Uob Kay Hian Futures (Hong Kong) Ltd v. Lai, Lawrence and Another

HCA 1946/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1946 OF 2011

BETWEEN

Before : Master Chow in Chambers

Date of Hearing : 7 July and 25 September 2014

Date of Judgment : 21 November 2014

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ASSESSMENT OF DAMAGES

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BACKGROUND

1.On 8 November 2013, the 1^st defendant (“Mr Lai”) took out a summons seeking discovery of two categories of documents from the plaintiff. Subsequent to the filing of the summons, the 2^nd Supplemental List of Documents of the plaintiff was filed and Mr Lai confirmed that there has been satisfactory discovery of the first group of documents.  The hearing was only concerned with discovery of the second group of documents.

2.The description of this second group of documents as set out in the summons is –

“Document detailing “position limits” for all my clients, trading N225 futures and HSI futures contracts, orders executed through “UOB Bullion Singapore”, under the Sub “Account G” (Please see attached email)”

3.The email attached was dated 6 November 2013 and sent by Mr Lai to Messrs Edmund Cheung & Co (“EC”), solicitors representing the plaintiff. The description of the documents in it reads as follows –

“There are documents related to the “position size limits of both Nikkei 225 futures contracts and Hang Seng futures contracts, at the executing broker UOB Bullion Singapore” for my clients (under the UOB Kay Hian HK Ltd, sub Account G).  I signed the document and Rex Au was witness to this.”

4.The call over hearing took place before Master Hui on 21 November 2013. By then, Mr Lai had already filed two affirmations in support of his application.  Upon hearing Mr Lai and the legal representative of the plaintiff, Master Hui gave an order (“Master Hui Order”) granting leave to Mr Lai to file and serve a further affirmation in support of his application, leave to the plaintiff to file and serve affirmation in opposition and leave to Mr Lai to file and serve affirmation in reply.  Master Hui also ordered the parties to jointly report to the court in writing the progress of the discovery application by 30 January 2014.  Paragraph 9 of Master Hui Order stipulates that the court will give further directions on paper.

5.After Mr Lai had filed a further affirmation in support of his application, an affirmation was filed by the plaintiff in opposition to the application for discovery, but no affirmation in reply was filed by Mr Lai. There was also no report of the progress of the discovery application by 30 January 2014 as ordered by Master Hui.

6.There are a number of factual issues in dispute between the parties. Since not all of them have a bearing on the present discovery application, their full particulars will not be set out here.  What follows is only a brief account of the relevant averments in the pleadings which show the case of the plaintiff and that of Mr Lai in relation to the position limits for the trading of futures contracts carried out by Mr Lai on behalf of Ms Horn.

Statement of Claim

7.The plaintiff was and is a participant of the Hong Kong Future Exchange Limited (“HKFE”) and a licensed corporation under the Securities and Futures Ordinance licensed to conduct Type 2 (dealing in futures) of the regulated activities and registered as such with the Securities and Futures Commission (“SFC”).  The plaintiff, together with UOB Kay Hian (Hong Kong) Limited, UOB Kay Hian Asia Limited, UOB Kay Hian Finance Limited and UOB Kay Hian Private Limited, is and was at all material times a member and/or subsidiary of UOB Kay Hian Group.

8.Mr Lai was an account executive of the plaintiff who, on 13 November 2002, entered into an agreement entitled “Commission Sharing and Clients’ Liabilities” with members of the plaintiff’s group (“2002 Agreement”) by which Mr Lai agreed to guarantee and indemnify the plaintiff’s group for the liabilities of all his clients. 

9.The 2^nd defendant (“Ms Horn”) was a client introduced by Mr Lai to the plaintiff and the plaintiff entered into an agreement with Ms Horn on or about 31 May 2010 (“Futures Client Agreement”).  An account was opened and maintained in the name of Ms Horn with the plaintiff for the purchase, sale or other dealing in or with futures and/or options (“Futures Account”).  Ms Horn was served by Mr Lai at all material times.

10.Mr Lai entered into another agreement with the plaintiff on or about 11 October 2010 (“2010 Agreement”), which confirms the agreement of Mr Lai to serve Ms Horn and his responsibility for the obligations and liabilities to the plaintiff’s group of companies arising from any trades or transactions effected by Ms Horn through Mr Lai.

11.On or about 14 March 2011, the plaintiff notified Mr Lai by email that the Futures Account had a margin call of JPY53,524,997.00, based on the closing price on Friday, 11 March 2011.  The Futures Account ended up with a debit balance and the plaintiff now claims against Ms Horn for the outstanding amount of the debit balance.  The claim of the plaintiff against Mr Lai is based on the guarantee and indemnity under the 2002 Agreement and/or the 2010 Agreement.

Defence of Mr Lai

12.Mr Lai does not admit to what has been pleaded by the plaintiff in relation to the 2002 Agreement.  Mr Lai alleges that he was never given a copy of the 2002 Agreement.  Even if the 2002 Agreement exists, it is not enforceable for a number of reasons and it should include the implied terms that the plaintiff shall advise Mr Lai of the liabilities of his clients from time to time and that the liabilities to be guaranteed by Mr Lai must be bona fide and incurred lawfully.

13.In respect of the 2010 Agreement, Mr Lai avers that it should also include the same implied terms of the 2002 Agreement. Mr. Lai also avers that the plaintiff, as broker and agent of Ms Horn in future trading activities, owed Ms Horn a duty of care to protect her interest

(a) To monitor volatile futures market and to pay special attention to the exposure of the Futures Account in unprecedented market fluctuations;

(b) To closely monitor and control the position limit and other limits already imposed on the Futures Account so that its exposure would be contained within such limits;

(c) To timeously inform Ms Horn when the Futures Account turned into deficit;

(d) To liquidate and close the Futures Account when Ms Horn could not satisfy margin calls;

(e) To abide by the rules, regulations, procedures, codes, reminders and/or guidelines of the HKFE and the SFC which were designed to protect Ms Horn as an investor.

14.Mr Lai alleges that the period within which margin calls and demands for variation adjustments must be met has not been specified in the Futures Client Agreement. Mr Lai also denies the averments of the plaintiff in respect of the debit balance in the Futures Account.  He claims that the debit balances of the Futures Account were not valid because :

(i) Mr Lai’s legitimate belief that the position limit of about 400 futures contract that was applicable to the Futures Account  would mean that Ms Horn could not have entered into an open position of significantly more than 400 contracts;

(ii) The turbulence in the Japan futures market in the trading days following the occurrence of the unprecedented earthquake and tsunami that happened in Japan on Friday, 11 March 2011 and the subsequent nuclear leakage in Fukushima put the plaintiff, Mr Lai and Ms Horn in a messy trading and clearing environment beyond anyone’s reasonable contemplation;

(iii) The plaintiff had not cautioned Mr Lai about his alleged potential liability as guarantor for Ms Horn;

(iv) The plaintiff had not cautioned Mr Lai that Ms Horn had unrealistically breached her position limit and any other limits, by her new trading activities on 14 and 15 March 2011;

(v) The plaintiff has breached its duty of care towards Ms Horn as mentioned; and

(vi) There had been the breach of the Rules of the HKFE, the “Code and Conduct for Persons Licensed by or Registered with SFC” and the implied terms of the 2002 Agreement and of the 2010 Agreement.

