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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Spreadex Ltd v Sekhon [2008] EWHC 1136 (Ch) (23 May 2008) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2008/1136.html Cite as: [2009] 1 BCLC 102, [2008] EWHC 1136 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		23/05/2008

Mr Justice Morgan :

Introduction

1. The Claimant, Spreadex Limited ("Spreadex"), is a spread betting company. The Defendant, Dr Sekhon, is an experienced spread better. I will describe what is involved in spread betting later in this judgment. Between October 2005 and 22^nd November 2006, Dr Sekhon carried out a large number of spread betting transactions with Spreadex. On 22^nd November 2006, Spreadex closed all of Dr Sekhon's positions at a time when Dr Sekhon's account with Spreadex showed that he owed Spreadex some £695,000. Dr Sekhon has not paid anything towards that sum. In these proceedings, Spreadex seeks to obtain judgment for that sum, together with interest. Dr Sekhon has defended the claim on the basis that Spreadex is liable to him, under section 150 of the Financial Services and Markets Act 2000 ("FSMA 2000"), which applies where Spreadex is in breach of a rule contained in the Conduct of Business Rules ("COBR") made by the Financial Services Authority ("FSA") and Dr Sekhon asserts that Spreadex has broken such a rule. In particular, he contends that Spreadex ought to have closed his open positions, against his will, in September 2006 and if it had done so, Dr Sekhon would not then have owed Spreadex any money, or at any rate much less money. Further, he points to the fact that in September and October 2006 he paid in excess of £300,000 to Spreadex and if he had not paid that money he would have owed a sum of around £1,000,000 to Spreadex on 22^nd November 2006, as a result of his positions remaining open until that date. Accordingly, he says that the deterioration in his account with Spreadex between a date in September 2006 and 22^nd November 2006 is loss and damage which he is entitled to claim from Spreadex as damages for breach of statutory duty. Spreadex denies that it broke any rule in the COBR and says that, even if it did, such a breach did not cause Dr Sekhon any loss and, in any event, the greater part of Dr Sekhon's losses are attributable to Dr Sekhon's own decision to keep his positions open so that he was contributorily negligent in relation to the losses for which he now claims against Spreadex.
2. There is very little dispute of fact as to the relevant events which took place in this case. When I have made my detailed findings of fact it will be necessary to construe a number of provisions in the contractual document entered into by Spreadex and Dr Sekhon, referred to as the Two Way Customer Agreement ("the Agreement"), to construe a number of provisions in the then current COBR of the FSA, to apply those documents to the facts as found, to consider various arguments as to causation of loss and, finally, to consider and apply the law as to suggested contributory negligence on the part of Dr Sekhon.
3. It is accepted by the parties that the transactions in this case comprised a "regulated activity" within section 22 of FSMA 2000 and that they were governed by the COBR of the FSA. In this judgment, where I refer to the COBR, I refer to the rules in force at the relevant time. Those rules have since been altered. Conversely, the transactions in this case were not governed by the general legislation which deals with betting or gambling: see section 412(1) of FSMA 2000.
4. Mr Tregear QC appeared on behalf of Spreadex and Mr Vinall appeared on behalf of Dr Sekhon.

Spread betting

5. A useful account of the nature of spread betting is given in the judgment of Rix LJ in Spreadex Ltd v Battu [2005] EWCA Civ 855 at [2] – [4]:

"Spread betting

[2] Spread betting is not so much or not merely a bet, although it can be described as such, as a form of contract for differences. It enables a customer to take a position on a market (or an event) for a very small stake. Thus if the Dow Jones index is, say, at 10,000, one can "buy" or "sell" the market at a spread around the index of, for the sake of example, 10 points either way, 9990 to 10010. If one buys, one is betting that the market will rise above 10010. If one sells, one is betting that the market will fall below 9990. If one buys and the market rises, one stands to gain £1 for every point that the index exceeds 10010. If one sells and the market falls, one stands to gain £1 for every point that the index drops below 9990. If, however, one calls the market wrong, then one will stand to lose £1 for every point that the index exceeds the spread point in the wrong direction. Thus if one sells at 10,000 with a sell spread point at 9990, one will make £1 for every point the market falls below 9990 and lose £1 for every point the market rises above 9990. Until the bet or "trade" is closed, the gains and losses are merely "running" gains or losses. They are real enough, but constantly changing with every change in the index, and have not yet been fixed. Closing the bet will fix the position, win or lose. Unlike a classic bet, the customer can of course lose more than his stake. Indeed, on the example given, of a sale spread point of 9990 when the market is at 10,000, if the market does not move an inch, the customer will lose £10 for every £1 staked. Nor, again unlike a classic bet, are his winnings fixed at the outset by an agreement on odds. In theory winnings based on rising markets are infinite (in practice of course they are not) and losses based on falling markets are limited only in so far as they cannot exceed the consequences of a fall in the index to zero.

[3] Normally, of course, to gain by £1 for every rise (or fall) of a single point in a stock market index such as the Dow Jones would take an investment of significantly more than £1. In effect, one's £1 bet commands a position in the market significantly greater than the stake. In other words, there is a large element of gearing in the trade, and the situation is correspondingly volatile. Where the market in question is itself in a volatile phase, the risks become even greater. Thus, if the Dow Jones is capable of moving within a range of 100 or 200 points in a single day, the customer can be £100 to £200 richer or poorer per £1 stake within a matter of hours of his trade. On a trade of £100, those figures become £10,000 to £20,000.

[4] The spread betting operator who accepts these trades does not bet against the customer, but lays off the trade elsewhere. Ultimately, I suspect, the trade is accumulated in some form of derivative transaction on a futures exchange, but I do not know. The operator, however, by laying off the bet elsewhere seeks to profit by means of the spread. The means by which it does that, and the terms on which it does that, however, are not a matter for the operator's customer: nor, in the present case, have the applicable terms been disclosed."

6. Rix LJ explained what was meant by "notional trading risk" or "NTR" and "margin" at [5] – [12]:

"The credit risk, margin and security

[5] If the customer's trade is efficiently laid off, the spread betting operator does not retain a market risk, but, since its customer is open to volatile swings and losses which are potentially out of all proportion to his initial stake, it does retain a credit risk, which it has to be able to monitor closely. Typically, it seeks to limit that risk by controlling the level of its customers' trading and by taking security for its customers' exposure.

[6] Such security, or margin arrangements, may take two forms, responding to two kinds of risk. Even at the outset of a trade, indeed at the outset of a relationship, the operator may require funds to be deposited with it as security for the customer's potential losses. The size of such a deposit may reflect, of course, the level of the customer's trading and also the volatility of a market in which that trading takes place. The more volatile the market, the greater can be the potential losses. Secondly, security for running losses already incurred in open trades may be required.

[7] It will immediately be obvious that these two forms of security could either overlap or be accumulated. If the operator wishes to have the maximum security possible to be available at all times, then it will ensure that it always keeps in hand security for future potential losses: and, entirely separately, will ensure that each day, or perhaps even several times a day, it will demand further security for any running losses incurred in the course of the day on open trades. In that way, it will, as far as it can, end each day fully secured for such running losses and in addition will be able to begin each new day secured in advance for further potential losses yet to be incurred. On that basis, these two forms of security are cumulative, or, to put it another way, the security to be provided in advance merely as a condition of trading is always to be kept entirely insulated from being used as security in respect of running losses.

[8] On the other hand, such demands may kill the goose that lays the golden eggs. If the customers are required to put up too much security, they may decline to trade, or be unable to trade. Moreover, on one view, such cumulative security, although perfectly understandable from the point of view of the operator, can also be seen as a form of double counting: since the running losses, if they occur, are precisely the contingency against which the advance security is taken, to take further security when such losses occur, save to the extent that the advance security fails to match such losses, may smack of greediness, or at any rate of seeking a second bite at setting the terms of trade in the midst of a deal. In the meantime the operator can always demand that it be fully secured against running losses as they occur.

[9] The issue in this case is whether, on the applicable terms of trade, these two forms of security were entirely separate and cumulative, as the operator submits and the judge found, or overlapping, as the customer submits. The issue has, of course, to be determined as a matter of the construction of the parties' contract.

[10] On either view of this issue, one question which arises is as to the extent of the advance security required. This is settled by a concept known as "notional trading risk" or NTR. It may vary from index to index and from time to time, as well as from operator to operator. It is expressed as a factor of the amount staked. Thus a NTR of 100 means that an operator will in principle require a customer who stakes £1 on the relevant index to provide security of £100 as a condition of placing the bet.

[11] An operator, much as he desires security, may also be willing to extend credit to a customer. On this basis, the amount of credit allowed will stand in place of security. The existence of such credit illustrates the balance which an operator has to be prepared to set between maximising security and encouraging business. Thus a customer with a credit limit of £1000 will be allowed, subject to further Agreement, to stake a maximum £10 on a bet on an index with a NTR of 100. If the customer wishes to stake £20, he will either have to negotiate an increase in his credit limit to £2000 or will have to provide £1000 of security up front.

[12] The credit allowed to and/or the security provided by a customer may be said to constitute his trading limit. He can enter into trades which, when multiplied by the applicable NTR, do not exceed his trading limit. Or, putting the matter another way, if an operator allows its customer to place a bet which exceeds his then trading limit, the operator may be able to stipulate for the right to require the customer to secure the level of his trading, by reference to the NTR, by calling for subsequent security."

The facts

7. There is very little dispute about the essential facts. I will therefore proceed to set out my findings of fact.
8. On 13^th March 2005, Dr Sekhon completed a Spreadex application form by which he applied for an account with Spreadex. In the details inserted into the form, he gave his home address and stated that he had been 4 years 6 months at that address. He stated he was a medical practitioner and self employed. He applied for a credit limit of £50,000 and in support of that application he stated that he was a property owner with a gross annual income of £300,000. In the application form, Dr Sekhon stated that he wished to enter into transactions in contracts for differences which could result in him having to provide margin payments as set out in the Agreement. He also declared that the information in the account application together with the Agreement in the form in use from time to time set out the Agreement between Spreadex and him. He stated that he had received, read and understood the Agreement and he had received, read, understood and accepted the contents of the Risk Warning Notice, which he had received. He also stated that he understood that the extent of his credit facility did not limit his loss or financial liability.
9. On 15th March 2005, Ms Anderson of Spreadex wrote to Dr Sekhon stating that Spreadex would provide £100,000 waived NTR facility and a £50,000 credit limit subject to Dr Sekhon making a written request for these facilities. The requirement that he make a prior written request was described as "an irritating yet mandatory regulatory requirement of the FSA".
10. On 16^th March 2005, Mr Hufford, the managing director of Spreadex, wrote to Dr Sekhon stating that his account number was now open and a credit limit of £50,000 and a waived NTR of £100,000 had been applied to the account. Dr Sekhon was asked to send a bank statement/share certificates showing liquid assets to the value of £300,000.
11. Around this time (it is not clear precisely when), Dr Sekhon signed a written request addressed to Spreadex for £100,000 waived NTR facility and a £50,000 credit limit on his account.
12. On 13^th April 2005, Ms Anderson of Spreadex wrote to Dr Sekhon acknowledging the signed written request as regards credit facilities. She referred to the earlier letter of 16^th March 2005 and stated that she still required evidence of Dr Sekhon's funds to support credit facilities. The letter stated that Spreadex wanted to see original documents confirming the existence of liquid assets to the value of three times the level of the credit facilities i.e. £450,000.
13. On a copy of the letter of 13^th April 2005, a Mr Newland of Spreadex made some handwritten notes. It seems likely that these notes were made later in the year, possibly in August 2005. The first note referred to the fact that Dr Sekhon owned a property on the Wentworth Golf Club Estate purchased in September 2000 for £2.3 million. Spreadex had in fact obtained this information for itself much earlier (on 7^th March 2005) as it had carried out a land registry search in relation to this property. The search revealed that Dr Sekhon had acquired the property in September 2000 at a price approaching £2.3 million and that the property was subject to a registered charge of February 2001 in favour of Coutts Finance Co. The manuscript notes on the letter of 13^th April 2005 also recorded that Dr Sekhon had supplied a bank statement showing a current balance of 711,700 US dollars which was converted into sterling in a sum approaching £404,000. The note on the letter of 13^th April 2005 stated that Spreadex was happy to provide £50,000 credit limit and £100,000 waived NTR and this approval was signed by Mr Newland, Ms Anderson and Mr Hufford on behalf of Spreadex.
14. On the 19^th October 2005, Dr Sekhon placed his first trade with Spreadex.
15. In May 2006, Spreadex sent to Dr Sekhon the new form of Agreement, which was effective from 15^th May 2006.
16. On 25^th May 2006, Spreadex and Dr Sekhon had an exchange of emails which dealt with the question of the interest payable by Spreadex to Dr Sekhon on his accounts. Spreadex suggested that the situation could be made more favourable to Dr Sekhon if he transferred from private client status to intermediate status. Intermediate status was described as an FSA classification for people who are familiar with futures, derivatives etc. Spreadex's email explained that a client with intermediate status would lose the protection of the client money rules but could revert to private client status at any time. Dr Sekhon stated that his main priority was to remain as a private client with its associated protection. The protection that Dr Sekhon was there referring to was the protection in respect of client money deposited with Spreadex.
17. Between October 2005 and August 2006, Dr Sekhon's bets with Spreadex were very successful. In that period, he achieved trading profits in excess of £1,000,000 which made him one of Spreadex's most successful betters. He achieved those profits without depositing any cash of his own with Spreadex; he used the credit provided to him and the waived NTR limits on his account. Between April and August 2006, Spreadex paid to Dr Sekhon some £435,000.
18. It was the practice of Spreadex to record telephone conversations between Spreadex traders and clients. Spreadex has produced to the court transcripts of such conversations involving Dr Sekhon between 1^st September 2006 and 22^nd November 2006. The transcripts show the extent to which Dr Sekhon was placing trades with Spreadex in that period. They also include the discussions between the traders and Dr Sekhon as to the individual positions which Dr Sekhon had at the relevant time. They show Dr Sekhon was an active spread better across a range of positions and they indicate that he was experienced and knowledgeable in spread betting. I will not refer to the many transcripts which have been provided but only to those where an event occurred or something was said which is material for present purposes.
19. Spreadex operated a computer system which allowed certain Spreadex representatives to post notes relating to a particular client. Such a note was described as a Vortex entry.
20. On 4^th September 2006, there is a Vortex entry at 17:23 referring to a margin payment being required and to the fact that Mr Newland had left a message for Dr Sekhon requesting payment.
21. Also on 4^th September 2006, Mr Newland of Spreadex sent an email to Dr Sekhon saying: "a margin payment is required on your account". At 17:37 on 4^th September 2006, Dr Sekhon asked how much was required and was told at 17:48 that he would be contacted on the 5^th September 2006 with an accurate figure. On the 5^th September 2006 at 9:29 Spreadex emailed Dr Sekhon stating that the short fall was currently £100,000. On 5^th September 2006 at 10:31, Spreadex emailed Dr Sekhon with a printout of his account showing the position as at 10:28am.
22. On 6^th September 2006 at 9:37 Natalie Brown of Spreadex made a Vortex entry referring to the fact that Dr Sekhon had closed a couple of winning trades and at 14:41 on the same day she made a further Vortex entry which said:

