerning the amount of deposit and margin that he had to maintain if he was to be permitted to trade, for guidance as to how much he could bet in line with the deposits and margin that he had paid and market intelligence and information concerning market movements supplied by Mr. Dorward and Mr. Osborn. This started with a request for temporary credit of £20,000 on 27 March 2013. The emails suggest that the defendant was confining the claimant to the limits on trading that had been imposed by the defendant – see by way of example the email exchange on 10 April 2013, in which a request from the claimant to place a sell bet on the FTSE 100 at £500 a point was rejected by Mr. Dorward saying “… We can’t mate – not until we get funds …” The communications from the claimant suggested that he was taking betting position decisions without any requests for assistance – see for example his email of 15 April 2013 at 2126. In those circumstances, I reject the claimant’s evidence that in unrecorded calls he was encouraged to bet or given advice as to what to bet on.

[70]On 29 April 2013, the claimant complained about a decision by the defendant to close one of his bets. The claimant appears to have ceased trading at that time essentially because he had not the cash necessary to pay the defendant the deposit and margin required. Mr. Dorward responded to the 29 April email:

“Am not in the office ... but did it get to the 150k liquidation level?? We will always work with you but on this it's a little out of our hands ... to be fair to credit, they have been extra helpful so far, honestly don't think they would have allowed anyone else to trade for so long without funding ... hence they had to have a liquidation level set.”

On 30 April 2013, the claimant emailed Mr. Dorward stating:

“Hi Stuart Bonus Payment This has been a long 4 weeks since our lunch and for me a disastrous run meaning I am down £400,000. As you know I am awaiting funds arriving and I don't want to increase my £150,000 credit limit however we never bottomed out what could be do ne for me when we discussed the offer of a competitor of yours giving me a sign up bonus of £20,000 on a £100,000 deposit. Is it possible to put in place that bonus now given my losses and for me to run a £200 a point sell on the DOW with a 50 point stop. Your help on this would be much appreciated as seeing the DOW drop earlier was painful and if it continues will be real tough. Understand if you this a request to far.”

Thereafter the claimant ceased spread betting with the claimant. There is no evidence as to what spread betting he was carrying on with other spread betting operators but as I have said by this time on the claimant’s case he had an spread betting account with Intertrader.

Bonus Payment

[71]On 21 May 2013, the claimant emailed Mr. Dorward in these terms:

“Further to our call this morning I would like to confirm the following points. As you know the month April through to May was pretty disastrous trading for me and as a consequence I have and continue to struggle with my personal liquidity. A completion on a property has been delayed and i also have a number of projects on the go at the moment that are hindering my cash position including a TV campaign for Happy2retire.co.uk and 2 further building projects that are due for completion and refinancing (all agreed) in the coming months. Can I propose I send you £70,000 today and £50,000 on the 24th June and £30,000 on the 5th August. There is a good possibility that I may bring these dates forward significantly but I don't want to over promise. Apologies for letting you down after your support but I just need a short period of time to rebuild my liquidity.”

Following various communications including some relating to invitations to horse racing meetings and a golf day from the defendant to the claimant, on 30 September 2013, the claimant signalled his intention to recommence place betting by an email to Mr. Dorward in these terms:

“Good evening Stu At last! I will clear my balance tomorrow morning!! I will transfer the £30k first thing. Please can you confirm if the £20k credit line is still in place to start trading again?”

Mr. Dorward’s response was “.... 1'11 speak to credit. I do know they will want to see cash on the account before agreeing to anything but let me have a word first to see where we stand.” He was asked to confirm that he still had a managed investment account worth £2 million, which the claimant confirmed. Trading Activity 3 October 2013 to 12 June 2014