Reply to Defence of Mr Lai

15.The plaintiff takes issue with Mr Lai on what was pleaded about the signing of the 2002 Agreement or the effect of this agreement and the 2010 Agreement.  It is stated in the Reply that the 2002 Agreement was signed in duplicate and a signed copy was given to Mr Lai forthwith upon signature.

16.In respect of the earthquake and tsunami that happened in Japan on 11 March 2011 and the nuclear leakage that occurred subsequently in Fukushima, the plaintiff admits that the Japan futures market became volatile on the trading days that followed.

17.On the issue of trading limit, according to the plaintiff, an approved trading limit was imposed by the plaintiff on the Futures Account, which limit could be increased from time to time on application by Ms Horn through Mr Lai, and such applications had been made by Mr Lai on behalf of Ms Horn from time to time.  It is also averred that Mr Lai was at all material times aware of the approved trading limit of each of the clients he served, including that of Ms Horn.  Three particular instances of increase of trading limits made by Mr Lai for Ms Horn to increase the trading limit of Ms Horn under the Futures Account are pleaded, all three of which had been approved by the plaintiff.  The three instances are:

(a) Application made on or about 5 July 2010 to increase the limit from HK$100,000 to HK$4 million;

(b) Application made on or about 14 September 2010 to increase the limit from HK$4 million to HK$6.5 million; and

(c) Application made on or about 11 October 2010 to increase the limit from HK$6.5 million to HK$7.5 million.

18.The plaintiff also claims that Mr Lai was informed by the Settlement Department of the plaintiff on a daily basis of the positions and liabilities of each of the clients served by Mr Lai by way of daily reports.  In respect of all the trading activities under the Futures Account in particular, including those carried out on 14 and 15 March 2011, the plaintiff avers that they were executed through Mr Lai and so he was fully aware of them.

19.The plaintiff points out that the trading of Ms Horn in Japanese Yen Futures and Nikkei 225 Index Futures was conducted on or through the facilities in the Chicago Mercantile Exchange in Chicago and the Singapore Exchange in Singapore respectively.  It is averred that the Rules of HKFE and the Code of Conduct of SFC referred to in the Defence of Mr Lai were not applicable since the commodity, futures or option contracts were not traded through the facilities of HKFE.

20.Some of the provisions in the Futures Client Agreement on the making of margin calls are quoted in the Reply.  These are:

“ 11.2 The Broker may make margin calls and demands for Variation Adjustments and Interest Rate Cash Adjustments to the Client either orally or in writing and may specify therein the period within which the margin call, or demands for Variation Adjustment and Interest Rate Cash Adjustments must be met. The Client agrees and undertakes to pay any margin calls, Variation Adjustments and Interest Rate Cash Adjustments made orally or in writing, immediately on demand or within the time specified (if any) by the Broker.

12.1 Margin calls will be issued when the net equity in the Client’s account falls below the maintenance level.

12.2 The Broker, through the Account Executives, will notify the Client of the margin call amount and the time period to fulfill the margin requirement.

12.4 The Client is required to meet the margin call within the time period by depositing cash and/or closing out an appropriate number of existing open positions. Otherwise the Broker has the sole discretion to restore the margin ratio by liquidating positions in the Client’s account.

12.5     Notwithstanding anything provided in clause 11.2, 12.2 and 12.4 of this Agreement, whenever the Broker deems it advisable for its protection, the Broker has the right to shorten the time period to meet margin call and/or force liquidate positions immediately without prior notice to the Client.  The Broker reserves the right to liquidate the positions at any time and at any prices.  The net proceeds of any such liquidation shall be applied against the Client’s indebtedness to the Broker, and the Client shall remain responsible for any deficiency.”

Affirmations of Mr Lai

21.In support of the present application, three affirmations have been filed by Mr Lai, on 8 November 2013, 13 November 2013 and 13 December 2013 (respectively “1^st Lai Affirmation”, “2^nd Lai Affirmation” and “3^rd Lai Affirmation”).

22.In the 1^st Lai Affirmation, Mr Lai deposed to four matters:

(a) Mr Lai was employed by the plaintiff as a broker;

(b) the placing of the orders of Mr Lai’s clients for N225 (Nikkei 225) futures contracts through UOB Bullion in Singapore (“UOBB”);

(c) each client had trading limits and position limits which were approved by the plaintiff and UOBB and these were monitored up to the minute;

(d) Mr Lai operated his clients’ orders through a “sub account G” of the plaintiff held at UOBB.

23.In the 2^nd Lai Affirmation, Mr Lai exhibited a letter sent to him by EC asking for more details of the documents he requested and the letter Mr Lai sent in reply.  In respect of the documents in question, the following details are set out in Mr Lai’s response:

(a) The document is an application for “Nikkei futures and HSI (Hang Seng Index) futures” trading limits that relate to the orders that [Mr Lai] was allowed to execute or place at UOBB for the “UOB Kay Hian Hong Kong Futures Ltd – sub account G”;

(b) Date of document is unclear but only one document was signed for this particular matter;

(c) Parties to the document are Mr Lai and director of plaintiff, with Rex Au, an employee of the plaintiff, as witness;

(d) Mr Lai executed or placed Nikkei futures orders for the account of Ms Horn via telephone directly with UOBB and the Nikkei futures positions of Ms Horn were conducted through this sub account G;

(e) sub account G in Singapore was solely for the use of Mr Lai’s clients and not for other brokers of the plaintiff;

(f) this sub account G had position limits set and monitored by the plaintiff and UOBB.

24.In the 3^rd Lai Affirmation, Mr Lai stated that he was employed by the plaintiff as an account executive or broker in the Hong Kong office.  He pointed out that orders were placed by him verbally to the appropriate UOB dealer, not through a computer terminal or login account.  With HSI futures, Mr Lai averred to the order being placed for clients through the trading desk of the plaintiff in Hong Kong but on various occasions through UOBB, the affiliated company of the plaintiff in Singapore.  With Nikkei futures, orders for clients were placed through UOBB.  “UOB Kay Hian HK Ltd – sub account G” was the sub account through which the orders of all clients of Mr Lai were placed with UOBB and other brokers of the plaintiff had their own sub accounts.

25.According to the 3^rd Lai Affirmation, the document sought to be discovered bears a title similar to “Trading Limits of Dealers at UOB Bullion Singapore” and although Mr Lai cannot recall the actual date of the document, it should be signed before 9 July 2010.  Mr Lai reiterated that Rex Au was witness to the signing of the document.  There is a statement that the document has very specific description of the total overall clients’ position limits for orders placed by Mr Lai at UOBB and that the document was executed or placed at UOBB.  The position limits for Nikkei futures were, Mr Lai affirmed, in the region of 400 contracts while those for HSI futures were in the region of 120 contracts.  Mr Lai stressed that this total position limits represent the limits for all orders of his clients and were different from the individual margin or equity limits applicable to each client.