"account is back within a positive balance, no need for further action".

That message was not communicated to Dr Sekhon. Dr Sekhon did not pay the figure of £100,000 referred to in the email of 5^th September 2006 timed at 9:29, nor anything towards that figure.

23. Although the Vortex entry on 6^th September 2006 at 14:41 stated that the account was back within a positive balance, Spreadex is not able to provide the full range of figures for Dr Sekhon's account throughout the 4^th, 5^th and 6^th September 2006. However, Spreadex can provide the closing figure for each of those days and the closing figure for each of those days showed (using rounded figures only) deficits of minus £133,000, minus £62,000 and minus £20,000 respectively. However, the closing figure for the 7^th September 2006 was positive at some £27,000.
24. On 10^th September 2006, Spreadex prepared a statement in relation to Dr Sekhon's account. The statement showed that the available trading credit at 10^th September 2006 was negative in the amount of minus £105,000 or thereabouts. The statement was a five page document and the front side of each of the pages showed the various trades and other relevant financial information in respect of the account. The back of each page of the statement contained the same printed text. In the middle of the text there was this statement:

"Trading Limits

The trading limit sets your trading boundaries. The trading limit is the total of all money deposited, taking into account the balance of winnings/losses from closed bets, plus winnings on open bets, plus any credit allowance. The total of losses on open bets plus NTR payable on all open bets should not exceed this limit. If it does, you will have a trading deficit – by the extent to which losses on open bets plus NTR payable on them exceed the money deposited plus winnings/losses from closed bets, plus winnings on open bets, plus any credit allowance… and you would be required to pay margin.

Trading Limit = Credit Allowance/Limit + Deposit Balance + Trading Balance + Winnings on open bets

When losses on open bets + NTR > Trading Limit, then there is a trading deficit (of the amount in question)… and a margin payment is required."

25. The account statement of 10^th September 2006 was sent to Dr Sekhon. Mr Vinall calculates that if the account statement contained a margin call then (pursuant to certain provisions in the Agreement which I have not set out) such a margin call sent by first class post is deemed to have been received at 9am on the next week day. Mr Vinall states that this was 9am on 12^th September 2006. This calculation was not challenged by Mr Tregear on behalf of Spreadex.
26. On 12^th September 2006 at 14:33, Spreadex sent an email to Dr Sekhon enclosing a print of his account showing the position as at 14:25 and showing a deficit on trading account of minus £34,000. The email went on to state:

"The short fall on the account is currently £35K which we will need to cover if you would like to roll your Sep positions into the next quarter. Do not hesitate to contact me if you have any questions."

27. The positions which were indirectly being referred to in the email of 12^th September 2006 at 14:33 were positions described as SMI and Bango. On 14th September 2006, Spreadex left a message on Dr Sekhon's answer phone at 10:38 referring to the possibility of rolling SMI and Bango.
28. On 14^th September 2006 at 14:50 Dr Sekhon had a conversation with Derek Trusselle of Spreadex. They discussed the rolling of SMI. It seems that the Bango position expired without being rolled. Dr Sekhon indicated that he would like to roll SMI. Mr Trusselle referred to the fact that Dr Sekhon had "received a letter from our guys for some margin". Dr Sekhon acknowledged that he had received a letter for margin and he indicated he was going to reduce some of his positions to get the NTR "back in line again". Mr Trusselle said: "if you tell me that you get the NTR back in line I will take that as fine and roll you anyway"; and later: "I will talk to the compliance … I just let them know because obviously they said we really need money to be able to roll but if you tell me you are going to sort it out it is good enough for me".
29. At the time of this conversation on 14^th September 2006, Mr Trusselle acting on behalf of Dr Sekhon rolled the SMI position.
30. On 14^th September 2006 at 15:54, Miss Anderson of Spreadex made a Vortex entry as follows:

"DT confirmed payment of NTR i.e. margin by Monday 18^th September."

31. On 19^th September 2006, Dr Sekhon had a conversation with Ian Horsley of Spreadex. Dr Sekhon expressed some concern to Mr Horsley about some of Dr Sekhon's positions. Mr Horsley asked Dr Sekhon whether he was in a similar position elsewhere, by which he meant to ask: was Dr Sekhon exposed to losing positions with other spread betting companies? Dr Sekhon said he was definitely not in a similar position elsewhere and told Mr Horsley not to worry about that. Dr Sekhon referred to his positions with Cantor Index, another spread betting company but he deliberately mis-described his position with that company and gave a false impression to the effect that his position with that company was satisfactory. Mr Horsley was a trader for Spreadex and did not take credit decisions on behalf of Spreadex. Ms Anderson, who did make credit decisions, was not aware of this conversation at the relevant time and so was not influenced by it. Dr Sekhon was cross-examined about this conversation. He told me that when he described the position to Mr Horsley, he genuinely believed that what he was saying was true. I do not accept that evidence. It is improbable that Dr Sekhon was unaware of the true position when he misdescribed it to Mr Horsley.
32. On 20^th September 2006 at 11:55, Ms Anderson made a Vortex entry referring to a Spreadex trader, Mr Pike, intending to text Dr Sekhon that day in order to tell Dr Sekhon that Spreadex would consider no more daily rolls until funds were received. On 20^th September 2006 16:50, Mr Newland made a Vortex entry which read:

"Rob [i.e. Mr Pike] has spoken to client who has requested forbearance for a short while longer, may be closing substantial positions. Rob will update us tomorrow afternoon as he's working a late."

33. On 21^st September 2006 at 9:48 Dr Sekhon had a conversation with Mr Trusselle of Spreadex. Mr Trusselle said to Dr Sekhon:

"Obviously the account's on margin and all the rest of it, are you going to get some cash to us…"

Mr Trusselle and Dr Sekhon then discussed various positions that might be closed. Mr Trusselle said:

"yes but obviously there is a shortfall of cash on the account".

Dr Sekhon replied:

"Yes I know I will sort that out for you don't worry".

34. On 21^st September 2006 at 10:14, Mr Trusselle and Dr Sekhon spoke again. There was a discussion about the state of Dr Sekhon's account and his open positions. Mr Trusselle referred in various ways to the fact that there was a deficit on the trading account and he gave a figure of £488,000 as the amount of the deficit. Mr Trusselle then stated:

"If you could just come back with a proposal of what you want to do and I can tell the back office as well so they know what you are doing… as long as we know what your plans are then that's fine…"

Dr Sekhon appeared to reassure Mr Trusselle and thanked him.

35. On 24^th September 2006, Spreadex prepared a further statement in relation to Dr Sekhon's account. This showed a deficit on the trading account at 24^th September 2006 of some £474,000. The statement was sent to Dr Sekhon. Mr Vinall calculates that the statement (if it contained a margin call) was deemed received by Dr Sekhon at 9am on 26^th September 2006. The reverse side of each page of the statement was in the standard form to which I have already referred (when referring to the statement of 10^th September 2006).
36. On 25^th September 2006, Dr Sekhon spoke to Mr Trusselle who asked Dr Sekhon if he could send in; "some proof of funds, liquid funds" and added: "you know unencumbered we can increase your waived NTR". Dr Sekhon replied that he did not want: "any more rope".
37. On the 26^th September 2006, Dr Sekhon had a conversation with Mr Pike. Mr Pike said:

" …ok mate and just sort of to appease the back office have you any idea on sort of funds or…"

Dr Sekhon asked Mr Pike to tell him the next day what the situation was and he would then sort it out.

38. On 27^th September 2006, Mr Newland made a Vortex entry at 10:15 recording that Mr Pike had advised that Dr Sekhon was sending funds that day.
39. Also on 27^th September 2006 13:31, Ms Anderson made a note which referred to sums which were due to come in from Dr Sekhon to clear the trading deficit.
40. On 28^th September 2006 at 10:04, Dr Sekhon had a conversation with Mr Pike. Dr Sekhon asked Mr Pike for details of his trading account. Mr Pike said:

"we're probably going to need I should imagine a quarter of a million immediately".

Dr Sekhon then stated what he was proposing to do and he referred to a payment in US dollars being made to Spreadex.

41. On 29^th September 2006, Spreadex received 200,000 US dollars, which was equivalent to £106,951.87 and which was credited to Dr Sekhon's trading account. On 29^th September 2006 at 17:16, Spreadex sent an email to Dr Sekhon referring to the losses on his open positions being approximately £420,000 and NTR of £200,000 of which only £100,000 was covered by a waiver.
42. On 2^nd October 2006, Dr Sekhon sent an email to Spreadex asking for a break down of his NTR for each position. Spreadex replied on 3^rd October 2006 and the figures showed a trading deficit of some £466,000.
43. On 4^th October 2006, Spreadex sent an email to Dr Sekhon stating that the short fall on his account had now increased to £467,222 and Spreadex needed, at least, his proposals. In view of the size of the figure, Spreadex stated they actually needed a substantial deposit in sterling, US dollars or euros. Mr Tregear on behalf of Spreadex accepted that this was a margin call within the Agreement. Dr Sekhon replied to this email by stating he would make a series of payments.
44. On 4^th October 2006 at 14:15, Spreadex sent a further email to Dr Sekhon which stated:

"The trouble we have is the FSA seeking to protect you, and our requirement to comply with their margin rules. Three ways round this:-

1. Sign "intermediate status" form, provided by us… I can email an example should you wish.

2. Sign a letter, provided by us, giving precise and accurate timescale for the receipt of regularising funds to your account, and confirm closure of trades in the event of non-receipt etc.

3. Deposit regularising funds by Friday."

45. On 4^th October 2006 at 21:35, Spreadex sent a further email to Dr Sekhon in which Ms Anderson asked if it would help if she and Mr Pike came to see Dr Sekhon to explain the benefits and drawbacks of intermediate status and/or to discuss a payment plan. After a reply from Dr Sekhon, Ms Anderson sent a further email on 4^th October 2006 at 23:49 suggesting that she come over to see Dr Sekhon. In fact no such meeting took place.
46. On 5^th October 2006 at 11:22, Ms Anderson sent a further email to Dr Sekhon referring to there being "great pressure to resolve situation – shortfall up by 50% to over £604K". Ms Anderson said that the matter had to be resolved by the weekend (the 5^th October 2006 was a Thursday). Her email then said that the options were:

"Intermediate Form, and payment plan or Margin Waiver Letter and detailed specific payment plan with strict time scales or deposit of circa £600K funds direct to account by the weekend".

