Taishin International Bank Co., Ltd v. Qfi Ltd
Read the full judgment text of HCA 194/2016 on BabelCite. This Court of First Instance judgment was delivered on 31 August 2020 before Deputy High Court Judge Paul Lam SC.
Banking law – FX transactions – Master Agreement, Facility Letter and Financial Transaction and Master Agreement (FTMA) – foreign exchange spot and swap transactions – oral instructions confirmed by audio-recordings and Confirmations – 9 December 2015 FX spot transactions extended by 11 December 2015 FX swap transactions – 18 December 2015 FX spot transactions – whether transactions created open positions or were used to close pre-existing open positions – burden of proof on Defendant to prove pre-existing open positions – audio-recording evidence showing agreement to FX swap transactions – signed Confirmations of prior FX swap transactions acknowledged with company chop – handwritten notes ambiguous and insufficient to displace oral agreement – Confirmation reference nos. 1328228 and 1328230 being cancelled or internal references to the same transaction – Defendant's failure to settle JPY6,087,700,000 on 22 December 2015 constituting event of default – Plaintiff's closure of open positions on 7 January 2016 – Defendant's counterclaims for unauthorized cancellations of five sets of transactions – transactions in fact carried out for Highway or Kifa rather than Defendant – counterclaim for unauthorized withdrawal of EUR 10 million being clerical error in monthly statement – counterclaim for wrong exchange rate dealings being barred by conclusive evidence clause in clause 2 of FTMA – clear and unambiguous provision imposing 90-day notification requirement for discrepancies in Confirmations – '完全接受' meaning fully or completely accept with no further challenge – Defendant's 24 December 2015 email and 28 January 2016 letter not constituting proper notification of exchange rate discrepancies – WeChat messages of 2 June 2015 insufficient to establish spread agreement – late application to adduce supplemental evidence on first day of trial dismissed for lateness and material prejudice to Plaintiff – Defendant's claim allowed in sum of JPY187,110,057 with interest – all counterclaims dismissed – costs to follow the event on party and party basis with certificate for two counsel.
Legal issues: Whether the 18 December 2015 FX spot transactions created open positions requiring settlement on 22 December 2015 · Burden of proof regarding the 18 December 2015 transactions · First unauthorized cancellation (Items 2 & 4) - 1 December 2015 Buy EUR transactions · Second unauthorized cancellation (Items 5 & 6) - 2 December 2015 EUR transactions · Third unauthorized cancellation (Items 7 & 8) - 3 December 2015 EUR transaction · Fourth unauthorized cancellation (Items 9 & 10) - 4 December 2015 EUR transaction · Fifth unauthorized cancellation (Items 11 & 12) - 17 December 2015 transaction (Confirmation reference no. 1328230) · Sixth unauthorized cancellation (Item 13) - 18 December 2015 USD 40M transaction · Unauthorised withdrawal of EUR 10 million (Counterclaim 2) · Wrong exchange rate dealings and conclusive evidence clause (Counterclaim 3) · Defendant's application to adduce supplemental evidence · Award of costs
Outcome: Plaintiff's claim allowed; Defendant's three counterclaims dismissed. The Defendant is liable to pay the Plaintiff JPY187,110,057 with interest.
Cited by 20 cases · Cites 9 cases
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HCA 194/2016 [2020] HKCFI 2116 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 194 OF 2016 ________________________
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____________________ JUDGMENT ____________________ 1.The Plaintiff is a company incorporated in Taiwan. It was and is an institution authorized to carry out banking business in Hong Kong under the Banking Ordinance (Cap. 155). Mr Ko Shih Chiang Benson (柯仕強) (“Ko”) was the Vice President of the Treasury Marketing Unit of the Plaintiff. Mr Steve Chen (陳瑞輝) (“Chen”) was the Branch Manager of the Plaintiff. 2.The Defendant is a company incorporated in Hong Kong on 9 November 2012. Ms Huang Chiung Hui Sophie (黃瓊慧) (“Huang”) is the sole shareholder and former director of the Defendant. Huang also owned and controlled two other companies incorporated in Hong Kong called Kifa Co Ltd (“Kifa”), incorporated on 28 February 2011; and Highway Asia Pacific Limited (“Highway”), incorporated on 15 January 2010. Huang ceased to be a director and a shareholder of Kifa since 12 June 2015. She still controls Highway. The Defendant and Highway had accounts at the Plaintiff’s Hong Kong branch. Huang had the authority to give instructions to the Plaintiff with respect to those accounts. Kifa initially utilized the banking services of the Plaintiff’s Hong Kong branch via its account with the Plaintiff’s Hong Kong branch, but later closed such account. 3.The relationship between the Plaintiff and the Defendant was governed by the following agreements which were all duly executed and legally binding on both parties:
4.Pursuant to these contractual documents, and since August 2015, the Plaintiff and the Defendant entered into foreign exchange transactions (“FX transactions”) involving the trading of one currency for another. 5.The Plaintiff claims that, on 18 December 2015, the Defendant entered into three FX transactions. They created an open position which needed to be settled or closed on 22 December 2015. However, the Defendant wrongfully failed to settle those transactions on 22 December 2015 or at any time after that. Hence, it exercised its right to settle those transactions for the Plaintiff on 7 January 2015. As a result, the Defendant is liable to pay a sum of JPY187,110,057 plus interests accrued thereon. The Defendant contends that it was not obliged to settle those transactions because they were entered for the purpose of settling or closing partially an open position created by previous transactions executed on 16 and/or 17 December 2015. The key issue is whether the three FX transactions on 18 December 2015 in issue:
6.Apart from contesting the Plaintiff’s claim, the Defendant raises and maintains at this trial three counterclaims:
B. THE DEFENDANT’S APPLICATION TO ADDUCE SUPPLEMENTAL EVIDENCE 7.The Defendant took out a summons on 12 June 2020 returnable on the first day of the trial seeking leave to serve the 4th supplemental list of documents dated 13 June 2020, and to file and serve the 2nd supplemental witness statement of Huang dated 12 June 2020. After hearing counsel’s submissions, I dismissed the summons with costs to the Plaintiff. I said that I shall give reasons for my decision in this judgment. 8.The Defendant’s 4th supplemental list of documents consisted of four documents (i.e. nos. 215-218) but the Defendant did not pursue its application regarding document no. 217. Huang’s 2nd supplemental witness statement consisted of four paragraphs, and some of her evidence concerned the new documents that she intended to rely on. It is unnecessary for me to go into the details of the new evidence. 9.There is no dispute on the applicable legal principles. They were set out in, for example, Hong Lok School Ltd v Chow Sai Yiu [2003] 2 HKLRD 782, §6, and Guangzhou Green-Enhan Bio-Engineering Co Ltd v Green Power Health Products International Co Ltd, HCA4651/2002 (21 August 2004, unreported), §7, cited by the Defendant; and also Parsad v Great Wealthy Engineering Co Ltd [2012] 3 HKLRD 705, §§6-7. 10.This was, undoubtedly, a very late application. Huang explained the delay in an unsigned affirmation. In short, she said that the new documents were obtained or retrieved recently, and she did not appreciate their relevance until discussions with her lawyers shortly before the commencement of the trial. Her explanations did not constitute any good reason for the delay. Any attempt to adduce new evidence on the first day of trial must be discouraged and should only be allowed in very exceptional circumstances. In this case, the Defendant’s application should be dismissed on the ground of lateness alone. Nevertheless, I have considered the relevance of the new evidence, and whether any prejudice would be caused to the Plaintiff if the Defendant’s application was allowed. I was prepared to assume that the new evidence was, prima facie, relevant. But this was precisely why the Plaintiff would suffer prejudice if the application was allowed. The Plaintiff submitted that it would require no less than 7 days to prepare evidence in reply to the Defendant’s new evidence. The Defendant submitted that the Plaintiff should not need so much time (if any at all). At the same time, the Defendant accepted that to abort or adjourn the trial would not be a viable option. As a matter of natural justice, a party must be given a reasonable time and opportunity to respond to any new evidence adduced by the other party. Further, it would be unfair to require a party to divert its attention and resources to deal with new evidence when the trial was proceeding. I take the view that the Plaintiff would suffer material prejudice if the Defendant’s application was allowed. Having considering all relevant circumstances, I decided to exercise my discretion to dismiss the Defendant’s application with costs. C. GENERAL APPROACH TO EVALUATING THE EVIDENCE 11.At the trial, Ko for the Plaintiff and Huang for the Defendant gave evidence via video-link pursuant to the orders made by DHCJ M K Liu on 25 May 2020 (see the relevant Decision at [2020] HKCFI 938). In short, the Defendant sought leave to allow Huang, who was in Shanghai, to give evidence via video-link because of the quarantine restrictions impose by the Mainland and Hong Kong due to the Covid-19. One of the grounds of opposition raised by the Plaintiff was that, if Ko were to given evidence in the courtroom while Huang could give evidence through video-link, there would be an imbalance between the parties. DHCJ M K Liu allowed the Defendant’s application. And to address the Plaintiff’s said ground of opposition, he also granted leave to Ko to give evidence via video-link. The learned Judge held in §8(6) & (8) of his decision that, by giving the same privilege to Ko and Huang, both parties would be treated equally; and hence, although the application was late, there would be no prejudice to the Plaintiff to allow the application. 12.What is extraordinary is that Ko was in Hong Kong, and was in court on the first day of the trial. He could have given evidence in the usual way in court. I had indeed raised the question with the parties whether I could vary the order made by DHCJ M K Liu in the circumstances. But having heard counsels’ submissions and considering the matter, even though I believed that I, as the trial judge, had the jurisdiction to vary a case management decision, it would not be fair and appropriate to do so in these circumstances. Having said that, with respect to the learned judge, I must say that I have serious reservations whether it is correct in principle to allow a party’s witness, who is able to give evidence in court, to do so via video-link solely for the purpose of ensuring equal treatment to the parties. In my view, generally speaking, a witness should be permitted to give evidence via video-link if and only if it is not reasonably practicable for him or her to give evidence in court. Any “imbalance” caused by the fact that the witness for the opposing party is giving evidence under a different environment is a matter that professional judges should and would be able to take into account in assessing the credibility of the witnesses. Notwithstanding what I have just said, I need to make it clear that, in assessing Ko’s credibility, I have not taken into account his decision to exercise the privilege given by DHCJ M K Liu to give evidence by video-link. 13.The credibility of both Ko and Huang is in issue. There is no dispute on the general principles that the Court should apply in assessing the credibility of a witness (see e.g. Progetto Jewellery Co Ltd v Lau Chiu Ying [2020] HKCFI 209 at §§28-31, per DHCJ M K Liu, cited by the Plaintiff). I also found the following summary of principles set out in Northampton Borough Council v Cardoza and others [2019] EWHC 26 (Ch) instructive:
14.In Simetra Global Assets Ltd and another v Ikon Finance Ltd [2019] EWCA Civ 1413, Males LJ of the English Court of Appeal stressed the importance of contemporaneous documents at §48:
