CITIBANK, N A v. LEUNG RONALD DING BONG

HCA 2683/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2683 OF 2008

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J U D G M E N T

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1.  This is an Order 14 application.  The plaintiff bank sues the defendant, Dr Leung, for over HK$9.7 million in shortfall, arising out of the liquidation of seven accumulator contracts that the defendant had entered into through the services of the plaintiff, as well as other assets which the defendant had kept with the plaintiff, on 27 October 2008.

2.  Prior to that, the prices in relation to the contracts had dropped substantially and that resulted in a margin call made by the bank on the defendant which, quite plainly, the defendant was unable to meet. 

3.  Everything turns on four telephone conversations that took place in the morning and in the early afternoon of 27 October 2008.  The conversations were tape-recorded and the Court has before it the transcripts of the four telephone conversations. 

4.  By taking out the summary judgment application, the plaintiff is obviously saying that the defendant has no arguable defence to the claim for payment of the shortfall, nor is there any triable issue fit to go to trial and thus the bank asks for summary judgment against the defendant.

5.  The defendant contends otherwise.  Amongst other things, the defendant contends that in the telephone conversations, particularly the so-called second telephone conversation between the parties which took place between 10.58 and 11.00 am on the day in question, he had given firm and unequivocal instructions to the bank to liquidate all seven contracts.  But, so the defendant contends, the bank simply ignored or refused to follow his instructions until the fourth conversation that took place between 12.56 and 12.58 pm on that day, when the bank finally accepted his instructions to liquidate the seven contracts and to sell all other assets which the defendant had with the bank.  The difference in time, according to the defendant, has resulted in a substantial loss to the defendant’s position because the liquidation prices for these accumulator contracts had fallen between the two telephone conversations. 

6.  The defendant has also pointed out that in fact, on the same morning, he had given similar instructions to another bank, with which he had also maintained similar contracts, to liquidate those contracts, which instructions were followed.  And by reference to the prices so obtained in liquidating those contracts, the defendant now says that if the plaintiff bank in our case had liquidated his seven contracts earlier in the morning as per the instructions he had given during the second conversation, the prices which the bank could have obtained for him would have been much more favourable and his overall position would not have been a negative one.  Thus, there would not have been this lawsuit against him.

7.  So it is important to look at what the parties have actually said during those four conversations, particularly in the second telephone conversation.  It is trite law that in dealing with an Order 14 application, the Court is not here to try the case.  The Court is simply here to perform a screening function, to see whether there are any triable issues as to fact or as to law, or any other triable matters, that ought to go to trial.  If the answer is in the affirmative, the Court must not give summary judgment.  All parties, including defendants, are entitled to a fair trial and the Court must give the defendant a chance to present his case in court at trial.  In other words, the Court is, at this stage, only interested in arguable issues or triable matters. 

8.  Returning to the transcripts, particularly the transcript of the second telephone conversation, in my view, it is arguably plain that the defendant did give firm instructions to the bank to liquidate his seven contracts, come what may. 

9.  The one thing that stands out fairly clearly from the transcript of that telephone conversation, and indeed from the other transcripts as well, is that the defendant had no further money to inject into his account.  Yet, again speaking at the level of arguability, the bank was not willing, or did not think it wise in the interest of the defendant himself, to follow the defendant’s instructions to sell.  The bank somehow, again speaking in terms of an arguable case, suggested, or gave the impression to the defendant, that he had to come up with further cash before he could liquidate the seven contracts.  Moreover, the bank gave the impression that it needed to find out the liquidation prices first before it could carry out the defendant’s instructions, or before the defendant could make an informed and wise decision as to whether to liquidate his position.  All this took place in spite of – again speaking in terms of an arguable defence only – the defendant’s instructions to liquidate his contracts. 

10.  Moreover, in relation to whether extra money was indeed required before the bank could follow any instructions to liquidate the contracts, there are several arguable issues.  First, whether, factually, at that time, the overall position of the defendant with the bank was such that without injection of cash, liquidating the contracts as well as the other assets would result in a negative figure.  At least according to the bank’s own calculation, by the time of the fourth conversation, that was not to be the case. 

11.  Secondly, whether, as a matter of law, if liquidating the seven contracts would result in a negative figure, the bank was entitled not to follow the instructions to liquidate (without any cash injection first). 

12.  It is quite true that in the second telephone conversation, nobody expressly mentioned the possibility of resorting to the defendant’s other assets with the bank in order to cover any shortfall in liquidation.  But again, it is arguably plain that the defendant was, in this telephone conversation, leaving everything to the bank to decide in order to achieve his goal of liquidating his contracts.  Quite plainly, the defendant was in a very desperate position and all he wanted was to liquidate the seven contracts in order to have peace of mind.  He was leaving it to the bank to come up with ways in order to comply with his instructions. 

13.  This gave rise to, in my view, a third arguable issue, namely, whether the bank had fulfilled its duty to the defendant to come up with possible options or ways in order that the defendant’s instructions to liquidate could be complied with. 

14.  A related issue that surfaced in this second telephone conversation was the impression that the bank gave to the defendant that it needed to find out the relevant prices that outside counterparties would be willing to offer (or accept) in the liquidation process before either the liquidation instructions could be carried out, or the defendant could make an informed and wise decision as to whether to liquidate. 

15.  Either way, the impression given to the client was that time was required to find out from these possible and willing counterparties as regards the possible liquidation prices.  As it turned out, when eventually the contracts were liquidated, the counterparty to all these seven contracts was no one other than the bank itself, acting as principal. 

16.  So this gave rise to some difficulties:  First, why did the bank tell the defendant that his instructions to liquidate could not be carried out immediately because the bank was still trying to find out the possible prices for liquidation from these outside counterparties for the defendant when, in fact, the bank could act as the counterparty and in fact the bank eventually acted as the counterparty to the liquidation transactions?  And secondly, whether the advice given to the defendant at the time was in order.

17.  All these are matters that cannot be resolved on paper.  To be fair to the bank, these matters have not been very clearly spelled out or raised in the factual evidence filed and the bank has not either pleaded matters or relevant terms of contract in its pleading to cater for these points, or filed evidence to deal squarely with these matters.  Maybe – and the Court does not know – there are more than good answers to all these points and queries that the Court has just mentioned.  But all this just highlights the fact that this case really requires a trial to resolve all these and maybe other issues between the parties. 

18.  Again, I would like to emphasise that, at this stage, the Court is not saying whether the bank has a good case against the defendant or whether the bank will be successful in its claim at the end of the day.  The Court simply does not know and has no intention whatsoever to express any view, not even a provisional view, in this matter.  That is not the function of the Court at this hearing.  The function of the Court is simply to see whether there are triable issues or arguable points that should go to trial. 

19.  By reason of the matters that I have mentioned, I have come to the firm conclusion that there are triable issues and matters that ought to go to trial.  In other words, the Court is not minded to grant summary judgment against the defendant.  The Court grants the defendant unconditional leave to defend.

20.  I will hear the parties on the directions to be given for the further conduct of the proceedings before I deal with the question of costs.

[Submissions on directions]

21.  Leave to the defendant to file and serve a defence and counterclaim within 14 days from the date hereof.  Leave to the plaintiff to file and serve a reply and defence to counterclaim within 21 days thereafter.

[Submissions on costs] 

22.  Costs in the cause.