47. On 5^th October 2006 at 12:33, Dr Sekhon telephoned Ms Anderson. They discussed the situation in some detail. Dr Sekhon stressed that he did not want Spreadex to close his positions. He stated he could send another £100,000 on Monday or Tuesday following. Ms Anderson asked whether Dr Sekhon could sign an intermediate form. Dr Sekhon asked to have that suggestion explained to him. Ms Anderson stated that, with intermediate status, the parties were not restricted to the FSA "rigid" rules on margin and to a requirement that the margin call be paid within 5 days. She explained that if the margin call was not paid in 5 days, the position must be cut. Accordingly, to enable Spreadex to work with Dr Sekhon, Dr Sekhon could sign up to intermediate status to confirm that he was not naive and understood the risks involved. It also required Dr Sekhon to have the ability to pay or at least have financial backing. If the worst came to the worst, she said that Dr Sekhon could sell his house and pay his debt although that's not what anyone wanted. Ms Anderson referred to signing away "all the protection the FSA likes to think it gives the poor little individual". Dr Sekhon asked to be told what that protection was. Ms Anderson said that he would be giving away the protection of the five day rule, which, in context, referred to the rule as to closure of a position five days after a margin call. Dr Sekhon said that he and Spreadex were beyond that anyway and Ms Anderson appeared to agree. Ms Anderson referred again to an intermediate customer giving away the protection involved in closing a position five days after a margin call. They then discussed other protections which would be given up if Dr Sekhon took on intermediate status. Dr Sekhon asked whether he could go back to being a private customer at a later date and Ms Anderson confirmed he could. They then discussed the possibility of a repayment schedule and it was pointed out that if the money did not come in in accordance with the schedule then Spreadex would have to close Dr Sekhon's position. Dr Sekhon stated that he did not like the idea of that. They then discussed a margin waiver letter which was said to go with the change in status to intermediate customer status. Dr Sekhon said that he did not mind going intermediate. He explained why he felt that his positions were going to come right and that he did not want to be closed out. He stated that his preference was for all his positions to remain open unless he specifically closed them down himself. He then expressed his appreciation for Spreadex's position and understanding.
48. On 5^th October 2006 at 13:18, Ms Anderson sent an email to Dr Sekhon with documents relating to the change to intermediate status. He was asked to complete, sign and return a check list and sign and return a draft letter. The documents sent as attachments to the email also included a document headed: "Notice of Treatment for Intermediate Customers". This was said to be the written warning required by Conduct of Business Rule 4.1.9(1)(b)(i), the purpose of which was to explain the protections that would be lost on being classified as an intermediate customer, rather than a private customer. The notice stated that the list of protections which would be lost were those which were relevant to the services that Spreadex provided and that the FSA referred to other provisions that Spreadex had not listed as they were not relevant to the services that Spreadex provided. The protection which would be lost, as listed by Spreadex, referred to the customer's understanding of risk, the rules as to client money, COB 7.9.3 as to provision of credit and the Financial Ombudsman Service. The warning notice, therefore, did not include the margin call plus five days rule in COB 7.10.5R.
49. Dr Sekhon completed and signed the check list. He stated that he had been active in spread betting for 15 years. He stated that he had dealt in futures and options. He had dealt on the basis of execution only, rather than advisory. He stated that his experience enabled him to recognise the risks associated with the suitability of the various markets he wished to deal in. He said his net worth was £6 million. Question 8 on the checklist read:

"Have you received a clear written warning ("notification letter and notice of treatment") of the protections that you will lose as an intermediate customer?"

To this question, where the typed answer read "YES/NO", he ringed the word "NO".

50. Question 9 in the checklist read:

"Have you had sufficient time to consider the warning that you have received, and consented to it in writing?"

In relation to the typed answer "YES/NO", the ring placed by Dr Sekhon covers the S of YES and the N of NO.

51. In respect of the letter sent by Spreadex to Dr Sekhon (wrongly dated 25^th September 2006 but sent on 5^th October 2006), Dr Sekhon countersigned the letter as acceptance of the terms of the letter and of the notice of treatment for intermediate customers. The letter was in these terms:

"Spreadex Limited has classified you as an Intermediate Customer. You would normally be classified under the regulations of the Financial Services Authority as a Private Customer. However, you have requested that we reclassify you as an Intermediate Customer under those rules. Based on the information you have given us we consider that you have sufficient experience and understanding of the investments we will arrange for you, to be re-classified as an Intermediate Customer.

It is important that you refer to the Notice of Treatment for Intermediate Customers ("Notice") which follows in this regard. This tells you of the protections available to Private Customers that you may lose as an Intermediate Customer. Please read and ensure that you fully understand the Notice.

We are required to give you a reasonable opportunity to consider the terms of the Notice. When you have considered it fully please sign and return to us one copy of this letter by way of your Agreement to our classification of you and your full understanding of the Notice.

… "

52. Having signed the document in connection with his status as an Intermediate Customer, Dr Sekhon sent the signed documents by fax to Spreadex at around 15:27 on 5^th October 2006.
53. On and after the 5^th October 2006, Spreadex treated Dr Sekhon as an intermediate customer. There were many communications between Spreadex and Dr Sekhon as to when Dr Sekhon would be able to make further payments to Spreadex. On the 17^th and 18^th October 2006, Dr Sekhon made two payments, totalling £100,695.19. On the 24^th October 2006, Dr Sekhon made a further payment of £100,000.
54. In the period from 5^th October to 22^nd November 2006, there were many communications in which the parties discussed the period during which Dr Sekhon would keep his positions open. In summary, during that period, Spreadex expressed concern about keeping the positions open with a large deficit on the trading account and Dr Sekhon asked Spreadex to give him more time during which he could keep positions open. He also expressed his gratitude to Spreadex for allowing him to do so. Examples of these communications are as follows. On 12^th October 2006, Dr Sekhon emailed Spreadex thanking Spreadex for bearing with him. On 12^th October 2006, Spreadex emailed Dr Sekhon stating that Spreadex wanted to help him at a difficult time but Spreadex had a responsibility to Dr Sekhon and its share holders not to be reckless. Spreadex asked for security for the deficit. Dr Sekhon replied on the 12^th October 2006 saying that Spreadex did not need security as he would be settling his liabilities with cash. On 13^th October 2006, Dr Sekhon emailed Spreadex stating that he was very grateful that Spreadex was being very patient with him. On 14^th October 2006, Spreadex emailed Dr Sekhon saying that the parties needed to agree how much longer Dr Sekhon wanted the positions to run and asked Dr Sekhon to consider the matter "in the calm of the weekend". On 30^th October 2006, Dr Sekhon emailed Spreadex referring to his thinking as to how matters might develop and stating that his "analysis" showed that a November expiry would be very much in his favour. Spreadex replied by enquiring whether Dr Sekhon was asking to be given time until the end of November. On 2^nd November 2006, Dr Sekhon emailed Spreadex saying that he did not think he could send more money before November 22^nd but "as the markets are coming my way now", he asked whether he could have more time. On 9^th November 2006, Dr Sekhon emailed Spreadex referring to November 22^nd as the time at which it was his intention to settle as much of the shortfall as he could. On 10^th November 2006, Dr Sekhon emailed Spreadex to say he would do his best to cover the cash shortfall irrespective of the level of the market. On 10^th November 2006, Spreadex emailed Dr Sekhon saying that Spreadex would run things until 22^nd November but that would have to be a significant deadline date.
55. On 22^nd November 2006, Dr Sekhon emailed Spreadex to say he was unable to send further funds and he assumed that Spreadex would "act" on his positions that day. He suggested that the loss making positions be closed and the profit making positions be kept open. On the same day, Mr Hufford of Spreadex said that in view of the fact that Dr Sekhon had not paid anything, notwithstanding his earlier promises, Spreadex proposed to cut all his positions at 3pm that afternoon. Later on the 22^nd November 2006, Spreadex repeated that it would close all positions at 3pm that day. At 3pm on the 22^nd November 2006, Spreadex started closing all of Dr Sekhon positions and they were all closed in the course of that afternoon. At 17:03 on 22^nd November 2006, Dr Sekhon sent a text to Mr Pike at Spreadex asking for the figures on his account, thanking Mr Pike for his support and stating that matters were not supposed to end that way.
56. On 27^th November 2006, Dr Sekhon sent an email to Spreadex asking for various documents or information. In particular, he asked for a credit summary for each day from 1^st August 2006 until 22^nd November 2006 and a list of all margin calls made to him stating the mode of communication. In the case of voice messages/conversations, he asked for copies of recorded telephone calls. Dr Sekhon sent a copy of this email to solicitors whom he wished to act for him. In the event, those solicitors were instructed by Spreadex and were not able to act for Dr Sekhon. This email indicates that on 27^th November 2006, Dr Sekhon wished to explore whether he had any defences to a claim which Spreadex would inevitably make for payment of the trading deficit and Dr Sekhon could plainly see that the position in relation to margin calls might be material in that context.

The Agreement

57. When Dr Sekhon signed the account application which referred to the Agreement, the form of that Agreement was the form which came into effect on the 19^th April 2004. The account application referred to the Agreement "from time to time" and paragraph 42 of the form of Agreement current on and from 19th April 2004 stated that Spreadex was entitled to change the form of the Agreement in use from time to time. Spreadex agreed "where possible" to inform its clients of changes to the Agreement by prior written notice in which case the notice was deemed to be received within one week of posting. The notice was to quote an official effective date for the coming into force of the new form of Agreement. By paragraph 43 of the Agreement current from 19th April 2004, it was provided that once the effective date of any change in the Agreement had arrived all new bets from a client would be deemed to be accepted by Spreadex on the changed terms whether or not the client had in fact received a posted notice of the changes.
58. In May 2006 Spreadex sent to its clients a standard form of letter enclosing a new form of Agreement with a specified effective date of 15^th May 2006. It was accepted at the hearing that the form of Agreement effective from the 15^th May 2006 was the relevant form of Agreement in relation to all of the issues that have risen between Spreadex and Dr Sekhon.
59. The individual provisions of the Agreement are called "paragraphs" rather than clauses and, accordingly, I will also describe them as paragraphs.
60. Paragraph 1 of the Agreement was in these terms:

"Spreadex Limited is authorised and regulated by the Financial Services Authority. All bets made under this Agreement and debts incurred as a result of them are legally enforceable by us and by you the customer under Section 412 of the Financial Services and Markets Act 2000 ("the Act"). You are referred to and required to read and understand the Financial Services Authority Risk Warning Notice in this booklet, which explains the risks that you assume by engaging in spread betting and forms part of this Agreement. The only service we will provide is a trading service in spread bets. In respect of all bets, we shall be entering into transactions with you as principal and not acting on your behalf as agent. We will be subject to the rules and regulations of the Financial Services Authority and nothing in this Agreement shall exclude or restrict any duty or liability owed by us to you under the Financial Services and Markets Act 2000 or the rules of the Financial Services Authority from time to time. In the event of conflict, the Act and Financial Services Authority Rules will prevail over the terms of this Agreement. Unless we have agreed otherwise, we will treat you as our client for all purposes and you shall be directly and personally responsible for performing your obligation under every transaction entered into between us, whether you are dealing as principal either directly or through an agent, or as agent for another person; and you shall indemnify us in respect of all liabilities, losses or costs of any kind or nature whatsoever which may be incurred by us as a direct or indirect result of any failure by you to perform any such obligation."

61. Paragraph 3 of the Agreement referred to the various terms which governed transactions between Spreadex and a client. Paragraph 3 referred to the transactions as being governed by, amongst other things, the Application Form, the Risk Warning Notice, the terms of the Agreement, the Act, and the Financial Services Authority Rules.
62. Paragraph 4 of the Agreement spelt out in some detail the way in which the spread between a buying price and a selling price was to operate.
63. Paragraph 11 of the Agreement stressed that the dealings between Spreadex and a client were on an execution only basis, that is to say, Spreadex would not give any advice to a client as to what the client should or should not do and the client was relying on his own judgment.
64. Paragraph 12 of the Agreement stated that Spreadex and the client contracted as principal and trading decisions were taken at the client's own risk.
65. Paragraph 14 of the Agreement dealt with the Notional Trading Requirement (NTR). Paragraph 14 included this provision:

"As a condition of opening and/or maintaining a bet in any market we may require you to pay us a deposit known as the notional trading requirement ("NTR"). This is a payment that gives us a degree of security against the possibility that your bet will go against you. The NTR that we may demand in relation to any given bet varies from market to market. The calculation of the NTR applicable to any given bet will remain the same until expiry of the bet. The NTR is calculated as a multiple of the stake (full details are in the Financial brochure) and your Credit Rating (see below). "

66. Paragraph 14.2 described how the NTR relevant to any given bet could be limited by placing a market order or a guaranteed stop loss on the bet. Paragraph 14.4 of the Agreement stated that if the client wanted to know the NTR relevant to any given bet then the client could and should ask Spreadex before he opened the bet. Accordingly, by opening a bet it was agreed that as a condition of opening and maintaining the bet Spreadex could demand NTR at its prevailing rate.
67. Paragraph 14.5 of the Agreement provided:

"We may at any time after a bet is opened make a margin call for the unpaid NTR arising as a result of adverse market movement (see paragraph 25)."

68. Paragraph 15 of the Agreement dealt with customer accounts. Paragraph 15.3 provided:

"You acknowledge that, regardless whether or not your account has a credit balance, no limit set on your account nor any amount of deposit or margin you have paid puts any limit on your potential losses in respect of any bet. Your financial liability to us may exceed the level of the credit allowance or other limit on your account."