Affirmation of the plaintiff

26.A 3^rd Affirmation of Tse Helen Kwokmun (“Tse Affirmation”) has been filed in opposition by the plaintiff.  Ms Tse explained in the Tse Affirmation that Mr Lai was directed by Master Hui at the hearing on 21 November 2013 to file a further affirmation setting out the details of the document that he would like to seek discovery so that the plaintiff could know what or which document it was.  The 3^rd Lai Affirmation came into being because of such order of Master Hui. 

27.The plaintiff caused a diligent search of its records and was able to identify two documents which may possibly meet the descriptions in the 3^rd Lai Affirmation, one “Application for Trading Limit of Dealers – UOBB” dated 9 July 2010 and one “Application of Trading Limit for Futures & Option Dealing” dated 10 February 2009, copies of which are exhibited as “THK-16” and “THK-17” respectively.  The “Application for Trading Limit of Dealers – UOBB” in THK-16 (“2010 Document”) records an increase of trading limits from HK$6 million to HK$10 million on a printed form, and nothing had been written down in the “Remarks” section.  The “Application of Trading Limit for Futures & Option Dealing” in THK-17 (“2009 Document”) is a different printed form and it records an increase of 100 lots of Nikkei Futures to 180 lots.  There are some handwritten notes in the “Remarks” section of this form in THK-17.

28.In respect of the limits on the placing of orders, Ms Tse deposed to the setting of such limits by way of approval by the management of the plaintiff upon applications made by Mr Lai, after consideration of the portfolio of Mr Lai’s existing clients.  According to the Tse Affirmation, with effect from 10 February 2009, Mr Lai was authorized to place orders with UOBB for all his clients up to the maximum of 180 lots of Nikkei Futures.  This was changed on or about 9 February 2010 from a limit in terms of lot number to a limit in monetary terms and the limit was HK$6 million.  This HK$6 million limit was then increased on 9 July 2010 to HK$10 million by the 2010 Document.

29.There is also an account in the Tse Affirmation as to why the 2009 Document is not relevant to the present action.  The document is dated 10 February 2009 and at that time, Ms Horn was not yet a client of the plaintiff. Ms Horn entered into the Futures Client Agreement with the plaintiff on 31 May 2010 and on 9 July 2010, in less than 2 months’ time, the application of Mr Lai to increase the limit of his authority to place orders with UOBB from HK$6 million to HK$10 million, as recorded in the 2010 Document, was approved.  The limit that governed Mr Lai’s authority in March 2011, the time when the alleged breach of the Futures Client Agreement by Ms Horn occurred, is that approved under the 2010 Document, namely HK$10 million.

Additional information from Mr Lai

30.Mr Lai had actually prepared a set of “brief description argument” for the hearing on 7 July 2014 (“July Submissions”) and another set for the hearing on 25 September 2014 (“September Submissions”).  They contain more detailed explanations of his case.  The July Submissions have 5 sets of attachments, Sets A, B, C, D and E, and some brief descriptions as to what these documents are meant to demonstrate.  The documents attached as Sets A, B, C, D and E are listed out in the table below.

Set A(a)	2009 Document
Set A(b)	2010 Document
Set B	8 sheets of Application for Ad Hoc Trading Limit relating to the Futures Account (“Horn Applications”)
Set C	Pages 6-7 of the Defence of Mr Lai
Set D	Brief description of group history of United Overseas Bank Limited
Set E	Emails from Lynette Choong (“Choong”) and Serene Cai (“Cai”), both of Singapore Exchange Limited (“SGX”)

Legal Principles

31.Rules 7 and 8 of Order 24 of the Rules of High Court govern discovery of particular documents and are thus applicable to the present application of Mr Lai.  I set out below the provisions of these rules –

“ 7 (1) Subject to rule 8, the court may at any time, on the application of any party to a cause or matter, make an order requiring any other party to make an affidavit stating whether any document specified or described in the application or any class of document so specified or described is, or have at any time been, in his possession, custody or power, and if not then in his possession, custody or power when he parted with it and what has become of it.

(2) An order may be made against a party under this rule notwithstanding that he may already have made or been required to make a list of documents or affidavit under rule 2 or rule 3.

(3) An application for an order under this rule must be supported by an affidavit stating the belief of the deponent that the party from whom discovery is sought under this rule has, or at any time had, in his possession, custody or power the document, or class of document, specified or described in the application and that it relates to one or more of the matters in question in the cause or matter.

8 (1) On the hearing of an application for an order under rule 3 or 7 the Court, if satisfied that discovery is not necessary, or not necessary at that stage of the cause or matter, may dismiss or, as the case may be, adjourn the application and shall in any case refuse to make such an order if and so far as it is of opinion that discovery is not necessary either for disposing fairly of the cause or matter or for saving costs.

(2) No order for the disclosure of documents shall be made under section 41 or section 42 of the [High Court] Ordinance, unless the Court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.”

32.Mr Lai did not address me on the legal principles applicable, nor did he comment on those relied on by Mr Iu, as set out in the skeleton submissions of the plaintiff.  The principles quoted by Mr Iu, having been enunciated in a number of cases, do represent the approach of the court in considering an application for discovery of documents and I do not see any reason to depart from them.  The following is what Mr Registrar Lung said in the case of The Incorporated Owners of Kodak House II and No. 321 Java Road v Kai Shing Management Services Limited HCA 711/2011 9 October 2012, as set out in the skeleton submissions of the plaintiff –

“The legal principles are trite. In a recent decision by Deputy Judge Sakhrani said in Joyce T. Ongsip trading as L.T. Enterprise Co. v Primatronic Limited HCA 611/2010 delivered on 20 September 2012, the learned Deputy Judge has set out the relevant principles, which are apt for the present discussion:

“ 14. A party seeking an order for discovery must make out a prima facie case that:

(1) the specified document or class of documents exist;

(2) the party against whom discovery is sought has or had the documents in his possession, custody or power;

(3) the document relate to a matter in question in the action; and

(4) discovery is necessary either for disposing fairly of the cause or matter or for saving costs.

(as per To J at paragraph 11 of his judgment in Tullet Prebon (Hong Kong) Ltd v Chan Yeung Fong Nick HCA 2197/2009, 9 June 2011)

15. As was held in Deak & Co (Far East) Ltd v NM Rothschild & Sons Ltd [1981] HKC 78, even if existence, possession etc. and relevancy were established, discovery would only still be granted if it was necessary for fairly disposing of the cause or matter.

