BANK LEUMI (UK) PLC V WACHNER

[2011] EWHC 656 (Comm), Queen's Bench Division, Commercial Court, Mr Justice Flaux, 22 March 2011

Banking - Foreign exchange options - Defendant making large losses on trading in reverse knock-in options - Whether bank in breach of statutory duty under section 150 of the Financial Services and Markets Act 2000 in classifying the defendant as an "intermediate" trader - Negligent misrepresentation - Duty of care

The defendant had traded foreign exchange options with Bank Leumi USA (BLUSA) since 2003. In 2005 she set up another facility, with Bank Leumi UK (BLUK) - she was classified as an intermediate customer and had direct access to BLUK's Dealing Room. She terminated the BLUK trading in December 2005 due to losses but maintained the BLUSA trading. From July 2007 onwards, the BLUSA Agency Agreement operated, which enabled the defendant to trade under her facility with BLUSA not only during New York hours, but also during London hours through the dealing room at BLUK, until New York opened at 12.30 London time each day. The defendant made substantial losses on transactions known as reverse knock-in options (RKIs) in the sum of €13,434,947.98. In the present proceedings by BLUK to recover that sum, the defendant argued that: (1) BLUK failed properly to categorise or classify her under the relevant Financial Services Authority Conduct of Business Rules by treating her as an intermediate customer, and that she should have been classified as a private customer so that she would not have been able to trade in RKIs - BLUK was thus in breach of statutory duty and liable in damages under section 150 of the Financial Services and Markets Act 2000; (2) BLUK made a series of misrepresentations to her about RKIs and how she would be allowed to trade them and the risks associated with them, which induced her to enter into the various options, so that she was entitled to damages under the Misrepresentation Act 1967; and (3) BLUK owed her a duty of care and gave her negligent advice about RKIs. The court rejected all of these defences.