69. Paragraph 15.4 of the Agreement stated that when a client opened a bet the client assumed a liability for all adverse movements in the relevant price or index without limit, save insofar as the movements might be limited by market/limit orders or guaranteed stop losses.
70. Paragraph 16 of the Agreement described the Financial Trading Limit as follows:

"Your Financial Trading Limit at any given time is the total of all money deposited, taking into account the balance of winning/losses from closed bets, plus winning/losses on open bets, plus any credit allowance plus NTR after taking into consideration any waived NTR facility. You must not allow this trading limit to become in deficit. If your account is in breach of this rule we may take the steps set out in paragraph 18.1."

71. Paragraph 18.1 of the Agreement provided that if the client's account was in breach of its trading limit, Spreadex was entitled at its absolute discretion and without notice to the client either to bring the account back to within its trading limit by imposing such market orders and guaranteed stop losses as Spreadex saw fit and/or to make a margin call. Under Paragraph 18.2, in deciding whether to impose any market orders or guaranteed stop losses under paragraph 18.1, Spreadex was entitled to have regard only to its own interests and so that it would owe no duty to the client to impose such orders and/or guaranteed stop losses in any circumstances. Paragraph 18.3 stated that as the prices relevant to the client's open bets were likely to be in a state of constant fluctuation, it was for the client to monitor his account in order to ensure that it remained within its trading limits. The paragraph then identified the ways in which the client would be able to monitor his account. It was also stated that if the client were unsure of the state of his account he should telephone Spreadex and Spreadex would inform him accordingly.
72. Paragraph 19 provided for the circumstance in which a client could deposit money with Spreadex. Paragraphs 20, 21 and 22 dealt with the different treatment of client money, deposit accounts and trading accounts and identified those accounts which did and did not bear interest.
73. Paragraph 24 of the Agreement dealt with statements and settlements of the trading account. Paragraph 24 referred to a fortnightly statement being sent by email or by post. Paragraph 24 then referred to the case where there was a positive balance on the account and the case where there was a negative balance on the account. Spreadex was entitled to withhold payment of a positive balance on the account if the same was required to cover aggregate NTR and any of the client's open positions or if Spreadex was of the view that it was required to meet future margin calls on open bets. Paragraph 24.6 provided that if the client had no credit allowance or if the negative balance was greater than the credit allowance, the client must immediately pay to Spreadex the whole of the negative balance or the sum by which the negative balance exceeded the credit allowance.
74. Paragraph 25 of the Agreement dealt with the making of margin calls and its provisions are of central relevance in this case. I will set out some, but not all, of the sub-paragraphs of paragraph 25 in full. The relevant sub-paragraphs are as follows:

"25. In the event that your trading limit is exceeded we may call you to pay sufficient sums to cover the deficit, this is commonly referred to as making a margin call. We will be deemed to be making a margin call whether or not the person asking you for money says that it is a margin call and whether or not any specific sum is asked for. This will be without prejudice to our other rights under paragraph 18.1, which we may exercise before or after making a margin call.

25.1 If as a result of an error on our part we ask you for a sum greater than the sum we are entitled to demand, we shall nevertheless be deemed to have made a margin call at the time when we made the margin call for the true sum by which your account was in deficit at that time.

25.10 Margin is due in accordance with the following rules.

25.11 Within the time limits set out below you must pay to us

(i) the sum demanded or deemed to have been demanded in the margin call, PLUS OR MINUS,

(ii) any sum by which the amount your account is in deficit changes between the time when the margin call is made and the time when the money is in fact paid. If you are unsure of the precise sum that is due from you at the time of payment, you should telephone us and ask for the updated figure.

25.12. You should treat the time limits set out below as strict limits. You warrant that you will ensure before you open a bet that you have cleared funds available to you that will enable you to meet any margin call that may be made in relation to that bet. If you are not absolutely sure that you will be able to meet any margin payment within the time specified you should not open the relevant bet. You agree and acknowledge that if you do not pay a margin call by the time when it is due then we may close all of your open bets and you authorise us accordingly.

25.14 Margin calls in relation to financial spread bets must be met as follows:

25.14.1 If the call is for a sum of less than £20,000, it must be paid by 3.30 p.m. London time on the second business day after the day in which the call was made. For example, if the call is made on the Monday, the margin must be paid by 3.30 p.m. on the following Wednesday.

25.14.2 If the call is for £20,000 or more, it must be met by 9.15 a.m. on the business day following the expiry of a 24 hour period. Hours falling on a Saturday, a Sunday or a bank holiday in England do not count towards the 24. For example, if the call is made at 9.30 a.m. on Monday, the margin must be paid by 9:15 a.m. on the following Wednesday. Or, for example, if the call is made at 9 a.m. on Monday, the margin must be paid by 9:15 a.m. on the following Tuesday.

25.15 If we make a margin call and then because of adverse market movement we subsequently contact you again before the margin is paid and demand a larger sum, that demand (and any subsequent demand) will not negate the first call which will continue to be valid in accordance with these terms and conditions until you pay the full sum due under it.

25.16 Margin payments of less than £20,000 may be paid by cheque. Receipt of the cheque in our hands will be treated as payment at the time of receipt subject to the cheque's clearing and shall be immediately credited to the client's trading account. Please note that simply posting a cheque to us will not constitute payment and if you do not wish to risk the closing of your positions you should authorise a "Same Day Payment" from your Bank to our Bank, make a payment of cleared funds directly into our Bank account, make payment by Debit or Credit Card or send a cheque by courier/Special Guaranteed Delivery. Margin payments of £20,000 or more must be paid in cleared funds, for example, "Same Day Payment" from your Bank to our Bank, payment of cleared funds directly into our Bank account or payment by Debit or Credit Card.

25.18 Failure to pay any margin due is an event of default."

75. Paragraph 26 of the Agreement identified a large number of events of default. The event of default referred to in paragraph 26.1 is an event where an amount due under the Agreement remained unpaid. An event of default under paragraph 26.2 is the event where margin had become due and was unpaid or had not been paid in the form required.
76. Under paragraph 27 of the Agreement, where an event of default occurred, Spreadex was immediately entitled, but not obliged, at its absolute discretion to close all of the client's open bets whether they were winning or losing and without notice to the client.
77. Paragraph 27.5 of the Agreement provided:

"The Financial Services Authority Rules require that we close out an open position if you fail to meet a margin call made for that position unless any one or more of the exceptions contained within the Financial Services Authority Rules apply. At our absolute discretion, we may extend additional credit in the event of your failing to meet a margin call. The availability and suitability of such credit will depend upon the outcome of a reassessment of your financial circumstances and will be subject to your written confirmation (should the term of the increased credit limit be in excess of 5 working days)."

78. Paragraph 28 contained detailed provisions dealing with Market Orders and Guarantee Stop Loss Orders.
79. Paragraph 29 of the Agreement dealt with Roll-Overs on Futures Markets. A roll-over was defined in a glossary of terms included in the Agreement as the procedure whereby a bet approaching expiry is closed and a similar position is opened in the next period, thereby prolonging the exposure to a particular market. Where a client requests a roll-over of an open bet, Spreadex has an absolute discretion as to whether or not to accede to the request. Spreadex stated that it could, for example, decide not to roll-over the bet where there was a deficit on the client's trading limit. By paragraph 29.2, it was stated that Spreadex might action a request to roll-over a bet although by rolling the bet the trading limit would be exceeded. In such circumstances, Spreadex would require the client to deposit cash into the account to bring it back within the trading limit. It was stated that in the event that the client was required to make further cash deposits in such circumstances, the provisions regarding margin calls and the payment of margin would apply.
80. By paragraph 31 of the Agreement, it was stated that, by signing the Application Form, the client agreed to the recording of all conversations with Spreadex and Spreadex could use the recordings as evidence in the event of any dispute between the client and Spreadex.
81. Paragraph 36 of the Agreement referred to the fact that Spreadex frequently hedged its liability to clients by opening analogous positions with other institutions.
82. The Agreement included a two page document headed "Risk Warning Notice". The first paragraph of that note stated:

"This notice is provided to you, as a private customer, in compliance with the rules of the Financial Services Authority. Private customers are afforded greater protections under these rules than other customers are and you should ensure that your firm tells you what this will mean to you. This notice cannot disclose all the risks and other significant aspects of derivative products such as futures and contracts for differences. You should not deal in these products unless you understand their nature and the extent of your exposure to risk. You should also be satisfied that the product is suitable for you in the light of your circumstances and financial position. Certain strategies, such as a "spread" position or a "straddle", may be as risky as a simple "long" or "short" position. Although warrants and/or derivative instruments can be utilised for the management of investment risk, some of these products are unsuitable for many investors. Different instruments involve different levels of exposure to risk and in deciding whether to trade in such instruments you should be aware of the following points."

83. The Risk Warning Notice then gave specific advice in relation to futures, options, contracts for difference, foreign markets and a number of other matters. The purpose of the notice was, as the name suggests, to warn of the considerable risks involved in the transactions there described.

