Donal Carey v Paul Sweeney (Trading as Paul Sweeney Financial Services) Cantor Fitzgerald Ireland Ltd
| Jurisdiction | Ireland |
| Judge | Mr. Justice Garrett Simons |
| Judgment Date | 27 October 2021 |
| Neutral Citation | [2021] IEHC 620 |
| Docket Number | 2016 No. 3533 P |
| Year | 2021 |
| Court | High Court |
[2021] IEHC 620
2016 No. 3533 P
THE HIGH COURT
Esmonde Keane SC and Alan Keating for the plaintiff instructed by Augustus Cullen Law LLP
Paul Gardiner SC, John Breslin SC and Stephen B Byrne for the second named defendant instructed by Maples and Calder (Ireland) LLP
JUDGMENT of Mr. Justice Garrett Simons delivered on 27 October 2021
This judgment is delivered in respect of an application for leave to amend pleadings. The plaintiff seeks to amend his statement of claim to elaborate upon a plea of breach of statutory duty. Whereas the original version of the statement of claim had pleaded breach of statutory duty in general terms, no details of the specific statutory provisions said to have been breached had been provided.
The application for leave to amend is opposed solely on the basis that the proposed amendments fail to disclose a reasonable cause of action. It is submitted that an application to amend pleadings is subject to a threshold analogous to that governing an application to dismiss proceedings as bound to fail.
In circumstances where this matter comes before the court on the basis of an interlocutory application for leave to amend the statement of claim, it is neither necessary nor appropriate to make any findings on disputed facts. The summary which follows is based on the case as pleaded in the statement of claim, and on documents the content of which is not in dispute. (The legal effect of these documents is very much in dispute).
The plaintiff is a businessman. As of 2011, the plaintiff had accumulated significant savings and wished to invest same. The first named defendant is what is described as a “ financial intermediary”. The plaintiff pleads that he relied upon the advice, expertise and skill of the first named defendant.
The first named defendant introduced the plaintiff to a firm of stockbrokers known as “ Dolmen Stockbrokers”. The second named defendant has since taken over Dolmen Stockbrokers. It is agreed, at least for the purpose of this application, that the second named defendant would be responsible for any wrongdoing on the part of Dolmen Stockbrokers in respect of the provision of financial services to the plaintiff.
For ease of exposition, the plaintiff will be referred to as “ the Investor”; the first named defendant as “ the Financial Intermediary”; and the second named defendant as “ Dolmen Stockbrokers” or “ the Stockbrokers”. Save where necessary to do so, no distinction will be drawn between Dolmen Stockbrokers and Cantor Fitzgerald Ireland Ltd. It should be noted that a related entity, Cantor Fitzgerald Europe, had an involvement in 2011 in providing a particular financial instrument but no claim arises out of this.
The Investor had made an application to Dolmen Stockbrokers in February 2011 to open what is described as an “ advisory account”. The Investor completed and signed a number of forms and letters as part of this application process. The documentation has been exhibited in a detailed affidavit filed by the senior legal and compliance manager of the stockbrokers.
The documentation includes, inter alia, an application form filled in and signed by the Investor in respect of the opening of the advisory account with Dolmen Stockbrokers. This application form is dated 21 February 2011. The Investor expressly confirmed and acknowledged that he had been presented with, and had an opportunity to consider, certain specified documentation including information on financial instruments.
As part of the application form, the Investor indicated that he would consider investing in equities and derivatives including CFDs, i.e. contracts for difference.
The Investor, in that part of the application form which described his attitude to risk, self-identified as a “ risk taker” by ticking the following box.
“Risk Taker
You are willing to accept high volatility levels and fluctuations in the value of your investments for the prospect of higher returns. You acknowledge that in light of the unpredictable nature of stock markets your investment may carry an increased risk of potential loss in excess of the initial amount invested.”
The Investor also ticked a box which indicated that people who knew him would describe him as an “ aggressive risk taker”.
Section 6 B of the application form contained a series of questions in respect of “ Derivatives”. The first two questions, which concerned the purpose for which the client might consider using derivatives, remained unanswered, with neither the “ Yes” or “ No” box ticked.
