A recent Court of Appeal decision has found that a broker owed no contractual duty to prevent a "sophisticated and experienced" trader (trading as a private person) from causing economic harm to himself when using the broker's platform software to trade: Ehrentreu v IG Index Ltd (Rev 1) [2018] EWCA Civ 79. The case arose in the context of spread-betting, where a trader placed a bet in 2008 on the movement of a particular share price, which went "disastrously wrong". The trader sought to impose various duties on the broker to have closed out the bet at an earlier date and thereby reduce loss on the bet.

At first instance - in addition to the alleged contractual duty - the trader brought a claim as a private person for breach of statutory duty under s.150 (now s.138D) of the Financial Services and Markets Act 2000 ("FSMA"). It was claimed that the broker had not acted in the trader's best interests by not closing out the bet during the relevant period and thereby breaching the Conduct of Business Rules ("COBS") 2.1.1R. However, the court below held that there had been no breach of this rule on the facts and there was no appeal on this point.

Accordingly, the appeal focused on the alternative route by which the trader sought to establish a duty: an alleged contractual duty to prevent a counterparty from inflicting economic harm on itself. The court held that it will require "very clear express words in the contract spelling out such a duty, before the Court could conclude that such an exceptional duty arose". Somewhat surprisingly, the court below had found that the contract did contain such a clause, although the claim had still failed on the grounds that the breach did not cause the loss. It is suggested that the approach of the Court of Appeal sits more comfortably in the context of a regulatory regime which did not consider it necessary provide such protection within the COBS rules to customers.


The respondent (the "Broker") was a spread-betting company regulated at the relevant time by the then Financial Services Authority (“FSA”). The appellant had been a customer since 2001 (the "Trader").

The relationship between the parties was governed by a Customer Agreement in writing which took effect on 15 December 2007. Under the terms of the Customer Agreement, the Broker was entitled to oblige the Trader to make margin calls in respect of his positions. More specifically, two particular terms were considered in detail on appeal:

Term 16(4):

"(4) You acknowledge that:

(a) where you have failed to pay a deposit or margin call in respect of one or more Bets five business days after such payment becomes due, we are (except as provided in Term 16(5) below) obliged to close out such Bets;

(b) where one or more bets exceed the credit or any other limit placed by us upon your dealings; and you remain in excess of your credit limit for five or more business days, we will:

(i) close any or all of such Bets; and

(ii) refuse to open any further Bets until payments sufficient to bring you within your credit limit have been received by us."

Term 16(5):

"Subject to the FSA Rules, in the event of your failing to meet a demand for deposit or margin or your being in excess of any credit limit placed on your account, we may exercise our reasonable discretion to allow you to continue to place Bets with us, or allow your open Bets to remain open, but this will depend on our assessment of your financial circumstances."

Over the years, the Trader had placed a number of substantial spread bets on the movement of the market. In August 2008, the Trader bet on the movement of the share price of a particular banking institution. The bet moved against the Trader. On 15 September 2008, the Broker made a margin call on the Trader for £197,195. Thereafter, margin calls with changing margin requirements were made on the Trader on a daily basis. By 14 October 2008, when the Broker closed out the bet, his account was £1,270,350.75 million in debit.

While those fluctuations were occurring, a representative of the Broker frequently pressed the Trader to pay funds to satisfy the margin calls. The Trader sought to reassure the Broker that funds would be forthcoming and pleaded with the Broker not to close out his position.




The appeal had a reasonably complex procedural history, the detail of which is not relevant for present purposes. In the judgment under appeal, the court held that:

·The Broker was not in breach of its statutory duty under COBS 2.1.1R to act in the Trader's best interests by not closing out his bets in the relevant period between 15 September and 14 October 2008. The Trader brought this claim under s.150 (now s.138D) FSMA as a private person. In finding that there was no breach of duty, the court had regard to: (1) the fact that it was clear from the evidence that after 7 years the Trader was a sophisticated and experienced trader; (2) he had made payments in the past when requested to do so; (3) he promised to make the payments requested during this period and in making those promises he intended the Broker to accept them; and (4) the general principle behind the rules is that consumers should take responsibility for their decisions. There was no appeal from this conclusion.

