REFCO INC v. TROIKA INVESTMENT LTD AND ANOTHER

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JUDGMENT

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1. Refco, Inc. sues Troika Investment Ltd. as the 1st defendant and Tai Fook Finance Company Ltd. as the 2nd defendant. in practical terms, for US$7,165,815.66 together with interest thereon and costs. I shall call them Refco? "Troika" and "Tai Fook".

2. Refco's claim has undergone a number of changes before its final version in the Re-Re-Amended Points of Claim for which leave to amend was granted virtually after the close of counsel's final address for Refco. This case was defended by Troika with a Counterclaim until some three weeks before the hearing in December 1982, when Troika displayed no further interest in the litigation. The trial commenced on the 15th January 1990, and three days earlier the pleaded defences of Troika were abandoned by Tai Fook. Troika did not, attend these proceedings. Broadly speaking, Tai Fook is alleged to be liable for Troika's trades put through by Refco in America in its account kept by Refco as an "Omnibus Account".

3. Apart from evidence of loss given through witnesses verifying the computer print-outs, the crucial agreement in early 1983 giving rise to the alleged liability of Tai Fook was primarily sought to be established by the evidence of Mr Thomas Meyers. Tai Fook called no evidence. Tai Fook referred to and relied on some of the documents in the well of the court without objection from Refco.

4. I should give a brief account of these and related proceedings between the parties after what is commonly known as the Black Monday, the 19th October, 1987. In Troika's Omnibus Account, open positions acquired were held until the 20th. October 1987. The day before, the 19th October. the American market collapsed and all the open positions of Troika in its Omnibus Account with Refco were closed on the 20th.  On the 26th October, proceedings were instituted by Refco against Troika in the United States District Court for the Northern District of Illinois, Eastern Division.

5. On the 20th November 1987, a Mareva injunction was obtained against Troika in Hong Kong by Refco. The next day, the 21st November, these Hong Kong proceedings were commenced by Refco against Troika alone. Save for a reference to Tai Fook as being a shareholder of Troika, Tai Fook was not involved in these Hong Kong proceedings until it was joined on the 3rd February l988.  On the 23rd March 1988, Sears J. struck out the entire claim of Refco against Tai Fook and granted leave to file a Re-Amended Points of Claim. On the 23rd January 1990, at the conclusion of counsel's final address on behalf of Refco, leave was sought and granted to file a Re-Re-Amended Points of Claim.

6. Refco now relies on paragraphs 12 and 13 of the Re-Re-Amended Points of Claim as well as its paragraph 16(b) with a slight modification :

7. Refco no longer pursues paragraphs 14 and 15. It is to be noted that the latest additions on the 23rd January 1990 are as shown or deleted within square brackets in paragraph 12 and that the reference in paragraph 13 to the two following paragraphs 14 and 15 must be ignored.

8. The finally modified paragraph 16(b) with the part now proposed to be deleted within the square brackets reads as follows :-

 

"Further or alternatively, pursuant to the Clearing Agreement the Plaintiff :-

9. The short point is : whether Tai Fook is responsible for the debit balance in the Omnibus Account of Troika with Refco. Put in a different way by counsel for Tai Fook, the question is : against the known scenario and on the documents referred to, has Refco a credible case?

10. If the evidence of Mr Meyers is ultimately believed, it must follow that the Plaintiff has put forward a credible case. The quality of Mr Meyers' evidence was attacked by Tai Fook. I shall summarise the evidence of Mr Meyers and try to evaluate it in the light of the criticisms raised on behalf of Tai Fook.

11. Mr Meyers joined Refco in November 1981 and left in October 1983. By profession, he is a certified public accountant. He had worked previously for the firm of Arthur Andersen as an auditor for 13 years. He left Refco to start on his own as a member of the Index and Options Market at the Chicago Mercantile Exchange. When he was in Refco, he was the Chief Financial Officer. He was responsible for the entire financial operation of Refco including negotiation for the opening of new foreign accounts in some cases. In the majority of cases, he was to consider the proposed departure from the standard commission structure of Refco on a referral by the Chairman, Mr Dittmer.

12. As a futures commission merchant, Refco is a broker. Refco would accept and book-keep in one account, trades put through by another broker for his own customers. Such an account kept by Refco for the trades of many customers put through one broker is called an omnibus account.

13. Troika, as a company outside America, had established a foreign omnibus account with Refco in 1981. That 1981 omnibus account was ready for trading but, according to the assertion of Tai Fook in its Points of Defence. "Troika preferred to conduct business on the Chicago Mercantile Exchange with those brokers with whom it already had a working relationship, and whose charges were less than those of Refco."

