NATAMON PROTPAKORN v.CITIBANK, N.A.

HCCL 5/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 5 OF 2011

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BETWEEN

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J U D G M E N T

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Introduction

1.  The Plaintiff is a Thai national resident in Bangkok.  In 2000 she had a private banking account with UBS AG (“UBS”).  In early 2000 her relationship manager at UBS, Enrico Balmelli, moved to the Defendant.  At a meeting on 17 March 2000 the Plaintiff signed a series of agreements with the Defendant establishing 3 private banking accounts and associated facilities including a standard form agreement to open a foreign exchange/gold index/foreign exchange options trading account” (“FX agreement”): account number 684897 (“Account 1”), account number 881915 (“Account 2”) and account number 689216 (“Account 3”).  Funds from the Plaintiff’s account with UBS AG were remitted into Account 1 on 16 May 2000.  Account 2 was never funded.  Compared to Account 1, Account 3 was a smaller, less active account which was mainly managed by the Plaintiff.

2.  In about November 2000 Mr Balmelli left the Defendant.  Harry Lai took over as the Plaintiff’s client relationship manager.  The Plaintiff alleges that during a series of meetings Mr Lai encouraged her to begin forex trading.  She says that he proposed to her, and they agreed orally, a strategy for forex trading, which involved the Plaintiff taking leveraged spot positions (settlement being T + 2) in currencies and rolling over the contracts until the exchange rates moved in the direction necessary for her to make a profit.  It is the Plaintiff’s case that the agreement that they reached constituted an independent agreement, which was not subject to the terms of the FX agreement (“2001 agreement”), alternatively that Mr Lai’s statements made to her constituted representations on which she relied when deciding to start trading currencies (“2001 misrepresentations”).  I describe the Plaintiff’s case in this regard in more detail later in this judgment.

3.  In September and October 2001 the Plaintiff began currency trading in a pattern consistent with the 2001 oral agreement.  The trading, by which I mean the decisions to take positions in particular currencies, was not carried out on the recommendation of the Defendant’s staff, but was directed by an associate of the Plaintiff living in Osaka called Mr Kawabe.  Mr Kawabe had at one time been a major Japanese property developer, who was known to the Plaintiff through business connections of her Family in Bangkok.  Other than for a period between August and September 2003, trading ceased from November 2001 to July 2003. This was because Mr Kawabe had been convicted of fraud in relation to the conduct of his companies’ affairs in Japan and had been sentenced to approximately 3 years imprisonment.

4.  The Plaintiff, she says at the instigation of Mr Lai, purchased 5 currency options between August and September 2003 incurring a loss of approximately US$3,000,000.  Mr Kawabe was discharged from prison, says the Plaintiff, on 10 December 2003. There is a dispute about the exact date, but little turns on this.  What is not in dispute is that following Mr Kawabe’s release the Plaintiff commenced trading currencies on the same basis as previously.  The scale of her activities increased.  Mr Kawabe engaged, in Osaka, a Chinese speaking naturalised Japanese citizen, Fanny Yu, who could place orders in Cantonese with the Defendant’s trading team in Hong Kong.  It would also appear that Mr Kawabe had two analysts in Osaka to help formulate trading strategies.

5.  In July in 2003 the Plaintiff had a trading line of US$62,000,000 with a 7% margin ratio.  The trading line was increased to US$115,000,000 on 18 February 2004, to US$125,000,000 on 3 March 2004, to US$150,000,000 on 26 March 2004, to US$200,000,000 on 30 March 2004 and finally to US$250,000,000 on 16 April 2004.  Clearly the Plaintiff was a significant client of the Defendant’s private bank.

6.  Mr Lai resigned from the Defendant in early April 2004 to join another bank.  Rosalinda Cuatico replaced Mr Lai as the Plaintiff’s relationship manager under the supervision of Jessica Poh, who at the time was the Defendant’s private bank’s managing director and global market manager for Thailand and Vietnam.  Ms Poh wished to meet the Plaintiff along with some of her colleagues to discuss the operation of her account.  This was partly because of the change in relationship manager, but also, she explained in cross-examination, because Mr Lai had experienced difficulties arranging to meet the Plaintiff.  The import of her evidence was that she did not consider this satisfactory.

7.  A meeting was arranged in Osaka on 10 May 2004.  This was attended by a sizable team from the Defendant: Ms Poh, Ms Cuatico and representatives of the Defendant’s Sales Team consisting of Chiang Siew Kay, Patrick Hau, Liza Chow and Philip Cheng.  The meeting lasted over 3 days and commenced with a dinner, which appears to have been hosted by Mr Kawabe, at an onsen outside Kobe.  The Defendant’s representatives left with the impression that Mr Kawabe seemed to be in charge, not the Plaintiff, and a concern that her account was a front for him.  As a result they began to seek clarification from the Plaintiff of her source of wealth.

8.  In June the Defendant alleges that it first discovered Mr Kawabe’s conviction for fraud and his imprisonment.  This added to its staff’s concerns about the account.  Internal discussions followed with members of the Defendant’s compliance and legal departments. At a meeting on 6 July 2004 it was decided that the account should be closed.  The Plaintiff was informed that her account would be closed after one month giving her time to close the existing open positions.  She was told that the Defendant would not open new positions except to close out existing open ones.

9.  It is relevant to the Plaintiff’s claim that prior to 7 July the Plaintiff had been informed by Ms Poh and Ms Cuatico that the Plaintiff was also concerned about her rolling forward positions at what has been referred to by Mr Nigel Aiken SC, who appeared for the Plaintiff, during the trial as historical rates.  The following had been happening.  Where the exchange rates of any position taken by the Plaintiff moved in her favour and produced a profit she immediately closed the position and took profit.  If the opposite happened she kept the position open by entering into a new contract with settlement at T+2 and continued to do so until the position came into profit.  In her trading account the positions that were kept open (i.e. the loss making positions) were recorded at the exchange rates at which the first contract had been entered into.  The loss that was being carried was not debited to her bank account.  This made no difference to the margin that she was required to provide and, therefore, the trading team was not concerned about this practice.  As Mr Chiang, who is the Head of Foreign Exchange Asia Pacific for the Defendant explained in cross‑examination, clients preferred this arrangement because it deferred the loss being recorded in their bank account.  This made no difference to the trading team because the same margin was required.  However, he explained it could be a cause of concern to the Defendant’s credit officers because it meant that the Defendant’s risk exposure was not readily apparent from the client’s account statement.

10.  It was this type of concern the Defendant says that led to Ms Poh and Ms Cuatico explaining to the Plaintiff at a meeting on 1 July 2004 in Bangkok that the Defendant wanted her to reduce her unrealized loss, which at the time stood at approximately US$17,000,000.  On the following day during a telephone conversation the Plaintiff was told that apart from reducing her unrealized losses they wished to change the practice of allowing her to roll over indefinitely unrealised loss making positions.  In future all losses would have to be realised when a contract matured and no position could be retained for more than 6 months. The Plaintiff says that she reluctantly agreed this.  She argues that this agreement was, like the 2001 agreement, independent of the terms of the FX agreement (“2004 agreement”), alternatively constituted representations on which she relied in deciding to place the orders to which I refer in the next paragraph.

11.  During the night of 2 July 2004 Ms Yu placed orders on the Plaintiff’s behalf for 9 new contracts.  One was to close out an existing open position.  Two more were closed out voluntarily by the Plaintiff on 9 July 2004.  The remaining 6 contracts form part of the Plaintiff’s claim in these proceedings.

