ANTHONY WEE SOON KIM v. UBS AG HONG KONG BRANCH

HCA 2005/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2005 OF 2004

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J U D G M E N T

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Introduction

1.  This summons is concerned with the doctrine of ‘res judicata’ in both its narrow and extended application.  The Plaintiff had brought an action in Singapore against the Defendant and lost, both at first instance and on appeal.  In this action he has sued the Defendant in respect of matters and amounts directly related to what has already been disposed of by the court in Singapore.  The Defendant says that he cannot do this.  The claims here comprise issues that have already been disposed of in Singapore and/or issues that could and should have been canvassed in that action, thereby falling foul of the doctrine in its extended sense.  There is also an allegation that one of the claim’s, for safe custody charges, which receive no mention in the writ but is referred to in the Statement of Claim, is now time-barred and cannot therefore become the subject of an action in what would have to be the subject of an application to amend the writ after the expiry of the limitation period.

2.  For these reasons, the Defendant applies to have the Statement of Claim struck out under Order 18 r. 19(b)(c) and (d) of the Rules of the High Court and under the court’s inherent jurisdiction on the ground that what it claims is vexatious and/or an abuse of the process of the court.

The action in Singapore

3.  The Defendant is an international bank with branches world-wide.  The Plaintiff, Mr Anthony Wee, who is senior counsel at the Singapore Bar (but now retired from practice), held accounts with the Defendant at its branch in Singapore as well as here in Hong Kong.

4.  Briefly stated, what had happened was that the Plaintiff brought his action in the High Court of Singapore against the Defendant arising out of a series of foreign exchange transactions that he had entered into by buying the Malaysian ringitt )(“MYR”) forward against the US dollar.  This was done through the Defendant’s Singapore branch.  In August 1997, he instructed the Defendant’s Singapore branch to enter into a one-month MYR forward contract involving the purchase of MYR 35 million at the rate of 2.8818 of the US dollar.  Shortly after he entered into that contract the MYR, in common with other Asian currencies at the time, depreciated against the US dollar.  On the 12^th September 1997, by which time the Asian economic crisis was beginning to take hold, the Plaintiff met with officers of the Defendant to see how best to manage his MYR position vis-à-vis the US dollar.

5.  On 18 September 1997 so as to average down the cost of the first contract, he entered into another one-month forward contract by purchasing MYR 5 million and the sale of US dollar at the forward rate of 3.022.  For what happened thereafter I gratefully take from the narrative which appears in the judgment of the Singapore Court of Appeal [Bundle B pages 156-161].  The MYR further weakened against the US dollar.  On the maturity of the two forward contracts, instead of realising his loses, the Plaintiff took out a US dollar loan to take up delivery of the MYR 40 million which he placed in leveraged deposits (“LD’s”).  MYR 35 million was placed on a two month deposit from 3 November 1997 to 5 January 1998 at an interest rate of 8.8% p.a. and the remaining MYR 5 million was placed on a one-month deposit from 20 November to 22 December 1997.  These LD’s were held as security for the US dollar loan that the Plaintiff had taken out.

6.  On 16 December 1997, shortly before the one-month deposit was due to expire two of the Defendant’s officers that had been dealing with him suggested that the Plaintiff could realise his losses early by selling his MYR for US dollars in three or four separate transactions over a period of time by taking advantage of interest rate fluctuations.  The Plaintiff was agreeable in principle but required to see more specific proposals for his consideration.  Three days later these officers informed him that the interest rate on the MYR had fallen and that as a result he would be facing the prospect of paying more interest on his US dollar loan than he would be receiving from his MYR deposits, being 6.8% for US dollar loan and 3.25% on MYR deposit.

7.  In these circumstances, the two officers suggested that the Plaintiff might like to subscribe to the Defendant’s UBS Dynamic Floor Fund (“DFF”) strategy which had two components.  Firstly, the MYR deposit would be converted to US dollars to invest in the DFF.  The fund was capital protected if held for 12 months and targeted a return of over 8.15% in MYR terms and secondly, the Plaintiff would enter into a 12 month forward contract to purchase MYR as the US dollar/MYR exchange rate of 3.9745.  This forward contract would enable him to have a more favourable exchange rate for his MYR as 12 month forward MYR rates were at a 3% premium to spot rate.

