Case Detail

HCA 190/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 190 OF 2005

____________

BETWEEN
	NATAMON PROTPAKORN	Plaintiff
	and
	CITIBANK, N.A.	Defendant

____________

Before: Deputy High Court Judge Carlson in Chambers

Date of Hearing: 17 December 2007

Date of Judgment: 11 March 2008

_______________

J U D G M E N T

_______________

Introduction

1. This is an appeal from an order of Master Hui dated 14 September 2007 giving leave for the statement of claim to be amended. The Plaintiff, Natamon Protpakorn, who is from Thailand, became a customer of Defendant (“the Bank”) at its Hong Kong head office on 17 March 2000 by, in the usual way, signing a number of the Bank’s standard terms and conditions, as everybody who becomes a bank customer is required to do. Most particularly she signed, to give it its full name, a Foreign Exchange/Gold Index/Foreign Exchange Option Trading Account Agreement which I will from now on refer to as the Standard Form FX Agreement. It is also said that she entered into what is called a Master Derivative Agreement which she signed. By doing so, she became a private banking client of the Bank whose services are only available to individuals of very substantial means which she undoubtedly has.

2. I will need to explain more fully the background to her relationship with the Bank in due course. For present purposes all I need to relate is that in July 2004, the Bank wrote to the Plaintiff and informed her that it had decided to close her account with it because it was not satisfied about the source of her wealth, nor that she had effective control of the assets in her account or, of the good standing of her Japanese financial advisor to whom she had given authority to operate the account on her behalf. This notice was given without any previous indication that this might happen and at a time when she was exposed on a number of foreign exchange trades which she had expected to leave open and to renew or “roll-over” until a profitable situation arose. In the event, the Bank having done what it said it would do, these positions were closed prematurely for her purposes, exposing her to losses on her positions totalling US$16,729,198 and in addition depriving her of profits of US$22,099,079. She has therefore sued the Bank for breach contract in the total amount of US$38,828,227.

The Course of the Action to Date

3. The writ was issued on 28 January 2005 and on 3 June 2005 the Bank applied by summons to strike out the statement of claim as one disclosing no reasonable cause of action, and also under the other limbs of O.18 r.19, as well as under Order14A to have two points of law determined in their favour which would in effect have been dispositive of the action. On 23 November 2005, Deputy Judge Muttrie struck out the claim as disclosing no reasonable cause of action but left open the prospect that the Plaintiff might be able to salvage the action by applying to amend her pleadings. In those circumstances, he made no order on the Order14A summons. The Plaintiff then appealed to the Court of Appeal, dispensing with her original solicitors and counsel and instructing others in their place. The appeal was listed for hearing on 6 June 2006 but on 18 May the Plaintiff’s solicitors indicated that she would not be pursuing the appeal and that she would seek leave from the Court of Appeal to amend her statement of claim in the form of a draft that had been provided. On 6 June 2006, the Court of Appeal declined to hear the application for leave to amend the statement of claim taking the view that such an application should be made at first instance.

4. The Bank refused to consent to the amendments and so on 14 September 2007 the Plaintiff’s summons to amend the statement of claim was heard by Master Hui who, having heard the argument, gave leave for the amendments. Hence this appeal from his order.

The Amendments

5. The proposed amended-statement of claim represents a completely fresh start, the whole of the original pleading having been deleted and replaced with a new version. This having been said the factual basis of the plea remains the same following, as it does, the basis put forward in the Plaintiff’s affidavit of 15 July 2005 [B/200-216]. I will need to embark on a certain amount of analysis of the amended pleading in order to decide the appeal and, as will be apparent, the pleaders having adopted the factual basis of the struck out original, have sought to apply to those facts alternative legal labels which, at this stage, are said to be perfectly viable pleas which should be allowed to proceed to trial.

The Defendant’s Burden

6. Mr Aiken SC, for the Plaintiff, has correctly emphasised that in order to prevent the amended-statement of claim from being brought into play, the Defendant has to repeat its success before Deputy Judge Muttrie by demonstrating that the proposed amended pleading is one that is “hopeless” and “bound to fail” on the principles required under O.18 r.19. Provided these new pleas are “fairly arguable” they should be allowed to proceed to trial. I have no doubt that this is the correct test to apply. In terms of an application to amend (as this is) I also have no doubt that provided the pleading survives an O.18 r.19 examination, I would be disposed to allow the amendments under the principles set out in the current practice [see the note at para. 20/8/6, page 378-9]. Mr Martin Rogers, who appears for the Bank, I think, readily accepts that this should be so, and that no forensic prejudice would be suffered by his clients where the action has yet to really get going.

The Factual Background

7. I gratefully acknowledge the considerable assistance that I have obtained from reading Deputy Judge Muttrie’s judgment on the Defendant’s summons to strike out the original statement of claim [see B37-65]. Although he had to consider the original pleas put forward, which he held to be doomed to fail, he was required to consider the identical factual background as well as the same Agreements which the Plaintiff had entered into. Like him, it seems to me that I should set out the relevant terms of the Standard Form FX Agreement upon which the Bank so heavily relies as governing the parties contractual relationship and upon which the Bank is said to have been able to terminate the Plaintiff’s accounts without any of the consequences which the Plaintiff wishes to visit upon it by this action. Unavoidably, I will need to set out the terms that, for these purposes, are relevant:

“2. Application

In consideration of the Bank opening or maintaining or continuing to open or maintain the Trading Account, the Account holder hereby agrees that

(a) all the provisions in section II shall be applicable to all Contracts (unless the context of otherwise requires) and are binding on the Account Holder.

…

7 Termination

7.01 If any of the following events (‘Event of Termination’) shall occur and be continuing:
(a) The Account Holder shall not have provided any additional margin due under clause II, 4.02 or clause III, 3.03 hereof; or
(b) The Account Holder shall fail to make any payment hereunder when due or, as the case may be, on demand; or
(c) Any representation or warranty given by the Account Holder hereunder is or proves to have been incorrect or misleading when made; or
(d) It shall become illegal or impossible or shall be asserted by any central bank or other governmental authority to be illegal or impossible for one Account Holder or the Bank to perform any of their respective obligations under these terms and conditions and/or any or all of the Contracts; or
(e) The Account Holder shall die or be incapacitated, or shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Account Holder to adjudicate it a bankrupt or insolvent or any order shall be made by any competent court or other appropriate authority or resolution shall be passed for its winding-up or dissolution or for the appointment of a liquidator, receiver or trustee for it or any substantial part of its property, revenues or undertaking; or
(f) Distress, execution, sequestration, attachment or other process is levied against any or all of the assets, rights or revenues of the Account Holder; or
(g) The Bank considers, due to a material adverse change in the financial condition of the Account Holder or otherwise in its absolute discretion, it advisable or necessary to safeguard its interest under these terms and conditions and/or any or all of the Contracts.

then, and in any such event, the Bank may (i) terminate the Trading Account and any outstanding obligations to the Account Holder hereunder and/or under any or all of the Contracts, (ii) realise or liquidate and/or deal with in any manner as the Bank deems fit all or any of the Contracts and/or offset any or all of the Contracts against the other(s) of them or such Contract(s) as the Bank may in its sole and absolute discretion determine notwithstanding that the relevant Contract(s) has or have not yet matured and recover all obligations and liabilities including all interest and costs and expenses in connection with the recovery thereof, due by the Account Holder to the Bank, (iii) without prejudice to its right to otherwise demand payment of any amounts payable by the Account Holder hereunder to be forthwith due and payable, such amounts shall become and be forthwith due and payable, without presentment, demand, protest, or further notice of any kind, all of which are hereby expressly waived by the Account Holder, and/or (iv) without prior notice to the Account Holder, liquidate, sell, realise, dispose of or otherwise deal with any or all of the Collateral in such manner as the Bank may deem appropriate. Any proceeds from the sale of the Collateral remaining after deducting all costs and expenses in connection herewith and payment of all amounts due hereunder, shall be paid to the Account Holder. In the event such proceeds are insufficient to cover the payments referred to before, the Account Holder shall pay to the Bank forthwith upon demand the amount of any such deficiency. For the avoidance of doubt, the Bank has an absolute discretion to choose which (if not all) of the Contracts shall be terminated, liquidated, sold, realised, disposed of and/or otherwise howsoever dealt with, regardless of the nature of the Event of Termination relied upon, whether the same relates to the Foreign Exchange Contracts or, as the case may be. Gold Index Contracts or, as in case may be, Option Contracts only or whether the net position of all the Contracts as such that the payments referred to before will be adequately covered.

