BHAGWAN SHANKARDAS MOORJANI v. THE KA WAH BANK LTD.

CACV 116/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 116 OF 2000

(ON APPEAL FROM HCA 16440/1998)

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J U D G M E N T

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Hon Mayo VP:

1. This is the plaintiff's appeal from a judgment of Yam J when he dismissed his claim.

2. The plaintiff had opened an account with the defendant with a view to engaging in margin trading of foreign currencies in July 1998.

3. When doing so he entered into an agreement with the defendant described as a Master Agreement for Trading in Foreign Exchange and Foreign Exchange Trading Account ("Master Agreement"). He was also provided with a Foreign Exchange Margin Trading Risk Disclosure Statement which furnished him with details of the types of risk which would attach to this type of investment. He also signed a form of authorisation authorising the Bank to make deductions from the margin deposit account. He entered into a General Agreement for Commercial Business and completed an application form for a so-called Easy Access Margin Account ("EAMA") and opened a multi currency savings account which was designated with the account no. 701-1-27428-6. In addition to this extra numbers were added to this account which would indicate the relevant currency of the moneys in the account. For example 00 indicated that the currency was HK$, 01 US$ and 02 Japanese Yen.

4. According to the defendant the purpose of this account was to hold moneys which would represent the margin required by them for it to trade in the currencies on the plaintiff's behalf.

5. The conditions relating to margins required were contained in clause 3 of the said Master Agreement. In general terms a 5% margin was required of the face value of every contract entered into. It was the defendant's case that if the amount of the margin fell below 5% the defendant could call upon the plaintiff to provide additional funds to bring the margin back up to 5%.

6. In the event of the plaintiff failing to comply with such a request the defendant was entitled to terminate the contract and look to the plaintiff for any overall shortfall there may be.

7. According to the evidence of Mr Kwong Wai-ming Deputy Manager of the defendant on 23 July 1998 the plaintiff's outstanding positions were:

"a. Short US$400,000.00 against JPY at the rate of 139.40;

b. Short US$500,000.00 against JPY at the rate of 139.40;

c. Short US$200,000.00 against JPY at the rate of 140.95;

d. Long US$100,000.00 against DEM at the rate of 1.7925;

e. Short NZD100,000.00 against USD at the rate of 0.5265."

8. Shortly after this there was a total of US$70,000 held as margin for these contracts. It is perhaps here relevant to observe that when the plaintiff shorted the US$ against the Japanese Yen he was betting that the US$ would drop against the Japanese Yen. If it rises he will sustain a loss.

9. On 18 July 1998 the plaintiff went to India and did not return until the 10 September 1998. According to the defendant's records the plaintiff had given the defendant the address of one of his friends in Hong Kong as his address for correspondence. He also gave a telephone number of what transpired was his mobile telephone which he had with him in India.

10. It was accepted by the Judge that Mr Victor Wong an employee of the defendant had a telephone conversation with the plaintiff on 30 July 1998. At that time the contracts earlier referred to were still subsisting and the margin was still sufficient.

11. Almost immediately following this the Japanese Yen depreciated significantly against the US$.

12. Mr Wong attempted on a number of occasions to communicate with the plaintiff but was unable to do so. This was perhaps not altogether surprising as the plaintiff appears to have been placing reliance exclusively upon his mobile telephone. For a number of reasons this form of communication is likely to be unreliable.

13. To cut a long story short as the defendant was unable to obtain instructions from the plaintiff they "squared off" the Japanese Yen contracts. This was done on 4 August 1998. At that time the exchange rate of the Japanese Yen to the US$ was 145.97. The total loss to the plaintiff was HK$393,180.41. The defendant recovered this by debiting the equivalent dollars from the plaintiff's US$ account 701-1-27428-06-01. The defendant contended that the fall in the value of the Yen and the floating losses in the plaintiff's Yen positions in foreign exchange trading exceeded the plaintiff's margin required by the conditions under which trading was transacted.

14. At the hearing before Yam J, the defendant produced supporting evidence of the various trades and there was no serious dispute in connection with these.