[72]Although the claimant breaks this period down into a number of shorter periods, the evidence does not clearly establish anything other than that his trading was sporadic throughout this period. The claimant restarted spread betting with the claimant on 3 October 2013. The claimant relies on the fact that there was no assessment by the claimant as to whether restarting spread betting was in the claimant’s best interests – see paragraph 52 of the claimant’s written opening submissions. As I have explained already, the defendant was not under an obligation to assess whether spread betting was in the claimant’s best interests, merely that he had the necessary knowledge and experience to understand the risks posed by spread betting. This the defendant had done originally. They should have carried out a reassessment prior to re-opening his account on 9 July 2012. However, as I have explained, had appropriateness been reassessed then spread betting would have been assessed as appropriate for the claimant. In my judgment the defendant was not under an obligation to re-assess appropriateness prior to the claimant resuming trading on 3 October because the claimant had not requested that his account be closed at the end of April 2013. The email traffic referred to above and other emails passing between the parties on and after that date show that the claimant had stopped trading because he did not have the cash to fund the deposits and margin required by the defendant. The correspondence shows that the claimant was engaged in attempting to meet the defendant’s capital requirements. It does not show an intention to cease trading on a permanent basis or that the course of dealing established prior to 29 April 2013 had ceased. That being so there was no necessity for the defendant to carry out a further appropriateness assessment prior to the resumption of trading on 3 October.

[73]However, if this were wrong, in my judgment the outcome of any such assessment would have been that spread betting was an appropriate activity for the claimant. My reasons for reaching that conclusion are those set out above. The claimant’s answers to the questions posed in the original application form would have been answered in the same way. The claimant does not allege that he did not have the requisite knowledge and understanding of spread betting at any time after the end of his initial period of trading and in any event he would have been entitled to rely, and would have relied on his spread betting dealing down to 29 April as evidence of appropriateness. It is also worth noting that by this stage he had opened a spread betting account with Intertrader and so must have satisfied that entity that spread betting was appropriate for him. In those circumstances, had the defendant been under an obligation to reassess appropriateness on 3 October and had it done so, the outcome would have been that spread betting would have been assessed as appropriate for the claimant. Whilst it is true to say that the claimant had made significant net losses over the whole of the period he had been trading with the defendant, he had made both won and lost. Most people who spread bet are net losers. That the claimant was a net loser does not render spread betting inappropriate for him.

[74]On 9 December 2013, the claimant emailed Mr. Dorward in these terms:

“Good morning Stu I have two questions. Friday was a disaster. I did try to close my position when it was coming up to the £25,000 limit but it wouldn't close! Now I have a balance of £30k. Can you look at that? Unfortunately due to last week I am not liquid now until 2nd week in January when I have numerous funds landing. I would like to increase my liquidation level to £80k but I only put one short position on the DOW later today.”

During the period that followed, there were a number of emails in which the claimant requested credit facilities and/or promises payments, or which record such discussions. Finally, on 12 June 2014 the claimant emailed Mr. Dorward in these terms: Hi Stu Can you please close my account and exempt me from doing business with IG. Can you send me the papers that exclude me. No hard feelings. Pete This was the first indication that the claimant considered that he had a gambling problem. The defendant responded by email in these terms:

“Thank you for your email instructing us to permanently close your account. I can confirm that your account has now been closed as requested. We will note on our records that you do not want it to be reopened for a period of at least five years. However, we are unable to guarantee that your account will not be reactivated should you provide further instructions to us without referring back to this correspondence. We will also note in our records that should you make a fresh application to us within the next five years, you want us to reject that application. As before, however, we can provide no guarantee that your application will be rejected. Should you wish to reopen your account after the period of self-exclusion has elapsed, we will apply a one-week 'cooling off' period after receiving your written instruction before allowing access to gambling facilities. If you are worried about on line gambling then you can download a 'site blocker' such as Garn block or Netnanny, which can block access to on line gambling sites. Please also see below for some support groups which may be of assistance: Gamblers anonymous www.gamblersanonymous.org.uk Gamcare www.gamcare.org.uk. 0808 802 0133 …”

Hi Stu Pete assistance: Gamblers anonymous www.gamblersanonymous.org.uk Gamcare www.gamcare.org.uk. 0808 802 0133 …”

Discussion and Conclusions

[75]The claimant’s case as summarised by Mr. Cawson in paragraphs 15 and 16 of his speaking note provided at the start of the trial is:

“ 15. … the gist of [the claimant’s] case is that the client’s best interest rule was engaged, and was breached by IG through its actions in enticing and inducing him to spread bet, especially trading in indices, in the way that it did – particularly after he had decided, as he first did in August 2011, that spread betting was not for him. 16. It served the interests of [the defendant’s] highly incentivised sales team and [the defendant] itself, to target [the claimant], who they were aware had plenty of money to blow but no aptitude for successful spread betting, and to entice and induce him to spread bet in big amounts and large volumes, and to continue doing so, when it was manifestly not in his best interests to do so. That was both unfair and unprofessional, and in plain breach of COBS2.1.1 etc., as a result of which [the claimant] suffered loss and damage that he is entitled to recover under s.138D(2) FSMA”

It is a necessary part of that submission that the defendant is taking an unrealistically narrow view of the application of the client’s best interest rule – see para.11 of Mr. Cawson’s speaking note – and that the correct application of this rule and/or the correct application of COBS 10 requires the spread betting operator to assess expertise as well as knowledge and experience – see para.14 of Mr. Cawson’s speaking note. This places directly in issue the scope and effect of both COBS 10.2 and the client’s best interest rule contained in COB`S 2.1.1.

[76]In my judgment it is an error to consider the scope of these rules in isolation. The rules are a code. They are designed to give effect to EU Directive 2004/39/EC on Markets in Financial Instruments (“MiFD”). Within that code the role of each of the rules is inevitably different from that played by the others though the whole is designed, and should be construed so as to secure the appropriate degree of protection for consumers – see s.5(1) FSMA and Ehrentreu v. IG Index Limited

[2018] EWCA Civ 79

per Flaux LJ at [16]. The factors that the FSA were required to have regard to are those set out in s.5(2) FSMA. Those factors include the “… the general principle that consumers should take responsibility for their decisions …” – see s.5(2)(d) – and “… the differing degrees of … expertise that different consumers may have in relation to different kinds of regulated activity …” – see s.5(2)(b).

[77]The rules by which the FSA sought to secure the appropriate degree of protection for consumers included, by operation of COBS 10.2, imposing on the providers of spread betting services a duty to assess appropriateness. This provision is the means by which effect has been given to Art. 19.4 to Art.19.6 of MiFD. However, appropriateness in this context is concerned exclusively with “… knowledge and experience … relevant to the specific type of product or service offered or demanded …” – see COBS 10.2.1(1) – necessary “ … in order to understand the risks involved in relation to the product or service offered or demanded …” – see COBS 10.2.1(2)(a). COBS 10.2 is not concerned with the assessment of expertise in the sense of competence or success that the claimants submits ought to have been considered by the defendant. That this is so is apparent from comparing and contrasting the assessment that a provider is required to undertake in respect of an “elective professional client” as set out in COBS 3.5.3(1) [which makes express reference to expertise as well as knowledge and experience and, as is apparent from the Note to COBS 3.5.3, gives effect to parts of Section11.1 and section

11.2 of Annexe 2 to MiFD, not Art. 19] with COBS 10.2.1, which contains no express reference to expertise. In my judgment that omission was deliberate. It mirrors precisely the terms of Art.19.5 of MiFD. In my judgment the limited scope of the appropriateness enquiry required to be carried out is emphasised by COBS 10.2.2, none of which is concerned with expertise and which expressly refers only to knowledge and experience, COBS 10.2.6 which refers only to the risks posed by the product or service concerned, COBS 10.2.7, which refers only to a client’s understanding of the product or service concerned and COBS 10.2.8, which refers exclusively to “… the necessary experience and knowledge in order to understand the risks involved in relation to the product or service …” concerned.