…

15. Amendments, Etc.

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

Other relevant clauses are these:

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

…

11. No Waiver, Remedies

No failure or delay on the part of the Bank in exercising any right hereunder or under any Contract shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder or under any Contract preclude any other or further exercise thereof or the exercise of any other right. The Bank’s rights and remedies herein or therein provided are cumulative and not exclusive of another rights or remedies provided by law.

…

16. Enforceability

16.01 No delay or omission by the Bank in exercising any right, power or privilege conferred upon it by these terms and conditions and/or any Contract shall impair the same nor shall any single or partial exercise thereof preclude any further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law.”

Lastly, the Agreement came with a Risk Disclosure Notice for FX Margin Trading which the Plaintiff signed, it is in these terms:

“This notice is being issued to inform you of the risks associated with leveraged foreign exchange (FX margin) trading.

The risk of loss in leveraged foreign exchange trading can be substantial. You may sustain losses in excess of your initial margin funds. Placing contingent orders, such as ‘stop-loss’ or ‘stop-limit’ orders, will not necessarily limit losses to the intended amounts. Market conditions may make it impossible to execute such orders. You may be called upon at short notice to deposit additional margin funds. If the required funds are not provided within the prescribed time, or if the Bank considers that it is advisable or necessary to safeguard its interest, the Bank is entitled under its terms and conditions to liquidate your position without prior notice to you. You will remain liable for any resulting deficit in your account. You should therefore carefully consider whether such trading is suitable in light of your own financial position and investment objectives.

8. The Plaintiff’s case which for present purposes I need to assume to be factually accurate is very fully set out in the proposed pleading. It is there to be read and no practical purpose is to be served by repeating it here. What can usefully be done is to set out the principal factual bases of the action from which certain legal propositions are sought to be advanced by Mr Aiken which he submits provide her with valid causes of action and, if proved at trial, the remedies which are sought. At this stage, he correctly reminds me that the threshold is the low one of him having to demonstrate that the pleading is “fairly arguable”.

9. The Plaintiff, having been a customer of UBS, was persuaded by her banker there, a Mr Balmelli, to follow him to the Bank after he had become employed by it. She agreed to do so and it was Mr Balmelli who arranged for her to sign the Standard Form FX Agreement under which she was able to operate her accounts with the Bank. Whilst at UBS, she had been a very conservative investor preferring to keep her money in interest bearing time deposit accounts. Mr Balmelli knew that she did not have an appetite nor was she familiar with more risky, albeit particularly more profitable, investments such as foreign exchange trading.

10. After she followed him to the Bank, she continued through him to keep her money in time deposits. Things changed in 2001 when Mr Balmelli left the Bank and her account was managed by a Mr Harry Lai, and it was Mr Lai who persuaded her to try her hand at Margin FX Trading by making a series of representations to her when he visited her at Bangkok. These representations referred to as the “2001 representations” are extensively set out in paras. 22-24 of the proposed pleading. The central feature of these representations, which the Plaintiff is said to have found attractive and persuasive, were those relating to the “Roll-over Term(s)” on FX contracts, the effect of which was that an unprofitable position could be “rolled-over” for a further term until the trade moved into profit when it could be realised. This representation, which if true, would have meant that much of the risk which attends FX trading on a margin would be eliminated, ultimately caused the Plaintiff to change her mind and alter her investment strategy from safe time deposits to FX margin trading which is usually a notoriously risky way of investing, calling for a steady nerve and a willingness to risk losing a lot of money in the hope of even greater returns.

11. It is alleged that as a result of these representations, a separate oral 2001 Margin FX Agreement was entered into between the parties, distinct from the written Standard Form FX Agreement, which now governed the Plaintiff’s Margin FX Trading with the Bank. The particular features of this oral agreement are pleaded at paras.26 and 27, inter alia containing and express Roll-over Term that the Plaintiff was entitled to roll-over and keep open any FX contract as long as she had sufficient funds deposited with the Bank. By virtue of these representations, which persuaded her to enter into this oral Margin FX Agreement, there is a plea of estoppel at para.27 to the effect that the Bank is now estopped from terminating the Plaintiff’s account at its discretion which it had under the Standard Form FX Agreement nor, can it be heard to deny that she is entitled to roll-over and keep open her FX contracts in accordance with the Roll-over Term.

12. The period from 2001 to 2004 can be taken more shortly. It is alleged that pursuant to this oral agreement, the Plaintiff had been allowed by the Bank to conduct her FX Margin Trading in this way and indeed increase the volume of trading. At this time, as was always the case, the Bank was protected by virtue of the fact that she kept sufficient deposits with it.

13. Things changed in June 2004 when the Bank decided that it would need to vary this oral agreement with particular reference to her free-hand in rolling-over losing positions. The Bank sent her a letter dated 15 July [see para.31] in which it informed her that it had become necessary for the Bank:

“to review your practice of rolling-over loss positions at historical rates rather than market rates thereby deferring recognition of your losses. This is contrary to normal trading practice encouraged by the Bank and by market regulators and we were not prepared to allow this to continue indefinitely. This was discussed with you on various occasions …”

14. The conclusion drawn from this event at para.32 of the proposed amendment is that the Bank:

“had agreed to, acquiesced to, or should be estopped from denying, the Roll-over Term as governing the Margin FX Trading between the parties.”

It has to be said, although this would be for the trial, that if the amendments were allowed that the Bank’s letter, if anything, serves to contradict the very existence of an alleged oral agreement in 2001. Be that as it may, for present purposes I am required to take the facts as they are.

15. The narrative then continues from para.33 which relates that from 2002 to 2004, the Plaintiff switched from Margin FX Trading to foreign exchange options which resulted in a US$3 million loss. As a result of that she is said to have consulted a Mr Kawabe, who is a friend and who had been convicted of financial fraud in Japan and sentenced to a substantial term of imprisonment. He is somebody who the Plaintiff trusted and whose judgment in such matters she respected. She agreed with the Bank to provide Mr Kawabe with a mandate allowing him to carry out all manner of trading on her behalf. At about this time [early 2004], it is also alleged that Mr Lai confirmed with the Plaintiff that the oral agreement for Margin FX Trading still governed their relationship for such trading as a result of which she resumed Margin FX Trading in about February 2004. Her FX Trading lines were increased by the Bank to US$250 million. By April 2004, Mr Lai had left the Bank and was replaced by Miss Jessica Poh. In May 2004 it is pleaded that Miss Poh, with five other members of her team, met the Plaintiff and Mr Kawabe at Osaka. The effect of these meetings are pleaded at paras.41-47 as a confirmation of the oral agreement arrived at with Mr Lai in 2001, during which meetings the Plaintiff was encouraged to increase her trading volume and was offered lower commission charges as an incentive for doing so.

16. Within two months, the relationship appears to have soured. This is reflected at paras.48-56. There was a meeting at Bangkok on 30 June 2004 with Jessica Poh. The Plaintiff was asked to close some of her FX contracts to keep her total unrealised losses to below US$2 million. When the Plaintiff, who had sufficient funds deposited with the Bank, refused the Bank is said to have unilaterally suspended the Plaintiff’s FX Trading lines and refused to accept new FX contracts. Nevertheless, two days later [para.50] it is pleaded that revised terms were agreed, under protest from the Plaintiff, for the Plaintiff’s Margin FX Trading based on what are referred to as the “2004 Representations”, which included a “revised Roll-over Term”.

17. The new terms, pleaded at para.50(3), which I need not recite here, were more restrictive of the Plaintiff’s trading but still enabled her to roll-over losses, albeit less advantageously from her point of view.

18. Thereafter, and without warning, as I have related at para.2 above, the Plaintiff’s positions were closed and her account terminated causing her the losses which I have already referred to.