16. It is also useful to bear in mind what Burrel J said in his decision dated 18 January 2002 in Mariner International Hotels Ltd v Atlas Ltd & another (HCA 10714, 10753 and 10821 of 1998). At paragraph 11, Burrel J said:

“The task of the court will often be to determine when “doing justice to the claim” stops and “fishing” or, to use another analogy “the scatter gun approach” starts. At that point the onerous nature of the discovery exercise passes from the necessary and permissible to the unnecessary and impermissible”

17. The pleadings in an action define the issues to be tried.

18. I would also refer to what Cheung JA said in Paul’s Model Art GmbH & Co KG v U.T. Limited CACV 139 of 2005 14 December 2005 at paragraph 25 of his judgment:

“25.  The real issue that has been focused at this hearing is whether the documents sought to be disclosed are relevant to the issues in this case between the plaintiff and the 4^th defendant.  In this context the issue must be one identified in the pleadings.  Sun Yuet Tai Ltd v British American Tobacco Co (HK) Ltd (CACV No 95 of 1999).  On the other hand the fact that an issue is raised in the pleadings is not determinative as to whether it relates to a matter.  Discovery is not required of documents which relate to irrelevant allegations in pleadings which even if substantiated could not affect the result of the action: Allington Investments Corp & Others v First Pacific Bancshares Holdings Ltd & Another [1995] 2 HKC 139”

19. I would also agree with the observations of Deputy Judge Mimmie Chan (as she then was) in Sunny Tadjudin v Bank of America, National Association (HCA 322 of 2008, 22 December 2011) when she said at paragraph 7 of her judgment:

“7. It is also clear that post [Civil Justice Reform], the Court should give effect to the underlying objectives of the rules and procedures when it exercises its powers under Order 24 and when it interprets the provisions of Order 24. In deciding whether any document relates to a matter in question in the action, whether any document is or has been in the possession, custody or power of a party, and whether discovery of a document sought is necessary either for disposing fairly of the cause or matter or for saving costs, the Court should always bear in mind the objectives of cost effectiveness, expeditious disposal of cases, proportionality, procedural economy and ensurance of fairness between the parties.””

Documents already discovered

33.I have mentioned in paragraph 1 above that the summons of Mr Lai actually seek discovery of two categories of documents from the plaintiff and that there has been satisfactory discovery of the first group of documents upon the filing of the 2^nd Supplemental List of Documents of the plaintiff.  The first category of documents also relate to trading limits and they are the 2010 Document and eight documents all bearing the title “Application of Ad Hoc Trading Limit for Futures Dealing (Futures Account)” of dates between 3 Aug 2010 to 10 Feb 2011, that is, the Horn Applications in Set B of the July Submissions.

34.The 2010 Document is not client specific and it records the approval of an increase of trading limit for Mr Lai from HK$6 million to HK$10 million.  As regards the eight Horn Applications, they are specific to Ms Horn and in each of them, the existing limit, the proposed ad hoc limit and the date up to which the ad hoc limit is to be applicable are set out.  For the first two of such documents (both bearing dates in Aug 2010), the existing limit recorded is HK$4 million and the ad hoc limit was increased to HK$4.7 million in one case and HK$4.4 million in another.  As for the remaining six (bearing dates from Nov 2010 to Feb 2011), the existing limit shown on them is noted as HK$7.5 million while the ad hoc limits range from HK$11 million to HK$20 million, more than double of the existing limit in some cases.

35.In the last of the Horn Applications, the one dated 10 Feb 2011, the handwritten notes under the section entitled “Reasons” read: “Lawrence wants to propose ad hoc only.  Last ad hoc to $16m expired 19/2/2011.  But traded to $17m on 10/2 (Lawrence not in office to sign form).”  This document tends to show that despite having imposed such trading limits, instances of these limits being exceeded had occurred before.

36.The 8 Horn Applications form the documents described as Set B in the July Submissions.  The notes in the July Submissions indicate that the increased limits represent the total position of Nikkei Futures of +420 contracts executed through UOBB in Singapore, Hong Kong HSI Futures executed in Hong Kong and Globex CME Currency Futures under the client account of Ms Horn with the plaintiff.  Although Mr Lai expressly pointed out that the Horn Applications have explanation for allowing increase, this is true only in respect of seven of the 8 Horn Applications.  In the one dated 29 November 2010, the part where descriptions are found in the other seven applications has been left blank.

Change of limit on 9 February 2010

37.As pointed out in paragraph 28 above, it is averred in the Tse Affirmation that on or about 9 February 2010, the limit imposed on Mr Lai was changed from a limit in terms of lot number to a limit in monetary terms of HK$6 million.  Mr Lai asked for the production of the document recording this change at the hearing although he had not raised any request in his affirmations.  Mr Iu indicated that the change was effected by way of an internal email and so it is not a document signed by Mr Lai and as such, the document does not come within the description of the document sought for in the summons taken out by Mr Lai for the present discovery application. 

38.Mr Lai expressed his doubt on what Mr Iu said.  According to Mr Lai, the change could not have been effected by the internal arrangement suggested by Mr Iu because everything had to be initiated by a proposal signed by him.  He basically asked me not to believe Mr Iu on this.

39.Whether or not Mr Iu knew the correct position or not, he could not give evidence at the hearing and I will not take into account his version of how the change took effect on or around 9 February 2010.  However, the Tse Affirmation is unequivocal about there being only 2 documents meeting the description in the summons and there has been no challenge by Mr Lai in an affirmation in reply.  I see no justification to question what has been deposed to by Ms Tse. There is thus no basis to include this additional document in the consideration of this discovery application. 

40.Since the reason why Mr Iu said the document does not come within the term of the summons is because it was not signed by Mr Lai, Mr Lai then attempted to modify his request by suggesting that this other document should also be discovered because, except for it not being signed by him, it meets all the descriptions in his summons.  However, Mr Lai cannot have the best of both worlds when the Tse Affirmation has already been deposed to in response to the descriptions he gave. 

41.What is more objectionable is the reason why Mr Lai wants to seek discovery of this document.  That the monetary limit was changed to HK$6 million is not actually challenged by Mr Lai.  He is not denying that HK$6 million was the applicable monetary limit on or around 9 February 2010, nor is he suggesting that the HK$6 million was the limit applicable at the time of the turbulent trading in March 2011.  Instead of alleging that the document exists, it is Mr Lai’s case that the document does not exist because all such documents would have been initiated and signed by him.  It is therefore clear that this document is neither relevant, nor does it come within the terms of this discovery application.

Preliminary matters

42.Before turning to the explanation provided by Mr Lai at the hearing as to why he claims the document he seeks to discover exists, I shall first deal with a few other matters first.  One such matter is the reference to a Mr Rex Au who Mr Lai said was witness to Mr Lai’s signing of the documents for which specific discovery is sought.  However, as explained by Mr Lai at the hearing, by witnessing, it does not mean that Mr Au signed on the documents, nor does it mean that the name of Mr Au or the fact that the signing was so witnessed by Mr Au would be apparent from the documents.  There is no affirmation from this Mr Au about his witnessing of the signing of the documents.  As such, this piece of information is of no help in establishing that the documents sought exist, that they are relevant to the issue in dispute, or that they are in the possession, custody or control of the plaintiff.  There is thus no need to address this point.

