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Bank Leumi (UK) v Wachner

Posted on 22/03/2011 · Posted in Financial Litigation

Classification of customers, exclusion of liability

The Claimant was Bank Leumi (UK) and the Defendant was Ms Wachner who carried out foreign exchange trading with the Claimant from 2005. Under her trading facility with the Claimant, the Defendant was classified as an intermediate customer. The classification meant that she had direct access to dealers in the Claimant’s Dealing Room.

In September 2008 the Defendant traded options including reverse knock-in options.  She also transferred positions from other banks to the Claimant. The collapse of Lehman Brothers and the volatility of the market affected Ms Wachner’s marked to market positions and the Claimant made a series of margin calls. Ms Wachner’s position deteriorated and there was a loss on her account in access of €13million. The Claimant sought that sum plus interest.

Ms Wachner claimed that the Claimant incorrectly categorised her as an intermediate customer and that if they had not done so she would never have been able to trade in the options that had resulted in the loss. She also claimed that negligent advice had been given.

The Court found it necessary to distinguish between pre- and post-November 2007. Pre-November 2007 it did not matter that objectively the classification of a customer was wrong, provided that the bank took reasonable steps to arrive at their conclusion. A failure to comply with one’s own compliance procedures would not alone show that reasonable steps were not taken.  On the facts the lady was quite capable of self-assessment. Post-November 2007 the bank had no reason to think that the Defendant’s circumstances had changed and that new classification might be required.

Finally, as the Defendant had agreed in the documentation that she relied on her own judgment and that any recommendation was incidental, she could not now deny that that had been the case (this depended upon her classification as an intermediate investor being upheld).

Link: Bank Leumi (UK) v Wachner [2011] EWHC 656 (Comm)

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