Case Detail

HCA2683/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2683 OF 2008

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BETWEEN

	CITIBANK, N.A.	Plaintiff
and
	LEUNG RONALD DING BONG	Defendant

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Before : Hon Poon J in Chambers

Date of Hearing : 16 February 2011

Date of Decision : 16 February 2011

Date of Reasons for Decision : 24 February 2011

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REASONS FOR DECISION

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Introduction

1. This is the plaintiff’s application for specific discovery of statements in respect of bank accounts, securities accounts or investment accounts including but not limited to accounts held by the defendant with Morgan Stanley and Wing Hang Bank sufficient to show his available liquid assets, i.e. cash or readily realizable securities such as listed stocks for the period between 18 and 27 October 2008 inclusive with the necessary redaction.

2. On 16 February 2011, I allowed the application but limited the period to that between 19 and 27 October 2008 inclusive.

3. These are my reasons.

Discussion

4. The application essentially turned on the relevance of the documents sought.

5. The defendant opened an account with the plaintiff in September 2005, through which he had since traded in various derivative products. In September 2008, the Lehman Brothers collapsed. On or about 18 October 2008, there was a margin shortfall of some US$3.3 million in the defendant’s account. On 27 October 2008, the defendant gave the plaintiff instruction to close out and/or liquidate the investments and open positions in the account so as to crystallize his loss, which the plaintiff did. However, the liquidation proceeds were insufficient to cover the loss leaving a significant shortfall. On 19 December 2008, the plaintiff commenced the present action claiming for HK$9,710,203.59 with interest.

6. The defendant denied liability on various grounds. What is pertinent for present purposes is the complaint that the plaintiff had failed to act promptly on his instruction to close out, which was given over the phone at about 10:49 a.m. on 27 October 2008. The plaintiff did not do so until 12:58 p.m. on the same day.

7. In reply, the plaintiff alleged that no firm instruction to close out was given until 12:58 p.m. Alternatively, if the instruction was given in the morning, the plaintiff contended that it was reasonably entitled to take the time to consider and discuss the matter internally, to obtain estimates of the unwinding costs, to try to persuade the defendant to change his stance and provide additional funding to cure his default and to decide whether to accept his instruction. So there was no delay as alleged.

8. The most crucial and hotly disputed issue concerns the meaning of the telephone conversations between the parties over the phone on 27 October 2008. It will determine when exactly the defendant gave the instruction to close out.

9. Of equal importance, at least from the plaintiff’s perspective, is the defendant’s financial position at the time. It is its case that the defendant represented at a meeting on 19 October 2008 that he had a large cash pool in Wing Hang Bank. He also showed them bank statements in support. That is why the bank officers did not believe the defendant when he told them that on 27 October 2008 that he had no money to answer the margin call. That also explained partially why they had conducted the matter in the way as they did.

10. Mr Rogers, for the plaintiff, submitted that the documents sought, which would reveal the defendant’s liquid assets position at the material times, would shed light on the reasonableness of the bank officers’ belief, which in turn, might lend support to the plaintiff’s case that it was entitled to take a reasonable amount of time to assess and deal with the situation. I agree.

11. Further, the defendant complained that why Wing Hang Bank was able to close out his account promptly, the plaintiff was unable to do so. But the evidence suggests that the defendant had a large cash pool at Wing Hang Bank. As rightly submitted by Mr Rogers, that may well explain why Wing Hang Bank had acted so quickly. So the documents with Wing Hang Bank are relevant.

12. I reject the submission of Mr Mok, counsel for the defendant, that this application is a fishing expedition or too onerous. I can also see no merit in his submission that it would be difficult to redact the statements. The defendant is an experienced banker and a seasoned investor. He should have no difficulty to carry out the necessary redaction to the statements.

13. The period to be covered by the discovery should start with 19 October 2008 when the meeting at which the defendant allegedly showed the bank officers the bank statements took place.

