Natamon Protpakorn v. Citibank, N.A.

CACV 163/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 163 OF 2013

(ON APPEAL FROM HCCL 5 OF 2011)

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JUDGMENT
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Hon Lam VP:

1.I agree with the judgment of Barma JA which I have read in draft. I also agree that the appeal should be dismissed with costs.

Hon Barma JA:

2.This was the plaintiff’s appeal against the judgment of Harris J dated 5 July 2013, dismissing the plaintiff’s claims against the defendant for losses arising out of foreign exchange trading carried out by the plaintiff through accounts she held with the defendant.  The losses were incurred when the defendant, in July and August 2004, terminated facilities it had previously afforded the plaintiff for foreign exchange trading and closed out certain foreign exchange contracts held by the plaintiff, and did not permit her to renew, or roll over, a number of other such contracts.  The plaintiff contends that by doing this, the defendant was in breach of contract.  Alternatively the plaintiff claims that the defendant was liable to damages for misrepresentation, or was estopped from acting as it did, as a result of alleged representations which it had made to the plaintiff.

The factual background

3.The plaintiff is a Thai national, who is resident in Bangkok.  In March 2000, she opened three private banking accounts with the defendant.  At the same time, she established various facilities with the defendant, including in particular facilities for the trading of foreign exchange, in respect of which she signed a standard form agreement for the opening of a “foreign exchange/gold index/foreign exchange options trading account” with the defendant (“the FX Agreement”).  The FX Agreement was dated 17 March 2000.  Certain terms of this agreement are central to this dispute, and will be set out below.

4.At the time that she opened the accounts and entered into the FX Agreement, the plaintiff’s relationship manager was a Mr Balmelli, who had previously been her relationship manager at her former bankers, UBS.  Mr Balmelli left the employment of the defendant in November 2000, and was replaced by Mr Harry Lai as the plaintiff’s relationship manager.

5.According to the plaintiff, in 2001, Mr Lai proposed to her a strategy for foreign exchange trading.  Essentially this involved her entering into spot foreign exchange contracts (to be settled two days after the contract was entered into) and rolling over the contracts (by entering into new ones) at the same rate as the original contract was entered into (“the historical rate”) until exchange rate movements made the transaction a profitable one for the plaintiff, at which point the plaintiff could close out the position and take the profit. The contracts were entered into on a leveraged basis, with the plaintiff being granted a trading line with a specified margin ratio of 7% (i.e. the plaintiff was required to maintain deposits with the defendant totalling 7% of the total value of the outstanding foreign exchange contracts entered into).

6.Because of the practice of rolling over matured foreign exchange contracts at the same rate as the original contract (a practice which was referred to as “historical rate roll over” or “HRRO”), it was not necessary for losses to be debited against the plaintiff’s bank accounts.  Although unrealised losses were marked against the plaintiff’s deposits, the evidence was that this did not affect the amount of margin that was required, and so was not a source of concern to the defendant’s trading team.  That said, it did mean that the defendant’s risk exposure in relation to the plaintiff was not readily apparent from her account statements, and it might therefore be a cause for concern on the part of the defendant’s credit officers.  It appears, however, that such a trading strategy was one which the defendant was marketing to its customers generally at this time.

7.Following the discussions with Mr Lai, the plaintiff embarked on a programme of currency trading in a manner consistent with the strategy discussed orally. The alleged effect of the discussions between the plaintiff and Mr Lai forms one part of the plaintiff’s case against the defendant, as discussed below.

8.Such trading was directed not by the plaintiff herself, but by a Japanese associate of hers – a property developer by the name of Mr Kawabe.  Between about the end of 2001 and the end of 2003, there was little activity on the plaintiff’s accounts (apart from a few transactions in August and September 2003) – during this period, Mr Kawabe was serving a sentence of imprisonment, having been convicted of fraud in relation to the conduct of his companies’ affairs.

9.In July 2003, the plaintiff’s trading line was US$62 million. After Mr Kawabe returned from his sojourn in prison and resumed direction of the plaintiff’s currency trading activities, this trading line was increased, first to US$115 million in February 2004, and then (through a fairly rapid series of increases) to US$250 million by mid April 2004.