43.Another matter is the number of documents that Mr Lai seeks.  The terms of the summons and the email attached to it suggest that there are more than one such document.  The position has however been clarified by the subsequent refinement of the request in the affirmations of Mr Lai.  What is sought to be discovered is only one document, an application for the increase of the position limits in respect of the trading of Nikkei futures contracts by Mr Lai for all his clients.  

Submissions of Mr Lai

44.At the hearing, Mr Lai gave a very detailed account of the risk control procedures implemented by banking institutions like the plaintiff in relation to trading in futures contracts by its clients.  According to Mr Lai, limits are set by the plaintiff in respect of the amount of futures contracts that each particular client can purchase and also the amount of futures contracts that each account executive can purchase on behalf of all his clients.  These limits are set upon approval of applications made to the plaintiff by the account executive who serves the client. 

45.Mr Lai used a specific example to illustrate the interface between the limits specific to the account executive and that of the client.  When a client opens a futures trading account with the bank, a trading limit will be applied for by the account executive serving the client, which limit will be set with reference to the money deposited with the bank.  Where this limit does not exceed the limit applicable to the account executive, no increase of the limit of the account executive has to be sought. 

46.Similarly, even when the client deposits further money into the bank and each time the account executive applies for further increase of the trading limit of the client, the limit of the account executive does not have to be increased if the number of lots that can be purchased by the client does not exceed that of the account executive.  In the example given by Mr Lai, only the case of one client is considered.  Nonetheless, unless the account executive in question serves only one client or the account executive has only one client that trades in the specific types of futures contracts in question, the logical deduction is that the limit specific to the account executive will have to be increased if it is exceeded by the aggregate of the limits of all his clients.

47.There are two types of limits – position limits and monetary limits. The position limits are the limits in terms of the number of futures contracts, Nikkei 225 futures being the type of futures contracts in question in the present application, while the monetary limits are limits in terms of dollar amount.  The two limits work hand in hand because when there is fluctuation in the market, a client cannot purchase more futures contracts simply because the monetary limits have not been exceeded if the position limits have been reached.  He or she has to have the position limits increased before purchase of more futures contracts can be effected.  Risk control can be achieved because every time an application for variation of a limit is made, the banking institution asks for verification or substantiation.  If the limits are enforced, loss owing to insufficient equity in the client’s account can be avoided and the client is also protected against loss in excess of the limits.

48.Where an incident occurs that results in a significant drop of the market value of the stock in question, the bank has the right to close up the whole position and this is what the plaintiff has done with the Futures Account after the turmoil in the Japanese yen market in 2011.  It was then discovered that there was negative equity in the Futures Account and not only that, the actual purchase amount had exceeded the trading limits.

49.Mr Lai then proceeded to explain how the margin system works in the trading of futures.  By virtue of the margin system, a client can buy stock that is worth much more than the money he has, and in the case of Nikkei 225, with $10 million one can buy stock in region of HK160 million -HK180 million, depending on how the index fluctuates.  This means that, in the case of the limits approved under the 2010 Document, the account executive can buy about HK160 million-HK180 million worth of Nikkei 225 futures contracts.  There is no explanation from Mr Lai as to how the leverage is set and whether the same margin of HK160 million-HK180 million worth of stock that can be purchased at the limit of HK$10 million applies throughout the period when the Futures Account was maintained with the plaintiff.

50.There is, Mr Lai explained, still another margining system in place which works as a risk control mechanism.  Under such a system, the margin changes and it can fluctuate about 30 percent either way, which means that the range of fluctuation is 60 percent.  When the market goes quiet, the plaintiff will bring down the margin and when the market is in turmoil, the margin will be raised.  So for example if the plaintiff raises the margin to 30 percent, then the maximum number of contracts that can be bought will become 280 although the approved position limits applicable at the time is 400 contracts. This margining system works differently when the margin is brought down in a quiet market.  Where the margin is brought down by 30 percent, the actual number of contracts that can be bought will theoretically become 520 contracts.  However, if more contracts are actually purchased but the amount of money in the accounts remains the same, the risk of loss if the market falls will not be covered.  Hence, to protect the client and the bank, the approved limit of 400 contracts kicks in and purchase over the 400 contracts limit will not be allowed.

51.When the above risk control system is taken into account in the context of the present application, the case of Mr Lai is that the document he now seeks records the limits in terms of lot numbers that were imposed by the plaintiff on the amount of Nikkei 225futures contracts that Mr Lai, as account executive, could purchase at UOBB, the Singapore branch of the plaintiff’s group, for all his clients.  In the July Submissions, Mr Lai referred to what was pleaded in paragraph 9(a) of his Defence and Counterclaim, which states –

“(a) The Plaintiff has imposed a position limit for the Futures Account of about 400 future contracts. By such position limit, D1 legitimately believed that D2, at all material times, cannot have entered into an open position of significantly more than 400 contracts”

52.For the trading of Nikkei 225 futures by his clients at UOBB, Mr Lai had to apply for a limit within which he could purchase the futures and upon approval by the plaintiff, UOBB will be informed of the approved limits.  Such limits serve to prevent Mr Lai from purchasing futures without authorizationand to protect the clients served by Mr Lai, who will not be exposed to risk occasioned by purchases over the approved limits.  Mr Lai stressed that UOBB does not know the cash positions of the clients and it relies solely on the limits approved by the plaintiff for each respective account executive.  The about 400 contracts position limit at UOBB is, as Mr Lai put it, the sum of all the Nikkei positions of Mr Lai’s clients held at UOBB.

53.Mr Lai then pointed to the 2009 Document which has explanatory notes, as mentioned in paragraph 27 above, and then the absence of any notes in the 2010 Document in the corresponding section when the trading limits were increased on 9 July 2010.  Mr Lai said the increase recorded in the 2010 Document means an increase of the worth of the stock that can be bought from $80 million to $160 million and it is impossible for such a position to be approved without any explanatory remarks, which Mr Lai categorized as a big irregularity in a bank. The only reason for this to have happened is, according to Mr Lai, because he had in between the dates of the 2009 Document and the 2010 Document proposed an increase of limits to about 400 future contracts.

54.Mr Lai took me to the emails attached to the July Submissions as Set E. One email is from Choong and the other from Cai, both of Singapore Exchange Limited and both in reply to enquiry made by Mr Lai via email on 18 June 2014 for margin requirements for N225 futures contracts for the nearest trading months during June and July 2010.  Among the information sent by Choong to Mr Lai, there is an item about the outright margin changes for four commodities, one of which is Yen Nikkei-225 Index, and the values of such Yen Nikkei-225 Index on 2 June 2010 and 14 July 2010 can be found.  There are four sets of values, presented in the form of a table.  This is extracted and reproduced below –

2 June 2010

Outright Margin Changes	Revised Margins		Current Margins
Commodity	Initial	Maint.	Initial	Maint.
Yen Nikkei-225 Index (NK)		¥220,000	¥250,000	¥200,000

14 July 2010

Outright Margin Changes	Revised Margins		Current Margins
Commodity	Initial	Maint.	Initial	Maint.
Yen Nikkei-225 Index (NK)		¥190,000	¥275,000	¥220,000

55.Mr Lai has circled the value of the Initial Revised Margins on the information sheet for both dates.  As for the email from Cai, the maintenance margin requirements for SGX Yen Nikkei on five dates in 2010 were set out. Handwritten against four of such values is another set of values with the title “Initial Margin” and these values are marked against the values in the email of Cai in the manner shown below –

			(Handwritten part) INITIAL MARGIN
07/05/2010	¥180,000		->¥225,000
21/05/2010	¥200,000		->¥250,000
04/06/2010	¥220,000		->¥275,000
02/07/2010	¥190,000		->¥237,500
13/08/2010	¥180,000

56.Mr Lai then explained why the position limit shown on the document sought is about 400 contracts.  He assumed the initial margin for each Nikkei 225 contract to be the average of ¥275,000 and ¥250,000, ie ¥262,500.  Explaining then that since the margin was 262,500 yen per contract for Nikkei-225 Index and the Hong Kong dollar rate was then about 0.088703 which is equivalent to HK$23,285 per Nikkei contract, 420 contracts of such value work out to be HK$9.8 million. 