The New Bases of the Plaintiff’s Case

19. Mr Aiken puts forward six different ways of viewing the facts which he submits afford the Plaintiff a case for damages to be recovered from the Bank. They are as follows:

“(1) Two collateral agreements, namely:
(a) The 2001 Margin FX Agreement;
(b) The 2004 Margin FX Agreement;
(2) Misrepresentations, made orally by D’s employee to P to induce her into engaging in Margin FX Trading with D;
(3) Estoppel, based on D’s representations to P;
(4) Breach of duty of care, which D as a bank owed to P as a customer;
(5) Invalidity of the exemption of liability clause in the Standard Form FX Agreement, since P is a consumer and the clause is unreasonable under the Control of Exemption Clauses Ordinance (Cap.71); and
(6) The Standard Form FX Agreement being null, void, or alternatively not binding on P.”

Mr Aiken submits that all are fairly arguable and not bound to fail. This submission found favour with the Master. Mr Rogers has sought to deal with these points in turn.

The Arguments and The Analysis

20. Mr Rogers begins with what is Mr Aiken’s 6^th and last point relating to the Standard Form FX Agreement not being appropriate to the Plaintiff’s circumstances, she being a “consumer” rather than a “business” customer, and therefore that the standard contract has no binding effect and is null and void. In effect this is a plea of mistake. Mr Rogers submits that quite simply the Plaintiff signed the standard form of contract and is bound by her signature. If authority is needed for such a well-known proposition he cites L’Estrange v Graucob [1934] 2 KB 394 at 403, 404 and 406. He points to the nature of her trading activities which were wide-ranging, on her own behalf and subsequently, under the apparently more expert guidance of her appointed agent Mr Kawabe. As to the plea that:

“the Plaintiff was an individual investor and looked to her private banker for service in relation to her personal and not business-related finance”

and,

“… did not intend to engage in any business where she would incur currency obligations or exposure in gold.”

Mr Rogers characterises this as so devoid of merit that it should be struck out as frivolous and vexatious. The evidence is that she expressly confirmed her intention to trade in foreign exchange, incur currency obligations and exposure in gold. Her authorization letter to the Bank at B/17/236 amply indicates the full range of products and investment activities that Mr Kawabe could carry out on her behalf. Her affirmation of 15 July [paras.9 and 10, A/13/202] says that:

“After the appointment of Mr. Kawabe as my consultant and agent, he set up a team of traders to perform the leveraged foreign exchange trading with the Defendant. Since then, my trading through the leveraged FX account(s) with the Defendant became active with a substantial increase in the volume of trading. At that time, the line limit (i.e. the aggregate value of the open (or outstanding) positions of the contract value in respect of the leveraged foreign exchange contracts that I was entitled to trade) was US$100,000,000.”

Mr Rogers submits that this is clearly a contract that she was prepared to sign up to and did so irrespective of the way that it purports to describe the Bank’s customer as a “business” customer. Having signed, she invested, avoiding hyperbole given the amounts referred to in the evidence, in a very substantial way. The plea of mistake resulting in the nullity of the standard form is therefore bound to fail.

21. In response, Mr Aiken puts the matter at its highest. He speaks of the Bank knowing that this type of form of agreement did not and could not apply to the Plaintiff and yet it “lured” her into signing it. Accordingly, there was no meeting of minds. He submits that the fact that she then engaged in substantial trading is neither here nor there for the purposes of this argument.

22. In my judgment, this argument and the plea that reflects it is simply not open to the Plaintiff. It is bound to fail and any reference to it cannot be allowed to stand. The fact is, as Mr Rogers submits, that on signing these Standard Forms a bank customer is taken to accept them and agrees to be bound by them, a fortiori, a sophisticated wealthy individual who had previous experience of private banking and who trusted her long-standing banker, Mr Balmelli who had presented the documents for her signature. I do not believe that I need to say more on this aspect of the matter.

23. Mr Rogers then turns to the prospect that by virtue of an oral collateral contract engineered by Mr Lai, the Standard Form Contract was superseded, certainly in respect of Margin FX Trading. I need to approach this on the basis that these allegations are also factually correct. In this respect, Mr Aiken has a difficult task when faced with a uniform Standard Form Agreement which is said to have been varied by a separate oral agreement. Clause 15 of the Standard Form says that no amendment, waiver or departure from the written Agreement will be effective unless this is done in writing and signed on behalf of the Bank. On its face, the collateral contract has the effect of contradicting the specific terms of trading contained in the Standard Form. It seems to me that Mr Rogers is correct to rely on both Chitty, 29^th Edtn, Vol. 1, 22-033 and the case of MSAS Global Logistics v Power Packaging [2003] EWHC 1393(Ch.), para.49 which are clear authority for the proposition that if a contract in writing only allows variations which are in writing then, any purported variation which does not comply with that requirement will be to no effect. What the Plaintiff is relying on is an oral collateral contract which carves out highly material differences between that collateral contract and the Standard Form.

24. Whilst there can be instances when collateral agreements will effectively vary a main agreement, and Mr Aiken has referred me to some, this plea on these facts will simply not run and is also bound to fail. The whole purpose of a written main contract requiring variations to be in writing is to avoid the very problem which one would encounter in this case. See Edward Wong Finance v Profit Making Investment Ltd, 1049/2000, pages 10-11 and Inntrepreneur Pub Co. (GL) v East Crown Ltd (2000) 2 Lloyds Reports 611 at 614. I am satisfied that there is no prospect of a plea such at this, in these circumstances, being “fairly arguable” and I will not allow the amendment.

25. Mr Aiken has also invited the court to consider the representations which are said to give rise to a collateral contract, because the Plaintiff agreed to accept these terms, as actionable misrepresentations both as to the events of 2001 and 2004. Again, I need to take these allegations at face value in deciding whether, really as a matter of law, a plea such as this should be allowed to run on the very generous basis that one considers applications for amendments of pleadings.

26. Mr Rogers submits that on a true analysis of these representations, these can only be said to be promises, as opposed to representations as to fact. He refers to the proposed plea itself at para.50(3), A/10/157. When one considers the precise language used the references are to “would be” and “will be” being references to future events and only promissory in nature. Mr Rogers has referred to a first instance decision in the case of Kee Lloyd Energy Ltd, HCA 1299/2004, para.28 where a representation by a bank that it would increase the general banking facilities from $1.656 billion to $3.08 billion were mere promises and not representations of fact. In the present case as well, the alleged representations are merely promises and cannot give rise to a cause of action. Mr Rogers submits that support can also be obtained from Chitty, 29^th Edtn, Vol.1, 6-004 to 6-006, which is in these terms:

“Statement of opinion and intention. The traditional rule is that a misrepresentation must be a false statement of fact, past or present, as distinct from a statement of opinion, or of intention, or of law. A mere statement of opinion, which proves to have been unfounded, will not be treated as a misrepresentation, nor will a simple statement of intention which is not put into effect; for as a general rule these cannot be regarded as representations of fact, except insofar as they show that the opinion or intention is held by the person expressing it.

Statement of opinion may amount to statement of fact. However, in certain circumstances a statement of opinion or of intention may be regarded as a statement of fact, and therefore as a ground for avoiding a contract if the statement is false. Thus, if it can be proved that the person who expressed the opinion did not hold it, or could not, as a reasonable man having his knowledge of the facts, honestly have held it, the statement may be regarded as a statement of fact.

Opinion not honestly held. If a person states as his opinion something which he does not in fact believe, or which given the facts known to him, he could not honestly hold, he makes a false statement of fact. So where, at a sale of property, the vendor described the occupier as ‘a most desirable tenant,’ while in fact he knew that the rent was considerably in arrear, this was held to entitle the purchaser to rescind the contract.”

What is clear is that the passage at 6-004 is, of course, a correct statement of the law. The passages at 6-005 and 6-006 do not help Mr Rogers, nor do they reflect on the situation which Mr Aiken has urged on me. These representations are not put forward as statements of opinion but rather as representations of fact that these would be the basis of the parties’ legal relationship, which he characterises as a statement of fact.

27. For my part, I cannot see how these statements, assuming for the moment that they were made by Mr Lai in 2001 and by Mr Chiew in 2004, could be seen as more than mere promises which were not kept. This plea must therefore also be doomed to fail on any view of the matter, in which circumstances it should not be advanced.

28. An alternative way in which the matter is put by Mr Aiken is that based on the misrepresentations as to fact, an estoppel has now come about which prevents the Bank from going back on its word as to the terms of the oral agreements including an estoppel preventing it from now closing the Plaintiff’s contracts. It must logically follow that if, as I have, declined to allow the Plaintiff to plead the misrepresentations then no espoppel can be said to arise with the consequence that this plea must fail as well. The two pleas would stand and fall together. On this occasion, in these circumstances, the latter is the case.

