CITIBANK, N.A. v. LEUNG RONALD DING BONG

HCA2683/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2683 OF 2008

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BETWEEN

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REASONS FOR DECISION

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Introduction

1.  This is the plaintiff’s application for specific discovery of statements in respect of bank accounts, securities accounts or investment accounts including but not limited to accounts held by the defendant with Morgan Stanley and Wing Hang Bank sufficient to show his available liquid assets, i.e. cash or readily realizable securities such as listed stocks for the period between 18 and 27 October 2008 inclusive with the necessary redaction.

2.  On 16 February 2011, I allowed the application but limited the period to that between 19 and 27 October 2008 inclusive.

3.  These are my reasons.

Discussion

4.  The application essentially turned on the relevance of the documents sought.

5.  The defendant opened an account with the plaintiff in September 2005, through which he had since traded in various derivative products.  In September 2008, the Lehman Brothers collapsed.  On or about 18 October 2008, there was a margin shortfall of some US$3.3 million in the defendant’s account.  On 27 October 2008, the defendant gave the plaintiff instruction to close out and/or liquidate the investments and open positions in the account so as to crystallize his loss, which the plaintiff did.  However, the liquidation proceeds were insufficient to cover the loss leaving a significant shortfall.  On 19 December 2008, the plaintiff commenced the present action claiming for HK$9,710,203.59 with interest.

6.  The defendant denied liability on various grounds.  What is pertinent for present purposes is the complaint that the plaintiff had failed to act promptly on his instruction to close out, which was given over the phone at about 10:49 a.m. on 27 October 2008.  The plaintiff did not do so until 12:58 p.m. on the same day.

7.  In reply, the plaintiff alleged that no firm instruction to close out was given until 12:58 p.m.  Alternatively, if the instruction was given in the morning, the plaintiff contended that it was reasonably entitled to take the time to consider and discuss the matter internally, to obtain estimates of the unwinding costs, to try to persuade the defendant to change his stance and provide additional funding to cure his default and to decide whether to accept his instruction.  So there was no delay as alleged.

8.  The most crucial and hotly disputed issue concerns the meaning of the telephone conversations between the parties over the phone on 27 October 2008.  It will determine when exactly the defendant gave the instruction to close out.

9.  Of equal importance, at least from the plaintiff’s perspective, is the defendant’s financial position at the time.  It is its case that the defendant represented at a meeting on 19 October 2008 that he had a large cash pool in Wing Hang Bank.  He also showed them bank statements in support.  That is why the bank officers did not believe the defendant when he told them that on 27 October 2008 that he had no money to answer the margin call.  That also explained partially why they had conducted the matter in the way as they did.

10.  Mr Rogers, for the plaintiff, submitted that the documents sought, which would reveal the defendant’s liquid assets position at the material times, would shed light on the reasonableness of the bank officers’ belief, which in turn, might lend support to the plaintiff’s case that it was entitled to take a reasonable amount of time to assess and deal with the situation.  I agree.

11.  Further, the defendant complained that why Wing Hang Bank was able to close out his account promptly, the plaintiff was unable to do so.  But the evidence suggests that the defendant had a large cash pool at Wing Hang Bank.  As rightly submitted by Mr Rogers, that may well explain why Wing Hang Bank had acted so quickly.  So the documents with Wing Hang Bank are relevant.

12.  I reject the submission of Mr Mok, counsel for the defendant, that this application is a fishing expedition or too onerous.  I can also see no merit in his submission that it would be difficult to redact the statements.  The defendant is an experienced banker and a seasoned investor. He should have no difficulty to carry out the necessary redaction to the statements.

13.  The period to be covered by the discovery should start with 19 October 2008 when the meeting at which the defendant allegedly showed the bank officers the bank statements took place.

Conclusion

14.  For the above reasons, I allowed the application with the amendment to the period.