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Article | FI Observer

Alleging a duty of care in times of volatility

Financial, Executive and Professional Risks (FINEX)|Mergers and Acquisitions

By Claire Nightingale | September 9, 2020

This article explores a recent decision made by the English High Court which considered whether intermediaries can be held liable for losses arising from market volatility.

A recent decision of the English High Court makes useful reading for Financial Institutions and their professional indemnity insurers, confirming (again) that the Court will pay close attention to contractual terms of intermediaries and will not be keen to imply duties of care that fly in the face of those terms. It is useful to note that Financial Institutions are unlikely to be found liable for losses arising from market volatility as long as their contractual terms clearly state otherwise.

Target Rich

In this matter1 the loss arose from a period of volatility in 2015 known as the “Swiss Flash Crash”, after the Swiss National Bank unexpectedly announced the removal of a cap on the value of the Swiss Franc as against the Euro. The claimant alleged that an FX trading platform was liable for losses as a result of late execution of a stop loss order in the ensuring period of volatility.

The claimant made a number of arguments in its quest to establish an actionable duty of care against the trading platform:

  • That the terms of business agreement (the Agreement) between the parties incorporated an implied term to execute orders. This argument failed. The court noted that conversely the Agreement expressly stated that an instruction would not constitute a binding contract and that the order execution policy did not form part of the Agreement. An entire agreement clause effectively reinforced this view.
  • That the Agreement incorporated the obligations for best execution under the Financial Conduct Authority’s Conduct of Business Sourcebook (“COBS”) rules. This argument failed. It had already been established in English law that the only route to breach of the COBS rules rests under s 150/138 A FSMA which affords a cause of action by a private person. A private person for these purposes does not include those carrying on business2. This in itself is consistent with the Markets in Financial Instruments Directive (MiFID) which does not require member states to provide protection for consumers by means of a direct cause of action. References in the Agreement to acting in compliance with MiFID or to the claimant being afforded regulatory protections were insufficient to imply a cause of action that was not expressly set out.
  • Lastly that English law implied a concurrent duty of care to comply with the COBS rules. This argument failed. There was no parliamentary intention to confer such a right other than to a limited class of people3.

Although the case failed for the reasons set out above, the court also gave useful commentary on the enforceability of a force majeure clause. The relevant clause in this case provided that the defendant’s obligations were suspended during an “Exceptional Market Event”, which included “excessive volatility and excessive loss of liquidity”. The court accepted that this provision applied on the facts in this case and that the terms was reasonable under the Unfair Contract Terms Act 1977.

In current times of uncertainty and market volatility it is helpful to note that terms of business continue to hold up to scrutiny and the English Court is reluctant to interfere in them. Whilst every case turns on its facts, Financial Institutions insurance underwriters can perhaps take comfort that well-run firms, with well drafted contractual protections, are well placed to defend litigation. As the insurance market hardens, Financial Institutions themselves are advised to start their renewal process early and to discuss with their broker how best to distinguish themselves as a “good risk”.


1 Target Rich International Limited v Forex Capital Markets Limited [2020] EWHC 1544(Comm)

2 Financial Services and Markets Act 2000 (Rights of Action) Regulations (SI 2001/2256), at regulation 3

3 Green & Rowley v Royal Bank of Scotland plc [2013] EWCA Civ 1197


Global Head of FINEX Financial Institutions Claims Advocacy & TPL

GB Head of FINEX Financial Institutions

Global Head of FINEX Financial Institutions

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