BHAGWAN SHANKARDAS MOORJANI v. THE KA WAH BANK LTD.

HCA1970/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1970 OF 2002

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J U D G M E N T

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1. I have before me two summonses. The first in time is one taken out by the defendant ("the Bank") dated 28 June 2002 to strike out the Statement of Claim under the provisions of Order 18, rule 19. All four grounds that are available under the rule are relied on in the summons but essentially, as will become clear in a moment, the real complaint is that the Statement of Claim amounts to an abuse of the process of the court. The other summons taken out by the plaintiff is for summary judgment under Order 14 or, in the alternative, judgment on what are said to be admissions by the Bank, and there reliance is placed on Order 27. It is convenient that I take the Bank's summons to strike out first.

2. The facts are of course common to both summonses and I propose to begin by explaining the factual basis to this dispute which in fact goes back to July 1998. The plaintiff who, if I may say so, is a highly-educated and articulate person having been called to the English and Indian Bars, had decided to speculate on the foreign exchange market. He opened an account for that purpose with the Bank on or about 9 July 1998. It was a margin trading account for foreign currencies. For this purpose he signed the Bank's master agreement. He bought Japanese Yen hoping that currency would rise against the US dollar. Unfortunately, after 30 July 1998, the Yen dropped significantly against the US dollar and he suffered substantial losses arising out of three USD/JPY contracts. The Bank's account of it is that on 4 August 1998, having made a number of unsuccessful attempts to contact the plaintiff, it decided to "square off" the USD/JPY contracts because they did not hold an adequate margin on those accounts. Because of that, the plaintiff brought an action against the Bank claiming damages for wrongfully terminating those contracts. This action, HCA16440/1998 was heard by Yam J over a number of days and on 10 March 2000, the judge gave judgment dismissing the plaintiff's claim. The plaintiff then appealed to the Court of Appeal who, on 7 March 2001, allowed his appeal. The Bank then appealed to the Court of Final Appeal who, on 8 March 2002, found in favour of the Bank, set aside the order of the Court of Appeal and restored Yam J's judgment. That decision is reported as Ka Wah Bank Limited v. Bhagwan Shankardas Moorjani [2002] 1 HKLRD 719.

3. In delivering the judgment of the Court of Final Appeal Lord Hoffmann explained the nature of a leveraged foreign exchange transaction. He also explained the significance and importance of a cash margin in supporting a foreign currency trading account. The effect of the judgment is sufficiently reproduced in the headnote of the report as follows :

"(1) In a leveraged foreign exchange transaction, the value of the contract should be determined by reference to its value to the purchaser. In short, the value of the contract meant the value of the purchaser's rights under the contract. Here, D was entitled to Yen under the contracts and it was logical that the USD value of the contracts varied according to the value of Yen. The more the value of the Yen declined, the more cash margin P would require to secure against D's loss, and vice-versa. This accorded with the purpose of the cash margin, namely to provide security for P. (See p.723A-D.)

(2) The value of a contract must be distinguished from the 'current value' of the contract. Here, the current value was calculated in USD simply because P was owed in USD and it was necessary to calculate the cash margin in USD. (See p.722I-J.)

(3) Following the fall in the value of the Yen, the value of the contracts had decreased and P was entitled to deduct D's floating loss from the cash margin held and to require that the remaining sum be made up. This right of set-off was an established form of security in respect of a leveraged foreign exchange transaction. (See pp.722E-H, 724A-B.)"

4. The judgment therefore had the effect of upholding Yam J's findings that the Bank was entitled to require more margin to be paid by the plaintiff to cover the falling value of the Yen and that accordingly as none had been forthcoming because the plaintiff was temporarily uncontactable it was entitled to square off his contract.

5. A little over two months after the Court of Final Appeal found against him the plaintiff has now brought this action. What is said by Mr Liang, on behalf of the Bank, is that this action is in essence a re-litigation of issues which were before Yam J and which either have been disposed of by him or could and should have been drawn to his attention by the plaintiff then and decided by him. Accordingly, the present issues are res judicata, and as such, seeking to re-litigate these matters amounts to an abuse of the court's process. It is on this basis that the Bank seeks an order striking out the claim.

6. Before I turn to the facts it would be of assistance to consider the relevant legal principles which are applicable in such circumstances.

7. The case of Greenhalgh v. Mallard [1947] 2 All ER 255 is relied on by Mr Liang in support of the proposition that the doctrine of res judicata is not confined to issues which the court was actually asked to decide in the original litigation but that it also covers issues or facts which are so clearly part of the subject matter of the original litigation and so clearly could have been raised on that occasion. If that is demonstrated then it would amount to an abuse of process to allow a litigant to bring new proceedings in respect of such matters. The principle is summarized in the Headnote to the report :

" Any series of concerted acts damaging to a plaintiff can give rise to only one cause of action for conspiracy. The unlawfulness resides in the fact of combination. A plaintiff who believes he has a cause of action in conspiracy must, therefore, decide whether he is going to say either (i) that the purpose was unlawful but not that the means were unlawful, or (ii) that the means were unlawful but not that the purpose was unlawful, or, that both purpose and means were unlawful. If he has chosen to put his case in one of the first two ways, he cannot, thereafter, bring the same transactions before the court, put his case in the other way, and say he is relying on a new cause of action. In such circumstances he can be met with a plea of res judicate, or the statement of claim may be struck out on the ground that the action is frivolous and vexatious and an abuse of the process of the court."

