A spread betting company owed no contractual duty to protect a customer from his own gambling addiction or considered choices. “Very clear express words” would be required to give rise to a contractual duty to protect parties from inflicting economic harm on themselves: Aryeh Ehrentreu v IG Index Ltd [2018] EWCA (Civ) 79, 31 January 2018
The appellant, Ehrentreu, was a customer of the respondent, IG, a spread betting company. The parties’ relationship was governed by a Customer Agreement, under which the customer had placed substantial spread bets on market movements over the course of several years.
Under the Customer Agreement, IG was entitled to demand deposits and margins from the customer in certain circumstances. The Agreement included a provision that the customer “acknowledged” that, where he had “failed to pay a deposit or margin call in respect of one or more Bets five business days after such payment becomes due”, IG was “obliged to close out such Bets”.
In the summer of 2008, the customer placed bets on the movement of the RBS share price. The bets went disastrously wrong and in September 2008 IG began making margin calls on the customer. During this time the customer pleaded with IG to keep his bets open. When IG eventually closed the bets in October 2008, the customer’s account was over GBP 1.2 million in debt.
The customer defaulted on a settlement agreement entered into between the parties for repayment of the debt, and IG commenced a claim for the outstanding balance. In his counterclaim – the subject of this appeal – the customer claimed that IG was in breach of the Customer Agreement in not closing out his bets sooner, as well as in breach of its statutory duty, and that this caused him to suffer substantial loss.
The judge at first instance held that IG was not in breach of its statutory duty. That finding was not appealed. As for the breach of contract claim, the judge concluded that IG was obliged under the Agreement to close out the customer’s bets and had failed to do so. However, IG’s breach of contract was merely the opportunity for the customer’s loss, not the cause of it. The cause of the customer’s loss was his decision to continue with his bets. The judge also concluded that the customer had wholly failed to mitigate his loss for the same reasons that had led him to his conclusion on causation. The customer appealed the rulings on both causation and mitigation.
No contractual duty
The Court of Appeal referred to the duty of care in tort to protect people from causing harm to themselves. It cited Calvert v William Hill Credit Ltd [2008] EWHC 454 (Ch), a case concerning a bookmaker and a gambling addict, in which the court stated that “the recognition of a common law duty to protect a problem- gambler from self-inflicted gambling losses involves a journey to the outermost reaches of the tort of negligence, to the realm of truly exceptional.”
Having emphasised the rarity of the duty in tort, the Court of Appeal accepted IG’s submission that the position must be even more exceptional in the law of contract. The Court had not been referred to any reported case in which a party had been held to be under a contractual duty to protect a customer against himself.
The Court considered whether the provision requiring IG to close out bets was intended to protect the customer. If it was, then it would follow that its breach caused the loss suffered by the customer.
The Court found that the provision of the Customer Agreement requiring IG to close out bets was not intended to protect the customer. Rather, the use of the words “you acknowledge that” more naturally conveyed that the customer acknowledged that what followed was a provision essentially for the protection of IG. The meaning of “we are obliged” was “we will have to do it”, making clear to the customer what would happen if he failed to pay a deposit or margin call, in order to ensure that he had no cause for complaint if IG closed his bets.
The Court held that “very clear express words” would be required before it could conclude that a party had such an exceptional duty to protect others from inflicting harm on themselves. The provision in the Customer Agreement did not contain such express words and was simply not intended to protect the customer against his own gambling addiction or considered choices.
Lack of causation and failure to mitigate loss
In view of the circumstances, the Court of Appeal held that the judge was entitled to conclude that IG’s breach of contract was merely the opportunity for the customer’s loss and not its cause. The cause was, rather, the customer’s decision to remain in the market. In addition, the judge had not erred in concluding that the customer had failed to mitigate his loss for the same reasons as he had concluded that the customer’s actions were the cause of his loss. In the court’s view, adopting IG’s submission, “causation and mitigation are two sides of the same coin”.
COMMENT
This case confirms that a duty to protect others from inflicting harm on themselves is rare in tort law and even more exceptional in contract law. Very clear express words in the contract spelling out the duty would be required before the court could conclude that such a duty arose. This decision will be welcomed by spread betting companies and indeed other financial institutions with customers who might otherwise attempt to rely on an alleged contractual duty to recover their losses.
