Spread betting companies are required to act honestly, fairly and professionally in accordance with the best interests of their clients. However, the Court of Appeal has emphasised in an important ruling that that duty does not necessarily extend to protecting gamblers from the consequences of their own misjudgments.
The case concerned an experienced spread better who, at the height of the 2008 financial crisis, took a disastrous punt on Royal Bank of Scotland shares increasing in value. After the opposite happened, the spread betting company issued him with a series of margin calls. He repeatedly asked for more time to find the money, but his position was eventually closed. He lost over £1.2 million.
The company was subsequently granted summary judgment in the full amount of the debt. However, after the investor counterclaimed in an attempt to recover part of that sum, a judge accepted that the company had breached a term in its customer agreement with him in failing to close his position five days after a margin call was issued.
In dismissing the counterclaim, however, the judge found that the company’s breach of contract was merely the opportunity for the loss, not its cause. The loss had arisen through the investor’s own positive decision to keep his bets open when he could have closed them at any time. In those circumstances, he had wholly failed to mitigate his own loss.
In dismissing the investor’s challenge to that ruling, the Court of Appeal found that the relevant term in the agreement was for the benefit of the company, not its customer. It did not impose any obligation on the company to protect the investor from himself. There was no appeal against the judge’s ruling that the company had met its statutory duty to take care for the investor’s best interests.