Somervell LJ at 257H explains the principle in this way :

".... but counsel for the defendants put his case in two ways, and I will deal with them. He relied, first, on res judicata, and then said that, if there was any doubt about that, he was entitled to succeed on the ground that it would be vexatious and an abuse of the process of the court to allow this transaction to be brought before the court again on the basis of the present statement of claim. I think that on the authorities to which I will refer it would be accurate to say that res judicata for this purpose is not confined to the issues which the court is actually asked to decide, but that it covers issues or facts which are so clearly part of the subject-matter of the litigation and so clearly could have been raised that it would be an abuse of the process of the court to allow a new proceeding to be started in respect of them.

In Green v. Weatherill ([1929] 2 Ch. 221), Maugham J quoted some observations by Wigram, V.C., in Henderson v. Henderson (3 Hare 114) :

' I believe I state the rule of the court correctly, when I say, that where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matters which might have been brought forward as part of the subject in contest, but which was not brought forward only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation and which the parties, exercising reasonable diligence, might have brought forward at the time.'"

8. And so that is the principle. More recently the matter was also considered by the Privy Council on appeal from the full court of the Supreme Court in Hong Kong in the case of Yat Tung Investment Co. Ltd v. Dao Heng Bank Ltd [1975] A.C. 581. The opinion of the Board was delivered by Lord Kilbrandon who at p.589H considered the application of the doctrine of res judicata. At 590A, having considered the doctrine in its narrower sense of issue estoppel he then had the following to say :

".... But 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. The locus classicus of that aspect to res judicata is the judgment of Wigram V.-C. in Henderson v. Henderson (supra) ....

The shutting out of a 'subject of litigation' - a power which no court should exercise but after a scrupulous examination of all the circumstances - is limited to cases where reasonable diligence would have caused a matter to be earlier raised; moreover, although negligence, inadvertence or even accident will not suffice to excuse, nevertheless 'special circumstances' are reserved in case justice should be found to require the non-application of the rule. ...."

9. It becomes clear therefore that two matters arise for consideration. Firstly, I have to decide whether this subsequent litigation covers issues or facts so clearly part of the subject matter of the original litigation that it would now be an abuse of process to allow these new proceedings to be started in respect of them. If the Bank cannot demonstrate that then their summons must go. But if they can demonstrate this then I need to go on and consider whether "reasonable diligence" would have caused the plaintiff to raise the matters which he now does in these proceedings in the action before Yam J. Lord Kilbrandon (supra) has indicated that negligence, inadvertence or even accident will not be sufficient to excuse the failure to raise these matters in the earlier litigation. The authorities speak of "special circumstances" which would require the non-application of the rule.

10. These are the principles. I must now examine both actions to see whether the principle of res judicata in its wider sense applies in this action and if necessary whether there are "special circumstances" for its non-application so as to justify the continuation of this action.

11. The Statement of Claim in this current action makes a number of very serious allegations against the Bank in respect of its conduct of the plaintiff's account. The principal allegation is that the Bank has used the plaintiff's margin payment to trade on its own account and has, as a result, made "secret" profits out of those trades. Additionally, and even more serious, is the allegation that the Bank has siphoned off profits that have been made on the plaintiff's account and converted them to its own use. It is difficult to imagine more serious allegations that can be levelled against a banking institution. I need to examine these matters carefully.

12. A complaint is made by Mr Liang that the Statement of Claim is shapeless and rambling and therefore difficult to follow. Whilst it could have been more tightly drafted it does plead all the facts that are relied upon by the plaintiff and, to that extent, I am able to follow the points that he seeks to make. At the heart of the pleading is paragraph 19 where the plaintiff has listed 13 new contracts, as he describes them, secretly traded by the Bank and settled by it on a daily basis. The allegation is that the Bank sold US dollars against JPY in order to earn profit using the plaintiff's funds. The alleged profit derived from these trades comes to US dollars 538,361.67. The plaintiff says this is his money and he wants it. This matter purports to be dealt with in this 2nd affirmation of Mr Kwong Ywai Ming ("Mr Kwong") starting at p.44 of the pleadings bundle. His explanation which is one that he gave to Yam J in the previous trial (see the transcript produced as Exhibit "KMKH-1" in the affirmation of Mr Keith Man) (p.18 of the pleadings bundle). The point that Mr Kwong seeks to make, which was the one already made to Yam J and which was accepted by him in the course of that earlier trial, is that contracts bearing the reference H4M are designated to identify the "rollover" of Foreign Exchange Contracts, with an open position, from one value date to another. At paragraph 4 of his affidavit (p.45) he gives an example, the Contracts bearing the reference H4M1 1613 and H4M2 1613 as being used to "rollover" the then open contract from 22 July to 23 July 1998 with the same trade date of 21 July 1998. Mr Liang, in the course of arguing this matter, has been able to show me with reference to each of the 13 transactions relied upon by the plaintiff in paragraph 19 the matching contract reference numbers 3M which were the original reference numbers before the swap rollover to the next day. These are as follows : each number refers to the number given in the Statement of Claim at paragraph 19.

