Euroption Strategic Fund Limited v. Skandinaviska Enskilda Banken AB, [2012] EWHC 584 (Comm) (2024)

22. With effect from May 2008, TSL executed equity index options on various global financialexchanges on behalf of Euroption. An equity index option is an option whose underlying instrumentis a particular exchange equity index, for example the UK FTSE 100. Other indices traded on behalfof Euroption on exchanges were the CAC 40 index (a weighted average of the leading 40 shareslisted on the Paris Bourse (now Euronext Paris)), the DAX 30 index (a weighted average of theleading 30 shares listed on the Frankfurt stock exchange) and the Eurostoxx 50 index (a weightedaverage of the leading 50 Eurozone shares listed on various Eurozone stock exchanges). The tradesthat were executed by TSL on behalf of Euroption were then given up to SEB for clearing.

23. Exchange traded derivatives based on equity indices essentially fall into two categories, linear andnon-linear. The most common form of linear derivative is a futures contract based on an equityindex. Such a contract is in essence an agreement between two counterparties to exchange paymentsbased on the value of the specific index reached on a specific date - the expiration date. Such acontract is linear first because the profits and losses are entirely symmetric; and second becausethere is a one for one relationship between the movement in the level of the index and the level ofprofit or loss attributable to the counterparties.

24. Options, on the other hand, are non-linear. They are either "put" options or "call" options. A putoption gives the holder of the option the right (but not an obligation) to sell the underlying asset (i.e.the index) at a specified price (called the "strike price") at a specified date in the future (called the"expiry date"). A call option gives the holder of the option the right (but not the obligation) to buythe underlying asset (i.e. the index) at the strike price of the option at a specified date in the future.

25. In the case of equity index options, the underlying instrument is the equity index (e.g. the FTSE100). On the exercise of a FTSE 100 option, the instrument is cash settled on the basis of thedifference between the strike price and the level of the index at the point of expiry. Thus, forexample, on the exercise of a FTSE 100 option, if the level of the FTSE 100 on expiry is above thestrike price, the buyer of the call option receives from the seller a sum representing the differencebetween the two. Conversely, if the level of the FTSE 100 on expiry is below the strike price, thebuyer of a put option receives a sum from the seller representing the difference between the two. Inthe circ*mstances, the price of an option, and for that matter the future, is correlated to theperformance of the underlying index. Of course, it is also open to the holder of the option to sell hisoption at any point up to exercise, at the market price.

26. Where the market price of the underlying instrument exceeds the strike price of the call option, or isbelow the strike price of a put option, the option is referred to as being "in the money", since ifprices remain unchanged, the exercise of the option will yield a return. Where the market price ofthe underlying instrument equals the strike price of the option, the option is referred to as being "atthe money". Where the market price of the underlying instrument is below the strike price of thecall option, or is above the strike price of a put option, the option is referred to as being "out of themoney".

27. The non-linearity of option derivatives arises because an option is a right and not an obligation. Theowner of an option can abandon it if the right to buy or sell is not worth using. The maximum losswhich the owner of an option experiences is the original premium (or price) which he has paid tobuy the option, no matter how much the index goes down (in the case of a call option) or how muchthe index goes up (in the case of a put option). By contrast there is no limit to the profits that can beearned by a buyer of an option in the event that the index goes up (in the case of a call option) orthe index goes down (in the case of a put option). Thus the buyer of an option has a strictly limitedloss and a potentially unlimited gain.

28. By contrast, since the seller of an equity index option, (also known as the "writer" of an option), hasan obligation to fulfil the contract, his maximum gain is limited to the premium received from thebuyer. But his losses are potentially unlimited. Thus, on a call option, the theoretical risk to theoption seller is unlimited, because the price of the underlying equity index (for example, the FTSE100) could potentially go to infinity. Similarly, the theoretical risk on a put option is equallysubstantial, as the index could fall to zero.

29. Options, by their nature, are complex financial instruments. The price of an option, known as thepremium, is made up of a number of different elements.

i) The intrinsic value: This is the difference between the strike price and the marketprice of the underlying instrument. The ratio between changes in the value of theunderlying instrument and changes in the option price is measured using a conceptcalled "delta". The delta of an option is dynamic, such that the delta changes as theprice of the underlying instruments moves in comparison to the strike price. The ratioof a change in the delta of an option compared to a change in the value of theunderlying asset is measured using a concept called "gamma".

ii) The volatility of the underlying instrument: in the case of the more volatileinstruments, the price of the option tends to be higher because there is an increased chance that on any one day the market in the underlying instrument will move sharply,so that the option is in the money for a period of time. Volatility is measured using aconcept called "vega". The vega applicable to an option will fluctuate over the life ofthe option.

iii) The period of time remaining before expiry of the option: the longer the periodremaining before expiry of the option, the more valuable the option will be. This isbecause there is a greater chance that, over the life of the option, the market in theunderlying instrument will move sharply so that the option is in the money for a periodof time. This is measured using a concept called "theta". The value of theta falls overthe life of the option.

iv) The impact of a one percent change in either the interest rate or the dividend yieldon the price of an option; this is measured using a concept called "rho".

30. Not surprisingly, these methods of calculating option price sensitivities are referred to as "theGreeks".

31. Since the price of an option is driven by the above factors, all of which change over time, there isno single correct answer in the pricing of an option, and the precise value of an option can be verysubjective, albeit within a narrow bandwith. While there are certain industry-accepted optionpricing models, the most well known being the Black-Scholes model, and these models aregenerally used as the underlying engine behind a trader's approach to pricing, most option traders will take their own, bespoke, approach to pricing, in that they will want to deviate, in a subtle, butnonetheless significant, way, from the results predicted by such models.

32. Traditionally, hedge funds, like Euroption, manage these risks by entering into opposing trades thateliminate or reduce much of the risk associated with the initial position. These trades are known as"hedging" trades, or "hedges", and the process of putting on these trades is called "hedging". Owingto the dynamic nature of option pricing and risks, professional option traders usually usesophisticated mathematical models to monitor the risks associated with the options in which theytrade, to ensure that they are minimising their risks and maximising their profits.

33. In order to manage the risks associated with trading in derivatives, such as futures and options, theinternational financial exchanges insist that their members deposit margin in cash, with the clearinghouse, to reflect the potential risk of an adverse move in their members' positions. Margin isgenerally calculated on a daily basis, and is the proportion of the total market value of the contractwhich the member must pay in cash to cover its exposure.

34. For an option contract, the margin requirement is set by the relevant clearing house. Volatility is asignificant factor in a clearing house's calculation of margin requirements. The higher the level ofvolatility, the greater the possibility of loss, and therefore the greater the margin requirement.

35. During the relevant period, leading up to October 2008, Euroption's principal trading strategy wasshort selling of options, i.e. Euroption was a net seller of options. This strategy included the sale ofshort strangles, whereby a put option was sold with a low strike price, and a call option was soldwith a higher strike price. Such a strategy is profitable where the markets are stable, i.e. wherevolatility is minimal.

36. However, such a strategy involves unlimited exposure to increases in volatility in the market, and asudden and substantial movement in the market can turn a short strangle into a large and unlimitedloss. In opening and closing its positions, Euroption executed outright purchases and sales (referredto as "naked trades") as well as "combination trade" or "combos", where the option was traded aspart of a package with another. In essence, selling short calls exposed Euroption to upside risk (i.e.losses in a rising market), whereas selling short puts exposed Euroption to downside risk (i.e. lossesin a falling market).

37. In very general terms, Euroption's trading strategy was to sell fairly short-term, deep out-of-themoneyoptions. This meant that the option's strike price was sufficiently distant from the currentprice of the underlying asset to suggest that it would not be likely to be profitable for the optionholder to exercise the option. The intrinsic value of the option was therefore very low. Provided thatthe volatility of the underlying assets remained at or around the levels that Euroption was expecting,and there were no significant movements in the market, the option would become progressivelycheaper as the time value component decayed, hopefully expiring worthless. In the meantime,Euroption benefitted from the premium it received when it first sold the option.

38. The relevant terms of the Mandate provided as follows:

i) OSL was defined as "the Fund Manager";

ii) Recital (a) provided: "SEB carries on investment business, including that relating toexchange traded futures and options";

iii) Recital (b) provided: "SEB is willing to settle and/or execute exchange tradedfutures and options, and settle OTC futures and options that are cleared via anexchange on behalf of the Client subject to the terms and conditions set out herein";

iv) Under clause 2, "margined transaction" was defined as:

"… a contract under the terms of which a customer will be, or may be,liable to make deposits in cash or collateral to secure performance ofobligations under the contact".

v) Clause 3 provided so far as material:

"SEB is a Swedish bank and authorised to conduct securities businessunder Swedish law. Finansinspektionen in Sweden is the home-countrysupervisor of SEB. However, in relation to its exchange traded futures andoptions at the London branch, SEB is also regulated by the FSA."

vi) Clause 4 provided:

vii) Clause 6 provided that:

viii) Clause 11 provided:

ix) Clause 12 (c) provided:

"SEB may at its absolute discretion refuse any instruction given inaccordance with this Clause".

39. In addition to its obligations under the Mandate, SEB was regulated in this jurisdiction by the FSAand subject to the rules of the exchanges to which it was a member. Euroption relied on variousLIFFE Rules as relevant to its case. These imposed obligations on SEB in relation to the collectionof margin payments and provided as follows:

40. Under LIFFE General Notice No 2296, a member (such as SEB) is deemed to have "prudentmanagement policies and procedures" in the event that it is authorised by the FSA and has anAdequate Credit Management Policy ("ACMP") as defined by the FSA Rules.

41. On 15 August 2008, following the placing into public ownership of the US Federal NationalMortgage Association and Federal Home Loan Mortgage Corporation, Lehman Brothers collapsed.In the days following there was unprecedented volatility in global financial markets.

42. This resulted in SEB making substantial margin calls on Euroption on 17, 18 and 19 September.TSL, on behalf of Euroption, assured SEB that funds would be transferred to SEB to meet themargin calls. However only €3 million was transferred leaving an outstanding unpaid balance ofapproximately €18 million. These calls went unpaid, which gave rise to considerable disquiet onSEB's part. However on the afternoon of 19 September 2008 the majority of the short options in Euroption's portfolio expired worthless, thereby reducing the contingent liabilities on Euroption'saccount, leaving a positive ledger balance of €54,369,914.54 by close of business and removing theneed for the posting of additional margin. The evidence at trial showed that, although a Mr. GaryCaldon, a director of TSL, had informed SEB that Euroption had arranged for the money to betransferred to SEB with a value date of 22nd September, but had then cancelled the instruction oncethe market rallied and the options expired worthless, Euroption in fact did not have €18 million toremit to SEB by way of margin. At trial Mr. Scattolon gave evidence to the effect that he was notaware until after the commencement of proceedings that Mr. Caldon had so informed SEB, and thatMr. Caldon was well aware that Euroption did not have the necessary €18 million of funds withwhich to meet the margin call and was not intending to do so. Whether or not this was the case, itwas clear that Mr. Steve Martin, the Head of SEB Futures Clearing (London), and the personresponsible for overseeing the close out of Euroption's open positions, was dissatisfied withEuroption's failure to meet its margin calls in September 2008. In an e-mail dated 19 September hetold Mr. Caldon:

"can we meet face-to-face to discuss? Early next week please. If we are unable to trustclients to meet calls we really don't want them as clients".

In fact no such meeting took place, but no doubt SEB's confidence in Euroption's ability to meetmargin calls had been undermined as a result of this incident.

43. Throughout the remaining days of September 2008 large financial institutions in various countriescollapsed and had to be supported by government intervention. This led to a series of majormovements on the global financial markets and a substantial increase in volatility. By early October2008, global financial markets were in turmoil and experiencing a major liquidity crisis. During theweek beginning 6 October 2008 the Dow Jones index fell by around 21% and the FTSE 100suffered two of its worst ever daily performances. In short, market conditions were bothexceptionally difficult and volatile.

44. At the beginning of October 2008, Euroption had a large number of open equity index optionpositions within its portfolio at SEB, including a mixture of short calls and short puts. The increasedvolatility of the relevant markets had had a dramatic impact on the price of out of the moneyoptions (which made up a substantial amount of Euroption's short portfolio) which led to significantincreases in the margin requirements on Euroption's account.

45. As at close of business on 6 October 2008 Euroption had a negative Ledger balance of€36,803,445.21. On Tuesday, 7 October SEB issued a margin call in that amount sent by e-mail atapproximately 07:31 to Euroption with a copy to TSL. Mr. Caldon of TSL instructed Mr. Scattolonand others at Euroption not to respond to any e-mails from SEB, saying that TSL would liaisedirectly with SEB.