29. Next, I turn to consider the allegation that the Bank owed the Plaintiff a duty of care. This duty is identified by Mr Aiken not as a duty to give good investment advice — he does not advance this — but a duty to advise the Plaintiff on how Margin FX Trading operated and on what her rights and obligations were which the Bank failed to do — if any thing she was misadvised.

30. Mr Rogers response is largely related to the giving of “investment type” advice on which the Bank is heavily protected by Clause 8.01 of the Standard Agreement and by Clause 4.12 of the Master Derivative Agreement, both of which clearly warn a customer to be aware of the risks involved and of the need to seek independent investment advice. To some extent, this would cover part of the sort of duty advanced by Mr Aiken but what really strikes me as conclusive is that when a customer like the Plaintiff signs an agreement such as the Standard FX Agreement, she is to be taken as understanding what she is letting herself in for in embarking on these types of investment — she needs to understand how the mechanics of the investment operate and the underlying investment risk in the particular “bet”, for this is what she is undertaking. I cannot see how in circumstances such as these a duty of the sort identified by Mr Aiken can be said to exist and, if it does, I would have thought that the Bank is covered by the warning which comes with embarking on such investments by the customer. At this level, the Bank is entitled to expect that its customer, who has signed up for such risky products, knows what he or she is doing. This plea is not one which in my judgment can succeed and the amendment therefore will not be permitted.

31. Lastly, Mr Aiken submits that the Exemption Clause in the Standard Form FX Agreement is invalid, this because the Plaintiff is a “consumer” and the clause is unreasonable under the Control of Exemption Clauses Ordinance, Cap.71.

32. Mr Rogers says that this element of the pleading is not for now. It is not a claim as such and should only appear in a Reply after, and in the event that, the Exemption Clause appears in the Defence. It strikes me that this analysis is the correct one and at present it cannot assist the Plaintiff. It is simply inapposite at this stage of the pleadings.

33. The other matter which should be engaged is whether the Plaintiff can be said to be a “consumer” as opposed to doing this as “a business”. This will always be a matter of fact and degree. Where is the line to be drawn? In Standard Bank London Ltd v Apostolakis & Anr [2002] CLC 933, a wealthy Greek couple who engaged in Margin Forex Trading to the tune US$7 million were regarded by the court as consumers. In the present case and on the figures this lady was in a completely different class of investing. In her case a credit line of US$250 million was made available to her. She was courted by teams of people from the Bank at Bangkok and Osaka and she employed a team of her own investment advisors headed by Mr Kawabe. At her level this had all the hallmarks of an investment business, rather than as a mere consumer entitled to the statutory protection of the Control of Exemption Clauses Ordinance. Had I been put to it I would have so held but I am content to say, because I need go no further at this stage, that this part of the pleading is premature and cannot assist the Plaintiff.

Conclusion

34. Notwithstanding Mr Aiken’s highly persuasive submissions, I am afraid to say that all the causes of action that are proposed in the amended pleading have no prospect of success, in which circumstances I decline to allow the statement of claim to be amended in this way. This being my view, the Master’s order will have to be set aside, together with an order nisi that the costs of the appeal should be to the Bank.

35. I do not propose to strike out the action as Mr Rogers invites me to. The Bank must take out an appropriate summons to make that application. The Plaintiff will, in any event, wish to consider her position and the court will wish to hear argument on a summons to strike out the action, although I am bound to say that at present the Plaintiff’s position does not appear to be a hopeful one.

(Ian Carlson)
Deputy High Court Judge

Nigel Aiken, SC, Kenneth C K Chow and Laurence Li, instructed by Messrs Christine Tsang & Co., for the Plaintiff

Martin Rogers and Carmen Kwok, of Messrs Clifford Chance, for the Defendant

Appeal by the plaintiff to Court of Appeal allowed. Please refer to CACV78/2008 dated 12 September 2008

HCA190/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.190 OF 2005

---------------------

BETWEEN

	NATAMON PROTPAKORN	Plaintiff
	and
	CITIBANK, N.A.	Defendant

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Before: Deputy High Court Judge Muttrie in Chambers

Date of Hearing : 28 September 2005

Date of Ruling : 23 November 2005

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R U L I N G

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1. In March 2000, Madam Protpakorn entered into a written umbrella Agreement with the defendant Bank, under which she opened several accounts and used them to trade in foreign exchange. In July 2004 the Bank, in purported reliance on provisions of the Agreement, required Madam Protpakorn to close all her accounts within a month, which she did, but lost money by so doing.

2. Madam Protpakorn says that the original Agreement was varied by implied terms, or trade practice, or the course of dealings, so that the Bank could not close the accounts without her consent; and she claims damages of more than $30 million for breach of the agreement. The Bank’s position is that, under the terms of the Agreement, it had the right to close the accounts or require them to be closed; and so Madam Protpakorn has no case against it.

3. The Bank accordingly applies to strike out the Statement of Claim under Order 18 Rule 19 of the Rules of the High Court, on the grounds that the matters raised do not disclose a reasonable cause of action, are scandalous, frivolous or vexatious, and are an abuse of process. In the alternative it applies for determination of two points of construction or law, namely whether on the proper construction of the Agreement:

“ 1. The Agreement should be construed in accordance with the natural meaning of the express words of the Agreement, including Clause II, 15 of the Agreement, with the effect that no amendment or waiver of the agreement could be effective unless in writing and signed by the Defendant;
2. Pursuant to Clause II, 7.01 of the Agreement, the Defendant is entitled to terminate the Agreement in its absolute discretion and close out immediately the Plaintiff’s outstanding foreign exchange trading contracts and/or transactions, and the only limitation on such rights is that it must act in good faith.”

The Agreement

4. This is dated 17 March 2000. By Part I Clause 1, the account holder authorises the Bank to open a Trading Account. Clause 2 reads:

“2. Application

In consideration of the Bank opening or maintaining or continuing to open or maintain the Trading Account, the Account holder hereby agrees that

(a) all the provisions in section II shall be applicable to all Contracts (unless the context otherwise requires) and are binding on the Account Holder.”

The clauses of which construction is sought appear in Part II of the Agreement and read as follows:

“7. Termination

7.01 If any of the following events (‘Event of Termination’) shall occur and be continuing:
(a)    The Account Holder shall not have provided any additional margin due under clause II, 4.02 or clause III, 3.03 hereof; or
(b)   The Account Holder shall fail to make any payment hereunder when due or, as the case may be, on demand; or
(c)    Any representation or warranty given by the Account Holder hereunder is or proves to have been incorrect or misleading when made; or
(d)   It shall become illegal or impossible or shall be asserted by any central bank or other governmental authority to be illegal or impossible for one Account Holder or the Bank to perform any of their respective obligations under these terms and conditions and/or any or all of the Contracts; or

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

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

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

then, and in any such event, the Bank may (i) terminate the Trading Account and any outstanding obligations to the Account Holder hereunder and/or under any or all of the Contracts, (ii) realise or liquidate and/or deal with in any manner as the Bank deems fit all or any of the Contracts and/or offset any or all of the Contracts against the other(s) of them or such Contract(s) as the Bank may in its sole and absolute discretion determine notwithstanding that the relevant Contract(s) has or have not yet matured and recover all obligations and liabilities including all interest and costs and expenses in connection with the recovery thereof, due by the Account Holder to the Bank, (iii) without prejudice to its right to otherwise demand payment of any amounts payable by the Account Holder hereunder to be forthwith due and payable, such amounts shall become and be forthwith due and payable, without presentment, demand, protest, or further notice of any kind, all of which are hereby expressly waived by the Account Holder, and/or (iv) without prior notice to the Account Holder, liquidate, sell, realise, dispose of or otherwise deal with any or all of the Collateral in such manner as the Bank may deem appropriate. Any proceeds from the sale of the Collateral remaining after deducting all costs and expenses in connection therewith and payment of all amounts due hereunder, shall be paid to the Account Holder. In the event such proceeds are insufficient to cover the payments referred to before, the Account Holder shall pay to the Bank forthwith upon demand the amount of any such deficiency. For the avoidance of doubt, the Bank has an absolute discretion to choose which (if not all) of the Contracts shall be terminated, liquidated, sold, realised, disposed of and/or otherwise howsoever dealt with, regardless of the nature of the Event of Termination relied upon, whether the same relates to the Foreign Exchange Contracts or, as the case may be. Gold Index Contracts or, as in case may be, Option Contracts only or whether the net position of all the Contracts as such that the payments referred to before will be adequately covered.

