In a recent Irish decision, Haughey v. Davy (Unreported High Court 10/4/14), the plaintiff succeeded in an action for damages in relation to loss suffered on investment in contracts for difference (CFDs) on the basis that the plaintiff was not in the full of his intellectual, physical and mental health, and the defendant should have advised him not to invest in CFDs or switched him to a execution only account, if insisted on making the investments.

The defendant offered discretionary, advisory and execution only accounts. The discretionary account would mean that the defendant would make investment decisions for the investor. An advisory account would mean that the defendant would give investment advice, but the decision as to where to invest was a decision for the client. An execution only account would mean that the client decided on investments without input from the defendant.

The plaintiff opened an advisory trading with the defendant in 2005 and invested in CFDs in relation to a small number of listed equities. CFDs allow traders to speculate on share price movements, without the need for ownership of the underlying shares. The financial exposure to loss can be far greater than simply buying the shares.

The court found that the plaintiff was not in the full of his intellectual, physical and mental health, and given the defendant was put on notice of this, better steps should have been taken by the defendant to investigate what kind of investment might be suitable.

The defendant had presented evidence of testing from psychiatrists and psychologists which they argued showed malingering - that the plaintiff did not suffer from the poor health complained of. The court acknowledged the inconsistencies from the testing but found that it did not show evidence of malingering.

The court found that the defendant had breached rule 4.5.3 of the Irish Stock Exchange Rules 1997, in failing to obtain information from the plaintiff in relation to inter-alia his personal financial situation, his investment objectives and his investment experience. Following an initial meeting with the plaintiff, the defendant ranked the plaintiff as a gold client with an aggressive disposition towards investing, but the court found there were insufficient enquiries to arrive at this conclusion. The court found that a number of forms signed by the plaintiff had not been fully completed by the defendant.

The court held that the defendant was under a responsibility to advise the plaintiff away from CFDs at a much earlier stage. If the plaintiff refused, they should have requested he change to an execution only account.

The court found that the concept of the ramifications of CFDs were not explained to the plaintiff.

In relation the Statute of Limitations point, the court found that the duty owed by the defendant to the plaintiff was a continuing obligation and therefore time did not run from the initial meetings with the plaintiff.

The plaintiff was awarded his net loss from the CFD trading accounts of €1,250,475, plus non-recoverable capital gains tax arising from initial gains on the account €487,066, plus the interest on funds invested in the CFD trading account of €362,080.


Investment advisers may have a special duty in the event that the client has any impairment to intellectual or mental health.

Insofar as an adviser categorises a client's investment objectives, the categorisation should be backed up with sufficient documentation to stand over this later. This is particularly so for brokers to whom the Irish Stock Exchange Rules apply, but similar provisions might be found applicable to insurance brokers and investment advisers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.