12.  The Plaintiff claims that the Defendant was not entitled to close her account without giving her 6 months notice. I explain the basis for her so asserting later in this judgment.  She says that she was entitled to roll over all open positions for 6 months and if she had been allowed to do so rather than forced to close them prematurely she would have made a substantial profit.  In addition to the 6 contracts I have referred to above the Plaintiff makes claims in respect of another 31 contracts that were open when she was given notice that her account was to be closed. The total claimed by the Plaintiff is US$17,915,734.97.  Originally the trial was to deal with both liability and quantum, but the parties agreed at the outset that I should deal with liability first.

13.  Before turning to consider the issues that arise for determination I will say something about the history of this litigation.  The Statement of Claim has been struck out twice.  The first occasion was on 23 November 2005.  The Plaintiff appealed.  The appeal was dismissed the Parties having agreed that the Plaintiff have liberty to apply to the Court of First Instance for leave to amend its Statement of Claim.  The Plaintiff formulated substantial amendments to the Statement of Claim and issued an application which was allowed by Master Hui on 14 September 2007.  In the Statement of Claim it was pleaded that it was an express or implied term of the agreement signed between the Plaintiff and the Defendant on or about 17 March 2000 that the Defendant was not entitled to close out an open position (and necessarily therefore not close her account) if she had provided sufficient margin.  An alternative claim based on estoppel was also pleaded. The amendments put a red line through the original claim and started again. This time it was pleaded that Mr Lai had made representations to the Plaintiff in relation to forex trading.  The material representations were that so long as she maintained sufficient margin the Defendant would not close out her open positions and they could be rolled over at the original exchange rate.  It was further pleaded that by virtue of the Defendant’s representations and the Plaintiff commencing margin trading the parties entered into a free standing agreement that was not subject to the terms of the agreement that parties had signed when the account was opened.

14.  The Defendant appealed Master Hui’s decision successfully to Deputy Judge Carlson.  It is not necessary for me to describe that judgment in detail.  In short the Deputy Judge accepted the Defendant’s submissions that the Plaintiff was clearly bound by the terms of the written agreements that she had signed.  These contained an entire contract clause, which prevented the Plaintiff relying on the alleged oral agreement or representations on which she relied.  The Plaintiff appealed to the Court of Appeal.  The Court of Appeal disagreed with the Deputy Judge and allowed the appeal on 3 September 2008.  I will address the Court of Appeal’s reasoning to the extent material later in this judgment.

15.  The Plaintiff amended the Amended Statement of Claim in March 2010 to add paragraph 68A, which included a claim under section 108 of the Securities and Futures Ordinance, Cap. 571.  In February 2013 she amended the Re-Amended Statement of Claim to add, principally, alternative claims to paragraph 25, namely, that if the 2001 oral agreement was not independent it superseded and varied the existing terms, alternatively that it was an implied term that the agreement could only be terminated on 6 months’ notice.

The Plaintiff’s claims

16.  The Plaintiff has in her Re-Re-Amended Statement of Claim advanced an extensive series of alternative basis in support of her claim.  Not all were advanced before me.  At trial the Plaintiff’s case was put by Mr Aiken as follows.

17.  Mr Lai encouraged the Plaintiff during meetings in 2001 to trade forex contracts.  During their discussions Mr Lai made a number of representations, which culminated in an agreement.  This is pleaded in paragraphs 22(4) to 25 of the Re-Re-Amended Statement of Claim as follows:

“22. (4) Thereafter there were a series of conversations, culminating in the 2001 Representations. The 2001 Representations were that the Margin FX Terms between the parties were as follows:-

(a) The Defendant would make available foreign exchange trading lines (“FX Trading Lines”) to such extent as it shall notify the Plaintiff from time to time.

(b) The initial FX Trading Lines were no less than 7 times the value of the deposits the Plaintiff had placed with the Defendant.

(c) The Plaintiff could enter into foreign exchange contracts (each an “FX Contract”) with the Defendant up to the amount of her FX Trading Lines.

(d) The above has the effect that the Plaintiff would be trading on margin. In other words, the FX Contracts are leveraged.

(e) As the foreign exchange rates fluctuate, the value of a Contract would constantly move in favour of or against the Plaintiff.

(f) Any decrease in value (“Unrealized Loss”) would be marked by the Defendant against the value of the deposits the Plaintiff had placed with it.

(g) If the total Unrealized Losses would cause the value of the Plaintiff’s deposits to shrink such that the ratio of the value of the deposits over the total nominal value of the Plaintiff’s FX Contracts (the “Margin Percentage”) falls below a level (the “Margin Call Level”), the Defendant would require the Plaintiff to deposit additional funds with it so as to restore the ratio to above the Margin Call Level.

(h) If the Plaintiff is unable to restore the Margin Percentage to above the Margin Call Level, the Defendant would close out the Plaintiff’s FX Contracts.

(i) As long as the Plaintiff maintains the Margin Percentage above the Margin Call Level, the Defendant would not close out the Plaintiff’s FX Contracts.

(j) Each FX Contract would carry an initial maturity date.

(k) On the maturity date of an FX Contract, as long as the Plaintiff has sufficient funds deposited with the Defendant such that the Margin Percentage is above the Margin Call Level, the Plaintiff would be entitled to “roll over” the FX Contract at the original exchange rate. Upon being rolled over, the FX Contract would have a new maturity date.

(l) The effect of the Plaintiff’s entitlement as stated in (k) above is that she would have the opportunity to recover any Unrealized Loss in an FX Contract when the foreign exchange rate moves back in her favour, as long as she has sufficient deposits with the Defendant to roll over and keep open the FX Contract.

(m)Therefore, ultimately, the risk involved in Margin FX Trading is small for an investor with sufficient funds.

(n) The Plaintiff would have to pay the applicable banking charges of the Defendant. In particular, when the Plaintiff rolls over an FX Contract, she would have to pay the Defendant interest on any amount (in whatever currency) that the Plaintiff had sold.

(5) Harry Lai placed special emphasis on his representations of the terms as pleaded in subparagraphs (4)(k) – (4)(m) above (the “Roll-Over Term”) to remove the Plaintiff’s worry about Margin FX Trading and about volatility of exchange rates. According to Harry Lai’s representations on this Roll-over Term, as long as the Plaintiff had sufficient funds to roll over and keep open an FX Contract with Unrealized Loss, she would have the opportunity to recover the loss when the exchange rate moves back in her favour, and therefore ultimately the risk for her would be small.

23. The Defendant, acting through Harry Lai, made the 2001 Representations to the Plaintiff to induce her into engaging in Margin FX Trading with it.

24. Acting on the faith of the 2001 Representations and induced thereby, on or around October 2001, the Plaintiff began to engage in Margin FX Trading with the Defendant.