15. The Judge was satisfied after considering the terms of the main agreement that the defendant had been entitled to consider the overall financial position of the plaintiff and make the margin calls on him. As they were unable to contact him they were able to square off the contracts and this being the case the plaintiff's claims in the statement of claim must be dismissed.

16. In reaching this conclusion the Judge had been satisfied that the defendant had been entitled to take cognisance of the so-called floating trading losses which had been incurred by the plaintiff on the Japanese Yen contracts.

17. This is evident from the calculations prepared by the defendant which were at p. 57 of the appeal bundle:

"Maintenance Margin Calculation of five Contracts

Margin		USD	70,000.00
Add:	Realized Loss of the three USD/JPY Contracts	USD	-50,765.71
	Floating Loss of USD/DEM Contract	USD	-267.32
	Floating Profit of NZD/USD Contract	USD	+1,790.47
Maintenance Margin		USD	20,757.44
		==============
Maintenance Margin %			1.66% ↙====
(Maintenance Margin/Total Contract Value X 100% = USD 20,757.44/USD 1,252,650 X 100%)
Remark:
USD/JPY Contract Value		USD	1,100,000
(400,000 + 500,000 + 200,000)
USD/DEM Contract Value		USD	100,000
NZD/USD Contract Value		USD	52,650
		(100,000 X 0.5265)
		_____________
		USD	1,252,650
			======"

18. The plaintiff who was unrepresented before us contended that if the Master Agreement was correctly construed it was not open to the defendant to take into account the floating trading losses which had been sustained on the Japanese Yen contracts.

19. It is necessary first to consider the terms of clause 3 of the Master Agreement which is couched in these terms.

"3. Cash Margin

3.1 Immediately upon the Customer entering into a Contract, the Customer shall, unless the Bank otherwise agrees, pay to the Bank an Initial Cash Margin in an amount equivalent to five per cent. (5%) (or such other percentage as the Bank may in its absolute discretion determine and notify the Customer pursuant to the provisions of Clause 11.1 or by posting a notice of the then current percentage at the head office of the Bank in Hong Kong for a consecutive period of ten (10) days) of the face value of the Contract entered/to be entered into.

3.2 The Bank may at any time and from time to time in accordance with the provisions of Clause 11 request the Customer to pay Additional Cash Margin or Margins for any outstanding Contract (whether prior to or after the Value Date of such Contract) in such amounts so that the percentage that the relevant Margin bears to the then current value of the relevant Contract is not less than the percentage applicable under Clause 3.1 and the Customer shall pay all such Additional Cash Margin in accordance with the demand.

3.3 The Bank shall be entitled to apply Cash Margin in discharge of the Customer's liabilities to the Bank."

20. For the purposes of the present appeal the crucial part of the clause is sub-clause (2).

21. If the defendant is not permitted to deduct the floating trading losses on the Japanese Yen contracts it is apparent from the calculation which has earlier been referred to that the margin was at all relevant times more than sufficient to comply with the requirements laid down in 3(2).

22. There is nothing in the sub-clause which refers to floating trading losses being taken into account and the question which then arises is whether it is permissible to read into the clause a right for the defendant to make such a deduction.

23. There was evidence at the trial of the usual practice of margin traders to make deductions from margin accounts of trading losses. Although this may well be the case everything must depend upon the wording of each individual contract.

24. I regret that in my opinion the drafting of the Master Agreement leaves much to be desired. I am of the opinion that unless it can clearly be demonstrated that the defendant did have the right to include the floating trading losses in the calculations they cannot be permitted to do so.

25. Mr Fung SC for the defendant submitted that he also placed reliance upon clauses 6, 7 and 8 of the Master Agreement.

26. Clause 6 is in this form:

"6. Performance of Contracts

6.1 (a) On the Value Date of a Contract, the Customer shall pay the amount due by the Customer to the Bank under the relevant Contract in the currency agreed and in cleared funds to such account or accounts (whether in Hong Kong or elsewhere) designated by the Bank.