The issues as to the interpretation of the Agreement

84. It is convenient at this point to deal with two issues which arise as to the operation of the Agreement and in particular the operation of paragraph 25 dealing with margin calls.
85. The first issue concerns the form in which a margin call is to be made. What is the minimum content of a communication which is required to make that communication a margin call?
86. Various provisions in paragraph 25 of the Agreement describe the making of a margin call in different ways. Paragraph 25 uses the words: "we may call you to pay", and the words: "the person asks you for money". Paragraph 25.1 uses the phrase: "we ask you for a sum". The reference to asking for money also appears in paragraph 25. 4 (which I have not quoted above). Paragraph 25 also uses the word "demand" or "demanding": see paragraph 25.1 and 25.11.
87. The references to Spreadex calling on a client to pay or asking a client for money or demanding a sum do not give rise to any particular difficulty of interpretation. These words are to be read together with the specific directions in paragraph 25 that a communication can be a margin call even when it is not described by the words: "a margin call". Further, a communication can be a margin call even though no "specific sum" is asked for. The fact that a margin call may be made, without Spreadex mentioning a specific sum which is due, fits in with other parts of paragraph 25 of the Agreement which seek to identify what sum is due at which point in time. Paragraph 25.11 refers to the obligation being to pay a sum demanded plus or minus another sum or sums. Paragraph 25.11 also states that if the client is unsure of the precise sum due at the time of payment then the client should ask Spreadex for an updated figure.
88. Accordingly, in my judgment, the minimum content of a communication which is required for that communication to qualify as a margin call is that Spreadex asks the client to pay money, whether a sum is specified or not, and the words used in the relevant context reasonably convey to a reasonable recipient the fact that Spreadex is asking for margin call, as that phrase is understood in the Agreement. It is not necessary for Spreadex to say in terms that the request for payment of money is a margin call if that fact would be understood by a reasonable recipient of the communication.
89. Although I have not specifically quoted the relevant sub-paragraphs in paragraph 25 dealing with the mode of communicating a margin call, it is clear from paragraph 25 that a communication for the purposes of paragraph 25 may be made in a number of different ways. Paragraph 25 specifically refers to a margin call by telephone, or by fax, or by email or by first class post. These sub-paragraphs also specify the point in time at which the communication is treated as having been received by the client. For example, in the case of a margin call by email, the margin call is deemed to have been received by the client one minute after the moment of Spreadex sending the email to the client.
90. The second issue arises out of the terms of paragraph 25 which refer to the amount being due from the client to Spreadex as a fluctuating amount, that is, the amount demanded or deemed to have been demanded in the margin call plus or minus sums reflecting changes in the deficit. Before identifying the issue and my answer to it, it may be useful to comment on the extent to which the relevant figures have the potential for fluctuation.
91. Paragraph 25 introduces the concept of a margin call by referring to the event of the trading limit being exceeded. The trading limit is described in paragraph 16 of the Agreement and the calculation of the trading limit requires the input of a number of figures including winnings/losses on open bets. Accordingly, whilst bets are open and the market moves positively or adversely, the figure which represents the trading limit can fluctuate. If a client has only one open position then it may be relatively easy for the client to follow that single open position, as the market moves up and down. However, if the client has a number of open positions the task of calculating the trading limits and the deficit, at each moment in time, becomes much more difficult. Spreadex is able to track the trading at any point in time and so at any point in time can identify the trading limit and any deficit of a particular client. However, because the position changes over the course of a day and in a rapidly moving market changes very frequently during the day, Spreadex does not attempt to keep a full record of intra-day figures. However, Spreadex does keep a record of the net position of a client at the end of each trading day.
92. The fact that the figure can fluctuate many times a day and the fluctuations can be considerable in extent and the further fact that paragraph 25.11 defines the sum payable by reference to a fluctuating figure present very considerable challenges for a client who wishes to pay the correct figure, but neither too much nor too little. The consequences of a client not paying the full amount due can be serious. Failure to pay the full amount due is an event of default and the Agreement provides that where there is an event of default, Spreadex can close all the client's open bets without notice. The client's difficulty is mitigated, and may be removed altogether, as a result of paragraph 25.11 stating that if the client is unsure of the precise sum due at the time of payment, the client should telephone Spreadex and ask for the updated figure. Both parties before me accepted that if a client asked for an updated figure and paid that figure Spreadex could not contend that the client had failed to comply with a margin call. Both parties were minded to analyse the position on the basis of an estoppel. That may indeed be correct or, alternatively, it may be appropriate to construe paragraph 25 so that, on the true construction of the provisions, payment of the sum specified by Spreadex to the client in accordance with a request under paragraph 25.11 would be regarded as contractual performance by the client. A difficulty could arise if Spreadex contemplated that the payment would be made by one method (which would be more rapid) and the client chose another method of payment which was less rapid (but still complied with the time limit) and between the moment when Spreadex specified the amount due and the expiry of the time limit identified in paragraph 25.14, the market moved to a considerable extent. However, it is not necessary for present purposes to explore that matter in any greater detail.
93. The issue which does arise in the present case, as a result of paragraph 25.11 referring to a fluctuating sum being due, relates to the possibility that market movement at a relevant time might mean that the deficit is cancelled. If that state of affairs arises within the period which the client is given for making payment, is the client able to say that the margin call has been in some way complied with or does one still need to consider the moment which is the end of the period allowed for payment and then assess whether a deficit exists? If the latter, is it that deficit which the client ought to have covered with a payment? Further, if the disappearance of the deficit, by reason of market movement during the period allowed for payment in paragraph 25.14, means that the margin call is complied with, what is the position if the deficit continues all the way through that period but the deficit is removed by reason of market movement after the end of that period?
94. I heard detailed and cogent submissions from both sides as to the way in which paragraph 25 of the Agreement is intended to operate in the cases considered above. On behalf of Spreadex, Mr Tregear submitted that when the deficit is removed by reason of market movement whether during the period allowed for payment or thereafter, the margin call is at that point complied with. He stressed what he described as the commercial good sense of that result and the lack of good sense in any alternative reading. Mr Vinall on behalf of Dr Sekhon concentrated on the suggestion that a margin call could be complied with by market movement after the end of the period allowed for payment.
95. I begin my consideration of this issue by identifying what appear to be some straightforward cases. If Spreadex makes a margin call and then the market moves, whether adversely or favourably, and the client makes a payment which is the correct sum, or more than the correct sum, assessed as at the moment of payment ("the time when the money is in fact paid") then the margin call has been complied with. One does not ask whether a deficit has again come about at the end of the period allowed for payment, for example, the point which is 9.15 a.m. on the relevant business day identified in paragraph 25.14.2. If there is a deficit at that point in time then it is open to Spreadex to make a further margin call in relation to that deficit. This conclusion easily follows from the language in paragraph 25.11 because the language refers to "the time when the money is in fact paid" and, in my example, money has been paid.
96. In a case where no money is paid in the period allowed for payment and all that happens during that period is that the movement in the market takes away the deficit at one point during that period, it is much more difficult to say that the client has complied with the margin call because there is no point during the period allowed for payment which is "the time when the money is in fact paid". Accordingly if the market movement is favourable during the period allowed for payment so the deficit is removed at one or more points during that period but there remains a deficit at the end of that period, my reaction to the language of paragraph 25.11 is that the client is obliged to pay, at the latest the deficit which exists at the last moment of the period allowed for payment.
97. I would qualify the comment in the last paragraph in a case where the client contacted Spreadex and either asked for an updated figure and was told there was no deficit or if the client himself informed Spreadex that the client had noticed there was no longer a deficit and it was agreed that accordingly no payment would at that moment be made. A communication of that kind between the parties might be regarded as having the same effect as a payment and therefore as complying with the margin call.
98. I have indicated my reaction to the language of paragraph 25. I now ask whether construing the provision literally in that way produces an uncommercial result so that I should hold the parties could not have intended that result. In my view, because of the difficulty of knowing, after the event, in all cases, whether the deficit was removed as a result of market movement at a point during the period allowed for payment, it is not uncommercial to give the language its ordinary meaning. If a payment is made at a point in time then one can compare the payment at that point in time with the amount due at that point in time and ask whether enough has been paid. If a client contacts Spreadex and it emerges that there is at that point in time no deficit, then again one could conclude that the margin call has been complied with. If, however, there is no payment made and no communication of the kind I have described but it so happens that, at some point during the period allowed for payment, the deficit is temporarily removed, it is much more conducive to a certain and predictable result to say that the point in time at which the question of deficit is to be assessed is the last point of the period allowed for payment by paragraph 25.14.
99. If the above conclusion is right in relation to the period allowed for payment, then it seems to me it must follow that the fact that the market moves after the end of that period, which movement eliminates the deficit at a point in time, does not produce the result that the margin call has been complied with. In that example, the margin call was not complied with because there was a deficit at the end of the period allowed for payment. That is an event of default under the Agreement. It can remain an event of default even if the deficit goes away whether temporarily or otherwise at a later point in time. The fact that the deficit goes away does not produce a point which is "the time when the money is in fact paid". Mr Vinall also argues, in relation to a deficit going away after the end of the period of grace that that cannot be a time "within the time limits set out below" which are the opening words of paragraph 25.11 and so, for that reason also, a removal of the deficit, temporarily or otherwise, after the end of the period allowed for payment is not a compliance with the margin call for the purposes of the Agreement.
100. In my judgment, there is another indicator in the language of the Agreement which suggests that fluctuations in the market, after the period allowed for payment, are not relevant for the purpose of paragraph 25.11 and that paragraph 25.11 which deals only with fluctuations during the period allowed for payment. Such an indicator appears in paragraph 25.15. That paragraph refers to adverse market movements and the making by Spreadex of a margin call for a larger sum. If Mr Tregear were right that fluctuations in the market have the effect under paragraph 25.11 that the amount due rises or falls at all points after the making of the margin call, then it would not be necessary for Spreadex to make a second margin call for a larger amount. Spreadex could simply take the view that the margin call on day one for, say, £100,000, becomes a margin call for, say, £500,000 on day six when the deficit has reached that extent by day six. The presence of paragraph 25.15 suggests that the parties thought that it would be necessary in some circumstances for Spreadex to make a second margin call for a larger amount and the circumstance which seems to me to be the relevant one is where the first margin call results in the client being liable to pay the amount of the deficit at the end of the period allowed for payment of that margin call and if Spreadex wishes to make a margin call for a larger amount, the market having moved adversely after the end of that period, then Spreadex must make a second margin call.

COBR

101. I now turn to consider Dr Sekhon's case based on the COBR made by the FSA. In particular, Dr Sekhon contends that Spreadex contravened COB 7.10.5 R in that it made a margin call on Dr Sekhon, he failed to meet that margin call for 5 business days thereafter and Spreadex should have closed, but did not close, all of his open positions. Dr Sekhon contends that Spreadex's contravention of COB 7.10.5 R is actionable as a breach of a statutory duty owed to him and he is entitled to claim damages for such breach. In the present case, Dr Sekhon contends that the damages payable for such breach will be measured by the deterioration in his open positions from the point in time when those open positions should have been closed under COB 7.10.5 R to the later point in time when those positions were in fact closed by Spreadex (the last positions being closed on 22^nd November 2006).
102. The conduct of business rules are made by the FSA under FSMA 2000. Section 138 of FSMA 2000 confers a general rule making power on the FSA. Sections 149 to 151 of FSMA 2000 deal with "contravention[s] of rules". Section 149 provides, in effect, that a provision in the rules can state that certain matters are required but if those matters are not achieved then the failure to achieve them is not necessarily a contravention of a rule but is instead a matter which tends to establish contravention of another rule. Conversely, if the specified requirements are complied with then that compliance can be relied on as tending to establish compliance with another rule.
103. Section 150(1) of FSMA 2000 provides:

"A contravention by an authorised person of a rule is actionable at the suit of a private person who suffers loss as a result of the contravention, subject to the defences and other incidents applying to actions for breach of statuary duty."

104. Section 150(5) of FSMA 2000 states that the phrase "private person" is to have a meaning as prescribed in regulations made by the Treasury: see section 417(1) of FSMA 2000. It is agreed in the present case that Dr Sekhon was a "private person" within section 150.
105. Section 151 of FSMA 2000 provides:

"(1) A person is not guilty of an offence by reason of a contravention of a rule made by the Authority.

(2) No such contravention makes any transaction void or unenforceable."

106. Section 157(1)(a) of FSMA 2000 provides that the FSA may give guidance consisting of such information and advice as it considers appropriate with respect of the operation of the rules made by the FSA under FSMA 2000.
107. The FSA publishes a handbook of rules and guidance. The handbook explains what is meant by the letter "R" when used beside a paragraph of the handbook. Similarly, the handbook explains what is meant by the letter "E" and the letter "G" when used beside a paragraph in the handbook. R is a rule, E is an evidential provision with the characteristics specified in section 149 of FSMA 2000 and G is guidance given under section 157 of FSMA 2000.
108. The FSA handbook also contains general provisions identifying the way in which the handbook is to be interpreted. Every provision in the handbook is to be interpreted in the light of its purpose: GEN 2.2.1 R.
109. Before considering the requirements of COB 7.10.5 R, it is necessary to refer to some provisions in COB 7.9 dealing with lending to private customers and other provisions in COB 7.10 dealing with margin requirements. Under COB 7.9.1 R, the section (COB 7.9) applies to a firm when it lends money or grants credit to a private customer in connection with its designated investment business. It is common ground that Dr Sekhon was a private customer until (at least) 5th October 2006. Spreadex says that with effect from 5th October 2006 Dr Sekhon ceased to be a private customer and became an intermediate customer; Dr Sekhon contends that he remained a private customer at all times. The transactions in this case were at all times part of Spreadex's designated investment business.
110. COB 7.9.2 G gives guidance as to the purpose of COB 7.9.1 R. The guidance invokes Principle 6 as to customers' interests; Principle 6 requires a firm to pay due regard to the interests of its customers and treat them fairly. COB 7.9 seeks to ensure that a firm lends money or grants credit to a private customer only in appropriate circumstances, and only if the customer has given prior consent in full knowledge of any resulting interest and fees.
111. COB 7.9.3 R specifies restrictions on lending to private customers. Subject to exceptions, a firm must not lend money or grant credit to a private customer in the course of or in connection with its designated investment business unless three criteria are met. The three criteria are:

"(1) the firm has made and recorded an assessment of the private customer's financial standing, based on information disclosed by the private customer;

(2) the firm has taken reasonable steps to ensure that the arrangements for the loan or credit and the amount concerned are suitable, based on the information disclosed by the private customer, for the type of investment agreement proposed or which the private customer is likely to enter into; and

(3) the private customer has given his prior written consent to both the maximum amount of the loan or credit and the amount or basis of any interest or fees to be levied in connection with the loan or credit."

112. COB 7.9.5 R specifies certain exceptions to the restrictions in COB 7.9.3 R. The exception which is material in the present case, for the purpose of understanding the operation of the rule, is exception (2) which refers to a firm covering a margin call made on a private customer for a period of no longer than 5 business days.
113. COB 7.10 deals with margin requirements. By COB 7.10.1 R, this section of the rules applies to a firm which executes a transaction in a contingent liability investment with or for a private customer, in the course of, or in connection with, its designated business. "Contingent liability investment" is defined in the glossary to the FSA handbook and covers the spread betting transactions in the present case.
114. COB 7.10.2 G gives guidance as to the purpose of COB 7.10.1 R. The guidance refers to Principle 3 which itself refers to a firm having adequate risk management systems and also to Principle 6 which refers to a firm paying due regard to the interests of its customers and treating them fairly. The guidance continues by referring to two matters. The first relates to the firm not exposing itself to unacceptable levels of credit risk. The second refers to the private customer's exposure to contingent liabilities.
115. COB 7.10.3 R deals with the provision of margin by a private customer. COB 7.10.3 R(1) states that a firm must obtain from a private customer any margin payable whether at the outset or subsequently by or to the firm for a transaction in a contingent liability investment. COB 7.10.3 R(2) identifies the minimum margin to be obtained for an on exchange transaction in a contingent liability investment by reference to the margin requirements of the relevant exchange or clearing house.
116. COB 7.10.4 G gives guidance as to COB 7.10.3 R. The guidance is to the effect that the firm should notify the customer of a number of matters relating to the provision of margin; one of the matters is that which is dealt with under COB 7.10.5 R.
117. COB 7.10.5 R deals with the failure to meet a margin call. The rule is in these terms:

"A firm must close out a private customer's open position if that customer fails to meet a margin call made for that position for five business days following the date on which the obligation to meet the call accrues, unless:

(1)(a) the firm has received confirmation from a relevant third party that the private customer has given instructions to pay in full; and

(b) the firm has taken reasonable care to establish that the delay in its receipt is owing to circumstances beyond the private customer's control; or

(2) the firm makes a loan or grants credit to the private customer to enable that customer to pay the full amount of the margin call in accordance with the requirements of COB7.9.3R (Restrictions on lending to private customers)."