The 2001 Margin FX Agreement

25. By virtue of the Defendant’s 2001 Representations and the Plaintiff’s Margin FX Trading with it, the parties entered into an agreement (the “2001 Margin FX Agreement”) the express terms of which are the Margin FX Terms and the consideration of which, for the Defendant, is the income that it would derive from the Plaintiff’s Margin FX Trading. This 2001 Margin FX Agreement, separate and distinct from the Standard Form FX Agreement, governed the parties’ Margin FX Trading with each other. Further or alternatively:-

(1) By entering into the 2001 Margin FX Agreement, the agreement between the parties was that the terms of the 2001 Margin FX Agreement had superseded the previous terms of the Standard Form FX Agreement to the extent of the terms of the 2001 Margin FX Agreement, the consideration of which was the parties’ mutual agreement to vary the pre‑existing contract or contractual arrangement as between them. Further or alternatively, the consideration to the Defendant was the income that the Defendant would derive from the Plaintiff’s Margin FX Trading with the Defendant generated in consequence of the 2001 Margin FX Agreement;

(2) The Plaintiff further avers that in the premises, the 2001 Margin FX Agreement included the implied term as stated hereinbelow, such term to be implied as a matter of law or as a matter of necessary implication to give business efficacy to the said agreement, namely that the Defendant would not terminate the 2001 Margin FX Agreement (and the Plaintiff’s Margin FX Trading with the Defendant thereunder) unless with reasonable notice which, in the surrounding circumstances of the present case, would be at least 6 months.”

18.  Alternatively, the Plaintiff argues, by virtue of the 2001 representations the Defendant is estopped from relying on the terms of the FX agreement that are inconsistent with the 2001 representations.  If the Court rejects the claims based on what was said by Mr Lai in 2001, the Plaintiff argues in the further alternative that during the telephone conversation on 2 July 2004 the Defendant made a series of revised representations, the 2004 represenatations, which culminated in the 2004 agreement.  The Plaintiff’s case is pleaded as follows in paragraphs 50, 53, 54 and 55 of the Re‑Re‑Amended Statement of Claim:

“50. The Defendant, however, changed its position two days later, on or around 2 July 2004. In a telephone conference on On 2 July 2004, a series of telephone conversations took place between the Plaintiff (and/or her representatives) and four senior officers of the Defendant (Jessica Poh, Rosalinda Cuatico, Chiang Siew Kay, and Patrick Hsu Hau) (either collectively or individually),. Chiang Siew Kay The effect of the said series of telephone conversations was that the Defendant had represented to the Plaintiff (the “2004 Representations”) that there were revised terms for the parties’ Margin FX Trading with each other (the “Revised Terms”). The Plaintiff shall refer to the voicelogs of telephone conversations so far discovered by the Defendant for the particulars thereof, and shall refer to such voicelogs at the trial hereof for their full contents, meaning and effect. Pending further discovery and as the Plaintiff can now recall, the best particulars that she can give at present are as follows.

Particulars of the 2004 Representations and the Revised Terms

(1) Chiang Siew Kay made, for an on behalf of the Defendant, the 2004 Representations orally and in a telephone conference with the Plaintiff on or around 2 July 2004.

(2) At least three of Chiang Siew Kay’s colleagues, as named above, were present in the telephone conversation.

(3) The 2004 Representations were that the Revised Terms between the parties would be as follows:-.

(a) The Plaintiff may maintain her existing FX Contracts and enter into new contracts up to the amount of her FX Trading Lines.

(b) When the Plaintiff enters into any new FX Contract, she would specify a maturity date for the contract, which may not be more than six months from the contract date.

(c) For any new FX Contract, upon its maturity date, provided that the Plaintiff has sufficient funds deposited with the Defendant to maintain her margin, the Plaintiff has the option to roll over or extend (or effectively roll over or extend) (“roll‑over”) and keep open such the contract to a new maturity date, which may not be more than six months from the original contract date, on the basis of the market rate of the relevant currencies, and not on the previous practice of HRRO (i.e. historical rates rollover) (“HRRO”).

(d) For any existing FX Contract, upon its maturity date, provided that the Plaintiff has sufficient funds deposited to maintain her margin, the Plaintiff has the option to roll over and keep open the contract to a new maturity date, which may not be more than six months from the original contract date (save that for Deal Confirmation No. C0020542, which had already been kept open for over 6 months, the Plaintiff was entitled to roll over such deal until 3 September 2004 – as confirmed by the telephone voice recording at Defendant’s Document No. 715).

(e) When an FX Contract, whether new or existing, is rolled over, it will be rolled over at the foreign exchange rate then prevailing in the market (and not, as under the previous Margin FX Terms, at the original rate).

(f) Any Upon roll-over of a new FX Contract, any loss at the rollover will be realized and debited against the Plaintiff (and not, as under the previous Margin FX Terms, be an Unrealized Loss). (The terms pleaded in subparagraphs (c) – (f) will be referred to as the “Revised Roll‑over Term”).

…

53. Acting on the faith of the 2004 Representations and induced thereby, on or around 4 2 July 2004, the Plaintiff agreed to accept the Revised Terms and thereupon entered into 6 a total of 9 new FX Contacts (the “Six New Contracts”) with the Defendant, all with a maturity date of 13 July 2004 as follows:-

(a) C0046784: this contract was used to square off an existing contract no. C0045853 and does not form part of the claim herein;

(b) C0046801 and C0046803: these 2 contracts were voluntarily closed by the Plaintiff on 9 July 2004 by C0047495 and do not form part of the claim herein;

(c) The remaining 6 new contracts were C0046800, C0046802, C0046804, C0046805, C0046806 and C0046807 (the “Six New Contracts”) and these Six New Contracts form part of the claim herein.

The 2004 Margin FX Agreement

54. By virtue of the Defendants’ 2004 Representations and the Plaintiff’s further Margin FX Trading with it, the parties entered into an agreement (the “2004 Margin FX Agreement”) the express terms of which are the Revised Terms and the consideration of which was the parties’ mutual agreement to vary the pre-existing contract or contractual arrangement as between them. Further or alternatively, the consideration provided by the Plaintiff was her agreement to forego her then existing right to enter into new HRRO trades during the continuance of her trading relationship with the Defendant; or alternatively, the consideration to for the Defendant was the income that the Defendant is the income that it would derive from the Plaintiff’s continuing Margin FX Trading. This 2004 Margin FX Agreement therefore varied the pre‑existing contract or contractual arrangement as between them and governed the parties’ contractual relationship with each other accordingly. governs the New Contracts.

55.    The 2004 Margin FX Agreement contains an express term, being the Revised Roll-over Term, that the Plaintiff is entitled to roll-over and keep open any FX Contract for six months (in manner as pleaded in paragraph 50(d) hereof) as long as she has sufficient funds deposited with the Defendant.”

19.  In the alternative to the above claim the Plaintiff contends that by virtue of the Defendant’s 2004 representations, the Defendant is estopped from relying on any contractual right to terminate the account, which is inconsistent with the 2004 representations.

20.  The Plaintiff claims that:

(1) In breach of the 2004 agreement the Defendant unilaterally closed out the Plaintiff’s 6 new contracts on 13 July causing loss of profit; and

(2) In breach of the 2001 agreement and the 2004 agreement the Defendant unilaterally closed out the Plaintiff’s 31 existing open positions on or about 4 to 6 August 2004 causing loss of profit.

21.  If the FX agreement did govern the parties’ rights in respect of the aforesaid contracts, the Plaintiff argues that the Defendant’s purported reliance on clauses 7.01(g) and 7.2 of the FX agreement was not genuine and that that matters relied on by the Defendant do not come within clause 7.01(g).

22.  Alternatively, the Plaintiff argues that the 2001 and 2004 representations were false, actionable at common law, pursuant to the Misrepresentation Ordinance, Cap. 284 and/or section 108 of the Securities and Futures Ordinance, Cap. 571, and the Defendant has suffered loss as a result of relying on them.