[78]Had the rule been concerned with expertise is the sense of success or competence, then the rule would have included express reference to expertise as was the case with COBS 3.5.3(1) and/or would have provided for periodic reviews of appropriateness or a requirement to review in specific circumstances relevant to competence or success. COBS 10 does not contain any such provision. It would have been surprising if it had given that it is absent from Article 19 MiFD. On the contrary COBS 10 emphasises that the provider does not need to carry out an assessment on the occasion of each separate transaction and expressly provides that a provider complies with the rule provided it makes the necessary assessment before beginning provision of the service – see COBS 10.4.2. The only express exception to this is that contained in COBS 10.2.4, which disentitles a provider from relying on information previously provided by a client if it aware that “… the information is manifestly out of date, inaccurate or incomplete …”. This last mentioned provision does not require or even entitle a provider to reverse a previous conclusion that a product or service is appropriate for a client because of a (necessarily subjective) view of the competence or success enjoyed by the client when using the product or service. It is concerned exclusively with information relevant to appropriateness as that term is to be understood in the COBS 10 context.

[79]This construction of COBS10 conforms with the scope of the appropriateness question as summarised by the FCA in its “COBS Fact Sheet”, the introduction of which identifies the purpose of the document as being “ … to help firms consider their own processes under COBS 10 for determining whether clients have the necessary knowledge/experience in order to understand the risks involved with the product or service in question”. The same point can be made by reference to the terms of the Summary at the end, which concludes with the statement:

“… we believe that COBS 10… can strengthen customer awareness of risks through a better highlighting and reinforced disclosure of relevant risks …”

. This construction secures the appropriate degree of protection for consumers required of the FSA by s.5(1) FSMA by balancing the need to protect consumers who do not know what they are doing on the one hand with the need to avoid interfering with the right of consumers with the necessary knowledge and experience to make their own business judgments on the basis that such persons “ … must look after themselves and take responsibility for their actions …” – see Lord Hoffman in Reeves v MPC

[2000] 1 AC 360

at 368 and s.5(2)(d) FSMA.

[80]Although the claimant criticises the manner in which the defendant undertook the appropriateness enquiry, when first opening an account for use by the claimant, in my judgment that criticism is misplaced for the reasons set out above. Although the claimant maintains that the defendant should have undertaken fresh appropriateness assessments each time the claimant’s account was re-opened after it had been closed at the claimant’s request, that does not take matters further because even assuming that in principle that submission is correct, the outcome would have been that spread betting would have been assessed as appropriate given the claimant’s answers given originally and his knowledge and experience acquired since commencing spread betting with the claimant. Indeed, as I mentioned earlier, the claimant accepted in the course of his evidence that he knew what he was doing at all times after his initial period of trading.

[81]Inevitably in these circumstances, the claimant places primary reliance on the requirement imposed by COBS 2.1.1 that a service provider such as the defendant must act honestly, fairly and professionally in accordance with the best interests of its client. The claimant’s pleaded breach of this provision is set out at paragraph 52 of the Particulars of Claim in these terms:

“52. The Defendant breached COBS 2.1.1 R, " the client's best interest rule", by: 52. 1. unfairly and unprofessionally assessing its spread betting service as appropriate for the Claimant, when it was not. The Claimant will refer to facts stated in paragraphs 20 and 21 above and the specific allegations in relation to COBS 10 in paragraphs 62 to 66 below. The Claimant had no knowledge or experience of spread betting and his knowledge and experience of dealing in other investments was insufficient to make the spread betting service appropriate for him as an investment rather than gambling activity. 52 .2. failing to re-assess whether its spread betting service was appropriate for the Claimant at any time during the operation of the account and in particular: 52.2.1. at the point it became clear that the Claimant rather than Mr. Chong was operating the account and making the spread bets; and 52.2.2 before the Claimant resumed betting following his significant losses and the inducements to resume betting stated in paragraphs 37 to 41 above. 52.3. inducing W H Ireland to give advice on selling investments to fund spread betting which was unsuitable and influenced by conflicts of interests and extraneous considerations, including the expected receipt of fees, commissions or other financial benefits W H Ireland from the Defendant; 52.4. permitting the Claimant to make inappropriate spread bets and/or make inappropriate decisions on spread bets, when it had a duty to warn the Claimant of inappropriate transactions and had contractual rights to prevent the transactions taking place. The Claimant will refer to the FSA rules in paragraphs 62 to 64 below, the contractual rights in paragraph 27.4 above, and the facts stated in paragraphs 20.4, 21 and 30 above. 52.5. inducing the Claimant to continue to operate his account and make larger and riskier spread bets. The Claimant will refer to the facts stated in paragraphs 33 to 41 above, including inappropriate offers and provision of (a) hospitality, (b) information on and promotions of spread bets, and (c) credit.”