46. Thereafter Mr. Martin was involved in regular dialogue (by telephone and e-mail) with Mr. Caldon.Mr. Martin requested that Euroption should take immediate steps to pay the margin calls and closeout its positions so as to reduce the amount of risk on its account. At about 09:30 Mr. Caldon toldMr. Martin over the telephone that Euroption wasn't in a position to "send that sort of money" butwas aggressively cutting positions. There were a number of phone calls and e-mails during the daybetween the two men, with Mr. Martin seeking an update on the progress Euroption was making.The fact that Mr. Martin was communicating with Euroption through the agency of Mr. Caldon andTSL, and not directly with Euroption, was consistent with the way in which the relationshipbetween the parties had been conducted from the outset. Indeed Euroption had been introduced toSEB by TSL.

47. During the course of trading on 7 October, Euroption took various steps to reduce its exposure.This, combined with movements in the markets, meant that, by 17:03 that day, Mr. Martin took theview (which he communicated to his superior, Ms Ulla Nilsson, then the Global Product Head ofSEB Futures) that the margin call would be zero or a negligible amount at the opening of trading. Inhis oral evidence Mr. Martin described the progress which Euroption had made in the reduction ofits positions as follows:

"… they'd reduced their margin call by €33 million, so I was in a far more comfortable
position"

48. On the same day, Mr. Martin and his colleagues formed an SEB Futures "crisis team" comprisingsenior members of the SEB Futures business, together with Ms Nilsson and Mr. Fredrik Barnekow(then SEB's Head of Securities Finance Department (Stockholm)). The crisis team was formed forthe purposes of managing the problems relating to several of SEB's customers arising as a result ofthe financial crisis. Euroption was not the only customer of SEB in relation to which problems hadarisen.

49. Euroption's debit Ledger balance at the close of business on Tuesday, 7 October was€3,822,856.15. At 08:22 SEB made a margin call in the sum of €3.8m (as compared with €36.8million the previous day). During the course of the day Mr. Martin communicated on severaloccasions to Mr. Caldon, insisting not only on the provision of margin in cash but also in thereduction of Euroption's Positions.

50. At 10:18 TSL, by Mr. Caldon, represented to Euroption that, absent full payment of the margin callSEB would liquidate the account:

"… won't help I'm afraid. They want the whole amount, or liquidation. We have toshow them that we are closing some positions. Again, this is about buying you moretime. So let's decide what to cover. SEB are expecting constant updates".

51. Mr. Martin denied that, at this point, he had communicated any such ultimatum to TSL. In his oralevidence he explained that although the prospects of the margin call being covered by cash werefading, he continued to employ a dual strategy of pursuing both a cash payment and marginreducing trades:

"A. I wanted cash and I wanted positions cut, and, you know, at this stage I didn't knowI was getting cash, but I don't think I'd ever said to anybody that I was going toliquidate the portfolio at this stage."

52. Subsequently, in a telephone conversation with Mr. Caldon at 10:26 Mr. Martin said:

According to Mr. Martin's own evidence, the reference to "… take the whole lot out." was areference to a forced liquidation of the portfolio.

53. At the relevant time SEB used a trade matching engine (referred to as "MarketWatch") to cleartrades on behalf of its customers. It was possible to set rules within MarketWatch to govern the wayin which trades were to be cleared on behalf of that particular customer. One such rule was the"carte blanche acceptance" rule, which meant that trades which were given up to SEB for clearingon behalf of a particular customer would be automatically accepted for clearing and booked to thecustomer's account, without the need for any further action by SEB staff. At 09:06 on the morningof 8 October, Mr. Martin e-mailed his colleagues and suggested to them that they should lift thecarte blanche acceptance rule for a number of customers, including Euroption. The effect of sodoing would be that any new trades that were given up to the clearing bank by the executing brokeron behalf of one of those customers would need to be manually reviewed before they were cleared.By turning off the rule, both Mr. Martin and his colleagues at SEB would be able to keep a muchcloser eye on the trades which were being undertaken by certain customers. That would have theeffect of assisting SEB staff in monitoring their portfolios, the extent of any margin deficit andwhether steps were being taken to reduce the deficit.

54. At 09:34 instructions were given by Mr. Martin to Martin Ward, Head of SEB's operations inLondon at the time, to lift the carte blanche rule in relation to Euroption. Thereafter, trades thatwere given up to SEB by TSL on behalf of Euroption were reviewed, either by Mr. Martin or by amember of SEB's Futures Client Services team. Mr. Martin's evidence was that the key principle towhich they were working was to consider whether a particular trade reduced risk on the portfolio. Ifit did it would be accepted; if it did not, it would be brought to his attention so that he was aware ofwhat was going on.

55. At 13:21 on 8 October, Simon Mason of TSL informed Euroption that SEB had put limits on the account, "… SEB won't let us increase the positions until the account is off call". Mr. Martin'sevidence was that, at no time on 8 October, did he actually impose a limit on Euroption's account ortell TSL or Euroption that SEB was not letting Euroption increase positions. However Mr. Martinaccepted that, because of the pressure Mr. Martin was putting on Mr. Mason to cut positions, thelatter may have got the impression that SEB was not letting Euroption increase its positions.

56. Although the trades Euroption carried out in the morning of 8 October were relatively small andrisk reducing, a series of trades given up later that day involved a large roll-down of positions(meaning that a position in an expiring contract in one option series had been closed whilst aposition in a later expiring contract had been opened). By 13:00 on 8 October, the only trades givenup to SEB were (a) the buying back of 3,250 FTSE 4100 October puts and (b) the sale of 1,000FTSE 4900 October calls. The remainder of the FTSE trades that were carried out that day were notgiven up to SEB until after trading had closed on the relevant exchanges. Because of these lategive-ups, SEB was unable to see until after trading had closed the extent to which Euroption hadbeen opening new positions as part of roll-down or combination trades (rather than merely closingpositions). The net trades which were given up late to SEB involved Euroption buying back 15,108short puts (which reduced downside risk), but also selling 12,433 new puts (increasing risk on thedownside) and selling 9,995 new calls (increasing risk on the upside).

57. All of Euroption's trades on 8 October were spread trades or combination trades (i.e. the closure ofshort positions, accompanied by the opening of a new position). Critically, however, the reports thatTSL were giving to Mr. Martin only identified the closure of short positions and failed to mentionthe opening of the new positions. This gave Mr. Martin the misleading impression during the daythat around 17,658 short option contracts were being closed out naked.

58. Between 16:37 and 18:14 on the evening of 8 October several trades were given up to SEB thatwere executed much earlier in the day, some as much as seven hours earlier. Mr. Martin's evidencewas that under normal circ*mstances he would expect a trade to be given up anytime from a fewseconds to within 30 or 40 minutes of execution. The trades given up to SEB that evening revealedto Mr. Martin that all the closing trades Mr. Caldon had reported to him throughout the day were infact spread or combination trades. Further, Mr. Caldon had not reported anything at all aboutEuroption rolling 5,000 FTSE 5800 call options down to 5200, 600 points closer to the money, orthe CAC 3000/3400 put spread.

59. In his evidence Mr. Martin accepted that he had subsequently discovered that he was being told ofclosing positions but not the opening of new positions, and that he was cross (he described it as "abit grumpy", but it was probably more than that) when he discovered the additional trades includingthe fact that Euroption had sold a further 23,358 options on that day.

60. Whether or not he spoke to Mr. Caldon that evening, Mr. Martin was clearly concerned early on themorning of 9 October when he reviewed the trades which had been given up on behalf of Europtionduring the course of the previous day. By that time, the markets had moved heavily againstEuroption. At 08:13 SEB issued a margin call for €57 million.

61. I turn now to determine the first issue, namely the date on which SEB began to exercise its right toclose out Euroption's positions.

62. The principal witness who gave contemporaneous evidence in relation to this issue was Mr. Martin.Euroption accepted that he was an honest witness, and did not suggest otherwise. However,Mr. Shivji submitted that his recollection of key events was vague, imprecise and sometimesunreliable, and that, given the pressures on him during the second week of October 2008, it wasperhaps unsurprising that he did not have a clear recollection. I disagree. I found Mr. Martin to be acareful witness who clearly had a genuine independent recollection of the critical week in October2008, which was supported by contemporaneous documentation. He convincingly rejected thesuggestion that he had no independent recollection of the relevant events, whilst readily andrealistically conceding that, in certain limited and unimportant respects, he was unable to rememberprecise details of what occurred. I have no hesitation in accepting Mr. Martin's evidence, which hegave in a straightforward fashion, to the effect that he took the decision to close out Euroption'sposition on the morning of 10 October and not on the afternoon of 9 October. To the extent that hewas challenged in his recollection by Mr. Shivji, Mr. Martin was clear in adhering to his evidencethat the decision was indeed taken that day.

63. Mr. Scattalon, the only witness called by Euroption, was also an honest witness, but, by his ownadmission, his direct, independent recollection of relevant events was limited, and largely derivedfrom or reconstructed by his subsequent reading of contemporaneous documents and Skypemessages as between himself and TSL. He could add very little to these. Insofar as he sought tosuggest, in his witness statement, that SEB began to close out Euroption's position on the morningof 9 October, and that this was reflected in the trades carried out that day, I reject his evidence. Theevidence at trial clearly showed that it was Mr. Scattalon, not Mr. Martin at SEB, who gave theinstructions for the trades which TSL entered into on 9 October. Moreover, it was clear fromanswers which Mr. Scattalon gave in cross-examination, that many paragraphs of his witnessstatement had been drafted by Euroption's lawyers, in an attempt to construct a case from aretrospective analysis of the documents, some of which Mr. Scattalon had not read at the time of hisstatement.

64. Mr. Shivji complained that SEB had not called witnesses from TSL, despite the fact that SEB's casemanagement information sheet had indicated an intention to do so on SEB's part, and thataccordingly, I should draw an adverse inference against SEB for failing to do so. In a letter sentshortly before the start of the trial, SEB indicated that it was not proposing to call the TSLwitnesses. I draw no adverse inference against SEB. Until the time of SEB's decision to close out,TSL was acting as Euroption's execution broker. In such circ*mstances, I see no reason why therewas any evidential burden on SEB to call Euroption's own agents. It was, of course, open toEuroption to call such witnesses. I do not propose to draw any adverse inference against SEB in thisrespect.

65. Mr. Shivji also criticised SEB's "failure" to call a Mr. Fredrik Barnekow from SEB Stockholm, towhom Ms Ulla Nilsson, Mr. Martin's superior, reported. SEB did however call a Mr. Olof Westring,a senior specialist in the Securities Finance Department of SEB, who assisted and reported toMr. Barnekow in providing a high-level oversight of the close out of Euroption's open positions.Mr. Westring was in a position to provide evidence as to the suitability of Mr. Martin and SEB's satisfaction with Mr. Martin's close out of the portfolio. In my judgment, there was nothing inEuroption's criticism of the alleged failure to call Mr. Barnekow or other witnesses at SEB. It was amatter for SEB whom it called as witnesses. There was no evidential burden imposed on it as aresult of evidence adduced by Euroption that required SEB to call such persons.

66. In addition to contemporaneous emails and other documents, there were in evidence: (i) transcriptsof telephone conversations between Mr. Martin and Mr. Caldon of TSL in the relevant period; and(ii) transcript of Skype messages between Mr. Scattalon and Mr. Caldon and other employees ofTSL. Euroption persisted at trial in complaints about alleged failures on the part of SEB to makeadequate disclosure. I did not find these to be borne out, in the light of the full explanation whichwas given by Clifford Chance as to the manner in which SEB had discharged its disclosureobligations.

67. Euroption's contention is that the evidence shows that SEB began the forced liquidation ofEuroption's portfolio by no later than 12:44 on the afternoon of the 9 October. It contends that an emailsent by SEB to TSL at that time and TSL's subsequent conduct clearly indicated that the latterreasonably understood the 12:44 email to be an instruction to commence a forced liquidation of theaccount. Mr. Shivji supported this contention with the following submissions:

i) Mr. Martin's own established practice in relation to margin calls dictated that hewould have taken the decision to close out Euroption's positions by 12:44 on the 9October 2008;

ii) whether or not Mr. Martin intended to commence a close out of Euroption's openpositions, TSL's conduct indicated that it understood the e-mail to be such aninstruction;

iii) under the terms of the Mandate a close out commenced when, at 12:44, Mr. Martinassumed responsibility for making trade decisions on Euroption's account;

iv) under the relevant regulatory framework, as Mr. Martin understood it to operate,SEB was bound to commence the close out on 9 October 2008.

68. I do not accept this analysis of the evidence. It is contrary to the evidence given by Mr. Martin, theevidence given by Mr. Scattolon at trial and the contents of the contemporaneous documents.