8.  The proposal for this investment was then communicated to the Plaintiff in detail and a further meeting was held with him and his son to go over the detail.  This aspect of the evidence was the subject of challenge before the court of Singapore, certainly as to the wisdom and fullness of the advice that was being given to him at the time.  For present purposes it is not necessary for me to elaborate on this further.

9.  On 5 January 1998, following the proposal, the Plaintiff converted his MYR deposits into US dollars and after deducting a 1% transaction fee, the balance of US$10,439,832.63 was invested in the DFF.  On 6 January a forward contract to by MYR 41,493,114.71 for value was entered into at the rate of 3.9745 at a cost of US$10,439,832.63.

10.  On 14 May 1998, having discussed the matter on the telephone with one of the Defendant’s responsible officers the Plaintiff gave instructions to sell MYR 11,520,000 at the rate of 3.84 to the US dollars and to buy 3 million US dollars.  The object of this transaction was to unwind, in part, the 12-month forward contract.  The following day the Plaintiff was informed by the Defendant this would involve him in “swap costs”.  This news upset the Plaintiff and he countermanded the instruction, resulting in an exchange loss to him of US$63,500.

11.  An indication of the litigation that was to come occurred on 8 June 1998 when the Plaintiff wrote to the Defendant to complain that he had invested in the DFF because of misrepresentations by the bank’s officials who he said had not told him of the swap costs if he were to close his MYR position early.  There was inconclusive exchange of correspondence on this and a Mr Wood, a more senior person in the Defendant, took over the conduct of the Plaintiff’s account.

12.  On 8 July 1998, the Defendant advised the Plaintiff that he would stand to make a profit of MYR 898,020.35 if he were to liquidate the DFF and liquidate the 12 month forward contract early.  He accepted this advice with the result that he was able to make a gain of MYR 915,245.71.  Nevertheless, this gain would have been much larger but for the fact that in unwinding the forward contract a swap cost of more than MYR 2 million was incurred.

13.  The denoument came on 1 September 1998 when the Malaysian government imposed a ban on the trading of the MYR and its central bank fixed the exchange rate of the MYR and the US dollar at 3.80.  When the Plaintiff’s entire holdings in MYR were converted back to US dollars they amounted to 10,555,155.  Once he had to account for his original US dollar loan plus interest the Plaintiff’s speculation in the MYR caused him a loss of US$4,179,509.00

14.  On 4 July 2001, the Plaintiff sued the Defendant in Singapore claiming damages for misrepresentation, breach of duty of care in both contract and tort, and breach of fiduciary duty.  In its judgment the Court of Appeal referred to the 4 issues that it said were left by the Plaintiff for the trial judge’s resolution:

(a)   Whether the Defendant has exercised reasonable care and skill in advising him on the original MYR forward contracts on the 28^th August and the 18^th September 1997;

(b)   Whether by its fax of 12^th September 1997 the Defendant had failed to advise him of the risk involved in the forward transactions and to advise him to close the forward contract maturing on the 2^nd October 1997 instead of taking delivery of MYR;

(c)   Whether the Defendant had misrepresented to him in mid December 1997 that he was paying 6.8% interest on his US dollar loan and receiving only 3.25% of his MYR LD’s and;

(d)   Whether the Defendant had misrepresented to the Plaintiff that the DFF strategy allowed him to exit his MYR position at any time without incurring swap costs if he closed out before the maturity date.

15.  The trial judge held that the first two issues did not arise from his pleaded case [the re-re-amended Statement of Claim] and therefore did not call for an answer by him.  As to the third issue he held that there had been a factual misrepresentation but that this had not in fact caused him any loss.  On this finding of misrepresentation the trial judge was reversed by the Court of Appeal.  Lastly, on the fourth issue the judge held that the swap cost (“swap points”) had been explained to him in layman’s terms during the various meetings that he had with the Defendant’s officers in December 1997.  The Plaintiff appears to have accepted that an explanation had been provided but that he had not understood it.  This being so the judge held that it was his own fault that he did not ask for further clarification at the time.

16.  On appeal, the Court of Appeal [Bundle B page 162] distilled down to three the issues that called for its consideration:

(a)   Whether the first two issues before the judge had in fact been pleaded in the re-re-amended Statement of Claim;

(b)   Whether the Defendant have misrepresented to the Plaintiff in mid December 1997 that he was paying 6.8% on his US dollars loan and only receiving 3.25% on his MYR LD’s and;

(c)   Whether the Defendant had failed to advise the Plaintiff that “swap points” would be involved in the event that the MYR forward contract was unwound prematurely.

