TAISHIN INTERNATIONAL BANK CO., LTD v. QFI LTD

HCA 194/2016

[2020] HKCFI 2116

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 194 OF 2016

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JUDGMENT

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A.     INTRODUCTION

1.  The Plaintiff is a company incorporated in Taiwan.  It was and is an institution authorized to carry out banking business in Hong Kong under the Banking Ordinance (Cap. 155).  Mr Ko Shih Chiang Benson (柯仕強) (“Ko”) was the Vice President of the Treasury Marketing Unit of the Plaintiff.  Mr Steve Chen (陳瑞輝) (“Chen”) was the Branch Manager of the Plaintiff.  

2.  The Defendant is a company incorporated in Hong Kong on 9 November 2012.  Ms Huang Chiung Hui Sophie (黃瓊慧) (“Huang”) is the sole shareholder and former director of the Defendant.  Huang also owned and controlled two other companies incorporated in Hong Kong called Kifa Co Ltd (“Kifa”), incorporated on 28 February 2011; and Highway Asia Pacific Limited (“Highway”), incorporated on 15 January 2010.  Huang ceased to be a director and a shareholder of Kifa since 12 June 2015.  She still controls Highway.  The Defendant and Highway had accounts at the Plaintiff’s Hong Kong branch.  Huang had the authority to give instructions to the Plaintiff with respect to those accounts.  Kifa initially utilized the banking services of the Plaintiff’s Hong Kong branch via its account with the Plaintiff’s Hong Kong branch, but later closed such account.

3.  The relationship between the Plaintiff and the Defendant was governed by the following agreements which were all duly executed and legally binding on both parties:

(a) the Master Agreement dated 16 January 2013;

(b) the Facility Letter dated 24 June 2015 and confirmed by the Defendant on 17 July 2015; and

(c) the Financial Transaction and Master Agreement (金融交易總協議) (“FTMA”) entered on or about 19 August 2015.

4.  Pursuant to these contractual documents, and since August 2015, the Plaintiff and the Defendant entered into foreign exchange transactions (“FX transactions”) involving the trading of one currency for another.

5.  The Plaintiff claims that, on 18 December 2015, the Defendant entered into three FX transactions.  They created an open position which needed to be settled or closed on 22 December 2015.  However, the Defendant wrongfully failed to settle those transactions on 22 December 2015 or at any time after that.  Hence, it exercised its right to settle those transactions for the Plaintiff on 7 January 2015.  As a result, the Defendant is liable to pay a sum of JPY187,110,057 plus interests accrued thereon.  The Defendant contends that it was not obliged to settle those transactions because they were entered for the purpose of settling or closing partially an open position created by previous transactions executed on 16 and/or 17 December 2015.  The key issue is whether the three FX transactions on 18 December 2015 in issue:

(a) created an open position which needed to be settled or closed on 22 December 2015 (as contended by the Plaintiff); or

(b) were for the purpose of settling or closing partially an open position created by previous transactions executed on 16 and/or 17 December 2015 (as contended by the Defendant).

6.  Apart from contesting the Plaintiff’s claim, the Defendant raises and maintains at this trial three counterclaims:

(a) First, the Defendant claims that the Plaintiff has, without its authorization, cancelled five sets of transactions; and but for the wrongful cancellations, it would have been able to settle or closed those transactions at a profit.  The Plaintiff denies this counterclaim on different grounds.

(b) Second, the Defendant claims that the Plaintiff has, without its authorization, withdrawn EUR10 million from its account.  The Plaintiff denies that there was any withdrawal of such sum in fact; and explains that the apparent withdrawal as shown in the Defendant’s monthly statement was a clerical error.

(c) Third, the Defendant claims that the Plaintiff mistakenly applied the wrong exchange rates in respect of a number of FX transactions.  The Plaintiff explains that the exchange rates used had included an agreed “spread”, which was in essence, a service or handling charge.  The Defendant denies that there was any such agreement.  The Plaintiff replies that, in any event, the Defendant is precluded by a conclusive evidence clause in the contract from challenging the exchange rates used.

B.     THE DEFENDANT’S APPLICATION TO ADDUCE SUPPLEMENTAL EVIDENCE

7.  The Defendant took out a summons on 12 June 2020 returnable on the first day of the trial seeking leave to serve the 4^th supplemental list of documents dated 13 June 2020, and to file and serve the 2^nd supplemental witness statement of Huang dated 12 June 2020.  After hearing counsel’s submissions, I dismissed the summons with costs to the Plaintiff. I said that I shall give reasons for my decision in this judgment.

8.  The Defendant’s 4^th supplemental list of documents consisted of four documents (i.e. nos. 215-218) but the Defendant did not pursue its application regarding document no. 217.  Huang’s 2^nd supplemental witness statement consisted of four paragraphs, and some of her evidence concerned the new documents that she intended to rely on.  It is unnecessary for me to go into the details of the new evidence.

9.  There is no dispute on the applicable legal principles.  They were set out in, for example, Hong Lok School Ltd v Chow Sai Yiu [2003] 2 HKLRD 782, §6, and Guangzhou Green-Enhan Bio-Engineering Co Ltd v Green Power Health Products International Co Ltd, HCA4651/2002 (21 August 2004, unreported), §7, cited by the Defendant; and also Parsad v Great Wealthy Engineering Co Ltd [2012] 3 HKLRD 705, §§6-7.

10.  This was, undoubtedly, a very late application.  Huang explained the delay in an unsigned affirmation.  In short, she said that the new documents were obtained or retrieved recently, and she did not appreciate their relevance until discussions with her lawyers shortly before the commencement of the trial.  Her explanations did not constitute any good reason for the delay.  Any attempt to adduce new evidence on the first day of trial must be discouraged and should only be allowed in very exceptional circumstances.  In this case, the Defendant’s application should be dismissed on the ground of lateness alone.  Nevertheless, I have considered the relevance of the new evidence, and whether any prejudice would be caused to the Plaintiff if the Defendant’s application was allowed.  I was prepared to assume that the new evidence was, prima facie, relevant.  But this was precisely why the Plaintiff would suffer prejudice if the application was allowed.  The Plaintiff submitted that it would require no less than 7 days to prepare evidence in reply to the Defendant’s new evidence.  The Defendant submitted that the Plaintiff should not need so much time (if any at all).  At the same time, the Defendant accepted that to abort or adjourn the trial would not be a viable option.  As a matter of natural justice, a party must be given a reasonable time and opportunity to respond to any new evidence adduced by the other party. Further, it would be unfair to require a party to divert its attention and resources to deal with new evidence when the trial was proceeding.  I take the view that the Plaintiff would suffer material prejudice if the Defendant’s application was allowed.  Having considering all relevant circumstances, I decided to exercise my discretion to dismiss the Defendant’s application with costs.

C.     GENERAL APPROACH TO EVALUATING THE EVIDENCE

11.  At the trial, Ko for the Plaintiff and Huang for the Defendant gave evidence via video-link pursuant to the orders made by DHCJ M K Liu on 25 May 2020 (see the relevant Decision at [2020] HKCFI 938).  In short, the Defendant sought leave to allow Huang, who was in Shanghai, to give evidence via video-link because of the quarantine restrictions impose by the Mainland and Hong Kong due to the Covid-19.  One of the grounds of opposition raised by the Plaintiff was that, if Ko were to given evidence in the courtroom while Huang could give evidence through video-link, there would be an imbalance between the parties.  DHCJ M K Liu allowed the Defendant’s application.  And to address the Plaintiff’s said ground of opposition, he also granted leave to Ko to give evidence via video-link.  The learned Judge held in §8(6) & (8) of his decision that, by giving the same privilege to Ko and Huang, both parties would be treated equally; and hence, although the application was late, there would be no prejudice to the Plaintiff to allow the application.

12.  What is extraordinary is that Ko was in Hong Kong, and was in court on the first day of the trial.  He could have given evidence in the usual way in court.  I had indeed raised the question with the parties whether I could vary the order made by DHCJ M K Liu in the circumstances. But having heard counsels’ submissions and considering the matter, even though I believed that I, as the trial judge, had the jurisdiction to vary a case management decision, it would not be fair and appropriate to do so in these circumstances. Having said that, with respect to the learned judge, I must say that I have serious reservations whether it is correct in principle to allow a party’s witness, who is able to give evidence in court, to do so via video-link solely for the purpose of ensuring equal treatment to the parties.  In my view, generally speaking, a witness should be permitted to give evidence via video-link if and only if it is not reasonably practicable for him or her to give evidence in court.  Any “imbalance” caused by the fact that the witness for the opposing party is giving evidence under a different environment is a matter that professional judges should and would be able to take into account in assessing the credibility of the witnesses.  Notwithstanding what I have just said, I need to make it clear that, in assessing Ko’s credibility, I have not taken into account his decision to exercise the privilege given by DHCJ M K Liu to give evidence by video-link.

13.  The credibility of both Ko and Huang is in issue.  There is no dispute on the general principles that the Court should apply in assessing the credibility of a witness (see e.g. Progetto Jewellery Co Ltd v Lau Chiu Ying [2020] HKCFI 209 at §§28-31, per DHCJ M K Liu, cited by the Plaintiff).  I also found the following summary of principles set out in Northampton Borough Council v Cardoza and others [2019] EWHC 26 (Ch) instructive:

“36. As to the considerations applicable to evaluating evidence, a useful starting point is Goff J’s (as he then was) observation as to resolving conflicts of evidence in Armagas Ltd v Mundogas SA (The Ocean Frost) [1985] 1 LL Rep 1 at p.57

‘… Where there is a conflict of evidence … reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth’.

37. Factors relevant to the evaluation of a witness’s evidence were identified by Lewison J (as he then was) in Painter v Hutchinson [2007] EWHC 758 (Ch) at [3] when addressing the unsatisfactory nature of the defendant’s approach to giving evidence. These included : evasive and argumentative answers, tangential speeches avoiding the question, blaming legal advisers for pleading, disclosure and evidence shortcomings, self-contradiction, internal inconsistency, shifting case, new evidence, and selective disclosure. This was not intended to be an exhaustive list, but it is important and very helpful.

38. A useful recent reminder or guidance on the approach to the evidence of factual witnesses, and expanding on the guidance given by Goff J in The Ocean Frost, was given by Leggatt J (as he then was) in Gestmin SGPS SA v Credit Suisse (UK) Limited [2013] EWHC 3560 (Comm). After noting that human memory is fallible and that the process of litigation and preparing for trial tends to interfere further with the reliability of human memory, particularly where a lawyer has had a hand in drafting a witness’s evidence and the witness’s memory has been refreshed by reading documents, Leggatt J concluded that the best approach for a judge to adopt at the trial of a commercial case is to base factual findings on documentary evidence and known or probable facts and the inferences to be drawn therefrom. Witness evidence, written and oral, is not without purpose; but, its principal uses are to subject the documentary record to scrutiny and to evaluate the witness’s motivations, personality and working practices.

39. In similar vein, in the recent case of Freemont (Denbigh) Ltd v Knight Frank LLP [2014] EWHC 3347 (Ch) reference was made to an article written by Bingham J (as he then was) entitled “The Judge as Juror : The Judicial Determination of Factual Issues” published in Current Legal Problems 38 in 1985. Bingham J considered the approach to deciding upon the reliability of a witness’s evidence and regarded the following to be helpful indicators of where the truth lies: the consistency of the witness’s evidence with what is agreed, or clearly shown by other evidence, to have occurred; the internal consistency of a witness’s evidence; and, the consistency of a witness’s evidence with what (s)he has said or deposed on other occasions. Bingham J considered that the credit of a witness in matters not germane to the litigation was of less assistance, and that the demeanour of a witness was on the whole not a reliable pointer to a witness’s honesty.”

14.  In Simetra Global Assets Ltd and another v Ikon Finance Ltd [2019] EWCA Civ 1413, Males LJ of the English Court of Appeal stressed the importance of contemporaneous documents at §48:

“ In this regard I would say something about the importance of contemporary documents as a means of getting at the truth, not only of what was going on, but also as to the motivation and state of mind of those concerned. That applies to documents passing between the parties, but with even greater force to a party’s internal documents including emails and instant messaging. Those tend to be the documents where a witness’s guard is down and their true thoughts are plain to see. Indeed, it has become a commonplace of judgments in commercial cases where there is often extensive disclosure to emphasise the importance of the contemporary documents. Although this cannot be regarded as a rule of law, those documents are generally regarded as far more reliable than the oral evidence of witnesses, still less their demeanour while giving evidence. The classic statement of Robert Goff LJ in The Ocean Frost [1985] 1 Lloyd’s Rep 1 at p.57 is frequently, indeed routinely, cited:

‘Speaking from my own experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth. I have been driven to the conclusion that the Judge did not pay sufficient regard to these matters in making his findings of fact in the present case.’”

15.  In this case, a number of FX transactions in issue were subject to microscopic examination.  Apart from the long lapse of time (since the relevant FX transactions took place almost 5 years ago in late 2015), each of those transactions would involve different currencies, amounts, exchange rates and settlement dates.  Instructions to enter into those instructions were mostly given and confirmed orally within a very short time.  It is most inherently improbable that any human being, including Ko and Huang, would and could have any accurate and reliable independent recollection of the details of the individual transactions without the assistance of contemporaneous records and documents.  In considering how I should resolve the factual issues, I shall pay particular attention to the contemporaneous records and documents, and how the parties responded to them at the material time.

16.  Contemporaneous documents would be of great assistance if their authenticity is not in dispute, and if their content is clear and unambiguous.  However, if the content of the document is ambiguous and confusing, the court may have difficulties in construing the document objectively.  In such event, it is necessary to guard against the risk that the party may invite the court to construe the document in a particular way, which may well be just a subjective afterthought to suit his or her case.

17.  In this case, as expected, most of the contemporaneous documents are records or statements made and kept by the Plaintiff, including in particular, audio-recording of the oral conversations between Huang and the Plaintiff’s staff members, written confirmations for individual transactions, and monthly consolidated statements.  There are also written communications between the parties by letters, emails and WeChat.  Although these contemporaneous records and documents are important, they must be considered cautiously for the following reasons:

(a)  Some of the Plaintiff’s records or statements contained errors and mistakes on the Plaintiff’s own case.

(b)  It is unclear whether and when Huang received some of the relevant correspondence and documents at the material time.

(c)  As to some of the oral conversations which have been recorded, it is difficult to decipher and figure out what the parties actually meant by simply reading the transcripts.

(d)  As to the instant messages, some of them are brief and garbled.

(e)  The meaning of some handwritten notes and tables drawn by Huang is obscure on the face of the documents.

18.  One of the Defendant’s main arguments is that the Plaintiff has failed to call relevant witnesses and produce relevant documents.  The Defendant cited numerous authorities on the legal principles in this respect including Li Sau Keung v Maxcredit Engineering Ltd [2004] 1 HKC 434 at §28; O’Donnell v Reichard [1975] VR 916 at 929; South China Securities Ltd v Lam Kwen Yuen [2012] 5 HKLRD 524 at §7; Chow Kwan Yee v Leung Lei Yin May [2019] HKCFI 2998 at §22.  On the other hand, the Plaintiff referred me to Wisniewski v Central Manchester Health Authority [1998] PIQR 324 at 340; Ip Man Shan Henry v Ching Hing Construction Ltd [2003] 1 HKC 256 at §155; Chinachem Charitable Foundation v Chan Chun Chuen, HCAP8/2007 (2 February 2010, unreported), §§911-913; Tjang Siu Thu v Profield Construction Engineering Ltd, CACV156/2013 (27 May 2015, unreported), §33; Chan Chung Yee v Chan Wah Cho Joe [2018] HKCFI 611 (20 March 2018, unreported), §34; DBS Bank (Hong Kong) Ltd v Sit Pan Jit, HCA382/2009 (2 April 2015, unreported), §§33-35).  These principles are not in dispute.  Suffice for me to quote the following passages in Tjang Siu Thu v Profield Construction Engineering Ltd, CACV156/2013 (27 May 2015, unreported):

“27. Mr Lim relies on the English Court of Appeal decision in Wisniewski v Central Manchester Health Authority [1998] PIQR 324. At page 340 Lord Justice Brooke said he derived the following principles from his examination of the case law:

‘(1) In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.

(2) If a court is willing to draw such inferences they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness.

(3) There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue.

(4) If the reason for the witness’s absence or silence satisfies the court then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.’

28. In the application of these principles he relies for further support on the comment by Lord Justice Brown in Benham Limited v Kythira Investments Ltd [2003] EWCA Civ 1794 at paragraph 30 when he said of the position where the defendant elects to call no evidence:

‘… the only issue then is whether the claimant has established his claim on the balance of probabilities. But it must be recognized that he may have done so by establishing no more than a weak prima facie case which has then been strengthened to the necessary standard of proof by the adverse inferences to be drawn from the defendant’s election. Such adverse inferences can in other words tip the balance of probability in the claimant’s favour.’