The FX agreement

23.  The Plaintiff has pleaded that the FX agreement was void for various reasons, but this argument was abandoned at trial.  As one would expect at the time that the Plaintiff opened the account she was given a number of agreements to sign including the FX agreement.  She says that she was not given copies of the documents that she did sign, but nothing turns on this.  What is important is the terms of the FX agreement, which are relevant to her claim.  As I have mentioned the FX agreement contained standard terms.  The following are relevant:

“II. GENERAL PROVISIONS

…

2. Contracts

The Account Holder, from time to time, may request the Bank, and the Bank may agree, in its absolute discretion, to enter into a Contract with the Account Holder.

…

7. Termination

7.01  If any of the following events (“Event of Termination”) shall occur and be continuing:

 (a)   The Account Holder shall not have provided any additional margin due under clause II. 4.02 or clause III. 3.03 hereof; or

 (b)   The Account Holder shall fail to make any payment hereunder when due or, as the case may be, on demand; or

 (c)   Any representation or warranty given by the Account Holder hereunder is or proves to have been incorrect or misleading when made; or

 (d)   It shall become illegal or impossible or shall be asserted by any central bank or other governmental authority to be illegal or impossible for the Account Holder or the Bank to perform any of their respective obligations under these terms and conditions and/or any or all of the Contracts; or

 (e)   The Account Holder shall die or be incapacitated, or shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Account Holder to adjudicate it a bankrupt or insolvent or any order shall be made by any competent court or other appropriate authority or resolution shall be passed for its winding‑up or dissolution or for the appointment of a liquidator, receiver or trustee for it or any substantial part of its property, revenues or undertaking; or

 (f)   Distress, execution, sequestration, attachment or other process is levied against any or all of the assets, rights or revenues of the Account Holder; or

 (g)   The Bank considers, due to a material adverse change in the financial condition of the Account Holder or otherwise in its absolute discretion, is advisable or necessary to safeguard its interest under these terms and conditions and/or any or all of the Contracts.

…

7.02  The Account Holder hereby acknowledges that it will not have any right or claim against the Bank in respect of any loss arising out of any liquidation, realisation, sale, disposal or dealing referred to in clause II. 6 or clause II. 7.01, howsoever such loss may have been caused, and whether or not a better price could or might have been obtained, by either deferring or advancing the date of such liquidation, realisation, sale, disposal or dealing.

…

15.    Amendments, Etc.

 No amendment or waiver of any provision hereof or of any Contract, nor consent to any departure by the Account Holder therefrom, shall in any event be effective unless the same shall be in writing and signed by the bank and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.  For the avoidance of doubt, the Bank shall be entitled from time to time without prior notice to the Account Holder to amend, vary, add to or delete in whole or in part, any or all of the terms and conditions and these terms and conditions as amended shall become effective on such date as the bank may in its absolute discretion specify.  The Bank may (but not bound to) send these terms and conditions, as amended, to the Account Holder for record purpose.  These terms and conditions, as amended, shall be binding on the Account Holder.”

24.  These provisions are orthodox. One would expect a financial institution carrying on securities and forex trading to retain a discretion to decline to execute an order if it thought it commercially advisable to do so.  It is also unsurprising that the FX agreement contained a right to terminate an account if it thought it advisable to do so in its own interests.  It is, of course, common for formal contracts to contain entire agreement clauses.

25.  In my view an experienced business person would be unsurprised by these types of provisions.  I also think that an experienced business person would understand that such provisions would not be varied by informal discussions between a bank and its client.  Something more formal would be required such as a letter.

26.  I now turn to consider each of the Plaintiff’s claims and the issues to which they give rise.  I would note at this stage that both the claims based on the 2001 agreement, 2001 representations and the 2004 agreement are advanced on the assumption that clause 7.01 is engaged.  I deal with them on that basis.  However, as Mr John Scott SC, who appeared for the Defendant, correctly pointed out during his opening, the way in which the Plaintiff has framed her case overlooks the fact that clause 2 gives the Defendant an independent right to refuse to accept any order and that, therefore, even if clause 7.01 is not engaged the Defendant would still have the right to have refused to roll-over a position.  I accept this, but I think it must follow that the Plaintiff’s claim must be understood as an assertion that any term in the FX agreement that is inconsistent with the 2001 agreement or the 2004 agreement is overridden by it.  I proceed to consider the Plaintiff’s case on that basis.

The 2001 agreement

27.  This claim gives rise to the following issues:

(1) Did Mr Lai say what the Plaintiff alleges he said?

(2) If he did so, did that result in a concluded independent agreement, which could not be terminated (assuming adequate margin had been provided) without 6 months notice?

28.  The first issue requires an assessment of the evidence of the 2 relevant witnesses: the Plaintiff and Mr Lai. The Plaintiff is, on her own case, a very wealthy woman.  She says she has business interests in Thailand, and has managed to acquire at various times 3 buildings in Hong Kong and 70 buildings in Japan.  She is a woman who was prepared to trade forex, albeit with assistance from her own advisers, using a trading line of US$250,000,000.  One might reasonably have expected her to be a person of some commercial sophistication, to have made some effort to understand the issues in this trial and to be able to explain her case with some confidence and clarity.  This was not the case.

29.  The Plaintiff was at best diffident and vague in answers to questions in cross-examination.  In some respects she seemed to be simply evasive.  At the outset of her cross-examination by Mr Scott, she was asked approximately what her assets were worth in 2000.  She said she had no idea and that she was not interested in the value of her assets.  Shortly afterwards she was asked what appeared to be an innocuous question concerning the date of her Father’s death.  She said she did not recall.  Similarly she did not recall when her Mother died.  It was unclear why she was reluctant to provide this information, which was finally extracted from her after some encouragement from Mr Aiken in re‑examination. On the face of it this information was relevant to when her Brothers inherited her Father’s assets, one of whom, she says, subsequently transferred assets to her, which provided part of the foundation for her own fortune.

30.  The Plaintiff was quite incapable of answering satisfactorily Mr Scott’s questions about her sources of wealth. Even making allowances for what might have been inelegant interpretation, she was a totally unconvincing witness, whose lack of apparent interest in, or recollection of, the matters relevant to her case make her an unreliable witness.

31.  In contrast I found Mr Lai, and all the other witnesses called by the Defendant, straightforward.  I can see no reason not to prefer their evidence where it conflicts with the Plaintiff both in relation to this element of the Plaintiff’s case and the others.

32.  The Plaintiff’s evidence in chief was contained, as is normal, in a written witness statement.  The relevant parts simply repeat what is pleaded in the Re-Re-Amended Statement of Claim. It will be recalled that the allegation of representations by Mr Lai was not raised until 2007.  In cross-examination the Plaintiff was asked about what Mr Lai said to her.  She said this:

“A. Any order that we got stuck or, you know, we got lost, we have to wait, and then – and we have to wait until the original, you know, rate or better, and then we can move or change the other one. It didn’t mention that, you know, it have any limitation for the roll-over. If, you know, for roll-over, you know, the sales tax that, you know, we have to pay the interest. And if we have not enough funds, the bank can close the order; they don’t need to wait for my permission or let me know ahead. That’s all.”

33.  Mr Aiken gave the Plaintiff another chance to explain what Mr Lai told her.  This was her evidence:

“MR AIKEN: Just tell my Lord what you remember Harry Lai said.