14. In January 1983, one Mr Lam was introduced to Mr Meyers by the Compliance Officer of Refco, Mr Carcione. The nature and substance of the discussion was given by Mr Meyers in this way : Mr Lam wished to open an omnibus account with Refco.  They met in his office in Chicago for about half an hour to 40 minutes. The first topic discussed was Refco's size and prominence in the Futures Industry in the Chicago and New York Exchanges. Mr Lam was briefed on the role played by Refco in the Chicago Mercantile Exchange as one of its largest clearing members and in the Chicago Board of Trade as its second or third largest clearing member. The financial strength of Refco with a capital of some US$30M was revealed to Mr. Lam by the production to him of the audited balance sheet. The quality of service and efficiency of Refco were also explained to Mr Lam. In effect, up to this stage, Mr Meyers was acquainting Mr Lam with Refco's operations, its standing and its financial or other capabilities with a view to selling Refco as a broker to Mr Lam. That was said to be the usual routine of Mr Meyers in his dealing with a prospective customer. Next, he would seek information and particulars from the prospective customer himself, which Mr Meyers then did proceed to do. To the follow-up enquiry,  Mr Lam responded that he was an employee of Tai Fook and that Tai Fook wished to establish a clearing relationship with Refco. Thereupon Mr Lam described Tai Fook as a large trading company with tens of thousands of assets, numerous customers and a good prospect to grow. Mr Lam concluded that Tai Fook wished to open an omnibus account with Refco evidently as a broker. Mr Meyers described a clearing relationship or a clearing arrangement as a relationship in which Refco would clear the trades for another entity as a broker in the American exchanges. Mr Meyers would also be interested in a customer's credit-worthiness for deciding as to whether any higher margin than the basic was to be set and what time was to be allowed for the deposit of further called margins during the fluctuation of the market. Credit-worthiness as well as volume of expected trades would determine the commission rates. Not only did Mr Lam try to impress upon Mr Meyers that Tai Fook was a large trading company with tens of millions of dollars in assets and numerous customers, but also that it was supported by shareholders who were very wealthy.

15. Tai Fook's interest was expressed by Mr Lam as in the tradings on the Chicago Board of Trade, the Chicago Mercantile Exchange as well as Comex Gold in New York.

16. Mr Lam also named the Chicago firm by whom Tai Fook's trades had been cleared. The other activities of Tai Fook in the foreign exchange market, the currency market, and the spot metal market, both in gold and silver, were also given.

17. Mr Meyers indicated to Mr Lam that it would be more convenient for Tai Fook to purchase a US$1M Treasury Bill for deposit with Refco so as to meet the intermittent margin calls without the necessity for any daily telegraphic transfers. Mr Lam was also requested to send Refco copy of  Tai Fook's latest balance sheet.

18. There was no mention of Troika's pre-existing 1981 omnibus account with Refco at the meeting nor was Mr Meyers aware of it. The discussion proceeded on the basis of the opening of a new account. Troika itself was also not mentioned during the discussion.

19. Mr Meyers had no doubt that the approach and the discussion to follow were made on behalf and for the benefit of  Tai Fook. Mr Meyers was confident of the identity of his prospective customer as the name of  Troika never came up until the very end of the meeting when business cards were exchanged. Mr. Lam's business card described him as the Managing Director of Tai Fook. On it were also printed Troika Finance Limited, Troika Investment Limited i.e. Troika and Troika Securities Company as subsidiary companies. Mr Meyers sought elaboration on these companies listed on Mr Lam's business card, and it was explained that they were wholly owned subsidiaries of Tai Fook. Mr Lam was not specific as to how the omnibus account would actually be operated, but he indicated that one of them might be used as an operational company for futures trading, but that Refco's relationship would be with Tai Fook.

20. Rates of commission were also discussed and the rates outlined by Mr Meyers would seem to be acceptable to Mr Lam on the basis of 2,500 round-turn contracts each month. Mr Lam expected Tai Fook to build up that volume gradually. No rates were, in fact, finalised as Mr Meyers was anxious to make it doubly sure, pending a necessary submission of these rates for approval by the Chairman, that they could not be further reduced.

21. Mr Meyers in his evidence explained that as a general rule his practice was to try to obtain more information about a prospective customer from other sources e.g. the account executive or people who had known him or other customers of Refco's, who had transacted business with him. To Mr Meyers, Tai Fook was a prospective customer who had no account executive in Refco. As I said, Mr Meyers was unaware of Troika's 1981 Omnibus Account. There was no trading hence in any case probably no account executive for Troika. There is no evidence of any disclosure which would put Mr Meyers on enquiry. In all probabilities, no further steps could have reasonably been expected of him to take. No suggestion was otherwise made to him in cross-examination In cross-examination, Mr Meyers agreed that prior to the first meeting the Compliance Officer, Mr Carcione, had spoken of his first contact with Mr Lam in his former employment with Rufenacht, Bronagen and Hertz, i.e. R. B. & H. But Mr Carcione never mentioned any Troika's omnibus account either with Refco or R.B. & H. In fact, Mr Carcione referred to Mr Lam as being associated with Tai Fook. That was in  totality the cross-examination on Mr Meyers' knowledge of  Mr Lam.  He was not asked as to what other possible enquiries he could have made, or if he had other sources but did not make any further enquiry, the reason why. Mr Lam was in court and available to be called as a witness. Far be it for me to speculate why he was not called, but that has the effect of leaving the evidence of Mr Meyers unchallenged, and unchallenged by a person then in attendance and now in court listening to the whole incident being recounted. Moreover, Tai Fook's defence discloses a clear factual conflict on the discussions in the first meeting, particularly as to whether  Mr Lam told Mr Meyers that he was acting for Tai Fook or negotiating for Troika.  Mr Lam's alleged role as a negotiator for Troika is not now being sought to be supported.

