In TF Global Markets (UK) Ltd (t/a Thinkmarkets (“TF”), R (On the Application Of) v Tan & Ors [2020] EWHC 3178, the High Court quashed a decision of the Financial Ombudsman Service (the “FOS”) to uphold complaints against TF, a trading platform operator, which had withheld funds of users suspected of market manipulation. HHJ Karen Walden-Smith, sitting as a Judge of the High Court, found that the FOS had erred in its final decision that the platform’s users had not been engaged in arbitrage trading: this was not a decision for the FOS to make. The matter was remitted to the FOS to determine whether TF exercised its discretion under the contract reasonably.

TF suspended certain users from its platform for suspected market manipulation. TF operates a trading platform for dealing in investments, including forex and derivatives. Sometimes, prices displayed on TF’s platform can lag behind the market because the underlying technology cannot transmit the information with perfect simultaneity. This presents “price latency and arbitrage opportunities”. In 2017, on suspicion of market manipulation using trading algorithms and “hedge-faking scalper robots” to identify differences between the price displayed on the platform versus the actual market price, TF suspended the accounts of thirty users, and withheld funds from three users engaged in forex trading on the platform (the “Interested Parties”), citing a breach of its terms of business. The Interested Parties complained to the FOS, which upheld the complaints.

The FOS determined that the conditions for suspension had not been satisfied. TF argued that its terms allowed it to exercise judgment as to whether arbitrage activities had taken place, subject only to the Braganza duty not to act arbitrarily, capriciously or unreasonably: Braganza v BP Shipping Ltd [2015] UKSC 17. The FOS decided that TF’s contractual discretion arises only where arbitrage based on price latency has in fact taken place, which was a question of fact for the FOS itself to determine. It concluded that the alleged arbitrage did not occur.

TF sought judicial review. TF argued that the FOS had exceeded the constraints of its role and had wrongly construed TF’s terms of business. HHJ Karen Walden-Smith agreed. She held that the FOS had failed to read the relevant provision in the context of the entire contract, which was drafted to give TF contractual discretion to determine whether the conditions for sanctions were satisfied. The Judge cited Lord Hodge in Wood v Capita Insurance Services Limited [2017] UKSC 24, stating that it is the court’s task “to ascertain the objective meaning of the language used… the court must consider the contract as a whole”.

The High Court quashed the decision of the FOS and remitted the matter to the FOS to determine whether TF had acted reasonably. While the Judge found that the FOS had incorrectly interpreted the contract in deciding that the Interested Parties had not engaged in arbitrage trading, she said that it was not for the Court to assess whether TF had acted reasonably. Instead, the case was remitted to the FOS, to consider whether TF had exercised its discretion reasonably and in accordance with the Braganza duty, which will require the FOS to look at the evidence available to TF when it resolved to close the accounts and withhold profits from the Interest Parties.

The High Court offers financial institutions an avenue to challenge FOS decisions in the form of judicial review. The FOS will determine a complaint by reference to what is, in their opinion, fair and reasonable in the circumstances of the case. In considering what is fair and reasonable, the FOS must consider the relevant law, regulations and codes of practice, as well as good industry practice in effect at the relevant time: DISP 3.6.1R; 3.6.4R. Financial institutions should assiduously review the decisions of the FOS for compliance with this standard. In this case, the FOS erred in its reading of the applicable contractual terms.

Michael Munk, Associate in London and Scott Miller, Trainee Solicitor in London

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