29. For an illustration of these principles Mr Lim refers us to the decision of Mr Justice Norris in Mark Forstater Productions Limited v Python (Monty) Pictures Ltd [2013] EWHC 1873. Prior to quoting the Wisniewski principles Mr Justice Norris said:

‘Of itself, the failure by a defendant to call a witness cannot prove a claimant’s case. The claimant must establish a prima facie case, capable of being displaced: if that is done then it is a matter of inference (not a matter of legal presumption) that the absence of the evidence is to be accounted for by the fact that if adduced it would not have been strong enough to displace the prima facie case.’

30. In applying these principles to the facts before him Mr Justice Norris said:

‘(a) Mr Forstater’s oral evidence was capable of belief, though not convincingly strong.

(b) That evidence would receive corroboration from the invoices and from the 1977 correspondence (unless those matters are capable of explanation).

(c) The person best able to explain the conduct of PMP in paying the invoices (and why that was treated as unremarkable) and in refusing to treat Mr Forstater in a special way in relation to the new music and publishing companies (on the ground that he was already entitled to a one seventh share of the Top Half) was Anne Henshaw.

(d) When the issue arose in 2005 (after the acrimonious split) Anne Henshaw was prepared to accept as possible Mr Saunders’ speculative account of why Mr Forstater was in fact paid a one seventh share of the Top Half.

(e) Anne Henshaw retained close personal contacts with Michael Palin and with Terry Jones (even though she had years ago fallen out with the other Pythons): she knew of the dispute and was contactable, but was not called.

(f) I may at the least infer that Anne Henshaw had no evidence that she could offer or which PMP wished to adduce to displace the inferences that might plainly be drawn from the terms of the invoices and the fact of their payment and the terms of the 1977 and 1979 correspondence.

(g) This undoubtedly strengthens Mr Forstater’s case because it means that that subsequent conduct can be treated as strongly corroborative of his oral account.

(h) The failure to call her also means that there is no evidence-based challenge to Mr Forstater’s assertion that he was told by Anne Henshaw that his request for a one seventh share of the Top Half had been approved by the Pythons; and that also strengthens his case.’ (Emphasis added)

It is apparent from (a) and (b) alone that the primary evidence from which the inference was to be drawn was both capable of belief and corroborated by documentary records.

31. In Pacific Electric Wire & Cable Co Ltd v Texan Management Ltd, CACV 90, 91, 93, 94, 95 and 96/2012, unreported, 17 September 2013 this court referred to the Wisniewski principles. At paragraph 107 the court quoted a commentary on the principles by Lord Sumption in Prest v Petrodel Resources Ltd [2013] UKSC 34 at paragraph 44 where he said:

‘There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party’s failure to rebut it.’

32. At paragraph 111 of its judgment the Court of Appeal relied on this statement in rejecting a contention by the defendants that an adverse inference should be drawn against the plaintiff.

33. The following propositions can be derived from the case law:

(i) the Wisniewski principles do not constitute a presumption; consequently, the mere failure of a party to call a witness does not automatically confer an evidential benefit on the opposing party;

(ii) the Wisniewski principles concern the drawing of inferences and whether any inference is drawn will depend upon the quality of the primary facts on which the inference is based; this is necessarily a fact sensitive matter and will vary from case to case;

(iii) the primary facts must allow of the inference to be drawn in the sense that the inference logically flows from those facts;

(iv) in the circumstances of the case the judge must be persuaded that it is appropriate to draw the inference; and

(v) one circumstance where it will not be appropriate to draw the inference is where there is an explanation for the party’s failure to call the witness.”

19.  I shall bear all these legal principles and general observations in mind when I consider the factual issues.

D.     THE CONTRACTUAL DOCUMENTS

20.  As mentioned, the relationship between the parties was governed by three contractual documents.  I shall highlight the more important terms below.

D1.    The Master Agreement

21.  First, the parties executed a Master Agreement dated 16 January 2015 (“the Master Agreement”).

22.  Clause II(1) provides that, in respect of any transaction entered into between the Plaintiff and the Defendant, the Defendant shall pay all principal, interest, commission, bank charges, costs and expenses on due date without deduction or set-off; and also pay on demand all costs, charges and expenses incurred by the Plaintiff in enforcing or obtaining payment of indebtedness on an indemnity basis.

23.  Clause III(1) provides that interests, commissions, fees and bank charges and all other sums in respect of a transaction shall be charged to and payable by the Defendant in accordance with the agreed term of the transaction; and in the absence of such agreed terms under a transaction, interests, commissions, fees and bank charges and all other sums thereon as may be customarily chargeable by the Plaintiff for the relevant banking services provided shall be charged to and payable by the Defendant on demand.

24.  Clause IX(1)(a) provides that an event of default included in the event that the Defendant made default in the payment, on the due date and in accordance with the terms and conditions of the Master Agreement or under any transaction, of any principal or interest or other moneys outstanding and payable by the Defendant to the Plaintiff (whether demand or not).

25.  Clause IX(2) provides that if an event of default has occurred, the Plaintiff may demand immediate repayment of all indebtedness, terminate the Master Agreement and all or part of the Transaction, etc.

26.  Clause XXV provides that this agreement shall form the entire agreement between the parties of this agreement with regard to its subject matter and shall supersede any or any prior written and oral representations, agreements or arrangement made between the parties.

D2.    The Facility Letter

27.  By the Plaintiff’s banking facility letter dated 24 June 2015 as confirmed and approved by the Defendant on about 17 July 2015 (“the Facility Letter”), the Plaintiff agreed to grant certain banking facilities to the Defendant subject to the terms and conditions therein.

28.  Clause 1(b) provides that “facilities” include “derivative limit for US$1,500,000 for the following types of transactions: FX Spot, FX Forward, Non-delivery Forward, and FX Swap”.  Clause 1A provides that the derivative facilities under Clause 1, namely Derivative Limit, shall be used for hedging/investment activities/financial operation of the Defendant.

29.  Clause 10(a) provides that notwithstanding any other provisions of the Facility Letter, the Plaintiff shall be entitled at any time in its absolute discretion to cancel the Facilities and/or to demand immediate repayment or payment (as the case may be) of all principal, interest, fees and other amounts outstanding under it (“the Liabilities”) and/or to require the Defendant immediately to provide full cash collateral in respect of the Liabilities (whereupon the Facilities shall be so cancelled and/or the Liabilities shall be immediately so payable and/or such cash collateral shall be so provided).

30.  Clause 13 provides that the provisions of the Master Agreement shall apply to the Facility Letter as if it were incorporated therein; and if there was any conflict between any of the provisions of the Facility Letter and the Master Agreement, the provisions of the Facility Letter shall prevail.

D3.    The FTMA

31.  The parties signed the FTMA on or about 19 August 2015.  It is in Chinese.  This seems to be the most important document concerning how the FX transactions should be executed.

32.  Clause 2 provides that:

“(二) 個別交易協議

1. 報價:客戶得隨時要求銀行就個別交易提供參考價格，但除非銀行與客戶按本協議規定成立個別交易協議，否則銀行所提供的價格對雙方均無約束力。

2. 條件說明書：銀行有權就個別交易提供條件說明書供客戶參考，但除非銀行與客戶按本協議規定成立有關交易合約，否則銀行所提供的條件說明書對雙方均無約束力。

3. 建議：客戶得要求銀行提供交易建議，但交易建議僅供客戶參考。所有交易均由客戶依獨立判斷而進行，銀行對於交易所產生之損失不負任何責任，而客戶也承諾在任何情況下不會亦不應就銀行的任何交易建議向銀行追討任何損失。銀行視情況有絕對權利得拒絕提供任何建議。

4. 要約或指示：客戶須就個別交易向銀行發出交易要約或指示(按合適者而定)，客戶可以在該要約或指示未被銀行接受前收回。

5. 當銀行接受客戶發出的交易要約或指示，該項個別交易的協議便會即時成立，對雙方均有約束力。

6. 協議的文件：按銀行的規定，個別交易協議可以按口頭或書面形式成立。

7. 口頭與書面：「口頭」指客戶所授權之人員親自所為或經由電話所為之行為；客戶同意銀行得就雙方對話加以錄音存檔，以為佐證。「書面」指以正本、電報或傳真本或銀行認可之其他方式所為之行為。客戶授權銀行將電報或傳真本視同正本加以處理，絕無異議。銀行認為傳真本之文字或數據模糊不清或有疑點時，應與客戶確認並於確認後才視為有效。

如果有關交易協議 (銀行規定) 以口頭形式成立，銀行會在協議成立後兩個營業日內向客戶提交確認函，函中會提及交易的要點，包括但不限於交易標的物、交易價格、比價日、到期日、交割日 (如適用的話)、利率上、下限、選擇權的種類，行使方式等。客戶必須就確認函內容為核對，如發現該確認函的內容與客戶所理解的交易協議的條款有異時，必須立即通知銀行，銀行在收到客戶的通知後，會就客戶所提出的有異的地方作出查證，而作出決定。除非銀行所出的決定有明顯不公平的地方，否則以銀行所作的決定為準。再者，如果客戶未在確認函送達 (或被視為送達) 後九十日內提出有異的通知，即視為完全接受確認函的內容。

如果有關交易協議 (依銀行規定) 以書面形式成立，該協議會在雙方簽署及提交有關的書面協議後成立。”

33.  Clause 3 provides that:

“(三)　結算與交割

個別交易完成時，除個別交易協另有規定外，以下的交易方式適用之：

1.　 「平倉」：客戶有權以反向交易對原始交易之部分或全部進行平倉，

2.　 「平倉結算亅:平倉所產生之盈虧，由虧損之一方支付對方。客戶同意平倉之盈虧由銀行計算。交易未被平倉的部份仍繼續有效，對客戶及銀行都有約朿力。

3.　 「交割」: 客戶對於所應支付之貨幣及金額，應以立即可動用之資金交付銀行後，始有權自銀行收取依該交易所得收取之款項。

4.　 「淨額交割」:對於在同一營業日到期之交易摜益，客戶或銀行得就互抵後之淨額交付對方。

5.　 「自動平倉」:在某一營業日到期之交易，銀行於其認為必要時得在當日香港時間下午三時不另經指示而依當時價格自行平倉，客戶對此不得異議。”

34.  Clause 8 provides that:

“(八) 違約事件

1.　 違約事件: 如果以下任何一項事件發生，均屬「違約事件 」:

(a)  客戶未能依本協議及/或個別交易協議之規定如期提供保證金丶其他定協議擔保物或未能如期支付任何協定的款項；

(b)  客戶違反本協議及/或個別交易協議的其他義務，而在收到銀行發出的違約通知後的三個營業日內未能作出補救，

(c)  客戶就本協議及/或個別交易協議所作出的事實陳述或承諾、或所提交的帳目或其他資料，有明順不真實或不正確的地方，或有誤導成份；

(d)  客戶自行申請或遭他人申盤解散 (或以個人而言，自行申請或遭他人申請破產)，或其業務或資產遭受扣押或被接管；

(e)  客戶資不抵債、或未能如期清還應付債項。

(f)  若客戶因收購、合併等情事而影響其履約能力。

(g)  客戶提供之擔保品遭扣押或其業務或資產遭受強制執行、假扣押、假處分、留置或被接管。

(h)  客戶未能按期支付對銀行所負之一切債務、或有其他客觀事情足認戶將無法履行本協議書之有關義務之處時。

2. 違約之效果：如發生違約事件者，則銀行將會發出違約通知，違約通知發出後，客戶即無權再與銀行為任何交易，銀行並有權但無義務隨時為下列任一行為：

(a)  向客戶發出通知，終止本協議及/或個別易交易協議；

(b)  平結所有未到期部位；

(c)  處理保證金或擔保物;及

(d)  向客戶追討賠償。

3. 遲延利息與違約金: 如客戶未依本協議或個別交易協之規定支付任何款項，客戶必須隨時依銀行之要求，就該等款項支付遲延利息，利率為銀行取得該等款項之成本 (由銀行全權決定) 加計年率2%，計算期間為自到期日起至客戶清償日為上。另客戶若有遲延給付者，則遲延六個月內按上開利率之一成，超過六個月部分並按上開利率之二成計付違約金。

4. 銀行暫收款 : 銀行有權將支付客戶應付款的款項、保證金或變賣擔保物所得的售價撥列為收款處理，俾於客戶依個別交易協議對銀行之債務尚未到期前，銀行得保全對客戶之各項權利。”

35.  Clause 9(1) provides that:

“(九)　抵銷權、留置權、帳戶抵押

1.         抵銷權:倘客戶未依本協議書或雙方間其他合約之約定按期給付款項時，銀行有絕對權利將客戶存放在銀行及其附屬或有關聯機構的款項與客戶積欠銀行的款項互抵銷。又銀行如依本協議或客戶與銀行之其他協議有任何因清算及(或) 持有交割餘額，而積欠客戶任何項時，得抵銷銀行應付客戶之交割餘額。”

36.  Clause 16(1) provides that:

“(十六)　通知

1.         本協議書及個別交易協下之所有報告、帳目、通知、下單、交易及其他通知得以親、郵寄或其他 (由銀行指定) 形式的電子通訊系統作為客戶及銀行間通訊之用。所有由銀行以親送或郵寄方式發出的通知，均應送至客戶最後指定之處所，如為親送者，以送交時視為送達;如為郵寄時於付資交寄後第二個營業日視為送達;如以任何形式的電子通訊系統(含傳真)發出通知者，以完成傳送的時刻後視送達。客戶之通訊地址或傳真號等如有更動，應即時通知銀行。”

37.  Clause 24 provides that:

“(二十四)　全部之協議

本協議及其附件之所有規定成為協議雙方就有關本協議標的物的全部協議，取代所有客戶先前與行之一切書面或口頭之協議及安排，而除了本協議所述的條款外，雙方並無同意其他條款或義務。”

E.     THE TRANSACTION PROCEDURES

E1.    The different types of FX transactions

38.  At the material times, the parties entered into the following types of FX transactions:

(a)  FX spot transactions: the Defendant would buy (or sell), and the Plaintiff would sell (or buy), one currency (e.g. JPY) against another (e.g. USD), the quantities of which were fixed according to an agreed exchange rate (i.e. the spot rate).  The date on which the transaction was agreed would be described as the “trade date”. The transaction would be carried out or settled on the “value date”, which would be within 2 working days after the trade date (i.e. T+0, T+1, or T+2).

(b)  FX forward transactions: These were FX transactions with a longer settlement period i.e. the value date would be 3 or more working days after the trade date.

39.  An instruction to open a new FX spot or forward transaction would be called “開倉”.

40.  There were two ways by which the position of a FX transaction could be closed:

(a)  Physical settlement (實物交割): On the value date, the parties would trade the agreed quantity of currencies.

(b)  Cash settlement (差額交割): On or prior to the value date, the parties would enter into one or more FX transaction(s) involving the same currencies but in the opposite direction, so as to net off on the same value date the FX transaction to be closed.

41.  In fact, the FX transactions would invariably be settled by cash settlement.  The instruction concerning the FX spot transaction entered into for the purpose of cash settlement would be called “平倉”. Whether the Defendant would make a profit or suffer a loss would depend on the change in the exchange rate of the currencies in issue between the “trade date” and the settlement date.  A simple example given by Ko in his statement is as follows:

(a)  On 18 December 2015, the Defendant bought USD20,000,000 and sold JPY2,436,000,000 at the exchange rate of 121.80 with a value date on 22 December 2015.

(b)  On 22 December 2015, the exchange rate became 121.15.  To close the open position, the Defendant sold USD20,000,000 and bought JPY2,423,3000.00 at the exchange rate of 121.15.

(c)   The net result would be that the Defendant suffered a loss of JPY(2,436,000,000 – 2,423,000,000) = JPY13,000,000. One may also use the following arithmetic formula:

USD20,000,000 X (121.15 – 121.80) = - JPY13,000,000

42.  The Plaintiff claims that the Defendant frequently made use of “rollback” transactions (“提前交割” or “沖倉”) or “rollover” transactions (“延展交割” or “拉倉”) to bring forward, or extend, the settlement date of FX spot transactions.

43.  To extend the settlement date, a “rollover” transaction would be executed.  A rollover transaction would make use of a FX swap transaction, which involved 2 legs:

(a)  Leg 1 was a FX transaction which bought and sold foreign currencies exactly opposite to the FX spot transaction, the settlement of which was to be extended.