10.In early April 2004, however, Mr Lai left the employ of the defendant, and was replaced by Ms Rosalinda Cuatico as the plaintiff’s relationship manager.  Ms Cuatico was supervised in this role by Ms Jessica Poh, a managing director of the defendant’s private banking arm.  After Ms Cuatico and Ms Poh took over responsibility for the plaintiff’s account, they sought to arrange a meeting with the plaintiff to discuss the operation of her accounts with the defendant.

11.Such a meeting eventually took place in Osaka in May 2004.  It was attended by Ms Cuatico, Ms Poh and four other members of the defendant’s sales team.  On the plaintiff’s side, it appears to have been attended by the plaintiff, Mr Kawabe and certain other individuals, including a Ms Fanny Yu, who was employed by Mr Kawabe to liaise with the defendant’s trading team in Hong Kong.

12.The defendant says that as a result of this meeting, its officers formed the impression that Mr Kawabe, rather than the plaintiff, was in charge of the plaintiff’s accounts, giving rise to a concern that the plaintiff was merely a front for Mr Kawabe.  As a result, they began to press the plaintiff for clarification of the source of her wealth.  Further, the defendant says that after the meeting, in June 2004, it discovered Mr Kawabe’s conviction for fraud, adding to its concerns about the plaintiff’s account.  There was a dispute between the parties as to whether or not this had in fact been disclosed to the defendant earlier, during the course of the meeting, which the judge resolved in favour of the defendant.

13.Additionally, by early July 2004, the defendant had become concerned about its exposure to the plaintiff under the scheme of foreign exchange trading that had been adopted up to this point.  As a result of the use of historical rate rollovers, the plaintiff had by this time run up unrealised foreign exchange trading losses of some US$17 million.  On 1 July 2004, the plaintiff was told by Ms Cuatico and Ms Poh that the defendant wanted her to reduce the unrealised losses.  She was also reminded of the need to address the concerns that had arisen regarding the source of the funds in her account with the defendant.

14.The following day, 2 July 2004, in a series of telephone conversations between Ms Cuatico, Ms Poh and two other members of the defendant’s sales team and the plaintiff and some of her representatives (principally Ms Fanny Yu), the defendant informed the plaintiff that the basis on which she had been trading foreign exchange would have to be amended, with a view to eliminating the accumulated unrealised losses.  Existing open positions could no longer be rolled over indefinitely, but would have to be closed out within 6 months of the date on which they were originally placed, while for new transactions, the plaintiff would be required to specify a maturity date of no longer than 6 months, and rollovers would only be permitted to extend any particular transaction for up to a maximum of 6 months.  A second major change was that the plaintiff would no longer be allowed to make rollovers at historical rates.  All rollovers would be marked to market, and entered into at the prevailing exchange rates.  This would mean that (unlike previously) losses on any particular transaction would be debited against the plaintiff’s account on each rollover.

15.The plaintiff says that these changes were reluctantly accepted.  The effect of this round of discussions is the principal subject matter of this appeal.

16.After the discussions, late on 2 July 2004, 9 further foreign exchange deals were entered into by the plaintiff (although one of these was simply to close out an existing open position).  The plaintiff also had a substantial number of open positions on foreign exchange transactions that had been entered into before 2 July 2004, which remained open – each of these was a spot transaction, which had been rolled over (until then at historical rates) from day to day.

17.A few days later, on 6 July 2004, the defendant decided that it was no longer prepared to retain the plaintiff as a customer, and informed the plaintiff that her accounts would be closed after one month, and that it would be necessary to close out all her open contracts by then (at this point there were some 31 dating from before 2 July 2004, and the 8 entered into on 2 July 2004, that remained open).  Two of the 2 July 2004 contracts were voluntarily closed out by the plaintiff on 9 July 2004.  The remaining six contracts entered into on 2 July 2004 matured on 13 July 2004 in accordance with their original tenor, and the plaintiff was not allowed to roll them over.  The remaining 31 contracts were all eventually closed out on 3 or 4 August 2004, shortly before the expiry of the month’s notice of closure of the plaintiff’s accounts with the defendant.