[82]I accept that the effect of COBS 2.1.1 is to impose on a service provider a duty to carry out the assessment required by COBS 10 honestly, fairly and professionally in accordance with the best interests of its client. An unfair and unprofessional assessment of appropriateness would be a breach of COBS 10 however, not a breach of COBS 2.1.1. However a debate as to which provision is breached is largely an arid and academic one. I am satisfied that the appropriateness testing by the defendant of the claimant was carried out fairly and professionally for the reasons that I have given at length above save and except for the upgrading of the claimant’s account to a Select Account. However, as I have explained no separate loss has been claimed or proved by reference to that breach.

[83]Any obligation to re-assess was governed by COBS 10 and any failure to carry out a re-assessment that was required would be a breach of COBS 10. Any re-assessment that should have been carried out had to be carried out honestly, fairly and professionally in accordance with the best interests of the defendant’s client by operation of COBS 2.1.1 and any failure to do so would also constitute a breach of COBS 10. As I have explained, there was an obligation to re-assess appropriateness following a request that the defendant re-open the claimant’s account after it had been closed at his request. However, the outcome of any such testing would inevitably have resulted in spread betting being assessed as appropriate for the claimant.

[84]Any advice given by W H Ireland is a matter to be resolved between that advisor and the claimant. It is not something that gives rise to a breach of statutory duty under COBS 2.1.1 as between the claimant and the defendant.

[85]The duty to warn was one provided for by COBS 10 and arose only where the provision of a spread betting service was or ought to have been assessed as inappropriate. That was not the case with the claimant for the reasons already explained. It is mistaken to suppose that COBS 2.1.1 imposed on the defendant any wider duty to advise beyond that provided for in COBS 10 in respect of an execution only service. Indeed, it is at least arguably unlawful for a service provider to provide advice as to the appropriateness of a spread betting transaction provided on an execution only basis without satisfying the requirements for the provision of an advisory service.

[86]This leaves for determination the allegation in paragraph 52.5 of the Particulars of Claim. It is this that leads to the dispute between the parties concerning the scope of COBS 2.1.1. The defendant maintains that the obligation extends only to the mechanics of providing the product or service concerned or as Mr. Mayall put it in his written opening submissions to “… the mechanics of the transaction or transactions …”. The claimant maintains that the duty is one that is far wider and extended to not causing or permitting the claimant to spread bet in big amounts and large volumes when the defendant knew the claimant had plenty of money to bet with but no aptitude for successful spread betting because it was manifestly not in his best interests to do so.

[87]COBS 2.1.1R was the means by which effect was given to Art.19.1 MiFD. Art.19.1 imposes on member states the obligation to require an investment firm when providing investment services to a client to act honestly fairly and professionally in accordance with the best interests of clients, “… and comply in particular with the principles set out in paragraphs 2 to 8.” This language supports my conclusion set out above that the obligation to assess appropriateness imposed by COBS 10 must be carried out honestly fairly and professionally in accordance with the best interests of the client. This language also implies that the scope of the best interests duty extends wider than simply complying with paragraphs 2 to 8 honestly fairly and professionally in accordance with the best interests of the client. There is no guidance within the Directive however as to how this potentially wide provision should be interpreted. There is no relevant guidance within the body of COBS 2.2.1 other than other than a reference to Art.19.1 MiFD in a Note following the provision as published in COBS. In those circumstances the only assistance in arriving at a conclusion as to the purpose of COBS 2.1.1 is s.5 FSMA.

[88]Notwithstanding the wide language used, in my judgment the obligation imposed by COBS 2.1.1R to “ act honestly, fairly and professionally in accordance with the best interests of its client …” does not impose on an authorised person carrying on designated investment business the duty of preventing a retail client from engaging in an execution only transaction, or execution only transactions, of a class that it has assessed is appropriate for the client concerned. To construe the provision as having such an effect would be to construe it as imposing a duty massively in excess of that which has been recognised at common law and massively in excess of what is the appropriate degree of protection identified in s.5(1) FSMA having regard to all the factors identified in s.5(2)(a), (b) and (d) FSMA.

