HCA 725/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 725 OF 2009

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BETWEEN

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D E C I S I O N

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Introduction

1.  This is the Plaintiff’s application for an order that final judgment be entered against the Defendant pursuant to Order 14 rule 1 and that the Defendant’s defence and counterclaim be struck out as disclosing no reasonable cause of action pursuant to Order 18 rule 19 of the Rules of the High Court.  The Plaintiff is the Hong Kong branch of Société Générale Bank & Trust.  The Defendant is a British national residing in Singapore.  The Plaintiff’s claim is for the sums due from the Defendant under certain banking facilities granted by the Plaintiff (the “Facilities”).

The factual background

2.  The following factual background is not in dispute.  The Defendant opened a private banking account (the “Account”) with Société Générale, Hong Kong in November 2005, which later assigned the private banking business, including the Defendant’s account to the Plaintiff as a result of reorganisation of the Société Générale group.  A number of documents were signed between the Plaintiff and the Defendant, including account application forms, a risk disclosure statement and a client agreement. 

3.  By a letter dated 18 October 2007 (the “Facility Letter”) which terms were accepted by the Defendant on 14 November 2007, the Plaintiff granted the Defendant the Facilities totalling US$3,000,000.  The Facilities comprised of: (i) a multicurrency short term revolving loan facility and/or overdraft facility; (ii) a foreign exchange margin trading/option investment facility; and (iii) an equity option trading facility.  The Facilities were granted to the Defendant subject to the terms contained in the Facility Letter, the Plaintiff’s Standard Terms (the “Standard Terms”) and General Terms and Conditions (the “General Terms”).  The Facility Letter, Standard Terms and General Terms are collectively referred to as the “contract documents”.  The Facilities were secured by a fixed charge over the Defendant’s deposits and other assets in the Account (the “Secured Assets”) pursuant to a memorandum executed by the Defendant on 16 March 2007 (the “Memorandum”). 

The Plaintiff’s case

4.  On 3 October 2008, the value of the Secured Assets fell below the set-off or Close-out Level and there was a significant margin shortfall equivalent to US$107,103.27.  The Plaintiff notified the Defendant of the shortfall by letter and e-mail on 3 October 2008 and verbally in a meeting on 6 October 2008 between the Defendant and the Plaintiff’s Singapore branch relationship manager, Puri.  During that meeting, Puri suggested the Defendant to deposit additional funds into the Account in the sum of US$107,000.  The Defendant paid in S$25,000 and promised to deposit an additional amount of S$75,000 into the Account shortly. 

5.  On 7 October 2008, the Defendant signed an instruction to his other banker, ABN·AMRO Bank (“ABN”) to remit a sum of S$75,000 to the Account via Development Bank of Singapore.  The transfer was not effected because the Plaintiff provided an incorrect SWIFT code.  Upon discovery of the mistake, the Plaintiff informed ABN of the mistake and requested amending the SWIFT code at around 11:30 am on 9 October 2008.  At 1:56 pm on the same day, ABN sent a notification regarding the amendment of SWIFT code to Development Bank of Singapore.  However, the transfer was not effected. 

6.  Shortly after 10 am on 10 October 2008, ABN informed the Plaintiff that the remittance had been cancelled.  Despite Puri’s repeated requests, the Defendant refused to top-up his shortfall.  Later that afternoon, the Plaintiff exercised its right under clause B5 of the Facility Letter to sell the Secured Assets and apply the proceeds of sale to partially set off the outstanding amount due from the Defendant under the Facilities. After the set off, the Defendant still owed the Plaintiff S$232,961.51 and US$2,069.95 and interest.  Despite repeated demands, the Defendant failed to pay the outstanding amount.  The Plaintiff commenced the present action on 13 March 2009.

The Defendant’s defence and counterclaim

7.  In his defence filed on 30 April 2010, the Defendant raised three defences. 

8.  Firstly, in paragraph 15 of the Amended Defence and Counterclaim, the Defendant averred that the Plaintiff was not entitled to sell the Secured Assets for the purpose of reducing the margin shortfall.  His case is that he had not received the Plaintiff’s letter of 3 October 2008, had met all requests for margin payments up until as late as 7 October 2008 and that the sum of S$75,000 was not remitted due to the Plaintiff’s mistake about the SWIFT code.  At a meeting at Singapore Cricket Club on 10 October 2008, he indicated to Puri his willingness to meet the margin call of S$75,000 promptly.  He had not been given three business days’ time or reasonable notice to comply with the margin call before the Plaintiff proceeded to sell his Secured Assets.  This defence is premised on the Plaintiff’s obligation to notify the Defendant of breach of Call Level clause B4(b) of the Facility Letter and clause 8.7 of the General Terms.  In addition, the Defendant also relied on two implied terms in the Facility Letter and two implied terms in the General Terms relating to notification of margin shortfall to be given to the Defendant and notice period or reasonable notice for the Defendant to comply with margin calls.  At the hearing, Mr Sussex SC, counsel for the Defendant, also sought to invoke the Plaintiff’s obligation to use reasonable endeavour to notify the Defendant of its intention to close out the Defendant’s Account under clause 8.8 of the General Terms.

9.  Secondly, in paragraph 14, the Defendant alleged that in a meeting in Singapore Cricket Club on 10 October 2008, Puri was angered by the Defendant’s refusing his demand for S$15,000 to meet Puri’s own margin call.  At the hearing, Mr Sussex SC argues that the discretion given to the Plaintiff to sell his Secured Assets under the Facility Letter and General Terms is not unfettered and may only be exercised in good faith.  Though not so pleaded, the Defendant must be relying on the alleged demand as evidence of Puri’s malice in causing the Plaintiff to close-out his Account and terminate his Facilities.

10.  Thirdly, in paragraph 19, the Defendant averred that by reason of the wrongful closing-out of the Account, the Plaintiff was not entitled to terminate the Facilities pursuant to clause B2 of the Facility Letter and hence no outstanding amount was owed to the Plaintiff. 

11.  In his counterclaim, the Defendant averred that the Secured Assets were sold at a time during a global financial crisis at a fraction of their nominal or purchase price.  On the basis that the Plaintiff’s closing-out of his Account and termination of the Facilities were wrongful, the Defendant counterclaimed for damages.

12.  It is also important to note that there is no issue raised by the Defendant that Close-out Level was breached on 10 October 2008 and that the proceeds of sale of all the Secured Assets were insufficient to cover all loss incurred by the Defendant in his Account.   

The legal principles applicable to summary judgment and striking out

13.  The legal principles applicable to an application for summary judgment under Order 14 are well-known:  see Hong Kong Civil Procedure 2011 Note 14/4/9.  The defendant must show that there are triable issues.  He has to satisfy the court that he has a real or bona fide defence.  What the defendant says does not have to be believed but has to be capable of belief.  The test is a simple one, as was said by Bokhary JA, as he then was, in     Re Safe Rich Industries Ltd [1994] HKLY 183:

“The test at the summary stage is indeed as simple as whether the defendant’s assertions are believable. But it must be recognized – because failure to recognize it would create a debt-dodger’s charter – that whether the defendant’s assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as [is] either undisputed or beyond reasonable dispute.”

Summary judgment will only be given in very obvious cases.  As is often put, unless it is obvious that the defence put forward is frivolous and practically moonshine, summary judgment should not be granted. 

14.  As for the striking out application pursuant to Order 18 rule 19, the burden is on the applicant, i.e. the Plaintiff, to show that there is no reasonable cause of action or defence.  A reasonable cause of action or defence means a cause of action or defence with some chance of success when only the allegations in the pleading are considered.  As the counterclaim in the present case is launched on the basis that the Plaintiff’s sale of the Secured Assets was wrongful, the counterclaim boil down to the same question of whether the Defendant has a real or bona fide defence.

