In September 2019, a client of our firm entered into an agreement with a Cypriot broker offering investment services through an online trading platform. These services include trading in Contracts for Difference (CFDs), complex and risky financial products that involve speculating on price increases or decreases in underlying assets such as stocks, currencies or commodities. Initially, our client was given a “retail account” with a leverage of up to 1:30, in accordance with the decision of the Authority for the Financial Markets (AFM). A few days later, however, this account was upgraded to a professional account with a much higher leverage of up to 1:400. Within two months, our client lost €37,000 by investing in CFDs. He claimed that the agreement had been concluded and executed on the basis of unfair trading practices and that, in addition, the broker had violated the AFM decision. On this basis, he claimed annulment of the agreement and repayment of his deposit.

Court ruling

The North Holland District Court ruled on June 23, 2021, that the broker had engaged in unfair trade practices and that the contract should be voided. The court noted the following:

  • Deceptive trading practices: the broker used fake ads featuring Dutch celebrities (without their consent) to attract clients. This was misleading and influenced our client’s decision to register.

  • Aggressive trading practices: When upgrading to a professional account, the broker exerted undue pressure on client, asking him to provide incorrect answers to questionnaires. This led to a status change that exposed him to much higher risks.

  • Regulatory violation: The upgrade to a professional account violated the AFM decision, which prohibits trading in CFDs with leverage higher than 1:30 for retail customers.

The court nullified not only the framework agreement, but also the subsequent upgrade to the professional account and all CFD contracts entered into. The dictum literally read, “nullifies the agreement entered into in September 2019 between [plaintiff 1] and the broker (including the upgrade to a professional account forming part thereof) and the related CFDs.” This meant that the broker was obliged to refund the full deposit of €37,000.

Destruction explained in more detail

Nullification is a legal means by which a contract can be reversed for defects in its formation. The result is that the parties are returned to the situation as if the contract had never existed. In this case, nullification was possible under Section 6:193j (3) of the Dutch Civil Code because the contract had come about through unfair trade practices.

A special aspect in this case concerned the question of what exactly was destroyed. The court explicitly distinguished between different parts of the contractual relationship: the initial framework agreement, the change of status to professional account, and individual CFD contracts. This distinction is relevant because CFDs should each be considered separately as a contract.

Duration agreements and change to professional account

The legal regime for unfair commercial practices does not seem to be specifically tailored to long-term contracts that are changed in the interim, as happened here with the change of status to professional investor. Different rules apply when such a change occurs: professional investors enjoy less protection under MiFID II regulations than retail investors. This includes:

  • Access to higher levers.

  • Less stringent disclosure requirements for brokers.

The court emphasized that this change of status itself could also qualify as a voidable legal act because it had been created under the influence of deception.

The AFM decision and review

The 2019 AFM decision prohibiting trading in CFDs with high leverage for retail customers played a crucial role in this case. The court found that F1 Markets had violated this ban by still offering CFDs with a leverage higher than 1:30 via a status change. This decision also applies to foreign brokers offering services to Dutch consumers.

Refinement of case law

This ruling is part of a series of judgments that have overturned agreements on CFD products for unfair trading practices. What sets this ruling apart is the consideration of different times when deception occurred during the course of trading:

  • Misleading recruitment through fake ads.

  • Deception in entering into the framework agreement.

  • Deception when changing status to professional account.

  • Deception during counseling on individual trades.

The court placed the starting point of the deception before any trading in CFDs at all, namely at recruitment through bogus advertisements. In other cases, deception often begins only during investment advice.

Conclusion

This ruling offers a refinement of existing jurisprudence on unfair trade practices in the CFD industry by explicitly addressing different phases within term contracts. It highlights how deception can extend across multiple moments and legal acts within a single contractual relationship, providing new opportunities for legal review and enforcement against rogue brokers.