(b) Subject to the Bank being satisfied that the Customer has discharged its obligations under paragraph (a), the Bank shall credit the amount due to the Customer under the relevant Contract in the currency agreed into the Customer's Foreign Exchange Trading Account.

6.2 In addition and without prejudice to the provisions of this Agreement (and in particular Clause 13), if there is any payment due and payable on any day from the Bank to the Customer or from the Customer to the Bank under two or more Contracts involving payment of the same currency, such payments shall be aggregated and/or netted off (as the case may be) as if they were due under one single contract and any amount so due after such aggregation/netting off shall be payable subject to and in accordance with the provisions of Clause 6.1."

27. The "value date" referred to in the clause is a date two working days following the date when the agreement in question is entered into. It will be appreciated that on account of the volatile nature of this market there may be a significant difference in the exchange rate during this short period.

28. As can be seen from this judgment the margin for these contracts was sufficient on the value date. Clause 6 therefore cannot assist the defendant. In any event it has not been the defendant's case that the plaintiff had failed to maintain a margin at the time of the value date.

29. Clause 7 relates to interest payable on the amounts subject to the agreements in question. Other than generally increasing the amount which will eventually be payable by the plaintiff clause 7 does not take matters further.

30. Clause 8 deals with termination events. In particular clause 8.1 (c) provides that where any customer fails to pay any initial or additional cash margin the defendant is entitled to terminate the contract.

31. I do not think that this assists the defendant. This clause can only be invoked if the demand which is made upon the customer is a demand that the bank is legally entitled to make.

32. As I have indicated I do not consider that clause 3(2) is framed in sufficiently specific terms to permit the defendant to deduct the plaintiff's floating trading losses. This being the case in my view the appeal should be allowed. Having regard to the nature of the claims being advanced by the plaintiff it will in my opinion be necessary to order that damages should be assessed if the appeal is allowed.

Hon Keith JA:

Introduction

33. I agree that this appeal should be allowed, but I wish to add a few words of my own out of deference to the arguments of Mr Daniel Fung SC for the Bank. All dates in this judgment refer to 1998 unless otherwise stated.

The relevant facts

34. For the purposes of this appeal, the primary facts are not in dispute. In July 1998, Mr Moorjani opened a foreign exchange trading account with the Bank. He was intending to conduct margin trading in foreign currencies. In order to finance that trading, he also opened a savings account with the Bank. By 17 July, his savings account was almost US$69,000.00 in credit, and by 30 July it was almost US$80,000.00 in credit.

35. In the meantime, Mr Moorjani had been trading in foreign currencies. Only three of his trades are relevant for present purposes. They relate to three purchases of Japanese yen. Between 17 July and 22 July, he bought US$1.1m. worth of Japanese yen at rates of exchange ranging between JY139.30 and JY140.95 to US$1.00. He was gambling on the Japanese yen increasing in value against the US dollar. Unfortunately for him, by 4 August the Japanese yen had fallen in value against the US dollar, and by then the exchange rate had risen to JY145.97 to US$1.00.

36. In view of the decline in value of the Japanese yen against the US dollar, the Bank had wanted Mr Moorjani to top up the deposits in his savings account. To use the language of the trade, it wanted to make additional margin calls on him. However, when the Bank's officers first attempted to get in touch with Mr Moorjani to demand an additional cash margin from him on 30 July, they were unable to contact him. Eventually, on 4 August the Bank liquidated Mr Moorjani's position in Japanese yen and "squared off" the three trades, i.e. the Bank bought back the Japanese yen which Mr Moorjani had purchased and debited his savings account with the equivalent in Hong Kong dollars of the difference between (a) the sum in US dollars which Mr Moorjani had bought the Japanese yen for and (b) the sum in US dollars which the Japanese yen were worth on 4 August. That sum was in the region of US$50,000.00, and the sum by which Mr Moorjani's savings account was debited was HK$393,180.41.

