HCA016440B/1998
HCA16440/1998
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO.16440 OF 1998
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| BETWEEN | | |
| BHAGWAN SHANKARDAS MOORJANI | Plaintiff |
| | |
| AND | |
| | |
| THE KA WAH BANK LTD. | Defendant |
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Coram: Hon Yam J in Court
Dates of hearing: 22, 23, 24 and 29 February, 1, 2 and 6 March 2000
Date of judgment: 10 March 2000
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J U D G M E N T
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Background
1. On 7 July 1998, Mr Moorjani, the plaintiff herein opened a Multi Currency Savings Account No.701-1-27428-6 with the defendant Ka Wah Bank Ltd. ("the bank"), for the purpose of conducting margin trading of foreign currencies. He signed the Savings Account Opening Form.
2. On 9 July 1998, Mr Moorjani opened a trading account with the defendant for margin trading of foreign currencies and was subsequently assigned an account No.49202. He signed the following documents upon the opening of this trading account, namely :
(1) Master Agreement for Trading in Foreign Exchange and Foreign Exchange Trading Account ("Master Agreement");
(2) General Agreement for Commercial Business ("General Agreement");
(3) Risk Disclosure Statement; and
(4) Easy Access Margin Trading ("EAMA") Application Form.
3. At that time, Mr Moorjani gave his address in Hong Kong as Kowloon Central PO Box 71425, together with two office telephone numbers of his friend in Middle Road. According to the bank record, he amended his address in Hong Kong with a Middle Road office address of his friend on or about 13 July 1998. He departed Hong Kong for India on 18 July 1998 and did not come back until 10 September 1998. Before he left for India, according to the bank, he had only left behind an Indian telephone number which turned out to be his mobile phone number in India. On 29 September 1998, he amended his correspondence address back to his aforesaid KC PO box number.
4. By 29 July 1998, Mr Moorjani had the following amount in his savings account :
(1) USD70,631.15
(2) HKD67,795.88/7.745 equivalent to USD8,754
Total amount: USD79,385
5. On 30 July 1998, the bank, through its dealer Mr Victor Wong, successfully contacted Mr Moorjani in India through his mobile phone and informed him that the bank would hold his US dollar deposit in the sum of $70,000 as his margin trading deposit. Mr Moorjani agreed and expressed that he understood the same.
6. Thereafter, Japanese Yen had drastically dropped against US dollar. At that time, Mr Moorjani had shorted three US dollar contracts totaling $1.1 million together with one Deutsche Mark contract and one New Zealand dollar contract. The total loss of three USD/JPY contracts was in the region of about USD50,000. According to the bank, they could not reach Mr Moorjani on 31 July, 3 and 4 August 1998 (1 and 2 August being Saturday and Sunday). They had no alternative but to square off his USD/JPY contracts.
The Dispute
7. According to the bank's calculation, the realised loss of the three USD/JPY contracts together with the floating loss of USD/DEM contract and the floating profit of NZD/USD contract would leave a maintenance margin of about USD20,757.44, being 1.66% of their total contract value. The contract provided that the trader should at all times maintain 5% of the margin of the contract value.
8. Mr Moorjani disputed the same and contended that the JPY contracts should not be terminated for the following reasons :
(1) The HKD deposit in the equivalent amount of USD8,754 should also be used for the purpose of margin trading.
(2) More importantly, his understanding of the contractual provisions in the margin trading was to maintain at all times 5% of the then contract value as a result of the currency fluctuation.
9. As an example, Mr Moorjani contended that :
(1) Short USD1,000,000 would require a margin deposit of USD50,000.
(2) Assuming at the date of the selling of USD1,000,000 against JPY at the exchange rate of 100, and JPY fell to the rate of 110 on value date, the position would be short USD1,100,000 making a loss of USD100,000.
10. According to Mr Moorjani, his responsibility under the contractual provisions was only to provide 5% of the value of the contract USD1,100,000 i.e.USD55,000. In other words, he would only be required to pay USD5,000 more in order to maintain his 5% of the contract value.
11. However, according to the bank, it was contended that Mr Moorjani would have lost USD100,000 and he would have to pay for the loss suffered in that sum together with USD5,000 to maintain his 5% of the contract value in order to keep his position open. The difference between the two parties is USD100,000.
12. This is the main dispute between the parties. In short, even if whatever sums were available in Mr Moorjani's savings account, and if the bank was right, Mr Moorjani's deposit would not be sufficient to cover all the losses and to maintain 5% of all the contract value.