57.According to Mr Lai, the approval of the increase of the limits to HK$10 million under the 2010 Document was tied to the increase of the position limits to 400 or 420 contracts that had already been applied for by Lai and approved by the plaintiff.  That is why, Mr Lai went on to explain, the plaintiff did not require any explanation when they increased the limits under the 2010 Document, despite the very significant increase in the amount of stock that can be purchased (from around HK$60 million–HK$80 million worth of stock to HK$160 million–HK$180 million worth of stock).

58.So what Mr Lai is saying is the only reason that can explain the absence of any descriptions of the basis for permitting the increase on 9 July 2010 as recorded in the 2010 Document is because there had been an earlier approved increase of the position limits of the number of Nikkei 225 futures contracts that Mr Lai was permitted to purchase to about 400 contracts.  Mr Lai has no recollection of the date of such document but it is his case that the application was signed by him and that it was approved by the plaintiff. 

Submissions of the plaintiff

59.Naturally Mr Iu objected to the failure of Mr Lai to file evidence to substantiate his claim about the existence of the document to be discovered and its relevance to the dispute between the parties.  He pointed straight to the requirement under Order 24 rule 7(3) of affidavit evidence in support of an application for an order under rule 7, the provisions of which have already been reproduced in paragraph 31 above.  Mr Iu went on to refer to the case authority and legal principles above referred to.

60.Mr Iu then addressed me on the affirmations filed by Mr Lai.  Suggested succinctly by Mr Iu, all that was said by Mr Lai in the affirmations is that there is a document and Mr Lai needs it, and so Mr Lai had not established to the court the existence of this document.  Given that Mr Lai had deposed to the existence of only one such document that relates to the trading limits for Nikkei 225 futures contracts and that the 2010 Document fits the description, it is Mr Iu’s submission that there cannot possibly be another document that was signed by Mr Lai before 9 July 2010.

61.On relevance, Mr Iu pointed out that even if Mr Lai had signed another document prior to 9 July 2010 as alleged, the limits approved under such document would have been superseded by the 2010 Document.  Since the incident that led to this action took place on or around 11 March 2011, well after 9 July 2010, Mr Iu questioned the relevance of a document that only shows what the previous superseded limits were.  Mr Iu also drew my attention to the fact that Mr Lai has not stated in any of his three affirmations as to how the document sought by him relates to any of the matters in question in the cause of the present action. 

62.On the point about the document sought being in the possession, custody or power of the plaintiff, Mr Iu questioned how the document could wind up being in the possession, custody or power of the plaintiff when Mr Lai affirmed to it being executed at UOBB, a separate entity in Singapore.  That the affirmations of Mr Lai has not addressed why the document is in the possession, custody or power of the plaintiff, or how it is necessary for the fair disposal of the cause or matter or for saving costs, is also pointed out by Mr Iu.

Discussions

63.The manner in which the present application was prosecuted by Mr Lai is indeed a grave cause for concern.  The criticism of Mr Iu that Mr Lai has not set out in his affirmations the requisite evidence to support a case of specific discovery is a fair one.  Mr Lai was given the chance to respond to the Tse Affirmation and instead of filing an affirmation in reply to rebut those matters in the Tse Affirmation that relate to the existence of the document he seeks to discover, the relevance of the document to his case and the plaintiff’s possession of the document, Mr Lai only gave full explanation when he came before me.  It is clear that the requirements of Order 24 rule 7 of the Rules of High Court have not been met.

64.The procedural requirements are designed to ensure fairness between the parties.  In not setting out his full case in the evidence, the plaintiff will be denied the chance to respond by evidence, should it think that to be appropriate.  I agree with Mr Iu that the submissions of Mr Lai should be disregarded.

65.Mr Lai has a reason to give for his so doing.  He said he was told by Master Hui to come to the hearing to present his case and he was not asked to respond to the affirmations of the plaintiff.  So, Mr Lai said, he was not aware of the importance of giving details of his case in the affirmations.  Had Mr Lai been genuinely misguided about the procedures for going about the matter, there might have been justification for allowing him a second chance and to have him rectify the matter by putting much of what he said in his submissions in a properly filed affirmation.  I am however not persuaded that what Mr Lai had done was due to such mistake.

66.In the first place, what Mr Lai said he was told by Master Hui is clearly contradictory to the terms of the Master Hui Order.  It should be borne in mind that Mr Lai had already filed two affirmations before he appeared before Master Hui.  If Mr Lai were to have the option of presenting his case at the substantive hearing of the summons without the need to put forward the evidence he would rely on beforehand, Master Hui would not have ordered him to file another affirmation to support his case.  That would not be necessary. 

67.After Mr Lai had filed the 3^rd Lai Affirmation, the plaintiff adduced evidence in opposition to this application for specific discovery in the form of the Tse Affirmation.  What the Tse Affirmation set out to achieve could not have been clearer.  The plaintiff has clearly stated the attempts it made in trying to locate the document that Mr Lai said should be in existence and the outcome of such attempts.  There is also an account as to why even if there was such a document it would not, in the view of the plaintiff, be relevant to the action between the parties.  Even if Mr Lai had not known what should be addressed in the affirmations filed or to be filed by him prior to the filing of the Tse Affirmation by the plaintiff, he would have had an inkling of the purposes that they were meant to serve by the time he had a chance to read the Tse Affirmation. 

68.Given that Mr Lai takes issue with the plaintiff on the various matters set forth in the Tse Affirmation, the natural and logical step for a party in the position of Mr Lai to take would be to set out his side of the story in the affirmation which he was directed to file under the terms of the Master Hui Order.  The suggestion that an affirmation was not filed in reply despite his disagreement to what was deposed to in the Tse Affirmation was because he thought he could simply do that at the hearing does not have any ground to stand on. 