18.The plaintiff says she suffered substantial losses as the result of the closing out of her contracts in this way.  She says that had she been allowed to continue to trade foreign exchange, even on the revised basis notified on 2 July 2004, she would have been able to roll over her open contracts for up to 6 months from the date they were originally entered into, and this would have resulted in the losses being eliminated and her making a profit instead.  She therefore brought these proceedings against the defendant seeking to recover damages in respect of those losses.

19.The plaintiff contended that the terms in which the strategy was put to her by Mr Lai in 2001 gave rise to an agreement between her and the defendant which overrode the terms of the FX Agreement, or constituted a separate agreement to which those terms had no application.  Alternatively, she contended that they amounted to representations to her on which she relied to her detriment, for which the defendant was liable, or on the basis of which the defendant was estopped from relying on the terms of the FX Agreement as against her.  As an alternative, the plaintiff contended that the way in which the revised trading parameters were put in place in early July 2004 had similar effects – i.e. as a binding agreement between the plaintiff and the defendant to which the FX Agreement’s terms did not apply, or as representations on which she relied or from which the defendant was estopped from resiling.  She suggested as a further alternative that the defendant was under an obligation to give her six months’ notice if they wished to terminate her accounts. Harris J rejected all of these arguments, and dismissed the plaintiff’s claim.

20.In respect of the contentions regarding the alleged 2001 agreement or representations, he preferred Mr Lai’s evidence (in which Mr Lai denied having made any promises or representations of the nature alleged by the plaintiff) to that of the plaintiff, and found as a fact that Mr Lai did not make any such promises or representations.  He went on to hold that, even if (contrary to his findings) Mr Lai had done so, such promises or representations were not binding on the defendant, as Mr Lai was a relatively junior employee of the defendant, who could not be regarded as having authority (whether actual or ostensible) to bind the defendant to an agreement which would depart from the terms of the standard written FX Agreement.  The judge further concluded that the parties could not reasonably be regarded as having intended to be bound, in a contractually enforceable way, to terms departing from those contained in the FX Agreement, as a result of any discussions that may have taken place as to foreign exchange trading strategies to be adopted in respect of her accounts with the defendant, referring in this context to the need for certainty, the commonplace nature of standard terms such as those found in the FX Agreement, and the existence of terms in the FX Agreement which militated against the viability of oral variations to the terms on which the defendant would do business with the plaintiff.

21.So far as the alleged July 2004 representations or agreement are concerned, the judge considered the transcripts of the conversations on 2 July 2004, and appears to have accepted that statements were made by officers of the defendant to the effect that any new position could be kept open for a maximum of six months, that the maximum duration should be specified in advance and that any rollovers that might be made would have to be at market and not historical rates, and that such arrangements were (perhaps somewhat reluctantly) accepted by those representing the plaintiff.  However, he took the view that such discussions did not give rise to a separate and independent agreement which was not subject to the terms of the FX Agreement, and said that he took this view for substantially the same reasons as he had given in the case of the 2001 agreement.

22.In relation to both the 2001 and 2004 discussions, the judge also rejected any claim based on misrepresentation or estoppel.

23.For present purposes, the following terms of the FX Agreement are of particular relevance:

(1) In Section II, which is headed “General Provisions”, Clause 2, headed “Contracts”, provides:

“The [plaintiff], from time to time, may request the [defendant], and the [defendant] may agree, in its absolute discretion, to enter into a [foreign exchange contract] with the [plaintiff].”

(2) Also in Section II, Clause 7, which is headed “Termination” provides (by Clause 7.01(g)):

“If …

(g) The [defendant] considers, due to a material adverse change in the financial condition of the [plaintiff] 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 [foreign exchange contracts]

then, and in any such event, the [defendant] may (i) terminate the [plaintiff’s trading account] and any outstanding obligations to the [plaintiff] hereunder and/or any or all of the [foreign exchange contracts], (ii) realise or liquidate and/or deal with in any manner as the [defendant] deems fit all or any of the [foreign exchange contracts] and/or offset any or all of the [foreign exchange contracts] against the other(s) of them or such [foreign exchange contracts] as the [defendant] may in its sole and absolute discretion determine, notwithstanding that the relevant [foreign exchange 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 [plaintiff] to the [defendant] …”

(3) Section II, Clause 7.02 provides:

“The [plaintiff] hereby acknowledges that it will not have any right or claim against the [defendant] 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.”