…

15. Amendments, Etc.

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

Other clauses relevant to these applications read as follows:

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

…

11. No Waiver, Remedies

No failure or delay on the part of the Bank in exercising any right hereunder or under any Contract shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder or under any Contract preclude any other or further exercise thereof or the exercise of any other right. The Bank’s rights and remedies herein or therein provided are cumulative and not exclusive of any other rights or remedies provided by law.

…

16. Enforceability

16.01 No delay or omission by the Bank in exercising any right, power or privilege conferred upon it by these terms and conditions and/or any Contract shall impair the same nor shall any single or partial exercise thereof preclude any further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law.”

5. The Agreement was accompanied by a Risk Disclosure Notice for FX Margin Trading, signed by Madam Protpakorn, which reads as follows:

“This notice is being issued to inform you of the risks associated with leveraged foreign exchange (FX margin) trading.

The risk of loss in leveraged foreign exchange trading can be substantial. You may sustain losses in excess of your initial margin funds. Placing contingent orders, such as ‘stop-loss’ or ‘stop-limit’ orders, will not necessarily limit losses to the intended amounts. Market conditions may make it impossible to execute such orders. You may be called upon at short notice to deposit additional margin funds. If the required funds are not provided within the prescribed time, or if the Bank considers that it is advisable or necessary to safeguard its interest, the Bank is entitled under its terms and conditions to liquidate your position without prior notice to you. You will remain liable for any resulting deficit in your account. You should therefore carefully consider whether such trading is suitable in light of your own financial position and investment objectives.”

Madam Protpakorn’s case against the Bank

6. In effect Madam Protpakorn’s case is, first, that the Agreement has been varied by an implied term, or by trade practice, or by the course of dealing between the parties, so that the Bank could not unilaterally or without the consent of Madam Protpakorn close her accounts. Particulars are provided, and I need not repeat them, but in brief she is saying that the Bank allowed her to roll over any of her trading positions until she offset it by means of another trade. So, in effect, it was up to her to decide when to liquidate any of her trading positions; and it was not for the Bank to do so. The Bank concurred in this by advising her or her representatives as to when any position should be closed so as to make a profit, but no time limit was ever imposed.

7. In the Further and Better Particulars dated 9 May 2005, the effect of the variation is stated as:

“The Defendant shall not unilaterally, and without the prior consent of the Plaintiff, close and/or curtail and/or terminate the Plaintiff’s leveraged (or margin) foreign exchange trading account or accounts maintained with the Defendant and/or the said Agreement itself and/or alternatively any open or outstanding positions in respect of leveraged (or margin) foreign exchange trading account maintained with the Defendant hereunder. Should the Defendant be in breach of the aforesaid term of the said Agreement as an implied term and/or as supplemented and/or varied, the Defendant is liable to the Plaintiff in damages for such breach.”

8. In the second place, Madam Protpakorn says that because of the above, the Bank is estopped from relying on any provision in the Agreement to the contrary.

9. In the alternative, she says that by extending her margin limit, which the Bank did, the Bank impliedly agreed that it would not unilaterally close her accounts.

10. She says that in 2004, the Bank’s private banking units in Japan were found to be in breach of regulations and ordered to be shut down for one year from 25 October 2004. They had to close all their operations by 30 September 2004. In April 2004, representatives of the Bank for private banking business in Thailand and Vietnam, under one Ms Jessica Poh, had a meeting in Japan with Madam Protpakorn and her representatives, in particular her agent Mr Kawabe, and tried to persuade her to enter into some new transactions, which she refused.

11. Ms Poh then had a meeting with Madam Protpakorn in June 2004 in Bangkok, and wrongfully, and in breach of the implied terms of the Agreement, or in breach of an implied oral agreement made in April 2004 requested Madam Protpakorn to close some open positions in order to keep her losses under US$2 million. This Madam Protpakorn refused. Then, because Madam Protpakorn refused to meet Ms Poh’s sale targets, Ms Poh wrongfully laid down some new guidelines for future transactions, but refused to confirm them in writing.

12. Evidence of the new guidelines appears in Madam Protpakorn’s affirmation. She says that she was given these at a meeting on 2 July, but was refused written confirmation of them because Ms Poh said that this was a special deal between her and the Bank.

13. Madam Protpakorn says that the new guidelines, effective from 2 July 2004, required that once a deal was done, she had to tell the Bank when the position would be closed, subject to a maximum period of six months. Existing open positions had to be closed within six months from 2 July 2004. But she had the option to roll over any open position, on the maturity date, be that the date she stated or the expiry of the six months’ period. This, she says, would put her at a disadvantage because on the expiry date the Bank would make a debit or credit. If she wanted to hold the old position, she had to place a new order so as to roll over at the new market rate. Otherwise the old open position was deemed closed on the expiry of the six months. This meant that if the open position was closed before the expiry date, the Bank would debit any loss immediately. But if there was a gain and the position was closed before the expiry date, the Bank would only credit the gain to the leveraged account on the expiry date.

14. Ms Protpakorn says that after she was told these guidelines, she protested against them, and was then told that this was the Bank’s new policy, whether she liked it or not. On 4 July 2004, under the new policy, she placed six new orders with expiry dates on 13 July 2004.

15. On 7 July, Madam Protpakorn was informed by telephone and on 8 July by fax that the Bank was not satisfied with the source of wealth and effective control of the assets in her account, and required her to close all her accounts within a month. After strong protests by Madam Protpakorn and Mr Kawabe, Ms Poh originally agreed to allow six months to close the accounts but then went back on that, and a letter dated 15 July, and a further letter dated 26 July, were sent to Madam Protpakorn confirming that she had to close the accounts within one month from 7 July.

16. As to the six new orders, Madam Protpakorn says that it was an express or implied term of the letter of 8 July that the six recent orders had to be closed out by 13 July. But, she says, she was refused when she asked to keep the positions open until the expiry of the month given in the letter, or to roll them over on 13 July. The Bank closed out these positions on 13 July; and Madam Protpakorn says that this caused her losses of over US$1.5 million and over JPY15 million.

17. Madam Protpakorn further pleads that because none of the Events of Termination in Clause 7 had occurred, the Bank had no right to require her to close the accounts and that the decision to terminate was in breach of the Agreement as varied. The one month was not a reasonable or adequate period; the Bank knew that it would cause losses to her. In fact she lost US$30,550,061.

18. In her affirmation Madam Protpakorn explains in detail how the arrangements worked. Put simply she says that she and the Bank were playing a zero-sum game; one player won and one lost on any transaction. As I understand her complaint, it is that the Bank forced her to quit while it was ahead, and she was behind in the game. This, she says, was unconscionable and unreasonable. She should have been allowed to play on, until she made up her losses. This foreshadows arguments put forward at the hearing that Clauses 7.01 and 15 are unenforceable as being in breach of the provisions of the Unconscionable Contracts Ordinance and the Control of Exemption Clauses Ordinance. This does not, however, appear in the pleadings.

19. It also appears from the affirmation and the arguments that estoppel is relied on more in connection with the “new guidelines” but in the pleadings the estoppel point seems to be based on the same grounds as the variation and implied term points.
Correspondence

20. It is as well to set out here some of the terms of the letters by which the Bank required the closure of the accounts. The faxed letter of 8 July reads as follows:

“ACCOUNTS NO. 684897 / 881915 / 689216 in name of Natamon Protpakorn

We refer to our conversations yesterday in which we informed you that we require you to close all your accounts with us within one month, as we are satisfied about the source of wealth and effective control of the assets in your accounts or to the good standing of the party to whom you have given a power of attorney to operate them.

We informed you that in view of those concerns, we could not permit you to enter into any new transactions, but that we would give you one month to enable you to close out your existing open FX positions.