The issues

15.  The Plaintiff’s case is based on its right to close-out the Defendant’s open positions pursuant to clause 8.8 of the General Terms and to sell his Secured Assets pursuant to clause B5 of the Facility Letter.  The Defendant’s defence is based on the Plaintiff’s failure to give effect notice of margin call under clause B4(b) of the Facility Letter and clause 8.7 of the General Terms and failure to exercise reasonable endeavour to give him notice of its intention to close-out his Account as required by clause 8.8 of the General Terms and four implied terms.  The issues raised by this application are essentially questions of construction of the contract documents which does not involve any factual dispute.  Most of the facts are not in dispute except as to what happened on 10 October 2008.

16.  Thus, the central issues raised in this application are:

(1)   whether the four terms pleaded by the Defendant were to be implied into the contract documents;

(2)   whether on the true and proper construction of the contract documents, the Plaintiff’s right to sell the Defendant’s Secured Assets pursuant to clause B5 of the Facility Letter was exercisable independently and separately of clause 8.8 of the General Terms;

(3)   whether on the true and proper construction of the contract documents, the Plaintiff’s right to sell the Defendant’s Secured Assets pursuant to clause B5 of the Facility Letter was an unfettered discretion; and

(4)   whether in the light of the conclusion reached above, the Defendant has shown a real or bona fide defence in law and a triable issue on the facts, i.e. as regards what happened on 10 October 2008.

17.  The thrust of Mr Sussex SC’s opposition to summary judgment is that the question of construction should be fully argued at trial and that the factual dispute relating to Puri’s demand on 10 October 2008 at least raises a triable issue.

Margin trading in foreign exchange

18.  The present dispute is related to margin trading in foreign exchange.  To understand the parties’ case, it is important to have at least a bird’s eye view of such trading activity.  Margin trading in foreign exchange is a very high risk trading activity.  Because of the high leverage offered in margin trading, the reward is high; but likewise the risk is also high.  By way of background, foreign exchange margin trading operates as follows.  An investor or borrower places a small margin deposit as collateral with a bank or financial institution, the bank or financial institution will advance, depending on the terms of the facilities agreed, an amount many times the value of the margin deposit for the investor to speculate in foreign currencies.  For example, if the agreement is for a 5% margin, the investor may buy a certain currency against another up to twenty times the value of his margin deposit. This margin level is called the “required margin level”.  If the currency he purchased appreciates by 1%, he will make a book profit of 20%.  If the currency appreciates by 5%, he will make a book profit equivalent to his margin deposit, i.e. 100% profit.  On the contrary, if the currency he purchased depreciates by 1%, he will suffer a book loss of 20% in his margin deposit. His margin level will then be reduced to 4% of the currency he purchased.  If the currency depreciates by 2%, his margin level will be reduced to 3% of the currency he purchased.  Usually, at this level, the bank or financial institution will require the investor to put in additional funds so as to bring his margin level back to 5%.  This is usually referred to as the “call level”. If the currency depreciates by 3%, the margin level will be reduced to 2%. Usually, at this level, the bank or financial institution will for its own protection close the position and actualise the loss for the investor unless the investor undertakes to deposit additional cash or assets.  This is usually referred to as the “close-out level”.  The required margin level, call level and close-out level are determined by the terms of the margin trading agreement.  The figures given above are for illustration purpose only.

19.  The foreign exchange market could be very volatile.  Value of currencies may increase or decrease by more than 5% within a very short time of a few days to a few hours.  Sometimes, it may fall so fast that before an investor is even appraised of the situation or be able to make up his mind whether to close-out his position, his margin may be reduced from a healthy 5% to close-out level or may even be swept away altogether resulting in negative margin.  In the latter event, the investor would have to indemnify the bank or financial institution of the shortfall upon closing-out his open positions and realisation of his loss.  The situation may reverse just as rapidly, for example, if there is joint intervention by the central banks in the market.  The currency may recover most, if not all, of its loss.  However, the investor’s position may have fallen below close-out level and may have been closed-out before the recovery resulting in actual loss.  The September 11 incident and Lehman Brothers incident are recent examples of such a volatile market.  An unwary investor who did not place stops for his open positions might go to bed with a healthy margin and wake up in the morning to find that the market had little changed, but only to be informed later that his positions had been closed-out during the night in a volatile market because of price sensitive events or information.

20.  Apart from the trading loss, the value of the securities used as collateral may also affect the margin level.  If the value of those securities are subject to fluctuation, such as stock, shares, rights and options etc, any fall in value of those securities will directly reduce the margin level.  This is also what happened in the present case.  As pleaded by the Defendant, his Secured Assets were sold by the Plaintiff at a fraction of their costs on 10 October 2008.  The fall in value of the Secured Assets would reduce both the margin level of the Defendant’s open positions as well as the security ratio which is the ratio which the Secured Assets had to bear to the Defendant’s liability.  

The contract documents

21.  As is common in any banker/customer relationship, the Defendant customer was required by the Plaintiff to sign an extensive array of banking documents containing an assortment of terms and conditions employing different definitions and conferring different rights and imposing different obligations.  In the present case, there is no dispute that the parties’ contractual relationship was governed by the Facility Letter, General Terms and Standard Terms.  The preamble to the Standard Terms provide that the Standard Terms shall apply to any and all credit, banking or other facilities, banking relationship, etc entered by the Plaintiff and its customers and that unless the context otherwise requires shall be deemed to be incorporated into all facility letters, agreements, instruments, security documents and other documents relating to the facility. 

22.  Clause 7.1 of the General Terms specifically provided that the Facility Letter applicable to the relevant facility shall prevail over the General Terms.  That clause provides as follows:

“You may in your discretion extend to me at my request banking and other facilities and financial accommodation up to such limit and in such currency and for such duration subject to the Agreement and any Facility Agreement as you may in your sole discretion determine. For the avoidance of doubt, any and each Facility Agreement shall form part of the Agreement. In the event of any conflict, the terms and conditions in the Facility Agreement applicable to the relevant Facility shall prevail.”

The phrase “Facility Agreement” is defined in clause 1.25 meaning any letter, agreement or document specifying terms and conditions subject or pursuant to which any facilities are made available to the Defendant, including the Facility Letter in issue.

23.  Thus, all the three contract documents should be treated and construed as one document.  No argument has been advanced by either counsel in respect of the construction of the provisions under the Standard Terms.  Counsel’s argument is focussed on clauses B4(a), B4(b) and B5 of the Facility Letter and clause 8 of the General Terms.  These and some other relevant clauses are set out below.

24.  Clauses 1.12, 1.15, 1.41, 8.1, 8.5, 8.7, 8.8 and 8.11 of the General Terms provide as follows:

“1.12   “Call Level” means the margin level specified by you in the relevant Facility Agreement subject to any change which may be notified by you to us from time to time at which you may (but shall not be obliged to) require deposit of additional margin.

1.15   “Close-out Level” means the margin level specified by you in the relevant Facility Agreement subject to any change which may be notified by you to us from time to time at which you are entitled (but not obliged) to effect Close-out Contract(s) in respect of any Net Open Position.

1.41   “Required Margin” means the amount of margin required by you to be deposited with you from time to time for maintaining the Net Open Positions, as you may specify in the relevant Facility Agreement subject to any change which may be notified by you to me from time to time.

8.1     I shall deposit with you such cash, Securities and/or other assets acceptable to you to satisfy the Required Margin before any FX Contract or Option Contract or any other derivatives is effected and thereafter in order to maintain the total Net Open Positions from time to time.  …

8.5     I shall at all times maintain the Required Margin and have the duty to check it with you from time to time.

8.7     In the event that the margin level shall reach or fall below the Call Level, you may (but shall not be obliged to) require me to provide such additional margin of such nature and value to your satisfaction or otherwise to effect Offset Contracts to offset all or any Net Open Positions to such extent required by you within the time specified by you.  Any additional margin provided by me shall not be effective until actual receipt for good value by you.