Conclusion

14. For the above reasons, I allowed the application with the amendment to the period.

( J. Poon )
Judge of the Court of First Instance
High Court

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

Mr Andrew Mok, instructed by Messrs Hobson & Ma, for the Defendant

HCA 2683/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2683 OF 2008

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BETWEEN
	CITIBANK, N A	Plaintiff
	and
	LEUNG RONALD DING BONG	Defendant

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Before : Hon A Cheung J in Chambers

Date of Hearing : 28 April 2009

Date of Judgment : 28 April 2009

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J U D G M E N T

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1. This is an Order 14 application. The plaintiff bank sues the defendant, Dr Leung, for over HK$9.7 million in shortfall, arising out of the liquidation of seven accumulator contracts that the defendant had entered into through the services of the plaintiff, as well as other assets which the defendant had kept with the plaintiff, on 27 October 2008.

2. Prior to that, the prices in relation to the contracts had dropped substantially and that resulted in a margin call made by the bank on the defendant which, quite plainly, the defendant was unable to meet.

3. Everything turns on four telephone conversations that took place in the morning and in the early afternoon of 27 October 2008. The conversations were tape-recorded and the Court has before it the transcripts of the four telephone conversations.

4. By taking out the summary judgment application, the plaintiff is obviously saying that the defendant has no arguable defence to the claim for payment of the shortfall, nor is there any triable issue fit to go to trial and thus the bank asks for summary judgment against the defendant.

5. The defendant contends otherwise. Amongst other things, the defendant contends that in the telephone conversations, particularly the so-called second telephone conversation between the parties which took place between 10.58 and 11.00 am on the day in question, he had given firm and unequivocal instructions to the bank to liquidate all seven contracts. But, so the defendant contends, the bank simply ignored or refused to follow his instructions until the fourth conversation that took place between 12.56 and 12.58 pm on that day, when the bank finally accepted his instructions to liquidate the seven contracts and to sell all other assets which the defendant had with the bank. The difference in time, according to the defendant, has resulted in a substantial loss to the defendant’s position because the liquidation prices for these accumulator contracts had fallen between the two telephone conversations.

6. The defendant has also pointed out that in fact, on the same morning, he had given similar instructions to another bank, with which he had also maintained similar contracts, to liquidate those contracts, which instructions were followed. And by reference to the prices so obtained in liquidating those contracts, the defendant now says that if the plaintiff bank in our case had liquidated his seven contracts earlier in the morning as per the instructions he had given during the second conversation, the prices which the bank could have obtained for him would have been much more favourable and his overall position would not have been a negative one. Thus, there would not have been this lawsuit against him.

7. So it is important to look at what the parties have actually said during those four conversations, particularly in the second telephone conversation. It is trite law that in dealing with an Order 14 application, the Court is not here to try the case. The Court is simply here to perform a screening function, to see whether there are any triable issues as to fact or as to law, or any other triable matters, that ought to go to trial. If the answer is in the affirmative, the Court must not give summary judgment. All parties, including defendants, are entitled to a fair trial and the Court must give the defendant a chance to present his case in court at trial. In other words, the Court is, at this stage, only interested in arguable issues or triable matters.

8. Returning to the transcripts, particularly the transcript of the second telephone conversation, in my view, it is arguably plain that the defendant did give firm instructions to the bank to liquidate his seven contracts, come what may.

9. The one thing that stands out fairly clearly from the transcript of that telephone conversation, and indeed from the other transcripts as well, is that the defendant had no further money to inject into his account. Yet, again speaking at the level of arguability, the bank was not willing, or did not think it wise in the interest of the defendant himself, to follow the defendant’s instructions to sell. The bank somehow, again speaking in terms of an arguable case, suggested, or gave the impression to the defendant, that he had to come up with further cash before he could liquidate the seven contracts. Moreover, the bank gave the impression that it needed to find out the liquidation prices first before it could carry out the defendant’s instructions, or before the defendant could make an informed and wise decision as to whether to liquidate his position. All this took place in spite of – again speaking in terms of an arguable defence only – the defendant’s instructions to liquidate his contracts.