15.In this case, a number of FX transactions in issue were subject to microscopic examination. Apart from the long lapse of time (since the relevant FX transactions took place almost 5 years ago in late 2015), each of those transactions would involve different currencies, amounts, exchange rates and settlement dates. Instructions to enter into those instructions were mostly given and confirmed orally within a very short time. It is most inherently improbable that any human being, including Ko and Huang, would and could have any accurate and reliable independent recollection of the details of the individual transactions without the assistance of contemporaneous records and documents. In considering how I should resolve the factual issues, I shall pay particular attention to the contemporaneous records and documents, and how the parties responded to them at the material time. 16.Contemporaneous documents would be of great assistance if their authenticity is not in dispute, and if their content is clear and unambiguous. However, if the content of the document is ambiguous and confusing, the court may have difficulties in construing the document objectively. In such event, it is necessary to guard against the risk that the party may invite the court to construe the document in a particular way, which may well be just a subjective afterthought to suit his or her case. 17.In this case, as expected, most of the contemporaneous documents are records or statements made and kept by the Plaintiff, including in particular, audio-recording of the oral conversations between Huang and the Plaintiff’s staff members, written confirmations for individual transactions, and monthly consolidated statements. There are also written communications between the parties by letters, emails and WeChat. Although these contemporaneous records and documents are important, they must be considered cautiously for the following reasons:
18.One of the Defendant’s main arguments is that the Plaintiff has failed to call relevant witnesses and produce relevant documents. The Defendant cited numerous authorities on the legal principles in this respect including Li Sau Keung v Maxcredit Engineering Ltd [2004] 1 HKC 434 at §28; O’Donnell v Reichard [1975] VR 916 at 929; South China Securities Ltd v Lam Kwen Yuen [2012] 5 HKLRD 524 at §7; Chow Kwan Yee v Leung Lei Yin May [2019] HKCFI 2998 at §22. On the other hand, the Plaintiff referred me to Wisniewski v Central Manchester Health Authority [1998] PIQR 324 at 340; Ip Man Shan Henry v Ching Hing Construction Ltd [2003] 1 HKC 256 at §155; Chinachem Charitable Foundation v Chan Chun Chuen, HCAP8/2007 (2 February 2010, unreported), §§911-913; Tjang Siu Thu v Profield Construction Engineering Ltd, CACV156/2013 (27 May 2015, unreported), §33; Chan Chung Yee v Chan Wah Cho Joe [2018] HKCFI 611 (20 March 2018, unreported), §34; DBS Bank (Hong Kong) Ltd v Sit Pan Jit, HCA382/2009 (2 April 2015, unreported), §§33-35). These principles are not in dispute. Suffice for me to quote the following passages in Tjang Siu Thu v Profield Construction Engineering Ltd, CACV156/2013 (27 May 2015, unreported):
19.I shall bear all these legal principles and general observations in mind when I consider the factual issues. 20.As mentioned, the relationship between the parties was governed by three contractual documents. I shall highlight the more important terms below. 21.First, the parties executed a Master Agreement dated 16 January 2015 (“the Master Agreement”). 22.Clause II(1) provides that, in respect of any transaction entered into between the Plaintiff and the Defendant, the Defendant shall pay all principal, interest, commission, bank charges, costs and expenses on due date without deduction or set-off; and also pay on demand all costs, charges and expenses incurred by the Plaintiff in enforcing or obtaining payment of indebtedness on an indemnity basis. 23.Clause III(1) provides that interests, commissions, fees and bank charges and all other sums in respect of a transaction shall be charged to and payable by the Defendant in accordance with the agreed term of the transaction; and in the absence of such agreed terms under a transaction, interests, commissions, fees and bank charges and all other sums thereon as may be customarily chargeable by the Plaintiff for the relevant banking services provided shall be charged to and payable by the Defendant on demand. 24.Clause IX(1)(a) provides that an event of default included in the event that the Defendant made default in the payment, on the due date and in accordance with the terms and conditions of the Master Agreement or under any transaction, of any principal or interest or other moneys outstanding and payable by the Defendant to the Plaintiff (whether demand or not). 25.Clause IX(2) provides that if an event of default has occurred, the Plaintiff may demand immediate repayment of all indebtedness, terminate the Master Agreement and all or part of the Transaction, etc. 26.Clause XXV provides that this agreement shall form the entire agreement between the parties of this agreement with regard to its subject matter and shall supersede any or any prior written and oral representations, agreements or arrangement made between the parties. 27.By the Plaintiff’s banking facility letter dated 24 June 2015 as confirmed and approved by the Defendant on about 17 July 2015 (“the Facility Letter”), the Plaintiff agreed to grant certain banking facilities to the Defendant subject to the terms and conditions therein. 28.Clause 1(b) provides that “facilities” include “derivative limit for US$1,500,000 for the following types of transactions: FX Spot, FX Forward, Non-delivery Forward, and FX Swap”. Clause 1A provides that the derivative facilities under Clause 1, namely Derivative Limit, shall be used for hedging/investment activities/financial operation of the Defendant. 29.Clause 10(a) provides that notwithstanding any other provisions of the Facility Letter, the Plaintiff shall be entitled at any time in its absolute discretion to cancel the Facilities and/or to demand immediate repayment or payment (as the case may be) of all principal, interest, fees and other amounts outstanding under it (“the Liabilities”) and/or to require the Defendant immediately to provide full cash collateral in respect of the Liabilities (whereupon the Facilities shall be so cancelled and/or the Liabilities shall be immediately so payable and/or such cash collateral shall be so provided). 30.Clause 13 provides that the provisions of the Master Agreement shall apply to the Facility Letter as if it were incorporated therein; and if there was any conflict between any of the provisions of the Facility Letter and the Master Agreement, the provisions of the Facility Letter shall prevail. 31.The parties signed the FTMA on or about 19 August 2015. It is in Chinese. This seems to be the most important document concerning how the FX transactions should be executed. 32.Clause 2 provides that:
33.Clause 3 provides that:
34.Clause 8 provides that:
35.Clause 9(1) provides that:
36.Clause 16(1) provides that:
37.Clause 24 provides that:
E1. The different types of FX transactions 38.At the material times, the parties entered into the following types of FX transactions:
39.An instruction to open a new FX spot or forward transaction would be called “開倉”. 40.There were two ways by which the position of a FX transaction could be closed:
41.In fact, the FX transactions would invariably be settled by cash settlement. The instruction concerning the FX spot transaction entered into for the purpose of cash settlement would be called “平倉”. Whether the Defendant would make a profit or suffer a loss would depend on the change in the exchange rate of the currencies in issue between the “trade date” and the settlement date. A simple example given by Ko in his statement is as follows:
42.The Plaintiff claims that the Defendant frequently made use of “rollback” transactions (“提前交割” or “沖倉”) or “rollover” transactions (“延展交割” or “拉倉”) to bring forward, or extend, the settlement date of FX spot transactions. 43.To extend the settlement date, a “rollover” transaction would be executed. A rollover transaction would make use of a FX swap transaction, which involved 2 legs:
44.To achieve the purpose of extension, the exchange rate adopted for the Leg 1 of the FX swap would usually be the same as that of the FX spot transaction, so that the two could cancel out each other. This means that the exchange rate adopted for the Leg 1 of the FX swap would not be the market exchange rate. If the market exchange rate was used, the Defendant would have incurred a loss and be liable to pay the loss to the Plaintiff immediately. The idea was that such loss would simply be carried forward, and be taken into account when Leg 2 of the FX swap was closed. In case the Defendant made a profit in closing Leg 2, such profit could then be set off against the loss which it had in fact suffered at Leg 1. 45.If, after a FX swap transaction had been executed to extend the settlement date of a previous FX spot transaction, the Defendant would like to settle the transaction earlier, a “rollback” transaction would be executed. A rollback transaction would usually result in two trade confirmations:
A rollback transaction has the effect of closing the position of the FX transaction by way of cash settlement. Once executed, the 2nd leg of a FX swap transaction was spent. E2. How instructions were given and confirmed 46.In respect of each transaction, Huang on behalf of the Defendant, would give instructions orally over the phone which would be recorded. It appears that, sometimes, when the initial call was not recorded, there would be a subsequent call, which would be recorded, to confirm the content of the initial call. Sometimes, she would give instructions by WeChat. She would communicate with Ko or his colleagues of the Forex Trading Desk. 47.Before the Defendant gave instructions, the Plaintiff would quote to Huang the market exchange rate (市場滙率) based on various platforms such the Inter-Bank Trading Platforms, Goldman Saches and Barclays Bank. The market exchange rate would represent the Plaintiff’s “Rates at Cost”. 48.Upon receiving the Defendant’s instructions, Ko or his colleagues of the Forex Trading Desk, would then pass the information to their colleagues of the Product Management team. They would then add or deduct the Agreed Spread, commonly known as “手績費”, from the Rates at Costs to get the Net Rates (淨滙率) before inputting the information into the Plaintiff’s internal system. 49.After that, the “Treasury Settlement” team, known internally as the “作業二組” under the Operations department, would issue a written confirmation (“Confirmation”) setting out the details of the transaction. The Confirmations would then be sent to the Defendant by email, and post on the same day or 1-2 business days after that. 50.In respect of the Confirmation for FX spot transaction, at the bottom, there would be the following statement:
51.The Confirmation for FX swap transaction was different. At the bottom, there was an “important notice” which provided, inter alia, that:
52.Another team responsible for “Deposits, Remittances, Bills and Loans”, known internally as “作業一组”, of the Operations department of the Plaintiff would issue monthly Consolidated Statements (綜合對帳單) setting out the details of all transactions in the preceding month. At the end of the monthly Consolidated Statement, there was a statement that:
The monthly Consolidated Statement would usually be sent by post to the Defendant on the first business day of the month. 53.In addition, the Plaintiff would also issue a monthly Market-to-Market Valuation report (部位市價評估表) to set out the market values of all transactions which had not yet been settled. The report would be compiled by “作業二組” and sent to the Defendant by email in the first half of each month. 54.Ko also said that, as evidenced by the WeChat message with Haung on 10 June 2015, he would provide the closed positions to Huang on a daily basis. But he said that such practice stopped sometime in December 2015 when the relationship between them deteriorated. Ko also said that the Plaintiff would usually remind Huang if some transactions were due for settlement the next day or the day after if no instructions had yet been given. F. THE PLAINTIFF’S CLAIM: THE 3 FX SPOT TRANSACTIONS ON 18 DECEMBER 2015 55.On or about 18 December 2015, the Defendant entered into 3 FX spot transactions as evidenced by Confirmation reference nos. 1337184, 1337195 and 1337227 (“the 18 December Transactions”). 56.Under the 18 December Transactions, the Defendant agreed to buy US Dollars (“USD”) and sell Japanese Yen (“JPY”) on 22 December 2015 (i.e. the value date) at specific exchange rates as follows:
57.The settlement instruction on the Confirmations stated that:
The value date was stated to be 22 December 2015. 58.By an email dated 22 December 2015, Ko informed Huang that, in respect of the 18 December Transactions due for settlement on that day, “接獲總行指示，因目前Highway 與 Kifa仍有保證金的議題尚未解決，貴公司僅能於本日進行反向平倉行動，無法新增部份或拉Swap。” 59.The Defendant did not pay JPY6,087,700,000 to the Plaintiff on 22 December 2015 or at all. 60.The Plaintiff then issued a notice of default to the Defendant on 23 December 2015. The Plaintiff demanded the Defendant to pay JPY6,087,700,000 within 3 days. 61.By an email dated 24 December 2015, Huang expressed surprises at receiving the notice that the Defendant was liable to pay JPY6,087,700,000. She claimed that this sum had exceeded the approved limit of US$1,500,000 and, hence, did not take effect as against the Defendant:
She asked the Plaintiff to check whether this was a mistake, and to provide proof of the instructions given and the relevant Confirmations. By a letter dated 28 December 2015, the Defendant wrote a letter to the Plaintiff repeating the same content. 62.By an email dated 5 January 2016, in reply to the Defendant’s email dated 24 December 2015, the Plaintiff disagreed that the approved limit had been exceeded; and stated that the transactions were valid, and that the Defendant needed to be liable for the sum payable under the transactions. 63.By a letter also dated 5 January 2016, the Plaintiff issued to the Defendant a “终止合约及提前到期通知”. The Plaintiff stated that the Defendant’s failure to pay JPY6,087,700,000 constituted an event of default under clause 8 of the Master Agreement; and it would exercise its right under clause 8(2) to close the position. 64.On or about 7 January 2016, the Plaintiff closed the Defendant’s open positions under the 18 Decembers Transactions. This was described as “強制性交易” or “強制平倉”. 65.To close the open positions, USD50,000,000 (i.e. the total sum payable by the Plaintiff to the Defendant) was sold at the exchange rate of USD1 to JPY117.98 i.e. JPY5,899,000,000 in total on or about 7 January 2016. Hence, the costs incurred by the Plaintiff for closing the open positions were: JPY6,087,000,000 (the total amount payable by the Defendant to the Plaintiff under the 18 December Transactions) – JPY5,899,000,000 = JPY188,700,000. 66.By an email dated 7 January 2016, the Plaintiff attached a “提前终止金額通知” to the Defendant. The Plaintiff informed the Defendant that it had settled the 18 December Transactions on 7 January 2016; and that the Defendant was liable to pay JPY188,700,000 plus interests thereon. 67.By a letter dated 11 January 2016, the Plaintiff’s solicitors, Yu Chan & Yeung Solicitors, demanded the Defendant to pay a total sum of JPY188,457,462.22 (inclusive of interest) certified to be due as at 11 January 2016. 68.By a letter and an email both dated 12 January 2016, the Defendant replied as follows:
69.At that time, the Defendant had the following credit balances and collaterals with the Plaintiff:
70.After using all credit balances and other collaterals to reduce the Defendant’s indebtedness, the principal sum owed by the Defendant to the Plaintiff became: JPY(188,700,000 – 7,757,465) = JPY180,942,535 71.Taking into account interests accrued, the Defendant was as at 21 January 2016 indebted to the Plaintiff for the sum of JPY187,110,057 comprising of:
72.On 21 January 2016, the Plaintiff issued the writ herein against the Defendant. 73.By a letter dated 28 January 2016, King & Wood Mallesons on behalf of the Defendant replied to the Plaintiff’s solicitors’ demand letter dated 11 January 2016 as follows:
F2. The Plaintiff’s case as to why the 18 December Transactions represented open positions 74.To identify and understand the issues concerning the 18 December Transactions, it is necessary to begin with another 3 FX spot transactions on 9 December 2015 with a value date of 11 December 2015 whereby the Defendant agreed to buy USD and sell JYP as follows (“the 9 December Transactions”):
75.The Plaintiff claims that the value date of the 9 December Transactions were extended to 18 December 2015 by way of three FX swap transactions executed on 11 December 2015:
76.It seems that the Confirmations for the three FX swap transactions were sent by email to the Defendant on 14 December 2015. The Defendant was asked to sign back, and contacted the Plaintiff if it had any further queries. Apparently, the Defendant had not signed back. 77.The Plaintiff’s case is that, ultimately, the Defendant closed the positions opened by the 9 December Transactions as extended above by a FX spot transaction on 16 December 2015 as follows:
78.It should be noted that there was another Confirmation which purported to record the following FX spot transaction also on 16 December 2015:
The Plaintiff claims that it was initially intended to confirm the same transaction covered by Confirmation reference no. 1328733 but it had already been cancelled. However, Confirmation reference no. 1328228 was dispatched by mistake to the Defendant. In short, there was in fact no separate transaction evidenced by this Confirmation. 79.Further, according to an internal email of the Plaintiff sent at 9:19am on 17 December 2015, it appears that there was another FX spot transaction as follows:
There was no Confirmation bearing a reference no. 1328230. The Plaintiff explains that 1328230 was only an internal package number used within the Plaintiff; and it referred to the same transaction under Confirmation reference no. 1328228 (which had been cancelled as mentioned above). 80.In other words, the Plaintiff claims that there was no transaction represented by Confirmation reference no. 1328228 or 1328230. 81.The important point is that, on the Plaintiff’s case, by the time the Defendant entered into the 18 December Transactions, there was no open position to be closed. Hence, the 18 December Transactions represented open positions. F3. The Defendant’s case as to why the 18 December Transactions were used to close open positions 82.In contrast, the Defendant’s case is that it had never instructed the Plaintiff to enter any FX swap transactions to extend the settlement date of the 9 December Transactions. In other words, the three FX swap transactions on 11 December 2015 (reference nos. 1317207, 1317213 and 1317222) were entered without its instructions, and were invalid. To settle the 9 December Transactions, on 11 December 2015, the Defendant instructed the Plaintiff to carry out a “Sell USD/Buy JPY” transaction in the sum of USD90,000,000 as evidenced by Confirmation reference no. 1328733. However, the Plaintiff misstated the trade date of this transaction on the Confirmation as 16 December 2015, and delayed its settlement from 11 December to 18 December 2015. 83.The Defendant contends that Confirmation reference no. 1328228 represented a genuine transaction. Hence, it created an open position based on selling US$90,000,000. Its case is that the 18 December Transactions were used to close such an open position partially. As to the remaining open position involving US$40,000,000, it claims that the Plaintiff has wrongfully refused to follow its instruction to carry out a FX spot transaction to close it. 84.The Defendant also contends that Confirmation reference no. 1328230 represented a genuine transaction. Hence, it created another open position based on selling US$90,000,000. This open position has never been closed. 85.In other words, the Defendant’s case is that, by 18 December 2015, there were open positions created by two transactions evidenced by Confirmation reference nos. 1328228 and 1328230 involving a sum of USD90,000,000 each (i.e. totaling USD180,000,000). 86.Most importantly, the Defendant contends that the 18 December Transactions were used to close or square off partially those open positions. And as only US$50,000,000 had been closed by the 18 December Transaction, there remained an open position of US$130,000,000 which had never been closed. F4. The issues and the burden of proof 87.In §§9-10 of the Defendant’s closing submissions, the Defendant submits that it is for the Plaintiff to prove both:
This is because:
88.I can understand the logic behind the submissions but I disagree insofar it is suggested that the Plaintiff bears the burden of proving that the 18 December Transactions were not used for closing any pre-existing open positions. The question of burden of proof must be determined by reference to the pleadings. 89.The Plaintiff’s pleaded case is simple. In §§9-10 of the Amended Statement of Claim, the Plaintiff pleaded the 18 December Transactions, and that the Defendant was obliged to pay a total sum of JPY6,087,700,000 on 22 December 2015. In §11 of the Amended Statement of Claim, the Plaintiff pleaded that:
90.The Re-re-re-re-amended Defence and Counterclaim (“RRRRADC”) is a rather “colourful” document which has undergone five amendments. The Defendant’s case, as explained above, was pleaded in the following manner:
91.In the Re-re-re-Amended Reply and Defence to Counterclaim (“RRRARD”), the Plaintiff replied that:
92.In the light of the pleadings, I take the view that the burden is on the Defendant to prove that:
93.To defend the Plaintiff’s claim, the ultimate burden is on the Defendant to prove that there were indeed open positions of not less than USD50,000,000 which the 18 December Transactions had been used to close. The Defendant can discharge such ultimate burden in the following ways:
94.I have considered the helpful and detailed submissions made by the parties. 95.To begin with, Huang claimed that she had never instructed the Plaintiff to carry out any FX swap transaction at all, including the three FX swap transactions on 11 December 2015. However, there were Confirmations concerning FX swap transactions (reference no. 1026963 dated 24 August 2015, reference no. 1026983 dated 24 August 2015, reference no. 1059161 dated 2 September 2015, reference no. 1059168 dated 2 September 2015, reference no. 1059174 dated 2 September 2015, reference no. 1059195 dated 2 September 2015, reference no. 1152462 dated 9 October 2015, reference no. 1152458 dated 9 October 2015, reference no. 1224161 dated 5 November 2015, reference no. 1224169 dated 5 November 2015). These Confirmations stated clearly that the product type was “FX Swap”. What is important is that they had all been acknowledged by an authorized signature of the Defendant with the company chop thereof. Although Huang denied that she, or anyone authorized by her, signed on the documents, she admitted that she was the only person who had, and was in, possession of the company chop. I do not find her explanations satisfactory. I believe that the acknowledgments on these Confirmations were given with her consent and knowledge. 96.In addition, the audio records show that the word “Swap” was used on many occasions during two conversations between Huang and Ko at 12:54:00 on 30 November 2015 and 11:59:29 on 1 December 2015 respectively. There was no indication that Huang did not understand what “Swap” meant. Huang explained that, at the time of the first conversation, she was busy in a meeting and was talking to somebody else at the same time; and Ko spoke very fast. However, she agreed that she was not talking to others, or having a meeting, during the second conversation. If she did not understand what “Swap” meant, it would be most surprising that she never raised any query. 97.Huang said in court that, according to her understanding, the settlement date of a transaction would be extended by a “DF (forward”), which was different from a FX swap transaction. She said that she only had a better idea how the transactions were executed after reading Ko’s witness statement and the Plaintiff’s written opening submissions. Her evidence does not sit well with the above-mentioned contemporaneous records and documents. It might be the case that she paid more attention to the practical effect of a FX swap transaction i.e. to extend the settlement date of a FX spot transaction, rather than the exact mechanism of a FX swap transaction. Nevertheless, I take the view that Huang was trying to play down her knowledge on FX swap transactions. I hold that, before 11 December 2015, FX Swap transactions were executed with Huang’s consent and knowledge. 98.The Defendant has produced five handwritten notes made by Huang. These notes consisted of two columns: the “sell” side on the left, and the “buy” side on the right. In the one stating “12/9 台新HK QFI” at the top, on the “sell” side, there was a note of selling USD90,000,000 at the exchange rate of 122.22 on 11 December 2015. The Defendant submits that this note shows that, on that day, the Defendant entered into only one transaction to close off some pre-existing positions. 99.In respect of all these handwritten notes, the only evidence given by Huang is what she stated in §2 of her 2nd supplemental witness statement dated 16 June 2020:
Huang has not attempted to explain the meaning of these notes at all in any of her statements. It is correct that she was not cross examined on these notes. I can understand why the Plaintiff decided not to do so in these circumstances. This only means that there is no challenge that they were contemporaneous documents. 100.In respect of the one just mentioned, it is unclear whether it was made before or after her conversation with Ko on that day (which will be considered below). On the “buy” side on that note where transactions on 9 December 2015 were set out, I am unable to find transactions matching with the 9 December Transactions. The note is ambiguous, and is insufficient to support the Defendant’s submission. 101.The most important evidence on what happened on 11 December 2015 is the audio-recording of the conversation between Ko and Huang at 16:38:04 on that day, which lasted for about 4 minutes and 35 seconds. Ko said that this was the only recorded conversation between them concerning this case on that day though there might be other conversations unrelated to this case. The transcript of that conversation is as follows:
102.Both Ko and Huang had been cross examined extensively on this conversation. At the beginning of the conversation, Ko referred specifically to the three 9 December Transactions. It is clear that the purpose of this conversation concerned how to settle the 9 December Transactions. 103.It is also clear that Ko proposed to do cash settlement on that day to be followed by an extension for one week (i.e. to 18 December 2015). It was reasonably clear that he had a FX swap transaction in mind as he mentioned expressly that the “SWAP point” was minus 0.0003. This explained his references to the exchange rates of 122.22 and 122.217. 104.Most importantly, it is quite clear from the following questions and answers that Huang agreed to Ko’s proposal:
105.In my view, “sell端” and “buy端” referred to leg-1 and leg-2 of a FX swap transaction. In short, Huang confirmed her agreement to do FX swap transactions consisting of selling USD90,000,00 in total at the exchange rate of 122.22 on that day in leg-1, and buying the same amount at the exchange rate of 122.217 on 18 December 2015 in leg-2. 106.And after that had been agreed, they discussed how the sum due on that day i.e. JPY37,400,000 should be settled. Huang asked whether there were sufficient funds. After reporting the then balances in the Defendant’s account, Ko said that there were insufficient funds. As it was already after 4pm, Ko agreed that Huang may transfer, preferably USD, to the Defendant’s account to make payment of JPY37,400,000 the following Monday. Ko then said that the Plaintiff would issue Confirmations and emailed them to Huang, and he would inform the “資金部” that no payment would be made on that day. 107.After that, they discussed the possibility that the Defendant may not even need to remit funds to settle JPY37,400,000 the following Monday. This is a point that I shall consider in more detail below. 108.The Defendant’s main argument is that it would not make any sense for the Defendant to agree to do any FX swap transaction if it had to pay JPY37,400,000 on that day. As mentioned, the general purpose of a FX swap transaction was to extend the settlement date of a FX spot transaction without the need to pay anything in the meantime. Ko agreed that this was an important attraction of a FX swap transaction. 109.Ko explained that, since there were defaults by Kifa and Highway by then, the Plaintiff decided that the Defendant would have to pay money upfront on 11 December 2015. He accepted that it was a fundamental change. Although he did not expressly explain the reason for such change, he stressed that, in that conversation, Huang understood and agreed that upfront payment would be required. It is clear from the transcript that Huang understood that she had to pay JPY37,400,000. Ko said clearly that “今天會從帳上扣日圓37,400,000”; and when Ko said again that “那今天就用122.22幫你去做今天的settle difference”, there were the following exchanges which show that Huang knew and agreed that the Defendant shall pay that sum on that day:
110.It was on the basis that the Defendant would need to pay JPY37,400,000 on that day that there were further discussions on how this sum should be paid. As mentioned, after it was agreed that the Defendant may make remittance the following Monday, Huang raised the possibility that the Defendant may not need to pay the whole sum of JPY37,400,000 or any sum at all on 14 December 2015 if the Defendant could make some profits before that to set off against that sum. She said at the last part of the conversation to make it clear that she did not want to remit JPY37,400,000 to the Plaintiff first, and then the Plaintiff would remit an amount back to her. The following statements made by Huang show that she had in mind a possible set-off:
111.The question is what Huang had in mind which would enable the Defendant to make some profits by the following Monday. In the conversation, Huang used the term “出去”. Ko said that, according to his understanding, Huang was referring to a possible “rollback” of the 2nd leg of the FX swap transaction. It is true that there was no actual “rollback” by 14 December 2015. However, it does not follow that Ko’s understanding was untrue or incorrect. In fact, Ko expressed his understanding to Huang to ensure that there was no misunderstanding. Hence, he said:
Huang confirmed “對”. I take the view that they were talking about a possible “rollback” of leg-2 of the FX swap transactions in case the exchange rate changed to the advantage of the Defendant. I do not think the objective likelihood that the exchange rate would change in such a direction is of much significance. The exchange rate may change very fast. And more importantly, they were merely talking about a possibility. There was no indication that they had considered, or found it necessary to consider, the likelihood of that possibility in any detail or at all in that short conversation. 112.Huang was adamant that she did not instruct Ko to do any FX swap transactions. If that was the case, the Defendant would have to pay JPY37,400,000 immediately without any chance of reducing the loss. According to the transcript, it was clear that Huang was contemplating a possibility that the Defendant would not need to pay the whole sum of JPY37,400,000 by 14 December 2015. If that possibility did not arise out of a possible “rollback” of the 2nd leg of the FX swap transaction (as Ko said), what could it be? What did Huang have in mind when she said or referred to “出去”? Her evidence is that the Defendant was expecting profits to come in in respect of other transactions at that time. Ko accepted that, at that time, the Defendant should be entitled to profits deriving from other transactions involving USD60,000,000. 113.However, the Defendant only made a profit of JPY10,800,000 out of those transactions:
114.This sum of JPY10,800,000 was much lower than JPY37,400,000. If this was all that she had in mind, there was no conceivable reason why she would believe that there was a possibility that the Defendant would receive more than JPY37,400,000 by 14 December 2015 so that, in her words, at the end of day, it was the Plaintiff who would need to pay her money “最後是你要給我錢”. Moreover, there was no hint in the conversation that she was referring to profits that the Defendant made from other transactions. I find it incredible that, when she said “出去”, she was referring to receipt of profits from other transactions. And if that was what she meant, she would have informed Ko what those transactions were and asked him to check how much the amount of profits was. 115.All in all, I prefer Ko’s evidence. I hold that Huang knew and understood that there was going to be FX swap transactions, and if she managed to “rollback” the 2nd leg thereof by 14 December 2015, there was a chance that the Defendant needed not pay the whole sum of JPY37,400,000, and may even gain a net profit, by that day. Although the FX swap transactions would require the Defendant to make upfront payment, they had such a potential advantage to the Defendant in practice. 116.All in all, having considered the transcript of the conversation in the light of its context and the evidence given by Ko and Huang, I hold that, on 11 December 2015, the Defendant agreed to enter into three FX swap transactions. I reject the Defendant’s case that, on that day, Huang simply instructed Ko to close the 9 December Transactions. I also reject the Defendant’s submission that, alternatively, there was no agreement because the parties were speaking at cross-purposes. According to the transcript, both Ko and Huang were satisfied at the end of the conversation that they understood each other properly. 117.The Plaintiff’s case is supported by the fact that, at 5:00pm on the same day, very shortly after, and pursuant to what Ko had promised in, the conversation, he sent an email to Huang, which reads:
118.It is correct that, in this email, the Defendant was asked to pay JPY37,400,000 on 11 December 2015, which did not reflect the agreement that payment could be made on 14 December 2015. But I accept Ko’s explanation that there was indeed no conflict: strictly speaking, the Defendant had to pay on that day; but as a matter of indulgence, Ko agreed that the payment may be deferred to 14 December 2015. Huang said that she had not received this email as she was in Shanghai and she was unable to access her g-mail account in the Mainland. She claimed that she became aware of this email only after this litigation had been commenced in about February 2016. The Plaintiff’s point is that Huang had not rebutted the content of this email at the material time. However, I cannot be sure that she had actually received or paid any attention to this email. 119.In any event, at 17:02 on 15 December 2015, the Plaintiff sent another email to Huang and also her assistant, Wong Yan (黃艶), in which the Defendant was asked to settle JPY37,400,000 on that day. Ko explained that, as the Defendant had not paid that sum by then, the Plaintiff intended to do settlement on that day. In the email, the Plaintiff proposed to transfer funds from the account of Highway for such purpose. 120.Huang admitted that, on 17 December 2015, when she had returned to Taiwan from Shanghai near Christmas, she received an email from the Plaintiff attaching a notice of default dated 17 December 2015. Although the Plaintiff’s email stated that it was a computer generated e-email and asked the recipient not to reply, Huang replied by asking the Plaintiff to provide proof of the transaction. She claimed that the Plaintiff did not reply to her email. 121.Notwithstanding that, she said, in fact, she had procured the Defendant to pay JPY37,400,000 at around noon on that day before she received the Plaintiff’s email. There is an audio-recording of a conversation between Ko and Huang at 12:45:52 on 17 December 2015 which lasted for about 1 minute and 30 seconds. In that conversation, Huang agreed to sell and convert US$220,000 into JPY at the exchange rate of 122.45. It appears to me that Huang’s complaint was that the Plaintiff should not claim that the Defendant had defaulted in payment when the sum had already been settled. Her complaint was not about anything else, such as delay in executing a transaction which should have been done on 11 December 2015. 122.Indeed, it would have been quite extraordinary if the Plaintiff delayed executing the transaction to close the 9 December Transactions for 5 days (from 11 December 2015 to 16 December 2015) as alleged by the Defendant. Any such substantial delay on the part of the Plaintiff, whether intentionally or negligently, would be most unusual and inherently unlikely. Further, in Confirmation reference no. 1328733 recording this transaction, the exchange rate used was 122.25. As mentioned, as at 11 December 2015, the exchange rate was 122.22. This is incompatible with the Defendant’s case that the transaction evidenced by Confirmation reference no. 1328733 was intended to reflect the instruction given by Huang on 11 December 2015 to close the 9 December Transactions. Huang claimed that she had been advised by her consultant in Taiwan that it was possible that the Plaintiff added three points to the exchange rate as the execution was delayed to 16 December 2015 from 11 December 2015. Her explanation does not make much sense. 123.Ko stated in his witness statement that Huang instructed the Forex Trading Desk in Taipei without going through the Hong Kong branch to carry out the transaction evidenced by Confirmation reference no. 1328733 (with a trade date of 16 December 2015) to close leg-2 of the FX swap transactions done on 11 December 2015. He stated in his statement that such conversation took place in the evening of 16 December 2015 or the early morning of 17 December 2015. 124.The Defendant’s case is that any conversation taking place at that time could not be concerned with closing any open positions; and it must be about opening new positions. The Defendant submits that there were in fact two “Sell USD/Buy JPY” of USD90,000,000 each on 16-17 December 2015:
125.Ko was cross examined extensively in this respect. Ko said that it was Yu, his night shift colleague in Taiwan, to whom Huang spoke in the early hours of 17 December 2015 in which Sophie placed an order at the exchange rate of 122.25. That was the transaction evidenced by Confirmation reference no. 1328733. He had listened to the audio-recording of that conversation after he made his first witness statement. He said that the Taiwan headquarter did not approve disclosing the audio-recording but he did not know the reason. 126.The Defendant invites me to draw an adverse inference against the Plaintiff for failing to disclose the audio-recording of such conversation, and to call Yu as a witness. The Plaintiff was under a duty to disclose all relevant documents. It was clear that the audio-recording of such conversation was important in this case, and I did not find the Plaintiff’s explanation for not doing so satisfactory. On the other hand, although the Defendant had requested the Plaintiff to disclose all audio-recordings (and WeChat messages) at the material time by solicitors’ correspondence, it had never applied for any specific discovery of such records. The Defendant was not obliged to make any such application but no explanation had been offered why it did not do so if it was eager to find out the truth. I suspect that this might well be a tactical decision as Huang could not recall what she had said, and she was not confident that the audio-recordings would be in her favour. Nevertheless, because of the Plaintiff’s failure to produce the audio-recording and to call Yu as a witness, I will not give any weight to what Ko said to be the content of that conversation. However, it does not follow that the Plaintiff’s failure to disclose the audio-record or call Yu as a witness can, by itself, support an inference that, in that conversation, Huang instructed Yu to open some new positions. In short, while I accept that there was such a conversation between Huang and Yu in the early hours of 17 December 2015, there is no direct evidence on the content of that conversation. 127.I turn to the Defendant’s submission that there was another conversation between Ko and Huang on 16 December 2015 in which Huang entered into another transaction to sell USD90,000,000. The main basis of the Defendant’s submission is the date of Confirmation Reference no. 1328733. As mentioned, the “trade date” was stated to be 16 December 2015. As Ko said that the conversation between Huang and Yu took place in the early hours of 17 December 2015, the Defendant contends that it could not represent the transaction evidenced by Confirmation Reference no. 1328733. Ko denied and said that, at that time, there was a possibility that the order would be concluded on 16 December 2015 New York time or 17 December 2015 Hong Kong time. As I understand, he was saying that, even though the conversation took place in the early hours of 17 December 2015 in Taiwan or Hong Kong, the “trade date” on the Confirmation could be stated as 16 December 2015 if New York time was used. He accepted that this was not always the case that US Eastern time would be used. He said that when the Confirmation was prepared and the Hong Kong colleagues were informed that a transaction was done on the previous day, they treated it as a deal done on 16 December 2015. At that time, his Hong Kong colleagues had not heard the audio-recording of the conversation between Yu and Huang. Having heard the audio-recording, he would not make the speculation that the date of 16 December 2015 was due to the use of US Eastern time. 128.I do not think the use of US Eastern time could be the true and correct reason of putting down the date of 16 December 2015 on Confirmation reference no. 1328733. The true and correct answer would depend on exactly what the Taiwan colleagues had told the Hong Kong colleagues, in particular, the time of the transaction; and the Hong Kong colleagues’ understanding thereof. Ko was not in a position to give any evidence in this respect. He also said that he had tried to search for the audio-recordings of the conversation between his Hong Kong colleagues and Taiwan colleagues but he had forgotten about the result. I agree that the Plaintiff’s evidence in this respect is unsatisfactory. However, I am not satisfied that the mere fact that the trade date was stated to be 16 December 2015 on Confirmation reference no. 1328733 is sufficient, by itself, to prove that it was not meant to refer to the transaction completed during the conversation between Yu and Huang in the early hours on 17 December 2015. It is important to consider all relevant evidence in totality. 129.The Defendant points to Huang’s handwritten note, which stated “12/16台新 HKQFI” at the top. At the “sell” column on the left, it was stated “JPY 90M 122.24”. However, for reasons already mentioned, Huang had not given any evidence to explain these handwritten notes. I am not satisfied that this particular handwritten note was sufficient to show that there was a conversation between Ko and Huang on 16 December 2015 in which Huang created an open position of USD90,000,000. 130.According to the Defendant’s case, Confirmation reference no. 1328733 was not referring to the transaction evidenced by the conversation between Yu and Huang. What then could be the Confirmation relating to this conversation? It seems that it could only be either Confirmation reference no.1328228 or Confirmation reference no. 1328230. 131.I shall deal with Confirmation reference no. 1328228 first. Ko explained that there was an internal meeting concerning the transaction based on the conversation between Yu and Huang on 17 December 2015. Some colleagues considered that the exchange rate of 122.24, after deducting the agreed spread of 0.01 from 122.25, should be used. This would be what Confirmation reference no. 1328228 purported to show. On the other hand, some colleagues took the view that the exchange rate of 122.25 should be used. That would be what Confirmation reference no. 1328733 purported to show. At the end of the day, it was agreed that the latter opinion should be adopted. Ko was unsure whether there was any minutes or written record of the meeting. I should mention that whether the parties had agreed to a spread i.e. handling charge is the subject matter of one of the Defendant’s counterclaims which I will consider in detail below. 132.At this juncture, it is convenient to turn to reference no. 1328230. The reference no. 1328230 only appeared in the internal emails of the Plaintiff. At 9:19am on 17 December 2015, Stephanie Lam, the Product Manager of the Treasury Department, informed her colleagues “Sell USDJPY, USD 90mio at 122.24 val 18 Dece2015, pack 1328230, sp 02”. But not too long after that at 10:59am on 17 December 2015, there was another internal email which stated “Please cancel pack 1328230”. Ko said that it was referring to the same transaction evidenced by Confirmation reference no. 1328228. His evidence is supported by a screenshot of the Plaintiff’s computer record which stated, inter alia, “PCK NB 1328230, EXT NB 1328228, CNT NB1328228”. The screenshot was provided by Stephanie Lam to Ko on 19 January 2017 after these legal proceedings had started. However, there is no challenge to the authenticity of the computer record. In view of the screenshot, I am satisfied that “1328228” and “1328230” referred to the same transaction. What is noteworthy is that, on the same screenshot, under “Status”, it was stated “Cancelled”. 133.The contemporaneous documents just mentioned are important for the following reasons. First, they show that Confirmation reference no. 1328228 and reference no. 1328230 referred to the same transaction. Second, they show that the transaction involving the use of exchange rate 122.24 had been cancelled by 10:59am on 17 December 2015. This supports Ko’s evidence concerning the meeting that morning in which there were discussions on whether to use the exchange rate of 122.24 or 122.25 to complete the transaction based on the conversation between Yu and Huang. I accept Ko’s evidence in this respect. The Defendant questions why, if the Plaintiff agreed not to charge any spread on 17 December 2018, it would charge a spread for the 18 December Transactions. I do not think this point affects the credibility of the Plaintiff’s case about the alleged meeting. What is crucial is that the contemporaneous records stated clearly that Confirmation reference no. 1328228 had been cancelled. 134.For these reasons, I take the view that neither Confirmation reference no. 1328228 nor reference no. 1328230 refers to the transaction based on the conversation between Yu and Huang in the early hours of 17 December 2015. The only Confirmation which could possibly refer to that conversation must be Confirmation reference no. 1328733. I find that the trade date of 16 December 2015 on that Confirmation was a mistake though the reason for that is unclear. 135.Ko explained that, notwithstanding the cancellation, Confirmation reference no. 1328228 was mistakenly posted to the Defendant. He tried but was unable to find out who made the mistake. He had discussed the matter with a colleague called Vincent Wong, who had not been called as a witness. Vincent Wong was the head of the Settlement Department at that time, but had left the Plaintiff last year. The Defendant criticizes the Plaintiff for not calling Vincent Wong as a witness. I am not sure whether the Plaintiff could have found him. In any event, Vincent Wong was not the one posting the Confirmation Reference no. 1328228, and he also only found out the mistake afterwards. In fact, Ko said he only discovered the mistake upon receiving the Defendant’s Defence and Counterclaim in about March 2016. While I accept that making such a mistake was a serious matter and the Plaintiff had not been able to explain how such mistake came about, I am satisfied that it was indeed a mistake. As mentioned, it is clear from the contemporaneous records (in particular, the email at 10:59 on 17 December 2015 and the said screenshot) that Confirmation reference no. 1328228 had been cancelled. Indeed, this is consistent with the fact that in the monthly statement for December 2015, one cannot find any mention of Confirmation reference no. 1328228. 136.On at least one previous occasion, on 24 September 2015, the Defendant informed the Plaintiff by email of the cancellation of a transaction. It is true that the Plaintiff had never informed the Defendant that Confirmation reference no. 1328228 was a mistake and had been cancelled. However, this could be readily explained by Ko’s evidence, which I accept, that the Plaintiff did not realize that there was such a mistake until after these legal proceeding had been commenced. 137.The evidence I have considered so far do not support that Huang had created any open position in the total sum of USD180,000,000 or at all on 16 or 17 December 2015. If what she alleged is true, one would expect that, when she gave instructions on 18 December 2015 regarding the 18 December Transactions, she would have made it clear that they were for the purpose of closing some open positions. It is therefore important to consider what exactly she had said on that occasion. 138.There is no dispute that there was a conversation between Huang and one Tony Law (羅平東) (“Law”) at 15:53:55 on 18 December 2015 which lasted for about 1 minute and 58 seconds; after that, the conversation resumed at about 16:02 which lasted for another 3 minutes and 26 seconds. The transcript of the audio-recording reads as follows:
139.Ko said Law is still working for the Plaintiff and he did not know why Law had not been called as a witness. The Defendant criticizes the Plaintiff for failing to call Law as a witness. The simple fact is that I do not have the Law’s evidence to assist me in understanding his conversation with Huang. 140.The Defendant refers to Huang’s statement at the beginning that “我們先做50個” and submits that she was plainly intending to close off open positions. I disagree. It seems that she was merely placing an order for USD50,000,000 first as she would like to monitor the change in the exchange rate in the meantime. 141.What is most telling is the following exchanges:
142.These exchanges show that Huang became very angry when Law tried to remind her that she had extended the settlement date of some transactions in the total sum of USD90,000,000 which had not yet been closed. She strongly denied that. Upon checking, Law then confirmed that there was no open position “暫時是沒有部位，暫時是沒有部位” and he had made a mistake. Huang then asked Law to confirm that the instructions she gave regarding the 18 December Transactions had been properly executed. 143.It is unnecessary to determine why Law made the mistake. What is significant is that there is no indication anywhere during this conversation that Huang carried out the 18 December Transactions to square off any pre-existing open positions. Quite the contrary, she denied that there was any such open position. According to the Defendant’s case, Huang had open positions totaling USD180,000,000 by then. Huang tried to explain that she would not specify what a transactions was used for, and it would be relatively rare to say expressly that a particular transaction was to close off previous transactions. I find her answer puzzling. At that point of time, she already had some disputes with the Plaintiff, and Law had just made a mistake; she must be very eager to ensure that Law would execute her instructions properly. 144.The Defendant submits that it would not make any sense for Huang to open any new position on 18 December 2015 when she was told in the evening of 17 December 2015 that the Plaintiff had frozen US$13,900,000 in Highway’s accounts. However, the Defendant’s account had not been frozen. And if the Plaintiff allowed her to continue to trade through the Defendant (up to the limit of USD50,000,000 according to what Law said in the conversation) and if Huang believed that she could make a profit, I would not find it surprising that Huang would be willing to open new positions. 145.It is also curious that, on Huang’s case, she only instructed Law to close the position regarding USD50,000,000. What about the remaining open position of USD130,000,000? Huang said that she called Ko afterwards but Ko refused to follow her instructions. However, she could not explain why she did not mention this at all in her witness statements. 146.Huang said she could not recall whether she received the Plaintiff’s email dated 22 December 2015 stating that the 18 December Transactions must be settled on that day and no extension by FX Swap or any new transaction could be done. However, it is clear that she did receive the notice of default issued by the Plaintiff on 23 December 2015 in which the Plaintiff stated that the Defendant had failed to pay JPY6,087,700,000 on 22 December 2015. As mentioned, Huang replied by email on 24 December 2015 and by letter dated 28 December 2015. She claimed that the transaction was invalid because it had exceeded the credit limit of USD1,500,000; and she asked the Plaintiff to check whether the Plaintiff had mixed up the Defendant’s transactions with those of other clients and to provide the documentary evidence in two days. She did not say that the 18 December Transactions were used to square off open positions. Huang explained that, at that time, the Plaintiff had not made it clear that the sum of JPY6,087,700,000 was related to the 18 December Transactions. 147.In any event, the Plaintiff issued a notice to terminate the agreement with the Defendant on 7 January 2016. Further, on 11 January 2016, the Plaintiff’s solicitors issued a formal demand for the sum of JPY188,457,462.44 and mentioned that they concerned FX spot transactions including those on or about 18 December 2015. By an email and a letter both dated 12 January 2016, Huang asked the Plaintiff to provide the exchange rate it used for the settlement on 22 December 2016. In these communications, Huang still did not mention that the transactions done on 18 December 2015 were for the purpose of squaring off some open positions. 148.Huang said in court that, by that time, she already had a conversation with Ko some time in December 2015 after her conversation with Law in which she asked Ko to close the position regarding the outstanding USD130,000,000. With this in mind, I turn to the contemporaneous correspondence. 149.Huang instructed solicitors to act for the Defendant at around the same time. By a letter dated 14 January 2016, the Defendant’s solicitors asked the Plaintiff’s solicitors to withhold legal proceedings for 14 days. The substantive reply given by the Defendant’s solicitors on 28 January 2016 is most telling. She confirmed that this letter was sent with her prior approval. 150.First, in the reply, the Defendant’s solicitors stated that they had been instructed that the Defendant had on 18 December 2015 entered into three FX spot transactions the total amount thereof was USD50,000,000 to be exchanged to JPY at an average conversion rate of 121.754 resulting in JPY6,087,700,000. This shows that, by then, Huang must have received the three Confirmations concerning the 18 December Transactions and probably also the relevant monthly statement. Second, the Defendant’s solicitors referred to Ko’s email dated 22 December 2015. This shows that, by then, Huang had retrieved and read such email (even if she had not done so earlier). Third, the Defendant’s solicitors then stated that, according to the Bloomberg website, the average exchange rate of USD/JPY on 22 December 2015 was 121.271; and hence, if the Defendant’s position was squared off on 22 December 2015, its loss would only be JPY24,150,000. Hence, the Defendant would only pay this sum and nothing more. The Defendant would also not be responsible for any loss arising out of the delay in squaring off the position after 22 December 2015. 151.What the Defendant’s solicitors had not said in that letter is that the 18 December Transactions were for the purpose of squaring off some open positions. Indeed, the defence put forward was entirely different, and was incompatible with the Defendant’s present case. As mentioned, Huang was adamant that the 18 December Transactions were for the purpose of squaring off partially some open positions, and Ko had refused to allow her to square off the remaining open positions in the sum of USD130,000,000. According to her case, these critical events took place within about 1 month before the Defendant’s said reply letter. Even assuming that she might not be able to provide full details at that time, I find it most inexplicable that not a single word, and no hint whatsoever, about her present defence was mentioned at all in her solicitors’ reply letter. 152.Huang said that her father was critically ill since mid-Autumn festival in 2015 and she was very much affected. He passed away on 17 January 2016, which was 11 days before the Defendant’s solicitors issued the said reply letter. While I can understand that the Defendant’s disputes with the Plaintiff would not be a matter of priority for her, I am unable to accept that her concerns about her father could adequately explain the way she and her solicitors responded to the Plaintiff’s demand. I agree with the Plaintiff that the content of the Defendant’s solicitors’ reply letter indicates strongly that the Defendant’s present defence was an afterthought. 153.According to Huang’s case, there were still open positions in the total sum of USD130,000,000. By an email issued at 10:30am dated 10 March 2016 (after the commencement of these legal proceedings), the Defendant asked the Plaintiff to close two remaining open positions, one of which was “USD/JPY SHORT 40M USD”. The Plaintiff replied at 13:34 on the same day that there was no such open position. While the Plaintiff’s reply is consistent with its present case, the Defendant’s request was not. In particular, the Defendant did not mention that, in addition, there was an open position of USD90,000,000. Huang explained that she only recorded instructions given upon successful calls but the Plaintiff refused to accept her call any more. However, such explanation could not explain why she did not even put on record that the total amount of the open positions should be USD130,000,000 but she only managed to give instructions regarding USD40,000,000 because the Plaintiff had refused to answer any further call. What is also crucial is that, after the Plaintiff replied that there was not even any open position involving USD40,000,000, Huang admitted that she did not respond further. Huang explained that she thought it would be useless to do so. I find this surprising if the Defendant’s present case was true. 154.Indeed, it was only in the Amended Defence and Counterclaim filed on 26 May 2016 that, for the first time, the Defendant openly alleged that, as of 10 March 2016, the Defendant had at least one “Sell USD Buy JPY FX sport” transaction which had not been fully settled (i.e. Confirmation reference no. 1328228). I take the view that she added this plea as a result of a detailed examination of the documents, in particular, Confirmation reference no. 1328228, with the assistance of her lawyers. It should be noted that, even then, she did not claim that she had given instruction to square off the remaining open position of USD40,000,000; or that there was another open position of USD90,000,000. 155.It was only in the Re-re-amended Defence and Counterclaim filed on 3 January 2017 that the Defendant pleaded that, on 18 December 2015, apart from the three 18 December Transactions, it also instructed the Plaintiff to do a Buy USD/Sell JPY FX spot transaction of USD40,000,000 to square off the open position of USD90,000,000 created by Confirmation reference no. 1328228 completely. 156.The allegation that there was another open position of USD90,000,000 only appeared in the RRRRADC filed on 4 July 2018. I take the view that the Defendant added such plea after it noted the reference no. 1328230 among the documents disclosed by the Plaintiff in Ko’s 1st witness statement made on 20 November 2017. If it was clear to Huang that, by 10 March 2016, the total amount of the outstanding open positions was USD130,000,000, I would have thought that such an allegation would have been pleaded much earlier. 157.Huang did not claim to have any independent recollection of creating any new open positions of USD90,000,000 or USD180,000,000 on 16 or 17 December 2015. I take the view that her case is based on her attempt to “reconstruct” the events upon a microscopic examination of the documents including those disclosed in these proceedings. In the course of doing so, she tried to take advantage of errors and mistakes made by the Plaintiff on the documents or otherwise; and construe the audio-recorded conversations in a way that suited her case. F6. Conclusion on the Plaintiff’s claim 158.All in all, having considered all relevant evidence and the parties’ submissions carefully, I find that:
159.It follows from these findings that I have come to the conclusion that, by the time of the 18 December Transactions, there was no open position as alleged by the Defendant or at all. I am not satisfied that the 18 December Transactions were used to settle partially any such open position. 160.I hold that the Defendant has failed to discharge the burden of proof in this respect. I wish to add that, even if I were wrong in that the burden of proof is on the Plaintiff to disprove the existence of any open position, in view of the totality of the evidence considered above, I would have come to the same conclusion. 161.It follows that the Plaintiff succeeds in its claim. I shall now turn to the Defendant’s counterclaims. G. COUNTERCLAIM(1) – THE UNAUTHORISED CANCELLATIONS 162.The Defendant claims that the Plaintiff had cancelled, aborted or discontinued five sets of transactions without its authorization. G1. 1st unauthorized cancellation – Items 2 &4 of Appendix 2 to RRRRADC 163.The Defendant claims that, according to the audio-recording, on 28 August 2015, it instructed the Plaintiff to execute a “Sell USD/Buy EUR” FX spot transaction in the sum of EUR50,000,000 at the exchange rate of 1.119. Further, given the Defendant’s practice of settling all FX transactions by cash settlement within 1 or 2 days, it must have also instructed the Plaintiff to net off the position on 31 August 2015 at the exchange rate of 1.1261 (which was the most favourable rate to the Defendant on that day). However, the Plaintiff had failed to execute these transactions. 164.According to the audio-recording, on 28 August 2015 at about 22:05:24, there was a conversation between Huang and Law which lasted for about 1 minute 3 seconds. Huang said “Long EUR” at the outset. Towards the end, Law said “1.1190 Long 50支” and Huang apparently confirmed. The Reuter historical rates support that an order could be executed on that day at such exchange rate. 165.In cross examination, Ko said that the order was made in the late evening and he was unaware of it at that time. If the order was executed, Huang would have asked him to square it off, but she had not done so. Law, who has personal knowledge of the matter, has not given evidence to clarify the matter. 166.I accept that the evidence supports that Huang had given the said instruction to Law. I cannot speculate why the instruction was apparently not executed as Law has not given evidence. However, if the transaction had been executed, one would expect that either Huang would have given instructions by the settlement date to close the position; or Ko would have reminded Huang to do so. But there is no evidence that this was what had happened. I am unable to determine what happened in fact. 167.More importantly, it is also unclear from the audio-recording on behalf of which company under Huang’s control was the instruction given. Ko said that Huang would not necessarily specify to which company she would like the transaction be booked; and Huang allowed him to make the decision on her behalf. Huang said that this was the case in relation to transactions done in Hong Kong. However, after the transactions were executed, Ko would inform her which company would be used. In her words, without knowing to which company a particular transaction would be booked, it would become something like a “headless corpse”. She also said that, as to which company a particular transaction should be booked, sometimes she would make the decisions; and sometimes, Ko would make the decisions. Returning to the instruction given on 28 August 2015, there was no evidence that either Ko or Huang had decided to book this transaction (if actually executed) to the Defendant. 168.Bearing in mind that the burden of proof is on the Defendant, I am not satisfied that the Defendant has discharged the burden of proving that the Plaintiff has wrongfully cancelled the said transactions which were entered on behalf of the Defendant (but not any of the other companies controlled by Huang). Hence, the Defendant’s counterclaim based on this transaction is dismissed. G2. 2nd unauthorized cancellation – items 7 & 8 of Appendix 2 to RRRRADC 169.The Defendant claims that, according to the WeChat messages, the parties had entered into the following EUR/USD FX spot transactions on 4 December 2015:
170.According to the WeChat messages between Law and Huang, on 3 December 2015, at 22:12 and 22:17, Law showed to Huang two screenshots showing two tables; in the first table, the first item was “1,08480 -5”; in the second table, the first and fifth items were both “1.08080 5”. At 07:44 on 4 December 2015, Huang sent to Ko a handwritten table by WeChat. The top of the table reads “12/2台新HK”. In the table, the “sell” side on the left included “EUR 5M 0848” and the “buy” side on the right included “EUR 5M 0808”. These two entries were also paired up by a circle. At about 10:25 on the same day, Ko informed Huang by WeChat that “香港歐元部位已平，剩下的我全丢回台北 (1.0848/1.0808已冲帳)”. He also sent a handwritten table concerning “€/$” to Huang, which showed, among other things, under the “sell” side on the left “5M 1.0848” and under the “buy” side on the right “5M 1.0808”. Ko said he copied this table from that provided by Huang. 171.In cross examination, Ko referred to the screenshot of an Excel table he sent to Huang later at about 17:40 on 4 December 2015. The table referred to “Highway”. The table stated “Buy EURUSD 5 million at 1.08090” and “Sell EURUSD 5 million at 1.08390”. He said that they were instructions executed by him pursuant to instructions given by Huang that morning. In the exchanges, he asked “1.0840-5/1.0808+5這套我先沖喔” and Huang indicated okay. He added and deducted one point as the agreed spread when executing the transactions. He produced two Confirmations issued to Highway dated 4 December 2015 as follows:
172.He said he only came to know the WeChat messages between Law and Huang later. He admitted that, in view of such messages, “Sell USD/Buy USD” of USD5,000,000 at the exchange rate of 1.0848 was not an error as he stated in his supplemental statement. He admitted that no such transaction was recorded in the account of either the Defendant or Highway. He also admitted that this transaction had not been carried out. But he stressed that Huang did not raise any objection when he sent the Excel table to her. In re-examination, he said that Huang asked her to square off the position at the exchange rate of 1.0848 but he used the rate of 1.0840, and Huang also agreed. 173.I believe, in essence, Ko admitted that he had made a mistake by executing the transaction at the exchange rate of 1.0840 instead of 1.0848 (putting aside the spread) pursuant to the instructions given by Huang to both Law and him. But, more importantly, he pointed out that in the table prepared by Huang, it was simply stated “台新HK”; and this could mean either the Defendant or Highway. He said that Huang allowed him to choose to which company these transactions should be booked. And he booked them to the account of Highway. What he said is consistent with Huang’s evidence in this respect mentioned above. Huang said in court that the table was intended to refer to transactions for the Defendant; and the second table she sent to Ko at the same time referred to transactions for Highway. However, this is not apparent on the face of the documents. The first table referred to USD/EUR transactions whereas the second one referred to USD/JPY transactions. There is no indication that the two tables were meant for the same company or different companies. Looking at the objective evidence, I am not satisfied that, on this occasion, Huang had specifically instructed Ko that the transactions in issue should be booked in the Defendant’s account. 174.In short, I take the view that these transactions were in fact entered on behalf of Highway, not the Defendant. This was a decision made by Ko pursuant to Huang’s authorization. It is correct that Ko made a mistake; however, it would be a matter for Highway to pursue against the Plaintiff. In any event, for the present purpose, it is sufficient for me to find that the Defendant has failed to prove, on a balance of probabilities, that the instructions for these transactions were given, and they were entered, on behalf of the Defendant. Hence, the Defendant’s counterclaim based on these transactions is dismissed. G3. 3rd unauthorized cancellation - items 9 & 10 of Appendix 2 to RRRRADC 175.The Defendant claims that, according to the audio-recording, at about 23:08 on 4 December 2015, there was a Sell EUR 5,000,000 and Buy USD 5,472,500 FX spot transaction at the exchange rate of 1.0945 with a value date of 7 December 2015. Hence, there must also be a corresponding transaction to close the position on 7 December 2015 as follows: Sell USD5,397,000 and Buy EUR 5,000,000 at the exchange rate of 1.0794. 176.In his evidence in chief, Ko withdrew §7 of his supplemental statement in this respect. Hence, the Plaintiff has not adduced any positive evidence to rebut the Defendant’s counterclaim. What is left is the audio-recording, the relevant parts read as follows:
177.Huang was cross examined on what she meant by “備註台灣”. She said that the audio-recording was incomplete. But, most importantly, she admitted that she could have meant Kifa, another company under her control, though she could not see this transaction in Kifa’s monthly statement. 178.In the light of Huang’s evidence just mentioned, I am not satisfied that the instruction for this transaction evidenced by the said audio-recording was given by Huang on behalf of the Defendant. It appears that Kifa might have a claim against the Plaintiff but this is irrelevant for the present purpose. Accordingly, the Defendant’s counterclaim in this respect is dismissed. G4. 4th unauthorized cancellation – items 11 & 12 of Appendix 2 to RRRRADC 179.The Defendant claims that the Defendant had failed to carry out the following transaction on 17 December 2015:
And, had such transaction not been cancelled, the Defendant would have settled it on 18 December 2015 as follows:
180.The Defendant’s counterclaim is based on an assumption that there was indeed a transaction evidenced by reference no. 1328230. For reasons I explained when I considered the Plaintiff’s claim above, I have found that this reference no. referred to the same transaction evidenced by Confirmation reference no. 1328228, which had been cancelled. I have also found that, as there was no open position created by any such transaction in the first place, the Defendant had not wrongfully refused to close such position subsequently. It follows that the Defendant’s counterclaim in this respect is dismissed. G5. 5th unauthorized cancellation – item 13 of Appendix 2 to RRRRADC 181.The Defendant refers to the order to Buy USD/Sell JPY FX spot in the sum of USD40,000,000 which it attempted to place on 18 December 2015. 182.This was the transaction which the Defendant claimed to have executed in order to square off the open position of USD90,000,000 completely together with the 18 December Transactions in the total sum of US$50,000,000. For reasons stated above, I found that the Defendant had not entered into any such transaction. Hence, the Defendant’s counterclaim in this respect is dismissed. H. COUNTERCLAIM(2) - THE UNAUTHORISED WITHDRAWAL 183.The Defendant claims that the Plaintiff withdrew a sum of EUR 10 million out of the Defendant’s account without its authorization. According to Confirmation reference no. 1064448 dated 4 September 2015, on 2 September 2015, the Defendant agreed to buy EUR10,000,000 and sell USD11,229,0000 at the exchange rate of 1.1229 with a value date on 8 September 2015. However, in the monthly statement for September 2015, on 8 September 2015, for this Confirmation reference no. 1064448, there were three entries. Apart from deducting USD11,229,000 (under the entries concerning USD) and crediting EUR10,000,000 (under the entries concerning EUR), the Defendant had also deducted EUR 10,000,000 (under the entries concerning EUR). 184.The Plaintiff explains that it was a mistake in that the withdrawal should be related to Confirmation reference no. 1066596, which was a FX swap transaction on 7 September 2015 whereby the Defendant agreed to buy USD11,210,500 and sell EUR10,000,000 at the exchange rate of 1.12105 with a value date of 8 September 2015. In the monthly statement, on 8 December 2015, for Confirmation reference no. 1066596, one can find a deposit of US11,210,500 (under the entries concerning USD) but there is no corresponding debit entry of EUR under such reference number (under the entries concerning EUR). 185.Ko said that the mistake was not made by him as he was not the person responsible for preparing the monthly statements. In cross examination, Ko’s attention was drawn to an entry against 21 December 2015 which stated “ERROR CORRECTION REVERSE ENTRY TMU 1317222”. Ko admitted that there was no similar correction in relation to the withdrawal in question. 186.The fact that there was no express correction is inconclusive. Whether the mistake was made by Ko is also immaterial. On the face of the document, it is an obvious mistake. First, it is illogical and impossible to have both credit and debit entries of the same amount in the same currency on the same date under the same Confirmation reference no.1064448. Second, the absence of any corresponding debit entry to the credit entry in relation to Confirmation reference no. 1066596 shows clearly that the debit of EUR10,000,000 must have been mistakenly attributed to Confirmation reference no. 1064448 when it should have been attributed to Confirmation reference no. 1066596. Accordingly, the Defendant’s counterclaim in this respect is dismissed. I. COUNTERCLAIM(3)-WRONG EXCHANGE RATE DEALINGS 187.The Defendant claims that the Plaintiff failed to carry out a number of transactions, and instead, purportedly conducted on behalf of the Defendant a number of transactions using the same type and amount of foreign currency but with an exchange rate that was different from the one authorized by the Defendant. The particulars of those transactions are set out in Appendix 3 of the RRRRADC. 188.The Plaintiff’s case as pleaded in §13C of RRRARDC is that:
189.Under clause III(1) of the Master Agreement, the Plaintiff was entitled to charge fees or commissions “in accordance with the agreed terms of that Transaction”. The question is whether there was such an agreement. Had there been such agreement, it would be legally binding and supported by good consideration. In particular, the spread would be handling fees charged in return for the service provided by the Plaintiff in assisting the Defendant to execute the FX transactions. 190.To begin with, the Plaintiff has not produced any document supporting the existence of any such agreement. Indeed, according to Ko, the reason why, in the meeting on the morning of 17 December 2015, Confirmation reference no. 1328228 was cancelled and Confirmation reference no. 1328733 was adopted, was because Huang had never signed anything to confirm such an agreement. Ko said at that time, Huang was already quite rude to them, and he did not want to give her any excuse to make a complaint. 191.Ko said that Chen had already left the Plaintiff but he could not recall when he did so. Although there was no written record, the one-point pre-determined spread (in substance, a handling fee) was only charged to Huang’s account; and since she entered into a large number of transactions and was well-known inside the Plaintiff, all colleagues of the Product Management team responsible for entering the details of the transactions into the computer system would know about the agreement. 192.Turning to the WeChat messages that the Plaintiff relies on, they took place on 2 June 2015. This was after the Defendant signed the Master Agreement, but before it signed the Facility Letter or the FTMA. Ko admitted that those conversations concerned transactions involving Huang’s other companies. Nevertheless, after Chen said that he was quoting the rates at costs, Huang offered “留點給台新賺吧”, “你扣點手續費”. Chen then said “賺0.00001”. Not too long after that, Chen said “確認電郵時再charge 1點” and he gave an examples as follows “舉例來說；方才買在1.5188，賣在1.5200，他會回報你成本。但是確認時會發出highway1.5189買，1.5199賣。” He then asked “OK? Charge 1點?”. Huang then sent an emoji indicating okay. Ko said that this seemed to be a British pound transaction, and the 0.0001 arrangement would apply to British pound/USD, Euro/USD and Australian dollar/USD transactions. However, the spread for Japanese Yen transactions would be different: it would be US$1,000,000 X 0.01 coming to JPY1,000. He said that the agreed spread applied to Huang’s two Hong Kong companies i.e. the Defendant and Highway. He did not know about Kifa. 193.I am not satisfied that the above WeChat messages were sufficient to prove the existence of an agreement on the spread between the parties. First, it seems that they were talking about transactions involving Highway. At that stage, the Defendant had not yet signed the FTMA and started trading in FX transactions. I doubt very much Chen and Huang had the Defendant in mind during that conversation. Second, it is unclear what “1點” really meant; in particular, there was no mention that it would mean something different if Japanese Yen was involved. 194.Huang admitted that she had agreed to the charging of handling fees for transactions done for Kifa; and some transactions for Highway. She said she would agree to pay handing fees if the transactions involved tough jobs. But she denied that she had ever agreed to pay any handling fees for transactions of the Defendant. 195.In determining whether the parties had agreed on the spread arrangement, it is pertinent to consider the parties’ subsequent conduct. There is no dispute that, up to around 16 or 17 December 2015, the Plaintiff had always added the agreed spread to the Confirmations and the Defendant had never raised any objection. Huang said that, usually, she would receive the Confirmations in one go by post at the beginning of each month. The counterclaim in this respect was only raised in the Re-re-re Amended Defence and Counterclaim filed on 17 July 2017. 196.There were WeChat exchanges on 21 August 2015 during which Huang said that, if the Hong Kong branch did not charge any handling fee for Renminbi (“RMB”) transactions, she would place orders in Hong Kong. This seems to suggest that, before that, there was a consensus that a spread would be charged. Nevertheless, the Plaintiff claims that, after that day, it ceased charging the Defendant any spread for RMB transactions. There were very few transactions involving RMB in any event. In addition, as mentioned, no spread was charged in relation to the transaction under Confirmation reference no. 1328733. The Defendant also pointed out that no spread was charged in respect of Confirmation reference no. 1298743 on 4 December 2015. Looking at the conduct of the parties since around August 2015, and notwithstanding a few exceptions as just mentioned, the Plaintiff submits that an agreement on the spread could be inferred. If such an agreement could be inferred, I would not think it can be defeated by the entire agreement clause under clause XXV of the Master Agreement or clause 24 of the FTMA, which were signed before the parties embarked on the relevant course of conduct. 197.While the Plaintiff’s case that an agreement on spread can be inferred by the parties’ conduct is an attractive submission from a practical point of view, at the end, I am not satisfied that I can accept it. In Modahl v British Athletic Federation Ltd [2002] 1 WLR 1192 at 1222, §102, Mance LJ (as he then was) held that:
The Plaintiff has not addressed me on how the requirement of necessity can be satisfied in this case. 198.Although I am not satisfied that the Plaintiff has proved the agreement on spread as alleged, this is not the end of the matter. Clause 2 of the FTMA provides, inter alia, that:
199.The Defendant has not denied that it had received the Confirmations. The main issue is whether this clause constitutes a ”conclusive evidence clause”. 200.In Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] 1 AC 80 at 109J-110C, Lord Scarman held that:
201.As observed by DHCJ Pow SC in DBS Bank (Hong Kong) Ltd v San-Hot HK Industrial Co Ltd [2013] 4 HKC 1 at 144-145, §207, the validity of conclusive evidence clause drafted in accordance with the principles laid down in Tai Hing Cotton Mill had been upheld in numerous commonwealth authorities. The Defendant has also referred me to the following cases cited by DHCJ Pow SC: Dobbs v The National Bank of Australasia Ltd (1935) 53 CLR 643 at 651; Bache & Co (London) Ltd v Banque Vernes ET Commerciale de Paris S.A. [1973] 2 Lloyd’s Rep 437 at 438; and Sun Hung Kai Forex & Bullion Company Ltd v Yick Ming Kit, HCA8589/1992 (1 August 1995, unreported), p 15. While these precedents provide useful examples illustrating how the principle was applied, each case must depend on its own facts, in particular, the contractual terms in question. As Lord Walker held in Financial Institution Services Ltd v Negril Holdings Ltd and another [2004] UKPC 40 at §43: “The courts below relied heavily on the decision of the Board in Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80. The facts of that case were very different in that it involved, not an objection to the rate of interest charged, but the honouring by three different banks of several hundred cheques on which a managing director’s signature had been forged by an accounts clerk. Moreover, the contractual terms (set out in the report at page 109) were different in that two of the three banks’ documentation referred to “errors” (and the third simply referred to confirmation of the account). However, their Lordships do derive assistance from the general proposition in Tai Hing (at page 110) that,
202.I shall apply this general proposition to construe clause 2 of the FTMA. Contrary to the Defendant’s submissions, I take the view that it is a clear and unambiguous provision imposing a binding obligation on the Defendant, who did not query the Confirmations, to accept them as accurately setting out the details of the transactions including the exchange rates used:
203.The Defendant argues that, even if clause 2 of the FTMA can be construed as a conclusive evidence clause, it can have no effect in this case given that, many of the Plaintiff’s Confirmations are inaccurate. It cites the following judgment of Megaw LJ in Bache & Co (London) Ltd v Banque Vernes ET Commerciale de Paris S.A. [1973] 2 Lloyd’s Rep 437 at 440:
204.This passage must be read in its context. In that case, the plaintiffs, commodity brokers, demanded a bank guarantee before entering into buying and selling transactions on behalf of their customer, a French trading company. The defendants, who were the trading company’s bankers, gave the guarantee which contained a conclusive evidence clause providing that a notice of default given by the plaintiffs to the defendants shall be conclusive evidence that liability had accrued in respect of the amount claimed. The plaintiff issued a notice of default and applied for summary judgment. The defendants contended that the amount claimed was not correct and the conclusive evidence clause was contrary to public policy because it was an ouster of the jurisdiction of the Courts and, hence, invalid. The English Court of Appeal rejected these arguments. Lord Denning MR observed at p. 440 that the defendants could recover the sum from their own customer, the French trading company; and if the figure was erroneous, the French trading company could correct it by instituting proceedings against the brokers. Megaw LJ expressed the same view after the passage cited by the Defendant; and Scarman LJ also shared the same view at p. 441. I accept that a contracting party would not be entitled to rely on a conclusive evidence clause if there was fraud. However, there is no allegation of fraud in this case. If one reads the judgment of Megaw LJ as a whole, it is clear that, when he said “mistake on the face of the notice of default”, he was referring to an apparent mistake on the face of the document, rather than any mistake or error alleged by the other contracting party. If a contracting party can get round a conclusive evidence clause by simply alleging a mistake or error, this would defeat the whole purpose of the conclusive evidence clause. In this case, the Defendant has not pointed to any apparent mistake on the face of any of the Confirmations in issue. 205.The Defendant also argues that it had given the Plaintiff the notification under clause 2 of the FTMA within 90 days in that, in respect of all Confirmations connected to the Plaintiff’s claims, it had objected to them by its email dated 24 December 2015; and in respect of all other Confirmations received by it after 30 October 2015, it would rely on the 28 January 2016 letter. In the email dated 24 December 2015, the Defendant merely asked the Plaintiff to provide proof and the Confirmations concerning the transactions giving rise to the Plaintiff’s demand for JPY6,087,700,000. In the letter dated 28 January 2016, the Defendant’s solicitors merely asked for the audio-recordings or records in the Plaintiff’s possession in relation to all transactions covered by the FTMA. These letters did not contain any objection or challenge to the exchange rates used in any of the Confirmations in issue. Under clause 2 of the FTMA, it is clear that the Defendant must pinpoint the difference or discrepancy so that the Plaintiff could investigate and resolve it. 206.I, therefore, hold that clause 2 of the FTMA is a conclusive evidence clause; and the Defendant is barred by it from alleging that the exchange rates used in the Confirmations in question were wrong. It follows that the Defendant’s counterclaim in this respect is dismissed. 207.For the above reasons, first, I shall allow the Plaintiff’s claim and order that the Defendant do pay the Plaintiff the sum of JPY187,110,057 with interest at 1% above the prevailing prime rate of HSBC on JPY180,942,535 from 21 January 2016 until the date of this judgment, and at the judgment rate after that until payment. On interest, I use the usual commercial rate in the absence of submissions from either party that any other rate should be used. Second, I shall dismiss all the Defendant’s counterclaims. 208.As to costs, there is no reason why costs should not follow the events. The Plaintiff submits that the Defendant should pay costs to be taxed on an indemnity basis because the defence is scandalous and oppressive, and has significantly lengthened the litigation. The relevant principles concerning the award of indemnity costs were restated recently by the Court of Final Appeal in Commissioner of Inland Revenue v Poon Cho Ming John (No 2) (2020) 23 HKCFAR 74 at 78, §4, which I will not repeat. I am not convinced that there are any special or unusual features in this case which would make it appropriate to order indemnity costs against the Defendant. The Plaintiff should bear in mind that the Defendant was able to run most, if not all, of its defences because of errors, mistakes or inadequacies in the records and documents of the Plaintiff. Indeed, as one may see from the length of this judgment, I did not find it easy to resolve the issues. I would therefore make a costs order nisi that the Defendant shall pay to the Plaintiff the costs of this action (including all costs reserved) to be taxed on a party and party basis if not agreed (with a certificate for two counsel). If, notwithstanding what I have said, either party intends to vary the costs order nisi, it shall make a written application not longer than 5 pages within 14 days; the other party shall file a written reply not longer than 5 pages within 14 days after that; and I will then resolve the matter on paper.
Mr Alan Leong SC leading Mr Alfred C P Cheng, instructed by Yu, Chan & Yeung, for the plaintiff Mr Bernard Man SC leading Mr Thomas Wong, instructed by King & Wood Mallesons, for the defendant | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
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Further hearings and rulings under HCA 194/2016