22. At the conclusion of the evidence, Tai Fook had chosen not to resort to any direct confrontation but merely to attack the quality of Mr Meyers' evidence as being not credible on its alleged inherent inconsistency and with background information primarily reflected in the documents read.

23. Whilst Mr Meyers put the time of the initial meeting in mid-January around the 15th, he was not quite helpful as to the date of his second meeting with Mr Lam. There were altogether three meetings, the last of which was in fact an encounter outside the lifts of Refco.  Mr Meyers offered varying dates for the second meeting but he was reasonably certain that it was about the time when trading began.  Mr Meyers recalled that Mr Lam "stopped by his office and enquired whether Refco would reduce further the commission structure for the clearance arrangement with Tai Fook", and Mr Meyers affirmed his position that only a higher volume would warrant a revision. "Mr Lam indicated that Tai Fook would go forward" subject to a re-evaluation in six to eight months. Mr Meyers was firm that Mr Lam was acting for Tai Fook whose name was specifically mentioned also in this second brief meeting of about five minutes.Trading at those rates commenced on the 25th February 1983. Trade orders would not likely have been accepted unless commission rates had been settled. It is more probable that the second meeting preceded actual trading.

24. Troika's Board Meeting held on the 7th February 1983 was for opening with Refco "one or more accounts for the purpose of commodities trading". See Bundle B, Divider (6b), page 2 i.e. B(6b)2. The actually re-opening of Troika's pre-existing Omnibus Account was authorized by Mr Carcione on the 23rd February 1983. See Bundle B, Divider (4a), page 7 i.e. B(4a)7. Trading commenced on the 25th February 1983. See Bundle B, Divider (4a), page 8 i.e. B(4a) 8. Residual doubt cannot been entirely ruled out as to whether or not Mr Meyers' second meeting with Mr Lam was prior to the commencement of trading, particularly in view of his unsure evidence as to the date.  But, it really matters not because trading did commence and continue at the rates as agreed in early 1983 and set out in the letter of the 31st January 1983.  [The abbreviated symbols are to be read : the alphabet letter B stands for Bundle B, the brackets (4a) refer to the Divider and the last numeral gives the page number.]

25. As for the 2nd meeting, cross-examination of Mr Meyers was focused on his recollection as to the mention of Tai Fook by name. It was not and apparently could not be put to Mr Meyers that his recollection was wrong for either the 1st or the 2nd meeting. Counsel for Tai Fook confined himself to challenging the quality of Mr Meyers' recollection.

26. Before the second meeting, Mr Meyers caused to be sent to Tai Fook a letter dated the 31st January 1983 in the following terms :-

27. The 1st paragraph of this letter confirmed the discussion "regarding a clearing arrangement between Tai Fook Finance Co., Ltd. and Refco, Inc.". The parties were identified by their names.  Tai Fook's defence admits that "in January 1983, Lam on behalf of (Troika) negotiated with (Refco) the level of charges referred to in the letter dated 31st January 1983". Negotiation was thus admitted. Thereafter, trading proceeded at the rates so negotiated. An agreement finally reached on those negoitated terms before trading cannot be seriously denied. The identity of the contracting parties is the central issue. The letter of the 31st January preceded the second meeting in which "Mr Lam indicated that Tai Fook would go forward". Trades were however put through in Troika's pre-existing 1981 Account which was re-opened in 1983 upon the signing of some similar documents, but Refco maintains that Tai Fook was free to use any vehicle for trading including the reactivation of a pre-existing dormant account. After all, Troika was not mentioned in the discussion, and it was brought up only after the conclusion of a negotiation with Tai Fook, when Mr Lam, in his explanation of the subsidiary companies on his business card, volunteered the information that one of them might be used to operate the account. Mr Meyers raised no objection and he was further assured that the clearing relationship would be with Tai Fook. If Mr Meyers' evidence is believed, it would seem unarguable that Tai Fook was the contracting party.

28. I turn next to three telexes despatched after the second meeting. The telex dated 25th February 1983, B(4a)9, from John Wong of Troika to Mr Carcione of Refco was in connection with the realignment of the voice grade circuit and voice line. It also gave standing instructions for the transfer of funds by Refco to :

29. Another telex B(4a)10 from John Wong of Troika to Mr Carcione of Refco was sent on the 26th February 1983 with reference to Mr Meyers' letter dated 31st January 1983, seeking particulars of the fees structure of the Exchanges and margins details for input into Troika's computer.

30. The telex of the 7th March 1983. B(4a)11, was again from John Wong of Troika to Mr Carcione of Refco. It complained of overcharging over and above a rate set out in Mr Meyers' letter dated 31st January 1983.

31. On all this, it seems more probable than not that Tai Fook was the contracting party. However, Mr Brodie, counsel for Tai Fook, urged the Court to be extra cautious for reasons which I shall consider later.

