On 1 July 2022 the High Court handed down its trial Judgment in the case of CMC Spreadbet PLC v Robert Tchenguiz, a decision concerning compliance by financial services providers with the FCA’s Conduct of Business Rules and the circumstances in which they can close out customers’ accounts. The High Court found in favour of the Claimant, CMC Spreadbet PLC (“CMC”) on all issues. CMC was represented by Daniel Saoul KC and Ben Smiley of 4 New Square Chambers, instructed by DAC Beachcroft.
In summary, Mr Tchenguiz opened a spreadbetting account with CMC, electing to be treated as a “professional client” within the meaning of the FCA’s Conduct of Business Rules, which entitled him to operate his account at a deficit, subject to CMC being entitled, for its part, to call in that debt, in accordance with the agreed contractual terms and conditions. Mr Tchenguiz subsequently traded on his account, opening substantial spreadbet positions in relation to the shares of First Group PLC. However, the market moved against him as the COVID pandemic hit European shores, the share price fell and his account was left with a substantial negative balance. CMC requested that Mr Tchenguiz make good the deficit on his account (a margin call) but Mr Tchenguiz failed to do so. In the circumstances, and faced with continuing uncertainty in the markets and the risk of further losses on Mr Tchenguiz’ account, CMC then closed out the positions, in accordance with its terms and conditions, and again asked Mr Tchenguiz to settle the debt due on his account. Mr Tchenguiz again failed to do so.
CMC therefore issued proceedings to recover the sums due. Mr Tchenguiz contended, in response, that CMC had failed in its obligations under the FCA’s Conduct of Business Rules, asserting a variety of alleged breaches, and that he should never have been categorised as a professional client, and so should never have been permitted to incur a debt on his account (as opposed to losing only the funds he had invested, as a retail client would). Further, Mr Tchenguiz asserted that CMC should not have closed out the positions at the time, or in the manner, that it did, and pursued a counterclaim on this basis. The case therefore raised issues relating to the nature and range of a regulated entity’s obligations under the FCA’s Rules, the consequences of alleged non-compliance, and as to a financial services provider’s right to close out positions in these circumstances, including whether (and if so how) such a right is qualified by reference to implied terms, including the Braganza duty.
Following a full trial, the High Court (Mr David Elvin KC sitting as a Deputy High Court Judge) decided all of the issues in CMC’s favour, rejecting Mr Tchenguiz’ arguments. The Judge found that CMC had fully complied with its regulatory obligations and was entitled to close out the positions as it had done. CMC’s claim succeeded in full.