The High Court has ruled on an application for, amongst other things, damages for alleged breaches of the COBS 2.1 (Client’s Best Interests) and COBS 11.2.1 (Best Execution).
The Claimant had opened an Account with the Defendant, an FCA authorised provider of Spread Betting Services, through which to open and close bets. Spread Bets are specified investments due to being contracts for differences.
Sections 150 and 138D(2) FSMA provide, in similar terms to each other, that a private person who suffers loss as a result of a breach of the FCA’s rules may bring an action against the authorised person who committed the breach. The Claimant alleged that the Defendant repeatedly failed to apply Best Execution when closing the Claimant’s positions following an order placed by its real-time closing system, by delaying and/or allowing a delay in executing the order.
The court held that there had been no breach of COBS because there was no duty on the Defendant to close out a customer’s Position immediately either when the customer becomes in default or significant default. Further, COBS 2.1 and 11.2.1 do not apply to the antecedent decision of whether to close a Position, but rather to the mechanics of carrying out that closing. The court also noted that any claims based on fiduciary duties or duties at common law would fail for the same reason. Finally, the court also found that there was insufficient evidence to establish that the conduct of the Defendant was unreasonable, so there would not have been a breach even if the duties contended by the Claimant did apply.