10. Moreover, in relation to whether extra money was indeed required before the bank could follow any instructions to liquidate the contracts, there are several arguable issues. First, whether, factually, at that time, the overall position of the defendant with the bank was such that without injection of cash, liquidating the contracts as well as the other assets would result in a negative figure. At least according to the bank’s own calculation, by the time of the fourth conversation, that was not to be the case.

11. Secondly, whether, as a matter of law, if liquidating the seven contracts would result in a negative figure, the bank was entitled not to follow the instructions to liquidate (without any cash injection first).

12. It is quite true that in the second telephone conversation, nobody expressly mentioned the possibility of resorting to the defendant’s other assets with the bank in order to cover any shortfall in liquidation. But again, it is arguably plain that the defendant was, in this telephone conversation, leaving everything to the bank to decide in order to achieve his goal of liquidating his contracts. Quite plainly, the defendant was in a very desperate position and all he wanted was to liquidate the seven contracts in order to have peace of mind. He was leaving it to the bank to come up with ways in order to comply with his instructions.

13. This gave rise to, in my view, a third arguable issue, namely, whether the bank had fulfilled its duty to the defendant to come up with possible options or ways in order that the defendant’s instructions to liquidate could be complied with.

14. A related issue that surfaced in this second telephone conversation was the impression that the bank gave to the defendant that it needed to find out the relevant prices that outside counterparties would be willing to offer (or accept) in the liquidation process before either the liquidation instructions could be carried out, or the defendant could make an informed and wise decision as to whether to liquidate.

15. Either way, the impression given to the client was that time was required to find out from these possible and willing counterparties as regards the possible liquidation prices. As it turned out, when eventually the contracts were liquidated, the counterparty to all these seven contracts was no one other than the bank itself, acting as principal.

16. So this gave rise to some difficulties: First, why did the bank tell the defendant that his instructions to liquidate could not be carried out immediately because the bank was still trying to find out the possible prices for liquidation from these outside counterparties for the defendant when, in fact, the bank could act as the counterparty and in fact the bank eventually acted as the counterparty to the liquidation transactions? And secondly, whether the advice given to the defendant at the time was in order.

17. All these are matters that cannot be resolved on paper. To be fair to the bank, these matters have not been very clearly spelled out or raised in the factual evidence filed and the bank has not either pleaded matters or relevant terms of contract in its pleading to cater for these points, or filed evidence to deal squarely with these matters. Maybe – and the Court does not know – there are more than good answers to all these points and queries that the Court has just mentioned. But all this just highlights the fact that this case really requires a trial to resolve all these and maybe other issues between the parties.

18. Again, I would like to emphasise that, at this stage, the Court is not saying whether the bank has a good case against the defendant or whether the bank will be successful in its claim at the end of the day. The Court simply does not know and has no intention whatsoever to express any view, not even a provisional view, in this matter. That is not the function of the Court at this hearing. The function of the Court is simply to see whether there are triable issues or arguable points that should go to trial.

19. By reason of the matters that I have mentioned, I have come to the firm conclusion that there are triable issues and matters that ought to go to trial. In other words, the Court is not minded to grant summary judgment against the defendant. The Court grants the defendant unconditional leave to defend.

20. I will hear the parties on the directions to be given for the further conduct of the proceedings before I deal with the question of costs.

[Submissions on directions]

21. Leave to the defendant to file and serve a defence and counterclaim within 14 days from the date hereof. Leave to the plaintiff to file and serve a reply and defence to counterclaim within 21 days thereafter.

[Submissions on costs]

22. Costs in the cause.

(Andrew Cheung)
Judge of the Court of First Instance
High Court

Mr Jonathan TY Chang, instructed by Wilkinson & Grist, for the plaintiff

Mr Samuel CC Wong, instructed by Hobson & Ma, for the defendant

CITIBANK, N.A. v. LEUNG RONALD DING BONG

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