69.Mr Lai has not only disregarded this part of the Master Hui Order.  The parties were further ordered to jointly report to the court in writing the progress of the discovery application by 30 January 2014.  Records of the court file show that EC wrote to Mr Lai on 27 January 2014, asking Mr Lai for comments on a draft joint letter which they had prepared for reporting the matter to the court.  The draft joint letter states clearly that it is to be submitted pursuant to the requirement of the Master Hui Order. Instead of responding to this, Mr Lai filed with court on 27 January 2014 his earlier email response to EC, also dated 27 January 2014, which confirmed that the 2010 Document and the 2009 Document“does not fit the description of the document in discovery”.

70.There had been no reply by Mr Lai to the letter of EC dated 27 January 2014.  When this state of affairs was reported to Master Hui, he ordered the fixing of the hearing date of this application.  The report was meant to be made to the court after both sides had filed all their affirmations in accordance with the earlier parts of the Master Hui Order.  Mr Lai’s disagreement to the matters stated in the Tse Affirmation, the inadequacy of the evidence presented by him, or his perception, albeit incorrect, of the applicable procedures for his further conduct of the discovery application could, if Mr Lai had so required, well have been drawn to the attention of the court in such report then.  If the court had had this opportunity to take stock of the situation before the application was set down for hearing, it would have been in a position to set things back on their right course and to give all necessary further directions for the purpose, if considered appropriate.  This opportunity for the court to put the matter back on its right course was also missed because of the conduct of Mr Lai.

71.Mr Lai has his own understanding of what Master Hui asked him to do on this.  He did admit that the learned Master asked both parties to revert to him if both sides agreed that the document produced by the plaintiff is not the document sought.  Mr Lai is of the view that in writing to the Master himself, he has done exactly what the Master asked him to do.  I do not see how this misunderstanding could have arisen.  Mr Lai was present at the call over hearing before Master Hui when the order that a report be made jointly was made.  Furthermore, the draft letter prepared by EC clearly stipulated that it was to be submitted pursuant to the order of Master Hui. 

72.One hour was reserved for the hearing on 7 July 2014 but it lasted for over 2 hours.  All the time at that hearing was used by Mr Lai to present his case, most of which should have been submitted as evidence in the form of an affidavit, and he spent a lot of time repeating his submissions.  Some of the points were also repeated at the hearing on 25 September 2014.  Such waste of court time could and should have been avoided.  By the time the hearing resumed on 25 September 2014, the application has already been dragged on for over ten months. 

73.One other thing worth mentioning is that at the beginning of the hearing, Mr Lai even suggested a question and answer approach so that he could put questions to Mr Iu back and forth, presumably so that his prosecution of the discovery application could proceed on the basis of the responses to the questions he put.  This shows his total disregard of the fact that the burden to show that the grounds for specific discovery subsist rests on him.  In any event, Mr Iu is only the legal representative of the plaintiff.  He would not be in a position to give evidence on behalf of the plaintiff in relation to the matters pertaining to the setting or monitoring of trading limits by the plaintiff.

74.Instead of a genuine misunderstanding of the procedural requirements or the directions given by Master Hui, the aforesaid behaviour of Mr Lai demonstrates a deliberate tendency on his part to do things his own way and to interpret rules and directions in such ways that suit his own purpose.   Furthermore, judging from the account of Mr Lai as to the course ran by him in the prosecution of this application, Mr Lai has demonstrated an inertia to find out for himself what the legal requirements are and has, albeit without any justification, harboured an expectation that guidance in the navigation of the legal minefield and coaching as to the steps he should take would be provided by the court.

75.The underlying objectives of the Rules of the High Court can be found in Order 1A rule 1.[1] As stipulated in Order 1A rule 2, the court shall seek to give effect to these underlying objectives in the exercise of its powers or in its interpretation of any of the rules or a practice direction.  One of the objectives of the procedural rules is to ensure fairness between the parties.  If Mr Lai is allowed to rely on the submissions he made at the hearing as evidence, the plaintiff will be denied a chance to make a considered reply, when at the hearing only the legal representatives need to attend. 

76.Noting the many chances afforded to Mr Lai to ensure that he would not go off course, permitting Mr Lai to have another chance to rectify the deficiency in the evidence adduced by him will not be conducive to achieving the objective of ensuring that a case is dealt with as expeditiously as is reasonably practicable.  The case is almost ready to be set down for trial.  This summons for discovery is the only outstanding interlocutory application.  To turn the clock back now after so many months have passed since the time for Mr Lai to file his affirmation in reply and for the progress of the application to be drawn to the attention of the court by way of the joint report will be highly unjust to the plaintiff. 

77.In light of the above findings, Mr Lai’s application for discovery should be dismissed.  I should add that even if I were to disregard the procedural irregularities outlined above, I do not think Mr Lai has made out a case for the exercise of the court’s power to order specific discovery. 

78.This document that was so important in the eyes of Mr Lai relates to the number of futures contracts that he was authorized to purchase on behalf of all his clients.  When the matter was pleaded in paragraph 9(a) of the Defence and Counterclaim of Mr Lai, he referred to the position limit imposed by the plaintiff for the Futures Account of about 400 futures contracts.  The Futures Account is the account held by Ms Horn and so the averment in paragraph 9(a) of the Defence and Counterclaim is directed at the limit imposed on the trading of Ms Horn, as opposed to the limit of the trading of all clients of Mr Lai. 

79.In the 3^rd Lai Affirmation, the description about this position limit for Nikkei 225 futures in the region of 400 contracts shifts. It was stated there that the documents relates to the total position limits for all the clients of Mr Lai executed or placed at UOBB.  When making his submissions at the hearing, Mr Lai himself said that separate limits apply to individual clients and to the account executives.  The variation in the description can only mean that he is talking about different documents, and the document he is now seeking does not match the description in paragraph 9(a) of his Defence and Counterclaim. 

80.The shifting of the goalposts does not end there.  In the July Submissions, the 8 Horn Applications attached as Set B documents were described as showing increase in limits for Ms Horn which represents the total position of +420 contracts of Nikkei futures.  This number of 420 contracts also featured in the description in Set E of the July Submissions when Mr Lai dealt with the position limit that was applicable to him, as opposed to the limits for individual clients.  There is an explanation set out against the documents in Set E on how the worth of 420 contracts of Nikkei 225 futures can be translated into about HK$10 million.  This means that, in the same document of the July Submissions, Mr Lai talked about the 420 contracts as being the limit for Ms Horn as well as the limit for himself.

81.As pointed out earlier, Mr Lai has taken the average of two values of the “initial margin” for Nikkei 225 futures from June-July 2010 that are shown on the emails of Choong and Cai (¥275,000 and ¥250,000) and then adopting what he said was the exchange rate between yen and Hong Kong dollars to arrive at the worth of one Nikkei 225 futures contract in Hong Kong dollars, ie HK$23,285.  420 contracts of such Nikkei 225 futures would amount to HK$9,779,506, if this formula of calculation is applied. 

82.There is however no explanation from Mr Lai as to why he asked Cai and Choong for the margins for June and July 2010 only.  It is Mr Lai’s own case that he does not remember the exact date of the document that he is seeking and that it can be signed any time between 10 February 2009 and 9 July 2010.  If the margin requirements for the other months within this period differ greatly from those in June and July 2010, then the position limits for 420 contracts of Nikkei 225 futures may not be more or less the same as HK$10 million. 