37. In due course, Mr Moorjani sued the Bank. Since he has at all times represented himself, his claim has understandably not been formulated as crisply as it might have been, but he has in essence been claiming damages for what he contends was the Bank's breach of contract, namely that the Bank had not in the circumstances been entitled to make additional margin calls on him, and that therefore the Bank had not been entitled to liquidate his position in Japanese yen and to square off his trades in Japanese yen. His claim was dismissed by Yam J, and he now appeals to the Court of Appeal.

The Bank's entitlement to make additional margin calls

38. The terms on which Mr Moorjani was entitled to open and operate a foreign exchange trading account with the Bank were governed by the Bank's Master Agreement with Mr Moorjani. It is common ground that clause 8(1)(c) of the Master Agreement entitled the Bank to liquidate Mr Moorjani's position in Japanese yen and to square off his trades in Japanese yen if Mr Moorjani failed to meet the Bank's calls for an additional cash margin. The critical question is whether, under the Master Agreement, the Bank had, in the circumstances which prevailed, been entitled to make the demands for an additional cash margin which the Bank would have made if the Bank had been able to contact Mr Moorjani. The clause in the Master Agreement which covers cash margins was clause 3.

39. Clause 3.1 provided:

"Immediately upon the Customer entering into a Contract [i.e. a foreign exchange contract], the Customer shall, unless the Bank otherwise agrees, pay to the Bank an Initial Cash Margin in an amount equivalent to five per cent. (5%) (or such other percentage as the Bank may in its absolute discretion determine and notify the Customer pursuant to the provisions of Clause 11.1 or by posting a notice of the then current percentage at the head office of the Bank in Hong Kong for a consecutive period of ten (10) days) of the face value of the Contract entered/to be entered into."

Two comments should be made about this clause. First, the Bank never changed the percentage from 5%. Thus, the initial cash margin which Mr Moorjani was required to pay the Bank was 5% of the face value of each foreign exchange contract which he entered into. Since the aggregate of the face value of each of the three contracts for the purchase of Japanese yen was US$1.1m., the initial cash margin which Mr Moorjani had been required to pay was US$55,000.00. Secondly, the Bank treated the sums on deposit in Mr Moorjani's savings account as representing the cash margins required under the Master Agreement. Since the savings account was almost US$69,000.00 in credit when Mr Moorjani first purchased the Japanese yen, the sums on deposit in the savings account were at all times sufficient to meet the initial cash margin.

40. The Bank's entitlement to additional cash margins appears from clause 3.2, which provided:

"The Bank may at any time and from time to time in accordance with the provisions of Clause 11 request the Customer to pay Additional Cash Margin or Margins for any outstanding Contract (whether prior to or after the Value Date of such Contract) in such amounts so that the percentage of the relevant Margin bears to the then current value of the relevant Contract is not less than the percentage applicable under Clause 3.1 and the Customer shall pay all such Additional Cash Margin in accordance with the demand."

Again, two comments should be made about this clause. First, the clause not merely enables the Bank to demand additional cash margins. It also requires the customer to meet the Bank's demand. The clause is silent as to how long the customer has to meet the Bank's demand. Secondly, and more importantly for the purpose of the present appeal, the clause identifies how the additional cash margin which the Bank is entitled to demand should be calculated. The additional cash margin is such amount "that the percentage that the relevant Margin bears to the then current value of the relevant Contract is not less than [5%]". The core question which the appeal raises, as I see it, relates to how these words are to be construed.

41. The Bank's case is that the words "the relevant Margin" mean the amounts deposited with the Bank to finance the customer's margin trading less the trading losses which the customer has incurred at the material time. We cannot tell what the trading losses on the three Japanese yen trades were by 30 July when the Bank's officers first attempted to get in touch with Mr Moorjani to demand an additional cash margin, but let us assume in the Bank's favour that the trading losses had by then amounted to about US$50,000.00, which was what the trading losses had amounted to by 4 August. That sum had to be deducted from the US$69,000.00 or so in which Mr Moorjani's savings account was in credit. Thus, "the relevant Margin" was about US$19,000.00, and was significantly less than 5% of the US$1.1m. which was what Mr Moorjani had paid for the Japanese yen in the first place. Thus, the additional cash margin which the Bank would have demanded, on its reading of clause 3.2, if it had been able to contact Mr Moorjani would have been a sum in the region of US$36,000.00 (i.e. US$55,000.00 less US$19,000.00).