8.8     In the event that the margin level shall reach or fall below the Close-out Level, you shall be entitled (but not obliged) to take whatever action you consider appropriate in order to protect your position.  Such action may include, without limitation, the Close-out of all or any Net Open Positions to any extent, and you may apply any amount standing to the credit of all or any of the Accounts or any part thereof in or towards satisfaction of any indebtedness.  In relation to a Close-out under this Clause:

(a)   you will, as circumstances permit, use reasonable endeavours to notify me of your intention to Close-out all or any Net Open Positions to any extent if I fail to provide the additional margin PROVIDED THAT nothing in this Clause shall affect your right to Close-out;

(b)   it will therefore be in my interest to make suitable prior arrangements with you if I anticipate that I may not be reached at the usual contact number or place at any given period of time.  You shall not be responsible or liable for any losses or expenses whatsoever incurred by me as a result of your inability to contact me due to any circumstances beyond your control;

(c)   you may Close-out all or any Net Open Positions to such extent and on such terms and at such times as you may in your sole discretion deem fit at the prevailing market rates.

8.11   If at any time, in your opinion, the circumstances affecting the relevant market are such that, a substantial loss is likely to be incurred by me with respect to all or any Net Open Positions at that time, you shall be entitled (but not obliged) to Close-out all or any Net Open Positions to such extent at any time and on such terms and in such manner as you shall in your absolute discretion deem fit in order to minimise the loss which may be incurred by me.”

(Emphasis added)

25.  Clauses B2, B4(a), B4(b) and B5 of the Facility Letter provide as follow:

“2. Expiry

The Facilities are subject to the Bank’s satisfactory review from time to time PROVIDED ALWAYS that the Bank shall be entitled to terminate the Facilities immediately at any time at the Bank’s absolute discretion upon notice to the Borrower (whereupon it shall be so terminated) and to demand immediate repayment of all amounts due from the Borrower under the Facilities (whereupon the same shall become so due and payable) (including all interest outstanding).

Notwithstanding any contrary provision in this Facility Letter or any other letters, agreements or documents, the provisions in this Clause in respect of the Facilities which are payable on demand or are subject to the Bank’s review shall always prevail.

4. Collateral/Security

(a) The Borrower shall ensure that the aggregate (the “Aggregate Value”) (as absolutely determined by the Bank) of all of the Borrower’s assets that are now or from time to time pledged, charged or otherwise provided to the Bank to secure the Borrower’s obligations from time to time (“Secured Assets”) shall at all times remain above the security ratio (“Security Ratio”) as absolutely determined by the bank at such time.

(b) If at any time the Aggregate Value (as absolutely determined by the Bank) falls below the Security Ratio, the Bank may notify the Borrower of such determination, and not later than three Business Days (or such other time period as the Bank may at its absolute discretion from time to time prescribe in its notification to the Borrower) following such notification, the Borrower shall either (i) provide to or procure the provision to the Bank of additional security (the “Additional Security”) of sufficient value (the “Additional Security Value’) and in a form and substance acceptable to the Bank so that immediately after the provision of such Additional Security the aggregate (as absolutely determined by the Bank) of the Aggregate Value and the Additional Security Value of such Additional Security shall not fall below the Security Ratio or (ii) reduce the amount of the Borrower’s total liability and obligations to the Bank so that immediately after such reduction the Aggregate Value (as determined by the Bank) shall not be fall below the Security Ratio.

5. Additional Discretion

Without prejudice to any other right that the Bank may have, should the stipulated collateral value be breached for any Facility or the Security Ratio above be breached, the Bank shall be at liberty immediately or at any time afterwards (but shall not be obligated to do so) without notice to the depositor and/or Borrower and without the depositor’s and/or Borrower’s consent to sell or dispose of the Secured Assets or any of them as the Bank may in its absolute discretion select in such manner at such price or prices and whether on tender of cash or credit, without being responsible for loss whether arising from the Bank’s negligence or howsoever arising, as the Bank may deem expedient to meet and maintain such margin of security and to apply the net proceeds of such sale in and towards meeting the maintenance of such Security Ratio.”

(Emphasis added)

26.  Margin trading is a very high risk investment. Speculation would be a more appropriate term.  The borrowers are usually experienced players in the market.  The bank is not the borrower’s margin trading consultant nor does it offer its care and skill in margin trading to the borrower.  It only provides banking facility and a trading platform.  In view of the nature of margin trading and the detailed provisions in the contract documents, it is clear that the theme of these contract documents is to ensure that the loan advanced to the borrower is secured and safe and that the borrower has to look after his positions.  This theme is amply clear from clause 8.8 of the General Terms which provides that when the margin level falls below Close-out Level, the Plaintiff shall, in order to protect its position, be entitled to take whatever action including closing-out of all or any of the Defendant’s open positions. 

The implied terms pleaded

27.  The Defendant seeks to imply four terms into the contract documents.  It is trite principle that the general presumption of the law is against adding to contracts terms which the parties have not expressed because the parties are taken to have expressed every material term which they intended should govern their contractual relationship: see Luxor (Eastbourne) Limited And Cooper [1941] AC 108 at 137.  To imply a term into a contract, that term must pass a stringent five-fold test, viz the term must (1) be reasonable and equitable; (2) be necessary to give business efficacy to the contract; (3) be so obvious that it goes without saying; (4) be capable of clear expression; and (5) not contradict any express term of the contract: see BP Refinery (Westernport) Pty Limited And Shire of Hastings (1977) 180 CLR 266 at 283.

28.  The Facility Letter is a private banking contract between the Plaintiff bank and the Defendant who is an experienced player in the foreign exchange market.  It is supplemented by two very comprehensive contract documents, namely the Standard Terms and General Terms. As submitted by Mr Maurellet, counsel for the Plaintiff, under the circumstances, the Court must be very slow in implying additional terms to the three already very comprehensive contract documents.

29.  Two terms are sought to be implied into the Facility Letter.  In paragraph 7 of the Amended Defence and Counterclaim, the Defendant pleaded:

“7. Further, the Defendant avers that the following were implied terms of the Facility Letter:

7.1 The Plaintiff shall use all reasonable means to ensure that notifications provided by the Plaintiff to the Defendant pursuant to clause 4(b) under section B shall be effective in reaching the Defendant promptly such that the Defendant would be duly notified of any shortfall in collateral value.

7.2  The Plaintiff shall ensure that any details of the methods of provision of additional security or reduction of liability as may be prescribed in notifications given pursuant to clause 4(b) under Section B must be accurately and clearly conveyed to the Defendant.”

30.  The first term sought to be implied would impose a rather onerous obligation on the Plaintiff.  Not only that the Plaintiff must use all reasonable means, those means must be sufficient to ensure that the notifications shall be effective in reaching the Defendant promptly and such that the Defendant would be duly notified of any shortfall in collateral value.  This is wholly inconsistent with the scheme of communication provided under the Standard Terms.  Clause 19(a) of the Standard Terms deems any communication or document from the Plaintiff to have been effected if made in a certain manner.  For example, communication by letter is deemed to have been delivered if left at the last address notified    to the Plaintiff by the Defendant or three days after posting to that address.   In addition, under clause 24.2 of the General Terms, the Defendant accepted that communications delivered personally, sent by post, facsimile transmission or telex shall be deemed to have been delivered to him    forty-eight hours after posting if the address is in Hong Kong or seven days if that address is outside Hong Kong.

31.  More fatally, this implied term runs contrary to the theme under the contract documents.  Under clause 8.5 of the General Terms, the Defendant has the obligation to check his Required Margin with the Plaintiff from time to time.  It is also repugnant to clause B5 of the Facility Letter which expressly provided that once there was a breach of Security Ratio, the Plaintiff may sell the Secured Assets without giving any notice to the Defendant or having to seek his consent.  The Plaintiff’s right to sell the Secured Assets upon a breach of Security Ratio is independent of and without prejudice to its right to demand top-up security. 

32.  Lastly, the implied term suggested is unreasonable in the context of margin trading because of the rapid market movement.  It would even be impossible to comply in a volatile market.  It must be borne in mind that the Defendant is an experienced player in the market and it is his duty pursuant to clause 8.5 of the General Terms to check with the Plaintiff from time to time if the Required Margin has been maintained.  