69. As I have already said, on the morning of 9 October at 08:13 SEB issued a margin call for €57million. Mr. Martin subsequently spoke to a former administrator of Euroption, a Mr. vanWilligenberg, in relation to the ability of Euroption to transfer margin call into its account with SEBthat day. Mr. van Willigenberg seemed unaware of the margin deficit. Mr. Martin said nothing aboutclosing out Euroption's positions.

70. In the course of the morning of 9 October Mr. Martin, in his e-mails and telephone conversationswith Mr. Caldon, put pressure on Euroption via TSL to reduce its positions. Mr. Martin made itclear that he wanted the absolute number of trades down. For example at 12:13 Mr. Martin e-mailedMr. Caldon to say that Euroption's absolute exposure had to be reduced and that every opportunityhad to be taken to wind down Euroption's open positions to a more manageable size. It was clearhowever that, under the terms of the Mandate, SEB was entitled to give instructions, and imposelimits without at the same time exercising its right to close out.

71. At 12:44 Mr. Martin e-mailed Mr. Caldon saying:

"Sorry. I have not been explicit about this, but I guess you are working on thisassumption anyway. No new positions on this account whatsoever until further notice.We are working to close only"

72. In his evidence Mr. Martin explained that by this e-mail he was imposing a limit on Euroption'strading, such that the only trades which could be conducted on the account were naked buybacks. Inother words, the only trades that could be executed were close out trades, the last sentence of the emailmerely restating the limit imposed by the second sentence. In cross-examination Mr. Shivjisuggested to Mr. Martin that the words "working to close only" were a reference to the closure ofthe entire account and that there was a distinction between the concept of "reducing" or "cutting"the positions and the concept of "closure" of the positions. Mr. Martin convincingly rejected thesuggestion explaining that this was an instruction to Mr. Caldon at TSL to say to Euroption:

"no new positions, working to close positions only. Not close the entire portfolio, notshut it down, but the third line relates to the second line. So your interpretation of thate-mail I'm afraid is one hundred percent incorrect."

73. I accept Mr. Martin's evidence on this issue. In my judgment, the e-mail cannot be construed as thedecision by Mr. Martin communicated to TSL to close out the entirety of Euroption's portfolio.Mr. Caldon's response in an e-mail timed 12:56 does not contain anything to suggest thatMr. Caldon for one moment thought that TSL was now being instructed to close out the entireaccount. Nor do the further series of e-mails between the two men on that day suggest that SEBitself was giving specific instructions for a close out. It was clear that SEB had attempted to limitthe trading on Euroption's account, without itself taking over the conduct of the trading.

74. Other evidence supports this analysis. First of all, an examination of all of the trades carried out on9 October demonstrated that it was Mr. Scattolon, and not SEB, who gave the instructions for thetrades which TSL entered into on that date. These five sets of trades, numbered A to E (as set out ina chart on A3 paper) were meticulously reviewed in evidence and in the course of argument. Incross-examination Mr. Scattolon effectively accepted that he had given instructions for these trades.

75. Second, I conclude from the evidence which he gave about his trading on 9 October and hiscommunications with TSL, that Mr. Scattolon himself knew that the close out had not started onthat date. Thus he acknowledged that from 7 October he was given warnings by TSL that SEBwanted the positions cut; and that he knew that he was being given an opportunity to cut positionshimself but that if he did not do that then SEB might step in at some point themselves. On themorning of 9 October Mr. Trimming of TSL told Mr. Scattolon "SEB are already demanding weclose everything … we are trying to stop them doing it themselves." Mr. Scattolon replied, "Thankyou Steve, today the market will bounce!" Mr. Trimming explained:

"It doesn't matter. Our only chance is to show SEB that we are closing positions fromthe open. We have to start with the CAC. If SEB decide we are not closing fast enough,they will take over."

And at 12:08 on 9 October, Mr. Trimming expressed concern that:

"SEB are really increasing the pressure on us Stefano. They have told us that we arenot reducing exposure fast enough. I am worried that they will start covering somepositions themselves."

76. However Mr. Scattolon's evidence did not go further than complaining that he did not have "fullcontrol" of Euroption's trading on 9 October. He acknowledged that he was given the message at12:08 on 9 October that if he reduced his risk, then he would be able to stop SEB from stepping in.He also – significantly - acknowledged that at no point after that on 9 October did anyone from TSLtell him that the position had been changed or that SEB had taken him out of the loop and takencontrol. On Euroption's case, one would have expected to find something in the Skype messagesfrom TSL at or shortly after 12:44 indicating to Mr. Scattolon that SEB had began a close out. Yetthere is nothing at all in the Skype messages to support this proposition. The first time that there isanything in the Skype messages to indicate that a close out has commenced was at 08:05 on 10October, when Mr. Mason of TSL informed Mr. Scattolon that SEB had ordered TSL to liquidatethe account. Moreover, Mr. Scattolon did not go so far as to say that SEB had already startedclosing out positions on 9 October. The highest he put it was to say that some of his instructionswere not followed on that day. This was consistent with the fact that Mr. Martin had placed limitson Euroption's ability to open new positions and was placing heavy pressure on Euroption to closepositions. But it does not predicate that SEB had already commenced the close out. Mr. Scattolonacknowledged that on 9 October he had it within his power to close positions to remove thepressure coming from SEB but decided not to do so. None of this evidence suggested that SEB hadalready begun its close out.

77. Thus, although Euroption had made some close out trades on October, it had failed, in Mr. Martin'sview, to implement an appropriate close out strategy, choosing instead to close out some positionswhilst keeping other positions open and/or rolling them forward. As at close of business on 9October, Euroption still had massive open option positions on its portfolio. According toMr. Martin, Euroption had a potential exposure on its positions as at close of business of nearly €94million while its portfolio liquidation value was only €36 million. Prior to the significant drop inthe markets that occurred overnight on 9 October 2008, SEB was therefore facing, using clearinghouse calculations, a potential loss of over €50 million.

78. On the evening of 9 October, the Dow Jones index fell nearly 700 points. Before the opening ofbusiness in Europe on Friday, 10 October, the Asian markets also fell sharply. In addition, the levelof volatility in the financial markets had continued to increase significantly since 8 October 2008.Dr. Fitzgerald described it as "… a period of almost unparalleled volatility, and enormousdownward pressure on markets". Accordingly, the European markets were also expected to fall sharply. The expected fall in the markets meant that Euroption faced very substantial risks on itsopen put positions which together constituted a substantial bet that the markets would not fall. Theportfolio was "long delta", meaning that Euroption would benefit from a market rally, not a marketfall. As described above, there was a significant imbalance in the directional exposure ofEuroption's positions.

79. The status of Euroption's portfolio just prior to the European markets opening on 10 October 2008presented SEB with a major concern. Euroption was positioned to benefit from a market rally, andyet the overnight movements and the pre-opening bids and offers pointed to the likelihood that theEuropean markets would face significant falls. Mr. Martin's evidence was that his focus was tomake sure that, if the markets did fall significantly, SEB was protected as far as possible against itspotential substantial losses.

80. Once the markets opened it was clear that his concerns were justified. Because of the fall in themarkets overnight (the FTSE opened about 1.2% down before full trading and was very soon about11.3% down), Euroption's portfolio liquidation value (i.e. the value of the assets in the portfolio ifall open positions had been closed at the previous day's settlement values) of around €36m as atclose of business on 9 October had been reduced by around €28m by the time the markets openedon 10 October. That left the portfolio liquidation value at approximately €8 million. Accordingly,as at the opening of the markets on 10 October, there was a real risk that SEB could be left facing aloss of many millions after the close out of positions was complete, especially in light of the extremely volatile market conditions and the very large positions that needed to be unwound.

81. It was against this background that Mr. Martin stated in his evidence that he decided early in themorning on 10 October to close out Euroption's positions. In an e-mail timed at 07:07 he requestedMr. Caldon to telephone him as soon as he arrived at the office. When Mr. Caldon replied that hewould telephone Mr. Martin in 20 minutes, Mr. Martin sent Mr. Caldon a further e-mail at 07:20which stated "ASAP please!!!" At 07:30 Mr. Martin spoke to Mr. Caldon on the telephone to givehim instructions about specific positions which he wanted TSL to concentrate on closing. AsMr. Martin accepted in his witness statement and in his oral evidence, the transcript of the telephonecall does not contain a specific or express instruction to close out. In his witness statementMr. Martin said:

"Looking back at the transcript of that call now, I think that I did not feel it wasnecessary at the time to spell out that SEB would be giving the instructions in relationto the portfolio from this point onwards. Mr. Caldon and I are both professionals, andwe had both seen the carnage on the markets from the opening of trading on 10October 2008. My sense at the time was that it would have been absolutely clear thatEuroption's trading of its portfolio was over and that SEB would be calling the shotsfrom then on."

82. That does indeed appear to have been the case since at 08:15 a Mr. Mason at TSL informedMr. Scattolon that "SEB have ordered us to liquidate the account". On that date Euroption was alsocalled for €26.173m in margin.

83. I accept Mr. Martin's evidence that the decision to close out was taken, and the instructions to closeout were given, on 10 October.

84. In addition to the evidence to which I have already referred, Mr. Martin's account is supported by amemorandum entitled "Euroption …. Close out time line", which Mr. Martin prepared on 22October 2008, only a week after the close out, and sent to Mr. Martin's superiors including MsNilsson and a Mr. David Lockie. This memorandum also strongly supported the analysis that SEB'sclose out did not start until 10 October. In relation to Wednesday, 8 October, Thursday, 9 Octoberand Friday, 10 October Mr. Martin wrote:

85. As can be seen, in his memorandum, Mr. Martin specifically identified 10 October as the date whenthe close out began. TSL was:

"… instructed to close only in accordance with SEB instructions. The client was takenout of the loop and we commenced cutting positions ourselves".

The memorandum was written at a time when the start date of the close out was not known to haveany legal significance.

86. Mr. Shivji suggested to Mr. Martin in cross-examination that the memorandum was a self-servingdocument prepared by the latter to appease Mr. Martin's superiors at SEB. I reject that criticism andaccept Mr. Martin's explanation that the document was prepared in anticipation of a possible claimby Euroption rather than as a back-protecting exercise. There was no evidence to suggest that SEB'ssenior management was concerned about Mr. Martin's handling of the Euroption account or theclose out.

87. Other criticisms made by Mr. Shivji in cross-examination were to the effect that the memorandumcontained a few specific minor inaccuracies and that the memorandum excluded reference to certainfacts. There was no substance in any of these. Mr. Martin told the court that the memorandum wasprepared during the course of the morning and relied upon his memory and the relevant accountstatements, and that he had not conducted a review of e-mails and telephone transcripts to preparethe document. Finally, it was not suggested to Mr. Martin that he had not been telling the truth whenhe recorded in the memorandum that the close out had begun on 10 October. In my judgment, itsupports his evidence on the issue.

88. Further, Mr. Martin's account that the close out only began on 10 October is supported by acomparison of the trades made on 9 October with (a) trades made by Euroption on 8 October and(b) trades made by SEB on 10 October. This matter was also the subject of expert evidence givenby Mr. W A Beagles on behalf of Euroption and Dr. M. Desmond Fitzgerald on behalf of SEB.

89. The trading of Euroption's positions on 9 October continued to follow the same basic pattern as on8 October. This was not a strategy that aimed to close out Euroption's positions but one which ratherlooked to reduce risks while opening new positions. By contrast, the trading of Euroption'spositions on 10 October had a completely different profile. Trades were closed naked whereverpossible with the exception of the two combination trades (one of which Mr. Martin saw as anecessary evil to buy back the relevant position and the other of which was made pursuant toMr. Scattolon's instructions and without Mr. Martin's knowledge or approval). This supported SEB'scase that Mr. Scattolon remained in control of trading on 9 October (albeit with a "gun to his head")and was inconsistent with Euroption's case that SEB was already closing out Euroption's positionson 9 October.

90. The evidence showed that Mr. Scattolon's general approach to trading on 8 October was to enterinto combination trades and diagonal put spreads (which reduced risk while maintaining a level ofopen positions) in the hope that it might be enough to meet the margin call. Mr. Scattolon suggestedin his witness statement (paragraph 55) that on 8 October he had:

"… continued to close out put options (especially the Eurostoxx 2600 puts and FTSE4000 and 4100 puts)".

91. However under cross-examination, Mr. Scattolon rightly acknowledged that his witness statementhad given a misleading and incomplete account of this trading in that what Euroption was actuallydoing was closing and opening positions at the same time. Mr. Scattolon acknowledged that on 8October Euroption had rolled down the positions by buying back October puts and sellingNovember puts in a "diagonal spread". Mr. Scattolon said that this reduced the fund's exposure tovega, delta and gamma (thus reducing the margin call by a small amount) but acknowledged thatthis left the fund exposed to downside risk.