42. Mr Moorjani's case, on the other hand, is that the words "the relevant Margin" mean simply the amount deposited with the Bank to finance the customer's margin trading. His trading losses were therefore not to be deducted from that amount. Those trading losses were to be reflected in the current value of the relevant transactions, because clause 3.2 refers to "the then current value of the relevant Contract" (emphasis supplied). Thus,

(a) "the relevant Margin" was the sum of US$69,000.00 or so (because that was what had been deposited with the Bank by 30 July), and

(b) on the assumption that the trading losses had amounted to about US$50,000.00 by 30 July, "the then current value of the relevant Contract" was the sum of US$1.15m. or so (i.e. US$1.1m. plus US$50,000.00).

Thus, "the relevant Margin" of about US$69,000.00 was significantly more than 5% of about $1.15m., being "the then current value of the relevant Contract". Thus, there was no additional cash margin which the Bank was entitled to demand. Thus, the Bank's entitlement to liquidate Mr Moorjani's position in Japanese yen and to square off the three trades had not been triggered.

43. In my view, the language of clause 3.2 admits of only one construction, and that is the construction of it advanced by Mr Moorjani. It is not "the relevant Margin" which fluctuates as the value of the currency fluctuates but "the then current value of the relevant Contract". That is the only possible conclusion in view of the fact that the word "then" qualifies "the .... current value of the relevant Contract" rather than "the relevant Margin". Thus, the protection which clause 3.2 gives to the Bank against unsuccessful currency speculation by a customer is limited to 5% of the aggregate of (a) the sum which the customer originally paid for the foreign currency and (b) the trading losses sustained as a result of a decline in value of the foreign currency which had been bought.

44. Mr Fung made the point that it is the Bank's customer who is trading and who must therefore bear any losses when they occur. He contended that Mr Moorjani's construction of clause 3.2 turns that notion on its head. If Mr Moorjani's construction of clause 3.2 is correct, the additional cash margin, which was intended to secure the Bank in the event of the customer's currency speculation proving unsuccessful, would not serve that purpose at all. The Bank would be unprotected in the event of a customer suffering significant losses. The Bank's construction of clause 3.2 would not be inconsistent with the commercial justification for margin trading. The customer would still not be required to pay for all the currency he buys. He only has to put up front sufficient cash to protect the Bank from his losses.

45. In my judgment, there are two answers to that argument. First, the limited protection which clause 3.2 gives the Bank may not have been what the Bank intended, but it is what the language of clause 3.2 provided. The Bank could have achieved what Mr Fung says it wanted to achieve

(a) by defining "the relevant Margin" as the sums deposited with the Bank less the customer's trading losses, and

(b) by using the words "the face value of the Contract" (which are the words used in clause 3.1) instead of the words "the then current value of the relevant Contract".

But the fact is that clause 3.2 is expressed in language which is consistent only with Mr Moorjani's construction of it.

46. Secondly, the Bank has attempted to protect itself against unsuccessful currency speculation on the part of its customer by including provisions in the Master Agreement which entitled it to demand payment of the trading losses and to square the trades off if payment was not made. Those provisions are clauses 6.1(a) and 8.1(a). I shall return to them in due course, but the point is that the understandable need for the Bank to protect itself in the event of its customer incurring significant trading losses does not help on the proper construction of clause 3.2, because the Bank has attempted to provide that protection for itself elsewhere in the Master Agreement.