(b)  Leg 2 was a FX transaction which bought and sold foreign currencies exactly as the FX spot transaction to be extended.  The settlement period of the 2nd leg could be as long as a month after the opening of the position.

44.  To achieve the purpose of extension, the exchange rate adopted for the Leg 1 of the FX swap would usually be the same as that of the FX spot transaction, so that the two could cancel out each other.  This means that the exchange rate adopted for the Leg 1 of the FX swap would not be the market exchange rate.  If the market exchange rate was used, the Defendant would have incurred a loss and be liable to pay the loss to the Plaintiff immediately.  The idea was that such loss would simply be carried forward, and be taken into account when Leg 2 of the FX swap was closed. In case the Defendant made a profit in closing Leg 2, such profit could then be set off against the loss which it had in fact suffered at Leg 1.

45.  If, after a FX swap transaction had been executed to extend the settlement date of a previous FX spot transaction, the Defendant would like to settle the transaction earlier, a “rollback” transaction would be executed.  A rollback transaction would usually result in two trade confirmations:

(a)  A trade confirmation amending the 2nd leg of the FX swap transaction by moving forward the settlement date; and

(b)  Another trade confirmation reversing the position of the 2^nd leg of the FX swap transaction.

A rollback transaction has the effect of closing the position of the FX transaction by way of cash settlement. Once executed, the 2^nd leg of a FX swap transaction was spent.

E2.    How instructions were given and confirmed

46.  In respect of each transaction, Huang on behalf of the Defendant, would give instructions orally over the phone which would be recorded.  It appears that, sometimes, when the initial call was not recorded, there would be a subsequent call, which would be recorded, to confirm the content of the initial call.  Sometimes, she would give instructions by WeChat. She would communicate with Ko or his colleagues of the Forex Trading Desk.

47.  Before the Defendant gave instructions, the Plaintiff would quote to Huang the market exchange rate (市場滙率) based on various platforms such the Inter-Bank Trading Platforms, Goldman Saches and Barclays Bank.  The market exchange rate would represent the Plaintiff’s “Rates at Cost”.

48.  Upon receiving the Defendant’s instructions, Ko or his colleagues of the Forex Trading Desk, would then pass the information to their colleagues of the Product Management team.  They would then add or deduct the Agreed Spread, commonly known as “手績費”, from the Rates at Costs to get the Net Rates (淨滙率) before inputting the information into the Plaintiff’s internal system.

49.  After that, the “Treasury Settlement” team, known internally as the “作業二組” under the Operations department, would issue a written confirmation (“Confirmation”) setting out the details of the transaction.  The Confirmations would then be sent to the Defendant by email, and post on the same day or 1-2 business days after that.

50.  In respect of the Confirmation for FX spot transaction, at the bottom, there would be the following statement:

“Please examine this statement, if no error is reported within 3 days, information shown in the statement is considered correct.”

51.  The Confirmation for FX swap transaction was different.  At the bottom, there was an “important notice” which provided, inter alia, that:

“Please signify your agreement to the above in three business days … Failing which, you are deemed to have agreed to the above terms and conditions and your failure to signify your agreement within the prescribed period as above shall not impair or prejudice the validity or enforceability of the Transaction as against you and you are deemed to have agreed to the terms and conditions herein and made the acknowledgements and declarations as above.”

52.  Another team responsible for “Deposits, Remittances, Bills and Loans”, known internally as “作業一组”, of the Operations department of the Plaintiff would issue monthly Consolidated Statements (綜合對帳單) setting out the details of all transactions in the preceding month.  At the end of the monthly Consolidated Statement, there was a statement that:

“Please examine this statement carefully and report any error or discrepancy to us within 90 days, or this statement shall be deemed conclusive.”

The monthly Consolidated Statement would usually be sent by post to the Defendant on the first business day of the month.

53.  In addition, the Plaintiff would also issue a monthly Market-to-Market Valuation report (部位市價評估表) to set out the market values of all transactions which had not yet been settled.  The report would be compiled by “作業二組” and sent to the Defendant by email in the first half of each month.

54.  Ko also said that, as evidenced by the WeChat message with Haung on 10 June 2015, he would provide the closed positions to Huang on a daily basis.  But he said that such practice stopped sometime in December 2015 when the relationship between them deteriorated.  Ko also said that the Plaintiff would usually remind Huang if some transactions were due for settlement the next day or the day after if no instructions had yet been given.

F.      THE PLAINTIFF’S CLAIM: THE 3 FX SPOT TRANSACTIONS ON 18 DECEMBER 2015

F1.    The indisputable facts

55.  On or about 18 December 2015, the Defendant entered into 3 FX spot transactions as evidenced by Confirmation reference nos. 1337184, 1337195 and 1337227 (“the 18 December Transactions”).

56.  Under the 18 December Transactions, the Defendant agreed to buy US Dollars (“USD”) and sell Japanese Yen (“JPY”) on 22 December 2015 (i.e. the value date) at specific exchange rates as follows:

Ref. no.	Exchange rate	Amount of USD the Defendant agreed to buy	Amount of JPY the Defendant agreed to sell
1337184	121.8	20,000,000	2,436,000,000
1337195	121.79	10,000,000	1,217,900,000
1337227	121.69	20,000,000	2,433,800,000
TOTAL		50,000,000	6,087,700,000

57.  The settlement instruction on the Confirmations stated that:

“We will credit USD to your A/C and debit JPY from your A/C with us on value date.”

The value date was stated to be 22 December 2015.

58.  By an email dated 22 December 2015, Ko informed Huang that, in respect of the 18 December Transactions due for settlement on that day, “接獲總行指示，因目前Highway 與 Kifa仍有保證金的議題尚未解決，貴公司僅能於本日進行反向平倉行動，無法新增部份或拉Swap。”

59.  The Defendant did not pay JPY6,087,700,000 to the Plaintiff on 22 December 2015 or at all.

60.  The Plaintiff then issued a notice of default to the Defendant on 23 December 2015.  The Plaintiff demanded the Defendant to pay JPY6,087,700,000 within 3 days.

61.  By an email dated 24 December 2015, Huang expressed surprises at receiving the notice that the Defendant was liable to pay JPY6,087,700,000.  She claimed that this sum had exceeded the approved limit of US$1,500,000 and, hence, did not take effect as against the Defendant:

“本公司深感意外收到此通知，告知本公司應給付貴行交割款為日圓6,087,700,000. 已超過貴行核可額度1.5M USD, 對本公司不生效力 ….”

She asked the Plaintiff to check whether this was a mistake, and to provide proof of the instructions given and the relevant Confirmations. By a letter dated 28 December 2015, the Defendant wrote a letter to the Plaintiff repeating the same content.

62.  By an email dated 5 January 2016, in reply to the Defendant’s email dated 24 December 2015, the Plaintiff disagreed that the approved limit had been exceeded; and stated that the transactions were valid, and that the Defendant needed to be liable for the sum payable under the transactions.

63.  By a letter also dated 5 January 2016, the Plaintiff issued to the Defendant a “终止合约及提前到期通知”.  The Plaintiff stated that the Defendant’s failure to pay JPY6,087,700,000 constituted an event of default under clause 8 of the Master Agreement; and it would exercise its right under clause 8(2) to close the position.

64.  On or about 7 January 2016, the Plaintiff closed the Defendant’s open positions under the 18 Decembers Transactions.  This was described as “強制性交易” or “強制平倉”.

65.  To close the open positions, USD50,000,000 (i.e. the total sum payable by the Plaintiff to the Defendant) was sold at the exchange rate of USD1 to JPY117.98 i.e. JPY5,899,000,000 in total on or about 7 January 2016.  Hence, the costs incurred by the Plaintiff for closing the open positions were: JPY6,087,000,000 (the total amount payable by the Defendant to the Plaintiff under the 18 December Transactions) – JPY5,899,000,000 = JPY188,700,000.

66.  By an email dated 7 January 2016, the Plaintiff attached a “提前终止金額通知” to the Defendant. The Plaintiff informed the Defendant that it had settled the 18 December Transactions on 7 January 2016; and that the Defendant was liable to pay JPY188,700,000 plus interests thereon.

67.  By a letter dated 11 January 2016, the Plaintiff’s solicitors, Yu Chan & Yeung Solicitors, demanded the Defendant to pay a total sum of JPY188,457,462.22 (inclusive of interest) certified to be due as at 11 January 2016.

68.  By a letter and an email both dated 12 January 2016, the Defendant replied as follows:

“台新銀行於2015年12月22日通知本公司當日進行反向平倉，請回覆在2015年12月22當日反向平倉的匯率，供本公司参考，計算交割款.”

69.  At that time, the Defendant had the following credit balances and collaterals with the Plaintiff:

Current account number	Amount	Amount in JPY
29000120062513 (JPY)	JPY3,309,004	JPY3,309,004
29000110062515 (HKD)	HKD74,212.82	JPY1,119,871.45 (HKD/JPY:15.09)
29000120062513 (EUR)	EUR18,465.93	JPY2,335,940.15 (EUR/JPY:126.50)
29000120062513 (USD)	USD7,204.36	JPY842,910.12 (USD/JPY:117.00)
29000540062519 (CNY)	CNY8,551.67	JPY149,739.74 (CNY/JPY:17.51)
TOTAL		JPY7,757,465

70.  After using all credit balances and other collaterals to reduce the Defendant’s indebtedness, the principal sum owed by the Defendant to the Plaintiff became:

         JPY(188,700,000 – 7,757,465) = JPY180,942,535

71.  Taking into account interests accrued, the Defendant was as at 21 January 2016 indebted to the Plaintiff for the sum of JPY187,110,057 comprising of:

(a)  The principal sum of JPY180,942,535; and

(b)  Overdue and default interest of JPY6,167,522 accrued up to 21 January 2016.

72.  On 21 January 2016, the Plaintiff issued the writ herein against the Defendant.

73.  By a letter dated 28 January 2016, King & Wood Mallesons on behalf of the Defendant replied to the Plaintiff’s solicitors’ demand letter dated 11 January 2016 as follows:

          “We are instructed that our client admits that it had on 18 December 2015 enter into 3 FX Spot transactions with your client. The total amount for these transactions were USD50,000,000 to be exchanged to Japanese Yen (“JPY”) at an average conversion rate of 121.754. The resulting amount is JPY6,087,700,000.

Shortly after, on 22 December 2015, Benson Ko of your client sent an email to Sophie Huang of our client stating that QFI must square all positions due to the ongoing dispute between Highway Asia Pacific Limited and your client. Further, it was made clear in the same email that no further transaction could be carried out in respect of our client’s account.

According to the Bloomberg website, the average exchange rate of USD/JPY on 22 December 2015 was at 121.271 (“the Exchange Rate”). As such, if all of our client’s positions been squared on 22 December 2015, our client’s loss should be in the amount of JPY24,150,000. In the circumstances, our client is only willing to pay JPY24,150,000 and nothing more. Accordingly, our client considers that the sum of JPY188,457,462.44 to be staggering and completely outrageous, especially as no substantiation or calculation whatsoever has been provided.

It is also our client’s position that since it was informed on 22 December 2015 that all positions would be squared on that date, it should not be responsible for any loss arising out of the delay in squaring the positions or any other transaction entered into after 22 December 2015.

Lastly, we are also instructed to request for the audio recordings/records which your client possesses in relation to all transactions under the financial transactions agreement dated 19 August 2016 (“Recordings”) by 1 February 2016.”

F2.    The Plaintiff’s case as to why the 18 December Transactions represented open positions

74.  To identify and understand the issues concerning the 18 December Transactions, it is necessary to begin with another 3 FX spot transactions on 9 December 2015 with a value date of 11 December 2015 whereby the Defendant agreed to buy USD and sell JYP as follows (“the 9 December Transactions”):

Ref. no.	Exchange rate	Amount of USD the Defendant agreed to buy	Amount of JPY the Defendant agreed to sell
1311321	122.65	40,000,000	4,906,000,000
1311325	122.63	20,000,000	2,452,600,000
1311329	122.62	30,000,000	3,678,600,000
TOTAL		90,000,000	11,037,200,000

75.  The Plaintiff claims that the value date of the 9 December Transactions were extended to 18 December 2015 by way of three FX swap transactions executed on 11 December 2015:

(a)         Leg 1 with a value date on 11 December 2015:

Ref. no.	Exchange rate	Amount of JYP the Defendant agreed to buy	Amount of USD the Defendant agreed to sell
1317207	122.22	4,888,800,000	40,000,000
1317213	122.22	2,444,400,000	20,000,000
1317222	122.22	3,666,600.00	30,000,000
TOTAL		10,999,800	90,000,000

(b)        Leg 2 with a value date on 18 December 2015:

Ref. no.	Exchange rate	Amount of USD the Defendant agreed to buy	Amount of JPY the Defendant agreed to sell
1317207	122.217	40,000,000	4,888,680,000
1317213	122.217	20,000,000	2,444,340,000
1311222	122.217	30,000,000	3,666,510,000
TOTAL		90,000,000	10,999,530,000

76.  It seems that the Confirmations for the three FX swap transactions were sent by email to the Defendant on 14 December 2015.  The Defendant was asked to sign back, and contacted the Plaintiff if it had any further queries.  Apparently, the Defendant had not signed back.

77.  The Plaintiff’s case is that, ultimately, the Defendant closed the positions opened by the 9 December Transactions as extended above by a FX spot transaction on 16 December 2015 as follows:

Ref. no.	Exchange rate	Amount of JPY the Defendant agreed to buy	Amount of USD the Defendant agreed to sell
1328733	122.25	11,002,500,000	90,000,000

78.  It should be noted that there was another Confirmation which purported to record the following FX spot transaction also on 16 December 2015:

Ref. no.	Exchange rate	Amount of JPY the Defendant agreed to buy	Amount of USD the Defendant agreed to sell
1328228	122.24	11,001,600,000	90,000,000

          The Plaintiff claims that it was initially intended to confirm the same transaction covered by Confirmation reference no. 1328733 but it had already been cancelled. However, Confirmation reference no. 1328228 was dispatched by mistake to the Defendant. In short, there was in fact no separate transaction evidenced by this Confirmation.

79.  Further, according to an internal email of the Plaintiff sent at 9:19am on 17 December 2015, it appears that there was another FX spot transaction as follows:

“Sell USDJPY, USD 90mio at 122.24 val 18Dec2015, pack 1328230, sp02.”

There was no Confirmation bearing a reference no. 1328230.  The Plaintiff explains that 1328230 was only an internal package number used within the Plaintiff; and it referred to the same transaction under Confirmation reference no. 1328228 (which had been cancelled as mentioned above).

80.  In other words, the Plaintiff claims that there was no transaction represented by Confirmation reference no. 1328228 or 1328230.

81.  The important point is that, on the Plaintiff’s case, by the time the Defendant entered into the 18 December Transactions, there was no open position to be closed.  Hence, the 18 December Transactions represented open positions.

F3.    The Defendant’s case as to why the 18 December Transactions were used to close open positions

82.  In contrast, the Defendant’s case is that it had never instructed the Plaintiff to enter any FX swap transactions to extend the settlement date of the 9 December Transactions.  In other words, the three FX swap transactions on 11 December 2015 (reference nos. 1317207, 1317213 and 1317222) were entered without its instructions, and were invalid.  To settle the 9 December Transactions, on 11 December 2015, the Defendant instructed the Plaintiff to carry out a “Sell USD/Buy JPY” transaction in the sum of USD90,000,000 as evidenced by Confirmation reference no. 1328733. However, the Plaintiff misstated the trade date of this transaction on the Confirmation as 16 December 2015, and delayed its settlement from 11 December to 18 December 2015.

83.  The Defendant contends that Confirmation reference no. 1328228 represented a genuine transaction.  Hence, it created an open position based on selling US$90,000,000.  Its case is that the 18 December Transactions were used to close such an open position partially.  As to the remaining open position involving US$40,000,000, it claims that the Plaintiff has wrongfully refused to follow its instruction to carry out a FX spot transaction to close it.

84.  The Defendant also contends that Confirmation reference no. 1328230 represented a genuine transaction.  Hence, it created another open position based on selling US$90,000,000.  This open position has never been closed.

85.  In other words, the Defendant’s case is that, by 18 December 2015, there were open positions created by two transactions evidenced by Confirmation reference nos. 1328228 and 1328230 involving a sum of USD90,000,000 each (i.e. totaling USD180,000,000).

86.  Most importantly, the Defendant contends that the 18 December Transactions were used to close or square off partially those open positions.  And as only US$50,000,000 had been closed by the 18 December Transaction, there remained an open position of US$130,000,000 which had never been closed.