(1) p.64 bundle of exhibit

(2) p. 65 ditto

(3) p.66 ditto

(4) p.67 ditto

(5) p.68 ditto

(6) p.69 ditto

(7) p.70 ditto

(8) p.71 ditto

(9) p.72 ditto

(10) p.73 ditto

(11) p.74 ditto

(12) p.75 ditto

(13) p.64 ditto.

13. I am entirely satisfied that this is the correct analysis of the situation. Charges then appear as to interest differential in respect of transactions of less than US$500,000 and for transactions of US$500,000 and above there is no interest shown because that element is already built into the transaction itself having regard to its substantial amount.

14. This claim by the plaintiff calls for an investigation by the court of the conduct of this account by the Bank. When one then considers the terms of the previous action before Yam J, it seems to me that precisely the same exercise was required of the court. The learned judge on that occasion had to examine how these trades were made and come to a view as to whether the Bank was justified in "squaring off" the plaintiff's contracts with it in the circumstances that had arisen following the decline in value of the Japanese Yen. In the matter before me, whilst the judge trying this action would not be required to consider that particular issue, he would be required to investigate the conduct of the same accounts but on this occasion to determine whether the plaintiff is correct in his complaint that the Bank has been secretly trading using the plaintiff's own money and siphoning his profits. The battleground, if I can use that expression, is identical. Prima facie therefore, it strikes me that this is a situation of the type contemplated by Lord Kilbrandon in Yat Tung Company v. Dao Heng Bank (supra) 590B ".... 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". The plaintiff has submitted that when he went to explore such matters before Yam J he was prevented from doing so by the judge on the basis that such matters were not issues raised in the pleadings. Whilst that was undoubtedly so in the sense that the allegations now made were not before Yam J, this does not necessarily entitle the plaintiff by this separate action to litigate these matters. I have to decide whether he could and should have made the matters now before me part of his previous action. The plaintiff's response to that is that it is only since the outcome of the previous action that some of the accounts upon which he now bases his claim have come to his attention. That would be a compelling reason for allowing a subsequent action particularly where the defendants had unfairly suppressed information which they ought to have previously disclosed. This is not one of those cases.

15. I have come to the conclusion that everything that is now being said against the Bank by the defendant could and should have been said and brought to bear against them in the previous action. To do that, of course, the Statement of Claim in the previous action would have had to have been caste more widely when of course the plaintiff would have been able to raise all of these issues before Yam J. He chose not to take that course and in such circumstances he can now hardly complain that he was prevented from raising such matters by the judge where he had not pleaded them. I am satisfied, therefore that, this is a case where this claim ought to be struck out as an abuse of process. It seems to me this is a situation where "reasonable diligence" would and could have caused these matters to be raised earlier. See Yat Tung Company (supra) 590E. From that I need to go on and consider whether there are "special circumstances" which would require me not to apply this rule. Having examined this case and the previous litigation, I can discover none. The plaintiff is seeking to have a second bite at the cherry in circumstances where this could all have been done and should have been done before Yam J. Accordingly, the Statement of Claim must be struck out which has the effect of putting an end to this action.

16. For the sake of completeness I propose to go on and deal with the plaintiff's summons for judgment against the defendant which I would have been required to do only had I dismissed the defendant's summons to strike out the Statement of Claim.

17. The plaintiff has said that the defendants have admitted his claim in correspondence immediately following the outcome of the previous action in the Court of Final Appeal. This is to completely misunderstand and misinterpret the effect of that correspondence. These letters are Exhibit KWM-1 in the affirmation of Kwong Wai Ming at p.341 of the Exhibit Bundle. It is quite clear that all that was happening was that the Bank had made a "without prejudice" offer to see if some arrangement could be arrived at in relation to the payment of the Bank's costs in relation to the previous action. To now seek to elevate that correspondence to the status of an admission in relation to the subject matter of these proceedings is entirely misconceived. Accordingly, that limb of the summons must go. Equally in relation to Order 14 this must on the affidavits be a case where the defendants have shown the clearest possible triable issues. There is simply no merit whatsoever in the suggestion that the plaintiff's case is unanswerable. Such a summons should never have been brought. That must therefore also be dismissed. Accordingly, the plaintiff will pay the defendant's costs of both summonses on a party-and-party basis, to be taxed if not agreed, together with certificate counsel. This order for costs will be an order nisi in the usual way.