13. On the other hand, if Mr Moorjani is right, his USD70,000 would be sufficient to cover 5% of all his contract values after the currency fluctuation and ex hypothesis, his total deposit would be more than sufficient for the same purpose.
The Contract
14. Relevant clauses of the Master Agreement provided as follows :
"3. Cash Margin
3.1 Immediately upon the Customer entering into a Contract, the Customer shall, unless the Bank otherwise agrees, pay to the Bank an Initial Cash Margin in an amount equivalent to five per cent. (5%) (or such other percentage as the Bank may in its absolute discretion determine and notify the Customer pursuant to the provisions of Clause 11.1 or by posting a notice of the then current percentage at the head office of the Bank in Hong Kong for a consecutive period of ten (10) days) of the face value of the Contract entered/to be entered into.
3.2 The Bank may at any time and from time to time in accordance with the provisions of Clause 11 request the Customer to pay Additional Cash Margin or Margins for any outstanding Contract (whether prior to or after the Value Date of such Contract) in such amounts so that the percentage that the relevant Margin bears to the then current value of the relevant Contract is not less than the percentage applicable under Clause 3.1 and the Customer shall pay all such Additional Cash Margin in accordance with the demand.
3.3 The Bank shall be entitled to apply Cash Margin in discharge of the Customer's liabilities to the Bank."
"6. Performance of Contracts
6.1 (a) On the Value Date of a Contract, the Customer shall pay the amount due by the Customer to the Bank under the relevant Contract in the currency agreed and in cleared funds to such account or accounts (whether in Hong Kong or elsewhere) designated by the Bank.
(b) Subject to the Bank being satisfied that the Customer has discharged its obligations under paragraph (a), the Bank shall credit the amount due to the Customer under the relevant Contract in the currency agreed into the Customer's Foreign Exchange Trading Account.
6.2 In addition and without prejudice to the provisions of this Agreement (and in particular Clause 13), if there is any payment due and payable on any day from the Bank to the Customer or from the Customer to the Bank under two or more Contracts involving payment of the same currency, such payments shall be aggregated and/or netted off (as the case may be) as if they were due under one single contract and any amount so due after such aggregation/netting off shall be payable subject to and in accordance with the provisions of Clause 6.1."
The bank contended that on the value date since Mr Moorjani had suffered a floating loss, he must pay such an amount in order to keep his contract open, otherwise the floating loss, if realised, would be totally unsecured.
15. I am afraid the understanding of the bank upon a proper construction of the provisions of the agreement between the parties must be correct. If Mr Moorjani were right, then he has only provided security for 5% of the then value of the contract on the value date, leaving the floating loss totally unsecured. Who is going to pay the loss when the contract is realised, and more importantly how could the bank be sure that Mr Moorjani would be able to pay the loss when the amount in the margin was not sufficient to pay that amount and to maintain the 5% margin of the contract value. In the example given, the margin amount is not even sufficient to cover the loss. Even the amount in the margin is sufficient to pay the floating loss, how could the bank ensure that Mr Moorjani would still have 5% margin for the value of the contract. The amount of floating loss would be the amount due by Mr Moorjani to the bank. It is only after the floating loss was paid that Mr Moorjani could be said to have truly maintain his margin by 5% of the face value of the contract.
16. In other words, the true construction of clauses 3 together with 6 would render Mr Moorjani liable to pay the floating loss together with additional cash margin in order to maintain the face value of the contract at 5% level. Clause 6 covers the floating loss as a sum due to the Bank.
17. Further, Mr Moorjani agreed that should he have a profit out of the trading, he is entitled to realise the profit by terminating the contract as hard cash payable to him. Since he made a profit, the original margin deposit must be sufficient to cover 5% of the face value of the contract.
18. In other words, it cannot be right that Mr Moorjani can realise profit at once when the currency fluctuated in his favour whereas he is not liable to pay for the floating loss in order to maintain his contract open. For that reason, he has been warned in the Risk Disclosure Statement that :
"1. You may sustain a total loss of the initial margin funds and any additional funds that you deposit with us to maintain a position in Foreign Exchange. If the price moves against your position you may be called upon to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position. If you do not provide the required funds within the prescribed time, your position may be liquidated at a loss, and you will be liable for any resulting deficit.
2. Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example, when the price moves over the permissible range as stimulate by an exchange. In these circumstance your loss will not be limited to your margin and may be a substantial amount in addition to margin."
He was warned at the outset that the risk of loss in trading foreign currency without full payment either on spot, forward or future contracts can be substantial.
