This case concerned the claims of Mr Rocker (a successful businessman) against Full Circle Asset Management Limited (FCAM) for breach of contract, breach of statutory duty and negligence. FCAM provided discretionary portfolio fund management (DFM) services in respect of a £1.5 million investment in its Inner Circle portfolio in 2009 (the IC Portfolio). By 2014, the capital value had more than halved. Mr Rocker sought to recover both the capital loss and the amount by which he argued his investment would have appreciated had FCAM adhered to its instructions (his "opportunity loss").

In particular it was alleged that (i) FCAM invested significant portions of the £1.5 million in highly risky investments which took the overall risk of the portfolio above the agreed risk limits; (ii) the reference to an APCIMS benchmark required FCAM to adopt equivalent asset allocation in the IC Portfolio or achieve equivalent returns; and (iii) FCAM failed to operate a "stop loss" policy that would have limited losses. FCAM's defence was based on having agreed with Mr Rocker a "bear" strategy for the IC Portfolio. It was contended that (i) the portfolio did not exceed the agreed risk profile; (ii) the benchmark was simply a means by which to assess performance; and (iii) there was no obligation to operate a stop loss policy and in any event this was not breached.

In the period in dispute, Mr Rocker's customer risk profile and that of the IC Portfolio was "medium". During this same period, the actual risk profile of the IC Portfolio exceeded the agreed risk profile on nine monthly occasions. Where this occurred, FCAM acted in breach of mandate and/or COBS 9.3.1R and accordingly Mr Rocker was entitled to damages for losses arising as a result of these breaches.

Mr Justice Morris (the Judge) also found that, in breach of COBS 9.2, FCAM did not do enough to ascertain adequately Mr Rocker's attitude to risk, but that this failure did not cause any additional loss. Mr Rocker raised a number of additional COBS rules FCAM had allegedly breached, in particular COBS 2.2, 4.5.2 and 14.3.2 (as regard the adequacy of information provided) and COBS 9.5 (in respect of record-keeping). However, the Judge held that these additional allegations were either unfounded or caused no additional loss.

The IC Portfolio agreement provided for an APCIMS benchmark against which to measure performance. Mr Rocker argued that it was implicit from this that FCAM would adhere to the asset allocation in that benchmark – failure to do so resulted in losses in breach of contract and COBS 6.1.6. The Judge swiftly dismissed this claim for several reasons. In particular, it was clear from the wording of Mr Rocker's agreement with FCAM that the purpose of the benchmark was as a performance measure and not as a guarantee of a certain level of performance or asset allocation.

The dispute in relation to Mr Rocker's "stop loss" claim focussed on: (i) whether FCAM was under any legal obligation to operate a "stop loss" protection system; and (ii) if so, what the content of that obligation was.

In relation to the former, the promises FCAM made in respect of operating a "tight" or "aggressive" "stop loss" system were in its suitability letter and made orally in meetings. The Judge agreed with Mr Rocker that it was an express term of the agreement relating to the IC Portfolio, alternatively a collateral contract (but not an implied term) that FCAM was required to operate a "stop loss" system.

Regarding (ii), the Judge also favoured Mr Rocker's view that "stop loss" protection indicated a system by which, where the specified stop loss level was reached, this would trigger a near automatic sale of the investment to prevent further losses, on the basis that it was supported by the natural meaning of the words and dictionary definitions, and was consistent with the limited case law. He rejected FCAM's argument that "stop loss" is an investment management tool used as an internal alert for the portfolio manager to review the investment and consider actively whether to sell or continue to hold it. The trigger point for a "tight" or "aggressive" stop loss policy as promised by FCAM was 5 per cent. Accordingly, FCAM was in breach of the "stop loss" term in any case where an investment fell by more than 5 per cent and was not sold at the time when it reached that point.

In respect of the "opportunity loss" damages sought by Mr Rocker, the Judge agreed with FCAM that these were "misconceived". The compensation required was intended to put him in the position he would have been in but for the specific breaches that occurred (e.g. the failures to operate the "stop loss" properly). It was not to put him in the position he would have been in had he been in a totally different investment portfolio.

Although the Judge's findings in respect of the client mandate/COBS breaches were unhelpful to FCAM, the conclusions in relation to the benchmark claim will generally be of comfort to providers of DFM services both in refusing to impose any requirement as to asset allocation or performance and refusing to award "opportunity loss" damages.

Firms that offer a DFM service and whose agreements or other materials contain references to "stop loss" protections would be advised to give careful consideration to how these provisions are worded and operated in practice, especially if they use these as an internal management tool rather than triggering an automatic sale.

The judgment is also notable in its acknowledgement of both the tensions in applying the COBS provisions around suitability to a DFM service and the pragmatic approach to quantifying losses on a DFM portfolio. To the extent any DFM providers are not applying COBS 9 requirements, this judgment is a clear indicator that they should be.