We are in receipt of your unsigned fax of yesterday’s date, purporting to give us an instruction to enter into a new FX transaction. For the reasons set out above, we shall not act on this instruction or any similar instructions that may be given by you in future. We also draw your attention to the terms of the Foreign Exchange/Gold Index/Foreign Exchange Option Trading Account Agreement (the ‘Agreement’) between us (a copy of which is attached), which governs your FX trading activities. In particular, Clause II.2 of the Agreement provides that the Bank is not obliged to act upon any instructions to enter into transactions with you. Clause III.1 of the Agreement also provides that the Bank has the absolute discretion not to agree to your request to rollover matured obligations. This clearly sets out the legal position in respect of your relationship with us.

We expect you to observe the terms of the Agreement and the conditions under which we agreed to give you one month to close your accounts and settle your open positions. If you do not consent to observe these requirements, we reserve the right, to which we are entitled under our terms of business to set off your positions and close your accounts immediately.”

21. On 12 July, Mr Kawabe replied saying, inter alia, that it had been agreed that all new and old contracts were to be cleared within six months in order to continue the account. The account holder had requested written confirmation but it had not been given. The account holder had made funds available to increase the margin but the Bank had cancelled the agreement the next day. The Bank had informed the account holder that losses over $2 million were not allowed, but had allowed losses of $18 million. As to the suggestion that the funds did not belong to the account holder there was no evidence to support this. He said that the account holder would issue proceedings to claim for any resulting loss.

22. On 14 July, Madam Protpakorn also wrote to the Bank saying that the accounts had been open for five years, and accusing the Bank of relying on an “excuse” that it was not sure that she was the beneficial owner of the funds. She confirmed that she was the beneficial owner and that Mr Kawabe was her attorney. She said that the Bank was forcing her to take heavy losses by closing the accounts within a month and not allowing existing positions to roll-over.

23. In its letter of 15 July 2004 in response to these communications, the Bank amplified its reasons, as follows:

“The decision was made to exit our relationship with you because we have not been able to satisfy ourselves as to the ownership and control of the assets in your accounts. We note that in all matters relating to your accounts, you appear to exercise no independent control over the assets and instructions invariably come from Mr Kawabe, who, we understand, was convicted for fraud in 2001 by a Japanese court and sentenced to 3 years in prison. It is not appropriate for the Bank to have such a person either as a client or in a position to exercise authority over assets held by the Bank. As a result, a decision was taken on 7^th July, 2004 to exit the relationship, which we are fully entitled to do under our terms of business. We notified you the same day.

In addition to the Bank’s review of the overall relationship and the background and character of the parties involved in the operation of your accounts, it also became necessary for the Bank to review your practice of rolling over loss positions at historical rates rather than market rates, thereby deferring recognition of your losses. This is contrary to normal trading practice encouraged by the Bank and by market regulators, and we were not prepared to allow this to continue indefinitely. This was discussed with you on various occasions and on 2^nd July, 2004, we notified you of our inability to allow this to continue and our time frame for rectifying the situation. Subsequently, when the review of our concerns about the ownership and control of the assets in your accounts had been concluded, the decision was made to exit the relationship.

On 2^nd July, 2004, we had notified you that any new foreign exchange transactions which you entered into must be settled at maturity and that any losses could no longer be rolled over at non-market rates. This could be done by closing out the transactions at maturity and recognizing the resulting profit or loss, or by setting off the transactions against your earlier transactions which remained outstanding. On 12^th July, 2004, we asked whether you wished to set off any of the 6 transactions which were maturing the next day, against your open positions. As you did not give us any reply by 10 a.m. on 13^th July, 2004, we were obliged to settle them and recognise the resulting losses.

Your statement that losses exceeding USD2 million are not permitted on the account is mistaken. Subject to the Bank’s approval, clients may have losses of any amount provided that the Bank holds sufficient collateral to secure payment of the resulting indebtedness. Although your accounts continued to have sufficient collateral, it became necessary for the Bank to take action to end your practice of rolling over loss positions at non-market rates ”

Principles on Order 18 Rule 19 and Order 14A

24. Mr Wong, who appears for Madam Protpakorn has set these out very fully. They are not in dispute and I do not propose to rehearse them here. Suffice it to say that for striking out, the claim must be obviously unsustainable, and the pleadings unarguably bad, and it must be impossible for the case to succeed. See Ha Francesca v Tsai Kut Kan (No. 1) [1982] HKC 382. For Order 14A the court must decide whether the question of law or construction is suitable for determination without trial in the sense that the court has all the necessary facts and matters before it. If it is so suitable, it must finally determine the entire cause or matter, or any issue or claim therein. See Shell Hong Kong Ltd. v Yeung Wai Man Kiu Yip Co. Ltd. & Anor., FACV No. 1 of 2003.

The Bank’s case for striking out

25. This appears in the affirmation of the Bank’s legal counsel, Ms Lee, and in the arguments advanced by Mr Rogers at the hearing.

26. The Bank says that variation of the Agreement, as pleaded by Madam Protpakorn is impossible. In the first place, Part II Clause 15 provides that the Agreement can only be amended in writing and signed by the Bank. In the second place, the Agreement must be in writing, under guidelines issued by the Hong Kong Monetary Authority. A contract in writing can only be varied in writing. There is no writing. In the third place, if writing is not required, any variation is not supported by consideration and is therefore unenforceable, and further the facts pleaded in support of variation cannot amount to variation.

27. It is also argued that there is no room for any variation of the Agreement by means of implied terms, as pleaded and that since there could be no variation, the Bank had an absolute discretion to terminate the Agreement under Part II Clause 7.01(g).

28. As to the plaintiff’s claim of estoppel, the Bank says that for estoppel it would be necessary for the Madam Protpakorn to show that it had made a clear, precise and unambiguous representation and that she relied on it and suffered detriment as a result. No clear or unequivocal representation was made.

29. The Bank also argues that although it has sought particulars, adequate particulars were not pleaded and therefore there is no question of allowing amendment, rather than striking out. In any event, it says that the Statement of Claim is fundamentally defective and could not be cured by amendment.

30. It also says that allegations in Paragraph 14 of the Statement of Claim about the closure of the Bank’s units in Japan, which are irrelevant, indicate mala fides on the Madam Protpakorn’s part. They are scandalous, frivolous and vexatious. Objection is also taken to averments in Paragraph 16 that the Bank’s representative confirmed that the Bank valued the relationship and looked forward to it growing.

31. Leaving aside any question of scandal, it seems that the averments in Paragraph 14 have absolutely nothing to do with the case here; and those in paragraph 16 relate to matter that simply does not take the case anywhere, at all; so in both paragraphs the averments would have to be struck out as irrelevant.

The Bank’s case on Order 14A

32. Mr Rogers, who appears for the Bank, says that the application under Order 14A is made in the alternative; only if the court is not prepared to order striking-out will it be necessary to consider this. The Bank’s case is that under Part II Clause 15, no amendment or waiver is effective unless in writing and signed by the Bank; and that under Clause 7.01, the Bank may terminate the Agreement in its absolute discretion. These questions are suitable for determination without a full trial and will finally determine the entire claim.

33. In fact, I do not see how I can decide on striking out without deciding on the construction of these clauses. If, as the Bank says, there is no variation, the clauses stand as written and I need to decide the effect of them on whether or not Madam Protpakorn has a reasonable cause of action.

Madam Protpakorn’s case

34. Madam Protpakorn’s case on the strike-out application is that she has a good case as pleaded. As to the Order 14A application, as well as arguing the construction of the clauses, it is argued that this application is not appropriate because the Bank’s case has not been pleaded, and the issues of fact are interwoven with the legal issues.

Comment

35. Usually when leveraged trading goes bad, and the account holder loses a lot of money, the bank or financial institution concerned will claim against the account holder, who will argue that the written contract between the parties does not mean what it says, because of a collateral oral agreement, implied term or for some other reason. Here the position is different, in that it is the account holder who sues, and sues on the contract; but here, Madam Protpakorn also says that the Agreement does not mean what it says, because it has been varied, or because of an implied term.

36. I turn to the grounds on which striking out is sought.

Variation

37. Leaving aside for the moment any question of Order 14A, the question of variation goes to whether or not Madam Protpakorn has a reasonable cause of action, for the purposes of Order 18 Rule 19.

38. Part II Clause 15 provides that the Agreement can only be amended in writing and signed by the bank. Otherwise no amendment or waiver is effective. Further, by Clause 11, no failure or delay by the Bank in exercising any of its rights is to operate as a waiver. And by Clause 16.01, no delay or omission by the Bank to exercise any right, power or privilege under the Agreement is to impair the same.