[89]In relation to common law duties, as Lord Hoffman put it in Reeves v MPC

[2000] 1 AC 360

at 368 “… people of full age and sound understanding must look after themselves and take responsibility for their actions … duties to safeguard from harm deliberately caused by others are unusual and a duty to protect a person of full understanding from causing harm to himself is very rare indeed…” That case was concerned with physical harm. Calvert v. William Hill Credit Limited

[2008] EWHC 454

was concerned with economic loss suffered by a problem gambler. Briggs J as he then was commented that “… the recognition of a common law duty to protect a problem gambler from self inflicted gambling losses involves a journey to the outermost reaches of the tort of negligence, to the realm of the truly exceptional …’ He concluded that a book-maker was not under a common law duty to protect a problem gambler from self-inflicted gambling losses. That conclusion was not challenged on appeal. In relation to a narrower duty in relation to the bookmakers agreement to give effect to a self-excluding request by the gambler, the damages claim failed on causation grounds – an issue that I expand upon later.

[90]In relation to the duty imposed by COBS 2.1.1, in IG v. Ehrentreu

[2015] EWHC 3390 (QB)

Supperstone J rejected a claim by a bet placer that the spread betting operator was in breach of the COBS 2.1.1 statutory duty to act in the bet placer’s best interest by failing to close out his bets because he had failed to meet a margin call. In reaching that conclusion, the Judge included as a relevant consideration that “… the general principle behind the rules is that consumers should take responsibility for their decisions”. There it was not being argued that the spread betting operator was under a duty to prevent the bet placer from placing bets.

[91]I accept of course that in principle rules could be formulated that extend the duties of the persons to whom the rules applied beyond the obligations such persons would have at common law so as to impose on firms such as the defendant a duty to prevent for example defined classes of potential bet placers from placing bets. However there is nothing within either Art.19.1 of MiFD or s.5 of FMSA that supports the view that such was a purpose of COBS 2.1.1. Indeed both are inconsistent with that being the intention. Art.19 places the emphasis on making communications between client and firm fair, clear and comprehensible, on the need for firms providing execution only services to assess appropriateness by reference to knowledge and experience, on the maintenance of records of the rights and obligations of firm and client and on the need for firm to report to clients on the services provided and the costs associated with the provision of such services. S.5(2)(d) is inconsistent with such being a purpose of COBS 2.1.1. Whilst sub-paragraph (d) is only one of the factors to be taken into account, it is in my judgment one that is inconsistent with an intention to impose a duty on for example a spread-betting operator to prevent a bet placer from placing bets.

[92]As Flaux LJ concluded in Ehrentreu v. IG

[2018] EWCA Civ 79

, in relation to contractual obligations said to impose a duty to protect another party from deliberately inflicting economic harm on himself, it would require very clear express words spelling out such a duty before a court could conclude that such an exceptional duty had been imposed by the term concerned. In my judgment similar considerations apply when construing a rule such as COBS 2.2.1. The need for a bet placer to have a sound understanding is delivered by the requirement imposed by COBS 10 that spread betting operators assess appropriateness, not by imposing a wide-ranging general duty to protect a bet placer from potentially inflicting economic harm on himself via COBS 2.2.1.

[93]In this case however, Mr. Cawson and Mr Peat not only maintain that there was a general duty to prevent someone whose betting record was unsuccessful from continuing to place bets but that there was a narrower duty not to encourage an unsuccessful bet placer from continuing to use its services. I do not consider that the defendant was under such a generally expressed duty in relation to any client for whom the provision of a service has been assessed as appropriate. I have explained at length why I consider the defendant had fulfilled its obligation to assess appropriateness so far as the claimant is concerned.