33.  The second term sought to be implied is about the accuracy of the details of the method of provision of additional security or reduction of liability.  This implied term pleaded is aimed at the incorrect SWIFT code provided by the Plaintiff on 7 October 2008.  Mr Maurellet argues that it is wrong to imply such a term into the Facility Letter.  I think the Plaintiff’s obligation to provide such accurate details of the method of provision of additional security is unarguable.  If a bank requires its customer to deposit money into an account and the failure of which would lead to some serious consequences, it must exercise care and skill to ensure that information about the account into which the money is to be deposited or the means with which to transfer or deposit the money is correct.  I have no difficulty in implying such a term to this extent into the Facility Letter. But the real question in this case is one of causation as the mistake was rectified on     10 October 2008.  

34.  The third term which the Defendant seeks to imply into the General Terms is about reasonable notice period for the Defendant to comply with margin call, whether made pursuant to clause 8.7 or otherwise.  In paragraph 11 of the Amended Defence and Counterclaim, the Defendant pleaded:

“11. Further, the Defendant avers that the following were implied terms of the General Terms:

11.1 Reasonable notice periods must be given by the Plaintiff to its customers to comply with any of its requests for additional margin or security, whether made pursuant to clause 8.7 of the General Terms or otherwise.

11.2 Any details of the methods of compliance with the Plaintiff’s requests for additional margin or security, whether made pursuant to clause 8.7 of the General Terms or otherwise, shall be accurately and clearly conveyed to the Defendant.”

35.  Reasonable notice to comply with margin call is simply impossible in the margin trading context.  The market moves without notice, let alone reasonable notice.  This term which is sought to be implied runs contrary to the theme of the contract documents.  As I have already mentioned before, the Plaintiff is not the borrower’s margin trading consultant.  It only provides facility and a trading platform.  The terms in the contract documents are to provide for loans to be advanced to the Defendant and to ensure that the loans so advanced are secured and safe.  This theme is amply clear from clause 8.8 of the General Terms which provides that when the margin level falls below Close-out Level, the Plaintiff shall in order to protect its position, be entitled to take whatever action including closing-out of all or any of the Defendant’s open positions.  For that reason and for that purpose, the Plaintiff has to act quickly to protect its loan.  Once the Close-out Level is breached, reasonable notice is out of the window.  The Plaintiff’s has to act quickly to cut loss for the Defendant so that its loan is safe.  If the Plaintiff may not close-out the Defendant’s open positions and has to wait for reasonable time for the Defendant to put in funds, the remaining margin may be swept away to negative margin level.  The Plaintiff would be left with an unsecured loan while waiting for reasonable time to come.  Furthermore, there can be no guarantee that the borrower would put in funds to answer the margin call.  In that situation, reasonable time would never come.  Reasonable notice or reasonable time for the borrower to comply with margin call is so illusory in the margin trading context that the obligation to give reasonable notice or reasonable time to comply with margin call could not have been in the contemplation of the parties once Close-out Level is triggered.

36.  The fourth term sought to be implied is about accuracy of the details of the methods of compliance with the Plaintiff’s request for margin call.  Again this term is aimed at the inaccuracy in the SWIFT code provided by the Plaintiff on 7 October 2008.  As in the case of the second term sought to be implied into the Facility Letter, this term must be implied as something that goes without saying.  But as I have said, the real question is one of causation as the mistake was subsequently rectified.

37.  The first and third terms sought to be implied into the Facility Letter and the General Terms by the Defendant are so contrary to, inconsistent with and repugnant to the express terms that they could not be implied into the Facility Letter or General Terms.  I agree that the second and fourth terms sought to be implied may be so implied into the Facility Letter and General Terms respectively.

The scope of application of clause 8.8 of the General Terms and clause B5 of the Facility Letter

38.  The real issue in this case is under what circumstances may the Plaintiff exercise its right to sell the Secured Assets according to the true and proper construction of clauses 8.7 and 8.8 of the General Terms and clause B5 of the Facility Letter.  Obviously, Defendant has quite failed to appreciate the Plaintiff’s case that the Defendant’s open positions were closed pursuant to clause 8.8 of the General Terms and that the Secured Assets were sold pursuant to clause B5 of the Facility Letter.  It also seems that Mr Sussex SC has equated closing-out of open positions pursuant to clause 8.8 of the General Terms as closing-out of the Account which included sale of the Secured Assets pursuant to clause B5 of the Facility Letter.

39.  The General Terms sets out the general terms and conditions applicable to facilities and margin trading.  The Facility Letter sets out the specific provisions relating to the terms of the Facilities granted to the Defendant.  As mentioned above, clause 7.1 of the General Terms specifically provides that in the event of conflict, the terms and conditions in the Facility Agreement applicable to the relevant facility, i.e. the Facility Letter, shall prevail.  However, so far as possible, the two documents must be construed consistently with each other. 

40.  To properly construe a contract, it is always of paramount importance to bear in mind the factual matrix in which the parties entered into the contract: see Investor’s Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 897 at 912 to 913.  The Facility Letter is not an ordinary facility or loan agreement but one which was made for the purpose of enabling the Defendant to engage in margin trading in foreign exchange.  It is an activity which carries with it an extremely high risk, not only to the Defendant, but also to the Plaintiff providing the Facilities.  I have briefly outlined such trading activity in paragraphs 18 to 20 above.  The bank lends money to a borrower to trade in foreign exchange on a small margin, say 5%.  In a volatile market, this margin could be easily swept away and the bank would be left with an unsecured loan of 100% of the money lent.  Both the bank and the borrower have to act very quickly.  Therefore, the common theme which runs in such margin trading facility arrangements is that the bank is given all the powers necessary to protect itself from the Defendant’s misadventure: see clause 8.8 of the General Terms.  Another common theme is that the borrower has to watch the market.  The Defendant has to watch his margin level, Call Level, Close-out Level etc: see clause 8.5 of the General Terms. The Plaintiff may close-out any open position of the Defendant if his margin falls below specified level pursuant to clause 8.8 of the General Terms.  With the above factual background in mind, I shall turn to consider the operation of clause 8.7 and clause 8.8 of the General Terms and clause B4 and clause B5 of the Facility Letter in the entire facility arrangement for margin trading. 

41.  Clauses B4 and B5 of the Facility Letter and clauses 8.7 and 8.8 of the General Term used different terminology.  The Facility Letter used the term “Security Ratio”.  That term is defined in clause B4(a) of the Facility Letter as “security ratio, which is an ordinary term and which Mr Sussex SC understands, correctly in my view, as the ratio which the collateral, i.e. the Defendant’s Secured Assets charged to the Plaintiff, had to bear to the sums extended under the Facility Letter.  The Security Ratio is absolutely determined by the Plaintiff.  The Facility Letter also referred to other terms such as “remain above the Security Ratio”, “below the Security Ratio” and “breached the Security Ratio”.  On the other hand, the General Terms used terms like “margin level”, “Call Level” and “Close-out Level”.  “Call Level” and “Close-out Level” are defined by reference to margin level, which must mean the ratio which the collateral had to bear to the liability under an open position in a margin trading contract.  Obviously, Security Ratio means something very different from the various margin levels.  Thus, clauses B4 and B5 of the Facility Letter provide for different rights and obligations exercisable under circumstances which are different from those specified under clauses 8.7 and 8.8 of the General Terms.  Clause B5 of the Facility Letter deals with sale of the Defendant’s Secured Assets, while clause 8.8 deals with closing-out of the Defendant’s open positions.  It appears that the Defendant has turned a blind eye to the distinction.

42.  Clause B4(a) of the Facility Letter imposes an obligation on the Defendant to ensure the Aggregate Value of the Secured Assets shall at all times remain above the Security Ratio.  The open positions carries with it floating loss or floating profit which may affect the Security Ratio.  Both the value to be attributed to the Secured Assets and Security Ratio were to be absolutely determined by the Plaintiff pursuant to clause B4(a).  If the market moves against the open positions maintained by the Defendant, he incurs a book loss which reduces the Security Ratio as well as the margin level.  Clause B4(b) provides that if the Aggregate Value falls below the Security Ratio, the Plaintiff may, but not obliged to, notify the Defendant of that fact.  Once so notified, the Defendant is under an obligation within three business days to restore the Security Ratio by putting in additional funds or to reduce his total borrowing by closing-out some of his open positions.  Clause B4 only imposes an obligation on the Defendant to maintain his Secured Assets above the Security Ratio but does not give the Plaintiff any right to sell the Secured Assets. 