A. He said the order – there will be the hole, the gap, in the foreign exchange, quite a gap.  Just in case there was a knock-in, meaning the order that I have and it’s stuck in the opposite direction, so I have to hold, but it’s okay.  Then we stop, we break, and then roll over until it comes back to the original price or even better, and then change it.  That is what he said.”

34.  This evidence clearly falls far short of supporting the Plaintiff’s case.  Mr Lai accepted that he had discussions with the Plaintiff concerning forex trading on margin, which must almost necessarily have been the case as such trading did take place, but he was clear that he did not make the type of representations that the Plaintiff asserts in her pleaded case.  Mr Lai has no reason to lie about this.  He left the Defendant in 2004 and was not contacted about the present proceedings until April 2012, he therefore has no interest in its outcome.

35.  I have already mentioned that the oral agreement was not pleaded in the Statement of Claim.  It smacks of being a concocted claim.  I, therefore, find that the Plaintiff has not established that the alleged 2001 agreement was made.  However, even if I had found that there had been discussions in substantially the terms alleged, which led to an agreement about the way in which the Plaintiff could trade forex, I would not have found that it was an independent legally enforceable agreement. 

36.  The Plaintiff’s case necessarily involves her establishing that all the necessary elements of a legally enforceable agreement are present.  This includes an intention to be legally bound.  It seems to me entirely unlikely that Mr Lai did, or could reasonably be assumed to have intended, to enter into an agreement on behalf of the Defendant that formed an independent legally enforceable agreement that was not subject to the terms of the FX agreement.  I asked Mr Aiken this during his closing oral submissions:

“HIS LORDSHIP: …One is that you seem to be arguing, if I understand the case correctly, that what was said on 2 July constituted a freestanding, legally binding agreement --

MR AIKEN: Yes.

HIS LORDSHIP: -- which existed separately to the formal agreements entered into in writing.

Now, in order -- and this applies of course to 2001 as well ‑‑ for that to be the case, it necessarily follows that you need to persuade me that such agreement as was reached on 2 July was entered into by representatives of the bank with an intention to create that kind of legal arrangement.

MR AIKEN: Yes.

HIS LORDSHIP: On what basis could I properly conclude that these bank staff intended, when imposing effectively a variant to the way in which trading had taken place previously, to create a freestanding, legally binding agreement with your client, bearing in mind we are dealing with Citibank?

MR AIKEN: One, they clearly had authority to do so. They were senior representatives of the bank. They were the only people --

HIS LORDSHIP: What --

MR AIKEN: Can I finish, please, my Lord, with respect? They were the only people in the bank my client ever dealt with, and so they clearly had authority to do it.

37.  With respect this seems to me to be wrong and plainly so.  Mr Lai was not a particularly senior employee: he was a relationship manager.  I do not think that he was at a level at which it would be reasonable to think that he had power to override formal agreements. More generally it seems to me that this is an unrealistic way in which to view the relationship between a private bank and a wealthy client.  The Plaintiff must be taken to know that banks do business on standard terms and that her relationship with the Defendant was governed by the agreements that she had signed.  It does not seem to me to be credible to suggest that either party thought that following a discussion, even a detailed one, to agree an investment strategy that what they had agreed gave rise to a free standing contract that was not subject to the terms of the written agreements that had been signed.  It is important that there is certainty in the dealings between a bank and its client and one of the purposes of the agreements which banks ask their clients to sign is to provide such certainty.  This is the reason why such agreements commonly contain an entire contract clause.  Such a clause has been included in the FX agreement, namely, clause 15 of the standard terms and conditions of the FX agreement quoted earlier in this judgment.

38.  It seems to me that this clause clearly applies to an oral agreement of the type, which the Plaintiff argues was made in the present case and excludes reliance upon it.  Indeed it is exactly the type of oral agreement, which such clauses are intended to exclude. If I had found that an agreement as alleged had been reached I would have gone on to find that by virtue of clause 15 the agreement was not binding on the Defendant.

39.  My impression from the way in which Mr Aiken argued the case is that the Plaintiff’s legal team have read paragraph 35 of the judgment of Cheung JA in the successful appeal[1] of Deputy Judge Carlson’s decision as giving support to their principal argument that not only was an oral agreement reached that allowed the Plaintiff to roll over loss making positions indefinitely, but that if such an oral agreement was made it was not subject to the terms of the FX agreement.  In paragraph 35 Cheung JA says this:

“35. In my view there is clearly room for argument in this case that Clause II. 15 may not be applicable having regard to the sequence of conduct of the defendant as described by the plaintiff. Both Mr Lai and Ms Poh belonged to the senior management of the defendant, and they should be taken to know the terms of the Standard Agreement. If the defendant was of the view that Clause II. 15 governed the relationship of the parties, its conduct in allowing the plaintiff to trade on the terms as agreed by Mr Lai, its confirmation of the terms when Ms Poh took over from Mr Lai, taken together with its subsequent conduct in allowing the plaintiff to continue to roll over the contracts although with a limited duration, was fundamentally inconsistent with this avowed position. The plaintiff stated that by relying on the confirmation she carried out further transactions, and further by relying on the revised terms she had executed six new contracts. In my view the questions of waiver and estoppel, be it promissory or otherwise, are clearly matters that are available to the plaintiff. This cannot be resolved in an interlocutory proceeding and should be canvassed at a full hearing at trial.”

40.  These statements were made in the context of an application to strike out the Amended Statement of Claim and assume that the allegations in the Amended Statement of Claim are proved at trial and without the benefit of the more comprehensive review of the issues, of which I have had the benefit.  I do not think that Cheung JA’s judgment can sensibly be read as suggesting that simply because a trading protocol was agreed and then implemented a new independent agreement came into force embodying the protocol’s terms that was not subject to the terms of the formal written agreement the Parties had previously signed.  Any agreement of the sort with which I am concerned must, in my view, be subject to the FX agreement.  If, for example, matters arose which engaged clause 7.01(g) it seems to me implausible to suggest that an oral agreement about a trading strategy overrode it or operated independently of it.  Any other view necessarily leads to the consequence that every time a financial institution has a meeting with a client to discuss potential investments it should require the client to sign an agreement confirming that whatever had been said or agreed in the meeting is subject to the terms of the documents signed when the account was opened.  It seems to me that such an argument is artificial as is the suggestion that the Defendant’s staff were authorised, or could reasonably be thought to have been authorised, to make an agreement that was not subject to the FX agreement.

2001 Representations

41.  It follows from what I have said above that I also reject the alternative claim that Mr Lai made the alleged representations.  In any event I have difficulty in seeing how they could have been actionable as they can only sensibly be construed as representations of intention.  There is no basis for suggesting that if Mr Lai did say what it is alleged he said he did not believe it at the time.  It also seems to me such representations would not have stopped the Defendant from terminating the FX agreement if it became aware of a material change of circumstances, which entitled it to rely on clause 7.01.