32. Mr Meyers' recollection of the initial meeting between himself and Mr Lam was challenged generally. Mr Meyers was an impressive witness and he repeatedly affirmed his evidence that there was a discussion to establish a clearing agreement for Tai Fook. He was specifically tested on his knowledge of the Operations Manual. Mr Meyers expected to be given a copy had it been introduced prior to his departure. He did not supervise the Compliance Department, but he maintained that by the time he left Refco in 1983, the Operations Manual was under consideration in draft. He was approached by Refco as to the 1983 meetings in the spring or early summer of 1988, but he only came to see the documentation of  Troika's 1981 Omnibus Account when he was shown by Mr Byman in the deposition hearing in America on the 12th May 1989. The criticism levelled at this part of his cross-examination seems quite unjustified.

33. He had good reason to recall the 1983 incident as the opening of an account with a substantial company in a major trading city like Hong Kong was important to Refco. Moreover Tai Fook's clearing arrangement was either the first or the second of such a significant account at the time. He was also aided by the letter of the 31st January 1983 for which he was responsible.

34. As at the close of trading on the 16th October 1987, the case of Refco is that the Omnibus Account of Troika showed a debit balance of US$797,263.74 as shown in the computer print-outs, "P1". When trading resumed on the 19th October on the Chicago Mercantile Exchange, the Standard and Poors 800 Index suffered a significant decline and the deficit in Troika's Omnibus Account rose to more than US$4. 5M. Refco sought further margin from Troika, which never came. Index took a further tumble in the course of the trading session on the 19th October and the margin requirements increased to over US$13M as at the close of business. No further margin came as requested or at all, and after having suffered a further set back in the Index on the, 20th October, Refco liquidated and closed all the open positions in Troika's Omnibus Account on that day, sustaining a net loss of US$7, 165,815.66 as given in the computer print-outs, "P1". That represents the sum claimed by Refco against Tai Fook and Troika together with interests thereon and costs.

35. Ultimately, the question to which this court has to address itself is : has Refco put forward a credible case?  In discharging that function, the court has been invited by counsel for Tai Fook not to consider the consistency or otherwise of Mr Meyers' evidence in isolation but in conjunction with the history of litigation and the documents referred to against the known scenario. The court has also been invited to exercise special caution if only for the fact that Refco's case against Tai Fook has undergone many changes.

36. I turn now to examine in more detail the history of litigation. In the Illinois proceedings commenced on the 26th October 1987, at no time until their conclusion upon judgment being entered on the 20th December 1989 against Troika by default, did Refco try to join Tai Fook. It was suggested that there could have been more to it than what met the eyes.

37. The Hong Kong proceedings were initially instituted against Troika on the 21st November 1987. On the previous day a Mareva injunction was applied for and granted. A Mareva Injunction application should be accompanied by a full and frank disclosure. But except for the mere mention of Tai Fook being a shareholder of Troika, it was not then being suggested that Tai Fook was In any way involved; nor was the possibility of any assets backing from Tai Fook brought to the notice of the Court. It was suggested by Mr Brodie before me that the present claim against Tai Fook must or could have been a device calculated to anchor the proceedings against Troika in Hong Kong for preserving the Mareva Injunction or possibly that it was motivated by the tempting thought o?making Tai Fook a paymaster. Counsel of Tai Fook urged the Court to take both these possibilities as real ones. The suggested motive of providing a leverage to keep the proceedings against Troika in Hong Kong was sought to be supported by the rationale firstly that if Tai Fook had been involved, it should have been inducted into the Illinois proceedings or at least at the inception into the Hong Kong proceedings; secondly that the allegation made later in time of Tai Fook's assets backing tradings of  Troika was said to be totally repugnant to any need for preventing dissipation of assets by a Mareva.   Further, when Troika applied for a stay of the Hong Kong proceedings on the 10th December 1987, it was resisted by Refco on the force of an affidavit of Mr Carey sworn on the 28th January 1988. paragraph 4(g) of which intimated that Tai Fook would be joined as a defendant but failed to give particulars of Refcos case against Tai Fook. Mr Brodie suggested that even then Refco, had no real case. .

38. The then Chief Finance Officer Mr Meyers left Refco in October 1983 and he was not consulted until the spring or early summer of 1988. Part of Refco's pleaded case is that Mr Carcione was given to understand by Mr Lam, as a collateral warranty, that Tai Fook would back Troika's omnibus Account with its assets and that Mr Lam repeated the same to Mr Meyers at their first Chicago meeting and to two other Refco officers in Hong Kong. This part of Refco's case is not pursued. It has never been sought to be supported by any documentary evidence. Mr Meyers was himself silent on. Tai Fook's alleged agreement to stand behind Troika, and none of the other three officers was called.  They ought to. have some recollection of such a promise of assets backing by Tai Fook. There seems to be justification for Mr Brodie to complain that no attempt was made to disclose this alleged collateral agreement to stand behind Troika in the Mareva application.

