This case involved foreign exchange transactions conducted by the First Defendants, a firm of commodities traders then trading as LHW Futures Ltd (LHW), on behalf of the Plaintiff who was an individual investing his own money in a private capacity. The Second Defendant, Mr Morris, was at all material times a senior account executive with LHW and dealt with the Plaintiff in relation to the transactions at issue. The events giving rise to this action occurred in the years 1984–85. The trading contract between LHW and a client would involve the client paying over a sum which would represent commission and margin on the particular currency trade. The commission, at 2 per cent of the total contract value, was high in comparison to other traders because it was a feature of these contracts that there would be no further margin calls to the client since an automatic stop loss mechanism was built in to the contract which had the effect that a client's total loss was limited to the amount of the original margin. In theory a client's profit on a currency contract was unlimited but in practice merely to break even and cover commission required a substantial rise in the price of the currency bought whereas a relatively small drop in its price would wipe out the client's position once and for all regardless of any subsequent rises. One defence expert testified that the likely effect of this form of currency trading contract was that approximately 90 per cent of investors would be wiped out while only 10 per cent profited. The Plaintiff in this action was an engineer and property developer with most of his assets tied up in a land bank and housing development. He was inexperienced in stock trading and commodities markets. In July 1985 the Plaintiff entered into two trades in Swiss Francs with LHW. He invested £2,600 in the first trade and £23,400 in the second. The Plaintiff was then passed on within LHW to Mr Morris, the Second Defendant, who dealt with ‘bigger clients’. On 30th July, 1985, Morris urged the Plaintiff to invest in one hundred lots of sterling at a total cost to him of £150,000. The Plaintiff bought ten lots of sterling at a cost of £15,000 paying £10,000 in cash and raising the balance by stripping it out of the earlier Swiss Franc deal. The price of sterling went against the Plaintiff and, as the stop loss position was about to be reached Mr Morris rang the Plaintiff to recommend he buy another ten lots of sterling at £15,000 to average out his position. Mr Morris was aware that the Plaintiff did not have the cash available and that he would have to borrow the necessary cash, as indeed he did. On 1st August the Plaintiff entered into the fourth trade at issue in this case. The stop loss position was reached on that trade too and the Plaintiffs position was wiped out. On 5th August the Plaintiff's trading position was closed and of his total stake of around £54,000 he recovered only £2,231.62.
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