Duties of brokers liquidating positions on behalf of clients in state of default

In the current economic climate, brokers will find the decision of the High Court in Euroption Strategic Fund Limited v Skandinaviska Enskilda Banker AB [2012] EWHC 584 (Comm) of considerable interest, since it considers the duties of a broker who is conducting a close out and liquidating the position of a client who is in a state of default, in this case for failure to meet margin requirements. 

The Court ruled that:

• the services which the broker had contracted to provide to the client did not include:
  • the imposition of limits under the contract
  • a refusal to carry out instructions pursuant to a contractual discretion, and
  • the exercise by the broker of a contractual right to close out a position.
• the implied term requiring services to be carried out with reasonable care and skill imposed by section 13 of the Supply of Goods and Services Act 1982 applies only to agreed services provided under a contract for services; it does not extend to the exercise of rights and obligations under the contract
• although the point was not argued in this case, Gloster J referred to previous decisions in which the Court had concluded that the best interests and best execution rules in COBS did not apply
• (absent express provisions in the contract) there is no duty of care or duty to conduct the liquidation to the highest possible professional standards required in the circumstances
• the close out right affords the broker considerable discretion and is subject to limitations of good faith and rationality only.