17.  Having set out those issues the Court of Appeal proceeded to consider each of them separately and arrive at conclusions on each that were adverse to the Plaintiff as a result of which it dismissed his appeal.  Its reasoning is not something that I need to recount here although it may become necessary to reflect on those reasons for the purposes of deciding whether the claims raised in the Statement of Claim in this action are res judicata in either the narrow or extended sense.

How the transactions in Singapore affected the Plaintiff’s account with the Defendant in Hong Kong

18.  Firstly, it needs to be understood that the Defendant is one bank operating through its various branches amongst which are those at Singapore and Hong Kong.  Having regard to his loss of US$4,179,509 following his speculation in MYR, which I have identified in paragraph 13 following the explanation which appears in the previous paragraphs, the Defendant chose to debit the Plaintiff’s Hong Kong account on the 10^th September 1998 with the sum of US$4,185,000.00 and to transfer this amount to his account with its Singapore branch in order to cover that loss.  It also chose to debit his Hong Kong account with a series of miscellaneous safe custody charges of, relatively speaking, modest amounts which appears in the Statement of Claim at paragraphs 25-28.  These are also said to relate to the transactions and events which took place in Singapore during the period that had given rise to the Singapore action.

The action in Hong Kong

19.  By his statement of claim the Plaintiff asks for declarations to the effect that the US$4.185 million debit and the debit for safe custody charges were wrongful and therefore to have his position restored to what it was before the debits were effected.

Res judicata?

20.  In the first paragraph of this judgment I have already stated, in broad terms, what it is that Mr Clifford Smith, S.C., for the Defendant, says of these two claims in the Statement of Claim and of the way that they should fall to be treated in the face of the Defendant’s summons to have them struck out.  I now need to attend to the detail of his submission before I turn to the Plaintiff’s response.

The claim relating to the debit of US$4.185 million

21.  Paragraphs 21-24 of the Statement of Claim and paragraphs 1-4 of the prayer relate to this, involving the debiting of this amount from the Hong Kong account 207038 on 10 September 1998 and the crediting of the same amount to his Singapore account 110628.  The Plaintiff alleges that this was done contrary to his specific instructions [A/9-10].  Mr Smith submits that precisely the same allegation had been made by the Plaintiff in the Singapore action at paragraphs 46-47 of the re-re-amended Statement of Claim in that action.  In respect of this the relief claimed in Singapore is for damages for breach of instruction, as well as for a claim for an account of all debits made from the Hong Kong account.

22.  Mr Smith has then traced how this matter proceeded before the court in Singapore.  The Plaintiff’s closing submission in writing in Singapore shows that the claim for damages arising from the failed investment in MYR is the result of alleged breaches of contract or misrepresentation on the part of the Defendant which took into account the sum of US$4,179,509.00 debited from the Singapore account which was used to re-pay a loan of US dollars extended to the Plaintiff by the Defendant.  It is specifically said in that closing submission that this debit occurred after the Singapore account had been credited with the US$4.185 million, debited and transferred from the Plaintiff’s Hong Kong account.

23.  The Defendant in its re-amended defence in Singapore pleads that it was entitled to do what it did to the Hong Kong account in order to repay the US dollar loan in Singapore relying on the Account Opening Documents and Standard Terms which gave a right of set off enabling it to transfer funds from one account and to apply these to another account of the customer wherever held.

24.  There can be no doubt that the sum debited from Hong Kong went to discharge the Plaintiff’s debt to the Defendant in Singapore.

25.  Mr Smith’s analysis as to the consequence of this transfer is this.  Had the Defendant not debited the Hong Kong account with US$4.185 million the Plaintiff would have remained liable to the Defendant in Singapore for the outstanding balance on the US dollar loan subject to his cross-claims against it for misrepresentation or breaches of duty or contract as pleaded in his Singapore action.  Nevertheless, that action has been dismissed in Singapore as was his appeal.  If the Plaintiff were now to be allowed to bring this action in Hong Kong for the purpose of establishing that the Defendant was not entitled to debit US$4.185 million from his Hong Kong account and to use this sum to credit his Singapore account, this would open up the same issues that were canvassed in the Singapore action.  In these circumstances, submits Mr Smith, the doctrine of ‘res judicata’ applies and it is an abuse of process for the Plaintiff to now litigate this claim in Hong Kong.