(4) Section II, Clause 15, headed “Amendments, Etc.” provides:

“No amendment or waiver of any provision hereof or of any [foreign exchange contract], nor consent to any departure by the [plaintiff] therefrom, shall in any event be effective unless the same shall be in writing and signed by the [defendant] and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. …”

(5) In Section III, headed Contracts, Clause 1, headed Foreign Exchange Contracts, provides:

“Notwithstanding anything herein contained, there shall be no delivery by the [defendant] on any Foreign Exchange Contract. At any time on or before the Settlement Date of any Foreign Exchange Contract, the [plaintiff] may request and the [defendant] may, in its absolute discretion, agree to exchange matured obligations under such [foreign exchange contract] for future obligations in which case the [plaintiff] agrees that the cost thereof calculated in accordance with the [defendant]’s usual practices shall, on the Settlement Date, be credited or debited, as the case may be, to the [plaintiff’s trading account] …”

24.Mr Scott SC, appearing for the defendant, relied principally on Clause II.7.01(g) to contend that the defendant was entitled to terminate the relationship with the plaintiff if it considered that it should do so in order to safeguard its own interests.  He accepted, however, that the defendant could not exercise this entitlement capriciously, and that it was necessary for the defendant to exercise its discretion honestly and in good faith (see Ludgate Insurance Co Ltd v Citibank NA [1998] Lloyd’s Rep IR 22, per Brooke LJ at paragraph 35 of the judgment).  He went on to submit that in the light of what he described as legitimate concerns as to the source of the plaintiff’s funds, which the plaintiff did not deal with, which were prompted by the role of Mr Kawabe and his apparent control over the operation of the plaintiff’s accounts, together with the discovery in June 2004 of Mr Kawabe’s fraud conviction, the defendant was within its rights to terminate the relationship with the plaintiff and to close out the plaintiff’s account.

25.For the plaintiff, Mr Joffe (who did not appear for the plaintiff below) submitted that the judge erred in rejecting the plaintiff’s claims.  He focussed on the judge’s rejection of the argument that the discussions in July 2004 resulted in an agreement being reached between the parties which was not subject to the terms contained in the FX Agreement.  Although he maintained that the judge was also wrong to have rejected the similar argument based on the 2001 discussions, he emphasised what he said were the differences between the 2001 discussions and those that took place in 2004.  He pointed out that the 2004 discussions were recorded, and that there was accordingly little room for doubt as to what was actually said.  He also stressed that whereas the 2001 discussions were with Mr Lai, who was a relationship manager, the 2004 discussions were with a team of much more senior officers of the defendant, who repeatedly referred to “decisions” of the defendant, and reiterated that the new terms on which the plaintiff would be permitted to trade foreign exchange were being “officially notified” to the plaintiff. These differences, he suggested, were of much greater significance and provided valid points of distinction from the “similar reasons” (which were, Mr Joffe said, not clearly identified) which the judge relied on to reject the plaintiff’s case.  Mr Joffe submitted that the judge was wrong to conclude that there was no intention to enter into a legally binding contract – pointing out that the onus of establishing such a lack of intention lay with the party asserting it, in this case the defendant, and not with the plaintiff as the judge had said.

26.In the course of the argument before us, it became clear that Mr Joffe’s main contention was that, as a result of the July 2004 discussions, an agreement had been reached between the parties which had the effect of overriding the terms of the FX Agreement, and that this conclusion was one which was to be reached as being the proper construction to be placed upon the words and actions of the parties, taking into account the surrounding circumstances. Consistently with this approach, Mr Joffe accepted that the arguments based on misrepresentation and estoppel would stand or fall with this contention – if the alleged agreement, properly interpreted and understood, did not override the FX Agreement’s terms, any representations made could not be reasonably understood as being representations to the effect that such terms would be overridden or be otherwise inapplicable.  Mr Joffe’s fall back arguments related to the effect of the 2001 discussions between the plaintiff and Mr Lai (subject to the same point regarding the independent viability of arguments based on misrepresentation and estoppels), and the proper construction of the terms of the FX Agreement to which I have referred above.  He also criticised the judge for having apparently had regard to various matters which were, it was said, irrelevant (these being principally the question of the source of the plaintiff’s wealth, and the role of Mr Kawabe and the relevance of a judgment against Mr Kawabe in Japanese proceedings, to which the plaintiff was not a party, which might be thought to cast doubt as to the source of the plaintiff’s wealth).