F4.    The issues and the burden of proof

87.  In §§9-10 of the Defendant’s closing submissions, the Defendant submits that it is for the Plaintiff to prove both:

(a)  Instructions for swap, not a mere closing off, were given by the Defendant on 11 December 2015; and

(b)  There was only one order of selling USD entered into on 16 or 17 December 2015 and that was to close off the 2nd leg of the swap.

This is because:

(a)  If there was no swap on 11 December 2015, then even if there was only one order for selling USD90,000,000 placed on 16 or 17 December 2015, the 18 December Transactions would serve to close it off.

(b)  Even if there was a swap on 11 December 2015, if there was more than one order to sell USD 90,000,000 on 16 or 17 December 2015, the 18 December Transactions would serve to close off the outstanding USD90,000,000 order.

88.  I can understand the logic behind the submissions but I disagree insofar it is suggested that the Plaintiff bears the burden of proving that the 18 December Transactions were not used for closing any pre-existing open positions.  The question of burden of proof must be determined by reference to the pleadings.

89.  The Plaintiff’s pleaded case is simple. In §§9-10 of the Amended Statement of Claim, the Plaintiff pleaded the 18 December Transactions, and that the Defendant was obliged to pay a total sum of JPY6,087,700,000 on 22 December 2015.  In §11 of the Amended Statement of Claim, the Plaintiff pleaded that:

“In flagrant breach of (amongst other things) its obligation under the FX Spot Transactions, the Defendant refused to pay the sum of JPY 6,087,700,000 (or any part thereof) on 22 December 2015 (or at any time thereafter).”

90.  The Re-re-re-re-amended Defence and Counterclaim (“RRRRADC”) is a rather “colourful” document which has undergone five amendments.  The Defendant’s case, as explained above, was pleaded in the following manner:

(a)   On 11 December 2015, the Defendant instructed the Plaintiff to carry out the transaction evidenced by Confirmation reference no. 1328733 for the purpose of squaring/netting off the 9 December Transactions.  However, the Plaintiff failed to carry out this transaction timeously, but delayed the execution to 18 December 2015. Further, on the Confirmation, the trade date was incorrectly stated to be 16 December 2015 as opposed to 11 December 2015. See RRRRADC, §24B.

(b)  On 16 December 2015, the Defendant entered into the FX transaction “Sell USD Buy JPY” involving selling USD90,000,000 as evidenced by Confirmation reference no. 1328228.  On 18 December 2015, apart from entering into the 18 December Transactions, the Defendant instructed the Plaintiff to enter into one or more “Buy USD Sell JPY” involving buying USD40,000,000.  However, the Plaintiff refused to carry out this transaction without the Defendant’s authorization. These two transactions, involving the purchase of a total of USD90,000,000 were meant to close the transaction evidenced by Confirmation reference no. 1328228.  Accordingly, the Plaintiff was not entitled to the sum of JPY6,087,700,000 on 22 December 2015.  Instead, it was only entitled to receive from the Defendant (or was obliged to pay the Defendant) the net difference in JPY between these three transactions. See RRRRADC, §25.

(c)   The Plaintiff has cancelled the transaction on 17 December 2015 involving selling USD90,000,000 at the exchange rate of USD/JPY 122.25 evidenced by Confirmation reference no. 1328230 without its authorization. See RRRRADC, §26A.3 and Appendix 2, item 11.

91.  In the Re-re-re-Amended Reply and Defence to Counterclaim (“RRRARD”), the Plaintiff replied that:

(a)  On about 16 December 2015 (New York Time or about 17 December 2015 Taipei and Hong Kong Time, rather than 11 December 2015 as alleged), the Defendant entered into a “Sell USD Buy JPU FX Spot” Transaction with the Plaintiff for USD90,000,000 with that transaction to be settled by the parties on 18 December 2015. This was evidenced by Confirmation reference no. 1328733. This transaction was for the purpose of squaring or netting off the three FX swap transactions entered on 11 December 2015 rather than the 9 December Transactions. See RRRARD, §11C.

(b)  This transaction was not evidenced by Confirmation reference no. 1328228 as alleged. In the circumstances, the Defendant did not hold any long or short position in USD for the sum of USD90,000,000 on 18 December 2015. Further, the Defendant did not have any outstanding financial transaction with the Plaintiff as from 7 January 2016. See RRRARD, §12.

(c)  The Plaintiff had not entered into with the Defendant any transaction evidenced by Confirmation reference no. 1328230. See RRRARD, §13B.

92.  In the light of the pleadings, I take the view that the burden is on the Defendant to prove that:

(a)  The Plaintiff had delayed in closing the positions created by the 9 December Transactions, and the trade date on Confirmation reference no. 1328733 should have been 11 December 2015 instead of 16 December 2015.

(b)  On 16 December 2015, the parties entered into a “Sell USD / Buy JPY” FX spot transaction of USD90,000,000 as evidenced by Confirmation reference no. 1328228.

(c)  On 17 December 2015, the parties entered into another “Sell USD / Buy JPY” FX spot transaction of USD90,000,000 as evidenced by Confirmation reference no. 1328230.

93.  To defend the Plaintiff’s claim, the ultimate burden is on the Defendant to prove that there were indeed open positions of not less than USD50,000,000 which the 18 December Transactions had been used to close. The Defendant can discharge such ultimate burden in the following ways:

(a)  If it can prove that Confirmation reference no. 1328733 was wrongly dated in that the transaction in issue in fact took place earlier on 11 December 2015, and if there was even one “Sell USD/Buy JPY” FX spot transaction for selling USD90,000,000 on 16 or 17 December 2015, then such transaction must have created an open position.

(b)  But if it cannot prove that Confirmation reference no. 1328733 was wrongly dated, then it would not be sufficient to prove the existence of one “Sell USD/ Buy JPY” FX spot transaction for selling USD90,000,000 on 16 or 17 December 2015. This is because this could be readily explained as the transaction evidenced by Confirmation reference no. 1328733, which was used to close a pre-existing open position. In such event, the Defendant must prove that there was a second “Sell USD/Buy JPY” FX spot transaction for selling USD90,000,000 on 16 or 17 December 2015. Only if there was such an additional transaction would there be an open position of not less than USD50,000,000 by 18 December 2015.

F5.    Analysis

94.  I have considered the helpful and detailed submissions made by the parties.

95.  To begin with, Huang claimed that she had never instructed the Plaintiff to carry out any FX swap transaction at all, including the three FX swap transactions on 11 December 2015. However, there were Confirmations concerning FX swap transactions (reference no. 1026963 dated 24 August 2015, reference no. 1026983 dated 24 August 2015, reference no. 1059161 dated 2 September 2015, reference no. 1059168 dated 2 September 2015, reference no. 1059174 dated 2 September 2015, reference no. 1059195 dated 2 September 2015, reference no. 1152462 dated 9 October 2015, reference no. 1152458 dated 9 October 2015, reference no. 1224161 dated 5 November 2015, reference no. 1224169 dated 5 November 2015). These Confirmations stated clearly that the product type was “FX Swap”. What is important is that they had all been acknowledged by an authorized signature of the Defendant with the company chop thereof. Although Huang denied that she, or anyone authorized by her, signed on the documents, she admitted that she was the only person who had, and was in, possession of the company chop.  I do not find her explanations satisfactory. I believe that the acknowledgments on these Confirmations were given with her consent and knowledge.

96.  In addition, the audio records show that the word “Swap” was used on many occasions during two conversations between Huang and Ko at 12:54:00 on 30 November 2015 and 11:59:29 on 1 December 2015 respectively. There was no indication that Huang did not understand what “Swap” meant.  Huang explained that, at the time of the first conversation, she was busy in a meeting and was talking to somebody else at the same time; and Ko spoke very fast.  However, she agreed that she was not talking to others, or having a meeting, during the second conversation. If she did not understand what “Swap” meant, it would be most surprising that she never raised any query.

97.  Huang said in court that, according to her understanding, the settlement date of a transaction would be extended by a “DF (forward”), which was different from a FX swap transaction. She said that she only had a better idea how the transactions were executed after reading Ko’s witness statement and the Plaintiff’s written opening submissions. Her evidence does not sit well with the above-mentioned contemporaneous records and documents.  It might be the case that she paid more attention to the practical effect of a FX swap transaction i.e. to extend the settlement date of a FX spot transaction, rather than the exact mechanism of a FX swap transaction. Nevertheless, I take the view that Huang was trying to play down her knowledge on FX swap transactions. I hold that, before 11 December 2015, FX Swap transactions were executed with Huang’s consent and knowledge.

98.  The Defendant has produced five handwritten notes made by Huang. These notes consisted of two columns: the “sell” side on the left, and the “buy” side on the right. In the one stating “12/9 台新HK QFI” at the top, on the “sell” side, there was a note of selling USD90,000,000 at the exchange rate of 122.22 on 11 December 2015. The Defendant submits that this note shows that, on that day, the Defendant entered into only one transaction to close off some pre-existing positions.

99.  In respect of all these handwritten notes, the only evidence given by Huang is what she stated in §2 of her 2^nd supplemental witness statement dated 16 June 2020:

“The handwritten notes found in pp. 836-840 of Bundle D of the trial bundles are contemporaneous documents in the sense that they were prepared by me at or around the same time when the transactions referred to in the notes were entered into.”

Huang has not attempted to explain the meaning of these notes at all in any of her statements. It is correct that she was not cross examined on these notes. I can understand why the Plaintiff decided not to do so in these circumstances. This only means that there is no challenge that they were contemporaneous documents.

100.  In respect of the one just mentioned, it is unclear whether it was made before or after her conversation with Ko on that day (which will be considered below). On the “buy” side on that note where transactions on 9 December 2015 were set out, I am unable to find transactions matching with the 9 December Transactions. The note is ambiguous, and is insufficient to support the Defendant’s submission.

101.  The most important evidence on what happened on 11 December 2015 is the audio-recording of the conversation between Ko and Huang at 16:38:04 on that day, which lasted for about 4 minutes and 35 seconds. Ko said that this was the only recorded conversation between them concerning this case on that day though there might be other conversations unrelated to this case. The transcript of that conversation is as follows:

“S:     hello

T:     hello Sophie Hello

S:     hello

T:     現在匯率是，我是 Benson，方便講話嗎?

S:     用那個，是用那個 .... ，對

T:     對，122.20， 我先跟你對一下你這90支是有40支在122.65嘛，20支在122.63、30支在122.62， 本來是今天要交割long USD/JPY， 沒錯吧，這90支

S:     我沒看，應該是對的，以你的為主

T:     好，關係，這是加一點喔，然後，122.22假設用這差額交割的話，今天會從帳上扣日圓37,400, 000， 然後如果拉一個禮拜，可以拉一個禮拜的話，就是從今天開始到下一個禮拜12月18號， SWAP point是減0.0003，所以buy端的匯率是122.217，所以新的匯率是從122.217開始

S: 122.217

S:122.17

T:     對對對，因為你是用122.22先今天結算，所以....

S:     可是今天如果平倉，還是一樣喔，我不要記錄那個價格，所以我應該還是要記錄的是122.23喔，因為我今天出去你拉回來還是要補你swap point

T:     如果有補回來還是swap point有可能會你會多有可能少，要看看中swap point的 spread這樣子

S:     是的，沒錯

T:     可是你放心 swap point 我都會補，我會找好的價錢給你

S:     恩，我還，那就，我，那你 average 是多少算呢？你不要這樣做好了，你告訴我，你就做一筆好了

T:      ok，沒關係，那我趕快

S:      那我比較清楚90，90支，一筆就好

T:      90支，整數90支

S:      你用average好了

T:     那就是通通都average，通通都是用122.22，今天做一個 USD/JPY sell/buy

S:      對

T:      所以90支都是，今天開始用122.22做sell端，然後buy短都是12月18號到期，都是buy端的匯率all in 122.217，總共90支的USD

S:      是的，沒錯

T:      好，那今天就用122.22幫你去做今天的settle difference，所以你今天會從.....

S:      那請問一下帳上夠嗎?

T:      帳上不夠，現在帳上跟你報告一下，現在QFI帳上的活存有....

S:      請問你哪一天扣款? ?應該是這樣

T:      今天，今天

S:      今天就扣款

T:      因為他value今天阿，你來得及嗎?如果來不及我可以先幫你hold住晚一點，可是你可以美金進來，我可以幫你換沒問題

S:      會來不及吧?現在4點多耶

T:      那沒關係，那我幫你hold住，禮拜一早上我再幫你扣款，可以嗎？

S:      請問一下是不是夠扣?就可各種幣種加起來是不是夠扣? ?要問的是這個

T:      都不夠不夠，因為這樣子，今天要扣的是日幣大概37,400.00是37,400,000，等於美金大概31萬多左右，現在大概我 …

S:      然後現在帳上?

T:      現在歐元大概1萬8，美金7千多，人民幣8千多，港幣7萬多

S:      沒關係，那你禮拜一再扣吧，因為已經也4點多，實在是比較晚

T:      因為調日圓就不好調，調美金過來再換日圓會比較好一點點

S :     好，就這樣喔，禮拜一

T:      我就幫你處理喔，出一筆90支的USD/JPY，QFI USD/JPY/ sell/buy，都是今天，Sell端都是12月11號，122.22的匯率，buy 端到期日12月18號，buy 端的匯率是122.217

S:     是的

T:     好，那我馬上幫你處理，那待回 confirmation 成交明細我再 email 給你這樣子，那就就禮拜一早上我會再幫你去扣，跟我們資金部說一下，因為今天錢可能會調不過來？

S：　     但是如果今天出去的話我就不會付款了，麻煩你就這兩個你自己做settle可以嗎？

T:      可以啊可以啊，我再看看再多少，可能會差一天喔，可能今天扣款禮拜一入帳或怎麼樣的會差一天，我再，反正細節我再跟你說

S:     我說如果，如果今天是出去的話，反正你要補我錢，我就禮拜一不再匯

T:      好

S:      因為我禮拜一要出差，再台灣不是很方便

T:      了解，了解，我看禮拜一出差搞不好搞不好今天做到再拉回來，或者說今天做swap沒辦法value今天，就變成value禮拜一，可能會有一天的那種點，反正我再，我一定會算清楚給你的，你放心

S:      不不不...我的意思是說，如果今天出的去，我禮拜一就不匯款了，因為最後是你要給我錢

T:      喔對對對對

S:      懂意思嗎?

T:      我懂拉

S:      我不會再去轉來轉去，轉了兩次

T:      我懂啦，如果今天跑到122、123等於你是多gain了，我們就直接這樣扣就好了

S:      對

T:      我懂

S:      就是不要再，我現在就電話跟你確認，不要再去，你，我先給你錢，然後你再退我錢

T:      了解了解

S:      再多一天的時間

T:      了解了解，反正今天做到我就value禮拜一這樣子，反正這樣子

S:      好，謝謝喔

T:     謝謝Sophie，謝謝你，好byebye

S:     好byebye”

102.  Both Ko and Huang had been cross examined extensively on this conversation. At the beginning of the conversation, Ko referred specifically to the three 9 December Transactions. It is clear that the purpose of this conversation concerned how to settle the 9 December Transactions.

103.  It is also clear that Ko proposed to do cash settlement on that day to be followed by an extension for one week (i.e. to 18 December 2015). It was reasonably clear that he had a FX swap transaction in mind as he mentioned expressly that the “SWAP point” was minus 0.0003. This explained his references to the exchange rates of 122.22 and 122.217.

104.  Most importantly, it is quite clear from the following questions and answers that Huang agreed to Ko’s proposal:

“T:  所以90支都是，今天開始用122.22做sell端，然後buy短都是12月18號到期，都是buy端的匯率all in 122.217，總共90支的USD

S:      是的，沒錯”

“T: 我就幫你處理喔，出一筆90支的USD/JPY，QFI USD / JPY / sell / buy，都是今天，Sell端都是12月11號，122.22的匯率，buy 端到期日12月18號，buy 端的匯率是122.217

S:         是的”

105.  In my view, “sell端” and “buy端” referred to leg-1 and leg-2 of a FX swap transaction. In short, Huang confirmed her agreement to do FX swap transactions consisting of selling USD90,000,00 in total at the exchange rate of 122.22 on that day in leg-1, and buying the same amount at the exchange rate of 122.217 on 18 December 2015 in leg-2.

106.  And after that had been agreed, they discussed how the sum due on that day i.e. JPY37,400,000 should be settled. Huang asked whether there were sufficient funds. After reporting the then balances in the Defendant’s account, Ko said that there were insufficient funds. As it was already after 4pm, Ko agreed that Huang may transfer, preferably USD, to the Defendant’s account to make payment of JPY37,400,000 the following Monday. Ko then said that the Plaintiff would issue Confirmations and emailed them to Huang, and he would inform the “資金部” that no payment would be made on that day.