The safe custody and other charges

26.  A slightly different point arises here which I will come to presently.  The factual situation is the following.  Paragraphs 25-28 and paragraph 5 of the prayer [A/10-11 and A/12 respectively] allege that these amounts have been wrongly debited by the Defendant from the Plaintiff’s account.  This is what was also precisely alleged in the re-re-amended Statement of Claim in Singapore.  See paragraphs 63-64 and 73 [B/57-58 and 63].  The Plaintiff’s witness statement in the Singapore action also deals with this issue [see paragraphs 135-136 and 141 C/321-323 and 326].  Mr Smith submits that as the action in Singapore was dismissed it must therefore follow that these claims were dismissed.

27.  In Singapore the Plaintiff took the point that the debits were wrongful.  [Paragraph 52(h) C/409 and paragraphs 69-72C/410-414] and the same issue was also addressed in closing [paragraphs 423-461C/419-439].  Evidence about this was before the court and the Plaintiff was cross-examined about this in the course of his evidence.  Further closing submissions also covered the point [plaintiff paragraphs 14 and 134C/442-443] and defendant [paragraphs 14-15C/445-446].

28.  In respect of this the Plaintiff has taken a slightly different tack which is to say that res judicata cannot apply because there was no judicial finding or adjudication on the merits.  See his affirmation of 23 September 2005 paragraphs 75-76 and 87-92[A61 and 63].  In his judgment, the trial judge, Kan J. has recorded that the Plaintiff dropped the issue of the custody charges.  [Paragraph 8 of his judgment B/140].  The Plaintiff complains that the judge misunderstood the difference between specifically abandoning a point and simply not referring to it in closing submissions.  The point he says remained and remains a live issue.  Mr Smith’s response to this is to his say whatever may be the position the fact is that this part of the Plaintiff’s case was dismissed and he did not appeal against that part of the judgment.  This being so Mr Smith says there has been a “formal repudiation” of the Plaintiff’s pleas in Singapore, so that res judicata in its narrow sense bites on this part of the claim in Hong Kong.

Time Bar

29.  Mr Smith raises an additional limitation point as to the safe custody charges which by virtue of s.4(1)(a) and/or (2) of the Limitation Ordinance (Cap. 347) (“the Ordinance”) are subject to a 6 year limitation.  The facts raise a clear limitation defence for which the Plaintiff can have no answer.  The debits for these charges were effected between 6 October 1997 and 2 March 1999.  All these claims became time-barred, unless validly prosecuted, by 2 March 2005.  The writ was issued timeously on 31 August 2004 but these claims did not see the light of day in the writ.  There is no mention of them.  These are pleaded and claimed for in the Statement of Claim for the first time and are new claims within s. 35(1)(b) of the Ordinance.  By virtue of s.36(3) of the Ordinance the court shall not allow a new claim to be made in the course of an action after the expiry of any time limit under the Ordinance.  Being time barred in this way they fall to be struck out for this additional reason.

How the doctrine of res judicata is said to arise in this case

30.  The doctrine will apply when there has been previous litigation between (for present purposes) the same parties in a court of competent jurisdiction including an overseas court.  A helpful discussion is to be found in Halsbury’s Laws of England Vol. 16(2) at paragraphs 977 and 978 to which Mr Smith has made reference.  In its purest, narrow sense, the doctrine applies where the cause of action is the same and has been determined on its merits, which means by a court having jurisdiction and which is final in the sense that it cannot be varied, re-opened or set aside except, on appeal.  Mr Smith appeals to this narrow sense of the doctrine in seeking to strike out the claim for safe custody charges.  He submits that these charges formed part of the Plaintiff’s pleaded case in Singapore and dismissed following the trial.

31.  The less straightforward application of the doctrine applies, if it does, to the claim for US$4.185 million.  Mr Smith relies on the extended version of the doctrine identified by the Privy Council in the Hong Kong case of Yat Tung v Dao Heng Bank [1975] AC 581in which it applied Henderson v Henderson (1843) 3 Hare 100 and Greenhalgh v Mallard (1947) 2 All ER 255.  At 590 B-H Lord Kilbrandon, who gave the Board’s Opinion, held that:

“… there is a wider sense in which the doctrine may be appealed to, so that it becomes an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in earlier proceedings.”