43.  If the movement in the market also results in a breach of Call Level, clause 8.7 of the General Terms may also be invoked.  The Plaintiff shall be entitled, but not obliged, to require the Defendant within such time as specified to provide additional margin or to execute offset contracts to any or all of his open positions, i.e. to lock his positions so as to contain the loss. 

44.  If the movement results in a breach of Close-out Level, clause 8.8 may be invoked.  That clause gives the Plaintiff power to close-out all or any of the Defendant’s net open positions and apply any amount standing to the credit of all or any of the accounts towards satisfaction of the Defendant’s indebtedness.  In thus closing-out an open position, the Plaintiff would actualise the loss for the Defendant.  Hence, clause 8.8 provides that in a close-out under this clause, the Plaintiff will, as circumstances permit, use reasonable endeavours to notify the Defendant  of its intention to close-out his net open positions.  What is reasonable endeavour depends on the circumstances prevailing at the time of closing-out. 

45.  It must be emphasised that this duty to use reasonable endeavour to notify the Defendant only applies in relation to closing-out of the Defendant’s open positions under clause 8.8 of the General Terms.  It does not apply to setting off of any credits in the Defendant’s accounts against his indebtedness under that clause.  That obligation certainly does not apply to sale of the Defendant’s Secured Assets pursuant to clause B5 of the Facility Letter.  Besides, the Plaintiff has power to sell the Secured Assets to meet and maintain such margin level without notice to or consent from the Defendant pursuant to clause 9 of the Memorandum.

46.  In a stable market where price movement is within the range of one to two percent a day, circumstances may permit the Plaintiff to do what is ordinary, i.e. to use reasonable endeavours to notify the Defendant of breach of Call Level and Close-out Level and to specify a period for him to top up his margin pursuant to clause 8.7 of the General Terms.  In view of the movement of the foreign exchange market, it is usually a very short period of say a day.  It is most unlikely that he would be given three days as in the case of notification given pursuant to clause B4(b) in respect of breach of Security Ratio.  But in a volatile market, the Plaintiff has to act quickly to protect its position and close-out the Defendant’s open positions so as to prevent further loss which may jeopardise the Plaintiff’s loan and its security.  The market conditions could be such that there could be no time to spare and three business days would be too long for the margin to last nor can the Plaintiff afford giving the Defendant the luxury of notice of its intention to close-out the Defendant’s open positions.  Thus, if the movement in the market was of a such speed and magnitude and the breach of Close-out Level was to such a low level, the circumstances may not permit the Plaintiff to do anything at all to notify the Defendant of its intention to close-out his open positions.  It would be in the interest of the Plaintiff to protect its position or loan and in the interest of the Defendant to contain his loss that the Plaintiff should close-out the open positions forthwith without notice or consent from the Defendant.

47.  In addition to what it is empowered to do under clause B4 of the Facility Letter or clauses 8.7 and 8.8 of the General Terms, the Plaintiff has additional discretion pursuant to clause B5 of the Facility Letter to sell the Defendant’s Secured Assets if the collateral value was breached for any facilities or the Security Ratio is breached to meet and maintain such margin of security and to apply the net proceeds of such sale in and towards meeting the maintenance of such Security Ratio.  The language used in clause B5 of the Facility Letter is absolute, clear and unequivocal.  The Plaintiff “shall be at liberty immediately … without notice to the … Borrower and without the … Borrower’s consent to sell or dispose of the Secured Assets … in such manner at such price or prices … without being responsible for loss whether arising from the Bank’s negligence or howsoever arising …”.  This is a clear and separate contractual right given to the Plaintiff exercisable under circumstances different from those exercisable pursuant to clause 8.8 of the General Terms.  It is exercisable when the Security Ratio is breached.  It gives the Plaintiff the right to sell the Secured Assets.  The power under clause 8.8 of the General Terms is to close-out the Defendant’s open positions and apply his credit balances in other accounts to towards satisfaction of his indebtedness.  It does not give the Plaintiff power of sale over the Defendant’s Secured Assets.  The discretion given to the Plaintiff under clause B5 of the Facility Letter is independent from and not subject to clause 8.8 of the General Terms.  It may be exercise without notice to or consent from the Defendant.

48.  With this conclusion, the rest of the Defendant’s defence based on clause 8.8(a) of the General Terms, whether notice given by the Plaintiff’s letter or e-mail of 3 October 2008 or whether the Plaintiff had given three business days’ time to the Defendant to comply with the demand for additional margin made on 10 October 2008 just fall away. 

Whether the discretion to sell the Secured Assets under clause B5 of the Facility Letter is unfettered

49.  While acknowledging the wide discretion given to the Plaintiff under the Facility Letter and General Terms, Mr Sussex SC argues that the discretion is not wholly unfettered.  It must be exercised honestly and in good faith but not arbitrarily, capriciously or unreasonably.  He quoted the following dicta of Leggatt LJ in Abu Dhabi National Tanker Co v Product Star Shipping Ltd (The “Product Star”) [1993] 1 Lloyd’s Law Reports 397 at 404:

“For the purposes of judicial review the Court is concerned to judge whether a decision-making body has exceeded its powers, and in this context whether a particular decision is so perverse that no reasonable body, properly directing itself as to the applicable law, could have reached such a decision. But the exercise of judicial control of administrative action is an analogy which must be applied with caution to the assessment of whether a contractual discretion has been properly exercised. The essential question always is whether the relevant power has been abused. Where A and B contract with each other to confer a discretion on A, that does not render B subject to A’s uninhibited whim. In my judgment, the authorities show that not only must the discretion be exercised honestly and in good faith, but, having regard to the provisions of the contract by which it is conferred, it must not be exercised arbitrarily, capriciously or unreasonably. That entails a proper consideration of the matter after making any necessary inquiries. To these principles, little is added by the concept of fairness: it does no more than describe the result achieved by their application.”

(emphasis added)

50.  I agree with the above statement of principle. However, as pointed out by Leggatt LJ, the exercise of judicial control of administrative action is an analogy which must be applied with caution to the assessment of whether a contractual discretion has been properly exercised.  To consider that issue, the court must have regard to the contractual provision conferring that discretion.  If on the true construction of the contract, an absolute unfettered discretion was intended, it is not for the court to fetter what the parties have reached on their own bargain.  In The “Product Star”, the charter gave the master or owner of a vessel the right to order the cargo to be loaded or discharged at any other port of loading “if owing to war, (a) entry to any such port or the loading or discharging of cargo at any such port be considered by the master or owner in his or their discretion dangerous or (b) it is considered by the master or owner in his or their discretion dangerous or impossible for the vessel to reach the designated port of discharge”.  Clearly, such discretion could not be unfettered and could not be exercised unless at least the opinion that it was dangerous was honestly held. The same could not be said of the discretion given under clause B5 of the Facility Letter for the purpose of protecting the Plaintiff’s interest when a certain event occurs.  So long as the triggering event occurs, the discretion may be exercised.  Malice, honesty and reasonableness are all irrelevant.

51.  Mr Sussex SC next referred to Socimer International Bank Ltd v Standard Bank London Ltd [2008] 1 Lloyd’s Rep 558 at 577.  The “Product Star” was followed.  However, the discretion in that case was the discretion in determining the value of certain assets, losses, expenses or costs arising out of the termination or the sale of the asset.  For the same reason, that case is distinguishable from the present case.

52.  It seems to me that Mr Sussex SC’s argument may be valid in the context of the discretion exercisable pursuant to clause 8 of the General Terms but not that exercisable pursuant to clause B5 of the Facility Letter.  His submission was centred around clause 8.8(a) of the General Terms and he seems to have avoided applying his argument to the discretion under clause B5 of the Facility Letter.