27.Although Mr Joffe focussed his arguments on the effect of the July 2004 discussions, I think that a proper understanding of the contractual arrangements between the parties, and the effect (if any) of the various discussions of trading strategies that took place in 2001 and 2004 on those arrangements requires regard to be had to both sets of discussions.

28.The starting point is therefore the opening of the plaintiff’s private banking accounts, and the execution of the FX Agreement in connection therewith, in March 2000.  At this stage, there can be no question but that the FX Agreement must be taken as being the contractual framework that it was agreed would underpin the parties’ relationship in relation to foreign exchange trading.  As the judge quite fairly observed, the terms of the FX Agreement, particularly those which I have set out above, are far from unusual in the context of a banker/customer relationship – indeed, they are quite standard in terms of the rights and discretions that are reserved to the defendant in dealing with the plaintiff, and in relation to the need for variations to the terms to be effected in writing.

29.The next question that arises is as to the effect of the 2001 discussions between Mr Lai and the plaintiff.  As to this, I see no reason to depart from the judge’s acceptance of Mr Lai’s evidence in preference to that of the plaintiff.  Given the misgivings with which the judge regarded the plaintiff’s evidence, for reasons which were amply explained in the judgment below, it is not possible to suggest that the judge was plainly wrong to do so.  To the contrary, this view was one which was well open to him to take.  Similarly, there is no reason to differ from the judge’s conclusion that Mr Lai was not an employee of sufficient seniority to be cloaked with the authority to vary the standard form agreements which the defendant had entered into with its customers.

30.But even if these hurdles could have been overcome, like the judge, I am unable to regard these discussions as having been capable of having the result that the terms of the FX Agreement were overridden in relation to foreign exchange trading carried on in accordance with the agreed strategy, or as giving rise to a separate agreement to permit foreign exchange contracts to be traded through the plaintiff’s accounts with the defendant without being subject to the terms of the FX Agreement.

31.As I have observed, the FX Agreement, having been entered into at the outset of the banking relationship between the plaintiff and the defendant, would have been regarded by both parties as being the framework that governed foreign exchange trading by the plaintiff through her accounts with the defendant.  As such, it would have been expected by both parties to apply to trading on such accounts throughout their relationship.  The 2001 discussions related to a strategy or model for foreign exchange trading which might be adopted by the plaintiff.  As foreign exchange trading was one of the very activities governed by the FX Agreement, there is (as the judge pointed out) no reason to think that either party would have regarded any agreement as to the strategy to be followed as one which would displace the operation of the FX Agreement. Put another way, all that such discussions could reasonably be understood as amounting to would be the formulation and agreement of a strategy to be pursued within the framework of the existing relationship.

32.In this regard, the fact that the defendant offered a foreign exchange investment or trading product that was materially identical to the strategy in question seems to me to lend support to this view – the fact that there existed brochures in which just such a strategy was described makes it clear that it was one which was within the normal range of investment strategies marketed by the defendant, and as such, one which would be expected to be governed by the defendant’s standard terms of business (in this case, the FX Agreement).

33.Further, it is relevant to note that all rollovers entered into pursuant to this strategy were recorded in confirmations known as extension letters, that stated on their face that the transaction in question was pursuant and subject to the terms of the FX Agreement.  At no time between 2001 and 2004 does it seem to have been suggested by the plaintiff that this was not the case.  This strongly suggests that the 2001 discussions were not regarded by either party as having the fundamental impact that the plaintiff now suggests they had.

34.In this context, I would just add that, with respect to the judge, I would not have characterised the question for consideration as one of whether or not the parties had intended to enter into a legally binding agreement in respect of the implementation of the strategy.  Rather, the question is (as Mr Joffe accepted before us) what, on the proper interpretation or construction of the discussions, having regard to the background, was the effect (if any) of the adoption of the strategy agreed upon.  For the reasons discussed above, I am of the view that the effect was not to supersede or render inapplicable the terms of the FX Agreement.