92. He explained that part of his strategy was based on his hope that there would be a market rally sothat he would be able to buy back the November puts at a profit. He was also trying to generatepremium by selling new positions to cover the fund's trading losses. To achieve this, Mr. Scattolonsold a large number of FTSE October calls on 8 October, which increased Euroption's exposure to amarket rise. He also considered selling foreign exchange options with the same purpose in mind.

93. The trading on 9 October continued this pattern. Although some positions were bought back naked,the bulk of trading involved diagonal spreads (i.e. the buy back of October puts together with thesale of November puts) and combination trades (i.e. the buy back of puts funded by the sale ofcalls). Mr. Scattolon acknowledged that this was the same strategy he had used on 8 October. Whathe was doing on 8 and 9 October were trades that were the best he could do in the circ*mstanceswhile he waited until SEB might take the decision to close out.

94. This was particularly so in the afternoon of 9 October where (as Mr. Beagles acknowledged) Sets Cand D (as shown in the chart) involved diagonal put spreads which rolled the risk down fromOctober to November. Mr. Beagles agreed that these were not the sort of trades that would usuallybe found if a clearing member was effecting a close out. Although the total trade reduced risk, thenew positions opened were large and risky. If instead of carrying out diagonal put spreads,Euroption had bought the October FTSE puts back naked, Euroption would have substantiallyreduced its margin call at close of business on 9 October. Mr. Beagles also acknowledged that,inasmuch as diagonal put spreads were involved, the trading pattern on the afternoon of 9 Octoberwas the same as or broadly similar to the trading pattern on 8 October.

95. Mr. Beagles agreed that, unlike on 8 and 9 October, there were no diagonal put spreads traded onEuroption's account on 10 October. The trades carried out on 10 October in Sets F, G, I, K and L (aslikewise shown in the chart) involved the naked buying back of puts. Mr. Beagles accepted thatthese were the types of trade that he would ordinarily expect to see if a clearing member wasclosing out a position. Indeed, he said they would be his first choice for closing out a position. Inthe case of Set H and Set J, part of the position was bought back naked and part was bought backagainst the sale of calls. Mr. Beagles accepted that the naked part of H and J would also be what onewould expect to see if a clearing member was effecting a close out.

96. Finally the communications on 9 and 10 October between Mr. Scattolon and TSL, as comparedwith the communications between SEB and TSL on the same date (as conveniently set out in aspreadsheet for my use), demonstrated the reality that on 9 October it was Mr. Scattolon who wasexercising control over the trades that were being executed, whereas on 10 October such controlwas clearly being exercised by SEB.

97. Euroption sought to support its argument that the close out began on 9 October by reference tostatements made by Mr. Martin in a letter dated 16 March 2009. In opening, Euroption also reliedon a letter from Clifford Chance dated 6 August 2009. That letter sets out a "sequence of events"and is essentially consistent with the letter of 16 March. I was not persuaded by this argument. It isnot necessary to engage in a detailed analysis of the two letters. Although neither the 16 Marchletter nor the 6 August letter expressly pinpoints the morning of 10 October as the point in timewhen the close out was commenced, I accept Mr. Toledano's submission that those letters areconsistent with (a) that proposition; (b) Mr. Martin's evidence; (c) Mr. Martin's 22 Octobermemorandum; and (d) SEB's case. Moreover, the significance of the 9/10 October point did notemerge until service of the Particulars of Claim on 24 February 2010, when Euroption assertedspecifically for the first time that SEB began closing out on the 9 October. SEB then pleaded in itsDefence that the close-out began on 10 October and joined issue on that topic. Interestingly a notein Euroption's audited accounts for the year ended 31 December 2010 in relation to "Litigations andclaims" also refers to the closeout taking place "from October 10 to October 17, 2008". HoweverMr. Toledano did not seek to rely on this point.

98. It follows that I reject Mr. Shivji's submission that Mr. Martin's own established practice in relationto margin calls (based on his earlier conduct in September), or the terms of the Mandate, or therelevant regulatory framework, as Mr. Martin understood it to operate, predicated that he wouldhave taken the decision to close out Euroption's positions by 12:44 on the 9 October 2008. Not onlyam I satisfied that the evidence does not establish this but also I disagree with the assertion thateither the terms of the Mandate or the relevant regulatory framework required SEB to begin theclose out on that date.

99. First, as Mr. Toledano submitted, the right to impose limits on SEB's trading or to refuseinstructions given by Euroption or TSL were rights conferred by clause 6 and clause 12(c)respectively, which were separate from the right conferred by clause 11 to close out. The fact thatSEB exercised the former did not amount to an exercise of the right to close out.

100. Second, so far as the point relating to the regulatory framework was concerned, in crossexamination,a line of questions was put to Mr. Martin regarding SEB's obligation under LIFFE rule3.27.2 (when faced with a client in default of its margin obligations) as set out above "to take suchsteps as are open to him to reduce the client's liability". It was suggested to him that in order tocomply with its obligation Mr. Martin had no alternative other than to close out immediately. Inresponse to this, Mr. Martin set out an outline of what he thought such steps would generallyinvolve. Mr. Martin said that the first thing to do was to call the client for money. Once the clientwas on margin call, there were then a further three general steps that a broker would go through,namely: (i) to try to get the money in and to try to increase pressure on the client to reduce itspositions willingly; (ii) to restrict the client (if possible) in what it can do; and (iii) only when thathas failed to "go hostile" on the client. The main reason a broker will be reluctant to take this finalstep is that "when you go hostile, whatever you do, you're wrong". He pointed out that everycirc*mstance was different and that there might be many reasons "why the bank would wait one,two, three days".

101. Mr. Beagles agreed that it was reasonable for a broker to provide a grace period to a client that hadnot paid margin call in order to enable them to close positions themselves. The length of the graceperiod was not set in stone: it would depend on the circ*mstances and would vary from case tocase. During that grace period, he said he would expect the clearing member to encourage the clientto close positions itself.

102. The point which was taken by Euroption in relation to LIFFE rule 3.27.4 was irrelevant. Rule3.27.4 provides an exception to rule 3.27.2 and sets out the circ*mstances in which a clearingmember may be entitled to decide not to insist on the prompt collection of margin from its clients.However in this case the sub-rule was not applicable since there had been no decision by SEB notto insist on the prompt collection of margin from Euroption. In this case SEB had decided to collectmargin from its client and had endeavoured to do so on each day during the relevant period.Accordingly, I do not consider that the LIFFE rule can shed any light on the factual issue as to whenthe close out began.

103. I also reject Mr. Shivji's further submission that, whether or not Mr. Martin intended to commence aclose out of Euroption's open positions, TSL's conduct indicated that it understood the e-mail timed12:44 on 9 October to be such an instruction. There was nothing in the trading pattern or the Skypemessages that supported such a conclusion and, moreover, Mr. Mason's Skype message timed at08:15 on 10 October to which I have already referred, is to contrary effect.

104. Accordingly, I determine Issue I in SEB's favour. All that SEB attempted to do on 9 October was toimpose conditions on, or limit, Euroption's trades. However Mr. Scattolon retained control ofdirecting Euroption's trades. It was only on 10 October 2008 that SEB itself took control of theEuroption portfolio and began to close out its positions.

105. It was common ground between the parties that, having exercised its right to close out, SEB had aduty to act honestly, in good faith and not arbitrarily, capriciously, perversely or irrationally; seeParagon v Nash (supra); Socimer International Bank Ltd (In Liquidation) v Standard Bank LondonLtd (No 2) (supra). I refer to this duty as the duty to act rationally. No issue of want of good faitharose in the present case. What was in contention was whether SEB had any contractual or tortiousduty of care to conduct the close out exercise competently and with reasonable care, and, if so, whatwas the scope of that duty.

106. As paragraph 66 (quoted below) of the judgment of Rix LJ in Socimer makes clear, if the court isconsidering the issue of rationality alone, the decision remains that of the decision maker; if, on theother hand, the court is considering whether there has been compliance with an obligation to actcompetently and take reasonable care, the arbiter is the court itself, based on entirely objectivecriteria. Effectively, if a duty of care were to exist in the present case, SEB's conduct of the closeout would fall to be subjected to the scrutiny of a retrospective, hindsight analysis of the tradeswhich SEB entered into, in order to enable the court to determine whether, by reference to(necessarily uncertain) objective criteria applying to this particular close out situation, it hadcomplied with its obligation to take reasonable care and act competently.

107. I turn first to consider whether the contract between Euroption and SEB imposed such an obligationon SEB in relation to the close out.

108. Mr. Shivji's first argument was that the Mandate contained an implied term pursuant to section 13 ofthe Supply of Goods and Services Act 1982 ("the Act") to the effect that SEB had a duty to provideits services with reasonable care and skill and that this covered a situation where SEB wasproviding the service of conducting a forced liquidation of Euroption's portfolio. This, Mr. Shivjisubmitted, was not surprising, since the eventuality that the bank might liquidate the portfoliofollowing a missed margin call was something that was expressly contemplated by the contract.Accordingly, he submitted, given the commercial context a client might well choose its clearingbank based on its perception of the bank's standing and presence in the market, and having regard toits ability to preserve value in the event of a forced liquidation.

109. Second, he argued that the terms of the Mandate were very different from those in Socimer. In thatcase, the power to sell or retain the relevant assets was described as being in the seller's "sole andabsolute discretion ... at such price as it deems reasonable and appropriate". Such explicit wording,Mr. Shivji submitted, was notably absent from the Mandate in the present case; the Mandate in thiscase was a standard form agreement put forward by SEB; if SEB had intended that it should havediscretion over the conduct of the close out, as well as the timing, then it would have beenstraightforward for this to have been included into the contract. In this regard, the contract shouldbe read contra proferentem and as being subject to an implied term that any close out should be conducted competently and with reasonable care.

110. For the reasons largely advanced by Mr. Toledano, I reject Euroption's arguments that the Mandateshould be read as subject to an implied term that the close out would be conducted competently andwith reasonable care, whether by reason of section 13 of the Act or otherwise.

111. In my judgment, SEB's rights under the Mandate to impose limits on Euroption's activities underclause 6, to close out Euroption's positions under clause 11, or to refuse instructions under clause 12(c) cannot be characterised as "services" within the definition contained in section 12 (1) of the Act.The definition in section 12(1) of "contract for the supply of a service" is (subject to exclusions) "acontract under which a person ('the supplier') agrees to carry out a service". Thus the "implied termabout care and skill" imposed by section 13 of the Act only applies to services agreed to beprovided under a contract for services and not to all rights and obligations under such a contract.Section 13 provides:

"In a contract for the supply of a service where the supplier is acting in the course of abusiness, there is an implied term that the supplier will carry out the service withreasonable care and skill." [Emphasis supplied.]

112. The Mandate contemplated that two types of services might be provided by SEB. These were setout at clause 6 (subject to the provisions of clause 7) as follows:

i) advisory services regarding dealing in exchange traded futures and options (andsecurities where the securities transaction in question was ancillary to a transaction infutures or options); and

ii) settlement and exchange services whereby SEB acted as clearing broker for tradesexecuted by or on behalf of Euroption.

These services were to be provided in the course of SEB's business and, accordingly,section 13 of the Act would have applied to the provision of them.

113. However, there is no basis in the Act or otherwise to suggest that a similar implied term applied toSEB's right to impose limits, its right to refuse instructions, or its right to close out, since these werenot on any basis services which SEB had agreed to carry out under the Mandate. First, it is difficultto see how, in ordinary language, the exercise of such rights by SEB, at its discretion, for thepurposes of protecting its own position, could be characterised as a "service" being provided "to"Euroption. Even if, contrary to my view, the exercise of such rights could arguably be socharacterised, since SEB had not agreed under the Mandate, to provide any such "service", it isdifficult to see how rights exercisable at SEB's discretion could be said to be "services" for thepurpose of section 13.

114. As Mr. Toledano submitted, Euroption's case not only fails to have regard to the actual wording ofsection 13, but also fails to have regard to the distinction drawn in the relevant authorities betweenthe situation before and after a default. Following default, the broker is entitled to put its owninterests first and is primarily carrying out the forced liquidation of the portfolio in order to reduceand ultimately eliminate the risk (i.e. the exposure on its back-to-back contracts with the clearinghouse) to which it had been exposed by its client's failure to provide margin. This is fundamentallydifferent from providing services under the contract prior to a default.