107.  After that, they discussed the possibility that the Defendant may not even need to remit funds to settle JPY37,400,000 the following Monday.  This is a point that I shall consider in more detail below.

108.  The Defendant’s main argument is that it would not make any sense for the Defendant to agree to do any FX swap transaction if it had to pay JPY37,400,000 on that day.  As mentioned, the general purpose of a FX swap transaction was to extend the settlement date of a FX spot transaction without the need to pay anything in the meantime.  Ko agreed that this was an important attraction of a FX swap transaction.

109.  Ko explained that, since there were defaults by Kifa and Highway by then, the Plaintiff decided that the Defendant would have to pay money upfront on 11 December 2015.  He accepted that it was a fundamental change.  Although he did not expressly explain the reason for such change, he stressed that, in that conversation, Huang understood and agreed that upfront payment would be required.  It is clear from the transcript that Huang understood that she had to pay JPY37,400,000.  Ko said clearly that “今天會從帳上扣日圓37,400,000”; and when Ko said again that “那今天就用122.22幫你去做今天的settle difference”, there were the following exchanges which show that Huang knew and agreed that the Defendant shall pay that sum on that day:

“S:     請問你哪一天扣款? ?應該是這樣

T:     今天，今天

S:     今天就扣款”

110.  It was on the basis that the Defendant would need to pay JPY37,400,000 on that day that there were further discussions on how this sum should be paid.  As mentioned, after it was agreed that the Defendant may make remittance the following Monday, Huang raised the possibility that the Defendant may not need to pay the whole sum of JPY37,400,000 or any sum at all on 14 December 2015 if the Defendant could make some profits before that to set off against that sum.  She said at the last part of the conversation to make it clear that she did not want to remit JPY37,400,000 to the Plaintiff first, and then the Plaintiff would remit an amount back to her.  The following statements made by Huang show that she had in mind a possible set-off:

“但是如果今天出去的話我就不會付款了，麻煩你就這兩個你自己做settle可以嗎？”

“我說如果，如果今天是出去的話，反正你要補我錢，我就禮拜一不匯”

“不不不...我的意思是說，如果今天出的去，我禮拜一就不匯款了，因為最後是你要給我錢”

“我不會再去轉來轉去，轉了兩次”

“就是不要再，我現在就電話跟你確認，不要再去，你，我先給你錢，然後你再退我錢”

111.  The question is what Huang had in mind which would enable the Defendant to make some profits by the following Monday. In the conversation, Huang used the term “出去”. Ko said that, according to his understanding, Huang was referring to a possible “rollback” of the 2^nd leg of the FX swap transaction. It is true that there was no actual “rollback” by 14 December 2015. However, it does not follow that Ko’s understanding was untrue or incorrect. In fact, Ko expressed his understanding to Huang to ensure that there was no misunderstanding.  Hence, he said:

我懂拉”

“我懂啦，如果今天跑到122、123等於你是多gain了，我們就直接這樣扣就好了”

Huang confirmed “對”. I take the view that they were talking about a possible “rollback” of leg-2 of the FX swap transactions in case the exchange rate changed to the advantage of the Defendant.  I do not think the objective likelihood that the exchange rate would change in such a direction is of much significance.  The exchange rate may change very fast.  And more importantly, they were merely talking about a possibility.  There was no indication that they had considered, or found it necessary to consider, the likelihood of that possibility in any detail or at all in that short conversation.

112.  Huang was adamant that she did not instruct Ko to do any FX swap transactions.  If that was the case, the Defendant would have to pay JPY37,400,000 immediately without any chance of reducing the loss.  According to the transcript, it was clear that Huang was contemplating a possibility that the Defendant would not need to pay the whole sum of JPY37,400,000 by 14 December 2015.  If that possibility did not arise out of a possible “rollback” of the 2^nd leg of the FX swap transaction (as Ko said), what could it be?  What did Huang have in mind when she said or referred to “出去”?  Her evidence is that the Defendant was expecting profits to come in in respect of other transactions at that time.  Ko accepted that, at that time, the Defendant should be entitled to profits deriving from other transactions involving USD60,000,000.

113.  However, the Defendant only made a profit of JPY10,800,000 out of those transactions:

(a)         The Defendant had entered into the following “Buy USD / Sell JPY” FX spot transactions on 9 and 10 December 2015:

Ref. no.	Exchange rate	Amount of USD the Defendant agreed to buy	Amount of JPY the Defendant agreed to sell
1311252	122.64	10,000,000	1,226,400,000
1311357	121.34	5,000,000	606,700,000
1311603	121.32	35,000,000	4,246,200,000
1311563	121.31	10,000,000	1,213,100,000
TOTAL		60,000,000	7,292,400,000

(b)        The Defendant squared off these transactions on 10 December as follows:

Ref. no.	Exchange rate	Amount of USD the Defendant agreed to sell	Amount of JPY the Defendant agreed to buy
1314326	121.72	10,000,000	1,217,200,000
1314331	121.72	50,000,000	6,086,000,000
TOTAL		60,000,000	7,303,200,000

(c)         Hence, the amount of profit was:

JPY (7,303,200,000 - 7,292,400,000) = JPY10,800,000.

114.  This sum of JPY10,800,000 was much lower than JPY37,400,000.  If this was all that she had in mind, there was no conceivable reason why she would believe that there was a possibility that the Defendant would receive more than JPY37,400,000 by 14 December 2015 so that, in her words, at the end of day, it was the Plaintiff who would need to pay her money “最後是你要給我錢”.  Moreover, there was no hint in the conversation that she was referring to profits that the Defendant made from other transactions.  I find it incredible that, when she said “出去”, she was referring to receipt of profits from other transactions.  And if that was what she meant, she would have informed Ko what those transactions were and asked him to check how much the amount of profits was.

115.  All in all, I prefer Ko’s evidence.  I hold that Huang knew and understood that there was going to be FX swap transactions, and if she managed to “rollback” the 2^nd leg thereof by 14 December 2015, there was a chance that the Defendant needed not pay the whole sum of JPY37,400,000, and may even gain a net profit, by that day.  Although the FX swap transactions would require the Defendant to make upfront payment, they had such a potential advantage to the Defendant in practice. 

116.  All in all, having considered the transcript of the conversation in the light of its context and the evidence given by Ko and Huang, I hold that, on 11 December 2015, the Defendant agreed to enter into three FX swap transactions.  I reject the Defendant’s case that, on that day, Huang simply instructed Ko to close the 9 December Transactions.  I also reject the Defendant’s submission that, alternatively, there was no agreement because the parties were speaking at cross-purposes.  According to the transcript, both Ko and Huang were satisfied at the end of the conversation that they understood each other properly.

117.  The Plaintiff’s case is supported by the fact that, at 5:00pm on the same day, very shortly after, and pursuant to what Ko had promised in, the conversation, he sent an email to Huang, which reads:

“今天 (11-Dec-2015) QFI有90支Buy USD/JPY spot 到期，今日承做USD/JPY S/B swap交易，故今日QFI需差額交割損失金額為JPY37,400,000，該筆金額於今天 (11-Dec-2015) 於帳上扣款。

底下是今日差額交割的明細與 QFI USD/JPY S/B swap成交明細，供您參考！”

118.  It is correct that, in this email, the Defendant was asked to pay JPY37,400,000 on 11 December 2015, which did not reflect the agreement that payment could be made on 14 December 2015.  But I accept Ko’s explanation that there was indeed no conflict: strictly speaking, the Defendant had to pay on that day; but as a matter of indulgence, Ko agreed that the payment may be deferred to 14 December 2015.  Huang said that she had not received this email as she was in Shanghai and she was unable to access her g-mail account in the Mainland.  She claimed that she became aware of this email only after this litigation had been commenced in about February 2016.  The Plaintiff’s point is that Huang had not rebutted the content of this email at the material time.  However, I cannot be sure that she had actually received or paid any attention to this email.

119.  In any event, at 17:02 on 15 December 2015, the Plaintiff sent another email to Huang and also her assistant, Wong Yan (黃艶), in which the Defendant was asked to settle JPY37,400,000 on that day.  Ko explained that, as the Defendant had not paid that sum by then, the Plaintiff intended to do settlement on that day.  In the email, the Plaintiff proposed to transfer funds from the account of Highway for such purpose.

120.  Huang admitted that, on 17 December 2015, when she had returned to Taiwan from Shanghai near Christmas, she received an email from the Plaintiff attaching a notice of default dated 17 December 2015.  Although the Plaintiff’s email stated that it was a computer generated e-email and asked the recipient not to reply, Huang replied by asking the Plaintiff to provide proof of the transaction.  She claimed that the Plaintiff did not reply to her email.

121.  Notwithstanding that, she said, in fact, she had procured the Defendant to pay JPY37,400,000 at around noon on that day before she received the Plaintiff’s email. There is an audio-recording of a conversation between Ko and Huang at 12:45:52 on 17 December 2015 which lasted for about 1 minute and 30 seconds.  In that conversation, Huang agreed to sell and convert US$220,000 into JPY at the exchange rate of 122.45.  It appears to me that Huang’s complaint was that the Plaintiff should not claim that the Defendant had defaulted in payment when the sum had already been settled.  Her complaint was not about anything else, such as delay in executing a transaction which should have been done on 11 December 2015.

122.  Indeed, it would have been quite extraordinary if the Plaintiff delayed executing the transaction to close the 9 December Transactions for 5 days (from 11 December 2015 to 16 December 2015) as alleged by the Defendant.  Any such substantial delay on the part of the Plaintiff, whether intentionally or negligently, would be most unusual and inherently unlikely.  Further, in Confirmation reference no. 1328733 recording this transaction, the exchange rate used was 122.25.  As mentioned, as at 11 December 2015, the exchange rate was 122.22.  This is incompatible with the Defendant’s case that the transaction evidenced by Confirmation reference no. 1328733 was intended to reflect the instruction given by Huang on 11 December 2015 to close the 9 December Transactions.  Huang claimed that she had been advised by her consultant in Taiwan that it was possible that the Plaintiff added three points to the exchange rate as the execution was delayed to 16 December 2015 from 11 December 2015.  Her explanation does not make much sense.

123.  Ko stated in his witness statement that Huang instructed the Forex Trading Desk in Taipei without going through the Hong Kong branch to carry out the transaction evidenced by Confirmation reference no. 1328733 (with a trade date of 16 December 2015) to close leg-2 of the FX swap transactions done on 11 December 2015.  He stated in his statement that such conversation took place in the evening of 16 December 2015 or the early morning of 17 December 2015.

124.  The Defendant’s case is that any conversation taking place at that time could not be concerned with closing any open positions; and it must be about opening new positions.  The Defendant submits that there were in fact two “Sell USD/Buy JPY” of USD90,000,000 each on 16-17 December 2015:

(a)   On 16 December 2015, Ko and Huang entered one such transaction at the exchange rate of 122.24.

(b)  In the small hours of 17 December 2015, Huang and Yu Guoqiang (於國強) (“Yu”) entered into another such transaction at the rate of 122.25.

125.  Ko was cross examined extensively in this respect. Ko said that it was Yu, his night shift colleague in Taiwan, to whom Huang spoke in the early hours of 17 December 2015 in which Sophie placed an order at the exchange rate of 122.25.  That was the transaction evidenced by Confirmation reference no. 1328733.  He had listened to the audio-recording of that conversation after he made his first witness statement.  He said that the Taiwan headquarter did not approve disclosing the audio-recording but he did not know the reason.

126.  The Defendant invites me to draw an adverse inference against the Plaintiff for failing to disclose the audio-recording of such conversation, and to call Yu as a witness.  The Plaintiff was under a duty to disclose all relevant documents.  It was clear that the audio-recording of such conversation was important in this case, and I did not find the Plaintiff’s explanation for not doing so satisfactory.  On the other hand, although the Defendant had requested the Plaintiff to disclose all audio-recordings (and WeChat messages) at the material time by solicitors’ correspondence, it had never applied for any specific discovery of such records.  The Defendant was not obliged to make any such application but no explanation had been offered why it did not do so if it was eager to find out the truth.  I suspect that this might well be a tactical decision as Huang could not recall what she had said, and she was not confident that the audio-recordings would be in her favour.  Nevertheless, because of the Plaintiff’s failure to produce the audio-recording and to call Yu as a witness, I will not give any weight to what Ko said to be the content of that conversation.  However, it does not follow that the Plaintiff’s failure to disclose the audio-record or call Yu as a witness can, by itself, support an inference that, in that conversation, Huang instructed Yu to open some new positions.  In short, while I accept that there was such a conversation between Huang and Yu in the early hours of 17 December 2015, there is no direct evidence on the content of that conversation.

127.  I turn to the Defendant’s submission that there was another conversation between Ko and Huang on 16 December 2015 in which Huang entered into another transaction to sell USD90,000,000.  The main basis of the Defendant’s submission is the date of Confirmation Reference no. 1328733.  As mentioned, the “trade date” was stated to be 16 December 2015.  As Ko said that the conversation between Huang and Yu took place in the early hours of 17 December 2015, the Defendant contends that it could not represent the transaction evidenced by Confirmation Reference no. 1328733. Ko denied and said that, at that time, there was a possibility that the order would be concluded on 16 December 2015 New York time or 17 December 2015 Hong Kong time.  As I understand, he was saying that, even though the conversation took place in the early hours of 17 December 2015 in Taiwan or Hong Kong, the “trade date” on the Confirmation could be stated as 16 December 2015 if New York time was used.  He accepted that this was not always the case that US Eastern time would be used.  He said that when the Confirmation was prepared and the Hong Kong colleagues were informed that a transaction was done on the previous day, they treated it as a deal done on 16 December 2015.  At that time, his Hong Kong colleagues had not heard the audio-recording of the conversation between Yu and Huang. Having heard the audio-recording, he would not make the speculation that the date of 16 December 2015 was due to the use of US Eastern time.

128.  I do not think the use of US Eastern time could be the true and correct reason of putting down the date of 16 December 2015 on Confirmation reference no. 1328733.  The true and correct answer would depend on exactly what the Taiwan colleagues had told the Hong Kong colleagues, in particular, the time of the transaction; and the Hong Kong colleagues’ understanding thereof.  Ko was not in a position to give any evidence in this respect.  He also said that he had tried to search for the audio-recordings of the conversation between his Hong Kong colleagues and Taiwan colleagues but he had forgotten about the result.  I agree that the Plaintiff’s evidence in this respect is unsatisfactory.  However, I am not satisfied that the mere fact that the trade date was stated to be 16 December 2015 on Confirmation reference no. 1328733 is sufficient, by itself, to prove that it was not meant to refer to the transaction completed during the conversation between Yu and Huang in the early hours on 17 December 2015.  It is important to consider all relevant evidence in totality.

129.  The Defendant points to Huang’s handwritten note, which stated “12/16台新 HKQFI” at the top.  At the “sell” column on the left, it was stated “JPY 90M 122.24”.  However, for reasons already mentioned, Huang had not given any evidence to explain these handwritten notes.  I am not satisfied that this particular handwritten note was sufficient to show that there was a conversation between Ko and Huang on 16 December 2015 in which Huang created an open position of USD90,000,000.

130.  According to the Defendant’s case, Confirmation reference no. 1328733 was not referring to the transaction evidenced by the conversation between Yu and Huang.  What then could be the Confirmation relating to this conversation?  It seems that it could only be either Confirmation reference no.1328228 or Confirmation reference no. 1328230.  

131.  I shall deal with Confirmation reference no. 1328228 first.  Ko explained that there was an internal meeting concerning the transaction based on the conversation between Yu and Huang on 17 December 2015. Some colleagues considered that the exchange rate of 122.24, after deducting the agreed spread of 0.01 from 122.25, should be used. This would be what Confirmation reference no. 1328228 purported to show. On the other hand, some colleagues took the view that the exchange rate of 122.25 should be used.  That would be what Confirmation reference no. 1328733 purported to show.  At the end of the day, it was agreed that the latter opinion should be adopted. Ko was unsure whether there was any minutes or written record of the meeting.  I should mention that whether the parties had agreed to a spread i.e. handling charge is the subject matter of one of the Defendant’s counterclaims which I will consider in detail below.

132.  At this juncture, it is convenient to turn to reference no. 1328230.  The reference no. 1328230 only appeared in the internal emails of the Plaintiff. At 9:19am on 17 December 2015, Stephanie Lam, the Product Manager of the Treasury Department, informed her colleagues “Sell USDJPY, USD 90mio at 122.24 val 18 Dece2015, pack 1328230, sp 02”.  But not too long after that at 10:59am on 17 December 2015, there was another internal email which stated “Please cancel pack 1328230”.  Ko said that it was referring to the same transaction evidenced by Confirmation reference no. 1328228.  His evidence is supported by a screenshot of the Plaintiff’s computer record which stated, inter alia, “PCK NB 1328230, EXT NB 1328228, CNT NB1328228”. The screenshot was provided by Stephanie Lam to Ko on 19 January 2017 after these legal proceedings had started. However, there is no challenge to the authenticity of the computer record.  In view of the screenshot, I am satisfied that “1328228” and “1328230” referred to the same transaction.  What is noteworthy is that, on the same screenshot, under “Status”, it was stated “Cancelled”.  