35.This brings us on to the July 2004 discussions.  It is correct, as Mr Joffe points out, that there are differences between the situation in 2004 and that which pertained in 2001, principally in relation to the fact that the evidence of what was said by whom was much clearer (as the discussions were recorded, and transcripts of the relevant conversations were placed before the court), and that the employees and officers of the defendant involved were (in some cases, at least) of a level senior to Mr Lai.  It is also fair to say that those employees described what they were imparting to the plaintiff and her associates as being “official notice” of the defendant’s position or decision, and that there appears to have been discussion among the defendant’s officers (at a fairly senior level) about the manner in which the plaintiff should be permitted to trade foreign exchange in future.

36.However, notwithstanding these distinctions, I do not think that the effect of such discussions can be regarded as being any different to the effect of the discussions in 2001 – i.e. they did not override the FX Agreement (and could not reasonably be regarded as doing so), and did not give rise to some separate agreement that was not subject to its terms.

37.This is because the July 2004 discussions were, like the 2001 discussions, concerned with the strategy or parameters governing the trading of foreign exchange by the plaintiff through her accounts.  The matters advised to the plaintiff concerning the limits on the length for which any particular provision could be held, and the termination of the use of historical rate rollovers, were essentially similar in nature (although certainly different in content) to the matters discussed in 2001.  Thus, for the same reasons as I have given in relation to the 2001 discussions, the July 2004 discussions are not to be understood as effecting a variation or overriding of the FX Agreement, or as constituting a free standing agreement not subject to its terms.

38.This conclusion is, in my view, reinforced by the nature of the changes introduced, and the circumstances in which they were notified to the plaintiff.  The changes mentioned in the preceding paragraph were clearly restrictions on the manner in which the plaintiff had previously been trading foreign exchange. Whereas there does not appear previously to have been any limit in terms of the length of time for which particular positions could be held open, a limit of 6 months from the date on which a foreign exchange contract was first entered into was now introduced.  Similarly, from a practice of using historical rate rollovers, with the consequence that losses could be held open on paper indefinitely without being debited against the plaintiff’s account, the new requirement that all rollovers be at market rates on the date of rollover meant that losses would be recorded in the plaintiff’s account.  Both these changes represented a tightening up of the control and oversight that was exercised in respect of the plaintiff’s foreign exchange trading through the defendant, and thus were a cutting down of the freedom she had previously had in this respect.  That being so, it was, in my view, inherently unlikely that in imposing these changes, the defendant was at the same time doing away with other discretions that it had available to it for its own protection under the FX Agreement, and I do not consider that the plaintiff, or any reasonable person in her position, could have genuinely thought otherwise.  That being so, I am satisfied that the July 2004 discussions could not be understood in the way that the plaintiff contends they should be, and did not, properly interpreted against the background of the parties’ relationship, have the effect of superseding the FX Agreement.  That being so, it is not necessary to deal with Mr Scott’s argument that Clause II.15 would mean that any such variation of the contract between the parties would in anyevent have been ineffective for want of being in writing on the part of the defendant.

39.Thus, the plaintiff’s case that the terms of the FX Agreement were no longer applicable to her dealings with the defendant in respect of foreign exchange trading, by reason of an agreement to that effect (whether reached in July 2004, or earlier sometime in 2001) must be rejected.  For reasons which I have explained in paragraph 27 above, it follows from this conclusion that the plaintiff’s alternative arguments based on misrepresentation and estoppel must also fail.

40.Mr Joffe also suggested that even if the discussions in July 2004 did not have the effect of superseding or rendering inapplicable the terms of the FX Agreement, they should at least have the effect of imposing on the defendant a requirement to give reasonable notice to the plaintiff before closing down her accounts, and put forward a period of 6 months as the length of notice that would have been reasonable, having regard to the indications that had been given that the plaintiff would be allowed to roll over foreign exchange contracts for up to that length of time.  However, this argument does not add anything to the arguments considered above, since it necessitates concluding that the effect of the discussions was to supersede the FX Agreement, at least to the extent of limiting the scope of operation of the termination provisions in clause II.7.01, a conclusion which cannot be reached in the circumstances of this case, for the reasons explained above.