[94]There may be room for a more narrowly cast duty not to encourage where a service provider knows or ought to have known that the bet placer was a problem gambler or was gambling or losing in excess of what he or she could afford to lose. However the claimant does not allege that he was a problem gambler prior to him giving the self-exclusion instruction to the defendant. The defendant strictly complied with that instruction even though the claimant tried to re-open his account with the defendant. There is certainly no evidence that the defendant considered the claimant to be a problem gambler or that he was spending more than he could afford. There is plenty of evidence that shows its employees considered the claimant to be a good customer whose business it was in the interest of the defendant to retain. There is however a difference between a conclusion that someone is gambling aggressively but within that person’s means and a conclusion that someone is a problem gambler. Although it is easy to lose sight of the fact in this case, it is to be remembered that the defendant earned revenue from the claimant whether he won or lost. There was an incentive to keep him as a customer whether he won or lost because the value of the business he placed was high.

[95]Although Mr. Cawson and Mr Peat placed some emphasis on the description of the claimant in internal communications within the defendant as a “punter” or an “out and out punter” or as him “punting like a demon” or as having “… traded like a man possessed …” in my judgment these descriptions take matters no further. The word ‘punter’ is an everyday English word that describes a gambler. None of the evidence demonstrates that the defendant either knew or ought to have known that the claimant was gambling in excess of what he could afford. To the contrary the defendant periodically sought evidence of the claimant’s wealth, which he supplied usually in the form of statements of the current value of his other investments. That the claimant lost significant sums does not demonstrate that he was a problem gambler. There is no evidence that the claimant lost money that he did not have to lose. In the absence of evidence that the claimant was a problem gambler (and as I have said that is not alleged) or was gambling in excess of what he could afford to lose (which, again is not alleged and is contrary to the fact) that he was aggressively gambling does not take matters further.

[96]Even if the defendant was under a duty not to encourage the claimant, I am not satisfied that they breached it or that any breach of it caused the claimant to resume or continue spread betting when otherwise he would have stopped.

[97]Although the defendant entertained or offered to entertain the claimant at horse race meetings, golf days and football matches, that was not in any meaningful sense encouraging the claimant to continue spread betting when otherwise he would have stopped or to resume spread betting when otherwise he would have chosen not to. It is noteworthy that the claimant declined invitations to football matches and on at least one occasion declined to attend a golf day ostensibly because of another commitment. It is true to say that the claimant was sent some wine on various occasions but it is not suggested that this was in any way conditional on resuming or continuing to spread bet or even that it caused him to spread bet or resume spread betting when otherwise he would not have. All these invitations and gifts were undoubtedly designed to maintain the relationship between the claimant and the defendant because the defendant regarded the claimant as a valuable customer but such marketing activity did not violate any applicable rule and in the absence of the claimant being a problem gambler or gambling beyond his means was not contrary to his best interests. The communications sent to the claimant by the defendant while he was not placing bets was not encouragement in any real sense to resume spread betting. It was market information that the claimant could have declined but chose not to do so.

[98]Even if all this is wrong none of the facts and matters relied was the cause of the claimant placing spread bets. In Calvert v. William Hill Credit Limited

[2008] EWHC 454 (Ch)

Briggs J as he then had held at paragraph 196 that “…It would fly in the face of common sense and be a travesty of justice if a problem gambler were able to attribute liability for his financial ruin to a particular bookmaker with whom he had made the relevant losses due to their failure to exclude him at his request, if he would … probably have ruined himself by betting with one or more of that bookmaker’s competitors …” As the Court of Appeal observed at paragraph 30 of their judgment at

[2008] EWCA Civ 1427

, if this analysis is correct it was “ … essential for the court to form a view about what would have happened to Mr. Calvert’s gambling if he had been excluded …” Briggs J observed that the position would have been different if the claimant in his case had sought to exclude himself from betting at any bookmakers but that was not the position in that case anymore than it is the position in this case. In upholding Briggs J, the Court of Appeal concluded that in agreeing to accept a self exclusionary instruction from the claimant, William Hill did not assume responsibility to prevent Mr. Calvert from gambling but only not to allow him to place bets with William Hill. William Hill did not assume responsibility to prevent him from gambling with other bookmakers. It followed that “ … the quantification of his loss for breach of a duty of this scope cannot as a matter of law ignore other probable consequences of his gambling propensity … William Hill did not assume a responsibility to enable Mr. Calvert to gamble free from all risk …” – see paragraph 47 of the Court of Appeal’s judgment.