133.  The contemporaneous documents just mentioned are important for the following reasons.  First, they show that Confirmation reference no. 1328228 and reference no. 1328230 referred to the same transaction.  Second, they show that the transaction involving the use of exchange rate 122.24 had been cancelled by 10:59am on 17 December 2015. This supports Ko’s evidence concerning the meeting that morning in which there were discussions on whether to use the exchange rate of 122.24 or 122.25 to complete the transaction based on the conversation between Yu and Huang. I accept Ko’s evidence in this respect.  The Defendant questions why, if the Plaintiff agreed not to charge any spread on 17 December 2018, it would charge a spread for the 18 December Transactions.  I do not think this point affects the credibility of the Plaintiff’s case about the alleged meeting.  What is crucial is that the contemporaneous records stated clearly that Confirmation reference no. 1328228 had been cancelled.

134.  For these reasons, I take the view that neither Confirmation reference no. 1328228 nor reference no. 1328230 refers to the transaction based on the conversation between Yu and Huang in the early hours of 17 December 2015.  The only Confirmation which could possibly refer to that conversation must be Confirmation reference no. 1328733.  I find that the trade date of 16 December 2015 on that Confirmation was a mistake though the reason for that is unclear.

135.  Ko explained that, notwithstanding the cancellation, Confirmation reference no. 1328228 was mistakenly posted to the Defendant.  He tried but was unable to find out who made the mistake.  He had discussed the matter with a colleague called Vincent Wong, who had not been called as a witness.  Vincent Wong was the head of the Settlement Department at that time, but had left the Plaintiff last year.  The Defendant criticizes the Plaintiff for not calling Vincent Wong as a witness.  I am not sure whether the Plaintiff could have found him.  In any event, Vincent Wong was not the one posting the Confirmation Reference no. 1328228, and he also only found out the mistake afterwards.  In fact, Ko said he only discovered the mistake upon receiving the Defendant’s Defence and Counterclaim in about March 2016.  While I accept that making such a mistake was a serious matter and the Plaintiff had not been able to explain how such mistake came about, I am satisfied that it was indeed a mistake. As mentioned, it is clear from the contemporaneous records (in particular, the email at 10:59 on 17 December 2015 and the said screenshot) that Confirmation reference no. 1328228 had been cancelled.  Indeed, this is consistent with the fact that in the monthly statement for December 2015, one cannot find any mention of Confirmation reference no. 1328228.

136.  On at least one previous occasion, on 24 September 2015, the Defendant informed the Plaintiff by email of the cancellation of a transaction.  It is true that the Plaintiff had never informed the Defendant that Confirmation reference no. 1328228 was a mistake and had been cancelled.  However, this could be readily explained by Ko’s evidence, which I accept, that the Plaintiff did not realize that there was such a mistake until after these legal proceeding had been commenced.

137.  The evidence I have considered so far do not support that Huang had created any open position in the total sum of USD180,000,000 or at all on 16 or 17 December 2015. If what she alleged is true, one would expect that, when she gave instructions on 18 December 2015 regarding the 18 December Transactions, she would have made it clear that they were for the purpose of closing some open positions.  It is therefore important to consider what exactly she had said on that occasion.

138.  There is no dispute that there was a conversation between Huang and one Tony Law (羅平東) (“Law”) at 15:53:55 on 18 December 2015 which lasted for about 1 minute and 58 seconds; after that, the conversation resumed at about 16:02 which lasted for another 3 minutes and 26 seconds.  The transcript of the audio-recording reads as follows:

“T:      台新

S:      hello，long USD/JPY

T:      好，呃

S:      來，〈？？？〉

T:      好，請問大概做多少支?

S:      喔，我們先做50個，我再看，好，開始

T:      好，現在是790

S:      好

T:      好，790，10支

S:      再來，繼續

T:      現在是780

S:      好

T:      好，780，10支

S:      繼續

T:      然後現在是790

S:      好

T:      好等一下

S:      30了，繼續，喔上去了，我們控制一下成本，對

T:      好好

S:      讓他下來一點

T: 好，現在上去，阿< … > 因為呃

T: 好，現在上去，啊 77 因為呃

S:      已經上去很多了

T:      對對，現在840

S:      等一下我問喔

T:      現在是820、830

S:      你繼續念

T:      好，現在是840

S:      被你買上去了

T:      可能是

S:      對阿，才這麼小的量

T:         不好意思阿，現在是850，現在是850，現在還是850，現在是840

S:      先這樣喔，我先等一下，我先忙我的事，你看到好的價格

T:      還有，我要提醒你一下，因為你已經拉了90支的Forward，所以請你呃記得

S:         我沒有喔，我沒有喔

T:      平掉平掉，我不知道，因為我剛剛

S:      喔喔，你講錯話喔，會被電話錄音喔，不要亂講話

T:      不好意思，不好意思

S:      沒有的事情，沒有的事情不要捏造，人要，人要正直的心，真的

T:      好，抱歉抱歉

S:         壞事說，壞事做多了，會被金管局抓

T:      那我先做30支，就知道知道了

S:      你要不要去問一下你們Benson，你再去問一下

T:      喔好

S:      如果敢說沒有平的話，而且平倉也沒有給我記錄

T:      抱歉抱歉，因為我剛上班，我可能miss掉

S:      一切都要符合金管局規定，不要再瞎搞

T:      知道知道知道

S:      對阿，我有人品跟人格，是做銀行的，又不是做搶劫

T:      是是是

S:      好 bye-bye

T:      好知道，好謝謝謝謝 bye-bye”

“T:      台新

S:      後面20個，繼續

T:      好，現在是680

S:      好，10個

T:      好，680 做10支，然後現在是，呃，現在是700

S:      讓他下來一點

T:      好

S:      現在呢?

T:      現在690，現在700

S:      所以剛是68，10個，還少 10 個對不對?

T:      呃，對，剛做了40支

S:      現在呢?

T:      現在是680

S:      好，成交，total 90

T:      好好好好，謝謝

S:      好，那你搞清楚狀況囉?

T:      呃，我剛剛跟你做了50支，一筆是790

S:      不是，我說你，你們誣賴我90支的事情

T:      喔，我搞清楚，知道暫時是沒有部位，暫時是沒有部位，但是因為，呃

S:      不要再做騙子的事情，因為我很討厭誠信有問題，非常討厭這種人，知道嗎？

T:      呃呃呃，因為剛外面跟我說，是總行說的，對一個月只可以拉....，沒有沒有，現在是這樣

S:      什麼總行?

T:      因為現在

S:      你在胡說八道什麼

T:      不好意思

S:      電話錄音耶

T:      我講清楚一點，我講清楚一點

S:      你根據什麼條款，根據什麼，你可以講清楚啊，誰跟你講的？都把名字講清楚啊

T:      呃，是總行

S:      要繼續亂搞，對阿，誰說什麼?

T:      不好意思，不好意思，我講清楚一點

S:      總行誰說什麼，總行誰說什麼

T:      他說，呃~~

S:      叫什麼名字

T:      現在已經不能再做，因為已經做了50支，對

S:      50支? 你剛剛說90支的事阿，我哪裡有90支，是誰說的？

T:      90支是我講錯了，90支是沒有，呃，我再重複一次，就是我剛剛跟你做就做了50支，有兩筆是在790，有一筆是在780，另外兩筆是在680，一共50支

S:      ok，然後這個單子有甚麼問題？

T:      這個單子沒有沒有問題，這是說

S:      這個單又自動被你們消滅掉了，我要確認這個心態，講話都講清楚

T:      好，喔，知道知道

S:      一個字都不要漏

T:      知道知道

S:      請問一下這個單子是有還是沒有

T:      不好意思，聽不清楚

S:      請問一下，剛剛的order是存在還是不存在，還是你又把他滅掉了?

T:      沒有沒有，存在，已經done了

S:      阿，滅掉就要寫總行的誰，最好是總行的劉德宏，是不是？是這個名字嗎？

T:      呃

S:      對阿，是不是叫總行的劉德宏3個字，請你在電話錄音裡面說得一清二楚

T:      呃，沒有沒有沒有，呃，沒有這個名字出現過，只是我們香港這邊香港這邊就是剛替你做的50支，已經done到了，好好好

S:      還是叫Benson名字的，Benson名字叫柯仕強，是柯仕強有問題嗎？

T:      呃，沒有沒有，沒有問題，沒有問題拉

S:      金管局有名字的，請他不要做詐骗詐欺的事情，byebye

T:      是是，謝謝謝謝 bye”

139.  Ko said Law is still working for the Plaintiff and he did not know why Law had not been called as a witness.  The Defendant criticizes the Plaintiff for failing to call Law as a witness.  The simple fact is that I do not have the Law’s evidence to assist me in understanding his conversation with Huang.

140.  The Defendant refers to Huang’s statement at the beginning that “我們先做50個” and submits that she was plainly intending to close off open positions.  I disagree.  It seems that she was merely placing an order for USD50,000,000 first as she would like to monitor the change in the exchange rate in the meantime.

141.  What is most telling is the following exchanges:

“T:      還有，我要提醒你一下，因為你已經拉了90支的Forward，所以請你呃記得

S: 我沒有喔，我沒有喔

T:      平掉平掉，我不知道，因為我剛剛

S:      喔喔，你講錯話喔，會被電話錄音喔，不要亂講話

T:      不好意思，不好意思

S:      沒有的事情，沒有的事情不要捏造，人要，人要正直的心，真的”

“S:      不是，我說你，你們誣賴我90支的事情

T:      喔，我搞清楚，知道暫時是沒有部位，暫時是沒有部位，但是因為，呃

S:      不要再做騙子的事情，因為我很討厭誠信有問題，非常討厭這種人，知道嗎？”

“S:      50支?你剛剛說90支的事阿，我哪裡有90支，是誰說的？

T:      90支是我講錯了，90支是沒有，呃，我再重複一次，就是我剛剛跟你做就做了50支，有兩筆是在790，有一筆是在780，另外兩筆是在680，一共50支

S: ok，然後這個單子有甚麼問題？

T:      這個單子沒有沒有問題，這是說”

142.  These exchanges show that Huang became very angry when Law tried to remind her that she had extended the settlement date of some transactions in the total sum of USD90,000,000 which had not yet been closed.  She strongly denied that.  Upon checking, Law then confirmed that there was no open position “暫時是沒有部位，暫時是沒有部位” and he had made a mistake.  Huang then asked Law to confirm that the instructions she gave regarding the 18 December Transactions had been properly executed.

143.  It is unnecessary to determine why Law made the mistake.  What is significant is that there is no indication anywhere during this conversation that Huang carried out the 18 December Transactions to square off any pre-existing open positions.  Quite the contrary, she denied that there was any such open position.  According to the Defendant’s case, Huang had open positions totaling USD180,000,000 by then.  Huang tried to explain that she would not specify what a transactions was used for, and it would be relatively rare to say expressly that a particular transaction was to close off previous transactions.  I find her answer puzzling.  At that point of time, she already had some disputes with the Plaintiff, and Law had just made a mistake; she must be very eager to ensure that Law would execute her instructions properly.

144.  The Defendant submits that it would not make any sense for Huang to open any new position on 18 December 2015 when she was told in the evening of 17 December 2015 that the Plaintiff had frozen US$13,900,000 in Highway’s accounts.  However, the Defendant’s account had not been frozen.  And if the Plaintiff allowed her to continue to trade through the Defendant (up to the limit of USD50,000,000 according to what Law said in the conversation) and if Huang believed that she could make a profit, I would not find it surprising that Huang would be willing to open new positions.

145.  It is also curious that, on Huang’s case, she only instructed Law to close the position regarding USD50,000,000.  What about the remaining open position of USD130,000,000?  Huang said that she called Ko afterwards but Ko refused to follow her instructions.  However, she could not explain why she did not mention this at all in her witness statements.

146.  Huang said she could not recall whether she received the Plaintiff’s email dated 22 December 2015 stating that the 18 December Transactions must be settled on that day and no extension by FX Swap or any new transaction could be done.  However, it is clear that she did receive the notice of default issued by the Plaintiff on 23 December 2015 in which the Plaintiff stated that the Defendant had failed to pay JPY6,087,700,000 on 22 December 2015.  As mentioned, Huang replied by email on 24 December 2015 and by letter dated 28 December 2015.  She claimed that the transaction was invalid because it had exceeded the credit limit of USD1,500,000; and she asked the Plaintiff to check whether the Plaintiff had mixed up the Defendant’s transactions with those of other clients and to provide the documentary evidence in two days. She did not say that the 18 December Transactions were used to square off open positions.  Huang explained that, at that time, the Plaintiff had not made it clear that the sum of JPY6,087,700,000 was related to the 18 December Transactions.

147.  In any event, the Plaintiff issued a notice to terminate the agreement with the Defendant on 7 January 2016.  Further, on 11 January 2016, the Plaintiff’s solicitors issued a formal demand for the sum of JPY188,457,462.44 and mentioned that they concerned FX spot transactions including those on or about 18 December 2015.  By an email and a letter both dated 12 January 2016, Huang asked the Plaintiff to provide the exchange rate it used for the settlement on 22 December 2016.  In these communications, Huang still did not mention that the transactions done on 18 December 2015 were for the purpose of squaring off some open positions.

148.  Huang said in court that, by that time, she already had a conversation with Ko some time in December 2015 after her conversation with Law in which she asked Ko to close the position regarding the outstanding USD130,000,000.  With this in mind, I turn to the contemporaneous correspondence.

149.  Huang instructed solicitors to act for the Defendant at around the same time.  By a letter dated 14 January 2016, the Defendant’s solicitors asked the Plaintiff’s solicitors to withhold legal proceedings for 14 days.  The substantive reply given by the Defendant’s solicitors on 28 January 2016 is most telling. She confirmed that this letter was sent with her prior approval.

150.  First, in the reply, the Defendant’s solicitors stated that they had been instructed that the Defendant had on 18 December 2015 entered into three FX spot transactions the total amount thereof was USD50,000,000 to be exchanged to JPY at an average conversion rate of 121.754 resulting in JPY6,087,700,000.  This shows that, by then, Huang must have received the three Confirmations concerning the 18 December Transactions and probably also the relevant monthly statement.  Second, the Defendant’s solicitors referred to Ko’s email dated 22 December 2015.  This shows that, by then, Huang had retrieved and read such email (even if she had not done so earlier). Third, the Defendant’s solicitors then stated that, according to the Bloomberg website, the average exchange rate of USD/JPY on 22 December 2015 was 121.271; and hence, if the Defendant’s position was squared off on 22 December 2015, its loss would only be JPY24,150,000.  Hence, the Defendant would only pay this sum and nothing more.  The Defendant would also not be responsible for any loss arising out of the delay in squaring off the position after 22 December 2015.

151.  What the Defendant’s solicitors had not said in that letter is that the 18 December Transactions were for the purpose of squaring off some open positions.  Indeed, the defence put forward was entirely different, and was incompatible with the Defendant’s present case.  As mentioned, Huang was adamant that the 18 December Transactions were for the purpose of squaring off partially some open positions, and Ko had refused to allow her to square off the remaining open positions in the sum of USD130,000,000.  According to her case, these critical events took place within about 1 month before the Defendant’s said reply letter.  Even assuming that she might not be able to provide full details at that time, I find it most inexplicable that not a single word, and no hint whatsoever, about her present defence was mentioned at all in her solicitors’ reply letter.

152.  Huang said that her father was critically ill since mid-Autumn festival in 2015 and she was very much affected.  He passed away on 17 January 2016, which was 11 days before the Defendant’s solicitors issued the said reply letter.  While I can understand that the Defendant’s disputes with the Plaintiff would not be a matter of priority for her, I am unable to accept that her concerns about her father could adequately explain the way she and her solicitors responded to the Plaintiff’s demand.  I agree with the Plaintiff that the content of the Defendant’s solicitors’ reply letter indicates strongly that the Defendant’s present defence was an afterthought.