·However, in relation to the Customer Agreement:

oThe Broker had not exercised its discretion under Term 16(5) to keep the appellant's bets open.

oThe Broker was therefore obliged to close-out the bets under Terms 16(4) and (5), which the Broker had failed to do.

·Notwithstanding this, the breach did not cause the Trader's loss; it was the Trader's decision to continue with his bets which was the cause of his loss.

·Further, since it was the Trader's positive decision to keep his bets open when he could have closed them down, and this decision caused his loss, the Trader had wholly failed to mitigate that loss.

The Trader pursued two principal grounds of appeal:

(1) That Term 16(4) of the Customer Agreement was at least in part to protect the Trader from running the risk of keeping his bets open, and therefore the court below should have concluded that the breach of contract was at least an effective cause of the loss.

(2) For the same reasons, the court below was wrong to conclude that the Trader failed to mitigate his loss, and the court failed to identify what steps a reasonable man in the position of the Trader ought to have taken and when.




The appeal was dismissed on both grounds.

Contractual duty

The court was satisfied that Term 16(4) was not a provision for the benefit of the Trader.

The court first construed the wording of Term 16(4) and commented that the use of the words "You acknowledge that" suggested that the provision was for the benefit of the Broker rather than the Trader. Despite the references in Term 16(4) to the Broker being obliged to close out the bets, the Court of Appeal found that this should be read as "we will have to do it", meaning that the Trader could have no complaints if his bets were closed down.

Specifically, the court commented that the provision ensured certainty and whilst that certainty provided some benefit to the Trader and the Broker alike, the obligation was not "intended to protect the individual customer against his own gambling addiction or considered choices".

The court rejected an argument that Term 16(4) had the same meaning and purpose of a formerly applicable regulatory provision, COB 7.10.5R, which obliged firms to close out a private customer's position if a customer failed to meet a margin call made for that position for five business days, subject to limited exceptions. COB 7.10 had been replaced by COBS 2.1.1R prior to the Customer Agreement, and this did not provide for the same obligation (as the FSA had considered it was not necessary to protect customers in this way). As such, COB 7.10 was immaterial to the construction of Term 16(4).

The conclusion that Term 16(4) did not impose an obligation on the Broker to act for the benefit of the Trader was borne out by the authorities which consider the duty on one party to protect another party against deliberately causing harm (specifically economic harm) to itself. Referring to Calvert v William Hill Credit Ltd [2008] EWHC 454 (Ch), the court commented that in the law of tort, the existence such a duty was "truly exceptional". It was submitted by the Broker that the position was even more exceptional in the context of contract law and there were no reported cases in which such a contractual duty had been found (and this was not contradicted by the Trader).

The court commented in that context: "it would require very clear express words in the contract spelling out such a duty, before the Court could conclude that such an exceptional duty arose". The court held that on the facts, Term 16(4) did not contain any such words and was simply not a provision intended to protect spread-betting addicts against themselves. The court noted that this was "scarcely surprising" given that the Customer Agreement was intended to facilitate spread betting.

In the circumstances, Term 16(4) was not inserted for the benefit of the Trader and so the appeal failed. Dealing with a point raised on causation, the Court of Appeal agreed with the High Court that breach of Term 16(4) was merely the opportunity for the loss, not the effective cause. In fact, it was the Trader's decision to continue on with his bets which was the cause of his loss.


Whilst stating that it was strictly unnecessary to deal with the Trader's ground of appeal in mitigation, the court proceeded to deal with it briefly.

The Court of Appeal held that it was wrong to say that the court below had not analysed and decided what a reasonable person in the position of the appellant would have done in the circumstances. Further, there was no error in concluding that the Trader had wholly failed to mitigate his loss for the same reasons as it had concluded that it was the Trader's decision to continue to leave his bets open which was the cause of his loss. As per the Supreme Court in Bunge SA v Nidera BV [2015] UKSC 43, the duty to mitigate is an aspect of the principle of causation, or put another way, causation and mitigation are two sides of the same coin.

The Court of Appeal accordingly dismissed the appeal.