19. For the aforesaid reason, the bank is perfectly entitled to terminate his JPY contracts in accordance with the provisions of clause 8 which provided that :
"8. Termination Events
8.1 Immediately upon or at any time after the occurrence of any one of the following events, the Bank shall be entitled, without prior notice to the Customer and without prejudice to the Bank's other rights and remedies and without releasing the Customer from any liability, to terminate the Contract and/or any Standing Order or other Instruction concerned upon the happening of any of the events under (d), (e), (f), (j) and (k) and in any other case to terminate one or more or all of the then outstanding Contracts (whether prior to or after the respective Value Date or Dates thereof) and/or any or all Standing Orders and/or any other Instruction as the Bank may absolutely determine:-
(a) the Customer fails to pay any amount of whatever nature under any Contract or this Agreement when due;
(b) the Customer is in breach of any terms and conditions of this Agreement and/or any Contract;
(c) the Customer fails to pay any Initial or Additional Cash Margin;"
This is in line with the provisions in the General Agreement whereby under clause 22, it was provided that :
"Payment due 22. That all of my (our) obligations to you shall immediately become due and payable upon the happening of any of the following events:-
i. on demand by you;
ii. failure to keep or perform any of the terms of this or any other agreement between you and me (us);
iii. any deterioration or impairment of any security or any part thereof or any decline or depreciation in the value or market price thereof (whether actual or reasonably anticipated); ..."
Minor disputes and credibility
20. The aforesaid consideration would have disposed of the case but I will consider certain minor disputes between the parties and would also comment on the credibility of witnesses who appeared and gave evidence before me.
21. Mr Moorjani said at the beginning that he had only left Hong Kong for about two weeks since mid-July 1998. It turned out, upon an immediate check on his passport (copy at p.96 of Bundle B), that he left Hong Kong and did not come back until much later, between 18 July and 10 September. He insisted that he had written a letter to the bank before he left for India informing them the change of address to India, together with at least two Indian telephone numbers : one was his telephone at the place of residence where he was living with his parents and his own family, and the other one was his own mobile phone number. According to the bank, there was no such record in spite of the fact that Mr Moorjani said he had filled in a change of address form there and then at the counter of the Ka Wah Bank.
22. He did not say at the outset that later on, in September, he had changed his address back to his KCPO Box Number. When he was confronted with such a form at pp.101 and 102 during cross-examination, he immediately said he filled this in as a second one which he had never mentioned before. The record of the bank tallied with the statements sent to Mr Moorjani. Previously, all statements were sent to an address in Middle Road which belonged to Mr Moorjani's friend, i.e. from 20 July onwards until the statement at page 82 dated 7 October 1998, i.e. shortly after his change of address form dated 29 September 1998, as the previous statement was dated 22 September 1998.
23. Mr Moorjani alleged that he had called five times a day when he was in India. However, the telephone bill he produced only shows that he had made only two telephone calls to the bank on 22 July 1998. There are no other similar documentary evidence. When cross-examined, the plaintiff said that no bills would be issued for mobile phone calls made by him in India on long distance telephone call which, to my mind, is incredible. It is therefore also incredible that he had made telephone call five times a day after 18 July. Further, Mr Moorjani said the correspondence sent to the Middle Road address could have reached him, however, it turned out under cross-examination that all these statements were sent back with the comment of "no such person at such address".
24. At the outset, Mr Moorjani maintained that he has only opened one savings account, which is the trading account, for margin trading. He maintained that the suffix 00, 01 and 02 for HKD, USD and JPY were but one account. However, it turned out that the bank did not distinguish the three currencies in the same account as three accounts either. What is in dispute is that he had separate trading account number 49202 for his margin trading. Mr Moorjani then maintained that 49202 was only the identification code given to him for the purpose of trading in foreign currency. However, he had signed on an acknowledgement slip (at B23) by which he acknowledged that he had received the identification code "EAMA" with Account No.49202. More importantly, in his letter purportedly sent from India on 2 August 1998, he himself specifically stated that :
"EAMA Margin Trading Account Number 49202
Code Number 253958."
In other words, he himself put forward the trading account number as distinguished from his identification code number. He cannot say to have mistaken that the foreign trading account number is the same as or part of the identification code number. He had a separate trading account number which is different from his savings account. Originally his case was that since he has only one trading account, the other amount or whatever amount in his savings account could and should be used for the purpose of his margin trading and the bank should not just take USD70,000 for the purpose of his margin trading. This, however, does not tally with his own contention in writing.
25. To my mind, he understood perfectly well that he has a separate trading account number over and above his savings account in which part of the sum therein was designated for his margin trading.