[99]In Calvert, William Hill had breached the narrow duty to give effect to the self-exclusion agreement that Mr. Calvert and William Hill had agreed. In this case I have concluded that no breach of duty has been proved. Considering causation in this case therefore involves assuming for the purposes of resolving the causation question that the defendant had breached its COBS 2.1.1 duty either by failing to close the claimant’s account or by agreeing to re-open his account or by inducing the claimant to use his account with the defendant by offering hospitality, supplying market intelligence briefings and offering credit facilities to the claimant at his request.

[100]In my judgment if and to the extent that the defendant’s COBS 2.1.1 duty required it to close the claimant’s account or refuse to re-open his account it did not require them to prevent him from spread betting generally. In those circumstances, I consider that in this case, as in Calvert, the court cannot ignore other probable consequences of the claimant’s propensity for spread betting when considering the causal link between the alleged breach and the claimed losses.

[101]On the assumption that the defendant had breached its COBS 2.1.1 duty either by failing to close the claimant’s account or by agreeing to re-open his account in my judgment the position is the same - after 25 November 2011 (the date that he first resumed spread betting with the defendant after 8 August 2011, it being accepted that any alleged claim arising prior to that date is statute barred) the claimant would have obtained facilities from another spread betting operator or other spread betting operators and used the facilities provided by such operators to the same extent that in the event he used the facilities provided by the defendant. I reach that conclusion for the following reasons.

[102]As I have said earlier, by no later than December 2012 the claimant had opened a spread betting account with Intertrader, which he used during a period when he was not trading with the defendant down to March 2013, when he resumed trading with the defendant – see his reply to Unnumbered Request 2 under paragraphs52.1 and

52.2 of the defendant’s Part 18 Request for Further Information. It will also be recalled that on 30 April 2013, the claimant had tried to induce the defendant to provide him with more favourable trading terms by reference to an offer of a “bonus” by one of the defendant’s competitor as an inducement to trade with that competitor. The claimant also accepted in his response to the Request for Further Information that in the period after he had closed his account with the defendant for the final time and had given self exclusion instructions, he “… opened numerous spread betting accounts …” including “an account with Spreadex on or about 15 January 2016 and a second account with Spreadex on or about 29 February 2016 …”.

[103]A spread betting service was and is an execution only service. In that sense it is the same as placing a bet on the outcome of a horse race. The claimant placed bets by contacting the defendant and identifying what he wished to bet on and at what level. At no stage was he contacted by the defendant and solicited to bet. At no stage did the defendant advise or encourage him to bet in particular markets or at particular levels when he made contact for the purpose of placing a spread bet. Once he had solicited an offer from the defendant it was the claimant and claimant alone who decided whether to accept the offer or not. In those circumstances, had he not been able to obtain facilities from the defendant, the claimant would have obtained them from another service provider as I have said and would have traded with that alternative provider in exactly the same way – because spread betting is an execution only service.

[104]Exactly similar considerations apply to the allegation that in breach of duty the defendant induced the claimant to place bets by offering hospitality, supplying market intelligence briefings and offering credit facilities to the claimant at his request. Assuming none of this had been supplied and offered and assuming that the claimant would not have recommenced spread betting or continued to spread bet with the defendant without such inducements, the reality is that he would have obtained spread betting facilities elsewhere – precisely as he did in December 2012, when he obtained his Intertrader facility, which he then used until he resumed spread betting with the defendant in March 2013 and precisely as he was contemplating doing on 30 April 2013 in light of the offer of the bonus by a competitor of the defendant.

Conclusion

[105]For the reasons set out above, I conclude that this claim fails. Given that I have concluded that the defendant did not breach any relevant duty and if it was in breach of duty that was not the cause of the losses claimed means that it is not necessary for me to consider an alternative argument concerning contributory negligence. Had it been necessary to do so, I would have assessed the claimant as very substantially liable for his own losses.