115. In Socimer (supra), the Court of Appeal had to consider, in the context of trading between banks inforward sales of emerging markets securities, the exercise of a right by one counterparty bank,following a default by the other bank, to determine the value of a portfolio. The agreementexpressly permitted the defendant enforcing bank an "absolute discretion" whether to liquidate orretain the portfolio to satisfy the amount due to it, but obliged it to carry out an immediate valuationof the portfolio as at the date of transmission and to credit the resultant amount to the claimant. Thequestion for the court was whether the defendant's contractual obligation was to conduct an honestbut otherwise subjective valuation of the retained assets, or whether, as a matter of contractualimplication, or, alternatively, as a matter of equity by analogy with the duties of a mortgagee with apower of sale, the defendant was under a duty to take reasonable care to determine their true marketvalue.

116. The Court of Appeal held that:

i) When a contract allocated only to one party a power to make decisions under thecontract which might have an effect on both parties, a decision maker's discretion waslimited, as a matter of necessary implication, by concepts of honesty, good faith, andgenuineness, and the need for the absence of arbitrariness, capriciousness, perversityand irrationality. The concern was that the discretion should not be abused. Althoughterms such as "reasonableness and unreasonableness" were also concepts deployed inthe context of a duty to act rationally, those words were not being used in that contextin the same sense as when speaking of a duty to take reasonable care.

ii) In the circ*mstances of the case, no term was to be implied to the effect that anobjective valuation or one which complied with a duty to take reasonable care, wasrequired. Such an implied term was not necessary or sufficiently certain.

117. In his judgment (with which the other members of the court agreed), Rix LJ emphasised that thecourt does not replace the view of the broker conducting a close out as to what was reasonable inthe circ*mstances, with the court's own view. It was the closing out broker's decision to make, in itsown interest, as to how to conduct the close out, provided that the broker did not step outside thebounds of its duty of acting honestly, in good faith and not arbitrarily, capriciously, perversely orirrationally. At paragraphs 66 and 112, he said:

118. Similar types of considerations were taken into account by David Steel J and Blair J respectively indeclining to find closing brokers guilty of negligence in ED & F Man Commodity Advisers Ltd &Another v Fluxo-Cane Overseas Ltd & Another [2010] EWHC 212 (Comm), Sucden FinancialLimited v Fluxo-Cane Overseas Limited [2010] EWHC 2133 (Comm) and Marex Financial Ltd vFluxo-Cane Overseas Ltd [2010] EWHC 2690. Perhaps surprisingly, no reference was made toSocimer in any of these cases. However, although rejecting arguments that specific standard termsof business applied to impose a duty of care, David Steel J and Blair J respectively proceeded onthe basis that there was, or least assumed to be (see e.g. per Blair J at paragraph 65 of SucdenFinancial Limited v Fluxo-Cane Overseas Limited), a duty of care to act reasonably and to conductthe liquidation to the highest possible professional standards required in the circ*mstances. Thusthey actually considered whether there had been any negligence by the closing out broker ratherthan the antecedent issue as to whether such broker was subject to a contractual or tortious duty ofcare.

119. In the first case, the defendant, Fluxo-Cane, had traded sugar futures and options and, as a result,had a substantial short position. This resulted in the claimant broker, MCA, exercising its right toconduct a forced liquidation of Fluxo-Cane's position. One of the issues which arose was whetherthe forced liquidation was conducted by MCA in a proper fashion. It was argued by Fluxo-Cane thatMCA had an obligation under the relevant FSA New Conduct of Business Sourcebook ("COBS") toact "in accordance with the client's best interests". In rejecting this argument David Steel J said (atparagraph 76 of his judgment):

"COBS 2.1.1 provides: 'A firm must act honestly, fairly and professionally inaccordance with the client's best interest' but COBS 2 is also excluded from counterparty business. Even if applicable, it is not suggested as such that MCA actedother then [sic] honestly, fairly and professionally. As regards the best interests of theclient, this is a difficult concept in circ*mstances where the client is refusing to paymargin and expecting MCA to close out as best it can. MCA was in effect trading on itsown account. Furthermore, the interests of MCA were in common with FCO namely tolimit the loss that might be sustained as a result of the liquidation. Thus I reject thesuggestion if it be made that MCA were obliged by COBS 2.1.1 to manage FCO'sposition as if still acting as FCO's broker but at its own risk and without the provisionof margin."

120. In Sucden similar submissions were made by Fluxo-Cane to the effect that the broker, Sucden, hadconducted the liquidation negligently and in breach of its duties of care. Again reliance was placedon COBS to support an argument that the broker had a duty to act in the best interests of its clientand subject to a best execution obligation. Blair J (at paragraph 53 of his judgment) agreed withDavid Steel J's approach. He said:

"53. However, I am equally satisfied that the COBS (and the annex to the letter of 26October 2007 so far as it creates an independent obligation) do not apply when thebroker is liquidating the customer's account pursuant to an Event of Default. That isbecause these rules apply when the broker is executing its customer's orders, which isnot the case in a liquidation. It is not correct either that in those circ*mstances the firmhas to act in the best interest of its client. It cannot ignore the client's interests, but asthe present case shows, the firm has interests of its own to consider. Here, liquidationwas required to eliminate Sucden's own exposure with its counterparty. It was, in myjudgment, entitled to put its own interest ahead of that of its client in that regard,although in practice both parties had a mutual interest in liquidation on the best termspossible. This conclusion is the same as that reached in ED & F Man at [75] and [76].There David Steel J rejected the suggestion that the claimant was obliged to managethe defendant's position as if it was still acting as the defendant's broker, but (as he putit) at its own risk and without the provision of margin."

121. Blair J then went on to consider what standard did apply to the conduct of a liquidation of theposition in circ*mstances where, under the relevant Terms of Business ("TOB") between theparties, the broker was not liable for losses suffered by the customer "unless arising directly fromour gross negligence, wilful default or fraud". He approached the question:

"… by asking whether Fluxo-Cane can demonstrate negligence, because unless it can,it will clearly be unable to demonstrate gross negligence. It is not suggested that this isthe case of wilful default or fraud."

He then went on to consider whether the forced liquidation had been conducted negligently andconcluded that it had not. At paragraph 65 he emphasised that it was important to resist thetemptation of hindsight when judging the reasonableness of the broker's actions. He said:

"65. I have discussed the evidence in this respect in some detail already. There are twoprincipal reasons why in my judgment Fluxo-Cane's submissions cannot be accepted.The first, I have already referred to, and is that it was not negligent to wait until afterthe meeting of 29 January 2008 in Sao Paulo before finally liquidating the account. Onthe contrary, this was (I am satisfied) a reasonable course to take. The other is that I amquite satisfied that Dr Fitzgerald is correct to express the view that it is only with thebenefit of hindsight that it can be seen that liquidation during the period 22 to 25January 2008 would have been most advantageous. The market might have risen, as MrLevy thought it would, or Mr Garcia might have been proved correct in his convictionthat the market would fall. I am satisfied that following the action taken by theExchange, the liquidation of Fluxo-Cane's positions was going to be extremelyproblematic, as indeed both Mr Garcia and Mr Overlander foresaw. I very much doubtin these circ*mstances whether there is a single template by reference to which it canbe said that liquidation was, or was not, negligent. Be that as it may, I am satisfied inthis case that the criticisms made of Sucden's conduct of the liquidation are unfounded.The highest Fluxo-Cane puts the required standard is that Sucden was under a duty ofcare to act reasonably and to conduct the liquidation to the highest possibleprofessional standards required in the circ*mstances. Even if that is correct as a matterof law, which is not something which I need to decide in this case, I do not considerthat the duty has been breached. Negligence has not been established, let alone grossnegligence."

122. In the third of the series of cases, Marex Financial Ltd v Fluxo-Cane Overseas Ltd, David Steel Jagain had to consider whether there was any liability for negligence on the part of the clearingbroker which was closing out Fluxo-Cane's position. At paragraphs 88 and following he said:

123. He accordingly concluded that Marex was not liable in negligence. Dr. Fitzgerald, whose evidencewas accepted, was also a witness in all three cases.

124. It is, however, right to say that, in each of the Fluxo-Cane cases, the court considered the issuewhether whether there had been negligence on the part of the broker, because of the apparentassumption that the exclusion clause implied the existence of a duty of care. As can be seen fromthe passage cited from paragraph 65 of his judgment above Blair J specifically stated in Sucden thatthere was no need for him to decide the issue as to whether a duty of care in the terms assertedexisted.

125. I do not accept Mr. Shivji's argument that the approach in Socimer can be distinguished because ofthe attachment in that case of the words "in the seller's sole and absolute discretion … at such priceat as it deems reasonable and appropriate" to the power to sell or retain the relevant assets ondefault, and their absence in the present case. In Socimer the relevant power under considerationwas in fact a power to determine the value of the Designated Assets on the date of termination, towhich no express words of discretion were attached.

126. Of course, in each case, the implication, or otherwise, of a term that a party to a contract willexercise reasonable care and/or act competently in discharging a contractual function will dependon the particular terms of the contract in question and the relevant contractual context. As I havealready said, I see no basis for the implication of a term pursuant to section 13 of the Act. Likewise,I see no justification in the present case for the implication of such a term on any other grounds.

127. In Socimer Rix LJ, at paragraph 105 of his judgment, referred to the case of Philips ElectroniqueGrand Public SA v British Sky Broadcasting Ltd [1995] EMLR 472 as "… a useful andauthoritative modern restatement of the relevant principles upon which terms may be implied andthe rationale of so doing or not doing so." He quoted extensively from the judgment of the courtgiven by Sir Thomas Bingham MR. at pages 480 to 482.

128. I see no reason why, applying those well-recognised principles, it is appropriate to imply a term intothe Mandate that SEB would conduct the close out using reasonable care and to a suitablyprofessional standard. Such a term was not necessary to give business efficacy to the contract; itwas uncertain how such a duty could be defined, given that the closing broker was acting in its owninterest urgently to protect its own position; it was far from clear how, given the highly volatilemarket, and the extremely difficult trading conditions applying in the period 10 to 14 October,where it was not possible to forecast what might happen, objective criteria could be retrospectivelyapplied by a court to determine whether the closing broker had satisfied the relevant standard; asBlair J put it in Sucden, it is almost impossible to see how the court could apply "a single templateby reference to which it can be said that liquidation was, or was not, negligent". Nor would theimplication of such a term be so obvious that "it goes without saying".

129. On the contrary, all the circ*mstances of a close out in the type of conditions that were pertaining inOctober 2008 and the need for a closing broker in the position of SEB to act urgently in its owninterests, suggest that it would be far from obvious that any closing broker would agree to theassumption of a duty that would retrospectively subject its conduct to a minute analysis of everysingle trading decision, measured against every available alternative, which was effectively theexercise that was conducted at trial by Mr. Shivji on Euroption's behalf. As Mr. Toledano put it inhis closing submissions, in terms of risk allocation, why would a broker providing clearing servicesfor a modest commission per trade (and not holding itself out as an expert options trader) put itselfat risk of having its trading decisions second guessed in this way when faced with an unwantedportfolio as a result of a customer default? I agree. I see no reason why the contract contained in theMandate should be subjected to the implication of a term imposing a duty of care on the closingbroker. In my judgment, the right to close out after a customer default as contained in the Mandatemust afford the broker considerable discretion and be subject to limitations of good faith and rationality only.

130. For similar reasons, I reject Euroption's argument that SEB owed it a tortious duty to takereasonable care in the conduct of the close out. I can accept that, if SEB acted in the conduct of theclose out in a manner that was not contractually authorised (e.g. entered into trades which were notauthorised by the Mandate), then SEB might well be regarded as having assumed a responsibility intort towards Euroption, and be subject to a duty to take reasonable care. In any event, in such asituation SEB would be liable for breach of contract, having acted in excess of its powers, andliable to compensate Euroption for any damage it suffered as a result. Whether or not SEB acted inexcess of its contractual powers is one of the issues that arise for determination under Claim 2below. However, apart from the particular situation of acting in excess of its powers, in myjudgment SEB owed no duty of care to Euroption in tort.

131. Mr. Shivji relied upon the decision of the House of Lords in Customs and Excise Commissioners vBarclays Bank plc [2007] 1 AC 181 in support of his argument that SEB was subject to a tortiousduty of care. He referred to the three tests which can be used to consider whether a duty of carearises in the context of purely economic loss, namely: (a) the assumption of responsibility test, (b)the threefold "fair, just and reasonable" test, and (c) the incremental test.

