FX Terms and Conditions – Abdulali Jiwaji and Henry Reid

By Abdulali Jiwaji

Partner Abdulali Jiwaji and Paralegal Henry Reid examine a recent case acknowledging the possibility of implying a duty of good faith into a brokerage’s Terms of Business promises increasing judicial scrutiny for the FX industry, published in FX-MM.

Abdul and Henry’s article has been published in the October 2017 issue of FX-MM. 


In a recent case concerning allegations of abusive FX trading by a customer, the English courts gave an important clarification on when an online brokerage would be subject to a duty of good faith.

The claimant, an FX retail customer, sought recovery of trading profits from her online brokerage, FXCM, after it revoked profitable Gold and USD CFD trades that it deemed were placed in an “abusive” manner. The Judge comprehensively dismissed the breach of contract claim, finding that FXCM’s Terms of Business (“TOB“) were not subject to an implied duty of good faith. However, the decision is significant as it considers the circumstances in which the courts will imply a term into a contract that, when exercising a contractual discretion affecting both parties, a party must exercise that discretion reasonably.

This duty was first implied in Braganza v BP Shipping Ltd [2015] UKSC 17, a Supreme Court decision which was a significant development in English contract law. The existence of the duty (the “Braganza Duty“) raises the spectre of the court delving into whether a party’s decision-making process was reasonable, that it considered all relevant issues and to ensure it was not acting in an “arbitrary, capricious or irrational” manner.


The claimant, Mrs Shurbanova, sought recovery of c.£460k in trading profits revoked by her online broker, FXCM, on the basis that FXCM believed the “Trades” constituted abusive trading as defined by its TOB.

Shurbanova had earned the profits by employing an algorithmic trading strategy based on US Non-Farm Payroll Data (NFPD) where, upon strong results, she simultaneously entered CFD positions to buy USD while selling Gold.  This scheme relied on “a very fast news feed” (Forex Trading Gun) to place trades and close them out at the height of any price discrepancy between FXCM’s ‘slow’ retail price feeds (its “DD Platform“) and ‘fast’ price feeds, which reflected the prevailing market. FXCM alleged this trading strategy constituted a form of Latency Trading and so the Trades were placed in an abusive manner.

In answer to Shurbanova’s allegations that the revocation of the Trades was in breach of contract, FXCM contended, inter alia, that:

  1. The Trades, which opened at significantly “off market prices”, constituted a “manifest error” within the meaning of its TOB, which it was entitled to correct, amend or revoke altogether; and
  2. Further or alternatively, the Trades were abusive and so FXCM was entitled to revoke them without notice.

Shurbanova disputed these contentions and further argued that FXCM owed and breached a duty of good faith when handling the Trades.

The Decision

Despite finding that the quoting of significantly off market prices did not constitute a “manifest error” the court found that the Trades were abusive and so amenable to revocation. The court found that Shurbanova’s trades constituted a form a Latency Trading – which relied on the discrepancy in price between FXCM’s platforms and “were placed with the knowledge of the outcome” and so a form of “classic abusive trading.” It also agreed with FXCM’s assessment that Shurbonova’s accounts were a front for her husband and son, both highly sophisticated FX traders known to have operated schemes exploiting latency issues to generate near guaranteed income.

On the question of whether Shurbanova’s trading techniques were abusive, the court rejected the suggestion that a very large profit was, in itself, indicative of abusive trading. Instead, the court found that it was the context in which such profits were made that was important for deciding whether abusive trading had occurred. From looking at FXCM’s global blotter the court identified the following characteristics of the Trades as “red flags” for abusive trading:

  1. The Trades were, with a gross value of c.USD$130m, unusually substantial in nature for a non-sophisticated customer.
  2. The Trades, which were opened 1-2 seconds after the release of the NFPD and were closed out 34 seconds later, suggested a deliberate trading practice.
  3. The Trades were executed using numerous very small orders.
  4. Shurbanova sought to withdraw the trading profit entirely, exceeding FXCM’s trigger point of USD $75,000.

The court considered whether FXCM was subject to a Braganza Duty to Shurbanova in relation to the manifest error and abusive trading clauses.

First addressing the manifest error provisions, the court found that it was for FXCM to determine whether there had been a manifest error. This discretion gave rise to an inherent conflict of interest given that it would be in FXCM’s financial interests to find that a manifest error existed (and so revoke the Trades). In light of this conflict, the court found that (but for the express requirements of good faith present in the TOB) the manifest error provisions would have been subject to the Braganza Duty.

Conversely, the court found that the abusive trading clause was not a contractual discretion attracting the Braganza Duty but a pure contractual power. This meant that it was for FXCM to determine whether the Trades were abusive as a matter of fact.


As one would expect, the decision confirmed that it is possible for a Braganza type duty to be implied in to FX Terms of Business. For customers, the possible existence of the Braganza Duty provides an opportunity to have courts review adverse decisions involving the exercise of discretion.

The decision is significant for brokers in that, in some cases, they will be expected to show that they have used “a proper process for the decision in question.” More positively for brokers was the court’s decision that a Braganza Duty could not be implied in relation to the abusive trading provisions.

Also of positive news for online brokers will be the finding that the Trades were deemed abusive. The decision provides helpful clarification as to how it would approach such questions going forward. The court will look to the nature of the trades, how they were made and the context in which they were made when assessing whether such trades are abusive.

One point that was not considered was the question of whether FXCM was subject to a wider obligation to act reasonably and/or in good faith in respect of the Trades (because the trades were deemed abusive).  It is anticipated that this point will be raised in future cases and a finding in favour of a claimant on this point could have far reaching consequences for the industry and the general treatment of customer orders.

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