39. However, Tai Fook was joined on the 3rd February. When Sears J. granted leave to file a Re-Amended Points of Claim on the 23rd March, Refco's case, as it then stood, against Tai Fook was pleaded. Refco successfully pressed Troika to divulge its expenditure here and in America. Troika was ordered so to make such a disclosure on the 12th April 1988 with dire consequences to follow. Both at the time when Troika later abandoned its application to stay the Hong Kong proceedings and at the time when it was ordered to reveal its expenditure here and overseas, according to Lord Irvine no criticism was sought to be levelled at any failure on the part of Refco to disclose fully and frankly. The Mareva application must have been proceeded with in what was then regarded as an emergency but apparently at a time when Mr Meyers had not yet been consulted. Moreover, there could still have been every incentive for deterring Troika from wasting its own assets even with a full backing from Tai Fook. The injunction was not sought to be discharged even after the case of Tai Fook had appeared in the Re-Amended Points of Claim. But as a matter of fact, it is not so much how best the proceedings should have been prosecuted; as Mr Brodie was at pains to point out, these omissions might not be wholly innocent but could be signs of later, fabrication. However, what transpired with the little explanation now offered from the Bar would not put me in a position to comment fairly on these events.

40. It is a possibility, nevertheless, that Refco could have entertained the notion that it had entered into no relationship with anyone but Troika in the re-opening of its pre-existing Ominbus Account in 1983, hence merely Troika was sued in America and initially in Hong Kong. It is equally possible that Refco was too quick in transmitting merely Troika's trading account documents for immediate action, internally or otherwise. The embarrassment could have been brought about by an overzealous effort in putting under one comprehensive but quite artificially coherent roof all the likely causes of action based on perhaps the less than harmonious beliefs of individual officers. It is also possible, as obliquely explained by Lord Irvine in his opening, that with Mr Meyers, the central figure in negotiations away and a time lapse of 3½ years since the commencement of trading in Troika's Omnibus Account, the case against Tai Fook was progressively taking shape on examination of the offer letter and papers, especially from Tai Fook in conjunction with what segmented information the officers still in the employ of Refco could then give. This is all, to a varying degree, sheer speculation which is hardly permissible and will generate more questions than provide answers.

41. Tai Fook seeks to rely on these apparent shortfalls, some explicable and some not by the documents available in the absence of viva voce evidence, to infer that the quality of the evidence of  Mr Meyers leaves much to be desired and that Refco does not have a credible case. From the possibilities I have endeavoured to enumerate - there may be more - I find it virtually impossible to draw any proper inference or to profit from them. However, because of the tortuous course the events have taken, I can be more critical in my mental process of evaluation. This is what I propose to do, though it must be appreciated that such mental assessment in action defies an accurate description.

42. The letter before action dated the 16th January 1988 put Refco's case on the basis of an alleged Tai Fook agreement to indemnify. When leave was granted by Sears J. on the 23rd March 1988 to file a fresh Re-Amended Points of Claim, the original claim of Refco including its alleged agreement to indemnify was struck out.   Leading counsel for Refco was said to have conceded before the Court of Appeal that the case of representation and warranty contained in paragraph 14 of the Re-Amended Points of claim was not an attempted resuscitation of the alleged indemnity. However, Lord Irvine for Refco explained that the striking out was a matter of formality, not of substance as junior counsel for Refco had proposed to the Sears J. that a completely new Re-Amended Points of Claim would be filed. It is true that the cause of action founded on alleged indemnity was not proceeded with, but Lord Irvine pointed out that Refco's factual case was not departed from.  In this and other adjustments, there might be possibilities of deviousness, prevarication, fabrication, negligence, incompetence, inadvertence, error of judgment, overzealousness, forensic preference and tactical manouvre. Apart from the fact that further amendments were then found to be necessary and made, I could not infer inherent defect let alone neglect or misconduct in the case of Refco against Tai Fook.

43. We are now down to a Re-Re-Amended Points of Claim. Even paragraphs 13 and 16(b) in their final form have to be read with some modifications. It cannot be claimed that Refco is not being represented by the best of talent. However, no man is infallible. No explanation was proffered. There are many imponderables, and it is best not to speculate.

44. Tai Fook has never been a futures broker or dealer licenced in Hong Kong. In the Directors' Reports of Tai Fook for the year ending 31st March 1984 and for the year ending 31st March 1985, B(5c)(iv)5 and B(5c)(vi)3, the Group activities included commodity futures trading. Those were evidently activities of a subsidiary. Tai Fook would need no omnibus account for its use. It had no licence for dealing in futures and had no customers for an omnibus account. It was, therefore, suggested that Tai Fook would not likely have entered into an Omnibus Account relationship with Refco. But Mr Meyers' evidence was that the relationship was with Tai Fook which was to be responsible. The mechanics was to be arranged. Indeed, it was so arranged that Troika's 1981 dormant Omnibus Account was reopened for operational purposes. In my view, the more probable inference is that the 1981 dormant omnibus Account would never have been re-activated without this 1983 discussion and agreement of Tai Fook for the favourable commission rates; Mr Lam indicated without any firm commitment that one of the three subsidiaries might be used for trading; Mr Meyers raised no objection to it; then what had been agreed to by Tai Fook was put into action through a subsidiary.