132. However, once Euroption's case on implied statutory or contractual term fails, there is in myjudgment no room for the imposition of a tortious duty of care, which is more extensive than thatwhich was provided for under the Mandate; see e.g. Tai Hing Cotton Mill Ltd. v Liu Chong HingBank Ltd [1986] A.C. 80, per Lord Scarman 107; as explained in Henderson v Merrett SyndicatesLtd [1995] 2 AC 145, Lord Goff at 186; Downsview Nominees Ltd v First City Corporation Ltd[1993] 1 AC 295 per Lord Templeman at 316; and Chitty on Contracts, 30th Edition, at paragraph1-147. As Lord Templeman said in Downsview:

"The House of Lords has warned against the danger of extending the ambit ofnegligence so as to supplant or supplement other torts, contractual obligations,statutory duties or equitable rules in relation to every kind of damage includingeconomic loss: see C.B.S. Songs Ltd. v Amstrad Consumer Electronics Plc [1988] AC1013, 1059; Caparo Industries Plc v Dickman [1990] 2 AC 605 and Murphy vBrentwood District Council [1991] 1 AC 398. … There will always be expert witnessesready to testify with the benefit of hindsight that they would have acted differently andfared better."

133. But even on the assumption that Euroption could overcome this hurdle, and whether oneapproaches the question on the basis of assumption of responsibility or by reference to the questionwhether it would be fair, just and reasonable to impose a duty on SEB in this context, I see nojustification for the imposition of a duty of care on a clearing broker closing out a client's positionsunder the terms of the Mandate. As Mr. Toledano submitted:

i) This was not a case where the basis of the relationship involved Euroption relying onSEB to make sensible trading decisions with care and skill. Euroption was thespecialist options trader and had responsibility (in the usual course of events) formaking all trading decisions.

ii) Although SEB acted voluntarily, it did so only because of the difficult position it hadbeen put in by Euroption.

iii) It was within Euroption's power to avoid SEB taking over by complying with itsobligations to make margin payments, but Euroption did not take the steps whichwould have allowed it to retain complete control over the trading decisions.

iv) Euroption was in the business of taking high risks for high rewards. Europtionought to have made sure that it was in a position to manage the risks. By contrast, SEBwas providing an administrative clearing service that did not involve taking such risks.

v) The parties expressly agreed that, in circ*mstances where Euroption failed to paymargin, SEB could act to protect itself by closing out Euroption's positions. To holdthat, in doing so, SEB assumed a responsibility to Euroption, would, in effect, be toturn that agreement on its head.

vi) On Euroption's case, the result would be that Euroption could, by defaulting on itsmargin, place the responsibility for ensuring the careful management of its portfolio ina highly volatile market onto SEB's shoulders. This was not something that Europtionhad contracted for. If Euroption had contracted for SEB to assume such responsibility,the contract would have looked very different.

vii) The imposition of a duty of care would be inconsistent with the nature of a clearingbroker's right in a close-out context to take whatever steps it considers appropriate inorder to protect its own interests.

134. Likewise, in relation to the incremental test, Mr. Toledano submitted that the imposition of a duty ofcare in the present case would involve expanding the law into a new context, namely that of aclearing broker conducting a close out. This was not an appropriate relationship for a duty of care tobe imposed. Euroption also seeks to recover in respect of what would be, in the law of negligence, anew type of loss: the loss of hypothetical investment opportunities. This would involve anexpansion of the law of negligence beyond the normal heads of damage (an award of interest haspreviously been held sufficient to compensate a claimant for being kept out of its judgment sum).

135. I found these submissions compelling. Accordingly, I reject Euroption's submission that SEB owedit a tortious duty of care.

136. Under Claim 2 Euroption complains about two combination trades executed by SEB on 10 October2008. These combination trades involved the purchase of put options to close part of the existingshort put positions and the simultaneous sale of further out of the money call option positions. Thequantum of Euroption's claim in respect of the direct losses allegedly suffered under Claim 2 was€666,700 and £1,072,224.

137. The two combination trades carried out on 10 October were:

i) the Set H trades (as described on the chart) which involved the purchase of 1,300Eurostoxx November 2350 puts and the sale of 1,300 Eurostoxx November 2650 calls;
and

ii) the Set J trades (as described on the chart) which involved the purchase of 2,083FTSE 100 November 3600 puts and the sale of 2,083 FTSE 100 November 4600 calls;

138. Euroption's complaint relates to the call leg of the two combination trades. It alleges that there wasliquidity in the put leg of both combination trades and that SEB could have closed these positionsnaked (i.e. without opening a new trade); but that, instead, SEB authorised TSL to use combinationtrades (purchase of a put and sale of a call) as part of the forced close out. TSL executed trade J (theFTSE combination trade) for SEB and, as Euroption admits, following instruction fromMr. Scattolon, executed trade H (the Eurostoxx combination trade). Euroption complains that SEBtook both trades without demur and made no effort to close the call leg of either trade; and thatconsequently, when the market rallied on 13 October further losses were sustained. Europtioncontends that there was no authority in clause 11 (or anywhere else in the contract) to open newpositions in the forced liquidation and that, even if there was such authority, the trades were abreach of SEB's duties of reasonable care and skill.

139. I should mention that, at the post-judgment hearing, Mr. Shivji sought to persuade me, by referenceto his opening and closing submissions, that Euroption had not sought to argue that such tradeswere in breach of the alleged duty to take reasonable care or act rationally. If that was the case, Ihad certainly been under the impression, from Mr. Shivji's cross-examination of Dr. Fitzgerald andMr. Martin, and paragraph 13.1 of the Particulars of Claim, that such an allegation was indeed beingmade. Mr. Toledano informed me that he was likewise under such an impression. For that reason, Ihave addressed the point in this judgment.

140. In relation to this issue I had assistance from the two experts, Mr. Beagles and Dr. Fitzgerald. Bothexperts had considerable experience in the trading of derivatives, including equity index futures andoptions, in risk management, of execution and clearing arrangements on futures and optionsexchanges and of the process of liquidating complex derivatives positions. Likewise they both hadextensive experience of the relevant markets. Both experts did their best to assist the court in givingtheir evidence. Where they differed, I tended to prefer the evidence of Dr. Fitzgerald, who was lessdogmatic and technical than Mr. Beagles, and who adopted what appeared to me to be a moremarket-orientated and realistic approach to the issue of close out in highly difficult and volatilemarket conditions. On occasions Mr. Beagles had a tendency to be over-partisan.

141. Although Mr. Beagles in his expert report referred to the call trades in the combinations as "entirelynew option positions", I regard this as an unhelpful description since, as Dr. Fitzgerald explains, thecall trades were mapped entirely into the put option purchases.

142. Both experts agreed in their reports that a combination trade was indeed a recognised means ofclosing out an open position, although Mr. Beagles considered that other alternative strategiesshould be exhausted first before deciding to do a combination trade. However in cross-examinationhe agreed that he was not suggesting that there was a fixed and inflexible hierarchy that had to beadhered to in every situation. He took the view that it was reasonable for a clearing member closingout to explore the best choices first before using combination trades. Dr. Fitzgerald's evidence,which I accept, is that there are a wide variety of strategies and timings that a clearing member inthe position of SEB could adopt in liquidating or closing out a client's position on a forced basis.Such strategies might involve hedging the continuing exposures with futures or combination tradesor, where it was not possible to close out all positions, by retaining an unhedged position.Necessarily what was appropriate for the particular clearing member in any situation was heavilyfact-dependent.

143. Dr. Fitzgerald characterised close-out trades in three categories: Category 1 was the simplest; suchtrades would involve the immediate closing out of customer positions by transacting equal andopposite transactions in the same contract; Category 2 trades would be those in closely relatedcontracts which eliminated or almost eliminated the risks of existing positions; by way of examplehe gave a trader closing out the risk of a short FTSE 100 put with a strike of 6000 by buyinganother FTSE 100 put with a strike of 6025; Category 3 trades were those which might not bespecifically related to the set of positions originally existing in the customer's account, but wherethe effect of introducing the new trades into the book was to reduce significantly the price orvolatility risks of the overall position. Dr. Fitzgerald regarded the use of such trades, if the clearingmember determined in good faith that this was the best and most timely way of bringing the overallrisk under control, as a normal and reasonable business practice. In their joint report both expertsagreed that the combination trades entered into on 10 October fell within Dr. Fitzgerald's Category3.

144. In my judgment, Clause 11 of the Mandate, which gave SEB power "to close out" Euroption's opencontracts, permitted SEB to do so in a manner which both experts agreed was a recognised marketmethod of closing out an open position as part of a forced liquidation process. As Mr. Toledanosubmitted, it would be surprising if the Mandate did not cover a recognised means of closing outtrades, in circ*mstances where clause 11 was clearly designed to protect the interests of the brokerand to give the broker a degree of flexibility. There is nothing in the clause, or indeed in theMandate itself, which would indicate any limitation excluding new trades. As Dr. Fitzgerald's threecategories indicate, even in the simplest type of close out trade, Category 1, a new trade is written. Accordingly, I conclude that, as a matter of interpretation of the Mandate, SEB had power toexecute combination trades of the kind in question. It is not necessary to imply a term into thecontract, since all the court is doing is determining the meaning of the words "close out" in theirrelevant context, assisted by expert evidence as to the market understanding of the term.

145. But even if I were wrong in this conclusion, the evidence showed that Mr. Scattolon gave theinstructions for one of the combination trades and expressly authorised/ratified the other.

146. Thus in relation to Set H, the trades involved the buy back of 4,000 Eurostoxx 2350 Novemberputs. 2,700 were bought back naked and 1,300 were bought back in combination with the sale of1,300 November Eurostoxx 2650 calls. At 11:03 on 10 October, Mr. Scattolon wrote to TSL bySkype, "please work a combo for the esx [i.e. Eurostoxx]". Mr. Trimming or TSL replied at 11:17"We have already bought 2700 of the ESX total today". Mr. Scattolon asked, "2700 lots on whichaverage?" and Mr. Trimming replied "199". Since 2,700 puts had already been closed naked, thereremained a further 1,300 which needed to be closed. Mr. Scattolon then gave a specific instruction,"please work some combos for the 1,300 esx lots". Mr. Trimming responded at 11:23, "I will try" towhich Mr. Scattolon replied, "thank you". At 11:41, Mr. Neild reported back to Mr. Scattolon,"Eurostks combo filled 1,300 times". Moreover, Mr. Scattolon agreed in cross-examination that hehad indeed given the trading instruction for this combination trade. At 13:00 that day, Mr. Caldonprovided Mr. Martin with an update on the status of the close out, and informed him for the firsttime that this combination trade had been carried out as part of the close out of the 4,000 Eurostoxx2350 puts.

147. Likewise in relation to Set J, the trades involved the buy back of 6,483 November FTSE 3600 puts.4,400 of these were closed out naked and 2,083 were closed out in combination with the sale of2,083 November FTSE 4600 calls. At 09:58, Mr. Caldon explained to Mr. Martin that TSL washaving trouble closing the 3600 puts due to the size of the position and the fact that the market wasdropping by 10 points every time they tried to bid for those positions. Mr. Caldon said that theycould "combo" those positions "… into a 4700 Call or something and still pay about 50" but that themarket was otherwise quiet. Mr. Caldon said that if they just tried to close the whole position then itcould push the price too far. Mr. Martin approved the buy back of half of the 3600 puts incombination but added, "… then we'd best start working at buying those Calls back". In his witnessstatement Mr. Martin said that, in his view, Mr. Caldon had made it clear that there was no marketfor a naked purchase of those puts at an acceptable price. In his oral evidence, Mr. Martinacknowledged that he authorised the FTSE combination trades. He also acknowledged that everyposition could be closed at a price but he was not prepared to spend any kind of money just to getout of a position. He also accepted that he didn't consider prior to authorising the combination tradewhether it was possible to buy back a FTSE put at a similar but not identical strike price.

148. At around 10:30, 502 of the 3600 puts were bought back and 400 of the 4600 calls were sold butthere was then a break in TSL's trading of this position until 11:35. During that one hour window(with only 400 of the 4600 calls sold), Mr. Trimming spoke to Mr. Scattolon about this trade. At10:40, Mr. Scattolon asked for an update and Mr. Trimming told him:

"We're covering 37 Puts, we are trying to work a combo on the 36 Puts against 46Calls, and covering the rest of the ESX. The market is so thin it is very very difficult."

Mr. Scattolon replied, "thank you please work all the combos you can". Mr. Scattolon confirmed incross-examination that he wanted a combination trade to be done in relation to the 3600 puts andthe 4600 calls. A further 1,683 lots were then sold with Mr. Scattolon's express authorisation.

149. In the circ*mstances, I hold that it was not open to Euroption to complain that SEB executed thetrades without authority or in excess of the powers which it had to close out under the Mandate.

