The appellant traded in financial indices through the respondent spread betting company. The company took two forms of security, an initial payment by way of security, and a sum covering any current trading positions. The trader made losses, and the company sought to recover the sums due under both conditions. The appellant appealed saying that the contractual provisions were in respect of the one security, and sums could not be recovered against each head.
Held: The question turned on the construction of this contract. The behaviour of the parties was not greatly to the point. However, neither the contractual terms nor the behaviour of Spreadex were consistent with their assertion that two securities were taken and which were additive. By demanding from the appellant more than was due, and closing his contracts without justification, the claimants put themselves in breach of contract, and the appeal succeeded.
Rix LJ explained spread betting: ‘SPREAD BETTING
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 andpound;1 for every point that the index exceeds 10010. If one sells and the market falls, one stands to gain andpound;1 for every point that the index drops below 9990. If, however, one calls the market wrong, then one will stand to lose andpound;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 andpound;1 for every point the market falls below 9990 and lose andpound;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 andpound;10 for every andpound;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.
Normally, of course, to gain by andpound;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 andpound;1. In effect, one’s andpound;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 andpound;100 to andpound;200 richer or poorer per andpound;1 stake within a matter of hours of his trade. On a trade of andpound;100, those figures become andpound;10,000 to andpound;20,000.
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.’
Judges:
Lord Justice Mummery Lord Justice Rix Lord Justice Neuberger
Citations:
[2005] EWCA Civ 855
Links:
Jurisdiction:
England and Wales
Citing:
Cited – Campbell v The Commercial Banking Company of Sydney PC 1879
The Court held a notice to not be a valid demand because of the overstatement of the debt: ‘where a demand is made for a larger amount than that which is really due, such demand does not do away with the necessity of tendering what is actually due, . .
Cited – ATA and Another v American Express Bank Ltd CA 17-Jun-1998
The Court of Appeal again emphasised the supreme importance of parties working together to identify the real issues between themselves and producing core bundles accordingly. . .
Cited by:
Cited – Spreadex Ltd v Sekhon ChD 23-May-2008
The claimant spread betting company sought payment of sums due for bets from the defendant who said they owed him money under the 2000 Act.
Held: Morgan J observed as to the interpretation of the contract: ‘Accordingly, in my judgment, the . .
Cited – IG Index Plc v Leung-Cheun and Others QBD 17-Aug-2011
The claimants sought payment from the defendants under spread bets placed by them. The defendants counterclaimed saying that they had suffered greater losses after the claimants had failed as required to close out open bets.
Held: The claim . .
Lists of cited by and citing cases may be incomplete.
Contract
Updated: 01 July 2022; Ref: scu.228413