47. Since the Bank had not been entitled to make an additional margin call on Mr Moorjani under clause 3.2, the Bank's entitlement to liquidate his position in Japanese yen and to square off his trades in Japanese yen under clause 8.1(c) had not been triggered. The only demand which the Bank claimed it would have made if it had been able to contact Mr Moorjani was a demand for an additional cash margin under clause 3.2. That is apparent from the Bank's Amended Defence in which the only provision of the Master Agreement which is expressly pleaded is clause 3, and in which it was said that it was the proportion which Mr Moorjani's margin bore to his position in Japanese yen which had entitled the Bank to square off his trades in Japanese yen. That is also apparent from a fax of 18 August and a letter of 24 September sent by the Bank to Mr Moorjani. Thus, the Bank's entitlement to liquidate Mr Moorjani's position in Japanese yen under any other provision in clause 8.1 had equally not been triggered. That is sufficient to dispose of this appeal.

The Bank's entitlement to demand payment of the trading losses

48. Despite this, the appeal was argued on the basis that the Bank's entitlement to liquidate Mr Moorjani's position in Japanese yen had also been triggered under clause 8.1(a) of the Master Agreement. Clause 8.1(a) entitled the Bank to liquidate Mr Moorjani's position in Japanese yen and to square off his trades in Japanese yen if Mr Moorjani failed to pay any amount when due to the Bank. The Bank's case is that Mr Moorjani failed to pay to the Bank the trading losses which were due to the Bank under clause 6.1(a) of the Master Agreement. This issue only arises if the demands which the Bank claimed it would have made if it had been able to contact Mr Moorjani would have included a demand under clause 6.1(a) for payment of his trading losses as well as a demand under clause 3.2 for an additional cash margin - which would, as I have said, be contrary to the Bank's pleaded case and its justification in subsequent correspondence for the course it had taken.

49. Clause 6.1(a) provided:

"On the Value Date of a Contract, the Customer shall pay the amount due by the Customer to the Bank under the relevant Contract in the currency agreed and in cleared funds to such account or accounts (whether in Hong Kong or elsewhere) designated by the Bank."

Again, I make two comments on this clause. First, what a customer was required to pay under this clause was "the amount due .... under the relevant Contract". However, since the amount due under each contract was the current value of the currency bought plus any loss incurred as a result of any fluctuations in the currency, and since the currency bought represented a credit in the customer's trading account at the current rate of exchange, the Bank was content to require the customer merely to pay to the Bank his trading losses under each contract under this clause. Secondly, the customer's obligation to pay his trading losses to the Bank did not arise until "the Value Date" of each contract. The words "Value Date" are defined in Schedule I to the Master Agreement as "the delivery date of funds to settle a transaction in the foreign exchange markets". Thus, this definition identifies what the phrase "Value Date" means. It means the settlement date, but it does not help as to what the settlement date is for any particular contract. That depends on the terms of each individual contract.

50. There was no evidence as to whether terms were expressly agreed between Mr Moorjani and the Bank as to when he had to make good any trading losses sustained under each contract. Because the Bank's pleaded case did not rely on clause 6.1(a), no express terms were pleaded and no evidence of any express terms was led. In the course of his evidence, Kwong Wai Ming, one of the Bank's deputy managers, said:

"In terms of the Foreign Exchange, normally the value date would be two days from the actual trade. Two trading dates from the actual trade date."

However, this would not, of course, be a sufficient basis to imply a term to that effect into each individual contract. It is unclear whether Mr Kwong was referring to a general practice relating to margin trading in foreign exchange transactions or whether he was referring simply to the Bank's own internal practice. And even if he was referring to a general market practice, there was no evidence as to how widespread and generally known the market practice was. In any event, if the Bank's case was that there was a market practice which was so widespread and generally known so as to constitute a basis for implying a term to this effect into each individual contract, that had to be pleaded. It was not, because the Bank's pleaded case did not allege a breach of clause 6.1(a) by Mr Moorjani such as to trigger the Bank's entitlement under clause 8.1(a) to liquidate his position in Japanese yen and to square off his trades in Japanese yen.

