In Shurbanova v Forex Capital Markets the High Court found that a clause permitting a broker discretion how to act in relation to – what the broker considered was – abusive trading strategies by a client were absolute contractual rights and therefore not subject to a Braganza duty to exercise its discretion rationally.

Forex Capital Markets (FX), an online foreign exchange and commodities broker, revoked certain trades made by Mrs Shurbanova through FX’s dealing desk on the grounds that they had been made in breach of its terms of business. FX argued, amongst other things, that it had a contractual right to revoke the trades on the grounds that they were ‘abusive’ within the meaning of its terms. Mrs Shurbanova argued that FX’s power to revoke the trades on the grounds of abusive trading was a contractual discretion subject to certain constraints, and the revocation was invalid as FX had not properly exercised that discretion.

The High Court found in favour of FX. FX had a right to revoke the trades, make any adjustments to the client’s account and also (probably) treat an abusive trade as an ‘event of default’ giving FX certain other remedies under its terms. However, the judge (who had looked at similar issues in the recent Watchfinder case) did not consider that those options turned FX’s power into a discretion limited by a Braganza-type duty to conduct a determination in a way which was not ‘arbitrary, capricious or irrational.’ Discretion subject to a Braganza duty concerns a determination of a substantive matter, or a judgement about or valuation of some state of affairs made by one party as the decision-maker, but, which affects the interests of both parties, thereby giving rise to a potential conflict of interest. This was not the case here. It was meaningless therefore to talk of FX’s determination of its consequential or secondary contractual powers, including revocation (which arose in effect because of a defined contractual wrong by Mrs Shurbanova), as involving a Braganza duty. It could otherwise be said that a party’s choice as to whether or not to rescind a contract for misrepresentation rather than seeking damages (one of which may be very much more to the financial advantage of the defaulting party) would be a contractual discretion subject always to a Braganza duty to act rationally. That could not be right.

In addition, the court held that, on the face of the clear words of the terms, it was not for FX to determine finally whether there had been abusive trading. It was an objective question. Ultimately, if there was a dispute, it would be for the Court to decide and FX would run the risk of wrongly calling a trade for abuse of trading when there was none.

This decision is a reminder of the importance of careful drafting to ensure that contractual discretionary rights intended to be absolute are protected from implied Braganza-type limits.