39. There is no evidence that of any written variation. This was a written contract. It provided that the only way to vary it was by writing. There is simply nothing in writing which could vary it. Mr Rogers says the position is equivalent to that in Msas Global Logistics v. Power Packaging Inc. [2003] EWHC 1393 (Ch) where the judge, in refusing to accept that the parties’ representatives had made a binding oral agreement on a variation of the completion procedure laid down in the contract, held that because the contract itself required any variation to be signed on behalf of both parties, and it was not signed, there had been no binding variation.

40. Here there is no evidence of any oral variation; no bank officer is stated to have said that the Bank would not close any of the accounts without Madam Protpakorn’s consent. What she relies on is variation by the course of dealings. Every time a trade was done, Madam Protpakorn made a profit and the Bank a loss, or vice versa. But there was never any delivery of foreign exchange traded; it was all done by book entries. The Bank never called in any position; it just rolled them over, as long as Madam Protpakorn maintained the necessary margin credit.

41. That, however, was what was done all along. It was provided for by Clause 1 of Part III, which states that there will be no delivery, and at the same time, gives the Bank the power, on or before any settlement date, to exchange matured obligations for future obligations, i.e. roll over. This may be done on the specific request of the account holder, or in the absence of any request or agreement, and the Bank:

“may (but not bound to) in its absolute discretion as it deems fit, exchange matured obligations…for future obligations for such amount, duration and costs and subject to and upon such terms and conditions as the Bank may in its absolute discretion impose…”

42. In other words, the Agreement provided for roll-over but the duration was in the Bank’s discretion.

43. It seems to me that the arguments advanced for the Bank must be right. The parties agreed that any variation had to be written; and that is an end of the matter. There is no variation on which Madam Protpakorn can rely. Further, the course of dealings could not constitute a variation. There was nothing in them which was at variance with what was provided for in the Agreement.

Implied Term

44. Madam Protpakorn likewise relies on the pleaded particulars as to the course of dealings, in support of this argument, as well as on further and better particulars which further explain the system and bring in principles of fairness, level playing field and protection of the interests of customers referred to in section 7 of the Banking Ordinance, Cap.155 and guidelines laid down by the Hong Kong Monetary Authority. Section 7 provides for the functions of the Monetary Authority. It is also said that by extending her margin limit, the Bank impliedly agreed that it would not unilaterally close her accounts.

45. I do not see what section 7 of the Banking Ordinance, which sets out the functions of the Monetary Authority, has to do with implied terms. Nor do I see that any guideline, even if it does mention fairness, protection of the interests of customers and the like, has anything to do with implied terms. No doubt some contracts are seen as unfair, particular to consumers dealing with large organisations, hence legislation which attempts to promote fairness; but legislation and guidelines do not come into the picture in deciding whether or not there are implied terms.

46. In support of the implied terms contended for Mr Wong relies on The Moorcock (1889) 14 PD 64. A more modern exposition of the requirements for an implied term was set out in B.P. Refinery (Westernport) Pty. Ltd. v. President, Councillors and Ratepayers of Shire of Hastings[1978] 52 ALJR 20. Lord Simon, delivering the majority opinion in that case at page 26, said:

“Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

47. The contract works perfectly well without the implied terms contended for. I cannot see that it is obvious. If an officious bystander were to ask the parties if what they really meant was that the foreign exchange contracts had to roll over indefinitely, unless the account holder consented to them ceasing to do so, I cannot see that they would both have answered “Of course”. The same would apply where the margin limit was extended. In any event, if the matured obligations are rolled over, that is done for a duration which is in the Bank’s discretion under Part III Clause 1, so the implied term contended for would contradict that express term.

48. I conclude therefore that the implied term or terms contended for cannot be supported.

Estoppel

49. In the pleadings estoppel seems to be based on the same grounds as variation and implied terms, i.e. the pleadings about the course of dealings. It appears from Madam Protpakorn’s affirmation and Mr Wong’s arguments that estoppel, and waiver by estoppel, arises out of the averments that on 2 July 2004 the Bank told Madam Protpakorn that all her new orders had to be given a time limit for closing out, up to six months, and if she did not choose a time limit the six month period would apply. Old orders similarly had six months. This was subject to the option to roll over. Madam Protpakorn placed a number of orders, to be closed out in seven days; but the bank would not let her roll them over.

50. Estoppel needs a clear and unequivocal representation. Insofar as the estoppel point relies on the pleadings of the course of dealings, there is simply nothing in the course of dealings which could be taken as a clear and unequivocal representation that the Bank would not close the Trading Account or any of the individual accounts or the Agreement itself without Madam Protpakorn’s consent.

51. As Mr Rogers points out, there is nothing in the communications between the parties to show any clear and unequivocal representation by the Bank that it waived its right to insist that any variation of the Agreement must be in writing and signed by it. Nor is there anything to show a clear an unequivocal representation that the Bank waived its rights to terminate the Agreement under Part II Clause 7.01.

52. There is also no pleaded case that the Bank has waived the effect of Clause 7.02. I have set this out above. In effect it means that the account holder has no right to claim for any loss, whether on closing out an account, or on termination of the Agreement.

53. If Madam Protpakorn is arguing that the representation made on 2 July is that no new account would be closed out for six months, that cannot run; because what she says in the affirmation that she was told that she had to close the open position on or before the date she had informed the bank, or upon the six months maturity date. She could choose the maturity date up to a maximum of six months; and on the maturity date the position could be rolled over. But roll over was subject to the terms and duration decided by the Bank. I cannot find any pleading or evidence of a clear and unequivocal representation that the Bank would not close the Trading Account or an individual account under it, or terminate the Agreement, for six months or indeed any other period.

54. It follows that Madam Protpakorn has no case on estoppel.

Part II Clause 7.01

55. The Bank relies on Clause 7.01(g). In her affirmation, Ms Lee says that pursuant to Clause 7.01 the Bank is entitled to terminate the Agreement in its absolute discretion and close out immediately the outstanding trading contracts and/or transactions and the only limitation on such rights is that it must act in good faith.

56. She says this in support of the Order 14A application. But leaving aside for the moment any question of Order 14A, the construction of this Clause, and particularly sub-clause 01(g) needs to be decided in connection with the pleadings at Paragraphs 27 and 28 of the Statement of Claim.

57. In Paragraph 27 of the Statement of Claim it is said that the Bank could only validly and/or legitimately terminate Madam Protpakorn’s account under this Clause, but she was not in breach of any of the terms or conditions of the Agreement, under this clause or at all; and therefore the Bank could not unilaterally terminate her accounts.

58. At Paragraph 28 it is averred that the decision to terminate within one month was in breach of the express and/or implied terms of the Agreement or the same as varied orally, by trading practice and/or the course of dealings.

59. If the oral variation here pleaded refers to the new guidelines of 2 July, there is some difficulty with that. Madam Protpakorn pleads that these were wrongful and unilateral. In the affirmation, she says she was told that this was the new policy, whether she liked it or not. It is difficult to see how she can on the one hand say that the new guidelines were wrongful and unilateral, and imply that they were imposed without her consent, and at the same time rely on them as a variation. In any event, I have dealt with variation, so this is by the way.

60. If Clause 7.01(g) means that the Bank had an absolute discretion, subject to the requirement of good faith, it follows that Madam Protpakorn cannot say that the termination was in breach of it. Of course she says, in her second set of Further and Better Particulars, that it had been “varied or supplemented”. But I have dealt with those arguments already.

61. It is argued for Madam Protpakorn that the words “in its absolute discretion” are only referable to the situation where there is a material adverse change in the financial condition of the account holder.

62. For ease of reference I reproduce the wording here, though it is given above. The Clause provides that if an event, defined as an Event of Termination, occurs and continues, the Bank may terminate the Agreement. The Event is at (g):

“The Bank considers, due to a material adverse change in the financial condition of the Account holder or otherwise in its absolute discretion, it advisable or necessary to safeguard its interest…”

63. Clearly the Event of Termination occurs when the Bank considers it advisable or necessary to safeguard its interest. That may be due to a material adverse change in the account holder’s financial condition or it may be something else, i.e. “otherwise in its absolute discretion”. There must be some trigger to cause the Bank to see it as advisable or necessary to safeguard its interest; hence the requirement of good faith; but it seems to me that, subject to that requirement, it has an absolute discretion to decide what the trigger is.