51. In the absence of any express or implied term as to when the settlement date was under each of the individual contracts, settlement was due under clause 6.1(a) only within a reasonable time after a demand for settlement would have been made if the Bank had been able to contact Mr Moorjani. As I have said, the Bank's pleaded case and the correspondence show that the only demand which the Bank would have made if it had been able to contact Mr Moorjani was for an additional cash margin under clause 3.2. But even if the demand which the Bank would have made on 30 July had been a demand for settlement of the trading losses under clause 6.1(a) rather than a demand for an additional cash margin under clause 3.2, I am unable to say that by 4 August (which was a Tuesday) a reasonable time had elapsed since 30 July, there having been an intervening weekend. It follows that clause 8.1(a) would not have been triggered even if the demand which the Bank would have made on 30 July had been a demand for settlement of the trading losses under clause 6.1(a).

52. Finally, it has been pointed out that if Mr Moorjani had been required under clause 6.1(a) to settle his trading losses two working days after the individual contracts, and if the trading losses on those dates (i.e. 22 July for the two trades which had been carried out on 17 July (20 July having been a holiday in Japan) and 24 July for the trade which had been carried out on 22 July) had been deducted from the deposits credited to Mr Moorjani's savings account, his deposits would still on those dates have been more than 5% of the face value of the trades. For my part, I do not regard that as a valid exercise to conduct. I say that for two reasons. First, it blurs the clear distinction in the Master Agreement between a customer's obligation under clause 3.2 to provide additional cash margins and a customer's obligation under clause 6.1(a) to settle his trading losses. Secondly, I do not regard a failure by the Bank on a particular date to exercise its right under clause 8.1(a) to square off a customer's trades because of the customer's failure to settle his trading losses under clause 6.1(a) as amounting to a waiver by the Bank of its right on a subsequent date (when the trading losses may be greater) to exercise that right.

Conclusion

53. For these reasons, therefore, I agree that this appeal should be allowed. I would order that the judge's order dismissing Mr Moorjani's claim be set aside, and that for that order there should be substituted an order that Mr Moorjani is to have judgment against the Bank on his claim for damages to be assessed. In my view, the assessment would be sufficiently complex to warrant it being carried out by a judge of the Court of First Instance. The order nisi which I would make as to costs is that the Bank must pay to Mr Moorjani his costs of both the action and the appeal, to be taxed if not agreed. I appreciate that Mr Moorjani has represented himself throughout, but there will have been court and filing fees, and maybe other costs, which he would have incurred.

Hon Le Pichon JA:

54. I agree that this appeal should be allowed. I also agree with the order proposed by Keith JA.

55. The key issue in this case is whether the defendant ("the bank") was entitled to call for additional cash margin from the plaintiff on 4 August 1998. That, in turn, depended on the construction of clause 3.2 of the Master Agreement. I have had the advantage of reading in draft the judgment of Keith JA and agree with his reasoning in concluding that the bank was not so entitled.

56. The bank's alternative argument was that the plaintiff was in breach of clause 8.1(a) because under clause 6.1(a) the plaintiff was liable for floating losses which he failed to pay on 4 August. Clause 6.1(a) is in the following terms:

"6.1 (a) On the Value Date of a Contract, the Customer shall pay the amount due by the Customer to the Bank under the relevant Contract in the currency agreed and in cleared funds to such account or accounts (whether in Hong Kong or elsewhere) designated by the Bank."

Value Date is defined in the schedule as meaning "the delivery date of funds to settle a transaction in the foreign exchange markets." One of the bank's officers gave evidence to the effect that for foreign exchange transactions, the Value Date would be two trading days from the actual trade date. The bank's submissions were so premised and I am prepared to assume, for present purposes, that Value Date does mean two trading days after the actual trade date.

57. As regards clause 6.1(a), the bank accepts that the obligation of the customer is discharged by payment of his trading losses (assuming there were fluctuations in the currency against the customer) between the actual trade date and the Value Date All that was required of the customer was settlement of the difference on the Value Date. Under clause 3.3, the bank was entitled to apply the cash margin it held in discharge of the plaintiff's liabilities to the bank. So although the bank never asked the plaintiff to pay the trading losses as at the Value Date of each of the three contracts, it was entitled to exercise its powers under clause 3.3. Leaving aside the fact that the bank never sought to do this, it is not suggested that had it done so the remaining cash would have been insufficient to satisfy the margin requirements under clause 3.2.

