Client fails to hold investment company liable despite employees' 'influence'

Singapore's High Court recently dealt with a case involving a dispute between an experienced investor and his former investment broker, INTL FCStone Pte Ltd, over the liquidation of his silver futures contracts in a rapidly falling market.

The decision sheds light on the rights and obligations of parties in a margin trading relationship and the consequences of failing to meet margin calls in volatile market conditions.

Fahd Siddiqui, an accredited investor, held 88 lots of silver futures with INTL FCStone. On March 14, 2020, INTL FCStone issued a margin call to Siddiqui via email, requiring him to provide additional collateral.

Despite Siddiqui's contention that the margin call was only made on March 16, 2020, the court found that the margin call was properly issued on March 14, 2020.

As the price of silver fell significantly on March 16, 2020, Siddiqui and INTL FCStone's employees, Alie and Song, had various phone conversations regarding the sale of his contracts. By the end of the day, all 66 of Siddiqui's contracts were sold.

Employer’s vicarious liability

Siddiqui claimed that he was subjected to undue influence, duress, and misrepresentation by INTL FCStone's employees, which led to the liquidation of his contracts. He also argued that there was an oral agreement allowing him to settle the margin call by March 18, 2020.

Budhrani further said that the employer breached their agreements. Specifically, he said that “it was agreed that [INTL FCStone] would act as a broker for [him]. The essence of the agreement … was an execution service only contract (‘Execution Only Contract’)”.

He said that the parties made the Execution Only Contract, under which its employees “had no right to interfere with Budhrani’s decisions in respect of the disposal and retention of his contracts.”

He said the employees “breached the Execution Only Contract by causing or procuring Budhrani to sell the 66 Contracts by 16 March 2020, notwithstanding that he had until 18 March 2020 to settle the margin call.”

“Budhrani pleads that, as the employer of Ms Alie and Ms Song, INTL FCstone is vicariously liable for damage to him caused by [their] actions or omissions, carried out in the course of their employment,” the court’s decision said.  

The High Court’s decision

The Court rejected Siddiqui's claims, finding that there was no oral agreement between the parties and that the employees did not make the alleged misrepresentations.

The Court also determined that the defendants did not exercise undue influence or duress over Siddiqui, and they were entitled to liquidate his contracts under the terms of their agreement and the "20% Policy," which allowed for immediate liquidation if the equity in Siddiqui's account fell below 20% of the initial margin.

INTL FCStone counterclaimed for losses and damages amounting to US$198,222.60, plus interest, arising from Siddiqui's breach of their agreement. The Court found in favor of INTL FCStone, as Siddiqui failed to object to the daily statements reflecting the deficit in his account within the stipulated timeframe.

The Court emphasized that as an experienced investor, Siddiqui should have understood the implications of a rapidly falling market and a margin call on his margin trading account.

The liquidation of his contracts was a result of his own actions under extreme market pressure, and the employees acted within their contractual rights. Consequently, Siddiqui's claims were dismissed, and INTL FCStone was entitled to judgment on its counterclaim.