118. Dr Sekhon's counter claim for damages for breach of statutory duty is based exclusively on the allegation that Spreadex broke COB 7.10.5 R. In relation to that rule, Dr Sekhon's case is that he received one or more margin calls, that he failed to meet them and that Spreadex should have, but did not, close all his open positions. Spreadex's case is that it made two margin calls; Dr Sekhon met the first margin call and Dr Sekhon ceased to be a private customer before the time had elapsed for complying with the second margin call; COB 7.10.5.R only applies to a private customer.
119. Dr Sekhon does not allege a breach of COB 7.10.3 R which requires a firm to obtain from a private customer any margin payable. Strictly speaking, it is not necessary for my decision in this case to consider the meaning of COB 7.10.3 R but I will briefly comment upon it.
120. It is not completely clear whether COB 7.10.3 R obliges a firm to make a margin call when the firm is entitled under its contract to do so. COB 7.10.3 R (1) refers to "any margin payable". This phrase suggests that when a margin is payable or not depends upon the contractual arrangements between the firm and the private customer. This in turn suggest that it would be open to a firm to make a contract with a private customer under which no margin was payable or margin was only payable if the firm chose to call for it to be paid. This approach may be qualified in the specific case mentioned in COB 7.10.3 R(2) which refers to "the minimum margin to be obtained" which suggests that the firm is obliged to obtain margin but in such a case, only in accordance with the minimum requirements equating to the margin requirements of the relevant exchange or clearing house. If COB 7.10.3 R allows a firm to decide whether or not to make a margin call, that freedom of decision would go a considerable way to undermine the benefit of COB 7.10.5 R which appears to have a twofold purpose. One purpose is to prevent the firm from exposing itself to unacceptable levels of credit risk and the other purpose appears to be to prevent the private customer over exposing himself to contingent liabilities: see the two purposes identified in COB 7.10.2 G. It may be that the intention behind the drafting of COB 7.10.3 R is that the firm is entitled to decide not to make a margin call but if it does so decide, it may find that it is granting credit to a private customer and although that is not a contravention of COB 7.10.3 R or COB 7.10.5 R it may be a contravention of COB 7.9.3 R. In the event, I leave open the question whether COB 7.10.3 R does or does not oblige a firm to make a margin call when its contractual arrangements with the private customer permit it to do so.
121. For the purpose of applying COB 7.10.5 R to this case, the first question is whether Spreadex made a margin call on Dr Sekhon. The second question is whether Dr Sekhon failed to meet that margin call for five business days following the date on which the obligation to meet the call accrued. This raises a question which I have already discussed in some detail when construing clause 25.11 of the two way customer Agreement. Consistently with my reasoning in relation to that paragraph, I intend to apply COB 7.10.5 R to the facts of this case as follows. If at the end of the period for payment provided by paragraph 25.14 of the Agreement, a sum of money is due to Spreadex by way of margin call, then for the purposes of COB 7.10.5 R, Dr Sekhon must pay the amount due within the five business days therein referred to; otherwise he fails to meet a margin call for the purpose of COB 7.10.5 R. I do not regard it as sufficient, in order to avoid a failure to meet a margin call, for it to be shown that the deficit in a trading account was eliminated at some point or points in time during the five business days.
122. The third issue which arises as to the application of COB 7.10.5 R to the facts of this case is whether Spreadex comes within the second exception which refers to the firm granting credit in accordance with the requirements of COB 7.9.3 R. The differences between the parties can be expressed as follows. Mr Vinall on behalf of Dr Sekhon says that the reference to providing credit in accordance with COB 7.9.3 R should be given its ordinary literal meaning. If credit is provided otherwise than in accordance with those requirements then the exception in COB 7.10.5 R is not met and a failure to close an open position will be a contravention of COB 7.10.5 R. On the other hand, Mr Tregear on behalf of Spreadex submits that if Spreadex provides credit to enable Dr Sekhon to pay the full amount of the margin call then there is no contravention of COB 7.10.5 R. It does not matter for the purposes of COB 7.10.5 R whether the provision of credit did or did not comply with COB 7.9.3 R. If the provision of credit did not comply with COB 7.9.3 R that would be a contravention of that rule and that would be a breach of statutory duty. However, Mr Tregear points out that Dr Sekhon has not sued for damages for breach of COB 7.9.3 R and even if he had done so, he would have to show that a breach of that rule had caused him loss. If he had contended that a breach of that rule had caused him loss, Spreadex would have submitted that Dr Sekhon would have behaved in exactly the same way and exposed himself to the same losses if Spreadex had strictly complied with all the requirements of COB 7.9.3 R. Thus, it is argued, that a breach of that rule did not cause Dr Sekhon loss. Mr Tregear invokes section 151(2) of FSMA 2000 which provides that no contravention of a rule made by the FSA makes any transaction void or unenforceable. Accordingly, he submits, when one considers the reference in COB 7.10.5 R to the provision of credit in accordance with COB 7.9.3 R, it is not material to ask whether credit was provided in accordance with COB 7.9.3 R because whether or not it was so provided, it was nonetheless an effective provision of credit and that enables Spreadex to escape a finding of a contravention of COB 7.10.5 R.
123. I cannot accept Mr Tregear's submissions on this point. First of all, section 151(2) of FSMA 2000 seems to me to be beside the point. There is no issue as to whether the provision of credit is void or unenforceable. The issue is whether Spreadex brings itself within the exception in COB 7.10.5 R for which purpose it is not enough for them to show merely that they provided credit. They must go further and show that they have provided credit "in accordance with the requirements of COB 7.9.3 R". If Spreadex did provide credit to Dr Sekhon but they did not comply with COB 7.9.3 R in that respect then Spreadex does not bring itself within the exception and one has to ask did Spreadex fail to close an open position when they should have done so. If the answer to that question is "yes", then Spreadex has contravened COB 7.10.5 R.
124. As to the requirements for COB 7.9.3 R, I have set out the three matters which must be complied with. The particular matter relied on by Dr Sekhon in the present case is that when he was provided credit he did not give prior written consent to the maximum amount of the loan because the credit provided to him did not have any maximum amount.
125. COB 7.10.5 R only applies to a private customer. As indicated earlier, Spreadex contends that on the 5^th October 2006, Dr Sekhon ceased to be a private customer when he was reclassified as an intermediate customer. That contention gives rise to two issues. The first is: did Dr Sekhon become an intermediate customer as Spreadex contends? Secondly, if Dr Sekhon became an intermediate customer on the 5^th October 2006 what was the effect of that reclassification on any earlier contravention of COB 7.10.5 R. I will now consider the rules as to classification of clients and I will defer a discussion of the second question until I consider the question of causation of damage later in this judgment.
126. Client classification is dealt with in COB 4.1. COB 4.1.1 R provides that COB 4.1 applies to a firm intending to conduct designated investment business. The guidance given in COB 4.1.3 G states that a firm is required to classify clients to achieve appropriate application of the relevant rules to ensure that clients are appropriately categorised so that regulatory protections are focused on those classes of clients that need them most.
127. COB 4.1.1 R deals with the requirement to classify. The rule provides:

"(1) Before conducting designated investment business with or for any client, a firm must take reasonable steps to establish whether that client is a private customer, intermediate customer or market counterparty.

(2) A firm which takes reasonable steps to classify its clients, as required by the rules in this section, and treats a client in accordance with the classification it has established for that purpose, does not breach any other rule in COB to the extent that the breach arises only from inappropriate classification of that client."

128. The glossary in the FSA handbook defines "private customer", "intermediate customer" and "market counterparty". In some respects, not directly relevant in the present case, the definitions refer to objective criteria and in order to settle on an appropriate classification one should ask whether the client does or does not satisfy those criteria. However, in the present context, the difference between a private customer and an intermediate customer is dealt with in COB 4.1.9 R and those differences do not turn upon the objective characteristics of the client but turn on a number of matters such as complying with procedural requirements including the all important requirement that the client consents to the classification. Accordingly, the definitions of private customer and intermediate customer in the glossary distinguish between clients who have and those who have not been classified "in accordance with COB 4.1.9 R", rather than by reference to the objective characteristics of the client. This reading of the rules is also supported by COB 4.1.14 R which allows a firm to classify as a private customer any client who would otherwise be an intermediate customer. Thus, in determining whether there is "appropriate" classification of a client as an intermediate customer where the classification procedure adopted is under COB 4.1.9 R one does not ask whether the client has the characteristics, objectively considered, of an intermediate customer but one instead asks whether COB 4.1.9 R has been complied with.
129. Mr Tregear argued to the contrary. He submitted that one should distinguish between matters of substance and matters of procedure. He said that whether it was appropriate to classify a client as an intermediate customer was a matter of substance. It may be held to be appropriate so to classify a client even though the procedural requirements of COB 4.1.9 R were not complied with. He also submitted that section 151(2) of FSMA 2000 assisted his argument. If Spreadex classified Dr Sekhon as an intermediate customer then he was effectively designated as an intermediate customer. Even if Spreadex contravened COB 4.1.9 R that contravention did not make the classification of Dr Sekhon as an intermediate customer void or unenforceable.
130. I do not accept Mr Tregear's submission based on a suggested distinction between substance and procedure, essentially for the reason I have already already stated when describing the operation of the rule. That reason is that the classification under COB 4.1.9 R does not depend upon the objective characteristics of the client but depends upon compliance with COB 4.1.9 R, which contains a number of procedural safeguards before the classification is effective or "appropriate". As to section 151(2) of FSMA 2000, in my judgment, there is no question here of a transaction being arguably void or unenforceable. The question which is asked is whether Spreadex did effectively classify Dr Sekhon as an intermediate customer under COB 4.1.9 R. If the answer to that question is "no" then a possible second question might arise as to whether Spreadex took reasonable steps to classify Dr Sekhon as an intermediate customer: see COB 4.1.4 R (2).
131. As I have indicated, COB 4.1.9 R provides for the possibility of an expert private customer being classified as an intermediate customer. The rule provides:

"(1) A firm may classify a client who would otherwise be a private customer as an intermediate customer if:

(a) the firm has taken reasonable care to determine that the client has sufficient experience and understanding to be classified as an intermediate customer; and

(b) the firm:

(i) has given a written warning to the client of the protections under the regulatory system that he will lose;

(ii) has given the client sufficient time to consider the implications of being classified as an intermediate customer; and

(iii) has obtained the client's written consent, or is otherwise able to demonstrate that informed consent has been given.

(2) For the purposes of (1), a client's consent to being classified as an intermediate customer may be limited to one or more types of:

(a) designated investment; or

(b) designated investment business. "