45. Of the other allegations of Refco, Mr Brodie, counsel for Tai Fook, criticised the alleged implied terms as vague and imprecise. Further, as a wholly owned subsidiary, Troika could not be an agent of Tai Fook, and Tai Fook's alleged vicarious liability could not stand. The earlier alleged fraudulent misrepresentation in the Re-Amended Points of Claim was also struck out. Collateral warranty, misrepresentations and the possible plea of guarantee so eagerly maintained at the commencement of these proceedings were all dropped after the close of Refco's case.

46. After the close of Refco's case, it was conceded that there was no, as initially alleged, oral agreement for a clearing arrangement before the letter of the 31st January 1983 which was in fact described by Mr Meyers as only an offer letter. There was no acceptance of this offer letter in writing. Even in the latest Re-Re-Amended Statement of Claim, it was not particularized as to how the pleaded oral agreement was said to have been accepted later, by conduct or otherwise. As Mr Meyers was unaware of  Troika during discussion at the first meeting, the version of "a clearing agreement UTILIZING THE ACCOUNT" must also be abandoned. Finally, my attention was drawn to what was allegedly spoken by Mr Lam at the second meeting, namely, "Tai Fook would go ahead" as being too vague and meaningless to intend any contractual relationship.

47. The Court was taken through documents signed by Troika for trading in its Omnibus Account. Refco's Operations Manual was not observed as regards Tai Fook, particularly as a foreign account. See paragraph H in C(5d)17. There were no compliance documents signed by Tai Fook with Refco.  On Tai Fook's alleged involvement, the rules and regulations of the Chicago Merchantile Exchange and the Board of Trade as well as provisions of the Commodity Exchange Act might well be said to have been disobeyed. No controlling interest of Tai Fook was reported. See B(4c)5. Full particulars were not given for the identification of a special account; no disclosure was made in respect to any interested party of more than 10%. See B(4c)7 and B(4c)8. It may equally be argued that since Troika was a separate legal entity, it was not controlled by or directly linked in financial interest to Tai Fook. Tai Fook used Troika as a trading vehicle and had no or no special account of its own. Thus, compliance documents might well be quite unnecessary. Moreover, Troika was a wholly owned subsidiary of Tai Fook until the 16th April 1987 when it was sold to Mr Simon Lo. See B(6a)24. We know not whether there was any resultant trust after the sale. With or without any alleged agreement in 1983 involving Tai Fook, all these provisions, rules and regulations, internal, regulatory or statutory, if Mr Brodie is correct, must have been also so breached or not complied with.

48. There seems to be too much left unsaid, e.g. in the Minutes of the Directors' Meeting of Troika held on the 7th February 1983, B(6b)2, it was resolved that one or more accounts be opened with Refco International Futures, Inc. of Chicago. Some casual remark was offered to explain an initial intention to use Refco International Futures Inc. for commodities trading but the matter was not fully explored. The Balance Sheets of Tai Fook for 1982 to 1985 were supplied to Refco but only the 1984 Balance Sheet of Troika was furnished. Troika's 1984 Balance Sheet was acknowledged by Refco Capital Corporation. Much was sought to be made by Lord Irvine, counsel for Refco, of the probabilities that the Balance Sheets of Tai Fook were delivered pursuant to the request of Mr Meyers made in the 1983 discussion, and that on the correspondence, the 1984 Balance Sheet of Troika seemed to have been sent to Refco Capital Corporation with a view to its opening an account with Troika.

49. Mr Brodie, Counsel for Tai Fook, invited me to draw a somewhat different inference from the documents. Counsel noted what seemed to be informality with which corporation names were used in communication. Hence, so Mr Brodie explained, addressing the letter dated 31st January 1983, B(4a)5, to Tai Fook carried little significance. Other examples of indiscriminate use of corporate names were given : (1) In a telex from Mr Lam of Troika to Refco, attention to Mr Bennett dated 7th July 1983, B(4c)8AB, the trading in London silver and other matters apparently for the account of Refco Capital Corporation were telexed to Refco Inc. (2) by a letter dated the 8th August 1983, Refco Capital Corporation wrote to Mr Lam of Troika Securities Company, B(4c)11, enclosing Refco Capital Corporation's by-laws and resolution for the necessary authorizations pursuant to the discussion of Mr Lam and Mr Bennett of Refco Capital Corporation. The reply is B(4c)14 which came from Troika but not Troika Securities Company. (3) By a letter dated the 29th August 1983, B(4c)15, Refco Capital Corporation supplied the names of the authorized offices for trading,  confirmation and settlement to Troika but not to Troika Securities Company.

50. From such correspondence, the court was asked to draw the conclusion that communication between entities within the Refco Group and the Tai Fook Group had been conducted without much precision. Matters for Refco Capital Corporation were directed to Refco and matters for Troika Securities Company were directed to Troika. However, a possible interpretation prejudicial to Tai Fook is that bargin struck with one entity, e.g. Troika Securities Company was to be carried out by another entity. e.g. Troika.