In response to a request to indicate his investment experience in relation to CFDs, the Investor ticked the box marked “ NONE”. Surprisingly, the Investor then replied to the question “ How many years have you been investing in these instruments?” by writing in the answer “ 5 yrs”.
The investor acknowledged receipt of a document entitled “ Advisory Terms & Conditions Booklet”. The Investor is categorised in this booklet as a “ Retail Client”. This categorisation is stated to afford the “ highest available level client protections” on his account.
The terms and conditions booklet contains the following statement in respect of “ suitability”.
“Advisory Service – Suitability
In order to offer you an advisory investment service Dolmen must obtain sufficient information to ensure that advice given to you is suitable. Specifically Dolmen must obtain information relating to your investment knowledge and experience, investment objectives, attitude to risk, financial situation and investment preferences.
If you do not provide this information to Dolmen we may not be in a position to recommend a service or transaction or offer investment advice. Dolmen will rely on information provided by you unless it is manifest that the information is out of date, inaccurate or incomplete. It is your responsibility to inform us so we can ensure that investments on your account remain suitable.
Dolmen will manage your account in accordance with the investment aims of which you have advised us. If our account set-up documentation does not reflect your needs or objectives, please set these out separately in writing to us. Dolmen will continue to manage and trade the account in accordance with the information provided until such time as the information is amended in writing. If there are any limits or restrictions you wish to place on your account you must write to us to inform us – no amendment will be effective until such time as Dolmen is in receipt of your written instruction.”
There is some suggestion in the affidavit filed by the compliance manager that the contract between Dolmen Stockbrokers and the Investor was for “ execution only” transactions. It is not immediately apparent from any of the documentation which has been exhibited that this was, indeed, the position. The terms and conditions booklet refers to both types.
At all events even in the case of an “ execution only” transaction, the terms and conditions booklet states as follows.
“Where you initiate or propose to transact on an execution only basis in a complex instrument Dolmen are required to consider your knowledge and experience in the context of the instrument demanded to determine whether the instrument is appropriate for you. If on the basis of the information to hand Dolmen considers that the instrument is not appropriate for you we will warn you. In certain cases if we consider that it is not in your best interests we will refuse to proceed with the transaction. Any determination by Dolmen in this regard (including any warning or refusal to deal) is not investment advice and should not be relied on as such. Dolmen will not be assessing the suitability of the investment for you. Our obligation is limited to assessing your knowledge and experience.”
*Emphasis (italics) supplied.
The terms and conditions booklet contains, inter alia, the following information on “ Complex financial instruments”.
“The following information does not disclose all the risks and features of trading in derivative products such as CFD's, warrants, futures and options. The price of derivatives products, are directly dependent upon the value of one or more investment instruments. Volatility in these underlying instruments may have a profound effect on the value of such derivative products. Trading in derivatives is not suitable for many retail clients. You should not deal in derivatives unless you understand the nature of the transactions you are entering into and the extent of your exposure to risk and potential loss.
You should carefully consider, and if necessary, seek professional advice to determine whether trading is appropriate for you in the light of your experience, objectives, financial resources and other relevant circumstances. 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 information:
[…]
A CFD provider requires margin in the form of cash or other acceptable collateral, before a position in a CFD can be taken. This is called the ‘initial margin’. The amount of margin is small relative to the underlying value of the contract so that the transactions are ‘leveraged’ or ‘geared’. If the market moves against your position or margin levels are increased, you may be called upon to pay substantial additional funds on short notice to maintain your position. If you fail to comply with a request for additional funds within the time prescribed, your position may be liquidated at a loss and you will be liable for any resulting deficit. When you go short a CFD, (e.g. have a short position in an...
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Donal Carey v Paul Sweeney (Trading as Paul Sweeney Financial Services) Cantor Fitzgerald Ireland Ltd
...should be made costs in the cause or be reserved to the trial judge Facts: The principal judgment was delivered on 27 October 2021: [2021] IEHC 620. The plaintiff, Donal Carey, was successful in its application seeking leave to amend its pleadings. The application had been contested by the ......