132. COB 4.1.9 R(1)(a) refers to the firm taking reasonable care to determine the client's experience and understanding. This is the subject of the guidance in COB 4.1.10 G. The guidance refers to various matters as to the client's knowledge and understanding, his length of experience, the size and nature of the transactions he has undertaken and the client's financial standing which may include an assessment of his net worth or of the value of his portfolio.
133. COB 4.1.9 R(1)(b)(i) referred to the firm giving a written warning to the client of the protections under the regulatory system that he will lose on being reclassified as an intermediate customer. This requirement of the rule is subject to an evidential direction in COB 4.1.11 E. In the case of such a written warning it is said that the firm should "where relevant" advise the client he will lose the protection afforded by certain specified rules in COB applicable to private customers. The specified rules include COB 7.9 (lending to private customers) and COB 7.10 (margin requirements). COB 4.1.11 E(1) identifies many additional matters which should be included in the written warning. COB 4.1.11 E(2) states that the contravention of any part of COB 4.1.11 E(1) may be relied upon "as tending to establish contravention of COB 4.1.9 R(1) (b)(i)".
134. The terms of COB 4.1.11 E raise an issue as to the minimum content of the written warning required by COB 4.1.9 R(1)(b)(i). One of the protections under the regulatory system which a private customer loses is the protection of COB 7.10. Accordingly, it would seem to follow that if the written warning relied on by the firm does not warn, in writing, the client that the client will lose the benefit of COB 7.10 it would seem to follow that the written warning relied on by the firm does not do what is required by COB 4.1.9 R(1)(b)(i). However, under COB 4.1.11 E(2), it is stated that contravention of any part of COB 4.1.11 E(1) can be relied on as "tending to establish" contravention of the requirement of a written warning. Why does it only "tend to establish" contravention? Could one say whilst it tends to establish contravention nonetheless there is no contravention in this respect? The words of COB 4.1.11 E(2) taken on their own might suggest that the written warning need not be complete but might still suffice for the purpose of COB 4.1.9 R. In my judgment, that is not a correct reading of the provisions. I regard the words in COB 4.1.11 E(2) which referred to something "tending to establish" a contravention as being appropriate because some of the matters referred to in COB 4.1.11 E(1) are not strictly to do with the warning of the protection that will be lost but go on to require explanations of any consequences or possible consequences. It may be that one could omit such an explanation but yet satisfy the requirements of COB 4.1.9 R. Therefore my conclusion is that if Spreadex does not give a written warning to Dr Sekhon of a relevant protection under the regulatory system that he will lose then Spreadex does not conform to COB 4.1.9 R(1)(b)(i). Failure to conform to that requirement is described in COB 4.1.11 E as a "contravention". Further, section 150 of FSMA 2000 states that "a contravention" of a rule is actionable in the same way as a breach of statutory duty. However, COB 4.1.9 R is not a rule which imposes an obligation but is a permissive rule which permits a firm to classify a client if the firm goes about it in the correct way. Thus, the issue in the present case is not whether Dr Sekhon has a cause of action for damages, because he was not given an adequate written warning under COB 4.1.9 R, but the issue is whether Dr Sekhon became an intermediate customer on the 5^th October 2006. To that question, the answer is as follows: if Spreadex complied with COB 4.1.9 R then Dr Sekhon did become an intermediate customer but if Spreadex did not comply with COB 4.1.9 R then Dr Sekhon did not become an intermediate customer and remained a private customer.
135. The above considerations are not, however, the end of the story in relation to Dr Sekhon's classification as an intermediate customer. If one reached the conclusion that Dr Sekhon was not effectively classified as an intermediate customer because Spreadex did not comply with COB 4.1.9 R then the next question is whether Spreadex can take advantage of COB 4.1.4 R. I have set out above the text of that rule. If it should turn out that on and after the 5^th October 2006 Dr Sekhon was treated as an intermediate customer when he ought to have been treated as a private customer then, subject to COB 4.1.4 R(2), Spreadex is obliged to comply with COB 7.10.5 R because Dr Sekhon remained a private customer, although he had been inappropriately classified as an intermediate customer. However, on and after 5^th October 2006, Spreadex will not commit fresh breaches of COB 7.10.5 R if Spreadex had taken "reasonable steps to classify its clients, as required by the rules in this section". Mr Vinall on behalf of Dr Sekhon submitted that this was how COB 4.1.4 R(2) was to be read. Mr Tregear did not read COB 4.1.4 R(2) in the same way but that was because he had distinguished between substance and procedure and relied on Section 151(2) of FSMA 2000 in submissions which I have already stated I do not accept. No doubt, Mr Tregear would accept Mr Vinall's analysis of COB 4.1.4 R(2) as a fall back position.
136. On this reading of COB 4.1.4 R(2) the following question might arise on the facts of this case. If Spreadex failed to give a complete written warning for the purposes of COB 4.1.9 R(1)(b) but the matter which is missing from the written warning was well and truly communicated to Dr Sekhon orally, could the oral communication be sufficient to be a reasonable step to classify Dr Sekhon as required by the rules in COB 4.1? On one view, it would be strange to say that giving an oral warning was a reasonable step to classify as required by the rules in COB 4.1 when those rules required a written warning; at least that would be the situation where there was no difficulty in giving an appropriate written warning. The rival view would be to ask, more broadly, whether Spreadex had taken reasonable steps to classify Dr Sekhon as an intermediate customer. One should have regard to the dealings between those two parties and ask whether it was in all the circumstances reasonable for Dr Sekhon to be classified as an intermediate customer even though one of the procedural safeguards in COB 4.1.9R was not fully met.
137. In my judgment, one can adopt the broader view in this case. The classification of a client as an intermediate customer under COB 4.1.9R involves a mixture of an assessment of the experience and understanding of the client, the obtaining of written consent from the client and also compliance with certain procedural requirements. In a particular case, a procedural requirement may serve no real purpose and no harm would be done if the procedural requirement was not met in full, or at all. In such circumstances, the language of COB 4.1.4R which refers to "reasonable steps to classify" can without undue difficulty justify one in looking at the substance of the matter and, in effect, dispensing with the procedural requirement if, in substance, no harm has been done.

The Margin Calls

138. It is common ground that Spreadex made a margin call on Dr Sekhon in the afternoon of 4^th September 2006. Accordingly, Dr Sekhon was obliged to pay the margin by 9.15 a.m. on 6^th September 2006. It is not suggested that Dr Sekhon made any payment within the permitted period for payment. I will later hold, consistently with my interpretation of clause 25.11 of the Agreement, that the consequence is that Dr Sekhon did not meet that margin call in accordance with the Agreement. I will also later hold that Dr Sekhon failed to meet that margin call for five business days following the date on which the obligation to meet the margin call accrued. Those five business days expired at the end of 13^th September 2006. I will also later hold that Spreadex did not grant Dr Sekhon credit in accordance with the requirements of COB 7.9.3 R. The result of these findings is that Spreadex was obliged to close all of Dr Sekhon's positions early on the 14^th September 2006 and in contravention of COB 7.10.5 R it did not do so. In these circumstances, it is strictly not necessary to consider whether Spreadex made any margin calls on Dr Sekhon after 4^th September 2006. However, I will briefly record my conclusions as to whether any other communication after 4^th September 2006 amounted to the making of a margin call.
139. For the purpose of determining whether a communication after 4^th September 2006 was a margin call, I will apply the test in paragraph 88 above.
140. Applying the above test I hold that, on balance, the following communications were margin calls: the telephone calls on 21^st September 2006 at 09:48 and 10:14 and on 28^th September 2006 at 10:04. On balance, I hold that the following communications were not margin calls: the account statements of 10^th and 24^th September 2006, the email on 12^th September 2006 at 14:33 and the telephone calls on 14^th September 2006 at 14:50 and on 26^th September 2006.
141. Finally, Spreadex accepts that it made a margin call at 13.31 on 4^th October 2006. That margin call ought to have been complied with by 9.15 a.m. on 6^th October 2006. Dr Sekhon did not make any payment in relation to that margin call within that period but Spreadex says that he ceased to be a private customer on 5^th October 2006 with the result that COB 7.10.5 R then ceased to apply.

Compliance with the Margin Calls for the purposes of the Agreement

142. It is common ground that Spreadex made a margin call on Dr Sekhon on 4^th September 2006. That call required there to be a payment by 9.15 a.m. on 6^th September 2006. Dr Sekhon did not make any payment by that time. Further, there is no evidence that his account came out of deficit before that time but even if it did, on my interpretation of paragraph 25.11 of the Agreement, that would not affect the conclusion that Dr Sekhon had not complied with that margin call in accordance with the Agreement.
143. As to the other margin calls referred to above, it is not disputed that payments were not made to comply with those margin calls.

Did Dr Sekhon fail to meet a Margin Call for the purposes of COB 7.10.5 R?

144. As to the margin call of 4^th September 2006, Dr Sekhon did not meet the margin call for the purposes of the Agreement by 9.15 a.m. on 6^th September 2006. COB 7.10.5 R refers to a period of five business days following that date (i.e. following 6^th September 2006). Those five days ended at the end of 13^th September 2006. Did Dr Sekhon fail to meet the margin call within those five business days? He did not pay the amount of the deficit outstanding at 9.15 a.m. on 6^th September 2006. In my judgment, consistently with my interpretation of COB 7.10.5 R, the fact that the deficit was removed by market movement at a point in time during the five business days does not alter the fact that Dr Sekhon failed to meet the margin call by the end of 13^th September 2006. Accordingly, Spreadex ought to have closed all his open positions early on 14^th September 2006 unless it gave him credit in accordance with COB 7.9.3 R.
145. For the sake of completeness, I add that in relation to the other margin calls, Dr Sekhon did not comply with those margin calls within the five business days allowed in COB 7.10.5 R.

Granting of credit

146. Although Dr Sekhon did not comply with the margin call of 4^th September 2006 within five business days, Spreadex was not obliged under COB 7.10.5 R to close all of his open positions in a case where Spreadex had granted him credit in accordance with COB 7.9.3 R. Accordingly, the next question is: did Spreadex grant credit to Dr Sekhon in accordance with the requirements of COB 7.9.3 R?
147. Spreadex accepts that allowing someone to fail to meet a margin call is "the giving of credit" within COBR: see COB 7.9.5 R(2).
148. I heard detailed submissions as to whether Spreadex had complied with COB7.9.3 R (1) and COB 7.9.3 R (2) at all material times. As regards COB7.9.3 R (1), Spreadex accepted that it obtained more information about Dr Sekhon's financial position on 5^th October 2006 but that this could not be relied upon in relation to any giving of credit before 5^th October 2006. There was also debate as to what were "suitable" arrangements for the giving of credit where the credit was to be used to provide margin for spread betting.
149. As to COB 7.9.3 R (3), Mr Vinall submitted that there was not in this case any consent to the maximum amount of credit because what Spreadex did was to allow Dr Sekhon to keep his positions open without any pre-determined limit on the amount of the liability to Spreadex which Dr Sekhon was permitted to undertake. Mr Tregear submitted that the maximum amount of credit was defined by the amount of the liability, or potential liability, which Dr Sekhon had from day to day while his positions remained open. However, Mr Tregear's principal submission in relation to COB 7.9.3 R was that any contravention of that rule had not caused any loss because if that rule had been complied with, Dr Sekhon would have acted in the same way as he did in fact act. I have already indicated that Dr Sekhon is not suing for damages for breach of COB 7.9.3 R but relied on the fact that this rule was not complied with and therefore Spreadex cannot establish (by reliance on COB 7.9.3 R) that it was not under an obligation to close Dr Sekhon's positions under COB 7.10.5 R. Accordingly, Mr Tregear's principal argument on this point is not determinative of the real question.
150. In my judgment, the position under COB 7.9.3 R(3) is clear. Spreadex did provide credit to Dr Sekhon on and after 14^th September 2006 (in particular) but there was no written consent by Dr Sekhon to the maximum amount of credit because the maximum amount was never identified. In view of this finding, I need not go on to consider whether Spreadex complied with the other requirements of COB 7.9.3 R.
151. Accordingly, Spreadex did not grant credit in accordance with the requirements of COB 7.9.3 R.

Any contravention of COB 7.10.5 R?

152. It follows from the above conclusions that Spreadex was obliged under COB 7.10.5 R to close all of Dr Sekhon's open positions at the beginning of 14^th September 2006. Spreadex did not do so and accordingly contravened COB 7.10.5 R.

Causation of loss

153. Under section 150 of FSMA 2000A Dr Sekhon is entitled to claim damages for any loss he has suffered as a result of Spreadex's contravention of COB 7.10.5 R.
154. The next question is therefore: what loss was suffered by Dr Sekhon as a result of the contravention of COB 7.10.5 R? Prima facie, Dr Sekhon is right to say that the loss he has suffered as a result of the contravention involves comparing the position he would have been in if all of his open positions had been closed on 14^th September 2006 with the position he was actually in where his positions remained open thereafter, in some cases until 22^nd November 2006. The parties agree that there is no SAAMCO cap (see South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191) which would disable Dr Sekhon from recovering for the adverse market movement after 14^th September 2006. However, Spreadex submits that because the duty under COB 7.10.5 R is only owed to "a private customer" and because Dr Sekhon became an intermediate customer, and therefore ceased to be a private customer, on 5^th October 2006, Spreadex is only liable for the deterioration in Dr Sekhon's position between 14^th September 2006 and 5^th October 2006. This argument makes it necessary to consider whether Dr Sekhon did become an intermediate customer on 5^th October 2006 and, if so, whether that means that his ability to claim his losses stops as at that date.

Classification as an intermediate customer

155. Classification as an intermediate customer is governed by COB 4.1.9 R. Mr Vinall accepted that Spreadex had taken reasonable care to determine that Dr Sekhon had sufficient experience and understanding to be classified as an intermediate customer and that Dr Sekhon had consented in writing to the classification. However, Mr Vinall pointed out that the written warning given to Dr Sekhon did not refer to losing the protection of COB 7.10.5 R and, further, Mr Vinall submitted that Dr Sekhon was not given sufficient time to consider the implications of being classified as an intermediate customer.
156. I have already set out my findings of fact which include findings as to the facts surrounding the classification of Dr Sekhon as an intermediate customer. It is clear that he was not given a written warning that he would lose the benefit of COB 7.10.5 R. However, that matter was fully and clearly explained to him by Ms Anderson in their telephone conversation on 5^th October 2006. I also find that Dr Sekhon was given sufficient time to consider the implications of being classified as an intermediate customer.
157. The above findings mean that Spreadex did not comply with COB 4.1.9 R(1)(b)(i) in the purported classification of Dr Sekhon as an intermediate customer but did comply with the other requirements of COB 4.1.9 R. Having regard to the provisions of COB 4.1.4 R and my interpretation of that rule earlier in this judgment, the question now arises whether Spreadex took reasonable steps to classify Dr Sekhon as an intermediate customer notwithstanding its non-compliance with one requirement in COB 4.1.9 R.

Reasonable steps to classify as an intermediate customer

158. I have already set out my interpretation of COB 4.1.4 R(2). In my judgment, it is open to me to find (and I do so find) that the full and clear oral explanation in the conversation on 5^th October 2006 to the effect that Dr Sekhon would lose the protection of COB 7.10.5 R amounted to the taking of reasonable steps to classify Dr Sekhon as an intermediate customer notwithstanding Spreadex's failure to give him a written warning of that loss of protection.
159. It follows from the above conclusion that when considering whether Spreadex acted in contravention of COB 7.10.5 R (which applies to a private customer but not to an intermediate customer) on and after 5^th October 2006, I should not hold that Spreadex acted in contravention when such a contravention arose only by reason of the fact that Dr Sekhon had not been classified as an intermediate customer in accordance with COB 4.1.9 R, in view of the fact that I have found that Spreadex did take reasonable steps to classify Dr Sekhon as an intermediate customer.