32.  Mr Smith’s analysis is that this claim could have been raised in Singapore.  Paragraphs 46-47 of the  re-re-amended Statement of Claim there [B142] plead the facts, relied on at paragraphs 21-22 of the Statement of Claim in the action now before me [A/9].

33.  Yat Tung and Henderson v Henderson were considered more recently by the House of Lords in Johnson v Gore-Wood & Co. (2002) AC 1.  In referring to the wider sense of the doctrine Lord Millet at 58H to 59B observed that this wider sense is not concerned with cases where a court has decided the matter, but rather cases where the court has not decided the matter.  He said that the doctrine in both its narrow and wider aspects were designed to serve the same purpose which is to bring finality and to avoid the oppression involved in unnecessarily subjecting a defendant to successive actions.  Mr Smith submits this claim should have been raised, if at all, in Singapore.  Having lost there, to raise it here is to cause unjust harassment to the Defendant and is an abuse of process.

The Plaintiff’s response

34.  Having regard to the importance of this matter the Plaintiff has plainly invested much time and effort in presenting his opposition to this summons, which he has done with restraint and moderation and therefore, if I may say so, most persuasively.  Although he was brief in his oral response he has put in a very full written submission, with supporting authorities, to which I have had regard and which I have found most helpful.  I am grateful to him for his assistance.

Res judicata in its extended sense as applied to the claim for US$4.185

35.  In this respect the Plaintiff has drawn attention to the remarks of Somervell LJ in Greenhalgh v Mallard supra at 257:

“This is the true basis of the doctrine and it ought only to be applied where the facts amount to an abuse, otherwise there is a danger of a party being shut out from bringing forward a genuine subject of litigation.”

He has also referred to Brisbane City Council v A.G. for Queensland (1979) AC 411(Privy Council)which refers to actions which “could and therefore should have been litigated in earlier proceedings”.  These observations are not to be overlooked by ignoring the “should” element of the analysis.

36.  For my part it seems to me that once the Plaintiff failed to show breach of duty, misrepresentation and everything else that he was alleging against the Defendant in the Singapore action that left him in a situation where he would have had to pay off the US dollar loan.  Had the debit not been made in Hong Kong and the funds transferred to Singapore he would have had to meet that liability in Singapore.  The whole sub-strata of the dispute was the validity of his claim for damages against the Defendant in the Singapore action.  This having been comprehensively resolved against him there is nothing left for him to litigate.  The debt needed to be paid.  It was, by the bank transferring the funds from the Hong Kong account.  On a true analysis the only question that remains is whether the Defendant had authority to do so.  The terms of his agreement with the bank unquestionably authorises it to do what it did.  What he is left with therefore is a re-run of the Singapore dispute, when in fact all of these facts and issues were, as Mr Smith has demonstrated in his analysis of the pleadings, witness statement and submissions in Singapore, before the court in Singapore.  It simply cannot be right for the Plaintiff to have another go in our court when all of this was before the court in Singapore and where he could and should, in my judgment, have taken any of the left over matters on this issue which are the subject of the action before me.  He after all raised all the factual matters that he was relying on in Singapore.  It would be abusive of the court’s process to seek to go through all of this again in Hong Kong and would amount to an unjust harassment of the Defendant.  The matter is now over and it should not be allowed to be re-opened in this guise in this jurisdiction.

The safe custody charges

37.  These, I am afraid, have been disposed of.  They were pleaded, and ventilated in the course of the trial in Singapore.  The claim was dismissed, even if it is said that the trial judge erroneously held that the Plaintiff had dropped this part of his claim.  The fact is that this was a dismissal on the merits it had been part of his pleaded case and it is significant that the point was not resurrected by the Plaintiff on appeal in Singapore.  This, as Mr Smith has submitted, is res judicata in its purest sense.  The issue was before the court in Singapore and that court dismissed it.  Additionally, and I can take this shortly, the claim is also now time-barred for the reasons that have been advanced by Mr Smith.  His analysis on limitation is the correct one.

Conclusion

38.  The Defendant must therefore have the orders that it seeks.  The action will be struck out with costs.  The order for costs will be an order nisi.  I regret that this will come as a great disappointment for the Plaintiff but, once the matter has been analysed in the way that it has by Mr Smith the summons can only admit of one answer.