2004 Agreement

42.  The case in respect of the 2004 agreement is more straightforward evidentially because we have a transcript of the relevant conversation.  It is clear that on 2 July 2004 during a conference call at approximately 12.30pm, which included Patrick Hau, Chiang Siew Kay, Jessica Poh and Mehesh Satya of the Defendant, the Plaintiff was told that in future any new position could only be kept open for a maximum of 6 months, the maximum duration had to be specified in advance and that if a new position were kept open the position would be rolled forward at market rates.  The Plaintiff did not agree to this during the telephone conversation.  She asked the Defendant’s staff who took part in the conference call to speak to Mr Kawabe, but they declined and asked her to do so.  She said she would speak to him.  It appears that she spoke to him and that as a result Fanny Yu telephoned Patrick Hau at 3.55pm that day to discuss what the Defendant was proposing.  The conversation was lengthy.  Ms Yu appears to have been concerned to understand how the arrangement would operate in future and then report back to Mr Kawabe.  The impression the transcript gives is that what was proposed was acceptable, but she did not expressly state that it was agreed.  Two further short calls were made by Ms Yu to Mr Hau that afternoon asking more questions about how the arrangement would operate.  She telephoned again at 6.11pm and a longer conversation ensued.  She said Mr Kawabe agreed the 6 month extension period in principle.  There followed a more general conversation about technical aspects of trading forex, which is not of itself relevant to the present issue.  There were then 2 more telephone conversations in which Ms Yu asked about the requirement that at the time a new position was opened its maximum duration had to be specified.  The tenor of the conversation was that she wanted to understand how this would work in practice.  She did not say whether it was agreed or not, but the implication of what was said is that it was not of itself objectionable.  Following these conversations the 9 new orders were placed that I have referred to in the introduction to this judgment, 6 of which are the subject of claims.

43.  It does not seem to me that the consequence of these discussions was that an independent agreement was made, which was not subject to the terms of the FX agreement.  It seems to me to be entirely artificial to suggest that these discussions gave rise to an independent legal agreement that was not subject to the terms of the FX agreement, for substantially the same reasons that I have given in the case of the 2001 agreement.

44.  The Plaintiff argues in the alternative that if I am not satisfied that a new, independent agreement was established the consequence of the representations that were made by the Defendant was that the Defendant was estopped from relying on clause 7.01 as at the time it accepted the 9 new orders that were placed following the telephone conversation on 2 July 2004 it knew of all the matters relevant to its decision to terminate the Plaintiff’s account.

45.  In paragraph 50(b) of the Re-Re-Amended Statement of Claim the Plaintiff pleads that one of the representations made was that “when the Plaintiff entered into a new FX Contract, she would specify a maturity date for the contract, which may not be more than six months from the contract date”.  This is consistent with the record of the telephone call on 2 July 2004.  It follows, therefore, that in order to make good the estoppels case it is necessary for the Plaintiff to demonstrate that she specified a maturity date and was prevented from extending the position until that date.  However, in paragraph 53 of the Re‑Re‑Amended Statement of Claim the Plaintiff pleads that the 9 new contracts had a maturity date of 13 July 2004.  Ms Yu does not suggest in her witness statement that she specified a later date when placing the order and the transcripts of the telephone calls in which the orders were placed all refer to her placing orders with a one week maturity.  In these circumstances the Defendant was not under any obligation to roll-over the 9 new contracts as the Plaintiff had failed to specify a long stop maturity date.  Even on the Plaintiff’s own case she was not entitled to request that the contracts be rolled over.

46.  Mr Scott raised another objection to this claim, namely, that where the necessary constituents of estoppel are present they result in a suspension of legal rights and possibly their extinguishment, although the latter is still the subject of controversy. However, the doctrine as understood and applied in England can only be relied on as a defence.  It does not create a cause of action where one would not otherwise exist[2]. The Court of Final Appeal in Luo Xing Juan v Estate of Hui Shui See[3] explains that Hong Kong currently adopts the orthodox English position. 

47.  Mr Aiken’s answer to this objection is set out in paragraph 8 to the Plaintiff’s written closing:  “… the Revised Terms of 2^nd July 2004 would estop Citi from denying P’s rights under the Revised Terms, so that Citi was not entitled to insist on alleged rights which were inconsistent with the Revised Terms”.  I do not accept that this is the correct analysis of how estoppel operates in the present case.  Assuming that:

(1) Ms Yu had, when placing orders, indicated a maximum duration for each new contract of, say, 6 months;

(2) The Defendant was prima facie entitled to terminate the account under clause 7.01 or refuse to accept a new order pursuant to clause 2;

(3) and I accepted that the constituents of an estoppel were present;

this would only have prevented the Defendant claiming any loss it incurred as a consequence of it terminating the account.  It does not provide a basis for the Plaintiff claiming loss as a result of the Defendant’s refusal pursuant to clause 2 of the FX agreement to roll-over the 9 new contracts.

48.  The Claim based on the 2004 representations therefore fails.

Is clause 7.01 engaged?

49.  This issue is largely irrelevant given my earlier findings as it follows from those findings that regardless of whether or not clause 7.01 is engaged the Defendant retained a right under clause 2 of the FX agreement to refuse any order that it received.  However, I think that it is appropriate that I say something about this claim.

50.  Clause 7.01 gives the Defendant a right to terminate an account in the event of certain specified events or matters occurring.  They are different in nature.  Ground (d) applies if it becomes impossible for regulatory reasons for either a client or the Defendant lawfully to comply with its obligations.  Grounds (e) and (f) apply if a client becomes insolvent or is subject to enforcement proceedings.  What all the events and matters have in common is that they are serious and are the type of things, from which it is unsurprising the Defendant would want protection in the event of them occurring.  Ground (g), the one relevant in the present case, is of this type.  It applies if “the Bank considers, due to a material adverse change in the financial condition of the Account Holder or otherwise in its absolute discretion, is advisable or necessary to safeguard its interests under these terms and conditions and/or any or all of the Contracts”.  Cleary in my view this clause is intended to give the Defendant the ability to close an account if becomes aware of a matter that causes it to think that it is advisable, in order to protect its interests, to do so.  The clause gives the Defendant the discretion to decide whether a matter has arisen which makes it advisable or necessary to exercise this right.  This does not give it a right to act capriciously.  Ludgate Insurance Co Ltd v Citibank NA[4] concerned an agreement by which the London Market Letter of Credit Scheme was operated by Citibank.  In certain circumstances the agreement gave to the bank the rights “to retain in the account(s) such additional margin as it considers appropriate in all the circumstances” and to “allocate the drawing(s) … in such manner as the bank considers appropriate in its sole discretion”.  Waller J held that Citibank had exercised its decision-making rights in accordance with the purposes for which they were granted.  On appeal Brooke LJ, with whom Mummery and Russell LJJ agreed, explained the manner in which the discretion such clauses conferred was to be treated:

“35. It is very well established that the circumstances in which a court will interfere with the exercise by a party to a contract of a contractual discretion given to it by another party are extremely limited. We were referred to Weinberger v Inglis [1919] AC 606 ; Dundee General Hospitals Board of Management v Walker [1952] 1 All ER 896 ; Docker v Hyams [1969] 1 Lloyd's Rep 487 and Abu Dhabi National Tanker Co v Product Star Shipping Co Ltd [1993] 1 Lloyd's Rep 397 (The Product Star). These cases show that provided that the discretion is exercised honestly and in good faith for the purposes for which it was conferred, and provided also that it was a true exercise of discretion in the sense that it was not capricious or arbitrary or so outrageous in its defiance of reason that it can properly be categorized…”

51.  In considering whether or not the Defendant exercised its rights under clause 7.01(g) what is relevant is whether or not the Defendant acted honestly and on some rational basis.  The fact that the Defendant’s view might, viewed objectively, be open to criticism is not of itself material.