150. It follows from this conclusion that Euroption cannot contend that the combination trades imposed atortious duty of care on SEB on the grounds that, to use Mr. Shivji's words, SEB had "strayedoutside the territory of clause 11 of the contract".

151. It was also difficult to see how in the circ*mstances Euroption could complain that, even on theassumption that such trades were contractually permitted under clause 11, such a strategy was inbreach of SEB's duty of care (if, contrary to my conclusion under Issue II above, one existed), orwas in breach of SEB's duty not to act irrationally. As formulated in Mr. Shivji's closingsubmissions, the complaint appeared to be that Mr. Scattolon:

"… was in the dark about precisely what was going on at the time (SEB not havinggiven notice to Euroption of the close out) and was interested (unlike SEB) in rollingout the strike prices so that the portfolio could survive the period of volatility"

and therefore could not be said to have authorised the trades or waived any breach of duty on SEB'spart; and that Mr. Martin was negligent/irrational in accepting these trades without demur incirc*mstances where the combination trades "substantially increased the exposure of the portfolio toupward movements in the market"; see Particulars of Claim, paragraph 13.1.

152. On the facts, as I find them, I reject Euroption's claim under this head (if, indeed, any such claimwas made) that such a strategy was negligent or in breach of SEB's duty of care (if one existed), orwas in breach of SEB's duty not to act irrationally. First of all, as I have already found,Mr. Scattolon was aware on 10 October that SEB was conducting a close out. Second, even on theassumption that SEB had a duty of care in relation to the close out, as opposed to merely a duty notto act irrationally, I am satisfied that the execution of these combination trades was neither negligentnor irrational.

153. First of all I cannot accept the assertion that the combination trades "substantially increased theexposure of the portfolio to upward movements in the market". As the expert and non-expertevidence showed, as at 10 October, Euroption and SEB remained excessively exposed to downwardmovements in the market, and SEB's aim was to reduce this risk. Dr. Fitzgerald's opinion (which Iaccept) was that it was completely reasonable for a clearing member in the position of SEB toaccept a modest increase in upside risk to achieve a much more substantial reduction in downsiderisk (which is exactly what this trade achieved). The combined effect of the combination trades wasa reduction in downside risk of €12,281,138 and an increase in upside risk of €1,485,394. InDr. Fitzgerald's opinion, any clearing member in the position of SEB, bearing in mind the thenmarket circ*mstances and with a weekend ahead, would have regarded that risk impact as "highlysatisfactory".

154. However SEB did not simply ignore the upside risk presented by the new short call positions. In hiscall with Mr. Caldon at 10:12 on 10 October, Mr. Martin stated that "... we'd best start working atbuying those Calls back". At 11:14, Mr. Martin said to Mr. Caldon that:

"… I've now got to get rid of those 46 … I've now got to get rid of 4600 calls as well.Look I don't want any risk on this … account over the weekend."

Mr. Martin therefore made it absolutely clear that he wished to exit these new calls (and indeed allremaining positions) as soon as possible.

155. In his report, Mr. Beagles criticised SEB's decision to allow TSL to carry out the combination tradeson the ground that, even when faced with an absence of liquidity, it should have exhausted all of thealternative strategies before resorting to such a method. Mr. Beagles asserted that, "… it is surelythe case that simply shifting risk in this way is less desirable than removing or mitigating risk by analternative method." Such alternatives included, he states, "… selling the position as a whole toanother bank, closing out the open positions expeditiously, delta hedging with relevant futuresetc…". Thus Euroption's case appeared to be that in failing to take these steps, SEB was in breachof duty.

156. In his report, Dr. Fitzgerald explained that it was not a question of exhausting other strategies: therewas no strict and inflexible hierarchy of options. It was a question of SEB doing the trades that wereavailable at the time and that were advantageous from a risk reduction point of view. If there wasinadequate liquidity at sensible prices to close the position naked, it was to be expected that thepositions would be closed in whatever manner could be achieved in the prevailing marketconditions.

157. In cross-examination, in relation to Set J, Mr. Beagles said he had no reason not to take at facevalue what Mr. Caldon told Mr. Martin about the market for the 3600 puts, at the time when hesuggested the FTSE combination trade; in other words the absence of liquidity. Mr. Beagles did notsuggest that SEB, as a reasonable clearing member, should not have taken into account whatMr. Caldon was saying. Indeed Mr. Beagles said that he thought liquidity was "a very realconsideration". Mr. Beagles also said that the impact of liquidity on price was a consideration to betaken into account, inasmuch as it was sensible not to do too much at one time and to try only to dowhat the market could stand (because otherwise one was in danger of moving the price).Mr. Beagles also accepted that, if it was possible to buy back the 3600 puts as part of a combinationtrade at a significantly better price than could be obtained if one was doing the trade naked, thatmight be one factor that one would take into account when deciding what to do in the close out.Mr. Beagles commented that his theory was that it would be highly unlikely that the price would besignificantly better, but conceded that this was not based on any concrete evidence from trading on10 October. He accepted that, taking it at face value, TSL was clearly indicating to SEB that theremight well be an advantage in doing the trade as a combination trade.

158. In cross-examination, Mr. Beagles also repeated his view that other alternatives should beexhausted before a broker decides to do a combination trade. The focus seemed to be on so calledCategory 2 trades (i.e. options with a strike price similar to the option in the portfolio). WhileMr. Beagles referred to a hierarchy of options, he said that he was not suggesting that there was afixed and inflexible hierarchy that everyone has to adhere to in a fixed and inflexible way.

159. According to Dr. Fitzgerald, there was no "sequential order of preference". As Mr. Toledanosubmitted, Dr. Fitzgerald's evidence on this point reflects the entitlement of a clearing member togive priority to its own interests in the course of a close out and the flexibility afforded to such aclearing member to determine how those interests are best served.

160. Mr. Beagles also accepted that the combination trades were beneficial so far as the directional riskexposure on 10 October was concerned. Although he attempted to qualify this by adding "but to alimited extent", he said that he accepted Dr. Fitzgerald's conclusion that the FTSE combinationtrade resulted in a very substantial reduction in the positive delta of the order of €64m and areduction in the negative gamma of around €600,000.

161. Dr. Fitzgerald said that he might have been "quite tempted by the combination trade" because of itsimpact on the portfolio's long delta. The trades "knocked out" a significant amount of downside riskat the price of putting on a small amount of upside risk. He also accepted that "potentially" an evenmore preferable approach would have been to execute the combination trade, buy back the call andsell futures equivalent to the delta of the call.

162. In my judgment, Euroption has failed to demonstrate any grounds to support its claim under thishead that SEB was negligent or irrational in executing the combination trades as part of the closeout. If and to the extent that Mr. Beagles was suggesting that a clearing member must adhere insome way to his hierarchy of preferred trades, in order to be considered to be acting reasonably, Ireject that evidence. I find the evidence of Dr. Fitzgerald far more realistic. A clearing memberconducting a close out in its own interests in circ*mstances such as those prevailing on 10 Octoberwas under no obligation to consider every possible alternative trade at every moment on that day.The fact that it might have been possible to structure a group of trades which included options and futures, which might have been even more beneficial from a risk reduction perspective than thetrades that were done, did not mean that the trades which were done did not themselves have verysubstantial benefits or that it was anything other than reasonable to execute such trades.

163. I accept Dr. Fitzgerald's evidence that a clearing member in the position of SEB must, for practicalreasons, have a good deal of flexibility in carrying out the close out process, choosing the sequenceof trades in order to achieve it and deciding on the timing of those trades. I accept Dr. Fitzgerald'sview that a clearing member must have the unquestioned right to carry out its own assessment ofthe risks of the client's positions and choose that order and timing of trades which it deems mosteffective in reducing those risks, in the light of market conditions and liquidity. Indeed such anapproach is supported by the authorities to which I refer below.

164. In the present case, the combination trades were reported by TSL and accepted by SEB for perfectlygood reasons, which were supported by the expert evidence. Indeed it was not put to Mr. Martin incross-examination that he could or should have executed an alternative trade instead of the FTSEcombination trades (Set J). Nor was it clear from the evidence whether any of Euroption'shypothetical alternatives could have been executed on 10 October or that, if executed, they wouldhave improved Euroption's position given, for example, the cost of such alternative trades and theneed to unwind them in due course.

165. Accordingly, I reject Euroption's Claim 2 on the facts, even if I were wrong in my conclusion thatas a matter of law and in the circ*mstances no contractual or tortious duty of care existed.

166. Euroption's complaint under this head is that, on the assumption that the close out began on 10October, SEB delayed in the buying back of certain short call positions. Specifically Europtioncomplains that

i) 200 November 2650 Eurostoxx calls were not closed out (i.e. bought back) until theafternoon of 13 October, even though the rest of the position (1100 lots) had beenclosed out early on 13 October;

ii) 1,760 October 3800 CAC40 calls were not closed out (i.e. bought back) until 13October, when they should have been closed out on 10 October;

iii) 2,000 November 4200 CAC40 calls were not closed out (i.e. bought back) until 13October, when they should have been closed out on 10 October;

iv) 2,725 October 4800 FTSE 100 calls, 2,200 October 4900 FTSE 100 calls and11,000 October 5200 FTSE 100 calls were not closed out (i.e. bought back) until 14October 2008, when they should have been closed out on 10 October.

167. Euroption contends that these call positions ("the Claim 3 calls") could, and should, have beenclosed at an earlier stage; that the markets were continuing to fall on 10 October; and that removingthe portfolio's upside risk would have been prudent and could have been effected with significantcosts savings in a falling market. In its reply Euroption criticised SEB for having "overlooked theshort call positions" on 10 October. Euroption contended that the delay in closing the Claim 3 callsamounted to a breach of SEB's duty of care and its duty to act rationally. As already mentioned, thequantum of Euroption's claim for direct losses under Claim 3 was:

€261,757 £186,947

168. I received a meticulous and micro analysis of the strategy which Euroption contended that SEBshould have adopted in relation to closing out the Claim 3 calls, both from Mr. Beagles and fromMr. Shivji in his closing submissions. Added to Euroption's complaints about the actual strategy,were allegations that:

i) Mr. Martin was a wholly unsuitable person to conduct or supervise the close outbecause, in particular, he did not have an advanced understanding of "the Greeks";

ii) SEB failed adequately to consider and discuss the possibility of selling the entireportfolio to a single market maker or equity prop (i.e. proprietary) desk;

iii) if closing trades naked was not possible, SEB ought to have given moreconsideration to the possibility of delta hedging the portfolio by selling futures;

iv) in the event of it not having been possible to close options naked, SEB ought tohave sought to carry out "Category 2" trades so as to create put and call spreads;

v) SEB should not have used or relied upon TSL as the execution broker for the closeout.

169. The detail with which Euroption conducted this retrospective analysis demonstrated the difficultieswhich a court faces if indeed it is required to conduct its own objective assessment of a close out byreference to so-called objective criteria. Indeed Mr. Shivji effectively invited the court, by referenceto suggested alternate trading strategies and asserted market considerations, to re-run the entireclose out from 10 to 13 October. Euroption's case relied upon a forensic comparison betweenvarious trading options which ignored the practical reality of close-out trading. As Dr. Fitzgeraldsaid in cross-examination:

"I think these close-outs, actually, if I can just make a general point, are not done in thiskind of scientific modelling way that you're trying to imply. I think the main point is, asI've said, to get rid of positions quickly."

170. On the basis of Mr. Martin's, Mr. Scattolon's and Mr. Westring's evidence and the expert evidencewhich I received from both Mr. Beagles and Dr. Fitzgerald, I am satisfied that even if, contrary tomy conclusion, SEB was subject to a duty to take reasonable care, Euroption's complaints that SEBwas in breach of that duty or in breach of its duties of rationality were unfounded. As Mr. Toledano,based upon Dr. Fitzgerald's evidence, submitted, it is important to step back from the minutiae ofalternative trading decisions that Euroption put forward as the basis of its case. There are alwayslikely to be matters that the trader could look back on and say that a different strategy could havebeen adopted. Dr. Fitzgerald rightly referred to the fact that there are an "… infinite variety of [waysof] closing out a given set of positions". The decisions have to be taken quickly against thebackground of a client default and in difficult market conditions. Thus, the issue for the Court is notthe relative strengths and weaknesses of another strategy compared with the strategy in fact adoptedbut whether the decisions actually taken were within the bounds of reasonableness and flexibilitythat brokers put in this position have.

171. The relevant facts were that, as a result of Euroption's failure to pay margin in breach of contract,and as a result of Euroption's trading strategy, which continued up to and including 9 October, SEBfound itself having to close a massive portfolio of options on a day of unparalleled volatility andhuge downward movements in world markets. Despite the extraordinary conditions, SEB managedto carry out on 10 October a series of closing trades on Euroption's account which Mr. Beaglesaccepted achieved a very substantial reduction in market risks on the portfoglio.