41.The plaintiff also contended that clause II.7.01(g) did not justify the closure of her accounts and could not apply in this case, for a number of reasons.

42.First, it was suggested that since the concerns about the plaintiff’s source of wealth, Mr Kawabe’s apparent control over the operation of her accounts, and Mr Kawabe’s criminal conviction were all matters known to the defendant before the July 2004 discussions, there could have been no material adverse change in circumstances between 2 July 2004 and 7 July 2004, so as to trigger clause II.7.01(g) and entitle the defendant to terminate the plaintiff’s account on the basis of that clause.  Although it is true that these matters were all apparently of concern to the defendant prior to 2 July, it does not follow that, by seeking to narrow down the way in which the plaintiff could operate her accounts, the defendant was thereby accepting that these matters were no longer relevant, or were no longer concerns.  The narrowing down of the mode of trading was directed to the desire to eliminate the accumulated loss which had built up in the plaintiff’s account over the years, and was a separate matter from concerns about her source of wealth and control over her own accounts.  In any event, clause II.7.01(g) is not limited to material adverse changes in circumstances, but also covers other situations in which the defendant, in its discretion, considers it necessary or advisable to safeguard its own interests by closing down the plaintiff’s accounts.  Given the concerns which had arisen, which (at least in relation to the plaintiff’s source of wealth) had been communicated to the plaintiff, and which could not, in my view, be said to be arbitrary or capricious, I am satisfied that the defendant was entitled to rely on clause II.7.01(g) to justify its actions.

43.It was also suggested that to read “otherwise in its absolute discretion” widely and without restriction would render the other provisions of clause II.7.01 otiose, and that the clause should therefore be read in a more restricted way. However, the fact that other sub-clauses specify particular circumstances that will entitle the defendant to terminate the account does not mean that there is no need or justification for a more generally worded clause to enable this to be done, or that such a clause should not be given its natural meaning. Similarly the suggestion that these words should be construed ejusdem generis with the other bases identified in the earlier parts of clause II.7.01 is also, to my mind, unfounded.

44.In my view, the judge was correct to come to the view that clause II.7.01(g) provided a proper basis for the defendant to take the action which it did.  In the light of this conclusion, it is not necessary to deal with Mr Scott’s arguments that clauses II.2 and III.1 also permitted the defendant to decline to enter into fresh contracts by way of rollover on expiry of a foreign exchange contract in accordance with its tenor.

45.Complaint was also made of the judge’s adverse comments on the plaintiff’s failure to deal with her source of wealth, and in this context to refer to a judgment of a Japanese appellate court in proceedings to which the plaintiff was not a party in which comments were made which might be thought to be adverse to the plaintiff in this respect.  However, the question of the actual source of the plaintiff’s wealth was not a matter for consideration in these proceedings. The judge’s comments were directed towards the reasonableness of the defendant’s concerns as to this, which was one of the factors underlying its decision to terminate the plaintiff’s accounts.  In this context, there is nothing untoward in the judge’s observations as to the plaintiff’s failure to deal with these matters, and he was clearly entitled to come to the conclusion that the defendant had grounds for concern such that its decision to invoke its rights to terminate the plaintiff’s accounts could not be said to be arbitrary or capricious.

46.For the reasons explained above, I am of the view that the judge was both entitled and right to find that the terms of the FX Agreement continued to apply to the relationship between the plaintiff and the defendant, notwithstanding the discussions in 2001 and July 2004, and that those terms entitled the defendant to terminate its relationship with the plaintiff as it did.  It therefore follows that the judge was right to dismiss the plaintiff’s claim, and I would therefore dismiss this appeal, with an order nisi that the costs of the appeal should be to the defendant, to be taxed on the party and party basis if not agreed.

Hon McWalters JA:

47.I agree with the judgment of Barma JA.

Mr Victor Joffe QC and Mr Nigel Aiken SC leading Mr Kenneth Chow and

Ms Anny Chak, instructed by Christine Tsang & Co, for the plaintiff

Mr John Scott SC, instructed by Davis Polk & Wardwell, for the defendant