Whether on the fact the Plaintiff was entitled to sell the Defendant’s Secured Assets under clause B5 of the Facility Letter

53.  The Defendant’s defence is that he did not receive the Plaintiff’s letter dated 3 October 2008, that the letter did not constitute effective notification to the Defendant of his margin shortfall pursuant to clause 8.8 of the General Terms and that he was not given three business days to comply with margin call in accordance with clause B4(b) of the Facility Letter.  Mr Sussex SC also adds that the letter was sent from Hong Kong to the Defendant at an address in Singapore and was not sufficient to discharge the Plaintiff’s contractual promise under clause 8.8 of the General Terms to use reasonable endeavours to notify the Defendant of its intention to close-out his Account.  He argues that more spontaneous means of communication should have been used.  These arguments are based on the Plaintiff’s obligation to use reasonable endeavour to notify the Defendant of margin call and its intention to close-out his open positions pursuant to clause 8.7 and clause 8.8 of the General Terms respectively.  However, those obligations do not apply to sale of the Defendant’s Secured Assets pursuant to clause 5 of the Facility Letter.  On the true and proper construction of clause B5, the Plaintiff’s discretion to sell the Secured Assets is exercisable when the Security Ratio was breached and was not dependent or subject to clause 8.8 of the General Terms.  The discretion may be exercised without notice to or consent from the Defendant. As a matter of proper construction of this clause, none of his defences nor any of the above arguments could avail him. 

54.  Even assuming otherwise, the Defendant’s defence and the above arguments could also be readily dismissed on the fact.  There is no dispute that at 10:28 am on 3 October 2008, Puri sent an e-mail to the Defendant which reads:

“Mike

The transfer had taken place BUT once again due to marked to market the account has once again come to set of.

This time the set of is quite big.

Are u in Singapore.

Rgds.

(A statement of account showing a margin shortfall of US$107,103.27)”

This spontaneous communication was given on the morning of 3 October 2008.  It seems that this e-mail was received by the Defendant because in reply to another e-mail from another staff of the Plaintiff, Celia Tham, about a dividend payment, the Defendant wrote at 3:36 pm on the same day, with an e-mail copy to Puri:

“Tks. this will be handy for Margin short fall, indicated by Rajen.kr”

Seemingly, while acknowledging Celia Tham’s e-mail, the Defendant also responded to Puri by a copy saying that the dividend of US$3,000 may be applied to meet the margin call raised by Puri’s e-mail just a few hours earlier.  Mr Sussex SC argues that the Defendant’s e-mail could not be construed in that way.  I disagree.  In his affirmation, the Defendant also referred to Puri’s e-mail, but made not the slightest suggestion that he had not received it.  He responded by saying that he had previously in accordance with Puri’s request injected Euro 336,907 into his Account.

55.  Next, Mr Sussex SC argues that the e-mail was ambiguous, because while it stated that the Defendant’s Account had “once again” come to set-off, whereas according to Chung’s affidavit filed on behalf of the Plaintiff, the Defendant’s Account had only fell below Call Level once in September 2008, which she referred to as “top-up level”.  With respect, whether the Defendant’s Account had fallen below set off level, i.e. Close-out Level previously is quite besides the point.  Even on the Defendant’s case, he injected Euro 336,907 into his Account in response to Chung’s margin call. Whether that was a top-up call, i.e. margin call or set-off call, i.e. Close-out call is immaterial.

56.  Mr Sussex SC made the point that terms such as “top-up level” and “set-off level” were used in the pleading and in the Plaintiff’s communication with the Defendant, those terms were not defined in the contract documents which governed the relationship between the parties.  He submits that there is no evidence to suggest that the Defendant was ever notified of those levels or the way in which they were arrived at.  It appeared from the evidence that the Defendant was merely informed that a margin payment was required and he paid.  On his own admission, the Defendant is an experienced businessman and had investments with the wealth management departments of a number of banks for over ten years.  He opened the Account with the Plaintiff in 2005.  He must know what the terms used in the contract documents and in his communication with Puri and Chung mean.  Mr Sussex SC took no issue about the term “set of” as used by Puri in his e-mail and agrees that it meant Close-out Level.  Mr Sussex SC had no difficulties understanding the terms “top-up level” and “set-off level” to mean respectively “Call Level” and “Close-out Level” as defined in the General Terms.  Certainly, so could the Defendant as an experienced player in margin trading.  The Defendant specifically pleaded in paragraph 14.4 of the Amended Defence and Counterclaim that he was never informed what the Security Ratios were, but ambiguity of those terms was never raised as a defence. 

57.  As for the Defendant’s claim that he was never informed what the Security Ratios were, this is a non-issue.  The Security Ratio was determined at the absolute discretion of the Plaintiff.  The Defendant was under an obligation under clause 8.5 of the General Terms to maintain the Required Margin and have the duty to check it with the Plaintiff from time to time.  He was also under a duty under clause B4(a) of the Facility Letter to ensure the Aggregate Value of his Secured Assets shall remain above the Security Ratio.  In performing those obligations, he must have checked with the Plaintiff the Security Ratio applicable from time to time.  If he did not know what it was, he was to blame.  But ultimately, this is a non-issue because at the end of the day, when all his Secured Assets were sold on 10 October 2008, he ended up with a debit balance of S$230,372.72 and US$494.60, approximately US$159,372 (at S$1.45 per US$).  Whatever was the numeric value of the Security Ratio, it must have been breached.  That was a sale of the Secured Assets under clause B5 of the Facility Letter and not closing-out of the Defendant’s open positions pursuant to clause 8.8 of the General Terms. All these arguments about notice of intention to close-out the Defendant’s open positions and knowledge of Security Ratio are totally irrelevant.

The events on 10 October 2008

58.  Mr Sussex SC relies heavily on the factual dispute as to what happened on 10 October 2008 as a ground for resisting the Plaintiff’s application for summary judgment.  There is no dispute that on 6 October 2008 the Defendant with his friend, Bhattacharya, had a meeting with Puri at the Plaintiff’s office in Singapore.  Puri told him that there was a significant margin shortfall equivalent to US$107,103.27.  Bhattacharya issued a cheque in the sum of S$25,000 to deposit into the Defendant’s Account.  The Defendant promised to pay another sum of S$75,000 later.

59.  According to Puri, he suggested the Defendant to inject US$107,000 into his Account, but the Defendant proposed to pay S$25,000 first and S$75,000 later.  He advised the Defendant that the total sum of S$100,000 would not fully regularise the Account.  That would only meet about two-thirds of the margin call.  According to the Defendant, Puri said that a “top-up” payment of S$100,000 would be sufficient for the Plaintiff.  This factual dispute is not material and there is no need for me to resolve it.  There was a margin call.  The Defendant paid S$25,000 and promised to pay S$75,000 later.

60.  There is also no dispute that on 7 October 2008 the Defendant and Bhattacharya had another meeting with Puri in the Plaintiff’s office and signed an instruction to his other banker, ABN, to remit S$75,000 to his Account with the Plaintiff.  It is common ground that the Plaintiff provided the wrong SWIFT code and the remittance could not be effected.

61.  According to Puri, on 9 October 2008, his staff discovered the mistake in the SWIFT code and requested Michelle Koh of ABN to amend the instruction as a matter of urgency at 11:30 am.  As evidenced by a copy of notification from ABN, ABN informed the Development Bank of Singapore, which was the recipient bank on behalf of the Plaintiff, of the amendment at 1:56 pm.  Despite the notification, the remittance could not be effected on 9 October 2008 because of banking procedures.  These facts are incontrovertible and not disputed.

62.  According to Puri, shortly after 10 am on 10 October 2008, he was informed by a staff of ABN that the remittance had been cancelled.  He tried to call the Defendant on his mobile phone but the Defendant did not take his calls.  He then sent an e-mail to the Defendant at 10:55 am.  He wrote:

“Mike

The bank has informed me that they have cancelled the remittance of SGD 75,000.