51. I should also mention in passing B(4c)17P which is a telex dated the 25th November 1985 from Troika to Refco complaining overcharging of round-turn trading in SIMEX on the force of a previous verbal agreement between Mr Lam and Mr Carcione. This would appear to be an illustration of an oral agreement on matters as important as commission rate not committed to writing. However, without full evidence, this again can be no more than surmise.

52. Mr Brodie directed my attention to two further examples : B(4c)8A, a letter dated the 22nd July 1983 was sent by Mr Carcione of Refco to Mr Lam, this time "c/o Tai Fook Finance Company Ltd."; B(4a)1, a letter dated 6th April 1981 dealing apparently with matters for Troika's Omnibus Account was directed by Refco to Tai Fook, "Attention : Mr Timothy K. Lam".

53. In Tai Fook's defence, the letter of the 31st January 1983 was said to have been addressed to Tai Fook by mistake. That allegation was not sought to be supported by evidence. Tai Fook finally relied on informality with which the correspondence was addressed or directed. But the letter of the 31st January recorded categorically in its first paragraph the "discussions regarding a clearing arrangement between Tai Fook Finance Company Ltd. and Refco Inc.". Can there be any real probability that the first paragraph was a mistake?

54. It is also quite probable that the 1984 Balance Sheet of Troika was sent for what would appear to be a proposed account by Refco Capital Corporation with Troika. Indeed, the receipt of  the 1984 Balance Sheet of Troika was acknowledged by Refco Capital Corporation. See B(4c)11 and B(5c)(iii)16. In Tai Fook's defence, the despatch of the Tai Fook's Balance Sheets for the years 1982 to 1985 was said to be in consequence of the wish of Refco to open an account with Tai Fook. Such an allegation was also left unsupported by evidence. Although these documents would seem more favourable to the suggestions advanced by Refco, nevertheless they represent part of the story which remains untold in full. I cannot emphasize more strongly that it is highly undesirable to speculate and to speculate on such documents.

55. In essence, grave concern was voiced on the unceasing shifting of Refco's fronts including its principal case against Tai Fook, the ambiguity with which "clearing agreement" and "Tai Fook going forward" were uttered, the decision not to call the Compliance Officer, Mr Carcione and other officers, the absence of compliance documents for Tai Fook, the suggested non-observance of the Operations Manual and non-compliance with regulatory and statutory requirements, and the belated joinder of Tai Fook and prior non-disclosure. It was claimed that the quality of the evidence of Mr Meyers thus left much to be desired and that the overall evidence, in proper perspective, was not really supportive of a new agreement, but of the making of an effort to re-negotiate the commission rates for a pre-existing Omnibus Account. The Court was also asked to bear constantly in mind the readiness to trade in which Troika's 1981 Omnibus Account had previously been held, without any involvement of Tai Fook.

56. In sum, it was argued inter alia (l) that so much was left to so informal discussions; (2) that there was no written acceptance by Tai Fook; (3) that Tai Fook's involvement was unnecessary in 1983 as Troika had been ready to trade; (4) that it was purely a reactivation of  Troika's pre-existing Omnibus Account, (5) that use of corporate names was with informality; (6) that the despatch of the 1984 Balance Sheet of Troika would at least dampen any adverse inference of the supply to Refco of  Tai Fook's 1982-1985 account documents; (7) that compliance and trading documents were in respect of Troika, only; (8) that trading was only conducted in Troika's pre-existing 1981 Omnibus Account; (9) that from the documents the New York Account of Tai Fook seemed to be selected as a matter of administrative convenience; (10) that initial exchange of correspondence was exclusively between Refco and Troika even after crisis had struck, and (11) the litigation history.

57. On the other side of the coin, it would seem that there is also much to be said for Refco's case :

58. At the conclusion of Refco's evidence, the only stance maintained by counsel was that commencement of trading "was dependant upon there being negotiation for a reduction in Refco's standard commission rates which would result in an agreement being arrived at". Refco's formerly pleaded case as highlighted in counsel's opening was one of re-opening or revival of Troika's 1981 Account 20604 on better re-negotiated terms but involving Tai Fook. It is difficult to understand why there should be any need for such a belated adjustment in a case so well represented. Leading counsel for Refco was visibly taken by surprise when the matter was first raised by the Court in the midst of his final submissions. The matter then broached apparently led to a formal application to introduce paragraph 12 of the Re-Re-Amended Points of Claim in its present form. Save for the concession inherently made to the inaccurate and perhaps defective pleading in the then paragraph 12 of the Re-Amended Points of Claim, no explanation was solicited or volunteered. It is highly debatable whether it is a matter I could legitimately take into consideration.  It is often said that pleadings are assertions of counsel. Any surmise on the real cause or causes would be endless and monumentally counter-productive. I have tried to explain why it would be unhelpful to indulge in speculation. It is worthy of  note that the substance of Mr Meyers' evidence has not itself been show to be at variance. Over-exaggeration of peripheral issues, particularly those highly speculative, would not be, appropriate.