58. Mr Fung SC put his argument this way: the Master Agreement did not deal specifically with floating losses but if clause 6.1(a) required the customer to pay his trading losses arising from his contract as on the Value Date, "there is no reason why such customer should not be liable to pay the amount of any floating loss arising from his contract at a later stage". If I may respectfully say so, that conclusion requires making a quantum leap in the deduction process. I do not see how clause 6.1(a) can be construed to impose an obligation on the customer to make more than a single payment or on a day other than the Value Date. The bank's submission is none other than that a term should be implied into the Master Agreement so as to extend the obligation under clause 6(1)(a) to floating losses arising from time to time.

59. In my judgment, the bank has not even begun to make out a case for an implied term. The Master Agreement, being the bank's document, must be construed against the bank. In any event the Master Agreement contains only some of the provisions to which the contracts between the bank and the plaintiff were subject. In this connection, I should refer to clause 2 of the Master Agreement which provides as follows:

"2. Terms and Conditions of Contracts

All Contracts entered into between the Bank and the Customer from time to time shall, unless otherwise expressly agreed in writing, be subject to the provisions of (i) the Contract Documents (ii) this Agreement (iii) the Rules and Regulations and (iv) Market Practice and if there is a conflict between any such provisions, the Bank may in its absolute discretion decide which provision will prevail."

For all I know, the question of the treatment of floating losses may be covered by the "Rules and Regulations" which is defined in Schedule 1 to the Master Agreement as meaning "such rules and regulations from time to time in force prescribed by the bank governing the conduct of all Foreign Exchange transactions between the bank and its customers in general." At the adjourned hearing of this appeal, Mr Fung made plain his position that the bank does not seek to rely on the Rules and Regulations and, it would appear, for good reason. It transpired that these had not in fact been made available to the plaintiff at the time he entered into the Master Agreement. Market practice may also be relevant but, again, no evidence was adduced in that regard. If either the Rules and Regulations and/or market practice covered the treatment of floating losses, the need for an implied term evaporates. Even if they do not, it would not necessarily follow that there is scope for an implied term as suggested. Deficient or inadequate drafting on the part of the bank is not a valid reason for implying a term in its favour to cater for the payment of floating losses. For these reasons, the alternative submission must fail.

60. It remains for me to draw attention to a feature of the Master Agreement that I find troubling. Leveraged foreign exchange trading is regulated. Entities which are not authorised institutions under the Banking Ordinance come under the supervision of the Securities and Futures Commission ("the SFC"). Although authorised institutions within the Banking Ordinance have been granted an exemption from the licensing related requirements contained in the Leveraged Foreign Exchange Trading Ordinance, Cap. 451 including, inter alia, the Leveraged Foreign Exchange Trading (Books, Contract Notes and Conduct of Business) Rules, ("the Rules"), in July 1995, the Hong Kong Monetary Authority issued a guideline ("the Guideline") pursuant to section 7(3) of the Banking Ordinance which, inter alia, provides as follows:

"Best practice in Margin Trading

7. The Monetary Authority has already issued a letter dated 19 December 1994 making it clear that it expects authorized institutions to conduct the business of margin trading in accordance with standards which are at least equivalent to those set out in the Rules issued by the SFC."

See GN 2672 of 1995.

61. Authorized institutions of which the bank is one are therefore expected to observe the 'benchmark' laid down in the Rules. It is the Monetary Authority that has supervisory powers over authorized institutions but how "observance" is ensured in practice is less than clear. The Master Agreement is a case in point. It does not appear to comply with the Rules in a number of respects. Thus, whether paragraph 7 of the Guideline has any practical or meaningful effect remains to be seen.

Hon Mayo VP:

62. The appeal is allowed and Yam J's order is set aside. Judgment is entered for the Plaintiff. Damages will be assessed by a Judge of the Court of First Instance. An order nisi is made that the Plaintiff is to have his costs before Yam J and of this appeal.