172. Once the close out began on 10 October, all but two of the put positions were closed on that day.The two that were left were the 3300 and 3400 November puts. Mr. Beagles accepted that if thosetwo positions had been bought back sooner, Euroption would actually have been worse off, notbetter off, because of the market rally over the weekend. Mr. Beagles accepted that, if there was tobe some criticism about the fact that these particular puts were not closed on 10 October but wereclosed on 13 October, then that delay would actually have benefited Euroption as opposed tocausing a loss. Not surprisingly, in its closing submissions Euroption made no complaint about thisdelay.

173. SEB decided that it would concentrate first on removing downside risk in the portfolio. Havingconsidered a range of other possible approaches for removing delta, Mr. Martin determined that theonly viable option available to SEB was to buy back naked as many of Euroption's short putpositions as possible. SEB chose to start by closing, in an orderly manner, those puts that wereclosest to expiry and those with the strike price closest to the market price (or "nearest to the money"), as these produced the highest delta. Both experts agreed that this was a reasonableapproach to take. Mr. Beagles accepted that it was reasonable for SEB, on 10 October, to focus firston the puts because they were presenting the greatest risk to the portfolio, until the directionalexposure switched to the upside. He also agreed that, looking at the risks from an overall portfoliobasis (which Mr. Beagles accepted was not unreasonable), the risk did not switch to the upside untilthe morning of 13 October. I conclude therefore that it was reasonable for SEB not to commencethe close out of the calls until 13 October, by which time SEB was focusing on closing out theremaining puts as well as the calls.

174. Mr. Beagles' only real criticism of SEB's conduct of the close out in relation to the alternative case,was that it "… failed to focus on the calls when the directional risk changed". Mr. Beagles repeatedthis in cross-examination, going so far as to say that "… the evidence suggests to me that SEBignored the upside risk. They weren't trying to close the out of the money calls". However, this isdifficult to accept since the directional risk on the Euroption portfolio did not switch to the upsideuntil sometime during the course of trading on 13 October. Dr. Fitzgerald's opinion was that theportfolio remained heavily exposed to the downside at the close of trading on 10 October and thatthe short call positions that remained open offered protection in the event of a further fall in themarkets. Mr. Scattolon also agreed that the directional exposure of the portfolio shifted to theupside at some time early on 13 October. It was certainly a reasonable view for SEB to take that itwas not until 13 October that it became sensible to close any of the short call positions, and that,had any of the short call positions been closed on 10 October, the closure would have added to thelong delta of the portfolio and therefore increased the imbalance in the directional exposure. Indeed Mr. Beagles accepted that if one knew that the risk had not yet switched to the upside at close ofbusiness on 10 October, it was reasonable not to be seeking to buy back the calls on the afternoon ofthe 10 October.

175. Mr. Martin said that the portfolio had become short delta at some time on Monday 13 October butthat he had not known the exact time when it did so. Whether or not he knew the precise moment ofthe change in directional exposure is beside the point, since he began closing out the calls on themorning of 13 October as the delta switched.

176. There was real difficulty in Euroption's claim, since the first step in its analysis required all of theputs to have been closed on 10 October instead of partly on 10 October and partly (as regards the3300 November FTSE puts and the remaining 3400 November FTSE puts) on 13 October. But theclosure of the outstanding puts on 13 October actually benefited Euroption because of the marketrally over the weekend. Had these puts been closed out on 10 October, the additional loss toEuroption would have more than wiped out any benefit to Euroption from the closure of some or allof the calls on 10 October. But Euroption's approach effectively required the court to cherry pickthose trades which were disadvantageous to Euroption and exclude from consideration those whichwere advantageous. This seemed to me to be a flawed approach to a critique of SEB's strategy.

177. Moreover, on the evidence the two likely explanations for any alleged delay in closing out callsbetween 10 October and 13 October were the absence of liquidity in the market and Mr. Scattolon'sown conduct. Thus the evidence demonstrated that there was a general lack of liquidity and realconcerns about downward pressure on the indices as a result of the large positions which SEB washaving to trade out of. The other factor which might have caused delay was Mr. Scattolon'spersistent attempts to have TSL slow down the close out as the contemporaneous communicationsdemonstrated.

178. Accordingly, I cannot accept that Euroption has demonstrated any breach of duty to take reasonablecare (on the assumption that such a duty existed), let alone any breach of its duty to act rationally, inrelation to the delay in closing out the calls between 10 and 13 October.

179. Euroption had a different complaint in relation to the close out of the final 200 Eurostoxx 2650 callson the afternoon of 13 October. This position was opened on 10 October on the instructions ofMr. Scattolon (the "Eurostoxx combination trade" or Set H). The bulk of the position was closed outon the morning of 13 October and Mr. Martin was wrongly notified by TSL that everything hadbeen closed, when in fact 200 positions remained open. Mr. Martin did not realise at the time that200 positions had only been closed later that day and Euroption did not raise the matter at the timeeither.

180. It was unclear on the evidence why the 200 call options were left to the afternoon of 13 October andonly closed out then. Euroption's case appeared to be that it was a mistake by TSL for which SEBshould be held accountable. Although the delay may have been TSL's fault, there may well havebeen another explanation. In any event, the Eurostoxx combination trade had been opened byEuroption on 10 October during the course of the close out after Mr. Scattolon knew the close outwas taking place.

181. In the circ*mstances I see no reason why SEB should be liable for the financial consequences of thetrade having been closed out on the afternoon of the 13 October rather than in the morning. Giventhe pressures operating on Mr. Martin to conduct and complete the close out not only of Euroption'sportfolio, but also those of SEB's other clients, it was perhaps not surprising that one set of tradeswas overlooked – if indeed that was the case rather than an absence of liquidity or somethingsimilar, which prevented the close out of the 200 calls being concluded earlier in the morning of the13 October. Euroption has not established that the failure to do so was negligent, let alone that itdemonstrated a breach of SEB's duties of rationality.

182. I should, for the sake of completeness, add that the evidence did not establish any supportable basisfor Euroption's additional complaints as itemised in paragraph 167 above. Mr. Westring andDr. Fitzgerald gave convincing evidence as to Mr. Martin's suitability to conduct or supervise theclose out. There was nothing in the complaint that, because he did not have an advancedunderstanding of "the Greeks" he was unable to do the job of closing out the portfolio. Not only didhe have an understanding of the relevant concepts based on his experience over the course of a longcareer in SEB Futures, but, as was indeed obvious, he recognised that the portfolio was long deltaand short volatility at the time when the close out began on 10 October. His decision-makingprocess did not require detailed modelling of the portfolio risk, given its massive over exposure toincreases in volatility in the market. As Mr. Westring pointed out, the risk profile of the portfolio"was readily apparent to the naked eye". Mr. Martin had appropriate systems and methodologiesavailable to him and was able to provide adequate information to the members of SEB'smanagement to whom he was reporting. The evidence also showed that Mr. Martin did indeedconsider and discuss the possibility of selling the entire portfolio but decided not to do so. He alsosaid that SEB considered the possibility of delta hedging the portfolio by selling futures, but thatthat course was discounted for various reasons. Dr. Fitzgerald gave evidence (which I accept) that,in all the circ*mstances then prevailing, the decision whether to delta hedge was not clear-cut, andthat although he might well have done so, it was not unreasonable for a clearing member to take adifferent view. Likewise Dr. Fitzgerald expressed the view (in relation to Euroption's allegation thatSEB ought to have sought to carry out "Category 2" trades so as to create put and call spreads, if itwas not possible to close options naked), that, although this was one of the routes that a competentbank might follow, it was not necessarily a preferable course to selling calls. Although Mr. Beaglescriticised the appointment of TSL as execution broker, even he accepted that its appointment waswithin the degree of flexibility that was accorded to a clearer in the course of undertaking a closeout. Dr. Fitzgerald believed that the choice of TSL as executing broker was reasonablenotwithstanding it had previously acted as Euroption's executing broker, and not in conflict withmarket practice. Moreover, it was not suggested that any of these particular complaints was directlycausative of any particular loss. In my judgment, there was no foundation to any of these criticisms.They were decisions that were well within the discretion of a clearing member closing out a client'spositiob

183. Accordingly, I reject Euroption's Claim 3.

184. In the circ*mstances quantum and causation issues do not arise for consideration, since I haverejected Euroption's claims 1, 2 and 3.

185. However, even if I were wrong in this determination, on the basis of Dr. Fitzgerald's evidence, I amnot satisfied that Euroption has established that it did indeed suffer any loss in relation to Claim 2 -the combination trades. Euroption's claim in respect of the straight losses on the two call positionswhich were opened as part of the two combination trades on 10 October, does not take into accountwhat the downside risk of Euroption's book would have been at the close of business on 10 Octoberhad either or both of the combinations not been carried out.

186. As set out at paragraphs 3.17 - 3.20 of Dr. Fitzgerald's first report, the combination trades had afavourable impact on the risk profile of Euroption's book, reducing downside risk by €12,281,138at the expense of increasing upside risk by €1,485,394. I accept his view that, accordingly, it wasnot appropriate to consider the call positions within the combination trades in isolation, and thatthey had to be considered in the context of the impact of the closure of the puts on the downsiderisk of Euroption's portfolio. Dr. Fitzgerald expressed the view in paragraphs 4.33 and 4.34 of hisreport that there was no ready way to modify the directly calculable losses on the closure of thecalls to account (or give credit) for the risk effects of closing the puts. I accept Mr. Toledano'ssubmission that, in the circ*mstances, Euroption has not established a quantifiable loss arising outof the combination trades. Looked at in their context, the combination trades produced anadvantageous impact for Euroption at the time that they were executed. The fact that the calls weresubsequently bought back for a higher price than they were sold does not produce a recoverableloss.

187. As for Euroption's suggested alternatives to combination trades, there was no evidence before theCourt that these would have produced a better result than the trades that were actually executed. Byway of example, if SEB had executed the combination trades and then bought back the calls andreplaced them with an equivalent short futures position (as suggested to Dr. Fitzgerald in crossexamination),then the short futures positions would have had to be bought back at some point. Hadit been bought back on 13 October after the market rally, it is likely to have produced a loss.Whether this loss would have been more or less than the loss sustained by the calls was notestablished by Euroption.

188. In relation to Euroption's Claim 3 (the alleged delayed close out of the Claim 3 calls), I likewisefind that Euroption has not established the quantum of its claim for direct losses. In formulating thisclaim, Euroption "cherry-picked" a sub-set of six of the positions that were still open at the close ofbusiness on 10 October 2008. In particular (and as accepted by Mr. Beagles), Euroption's claimexcluded the 15,421 November 3300 FTSE 100 puts and the 2,200 November 3400 FTSE 100 puts,which were two positions that were also not closed on 10 October; they were in fact closed on 13October.

189. Dr. Fitzgerald's evidence is that the "delayed" closing of the 15,421 November FTSE 3300 putsfrom 10 to 13 October 2008 resulted in a better price being achieved for the closure of those putsthan the mid-price that was available for a closure taking place on 10 October 2008 (seeDr. Fitzgerald's first report, paragraph 4.38). The price difference in relation to the November FTSE3300 puts resulted in a saving of £1,526,679 or €1,925,295.

190. Mr. Beagles accepted that there was a gain of nearly €2 million to Euroption as a result of theNovember FTSE 3300 puts not being closed until 13 October, compared to what would havehappened had they been closed on 10 October. Mr. Beagles also accepted that, if the gist ofEuroption's alternative claim is that the closure of certain positions was delayed until 13 - 14October, when closure should have occurred on 10 October, it would be right and proper forEuroption to include in its calculation all of the positions that were still open at the close of businesson 10 October, rather than rely on a sub-set of them. If Euroption's analysis for its alternative claimshould have included the November 3300 FTSE 100 puts and the November 3400 FTSE 100 puts,the more favourable prices that were (in fact) achieved through closure on 13 October wouldeliminate the losses that Euroption complained of under its claim. Accordingly, in my judgment,Euroption has not established that it suffered any loss in respect of Claim 3.

191. Euroption also sought to recover damages for profits that it says it would have made had the fundnot been depleted as a result of SEB's alleged breach of contract or negligence. In the light of myrejection of Euroption's claims 1, 2 and 3, this issue does not arise for determination. All I need say,in the circ*mstances, is that from both a factual and a legal viewpoint, I regarded this claim fordamages for pure economic loss with considerable scepticism.

192. Accordingly, I dismiss Euroption's claim.

193. I am very grateful to leading and junior counsel and the respective firms of solicitors for theconsiderable assistance which I have received from both sides' written and oral submissions.