153.  According to Huang’s case, there were still open positions in the total sum of USD130,000,000.  By an email issued at 10:30am dated 10 March 2016 (after the commencement of these legal proceedings), the Defendant asked the Plaintiff to close two remaining open positions, one of which was “USD/JPY SHORT 40M USD”.  The Plaintiff replied at 13:34 on the same day that there was no such open position.  While the Plaintiff’s reply is consistent with its present case, the Defendant’s request was not.  In particular, the Defendant did not mention that, in addition, there was an open position of USD90,000,000.  Huang explained that she only recorded instructions given upon successful calls but the Plaintiff refused to accept her call any more.  However, such explanation could not explain why she did not even put on record that the total amount of the open positions should be USD130,000,000 but she only managed to give instructions regarding USD40,000,000 because the Plaintiff had refused to answer any further call.  What is also crucial is that, after the Plaintiff replied that there was not even any open position involving USD40,000,000, Huang admitted that she did not respond further.  Huang explained that she thought it would be useless to do so.  I find this surprising if the Defendant’s present case was true.

154.  Indeed, it was only in the Amended Defence and Counterclaim filed on 26 May 2016 that, for the first time, the Defendant openly alleged that, as of 10 March 2016, the Defendant had at least one “Sell USD Buy JPY FX sport” transaction which had not been fully settled (i.e. Confirmation reference no. 1328228).  I take the view that she added this plea as a result of a detailed examination of the documents, in particular, Confirmation reference no. 1328228, with the assistance of her lawyers.  It should be noted that, even then, she did not claim that she had given instruction to square off the remaining open position of USD40,000,000; or that there was another open position of USD90,000,000.

155.  It was only in the Re-re-amended Defence and Counterclaim filed on 3 January 2017 that the Defendant pleaded that, on 18 December 2015, apart from the three 18 December Transactions, it also instructed the Plaintiff to do a Buy USD/Sell JPY FX spot transaction of USD40,000,000 to square off the open position of USD90,000,000 created by Confirmation reference no. 1328228 completely.

156.  The allegation that there was another open position of USD90,000,000 only appeared in the RRRRADC filed on 4 July 2018.  I take the view that the Defendant added such plea after it noted the reference no. 1328230 among the documents disclosed by the Plaintiff in Ko’s 1^st witness statement made on 20 November 2017.  If it was clear to Huang that, by 10 March 2016, the total amount of the outstanding open positions was USD130,000,000, I would have thought that such an allegation would have been pleaded much earlier.

157.  Huang did not claim to have any independent recollection of creating any new open positions of USD90,000,000 or USD180,000,000 on 16 or 17 December 2015.  I take the view that her case is based on her attempt to “reconstruct” the events upon a microscopic examination of the documents including those disclosed in these proceedings.  In the course of doing so, she tried to take advantage of errors and mistakes made by the Plaintiff on the documents or otherwise; and construe the audio-recorded conversations in a way that suited her case.

F6.    Conclusion on the Plaintiff’s claim

158.  All in all, having considered all relevant evidence and the parties’ submissions carefully, I find that:

(a)  The Defendant, through Huang, agreed to enter into three FX swap transactions on 11 December 2015 as evidenced by her conversation with Ko on that day.

(b)  On 17 December 2015, the Defendant closed leg-2 of those swap transactions.  This transaction was evidenced by Confirmation reference no. 1328733.  I take the view that the trade date of 16 December 2015 on that Confirmation was a mistake though the reason for that is unclear.  I also infer that that Confirmation was the subject matter of the conversation between Huang and Yu in the early hours on 17 December 2015.  Although I will not rely on Ko’s evidence about the content of that conversation in view of the Plaintiff’s failure to call Yu and produce the relevant audio-recordings, I will draw such an inference from all other circumstantial evidence considered above.

(c)  Confirmation reference no. 1328228 had been cancelled.  It did not evidence any separate transaction.  It was cancelled because the Plaintiff decided to adopt the exchange rate shown in Confirmation reference no. 1328733. In other words, there was no open position of USD90,000,000 created or evidenced by Confirmation reference no. 1328228.

(d)  Reference no. 1328230 was merely an internal reference no. concerning Confirmation reference no. 1328228 (which had been cancelled).  There was no open position of USD90,000,000 created or evidenced by reference no. 1328230.

159.  It follows from these findings that I have come to the conclusion that, by the time of the 18 December Transactions, there was no open position as alleged by the Defendant or at all.  I am not satisfied that the 18 December Transactions were used to settle partially any such open position.

160.  I hold that the Defendant has failed to discharge the burden of proof in this respect. I wish to add that, even if I were wrong in that the burden of proof is on the Plaintiff to disprove the existence of any open position, in view of the totality of the evidence considered above, I would have come to the same conclusion.

161.  It follows that the Plaintiff succeeds in its claim. I shall now turn to the Defendant’s counterclaims.

G.      COUNTERCLAIM(1) – THE UNAUTHORISED CANCELLATIONS

162.  The Defendant claims that the Plaintiff had cancelled, aborted or discontinued five sets of transactions without its authorization.

G1.    1st unauthorized cancellation – Items 2 &4 of Appendix 2 to RRRRADC

163.  The Defendant claims that, according to the audio-recording, on 28 August 2015, it instructed the Plaintiff to execute a “Sell USD/Buy EUR” FX spot transaction in the sum of EUR50,000,000 at the exchange rate of 1.119.  Further, given the Defendant’s practice of settling all FX transactions by cash settlement within 1 or 2 days, it must have also instructed the Plaintiff to net off the position on 31 August 2015 at the exchange rate of 1.1261 (which was the most favourable rate to the Defendant on that day).  However, the Plaintiff had failed to execute these transactions.

164.  According to the audio-recording, on 28 August 2015 at about 22:05:24, there was a conversation between Huang and Law which lasted for about 1 minute 3 seconds.  Huang said “Long EUR” at the outset.  Towards the end, Law said “1.1190 Long 50支” and Huang apparently confirmed.  The Reuter historical rates support that an order could be executed on that day at such exchange rate.

165.  In cross examination, Ko said that the order was made in the late evening and he was unaware of it at that time. If the order was executed, Huang would have asked him to square it off, but she had not done so.  Law, who has personal knowledge of the matter, has not given evidence to clarify the matter.

166.  I accept that the evidence supports that Huang had given the said instruction to Law.  I cannot speculate why the instruction was apparently not executed as Law has not given evidence.  However, if the transaction had been executed, one would expect that either Huang would have given instructions by the settlement date to close the position; or Ko would have reminded Huang to do so.  But there is no evidence that this was what had happened.  I am unable to determine what happened in fact.

167.  More importantly, it is also unclear from the audio-recording on behalf of which company under Huang’s control was the instruction given.  Ko said that Huang would not necessarily specify to which company she would like the transaction be booked; and Huang allowed him to make the decision on her behalf.  Huang said that this was the case in relation to transactions done in Hong Kong.  However, after the transactions were executed, Ko would inform her which company would be used.  In her words, without knowing to which company a particular transaction would be booked, it would become something like a “headless corpse”.  She also said that, as to which company a particular transaction should be booked, sometimes she would make the decisions; and sometimes, Ko would make the decisions.  Returning to the instruction given on 28 August 2015, there was no evidence that either Ko or Huang had decided to book this transaction (if actually executed) to the Defendant.  

168.  Bearing in mind that the burden of proof is on the Defendant, I am not satisfied that the Defendant has discharged the burden of proving that the Plaintiff has wrongfully cancelled the said transactions which were  entered on behalf of the Defendant (but not any of the other companies controlled by Huang).  Hence, the Defendant’s counterclaim based on this transaction is dismissed.

G2.    2nd unauthorized cancellation – items 7 & 8 of Appendix 2 to RRRRADC

169.  The Defendant claims that, according to the WeChat messages, the parties had entered into the following EUR/USD FX spot transactions on 4 December 2015:

Exchange rate	Buy(sell) USD	Buy (sell) EUR
1.0848	5,424,000	(5,000,000)
1.0808	(5,404,000)	5,000,000

170.  According to the WeChat messages between Law and Huang, on 3 December 2015, at 22:12 and 22:17, Law showed to Huang two screenshots showing two tables; in the first table, the first item was “1,08480 -5”; in the second table, the first and fifth items were both “1.08080 5”.  At 07:44 on 4 December 2015, Huang sent to Ko a handwritten table by WeChat.  The top of the table reads “12/2台新HK”.  In the table, the “sell” side on the left included “EUR 5M 0848” and the “buy” side on the right included “EUR 5M 0808”.  These two entries were also paired up by a circle.  At about 10:25 on the same day, Ko informed Huang by WeChat that “香港歐元部位已平，剩下的我全丢回台北 (1.0848/1.0808已冲帳)”.  He also sent a handwritten table concerning “€/$” to Huang, which showed, among other things, under the “sell” side on the left “5M 1.0848” and under the “buy” side on the right “5M 1.0808”.  Ko said he copied this table from that provided by Huang.

171.  In cross examination, Ko referred to the screenshot of an Excel table he sent to Huang later at about 17:40 on 4 December 2015.  The table referred to “Highway”.  The table stated “Buy EURUSD 5 million at 1.08090” and “Sell EURUSD 5 million at 1.08390”.  He said that they were instructions executed by him pursuant to instructions given by Huang that morning. In the exchanges, he asked “1.0840-5/1.0808+5這套我先沖喔” and Huang indicated okay. He added and deducted one point as the agreed spread when executing the transactions.  He produced two Confirmations issued to Highway dated 4 December 2015 as follows:

Reference no.	Exchange rate	Amount of EUR buy (sell)	Amount of USD buy (sell)
1298365	1.0809	5,000,000	(5,404,500)
1298399	1.0839	(5,000,000)	5,419,500

172.  He said he only came to know the WeChat messages between Law and Huang later.  He admitted that, in view of such messages, “Sell USD/Buy USD” of USD5,000,000 at the exchange rate of 1.0848 was not an error as he stated in his supplemental statement.  He admitted that no such transaction was recorded in the account of either the Defendant or Highway.  He also admitted that this transaction had not been carried out.  But he stressed that Huang did not raise any objection when he sent the Excel table to her.  In re-examination, he said that Huang asked her to square off the position at the exchange rate of 1.0848 but he used the rate of 1.0840, and Huang also agreed.

173.  I believe, in essence, Ko admitted that he had made a mistake by executing the transaction at the exchange rate of 1.0840 instead of 1.0848 (putting aside the spread) pursuant to the instructions given by Huang to both Law and him.  But, more importantly, he pointed out that in the table prepared by Huang, it was simply stated “台新HK”; and this could mean either the Defendant or Highway.  He said that Huang allowed him to choose to which company these transactions should be booked. And he booked them to the account of Highway.  What he said is consistent with Huang’s evidence in this respect mentioned above.  Huang said in court that the table was intended to refer to transactions for the Defendant; and the second table she sent to Ko at the same time referred to transactions for Highway.  However, this is not apparent on the face of the documents.  The first table referred to USD/EUR transactions whereas the second one referred to USD/JPY transactions.  There is no indication that the two tables were meant for the same company or different companies.  Looking at the objective evidence, I am not satisfied that, on this occasion, Huang had specifically instructed Ko that the transactions in issue should be booked in the Defendant’s account.

174.  In short, I take the view that these transactions were in fact entered on behalf of Highway, not the Defendant. This was a decision made by Ko pursuant to Huang’s authorization.  It is correct that Ko made a mistake; however, it would be a matter for Highway to pursue against the Plaintiff.  In any event, for the present purpose, it is sufficient for me to find that the Defendant has failed to prove, on a balance of probabilities, that the instructions for these transactions were given, and they were entered, on behalf of the Defendant. Hence, the Defendant’s counterclaim based on these transactions is dismissed.

G3.    3rd unauthorized cancellation - items 9 & 10 of Appendix 2 to RRRRADC

175.  The Defendant claims that, according to the audio-recording, at about 23:08 on 4 December 2015, there was a Sell EUR 5,000,000 and Buy USD 5,472,500 FX spot transaction at the exchange rate of 1.0945 with a value date of 7 December 2015.  Hence, there must also be a corresponding transaction to close the position on 7 December 2015 as follows: Sell USD5,397,000 and Buy EUR 5,000,000 at the exchange rate of 1.0794.

176.  In his evidence in chief, Ko withdrew §7 of his supplemental statement in this respect.  Hence, the Plaintiff has not adduced any positive evidence to rebut the Defendant’s counterclaim.  What is left is the audio-recording, the relevant parts read as follows:

“S:    好，450，５個，那你備註台灣

T:    好好好

S:    好，謝謝

T:    好，450sell5支，謝謝你，好，bye-bye”

177.  Huang was cross examined on what she meant by “備註台灣”. She said that the audio-recording was incomplete. But, most importantly, she admitted that she could have meant Kifa, another company under her control, though she could not see this transaction in Kifa’s monthly statement.

178.  In the light of Huang’s evidence just mentioned, I am not satisfied that the instruction for this transaction evidenced by the said audio-recording was given by Huang on behalf of the Defendant.  It appears that Kifa might have a claim against the Plaintiff but this is irrelevant for the present purpose.  Accordingly, the Defendant’s counterclaim in this respect is dismissed.

G4.    4th unauthorized cancellation – items 11 & 12 of Appendix 2 to RRRRADC

179.  The Defendant claims that the Defendant had failed to carry out the following transaction on 17 December 2015:

Ref. no.	Exchange rate	Amount of JPY the Defendant agreed to buy	Amount of USD the Defendant agreed to sell
1328230	122.25	11,002,500,000	90,000,000

And, had such transaction not been cancelled, the Defendant would have settled it on 18 December 2015 as follows:

Exchange rate	Amount of JPY the Defendant agreed to sell	Amount of USD the Defendant agreed to buy
121.04	10,893,600,000	90,000,000

180.  The Defendant’s counterclaim is based on an assumption that there was indeed a transaction evidenced by reference no. 1328230.  For reasons I explained when I considered the Plaintiff’s claim above, I have found that this reference no. referred to the same transaction evidenced by Confirmation reference no. 1328228, which had been cancelled. I have also found that, as there was no open position created by any such transaction in the first place, the Defendant had not wrongfully refused to close such position subsequently.  It follows that the Defendant’s counterclaim in this respect is dismissed.

G5.    5th unauthorized cancellation – item 13 of Appendix 2 to RRRRADC

181.  The Defendant refers to the order to Buy USD/Sell JPY FX spot in the sum of USD40,000,000 which it attempted to place on 18 December 2015.

182.  This was the transaction which the Defendant claimed to have executed in order to square off the open position of USD90,000,000 completely together with the 18 December Transactions in the total sum of US$50,000,000.  For reasons stated above, I found that the Defendant had not entered into any such transaction.  Hence, the Defendant’s counterclaim in this respect is dismissed.

H.     COUNTERCLAIM(2) - THE UNAUTHORISED WITHDRAWAL

183.  The Defendant claims that the Plaintiff withdrew a sum of EUR 10 million out of the Defendant’s account without its authorization.  According to Confirmation reference no. 1064448 dated 4 September 2015, on 2 September 2015, the Defendant agreed to buy EUR10,000,000 and sell USD11,229,0000 at the exchange rate of 1.1229 with a value date on 8 September 2015. However, in the monthly statement for September 2015, on 8 September 2015, for this Confirmation reference no. 1064448, there were three entries.  Apart from deducting USD11,229,000 (under the entries concerning USD) and crediting EUR10,000,000 (under the entries concerning EUR), the Defendant had also deducted EUR 10,000,000 (under the entries concerning EUR).

184.  The Plaintiff explains that it was a mistake in that the withdrawal should be related to Confirmation reference no. 1066596, which was a FX swap transaction on 7 September 2015 whereby the Defendant agreed to buy USD11,210,500 and sell EUR10,000,000 at the exchange rate of 1.12105 with a value date of 8 September 2015.  In the monthly statement, on 8 December 2015, for Confirmation reference no. 1066596, one can find a deposit of US11,210,500 (under the entries concerning USD) but there is no corresponding debit entry of EUR under such reference number (under the entries concerning EUR).

185.  Ko said that the mistake was not made by him as he was not the person responsible for preparing the monthly statements.  In cross examination, Ko’s attention was drawn to an entry against 21 December 2015 which stated “ERROR CORRECTION REVERSE ENTRY TMU 1317222”.  Ko admitted that there was no similar correction in relation to the withdrawal in question.  

186.  The fact that there was no express correction is inconclusive.  Whether the mistake was made by Ko is also immaterial.  On the face of the document, it is an obvious mistake.  First, it is illogical and impossible to have both credit and debit entries of the same amount in the same currency on the same date under the same Confirmation reference no.1064448.  Second, the absence of any corresponding debit entry to the credit entry in relation to Confirmation reference no. 1066596 shows clearly that the debit of EUR10,000,000 must have been mistakenly attributed to Confirmation reference no. 1064448 when it should have been attributed to Confirmation reference no. 1066596.  Accordingly, the Defendant’s counterclaim in this respect is dismissed.