52.  The Defendant’s case is pleaded in paragraph 71 of the Re‑Re‑Amended Defence:

“71.   Paragraph 57 is denied.  It is averred that during the telephone conversation, Jessica Poh informed the Plaintiff that the Defendant had decided to exit the Plaintiff’s accounts as it was entitled to under clause II/7.01(g) of the Standard Form FX Agreement. This decision was premised on the Plaintiff’s inability to satisfy the Defendant that the account truly belonged to her, her inability to explain her source of wealth, and her association with Mr Kawabe, in respect of whom the Defendant had recently received “know your client” and anti-money laundering information.  As such, (1) even though the Defendant was entitled to close out all open positions immediately, it was prepared to grant the Plaintiff a one-month grace period within which to close out the existing open positions, and (2) other than squaring trades for the purpose of closing out existing open positions, the Defendant would not permit any new positions.”

53.  In my view the matters referred to in the pleading, namely the Plaintiffs’ failure to satisfy the Defendant as to her source of wealth and her association with Mr Kawabe, who had been convicted of fraud, are matters which are capable of justifying the Defendant exercising its right under clause 7.01(g).  It is self-evident in my view that if a private bank has concerns about a client’s source of wealth and the integrity of a person who she has entrusted to make investment decisions on her behalf it might form quite genuinely the view that it is advisable to close the account.  Banks are under increasingly onerous regulatory obligations to ensure that they are not used as conduits for improper financial dealings.  They are also concerned about the reputational risk of being associated with questionable financial conduct.  The kind of concerns that the Defendant had about the Plaintiff’s accounts in my view are matters which it might reasonably be expected to cause it to wish to close her account.

54.  At the outset of the proceedings Mr Aiken suggested that the real motive were concerns arising from an investigation that was being carried out at the time by the Japanese Financial Services Agency on the Defendant’s private banking operation in Japan.  This was not a matter, which he pursued in his closing submissions.  It seems to me that there is no reason for questioning the honesty of the Defendant’s decision.  The only issue is whether or not it had any material reason for being concerned about the Plaintiff’s source of wealth and her relationship with Mr Kawabe.

55.  As I have already mentioned Ms Poh explained during her cross-examination that there had been difficulties in arranging meetings with the Plaintiff and given Mr Lai’s departure from the Defendant it was important that a meeting took place as soon as possible.  Following the meetings in Japan from 10 to 12 May 2004 it was Ms Poh and Ms Cuatico’s view that Mr Kawabe seemed to be in charge of the account not the Plaintiff.  They did not mean by this that Mr Kawabe was simply in charge of making investment decisions, but, as Ms Cuatico put it, he behaved as if he was in control of the account.  Various matters gave rise to this concern.  His demeanor suggested that he was in control.  He had arranged and hosted the dinner at an onsen outside Kobe on the night of 10 May 2004.  The Plaintiff was not clear who had paid for dinner or the hotel, but it clearly was not her.  Mr Kawabe described the building in Osaka in which the meetings took place as his building at the top of which he had a flat. 

56.  The overall impression that the Defendant’s private bankers had when they left was such that they felt it necessary to explore with the Plaintiff her source of wealth further and this they did.  Their inquiries were conducted in a series of telephone calls and meetings commencing on 13 May 2004, which are recorded in attendance notes and in the case of the telephone conversations actual recordings.  I do not think that it is necessary for me to go through the contents of these records in detail.  What is clear in my view is that the Plaintiff never provided a substantive and coherent explanation of how she came to be able to deposit considerable sums in the Defendant’s account.

57.  The Defendant can in my view fairly be faulted for not having put its requests in writing.  It is also relevant that the previous relationship managers, Mr Balmelli and Mr Lai, had not questioned her source of wealth.  Such matters might explain the Plaintiff not initially putting much effort into answering Ms Cuatico’s questions. However, by 23 May 2004 she had been asked for supporting documents and during this conversation Ms Cuatico had said this:

“No. No. No. That, that is not the issue. We are not complaining about the transfer from the bank. We just need to make sure that anything that is transferred to you, OK? We understand the source of the money. It is not just whether it is cash or not cash. And this is all because there are very strict regulations. OK. In term of money that we receive. If, if somebody just sent me money, yes, the bank would question where, why is somebody sending me money, so much money. Where did it come from? Because the main thing that the bank is concerned with, is to make sure there is no connection with drug trafficking and illegal things? I am not saying yours is illegal. That’s what we want to show that. That’s why we ask all these questions to show that this is all legitimate money and…”

In my view by the end of May 2004 it should have been clear to the Plaintiff that she had to provide more comprehensive answers to the Defendant’s requests for information about her source of wealth.

58.  On 15 June 2004 Daryl Kwok of the Defendant’s compliance department sent an email to Ms Cuatico copied to Ms Poh forwarding an email dated the same day from an analyst at the Defendant’s security and investigative services department explaining that they had discovered Mr Kawabe’s conviction and, amongst other things, that he had been accused of causing employees to open false bank account to conceal rental income from creditors. It is the Plaintiff’s case that the Defendant was aware of this much earlier. She says she told Mr Lai about Mr Kawabe’s conviction, that Mr Kawabe talked at dinner on 10 May of his experiences in prison and that whilst at the onsen baths Ms Poh had asked Ms Yu if she knew Mr Kawabe had been to prison.  Mr Lai and the other members of the Defendant’s staff present in Kobe and Osaka between 10 and 12 May 2004 who gave evidence at the trial all denied this. 

59.  The implication of the Plaintiff’s case is that the private bankers were aware of Mr Kawabe’s conviction, kept it quiet so as not to risk losing a valuable client, but that this changed on 15 June when knowledge of his conviction became more generally known within the Defendant.

60.  As I have explained earlier I found the Plaintiff an unreliable witness and conversely found the Defendant’s witnesses credible.  In my view it is unlikely that Mr Lai, Ms Cuatico, Mr Poh, Mr Chiang and Mr Hau would all have lied about this matter, which if the Plaintiff’s evidence is correct it follows that they must have done.  Whilst I found generally that Ms Yu gave straightforward evidence in my view on this matter her evidence is to be rejected.  When Ms Yu was asked in cross‑examination whether she remembered at the May meetings Mr Kawabe’s convictions being mentioned, her evidence was as follows:

“Q: … do you remember Mr Kawabe's conviction of a criminal offence and his imprisonment being discussed at all between 10 and 12 May 2004 in Osaka and Kobe?

A: The 10th, the 12th. I don't quite remember.

…

Q: Madam Yu, do you remember the question of Mr Kawabe's conviction and imprisonment being discussed at all with the representatives of Citibank in the visit that Citibank representatives paid to Osaka and Kobe in May 2004?

A: I don't remember.

Q: Okay. Thank you.

A: Mr Kawabe himself could speak some English. Maybe he himself said something in English. To my recollection, I did not do any interpretation on that content.

Q: Thank you, Madam Yu, and I understand your answer is that you don't remember him to have said anything about his conviction or imprisonment during this trip to Japan by Citibank representatives in May 2004.

A: Right."

61.  In re-examination by Mr Aiken, Ms Yu was asked the following questions:

“Q: Did you yourself go to the hot spring baths?

A: Yes.

Q: Did you go with anybody from Citibank?

A: The three of them together: Jessica Poh, Rosalinda, and … Liza or another name. I don't quite remember, because she only worked for a few months, then she left.

Q: So four women went to the hot spring bath?

A: And Cammy.

Q: And Cammy. And, only if you remember, was there any particular conversation while you were there?

