Frasers’ case against Morgan Stanley over an allegedly bad faith effort by the investment bank to rob the retail group of more than $50 million has gone to trial in London. The parties made their initial appearances before the English High Court on Wednesday in connection with a case that centers on a nearly $1 billion margin call covering trades in Hugo Boss AG. Frasers – which previously traded Hugo Boss stock through Morgan Stanley client, Saxo Bank – alleges that Morgan Stanley’s May 2021 demand for additional collateral was improperly motivated by its desire to harm the Mike Ashley-owned company, and thereby, amounts to a breach of proper market practice.
In the case, which got its start back in the spring of 2021, Frasers asserts that Morgan Stanley’s margin call (i.e., a demand that an investor deposit additional funds so that its account meets the maintenance margin requirement) caused it to abandon its bets on the Hugo Boss stock and cost it approximately 47 million euros ($51 million) in costs and lost trading profits as a result. In the complaint that it lodged with the High Court in London in May 2021, Frasers alleged that the margin call, which Morgan Stanley imposed on it via Saxo Bank, was “arbitrary, capricious, in breach of good faith, far from market practice, and a breach of contract.”
Frasers claims that it attempted to meet the margin call back in 2021 by way of a mix of cash and Hugo Boss shares, but its offer was rejected by Saxo Bank, which was initially named as a defendant alongside Morgan Stanley but is no longer a party to the case.
All the while, Morgan Stanley has maintained that the margin call was a routine response aimed at protecting itself from adverse share price movements in light of Frasers’ sizable position in Hugo Boss. In a previous filing with the court, counsel for Morgan Stanley argued that Frasers’ claims are “under-particularized, ill-founded and in many cases, liable to be struck out [in light of a lack of] reasonable grounds for bringing them.” The bank has also argued that it was exclusively bound by contract to Saxo Bank and thus, lacked any legal ties to Frasers in connection with its positions in Hugo Boss.
Frasers successfully sought injunctive relief in June 2021 in order to prevent Morgan Stanley and Saxo Bank from making good on the margin call, which counsel for Frasers said was put into effect after Morgan Stanley learned that Frasers was the party behind the Hugo Boss trades held by Saxo Bank.
In opening arguments on Wednesday, counsel for Frasers characterized Morgan Stanley’s “out of the blue” margin call as a “snobby” and legally “inappropriate” attempt to avoid doing business with Ashley and his company. Morgan Stanley’s lawyers, on the other hand, argued that the margin call was the result of “objective indications of risk” and carried out in accordance with the bank’s standard practices. Reflecting on Frasers’ case, Morgan Stanley maintains (as reported by Bloomberg) that it is “divorced from legal, factual, and market reality and the retailer did not suffer any loss when it transferred the trades away from the Morgan Stanley.”
Moreover, they told the court that the case is an effort by Frasers to “embark on lawfare against Morgan Stanley on an extraordinary scale” in furtherance of which Frasers “advances wild allegations of bad faith and irrationality and asks the court boldly to go where it has never gone before.”
The trial is scheduled to last three weeks at the London High Court.
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