I.      COUNTERCLAIM(3)-WRONG EXCHANGE RATE DEALINGS

187.  The Defendant claims that the Plaintiff failed to carry out a number of transactions, and instead, purportedly conducted on behalf of the Defendant a number of transactions using the same type and amount of foreign currency but with an exchange rate that was different from the one authorized by the Defendant.  The particulars of those transactions are set out in Appendix 3 of the RRRRADC.

188.  The Plaintiff’s case as pleaded in §13C of RRRARDC is that:

“(1) when reporting to clients (such as the Defendant) with respect to financial transactions involving exchange rates, staff of the Plaintiff typically quote the exchange rate at cost (the gross rate);

(2) the Plaintiff may, depending on the terms of its agreement with the relevant client, charge an agreed spread over the quoted gross rate;

(3) the resulting net rates (i.e. the gross rate plus or minus the agreed spread), not the gross rates, would be recorded in the trade confirmations;

(4) in the case of the Defendant, by agreement of the parties as contained in or evidenced by WeChat messages exchanged on about 2 June 2015 between Steve Chen (陳瑞輝) of the Plaintiff and Sophie Huang of the Defendant and/or by agreement of the parties arising from their course of dealing, the Plaintiff was entitled to charge (and in fact charged) the Defendant a spread of 0.01 for exchange rates involving Japanese Yen and a spread of 0.0001 for other exchange rates in respect of the transactions listed in Appendix 3 to the RRRRAD&C…”

189.  Under clause III(1) of the Master Agreement, the Plaintiff was entitled to charge fees or commissions “in accordance with the agreed terms of that Transaction”.  The question is whether there was such an agreement. Had there been such agreement, it would be legally binding and supported by good consideration.  In particular, the spread would be handling fees charged in return for the service provided by the Plaintiff in assisting the Defendant to execute the FX transactions.  

190.  To begin with, the Plaintiff has not produced any document supporting the existence of any such agreement.  Indeed, according to Ko, the reason why, in the meeting on the morning of 17 December 2015, Confirmation reference no. 1328228 was cancelled and Confirmation reference no. 1328733 was adopted, was because Huang had never signed anything to confirm such an agreement.  Ko said at that time, Huang was already quite rude to them, and he did not want to give her any excuse to make a complaint.

191.  Ko said that Chen had already left the Plaintiff but he could not recall when he did so.  Although there was no written record, the one-point pre-determined spread (in substance, a handling fee) was only charged to Huang’s account; and since she entered into a large number of transactions and was well-known inside the Plaintiff, all colleagues of the Product Management team responsible for entering the details of the transactions into the computer system would know about the agreement.

192.  Turning to the WeChat messages that the Plaintiff relies on, they took place on 2 June 2015.  This was after the Defendant signed the Master Agreement, but before it signed the Facility Letter or the FTMA.  Ko admitted that those conversations concerned transactions involving Huang’s other companies.  Nevertheless, after Chen said that he was quoting the rates at costs, Huang offered “留點給台新賺吧”, “你扣點手續費”.  Chen then said “賺0.00001”. Not too long after that, Chen said “確認電郵時再charge 1點” and he gave an examples as follows “舉例來說；方才買在1.5188，賣在1.5200，他會回報你成本。但是確認時會發出highway1.5189買，1.5199賣。”  He then asked “OK? Charge 1點?”.  Huang then sent an emoji indicating okay.  Ko said that this seemed to be a British pound transaction, and the 0.0001 arrangement would apply to British pound/USD, Euro/USD and Australian dollar/USD transactions.  However, the spread for Japanese Yen transactions would be different: it would be US$1,000,000 X 0.01 coming to JPY1,000.  He said that the agreed spread applied to Huang’s two Hong Kong companies i.e. the Defendant and Highway. He did not know about Kifa.

193.  I am not satisfied that the above WeChat messages were sufficient to prove the existence of an agreement on the spread between the parties.  First, it seems that they were talking about transactions involving Highway.  At that stage, the Defendant had not yet signed the FTMA and started trading in FX transactions.  I doubt very much Chen and Huang had the Defendant in mind during that conversation.  Second, it is unclear what “1點” really meant; in particular, there was no mention that it would mean something different if Japanese Yen was involved.

194.  Huang admitted that she had agreed to the charging of handling fees for transactions done for Kifa; and some transactions for Highway.  She said she would agree to pay handing fees if the transactions involved tough jobs.  But she denied that she had ever agreed to pay any handling fees for transactions of the Defendant.

195.  In determining whether the parties had agreed on the spread arrangement, it is pertinent to consider the parties’ subsequent conduct.  There is no dispute that, up to around 16 or 17 December 2015, the Plaintiff had always added the agreed spread to the Confirmations and the Defendant had never raised any objection.  Huang said that, usually, she would receive the Confirmations in one go by post at the beginning of each month.  The counterclaim in this respect was only raised in the Re-re-re Amended Defence and Counterclaim filed on 17 July 2017.  

196.  There were WeChat exchanges on 21 August 2015 during which Huang said that, if the Hong Kong branch did not charge any handling fee for Renminbi (“RMB”) transactions, she would place orders in Hong Kong.  This seems to suggest that, before that, there was a consensus that a spread would be charged.  Nevertheless, the Plaintiff claims that, after that day, it ceased charging the Defendant any spread for RMB transactions.  There were very few transactions involving RMB in any event.  In addition, as mentioned, no spread was charged in relation to the transaction under Confirmation reference no. 1328733.  The Defendant also pointed out that no spread was charged in respect of Confirmation reference no. 1298743 on 4 December 2015.  Looking at the conduct of the parties since around August 2015, and notwithstanding a few exceptions as just mentioned, the Plaintiff submits that an agreement on the spread could be inferred.  If such an agreement could be inferred, I would not think it can be defeated by the entire agreement clause under clause XXV of the Master Agreement or clause 24 of the FTMA, which were signed before the parties embarked on the relevant course of conduct.

197.  While the Plaintiff’s case that an agreement on spread can be inferred by the parties’ conduct is an attractive submission from a practical point of view, at the end, I am not satisfied that I can accept it. In Modahl v British Athletic Federation Ltd [2002] 1 WLR 1192 at 1222, §102, Mance LJ (as he then was) held that:

“One distinction exists however in relation to the ease with which an express or implied contract may be established. Where there is an express agreement on essentials of sufficient certainty to be enforceable, an intention to create legal relationship may commonly be assumed… It is otherwise when the case is that a contract should be implied from the parties’ conduct…It is then for the party asserting a contract to show the necessity for implying it…”

  The Plaintiff has not addressed me on how the requirement of necessity can be satisfied in this case.

198.  Although I am not satisfied that the Plaintiff has proved the agreement on spread as alleged, this is not the end of the matter. Clause 2 of the FTMA provides, inter alia, that:

“客戶必須就確認函內容為核對，如發現該確認函的內容與客戶所理解的交易協議的條款有異時，必須立即通知銀行，銀行在收到客戶的通知後，會就客戶所提出的有異的地方作出查證，而作出決定。除非銀行所出的決定有明顯不公平的地方，否則以銀行所作的決定為準。再者，如果客戶未在確認函送達 (或被視為送達) 後九十日內提出有異的通知，即視為完全接受確認函的內容。”

199.  The Defendant has not denied that it had received the Confirmations.  The main issue is whether this clause constitutes a ”conclusive evidence clause”.

200.  In Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] 1 AC 80 at 109J-110C, Lord Scarman held that:

“…They are contractual in effect, but in no case do they constitute what has come to be called “conclusive evidence clauses”. Their terms are not such as to bring home to the customer either “the intended importance of the inspection he is being expressly or impliedly invited to make,” or that they are intended to have conclusive effect against him if he raises no query, or fails to raise a query in time, upon his bank statements. If banks wish to impose upon their customers an express obligation to examine their monthly statements and to make those statements, in the absence of query, unchallengeable by the customer after expiry of a time limit, the burden of the objection and of the sanction imposed must be brought home to the customer. In their Lordships’ view the provisions which they have set out above do not meet this undoubtedly rigorous test. The test is rigorous because the bankers would have their terms of business so construed as to exclude the rights which the customer would enjoy if they were not excluded by express agreement. It must be borne in mind that, in their Lordships’ view, the true nature of the obligation of the customer to his bank where there is not express agreement is limited to the Macmillan and Greenwood duties. Clear and unambiguous provision is needed if the banks are to introduce into the contract a binding obligation upon the customer who does not query his bank statement to accept the statement as accurately setting out the debit items in the accounts.”

201.  As observed by DHCJ Pow SC in DBS Bank (Hong Kong) Ltd v San-Hot HK Industrial Co Ltd [2013] 4 HKC 1 at 144-145, §207, the validity of conclusive evidence clause drafted in accordance with the principles laid down in Tai Hing Cotton Mill had been upheld in numerous commonwealth authorities.  The Defendant has also referred me to the following cases cited by DHCJ Pow SC: Dobbs v The National Bank of Australasia Ltd (1935) 53 CLR 643 at 651; Bache & Co (London) Ltd v Banque Vernes ET Commerciale de Paris S.A. [1973] 2 Lloyd’s Rep 437 at 438; and Sun Hung Kai Forex & Bullion Company Ltd v Yick Ming Kit, HCA8589/1992 (1 August 1995, unreported), p 15.  While these precedents provide useful examples illustrating how the principle was applied, each case must depend on its own facts, in particular, the contractual terms in question. As Lord Walker held in Financial Institution Services Ltd v Negril Holdings Ltd and another [2004] UKPC 40 at §43:

“The courts below relied heavily on the decision of the Board in Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80. The facts of that case were very different in that it involved, not an objection to the rate of interest charged, but the honouring by three different banks of several hundred cheques on which a managing director’s signature had been forged by an accounts clerk. Moreover, the contractual terms (set out in the report at page 109) were different in that two of the three banks’ documentation referred to “errors” (and the third simply referred to confirmation of the account). However, their Lordships do derive assistance from the general proposition in Tai Hing (at page 110) that,

‘Clear and unambiguous provision is needed if the banks are to introduce into the contract a binding obligation upon the customer who does not query his bank statement to accept the statement as accurately setting out the debit items in the accounts.’”

202.  I shall apply this general proposition to construe clause 2 of the FTMA.  Contrary to the Defendant’s submissions, I take the view that it is a clear and unambiguous provision imposing a binding obligation on the Defendant, who did not query the Confirmations, to accept them as accurately setting out the details of the transactions including the exchange rates used:

(a)  To begin with, it states “客戶必須就確認函內容為核對”. The words “必須” are mandatory in nature.  They were clearly intended to impose an obligation on the Defendant to check the content of the Confirmations.

(b)  It then provides that, if the Defendant discovered any difference or discrepancy between the content of the Confirmation and its understanding of the terms of the transaction, the Defendant “必須立即通知銀行”.  Once again, the words “必須” were clearly intended to impose an obligation on the Defendant to notify the Plaintiff immediately of any such difference or discrepancy.  It then sets out how the Plaintiff would investigate and resolve any such difference or discrepancy.

(c)  The consequence of the Defendant’s failure to discharge the obligation to check the Confirmations and notify the Plaintiff of any such difference or discrepancy within 90 days after service or deemed service of the Confirmation was then spelt out in the following terms “即視為完全接受確認函的內容”.  The phrase “完全接受” is critical.  It means “fully or completely accept”.  The whole sentence means that, in such event, the Defendant would be taken to have fully or completely accepted the content of the Confirmations.  To accept something fully or completely must imply that no challenge will or can be made subsequently.

(d)  It is not a game of words. I do not accept that words such as “final”, “irreversible”, “conclusive evidence”, “binding”, “unchallengeable”, “indisputable” (taken from the precedents), or their exact Chinese equivalents, must be used expressly as alleged by the Defendant.

203.  The Defendant argues that, even if clause 2 of the FTMA can be construed as a conclusive evidence clause, it can have no effect in this case given that, many of the Plaintiff’s Confirmations are inaccurate.  It cites the following judgment of Megaw LJ in Bache & Co (London) Ltd v Banque Vernes ET Commerciale de Paris S.A. [1973] 2 Lloyd’s Rep 437 at 440:

“If the defendant bank showed fraud on the part of the plaintiff company or if it showed a mistake on the face of the notice of default, then there could be no suggestion that the contents of that notice of default, at any rate pro tanto, would amount to conclusive evidence preventing them from disputing the liability or the amount, or both, as the case might be.”

204.  This passage must be read in its context.  In that case, the plaintiffs, commodity brokers, demanded a bank guarantee before entering into buying and selling transactions on behalf of their customer, a French trading company.  The defendants, who were the trading company’s bankers, gave the guarantee which contained a conclusive evidence clause providing that a notice of default given by the plaintiffs to the defendants shall be conclusive evidence that liability had accrued in respect of the amount claimed.  The plaintiff issued a notice of default and applied for summary judgment.  The defendants contended that the amount claimed was not correct and the conclusive evidence clause was contrary to public policy because it was an ouster of the jurisdiction of the Courts and, hence, invalid. The English Court of Appeal rejected these arguments.  Lord Denning MR observed at p. 440 that the defendants could recover the sum from their own customer, the French trading company; and if the figure was erroneous, the French trading company could correct it by instituting proceedings against the brokers.  Megaw LJ expressed the same view after the passage cited by the Defendant; and Scarman LJ also shared the same view at p. 441.  I accept that a contracting party would not be entitled to rely on a conclusive evidence clause if there was fraud.  However, there is no allegation of fraud in this case.  If one reads the judgment of Megaw LJ as a whole, it is clear that, when he said “mistake on the face of the notice of default”, he was referring to an apparent mistake on the face of the document, rather than any mistake or error alleged by the other contracting party.  If a contracting party can get round a conclusive evidence clause by simply alleging a mistake or error, this would defeat the whole purpose of the conclusive evidence clause.  In this case, the Defendant has not pointed to any apparent mistake on the face of any of the Confirmations in issue.

205.  The Defendant also argues that it had given the Plaintiff the notification under clause 2 of the FTMA within 90 days in that, in respect of all Confirmations connected to the Plaintiff’s claims, it had objected to them by its email dated 24 December 2015; and in respect of all other Confirmations received by it after 30 October 2015, it would rely on the 28 January 2016 letter. In the email dated 24 December 2015, the Defendant merely asked the Plaintiff to provide proof and the Confirmations concerning the transactions giving rise to the Plaintiff’s demand for JPY6,087,700,000.  In the letter dated 28 January 2016, the Defendant’s solicitors merely asked for the audio-recordings or records in the Plaintiff’s possession in relation to all transactions covered by the FTMA.  These letters did not contain any objection or challenge to the exchange rates used in any of the Confirmations in issue.  Under clause 2 of the FTMA, it is clear that the Defendant must pinpoint the difference or discrepancy so that the Plaintiff could investigate and resolve it.

206.  I, therefore, hold that clause 2 of the FTMA is a conclusive evidence clause; and the Defendant is barred by it from alleging that the exchange rates used in the Confirmations in question were wrong.  It follows that the Defendant’s counterclaim in this respect is dismissed.

J.      CONCLUSION AND ORDERS

207.  For the above reasons, first, I shall allow the Plaintiff’s claim and order that the Defendant do pay the Plaintiff the sum of JPY187,110,057 with interest at 1% above the prevailing prime rate of HSBC on JPY180,942,535 from 21 January 2016 until the date of this judgment, and at the judgment rate after that until payment.  On interest, I use the usual commercial rate in the absence of submissions from either party that any other rate should be used.  Second, I shall dismiss all the Defendant’s counterclaims.

208.  As to costs, there is no reason why costs should not follow the events.  The Plaintiff submits that the Defendant should pay costs to be taxed on an indemnity basis because the defence is scandalous and oppressive, and has significantly lengthened the litigation.  The relevant principles concerning the award of indemnity costs were restated recently by the Court of Final Appeal in Commissioner of Inland Revenue v Poon Cho Ming John (No 2) (2020) 23 HKCFAR 74 at 78, §4, which I will not repeat.  I am not convinced that there are any special or unusual features in this case which would make it appropriate to order indemnity costs against the Defendant.  The Plaintiff should bear in mind that the Defendant was able to run most, if not all, of its defences because of errors, mistakes or inadequacies in the records and documents of the Plaintiff.  Indeed, as one may see from the length of this judgment, I did not find it easy to resolve the issues.  I would therefore make a costs order nisi that the Defendant shall pay to the Plaintiff the costs of this action (including all costs reserved) to be taxed on a party and party basis if not agreed (with a certificate for two counsel).  If, notwithstanding what I have said, either party intends to vary the costs order nisi, it shall make a written application not longer than 5 pages within 14 days; the other party shall file a written reply not longer than 5 pages within 14 days after that; and I will then resolve the matter on paper.