  Thx”

At 12:08 pm, the Defendant responded via his Blackberry forwarding an e-mail from Melanie Smith of ABN.  He wrote:

“Rajen:

  FYI.  problem lies at yr feet.kr”

Melanie Smith’s message was as follows:

“Dear Mr Panjwani,

We are sorry to inform you that the SGD75,000 transfer was rejected as your swift address was wrong.

The swift address on you instruction was stated as SGBTSGSG, which was incorrect.

Thank you for your attention.”

Puri replied at 12:10 pm:

“The new address was provided and then the remittance was supposed to have been sent by ABN yesterday which we have not yet received. The amendment copy was sent by ABN yesterday also.”

The Defendant replied at 12:18 pm:

“Clearly fault lies at your own door. I did execute what u had asked me to sign up at your office.

  What is your new position?.  payment in exchange of two bond issues discussed?  Kr”

Puri replied at 12:19 pm:

“But the remittance has not yet been received.”

The authenticity and timing of all these e-mail exchanges are not disputed.  These facts are incontrovertible.

63.  According to Puri, thereafter, he called the Defendant several times again to ascertain whether he was making further arrangements to remit funds to cover the shortfall but the Defendant did not take the calls.  The Defendant never explained why he cancelled the remittance.  Then, Puri had a meeting with, Pierre Baer and Rahul Vohra, respectively the chief executive officer and executive director of the Plaintiff.  As the market experienced one of its worst falls that week and the Account remained in breach of the Close-out level, the promised remittance of S$75,000 had not been received and all efforts to contact the Defendant proved futile, Pierre Baer considered that the Plaintiff was entitled to exercise its rights to liquidate the Account immediately.  After the meeting, Puri tried to contact the Defendant to inform him that the Plaintiff was closing-out his Account, but the Defendant could not be reached.  He then sent a text message via his i-Phone to the Defendant asking the Defendant to contact him urgently. The Defendant did not respond.  The Plaintiff closed-out the Defendant’s open positions and sold his Secured Assets.  The Defendant responded later that evening and asked Puri to meet him at Singapore Cricket Club.  Puri declined as he was then too busy with other accounts.

64.  It is common ground that ABN was informed of the mistake in the SWIFT code on 9 October 2008.  According to the Defendant, on the morning of 10 October 2008, he instructed ABN to cancel the transfer pending his confirmation of the account details.  Then he received a telephone call from Puri.  Puri told him that the market was volatile and needed to meet him outside the office.  He told Puri to meet him for lunch at Singapore Cricket Club.  Subsequently, he also received a call from Bhattacharya and he invited her and her brother, Chandan, to join him for lunch as well.

65.  When the Defendant arrived at Singapore Cricket Club, Bhattacharya and her brother were already there.  Then, Puri arrived in an agitated state and asked the Defendant to move to a separate table to speak with him in private because there was something very important that he wished to discuss.  The Defendant insisted to discuss in the presence of his friends. Then Puri sat down at the table and began the conversation by referring to the margin shortfall in the Defendant’s Account.  The Defendant responded that the remittance was being dealt with in accordance with Puri’s request and arrangements had been made for the remittance of S$75,000.  Puri commented that the Defendant should not worry about the margin shortfall and he would look after the Defendant as his relationship manager. 

66.  Then, according to the Defendant, Puri said he had a margin shortfall on his personal investment account in India and needed a top up payment of S$15,000 by the end of the day.  Puri said that the Defendant should handle that payment for him and if the Defendant did so he      would assist with the Defendant’s margin issues.  The Defendant felt uncomfortable with the request and wanted to stall for time to consider how best to deal with Puri’s demand.  So, the Defendant replied that he did was not carrying such a large amount of cash with him and would need to consider his demand.  Puri became very angry and raised his voice at the Defendant saying that the Defendant must give him the money he had demanded.  The Defendant repeated that he did not have such a large amount of cash with him.  Then Puri turned and looked at Bhattacharya.  The Defendant told Puri that Bhattacharya did not have the funds available.  Then Puri threatened that if the Defendant did not give him the funds, he could not promise what would happen to the Defendant’s Account.  Puri shouted at the Defendant which caused the staff of Singapore Cricket Club to come over to their table to check what was causing the disturbance.  Finally, Puri rose and told the Defendant that the Defendant would regret not giving him the funds and that the Defendant should wait and see what he would do.  Then Puri left.  The Defendant was shocked.

67.  The Defendant did not contact Puri again that day as he considered it inappropriate to give Puri the funds.  He was aware that ABN was unable to remit the sum of S$75,000 to his Account due to the mistake in the SWIFT code, but he was prepared to make arrangement for the transfer with the correct account details.  Then, early the following week, he became aware that the Plaintiff had liquidated his Account.

68.  There is indeed a serious factual dispute as to what happened on 10 October 2008 at Singapore Cricket Club.  The Defendant’s account of Puri’s conduct was outrageous, whereas, according to Puri, there was no such meeting at Singapore Cricket Club and he was unable to get in touch with the Defendant the whole day except for the few e-mail exchanges.  Mr Sussex SC submits that this dispute could not be resolved on affidavit evidence and raised a triable issue.  In my view, the Court would be failing in its duty in rejecting an application for summary judgment merely because the parties’ made different factual assertions.  The Court should ask itself if the assertion is capable of belief by testing it against so much of the factual background which is not in dispute.

69.  An important factual context is the state of the Defendant’s account during the period from 3 to 10 October 2008.  On 3 October 2008, the Defendant’s Account had breached Close-out Level with a margin shortfall of US$107,103.27.  On 10 October 2008, when his Account was liquidated, his Secured Assets were valued and sold at US$196,907.07 and Euro 41,620 i.e. a total of approximately US$253,094 (at US$1.35 per Euro) resulting in a deficit of US$155,428.06.  In other words, before the liquidation of his Account, he was carrying a net loss of US$408,522      (i.e. US$253,094 + US$155,428).  He had promised to remit S$75,000,    i.e. US$51,724 (at S$1.45 per US$), but that was not forthcoming.  Even had he remitted that amount, his Account would still be in negative margin territory with a net loss of US$356,798 (i.e. US$408,522 - US$51,724) against a collateral of US$253,094.  The Plaintiff had become an unsecured creditor of the Defendant by the afternoon of 10 October 2008.  If on that afternoon, the Defendant wished to withhold the sale of the Secured Assets, he would have to pay in funds equivalent to the value of the Secured Assets and the deficit in the amount US$408,522.  He did not even pay the sum of S$75,000 which he had promised four days ago.  He cannot really have any valid complaint for the Plaintiff’s exercising its discretion to sell the Secured Asset without notice to him.

70.  The various e-mail exchanges between 10:55 am and 12:19 pm on 10 October 2008 say it all.  The authenticity and correctness of the content of the e-mails are not in dispute.  The Defendant said he was having a meeting during lunch time with Puri at Singapore Cricket Club.  He did not specifically say when it was.  One would assume the usual lunch time would be between 12:00 noon and 2:30 pm.  If the Defendant and  Puri were at Singapore Cricket Club at anytime between 10:55 am and 12:19 pm, it is difficult to accommodate the scenario that the two of them were communicating with each other over the table with their Blackberry or i-Phone or computers.  If they had a meeting, it is incredible that nothing was mentioned about the mistake in the SWIFT code and how the Defendant would arrange the remittance.  This cast serious doubt on the credibility of the Defendant’s account.  This may not be conclusive for there was a possibility that they met after the e-mail exchanges.

71.  But, when their accounts are tested against the contents of these    e-mail exchanges, it becomes manifestly obvious that one of the accounts is a total concoction.  During the week, the market was suffering a free fall.  That must also be the situation of the market between 10 am and the alleged lunch meeting.  As analysed above, by the afternoon, the Defendant’s margin had been swept away entirely with the Account ending with a negative margin and a debit balance of US$155,428.06.  His position could not have been much better at lunch time. 