The consequences of the classification

160. The result of my earlier conclusions is that Spreadex was entitled to treat Dr Sekhon as an intermediate customer on and after 5^th October 2006. Does this affect the losses which Dr Sekhon can claim to have resulted from Spreadex's contravention of COB 7.10.5 R on 14^th September 2006?
161. Mr Vinall says that the events of 5^th October 2006 are irrelevant to the question of identifying the losses suffered by Dr Sekhon by reason of Spreadex's contravention of COBR at the earlier point in time of 14^th September 2006. He submits that the duty in COB 7.10.5 R was not a continuing duty but a once and for all duty which was to be performed on 14^th September 2006. Thus, he says, it is nothing to the point that Spreadex was not under a continuing duty to close Dr Sekhon's positions between 5^th October 2006 and 22^nd November 2006.
162. Conversely, Mr Tregear submits that the duty to close pursuant to COB 7.10.5 R is a continuing duty so that Dr Sekhon can only claim loss for the period during which the duty existed and was not performed. It is submitted that because the duty did not arise on and after 5^th October 2006, Dr Sekhon is not able to claim for any deterioration in his position from 5^th October 2006. Alternatively, it is submitted that the classification of Dr Sekhon as an intermediate customer is a supervening circumstance which means that as a matter of causation of loss, Dr Sekhon's losses up to 5^th October 2006 can be said to result from Spreadex's contravention of COBR on 14^th September 2006 but the deterioration in Dr Sekhon's position from 5^th October 2006 onwards did not so result but instead resulted from the new relationship formed between Spreadex and Dr Sekhon. Under that new relationship, it was agreed that Dr Sekhon was an intermediate customer, that Spreadex was not under a duty to close his positions against his will, that Spreadex would not close his positions but would give Dr Sekhon a chance to see if the markets would turn favourably to him so that his earlier losses could be eliminated or at any rate reduced.
163. The question whether the duty on Spreadex under COB 7.10.5 R was a continuing duty is not a straightforward one. If I had to decide it, I would incline to the view that the duty was not a continuing one and that the breach of duty was committed once and for all on 14^th September 2006. However, assuming that that is the right analysis, I still reach the conclusion on causation that the new arrangements made between Spreadex and Dr Sekhon on 5^th October 2006 break the chain of causation between the breach of duty on 14^th September 2006 and the deterioration in Dr Sekhon's position after 5^th October 2006. The arrangements made on 5^th October 2006 involved Dr Sekhon expressly agreeing with Spreadex that it was not under an obligation on and after 5^th October 2006 to close his positions against his will and that he would be given the opportunity to make his own decisions as to whether to keep open his positions. The classification of Dr Sekhon as an intermediate customer meant that Spreadex did not have a duty to close his positions on and after 5^th October 2006. From that date, any deterioration in Dr Sekhon's positions is exclusively caused by his decisions as to whether to keep his positions open or to close them and the link with Spreadex's earlier failure to close his positions on 14^th September 2006 is broken.

Volenti non fit injuria

164. It is common ground that Spreadex cannot rely on a defence of volenti non fit injuria in relation to Dr Sekhon's claim to damages. This conclusion appears to be based on the reasoning that one of the purposes of the duty imposed on Spreadex by COB 7.10.5 R was to protect Dr Sekhon against himself and it is incompatible with the imposition of that duty that Dr Sekhon could agree to give up the benefit of that duty; see Reeves v Metropolitan Police Commissioner [2000] 1 AC 360. In view of the fact that this is common ground, I will not further examine this question.
165. I have considered whether my conclusion about the re-classification of 5^th October 2006, breaking the chain of causation, is in any way incompatible with the parties' agreed position in relation to volenti. I do not think that it is. On 5^th October 2006, Dr Sekhon did much more than agree with Spreadex that he would not claim for losses which Speadex was under a duty to protect him from; he agreed with Spreadex that it was no longer under a duty to protect him from a deterioration in his position but it was instead able, consistently with COBR, to allow him to take his chance of improving his position.

Contributory negligence

166. The parties agree that, as a matter of principle, it is open to Spreadex to put forward a defence of alleged contributory negligence on the part of Dr Sekhon.
167. Section1(1) of the Law Reform (Contributory Negligence) Act 1945 provides:

"Where any person suffers damage as the result partly of his own fault and partly of the fault of any other person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but the damages recoverable in respect thereof shall be reduced to such extent as the court thinks just and equitable having regard to the claimant's share in the responsibility for the damage… "

168. Section 4 of the 1945 Act defines "fault" to mean "negligence, breach of statutory duty or other act or omission which gives rise to a liability in tort or would, apart from this Act, give rise to the defence of contributory negligence".
169. Both parties relied upon Reeves v Metropolitan Police Commissioner [2000] 1 AC 360 in relation to the principles as to contributory negligence which could apply in this case. The facts of that case are very different from those of the present case but the statements of general principle are nonetheless of great assistance. In that case, the police were held to be in breach of a duty of care owed to a prisoner in their custody to take reasonable steps to prevent the prisoner's suicide. It was held that the prisoner's suicide was not a supervening event which broke the chain of causation because it was the very thing which the duty of care imposed on the police was meant to guard against. Similarly, the police could not rely on the defence of volenti non fit injuria. The police were able to rely on the defence of contributory negligence and the prisoner was held to be 50% contributorily negligent for his own death. In this respect it was held the definition of "fault" in section 4 of the 1945 Act could include intentional acts, as well as negligence.
170. In Reeves, Lord Hoffmann made these general remarks at page 368c-d:

"People of full age and sound understanding must look after themselves and take responsibility for their actions. This philosophy expresses itself in the fact that duties to safeguard from harm deliberately caused by others are unusual and a duty to protect a person of full understanding from causing harm to himself is very rare indeed. But, once it is admitted that this is the rare case in which such a duty is owed, it seems to me self contradictory to say that the breach could not have been a cause of the harm because the victim caused it to himself."

171. At page 371e-g, Lord Hoffmann stated that section 1 of the 1945 Act dealt with, not merely degrees of carelessness, but also "responsibility" and that an assessment of responsibility must take into account the policy of the rule by which liability is imposed. At page372e, Lord Hoffmann stated that a 100% apportionment of responsibility to the prisoner gave no weight at all to the policy of the law in imposing a duty of care upon the police. Saying that the prisoner was 100% responsible for his death would be a different way of saying that the police should not have owed the prisoner a duty of care. An apportionment of responsibility "as the court thinks just and equitable" will sometimes require a balancing of different goals. The apportionment should recognise the purpose of the duty being placed upon the police. It would be wrong to attribute no responsibility to the prisoner and compensate the claimant as if the police had simply killed the prisoner. The right answer was to apportion responsibility equally.
172. At page 377h, Lord Jauncey of Tullichettle, if he had been sitting alone, would have apportioned blame as to 1/3 to the police and as to 2/3 to the deceased. However, he did not dissent from a 50/50 division.
173. At page 385, Lord Hope of Craighead again spoke of the apportionment of responsibility and determined that the contributory negligence was 50%.
174. It is clear from the decision in Reeves that contributory negligence can in principle be put forward as a defence by Spreadex. Contributory negligence is available as a defence even though the matters relied upon as "fault" involved the deliberate actions of Dr Sekhon in keeping his positions open at all times until they were closed against his will on the 22^nd November 2006. The analysis is slightly different from Reeves in that Dr Sekhon did not deliberately inflict harm on himself but he did deliberately run the risk of harm through adverse market movement and the same principle applies.
175. In considering a just and equitable apportionment between the parties, one has regard to the parties' contributions to the causation of the loss, to the degrees of fault and also to the different responsibilities for the consequences of the fault. One also has regard to the policy behind the imposition of the relevant duty and one of the purposes of COB 7.10.5 R (although not the only purpose) was to protect Dr Sekhon from himself. This purpose was not to prevent Dr Sekhon from engaging in spread betting altogether but was to prevent Dr Sekhon from being given credit in inappropriate circumstances or on inappropriate terms.
176. As to causation of loss, if Spreadex had closed all of Dr Sekhon's open positions on 14^th September 2006, then he would not have suffered a deterioration in his position up to 22^nd November 2006. Of course, Dr Sekhon could at any time or times between 14^th September 2006 and 22^nd November 2006 have closed his positions and if he had done so then again he would have avoided all, or part, of the deterioration in his position.
177. As to relative blame worthiness and responsibility for the losses in this case, I regard Dr Sekhon as the principal source of his own misfortunes. He was much more the moving force than Spreadex was. He wanted to keep his positions open and it was he who persuaded Spreadex to permit him to do so.
178. Dr Sekhon sought to persuade me at the trial that he was like a "rabbit caught in the headlights" and was not able to exercise rational judgment and did not have control of his own decisions. It was submitted that this should lessen his responsibility for the losses which he suffered. I do not accept Dr Sekhon's own evidence as to his condition in the period September to November 2006. First of all, I have the detailed transcripts of the many conversations he had with the Spreadex traders in that period to assist me in assessing the reliability of his evidence. Further, I did not regard Dr Sekhon as being a reliable witness on this point. The evidence he gave was self serving. I have already stated that I was not able to accept his evidence on another point, namely, the conversation when he deliberately misdescribed his position to Mr Horsley. I do however accept the evidence of other witnesses who gave evidence on behalf of Dr Sekhon that he did feel some degree of stress as a result of his losing positions with Spreadex.
179. I do not accept that Dr Sekhon had lost the ability to make rational decisions or even that his ability to do so was significantly impaired. Dr Sekhon was an experienced spread better. He had suffered losses in the past so that he knew what the experience was like. He had also made substantial gains and he knew the benefits which spread betting was capable of delivering. Dr Sekhon had considerable belief in his own abilities as a spread better. He had faith in whatever system or technique he used to help him make his decisions on spread betting. I am certain that he found the period from September to November 2006 a stressful one. I have no doubt that it is stressful to be exposed to substantial losses from spread betting. Nonetheless, I find that Dr Sekhon remained in control of his own decisions throughout. He made his own decisions for reasons which appeared to him to be good ones. It is also relevant that Dr Sekhon was not an inexperienced or otherwise vulnerable person.
180. This is plainly not a case for saying that Dr Sekhon should bear all of the responsibility for his losses. Indeed, the concept of 100% contributory negligence has been described as illogical : See Clerk & Lindsell on Torts, 19^th Edition, at paragraph 3-33 and footnote 46. Further, Spreadex must bear some responsibility for the losses because one part of the purpose of COB 7.10.5 R was to require Spreadex to protect Dr Sekhon from himself, at any rate in relation to the giving of credit to Dr Sekhon.
181. I do not find the decision that the prisoner in Reeves was 50% contributorily negligent offers any guidance as to the right percentage in this case. It is not even an appropriate starting point for my assessment. The facts of that case are fundamentally different from those of the present.
182. It seems to me that Spreadex's responsibility for the loss should not be less than 10%. To fix a lower percentage in relation to the period before 5^th October 2006 would appear to give inadequate attention to the purpose of COB 7.10.5 R which was to protect Dr Sekhon from being given credit in inappropriate circumstances. It also seems to me that Spreadex's responsibility for the loss should not be above 20%. As I have indicated, I regard Dr Sekhon as principally responsible for what happened. Further, the purpose of COB 7.10.5 R was not to prevent Dr Sekhon from engaging in spread betting; it was to prevent him being given credit in inappropriate circumstances. Spreadex could have given him credit and avoided a breach of COB 7.10.5 R if it had complied with COB 7.9.3 R and, if it had complied with COB 7.9.3 R, it is likely that Dr Sekhon would have acted in the same way as he actually did act between 14^th September 2006 and 5^th October 2006. This means that Dr Sekhon's contributory negligence should be expressed as between 80% and 90%. My ultimate conclusion is that the fairest assessment should be at the mid point between those figures i.e at 85%.
183. For the reasons given earlier, Spreadex is liable to Dr Sekhon for the deterioration in his open positions in relation to the period from 14^th September 2006 to 5^th October 2006 but subject to Dr Sekhon being 85% contributorily negligent for that deterioration.
184. If I had decided that Spreadex had not taken reasonable steps to classify Dr Sekhon as an intermediate customer on 5^th October 2006 or that the steps they had taken were not material on the issue of causation, then I would have to consider whether the same percentage of 85% contributory negligence was attributable to the period from 5^th October 2006 to 22^nd November 2006. For that period, in view of the facts surrounding the acceptance by Dr Sekhon that Spreadex should not owe any duty to him under COB 7.10.5 R, but in order to be consistent with the (hypothetical) finding that Spreadex's breach of duty contributed to his losses after 5^th October 2006, I would have concluded that Dr Sekhon was responsible for his own actions to the greater extent of 95%.

The overall result

185. Spreadex is liable to Dr Sekhon for the deterioration in his open positions in relation to the period from 14^th September 2006 to 5^th October 2006, but subject to Dr Sekhon being 85% contributorily negligent for that deterioration. I will leave it to the parties to calculate the figures which are appropriate to reflect this finding.
186. Following judgment, I will hear counsel as to the form of the order which is appropriate to give effect to this judgment and, indeed, on all matters arising.