A: They asked if Mr Kawabe had been in imprisoned. They asked us if we knew.

Q: Who asked you?

A: I think Jessica.

Q: And did you answer?

A: We said "yes".

Q: Yes, you knew?

A: We knew.

Q: Was there any other conversation at that time on this topic?

A: After we said we knew, we changed to other topics.”

62.  Her evidence in re-examination is completely inconsistent with what she said in cross-examination and parrots paragraph 71 of her witness statement.  I do not accept that this evidence was given honestly.  The answers to the questions in re-examination were too pat.  It is difficult not to conclude that she was told that she would be asked this question in re‑examination and told what answer to give.

63.  The Plaintiff’s case sits poorly with the fact that it is quite clear from the telephone conversations after the May meetings that Ms Cuatico and Ms Poh were genuinely concerned about the Plaintiff’s source of wealth.  It seems to me inherently likely that if they had been concerned following the May meetings that the Plaintiff was a front for Mr Kawabe they would have been even more alarmed if they had been told during the meetings that he had been convicted of fraud.  I would have expected there to be reference to this in one of the conversations with the Plaintiff prior to 15 June or in an internal document.  I, therefore, find that the Defendant’s private banking department did not know of Mr Kawabe’s conviction until 15 June 2004.

64.  It seems to me that by 15 June 2004 the Defendant had good reason to be concerned that the Plaintiff might be acting as a front for a person convicted of fraud and fraud in a form, which was directly relevant to their position as bankers.  Without a satisfactory explanation from the Plaintiff of her source of wealth it seems to me that not only did the Defendant have good reason to invoke clause 7.01(g), but that it would have been irresponsible for the Defendant not to close the account.  No such explanation was forthcoming.  Quite remarkably the Plaintiff did not adduce any additional evidence of her source of wealth for the trial.  I would have expected her to have done so if it was possible in order to demonstrate that the Defendant’s concerns were without foundation.  At the end of her re-examination I asked the Defendant the following:

“HIS LORDSHIP:…Am I right in assuming you must have signed a lot of legal agreements over the years?

A.Yes, some.

HIS LORDSHIP: Madam Natamon, if you own 70 buildings in Japan, you must have signed a lot of legal agreements in Japan, I assume?

A.In Japan, one building, one agreement. In Japan, it was in Japanese language, but in meaning, means transfer the ownership, just a transfer document only.

HIS LORDSHIP: Let me move on to another subject. You’ve told us that you owned in 2004 – and I assume you probably own now – a very large number of assets, and therefore I assume you are quite a rich woman and you were in 2004.

A.Yes.

HIS LORDSHIP: Do you or one of the people who works for you keep a list of all your investments and assets?

THAI INTERPRETER: Sorry, sir?

HIS LORDSHIP: Do you or somebody who works for you keep a list of all your investments and assets?

A. Except in Japan, I the one who manage.

HIS LORDSHIP: So you keep a list, do you, of all your investments and assets?

A. I keep everything except the property in Japan; there was someone keep it for me.

HIS LORDSHIP: But you could contact the person in Japan and ask for a list from them, I assume?

A. That is Mr Kawabe.

HIS LORDSHIP: Is there a reason why you haven’t produced such a list in these proceedings?

A. Do you mean submit for this case?

HIS LORDSHIP: Yes.

A. My understanding is it’s not in relation to.”

65.  I understood the final answer to mean that she understood that it was not relevant.  I have considerable difficulty seeing how she could have been advised that it was not relevant, but be that as it may the result is the Plaintiff has not taken the opportunity to demonstrate that the Defendant’s concerns were unjustified.  Instead she gave evidence in answer to questions in cross-examination which were muddled and unconvincing.  On day 2 of the trial in a series of answers to questions from Mr Scott she gave evidence that demonstrated that in 2000 her total assets were worth about US$2,400,000.  She then qualified her answer by stating that this did not take into account US$15,200,000 she had received in 1995 from Mr Kawabe for shares (sold at about 160 baht a share) she sold him in a company called Natural Park, which was owned by one of her brothers.  These she had paid about US$400,000 to acquire.  At the same time her brother had also sold his shares to Mr Kawabe for about US$122,000,000.  Subsequently in 1997 during the Asian financial crisis she bought them back from Mr Kawabe for about 50 Thai cents a share, about US$47,000.  The Plaintiff produced the share sale and purchase agreements dated 1April 1995 (in the case of the sale of her brother’s shares) and 20 April 1995 in the case of the sale of her own shares.  No documents have been produced to demonstrate that the purchase price was ever paid.  From this foundation she says she acquired about 70 buildings in Japan and 2 in Hong Kong although there is no evidence as to how she went about doing so.

66.  During her cross-examination Mr Scott took the Plaintiff to the judgment of the Osaka District Court (on appeal) dated 31 March 2005.  The Plaintiff was not a party to this action, however, it was asserted by Mr Kawabe that the corporate defendants (at the trial, the appellants before the District Court) were owned not by him as alleged by the plaintiff in the Japanese proceedings, but by the Plaintiff in these proceedings and as I understand it, it is those companies that own all or part of the 70 properties in Japan that allegedly constitute a significant part of the Plaintiff’s assets.  I note in passing that the Plaintiff did not give evidence at that trial in Osaka, because, it is recorded in the judgment of the District Court, that according to the evidence of Mr Kawabe her Father had died and she had to mourn for 3 years.  This the Plaintiff denied in cross‑examination.  Her explanation for not giving evidence at the trial in Osaka in order to protect her assets was that she could not get a visa to attend because the Japanese consulate in Bangkok had noticed that she had recently had an application for a green card refused.  The trial took place in 2003.  However, the Plaintiff had managed to obtain a visa to attend a dinner to celebrate Mr Kawabe’s release from prison in December 2003.  How this was possible was not explained.  More germanely the Osaka District Court dismissed the appeal and in doing so rejected Mr Kawabe’s evidence that the Plaintiff acquired the Japanese companies and the properties that they owned using the proceeds of the sale to him of the shares in Natural Park. They did so in part because no documents had been adduced to prove that the payments had been made and they found the arrangement to be bogus.  The Plaintiff must have known that a judgment had been entered in Japan that was seriously prejudicial to her interests and one might have expected her to produce for this trial the evidence the lack of which was so prejudicial to her interests in the proceedings in Osaka.  As I have already mentioned she has not done so in this trial.

67.  It seems to me that there was good reason for the Defendant to think in June 2004 that the Plaintiff was a front for Mr Kawabe and she has done nothing to alleviate that concern before me.  I do not have to decide whether or not she was a front for Mr Kawabe in these proceedings, but on the basis of what I have seen I am inclined to the view that she is.

Conclusion

68.  I dismiss the Plaintiff’s claim and will enter judgment for the Defendant.  At the end of submissions Mr Scott invited me to reserve costs, which I will do.  The Parties can relist the matter in order that costs can be determined unless they are able to agree them.

	(Jonathan Harris) Judge of the Court of First Instance
	High Court

 

Mr Nigel Aiken SC, Mr Kenneth Chow and Ms Anny Chak, instructed by Christine Tsang & Co, for the plaintiff

Mr John Scott SC, instructed by Clifford Chance, for the defendant

---

[1] CACV 78 of 2008

[2] Anson’s Law of Contract, 29^th ed pp123-126

[3] (2009) 12 HKCFAR 1 at §72

[4] [1998] Lloyd’s Rep IR 221