26. Although he had authorised the bank to use other sums available for the purpose of margin trading, according to the Authorisation to withhold Margin Deposit account, I accept the bank's contention that the bank is not obliged to do so. I accept Mr Victor Wong's evidence that it is the bank's practice to obtain permission from a customer as to how much he would designate as the margin trading deposit from his savings account since it is up to the customer to decide how much money he is willing to put forward for such purpose in order to limit his losses. In short, the bank is empowered to do so but would not do it unless with the customer's consent. However, by reason of the earlier consideration, whether the bank should also use the other funds available is neither here nor there in the action herein.
27. I do not find Mr Moorjani a credible witness. Insofar as his evidence is at variance with the bank's evidence, I prefer the evidence of the bank. I am particularly impressed with the evidence of Mr Kwong, the manager. He is a soft speaking gentleman and he had patiently explained how foreign currency trading works and the various terms involved. He explained that for USD against JPY trading, if the contract is USD500,000 or above, they would use "swap-to-roll-over" method involving swapping buying/selling interest rates differential. Since there is a difference between USD interest rate and JPY interest rate, the difference would then be taken into consideration in the swap rate. For example, in the second USD/JPY contract of Mr Moorjani, the contract rate was 139.4, but taking into the buying and selling interest rate differential, the swap rate would be 139.017 in order to cover the loss in interest between the two currencies.
28. Mr Moorjani in the first place denied that swap rate was any part of the contract as such a term was never mentioned therein. Although the term "swap rate" is not mentioned, this is how interest payable is calculated. When explained that the bank, in accordance with clause 7 of the Master Agreement, could charge the customer interest, Mr Moorjani then shifted his complaint that swap rate was not used for the first and third USD/JPY contracts. Mr Kwong has already explained that the first contract was for the sum of USD400,000 and the third contract was for the sum of USD200,000. Since they were less than USD500,000, the bank would use the deposit loan method for calculating the transaction. The end result is that Mr Moorjani would also suffer a loss by way of interest in the first and third contracts.
29. Then Mr Moorjani complained that the bank has double charged him for interests since swap rate had already taken into consideration the differential in the interest rate of the two currencies. However, Mr Kwong reiterated that interest was only charged on the first and third contracts whereas for the second contract, interest has already been taken into consideration in the swap rate. There is no double-charging at all.
30. All in all, it gave me the impression that Mr Moorjani would seize on anything his hand can lay upon in order to make up his case. For example, he referred to the call record complied by Miss Angela Chan, DW3, another dealer of the bank. When B.95 was put to him that he could not be contacted on 3 August 1998, he immediately seized upon the first entry and said that the record shows that he was told over the phone of the loss to margin and requested to add more money for his margin account. The first entry turned out to be for another client, No.49106, and the second entry is the only entry relevant to him under his account 49202. He then put it to Miss Chan that she had confused the two and made the wrong entry when the first column should apply to him. However, his case was not that he was contacted and asked to pay in more money for margin holding. The first entry actually said the customer accepted "auto stop loss". How could he contended that the first entry was actually relevant to him when the record shows that for that customer, he was requested to add more margin. It was never Mr Moorjani's case that he was requested by the bank on 3 August 1998 to add more margin for his margin trading.
31. I therefore consider Mr Moorjani an incredible witness. His letter dated 1 August 1998 purportedly sent by him from India on 2 August 1998 could not have reached the bank by 4 August 1998. In any event, it is no use to instruct the bank to hold his JPY positions open by just taking all the profits along with interests and everything in his savings account as his margin deposit because as I have decided hereinbefore that they were not sufficient for the purpose of keeping the JPY positions open.
32. Finally, I would only add that Mr Moorjani, at the outset of this trial, applied to re-amend the Statement of Claim from the original claim of about USD350,000 including costs to a claim of about USD2,500,000. He has included substantial claim on damages to his normal business and health as a result of the breach of contract of the bank. He has also, for the first time, included his complaint to the DEM contract and NZD contract which is at variance with his original case that the margin deposit is sufficient to maintain all his contracts. One cannot see what is his complaint for the other two contracts at all and the consequential claim thereunder. For that reason, I had, at the outset of the trial, refused to allow him to make the substantial amendment which would only have the effect of lengthening the trial for no good reason.
Conclusion
33. In the end, Mr Moorjani's case herein must be dismissed with an order nisi on costs to the defendant, to be taxed if not agreed.
| (D. Yam) |
| Judge of the Court of First Instance,
High Court |
Representation:
Mr Bhagwan Shankardas Moorjani, in person, present
Mr Alfred Liang, instructed by Messrs Wilkinson & Grist, for the Defendant