59. However, it does not follow that I should completely ignore these matters drawn to my attention. A common sense path must be steered in the evaluation of evidence. I have accordingly consider the demeanour of Mr Meyers, the inherent consistency or otherwise of his evidence and the consistency or otherwise between his evidence and known surrounding circumstances together with the documents referred to. In this trial, the Court's view may be said to have been blinkered. The contest has been chosen to be placed within a narrow compass. In our adversarial system of litigation, such a mode of presentation is a prerogative and legitimate. For apparently good reasons of their own, Tai Fook was also content not to enlarge the scope of controversy. It would not be gainful to wander aimlessly in a labyrinth of the many possible situations which could have given rise to the documents referred to. Tai Fook called no evidence to explain in what situation they claimed themselves to be. It would be unprofitable to try to distil the causal link from slant criticisms hopefully with the aid of the resultant documents which are themselves open to more interpretations than one. Tai Fook chose not even to deny through a responsible officer that no such relationship with Refco was subsisting. As Lord Diplock observed in Herrington v. British Railways Board, [1972] A. C. 877 at p.930 Letters G - H that a defendant who elects "to call no witnesses, thus depriving the Court of any positive evidence ..... cannot complain if the Court draws from the facts which have been disclosed all reasonable inferences as to what are the facts which the defendant has chosen to withhold".

60. Refco is being called upon to prove its case. In a global examination of all that I have been referred to, I have no reservation in concluding that Mr Meyers' evidence should be believed and given weight and that Refco has succeeded in proving its case of an express agreement with Tai Fook. I need not be concerned with the alleged implied terms and conditions.

61. In the final analysis, I accept Mr Meyers' evidence as credible and accurate. Refco's relationship was indeed with Tai Fook. I find that Tai Fook was liable as claimed in consequence of the 1983 discussions and agreement. Troika allowed itself to be used via its 1981 Omnibus Account and is therefore also liable.

62. Mr Brodie submitted that Refco is under a kindred duty to render a proper account when challenged by its customer. In SNW Commodities v. Falik [1984]2 Ll. L. Rep. 224, at p.228 left hand column Webster J. preferred the view, without deciding, that a relationship same as that between Refco and Tai Fook was one of principal and principal :

"Mr Falconer submitted that this construction of clause 11(b) is consistent with the relationship, as between client and broker, of principle and agent. Even if  their relationship was of that nature, I can see no such inconsistency, but in any event, I am doubtful whether their relationship is that of principle and agent although I do not purport to decide the question one way or the other since it is unnecessary to do so for the purposes of this case.  But it seems to be probable that the authority of Limako B. V. v. H. Hentz & Co. Inc. [1979] 2 Lloyd's Rep. 23, leads to the conclusion that the relationship is that of principle and principle, not principle and agent. In any event, I find it difficult to see how a person is acknowledged to be in a relationship of principle to principle with a third party in a particular transaction can, in the very same transaction, be regarded as someone else's agent. I can understand that the relationship between the two persons, that is to say, the client and the broker, may include some or all of the rights. obligations of principle and agent, but that is not to say that they are principle and agent and I can understand that if there is some other collateral or connected transaction Involving a third party they may, for the purposes of that other transaction, be in relationship of principle and agent. But I recognise that authority might require me to overcome my difficulty if the question was relevant to my decision in this case, which it is not."

63. Whatever the legal relationship was the focal point was the activities after the Black Monday. The whole emphasis was on Refco being able to show that it acted as it claimed it had since that fateful day. Except for a desperate cry of want of authorization, there is no evidence that the entranchment of these open positions as at the 16th October 1987 was or had ever been queried. Those open positions, though not admitted by Tai Fook, were admitted by Troika in paragraphs 14 and 15 of Troika's Points of Defence, Al-61 & 62. Many defences were raised by Troika to what is said by Refco to have occurred following the Black Monday. Those Troika defences were also abandoned by Tai Fook before the hearing.  There is no specific challenge made to these open positions of Troika. Refco is a broker and there were, as reflected by the documents referred to, direct and systematic trading communications and confirmations throughout. Witnesses of Refco explained the safeguards in its operations. The computer print-outs "P1" begins with these open positions. I find them proved.  The activities of Refco under or in the Omnibus Account of Troika after the Black Monday were, I further find, as documented in these computer print-outs. Refco's case is proved.

64. As for interest, prime rate is well-understood to be the lowest rate at which accommodation is granted by a bank to particularly sound customers in respect of low risk ventures. As prime rate of any bank is subject to variations depending,  inter alia, on the base or minimum rate quoted by the Central Bank e.g. the Bank of England in London, the interest rate charged on bank overdrafts is reviewed by each bank from time to time. Refco is seeking simple interest on the amount owned by Tai Fook and Troika at 2% above prime.  It can reasonably be inferred that the prime rate referred to was the prime rate from Refco's own bankers or prime rate for Refco's loans at source. That is sufficient for the Commercial Court. I accept the claimed interests as per the calculations in the sheet last tendered by Lord Irvine as reasonable and accurate. I find such claimed interests also proved. Interest stood at $l,823,854.13 as at the 15th January 1990 and thereafter at $2,388.61 per day until judgment.

65. In conclusion, judgment is given as claimed against both defendants with costs. Troika's Counterclaim is consequently also dismissed with costs.