83.The increase from 400 to 420 contracts is a 5% change in volume. Despite his repeated emphasis on the importance of such approval documents to those involved in the futures trading market, Mr Lai was only able to remember with greater accuracy as to the increase in the number of futures contracts that the document was for after he was provided with the initial margin requirements by personnel of the Singapore Exchange.  This number of 420, as opposed to 400, only began to surface after Lai had received the replies from Cai and Choong in July 2014.

84.Those are not the only concerns I have.  The initial margins for the dates set out in the email from Cai were handwritten on the email.  There is no explanation from Mr Lai whether those figures came from SGX as well or were his own calculations and if it is the latter case, how they were arrived at and why they are to be adopted in place of the requirements that should have been set by SGX.  In addition, no reason has been given as to why the two figures of ¥275,000 and ¥250,000 were taken to work out an average and not the other values of initial margins appearing on the two emails.  ¥275,000 is the initial “revised” margin requirement as at 2 June 2010, but it is not clear whether the figure of ¥250,000 was adopted because it is the initial “current” margin requirement as at 2 June 2010 (as shown in Choong’s email), the initial margin as at 21 May 2010  (as shown handwritten on Cai’s email), or otherwise. 

85.In addition, there is no documentary evidence showing that the exchange rate between yen and Hong Kong dollars at the material time was indeed what Mr Lai said was the case, despite the relative ease for producing such proof.  In the absence of such explanations, and in light of the timing of the change in the number of futures contracts that the document sought is supposed to relate to, the revised figure of 420 contracts could have been arrived at by working backwards from the data available to come up with a figure that is closest to the HK$10 million limit approved under the 2010 Document.

86.As pointed out in paragraph 25 above, the descriptions in the 3^rd Lai Affirmation of the document sought to be discovered indicate that it relates to the limits of trading in HSI futures as well.  There is no clarification from Mr Lai as to whether approval for increase in trading limits for HSI futures is carried out separately from that in relation to Nikkei 225 futures and more importantly, whether the monetary limits imposed have taken into account the position limits imposed on trading in the two types of futures together.  If it is indeed the case that one single monetary limit covers the position limits for both types of futures contracts, then the 420 lots figure would not be correct unless the position limit imposed on Mr Lai in respect of the trading in HSI futures is almost zero, and not the 120 HSI contracts averred to.

87.Another inconsistency in the case presented by Mr Lai is his claim, in the description of the documents in Set B of the July Submissions, that those documents have explanation for allowing increase.  That is the case with seven out of the eight sheets of Horn Applications.  In the Horn Application dated 29 November 2010, there is no description in the document and the increase of limit was, on the face of it, approved without any questions or challenge. 

88.Although Mr Lai is adamant that the plaintiff could not have approved the increase applied for under the 2010 Document without any explanatory notes, the fact that this had happened at least in the case of one of the Horn Applications suggests that there can be exceptions.  Under the Horn Application dated 29 November 2010, which has no notes written on it at all, the limit was increased from HK$7.5 million to HK$18 million.  That is a substantial increase in terms of the value of the futures contracts that Ms Horn would be allowed to purchase and at least on the face of it, more substantial than the increase of the limit under the 2010 Document.

89.A yet another matter which needs explanation from Mr Lai is the trading limits that were effective at the time the turmoil in the Japanese yen market occurred in 2011.  The 8 Horn Applications documented the change of the trading limits of Ms Horn, albeit on an ad hoc basis, from HK$4.7 million to eventually HK$17 million.  This well exceeds the HK$10 million imposed on Mr Lai under the 2010 Document for trading by all his clients.  By Mr Lai’s account given at the hearing, when the limits of the clients exceed his personal limits, he would have to seek an approval for increase.  The risk management system that he so emphatically insists as having been put in place cannot work if such a breach is not taken care of. 

90.One other thing that can be gleaned from the Horn Applications is that limits can indeed be set in monetary terms only.  All the Horn Applications relate to the trading limits of Ms Horn in monetary terms only.  This tallies with the version put forward in the Tse Affirmation that the limit imposed on Mr Lai had become one based on monetary terms only before the 2010 Document was signed.  Mr Lai tried to convince me that the monetary limit could not have superseded the position limit because the two work together.  However, in the absence of evidence in support of such allegation and the lack of any explanation as to why the client-specific limits were only in terms of dollar amount, I am not persuaded that the two limits invariably work concurrently.

91.Even if I were to find that Mr Lai succeeded in establishing that the document he seeks exists, I would agree with Mr Iu that Mr Lai has failed to demonstrate the relevance of the document now sought to a matter in question in the action.  According to the Tse Affirmation, the limit imposed on trading by Mr Lai was changed on or about 9 February 2010 from one in terms of lot number to a limit in monetary terms of HK$6 million, and this limit of HK$6 million was increased to HK$10 million on 9 July 2010, as evidenced by the 2010 Document.  This limit of HK$10 million is, according to the plaintiff, the limit that began to apply two months after Ms Horn became a client of the plaintiff and was the limit applicable to the trading of Ms Horn during the period of the tumultuous market in March 2011.

92.It is Mr Lai’s own case that the debit balance in the Futures Account arose from trading by Ms Horn around the time when the earthquake and tsunami occurred in Japan in March 2011.  It is also his own case that the 420 position limits work out to around HK$10 million.  What has been pleaded in his Defence and Counterclaim is that Ms Horn had entered into an open position of significantly more than 400 contracts, resulting in the debit balance in the Futures Account that the plaintiff is now suing the defendants for.  On the basis of his own case, if the eventual open position of the Futures Account had breached the 400 contracts limit, it would also have breached the HK$10 million limit.  That being the case, Mr Lai can simply draw support from the 2010 Document and the document sought is not relevant.

93.It is possible that the HK$10 million limit was, because of the turbulent market conditions in March 2011, not roughly equivalent to the 420 contracts position limit.  In that case, there could be a breach of the limit set in terms of lot number but not a breach of the limit in monetary terms.  There is however no evidence, or submissions for that matters, before me to show that that is the position Mr Lai seeks to rely.  Without the necessary information to fill in the gap in the case of Mr Lai, the only conclusion that can be reached is that he has failed to satisfy the court that an order should be made under Order 24 rule 7.

94.For the reasons stated above, I dismiss the application of Mr. Lai in his summons dated 8 November 2013.

Costs

95.Mr Iu submitted that costs should follow the event.  Mr Lai had no submissions to make on costs.  I see no reason for departing from the usual practice of the winning party getting the costs.  I therefore order Mr Lai to pay the costs of the plaintiff for the application for discovery, including all costs reserved.  The plaintiff shall submit skeleton bill of costs for summary assessment within 14 days and Mr Lai shall have 14 days thereafter to make submissions on paper. 

Mr Wallace Iu, of Edmund Cheung & Co, for the plaintiff

The 1^st defendant appeared in person

The 2^nd defendant was not represented and did not appear