64. Here what the bank relies on is the fact that it is not satisfied about the source of wealth and effective control of the assets, and the good standing of the attorney who operates the accounts. See the letter of 8 July 2004. This is amplified in the letter of 15 July to the fact that the bank has not been able to satisfy itself as to the ownership and control of the assets, and the fact that instructions invariably come from the attorney, Mr Kawabe, who is a convicted fraudsman.

65. Madam Protpakorn does not deny that Mr Kawabe is a convicted fraudsman and agrees that he was sentenced to three years’ imprisonment. She does not deny that he operates the accounts. There is no suggestion that the Bank knew all along about his record.

66. Although in Paragraph 20 of the Statement of Claim there seems to be some suggestion that what led the Bank to lay down new wrongful and unilateral guidelines was Madam Protpakorn’s refusal to meet Ms Poh’s sale target, presumably by not trading in Sterling and Australian dollars (paragraph 18) this is not amplified and it is hinted, rather than pleaded that this is what led to the termination of the Agreement.

67. I have already decided that the variation arguments do not run. So there can have been no variation of Clause 7.01(g). In my view, its meaning is as I have explained above. The Bank was obviously in a position to consider it advisable or necessary to safeguard its interest, if it was dealing with an account holder who was a front for a convicted fraudsman. I do not see that there is any breach of the terms of Clause 7.01 as pleaded in Paragraphs 27 and 28 of the Statement of Claim.

Inadequate Notice

68. Madam Protpakorn also pleads that the one month’s notice given was not reasonable or adequate. Mr Wong refers to Prosperity Ltd. v. Lloyd’s Bank Ltd. (1923) 39 TLR 1923. I do not think there is any dispute that, at common law, a banker who wishes to close a client’s account must give reasonable notice. But this is in the absence of special stipulation. Here Part II Clause 7.01 applies and this, it seems to me, gives the Bank an absolute discretion as to what to do with the accounts and when.

Unconscionability

69. It is argued that the Unconscionable Contracts Ordinance, Cap.428 applies to the Agreement. It is a contract for the supply of services, in which the account holder deals as a consumer. See section 2. Madam Protpakorn dealt as consumer, under section 3, or it is at least arguable that she did, given that she was an individual. If the contract any part of it was unconscionable when the contract was made, the court may refuse to enforce it. See section 5. Section 6 sets the matters to be considered in deciding unconscionability. Reliance is placed on the fact that the Bank was relatively strong and Madam Protpakorn relatively weak, and that this was a standard form contract. It is also said that unfair tactics were used.

70. It is also argued that Clause 7.02 is struck at by the Control of Exemption Clauses Ordinance, Cap.71.

71. For either of these Ordinances to apply, Madam Protpakorn would have to deal as a consumer. A consumer is one who neither makes the contract in the course of a business nor holds himself out as doing so; that is provided for by section 3 of Cap.428 and section 4 of Cap.71. Under both Ordinances, it is for the person claiming that a party does not deal as consumer to prove that he does not. It is difficult to imagine that the court would treat a person who trades in very large sums of foreign currency, through an attorney and other agents or assistants (see the first set of Further and Better Particulars) as one who did not make the various foreign exchange contracts in the course of a business. But that is by the way.

72. For the Bank, it is argued that these matters are not pleaded and in any event the Control of Exemption Clauses Ordinance does not apply to the creation or transfer of securities or any right or interest in securities. I do not think this last point is right, because I do not think that the foreign exchange traded, being currency or book entries of currency, was a security, but it is not necessary to decide that point.

73. Mr Wong says that he does not have to plead in anticipation; it is for the Bank to plead in its defence the sections on which it relies and Madam Protpakorn may then the effect of the two Ordinances.

74. I do not think this is right. The whole thrust of Madam Protpakorn’s case is that the Agreement does not mean what is says, because of variation, implied terms, or estoppel; or if those do not apply, Part II Clause 7.01 does not mean what it says anyway. It seems to me that this is not a matter of pleading in anticipation. If a plaintiff wants to say that some of the clauses in a written contract do not apply, because of variation or estoppel of whatever, he has to plead that. As I understand it, Madam Protpakorn is suing under the Agreement. She is not saying that no part of it applies. If she wants to say that those parts of it stand, on which she relies as saying that she has a case, but those parts are struck down which, on the face of them, say that she has no case, then I think she has to plead that from the outset. She has done so in respect of the other grounds, but not these grounds.

75. In dealing with this application I have to deal with the pleadings as they stand. It would be possible for Madam Protpakorn to apply to amend, so as to bring in these statutory provisions as negativing the parts of the Agreement which are against her, subject to the Bank’s right to strike out; but they are not on the pleadings before me. So they cannot be seen as providing her with a reasonable cause of action.

Conclusion

76. For the above reasons, it seems to me that the matters raised in Madam Protpakorn’s Statement of Claim do not disclose any reasonable cause of action. Once one takes out the various grounds I have dealt with, there is nothing left. She is bound by the Agreement, which means what it says; under it she has no case; and that, unfortunately for her, is the end of the matter. I do not need to go into whether the pleadings are scandalous, frivolous or vexatious, or an abuse of process.

77. It follows that the Statement of Claim must be and is struck out for that reason.

Order 14A

78. I have in effect determined the points of construction or law sought by the Bank, in the course of dealing with the striking out. However, the Bank only sought these determinations under Order 14A in the event that I was against it on striking out. I am ordering the Statement of Claim to be struck out and follows that it is not necessary to make any order under Order 14A.

Costs

79. The costs will be to the Bank, to be taxed if not agreed.

(G.P. Muttrie)
Deputy High Court Judge

Mr Alexander Wong and Mr Chu Tak, instructed by Messrs Foo & Li, for the Plaintiff

Mr Martin Rogers, of Messrs Clifford Chance, for the Defendant

NATAMON PROTPAKORN v. CITIBANK, N.A.

Related cases with same parties

Files (2)

(a)	The Account Holder shall not have provided any additional margin due under clause II, 4.02 or clause III, 3.03 hereof; or
(b)	The Account Holder shall fail to make any payment hereunder when due or, as the case may be, on demand; or
(c)	Any representation or warranty given by the Account Holder hereunder is or proves to have been incorrect or misleading when made; or
(d)	It shall become illegal or impossible or shall be asserted by any central bank or other governmental authority to be illegal or impossible for one Account Holder or the Bank to perform any of their respective obligations under these terms and conditions and/or any or all of the Contracts; or
(e)	The Account Holder shall die or be incapacitated, or shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Account Holder to adjudicate it a bankrupt or insolvent or any order shall be made by any competent court or other appropriate authority or resolution shall be passed for its winding-up or dissolution or for the appointment of a liquidator, receiver or trustee for it or any substantial part of its property, revenues or undertaking; or
(f)	Distress, execution, sequestration, attachment or other process is levied against any or all of the assets, rights or revenues of the Account Holder; or
(g)	The Bank considers, due to a material adverse change in the financial condition of the Account Holder or otherwise in its absolute discretion, it advisable or necessary to safeguard its interest under these terms and conditions and/or any or all of the Contracts.

“(1)	Two collateral agreements, namely:
	(a)	The 2001 Margin FX Agreement;
	(b)	The 2004 Margin FX Agreement;
(2)	Misrepresentations, made orally by D’s employee to P to induce her into engaging in Margin FX Trading with D;
(3)	Estoppel, based on D’s representations to P;
(4)	Breach of duty of care, which D as a bank owed to P as a customer;
(5)	Invalidity of the exemption of liability clause in the Standard Form FX Agreement, since P is a consumer and the clause is unreasonable under the Control of Exemption Clauses Ordinance (Cap.71); and
(6)	The Standard Form FX Agreement being null, void, or alternatively not binding on P.”

“	1.	The Agreement should be construed in accordance with the natural meaning of the express words of the Agreement, including Clause II, 15 of the Agreement, with the effect that no amendment or waiver of the agreement could be effective unless in writing and signed by the Defendant;
	2.	Pursuant to Clause II, 7.01 of the Agreement, the Defendant is entitled to terminate the Agreement in its absolute discretion and close out immediately the Plaintiff’s outstanding foreign exchange trading contracts and/or transactions, and the only limitation on such rights is that it must act in good faith.”