72.  The Defendant said that on the morning he cancelled the instruction to ABN and then he received a telephone call from Puri asking for a meeting out of the Plaintiff’s office.  According to Puri, he was informed of the cancellation shortly after 10 am.  In the circumstances, it would be highly unlikely that in the morning when Puri had the chance of reaching the Defendant, Puri would not have asked him why he cancelled the instruction and told him that the market had fallen further and pressed for the remittance and additional collateral.  It is utterly incredible that, instead, Puri would have told the Defendant not to worry about the remittance and that he would take care of the Defendant’s margin issue.  What the Defendant described does not make sense in the light of the        e-mails.

73.  It is all the more incredible that Puri would have under those circumstances did the very outrageous act of demanding S$15,000 from the Defendant in front of his friends and made a scene at Singapore Cricket Club.  Equally so, in the light of the perilous situation of his Account and Puri’s demand and threat, it is incredible that the Defendant did not immediately make a complaint to Puri’s superior to ensure that he would not be made a victim of Puri’s malice and to arrange remittance of the sum of S$75,000 to answer the margin call to prevent the non-remittance from being used as an excuse to close-out his Account.

74.  Lastly, the Defendant said that he cancelled the remittance instruction to ABN on the morning pending confirmation of the account detail and he was ready and willing to remit the funds.  That is inconsistent with his own e-mails.  His response to Puri’s e-mail at 12:08 pm on 10 October 2008 was simply that he cared less.  He replied that the problem lied at the Plaintiff’s feet and gave no indication that he would re-arrange the remittance.  When Puri replied that ABN had been informed of the correct SWIFT code, his attitude was not any changed.  He repeated that the fault lied at Puri’s door and that he had executed what Puri had asked.  His attitude was that by signing the instruction which turned out to be ineffective he had discharged his obligation to pay margin call.  His intention as reflected by his two e-mails was that he was not going to arrange for payment of the margin call at all.  His e-mails destroyed the credibility of his affirmation entirely.  

75.  Despite that the Defendant’s account is supported by Bhattacharya who may be regarded as an independent witness, all in all, I find that his case is incapable of believe when tested against the incontrovertible documents and background.  It is just moonshine.  On the other hand, I find Puri’s evidence credible.

Termination of the Facilities

76.  The Defendant averred that as the closing-out of his Account was wrongful, the Plaintiff was not entitled to terminate the Facilities pursuant to clause B2 of the Facility Letter and no outstanding amount was owed to the Plaintiff. 

77.  On the fact, the Plaintiff did not close-out the Defendant’s Account and terminate his Facilities on 10 October 2008.  It just sold the Secured Assets on 10 October 2008 as it was entitled to.  The Facilities were not terminated.  But after the sale, there was nothing left in the Defendant’s Account but a debit balance of over S$230,000.  There was no collateral to support any facility.  The Facilities were only terminated on 29 October 2008 pursuant to the Plaintiff’s letter of the same date.  The Plaintiff was contractually entitled to terminate the Facilities and demand repayment of any outstanding sum pursuant to clause B2 of the Facility Letter. The Plaintiff’s right to terminate was an absolute and unconditional one which may be exercised at any time at the Plaintiff’s absolute discretion upon notice whereupon it shall be so terminated.  There is no substance in this defence.  

Conclusion

78.  On the true and proper construction of the contract documents, the Plaintiff has two different rights under the contract documents.  It has a right to close-out the Defendant’s open positions pursuant to clause 8.8 of the General Terms upon breach of Close-out Level and an absolute and unfettered discretion to sell the Defendant’s Secured Assets pursuant to clause B5 of the Facility Letter upon breach of the Security Ratio. In the exercise of the discretion under the former situation, the Plaintiff shall use reasonable endeavours, as the circumstances permit, to notify the Defendant of its intention to close-out all or any of the Defendant’s open positions.  In the latter, the Plaintiff may sell the Secured Assets without notice to or consent from the Defendant.  The essential condition precedent is that the Defendant’s Aggregate Value of the Secured Assets has breached the Security Ratio.  There is no room for the terms pleaded in paragraphs 7.1 and 11.1 of the Defence and Counterclaim to be implied into the Facility Letter or the General Terms.

79.  On 3 October 2008, the Defendant’s Account had breached set-off level, meaning Close-out Level and was subject to a margin call of US$107,103.27 as indicated on the Plaintiff’s letter of the same date. Even if that letter had not been received by the Defendant, it is immaterial. The fact was that Closed-out level had been breached.  The Plaintiff was entitled to close-out the Defendant’s open positions pursuant to clause 8.8 of the General Terms.  The Defendant was notified of the breach of Close-out Level by e-mail from Puri on the same day.  The Plaintiff had satisfied the requirement of using reasonable endeavours to notify the Defendant of its intention to close-out his open positions.  Anyway, the power of closing-out was not exercised on that day. Thus, the question of whether reasonable endeavours had been exercise on that occasion became a non-issue.

80.  On 6 October 2008, the Defendant had a meeting with Puri.  He was informed of the breach of Close-out Level and the margin shortfall.  He must have acknowledged that as he caused his friend to pay in S$25,000 and promised to remit another sum of S$75,000 later.  He had actual notice of the breach of Close-out Level.  On 7 October 2008, the Defendant signed a written instruction to ABN to remit S$75,000 to his Account.  That remittance could not be effected because the Plaintiff gave a wrong SWIFT code. That mistake was rectified by 1:56 pm on 9 October 2008.  However, after the rectification, the Defendant cancelled the instruction on the morning of 10 October 2008 before the remittance was effected.  Thus, the Plaintiff’s mistake in the SWIFT code also became a non-issue.  Despite repeated requests from Puri, the Defendant declined to cause the transfer. 

81.  The Defendant’s account of what happened on 10 October 2008 is simply incapable of belief.  I do not consider there is any genuine factual dispute about the events on 10 October 2008.  To hold otherwise would be to allow legal process to be used as a debt-dodger’s charter.  Even if the Defendant’s account were believable and true, Puri’s demand was irrelevant because on the afternoon of 10 October 2008, the Defendant’s Account remained in breach of Close-out Level.  Indeed, the margin had been all swept away and the Aggregate Value of the Secured Assets had been substantially reduced in the falling market resulting in breach of Security Ratio and a negative ratio. The Defendant had ignored Puri’s request to transfer the S$75,000 as promised and indicated no intention to put in additional assets in answer to the margin call.  Even if the promised sum of S$75,000 had been transferred, the Account would still be in negative margin.  The Plaintiff was entitled to close-out the Defendant’s open positions pursuant to clause 8.8 of the General Terms and to sell his Secured Assets pursuant to clause B5 of the Facility Letter.  In view of the state of the Account, the circumstances could not permit of any further delay in notifying the Defendant and giving him time to top up his margin. Furthermore, the Defendant had put himself out of reach of the Plaintiff.  The Plaintiff had used reasonable endeavour as the circumstances permitted to notify the Defendant of the intention to close-out his open positions.  The circumstances were also such that the exercise of discretion to sell the Secured Assets without notice to or consent from the Defendant pursuant to clause B5 of the Facility Letter cannot be said to be otherwise than a genuine exercise of discretion.  Furthermore, the Plaintiff has additional power under clause 9 of the Memorandum to sell the Defendant’s collateral, i.e. the Secured Assets, without notice to or consent from the Defendant, in the event that the margin of security is not maintained, i.e. upon breach of Close-out Level.

82.  The Defendant has utterly failed to show he has a real or bona fide defence or there are triable issues.  His defence is frivolous and practically moonshine.  It must be struck out as disclosing no reasonable defence.  His counterclaim is dependent on his defence being successful.  As his defence has been struck out, so must his counterclaim.  Not only that his defence is frivolous, his allegations are vexatious and malicious.  It is only appropriate that he be ordered to pay the Plaintiff’s costs on an indemnity basis.

83.  Accordingly, the Defendant’s defence and counterclaim are struck out as disclosing no reasonable cause of action and judgment be entered in favour of the Plaintiff in the sums of S$232,961.51 and US$2,069.95 with interest on the capital sums of S$230,372.72 and US$494.60 at judgment rate from 12 March 2009.  I also make a costs order nisi that the Defendant shall pay the Plaintiff’s costs on indemnity basis with certificate for counsel, to be taxed if not agreed.