Lam Chi Kin David v Deutsche Bank AG

JurisdictionSingapore
CourtHigh Court (Singapore)
JudgeSteven Chong JC
Judgment Date10 February 2010
Neutral Citation[2010] SGHC 50
Citation[2010] SGHC 50
Published date24 February 2010
Defendant CounselAng Cheng Hock SC, Paul Ong and Goh Zhuo Neng (Allen & Gledhill LLP)
Plaintiff CounselChristopher Chong and Jasmine Kok (M Pillay)
Date10 February 2010
Docket NumberSuit No 834 of 2008
Hearing Date23 December 2009,01 December 2009,02 December 2009,30 November 2009
Steven Chong JC: Introduction

In his Opening Statement, the plaintiff interestingly characterised his claim as a case about “an investor, his fair-weather bank and the bank’s broken promises”. However, as the trial progressed, it became clear that the case by the investor was merely an attempt to transfer the losses which he had suffered as a result of market movements onto the bank. The plaintiff amended his case several times as to where the fault of the bank lay and was still undecided how to run the case until the trial began.

Essentially, the plaintiff alleged that the defendant made a wrong margin call on 10 October 2008 when it required him to clear the margin shortfall within the same day of the notice. The action was initially commenced with several pleaded causes of action. However, on the first day of the trial, the plaintiff obtained leave before me to amend his pleadings. At the same time, he abandoned all his pleaded causes of action except for the remaining claim for wrongful closure of his FX positions. It was the plaintiff’s original pleaded case (prior to the amendment on the first day of trial) that by reason of his margin shortfall, the defendant was entitled to and ought to have closed his account three days earlier, on 7 October 2008. In spite of his amendment, the plaintiff confirmed both in his Affidavit of Evidence-in-Chief (“AEIC”) as well as on the witness stand under cross-examination, that the defendant was indeed entitled to close his account on 7 October 2008. In these circumstances, can the plaintiff maintain a claim against the defendant for wrongfully closing his account on 10 October 2008 when it is his own evidence that the defendant’s right to do so had accrued on 7 October 2008? Was this more than a margin of error” by the plaintiff in bringing a claim against the defendant for allegedly making a wrong margin call?

Background facts

The plaintiff started his career as a lawyer. He was a sophisticated and successful investor and by 1994, he had retired from his law practice after having amassed a fortune in excess of United States Dollars (“USD”) 70m from his investments. In the Account Opening form, the plaintiff described himself as a “professional investor”. He came across to the defendant as an “extremely savvy and knowledgeable client who knows precisely what he wants”. He even gave the defendant instructions on specific times for communication purposes.

In November 2007, the plaintiff opened two separate accounts with the defendant, namely a Private Wealth Management Account (“Advisory Account”) which held the plaintiff’s deposits and loans in various foreign currencies and a Foreign Exchange (“FX”) Gem Account which provided a platform for the plaintiff to trade in FX options. Chin Mei Lin (“Cynthia Chin”) was the relationship manager of the defendant servicing the plaintiff from January 2008.

In the Advisory Account, the plaintiff was active in FX trades, particularly in “Carry Trade Investment Strategy”. Under this strategy, an investor would typically borrow currencies which offer low interest rates and convert them into other currencies which offer higher deposit interest rates. In this way, the investor would make a profit from the difference in the interest rates. This strategy is of course subject to the inherent risks of currency fluctuations which could be to the benefit or detriment of the investor. Early in the relationship, the defendant had warned the plaintiff of the risks of over exposure to Carry Trades.

The plaintiff moved his deposits from accounts he held with the other banks to the Advisory Account. By 11 September 2008, the plaintiff had remitted a total of New Zealand Dollars (“NZD”) 120,101,937.38 and USD 3,040,000 to his Advisory Account with the defendant. A total of Japanese Yen (“JPY”) 4,168,423,696 and Swiss Francs (“CHF”) 36,027,548.42 in loans were transferred from the plaintiff’s accounts with Overseas Chinese Banking Corporation and BNP Paribas Private Bank respectively to the defendant. The plaintiff’s deposits and loans in foreign currencies under the Advisory Account are collectively referred to herein as “FX positions”.

The plaintiff’s Advisory Account with the defendant was healthy until early October 2008 when the exchange rates started to move against him which resulted in a margin shortfall. The Advisory Account entered into an “account shortfall” of around USD 610,000 on 7 October 2008. This meant that the Collateral Value assigned to the plaintiff’s deposits (which is less than the actual market value of the deposits) fell below the market value of the plaintiff’s liabilities. The term “account shortfall” was used interchangeably with “margin shortfall” by the parties. “Collateral Value” is the value of the plaintiff’s collateral as determined by the defendant. “Total Exposure” is the total sum of the plaintiff’s liabilities under all the facilities extended to the plaintiff by the defendant. The margin shortfall deteriorated to around USD 2.3m on 8 October 2008 and later in the same day to around USD 4m. While there was a margin shortfall, the account was still in “positive equity” which meant that the mark to market value of the plaintiff’s liabilities was less than the market value of his assets. On 10 October 2008, the margin shortfall deteriorated to around USD 5,460,370.02 which placed the Advisory Account into “negative equity”. This meant that the mark to the market value of the plaintiff’s liabilities exceeded the market value of his assets under the Advisory Account. The plaintiff was duly appraised of the margin shortfall at all material times.

The plaintiff informed the defendant that he was unable to/or unwilling to deliver additional collateral to clear the margin shortfall. On 10 October 2008, the defendant liquidated the plaintiff’s FX positions by executing the following margin call transactions: NZD 42,251,287.42 sold at a rate of 58.34 for JPY 2,464,940,108 NZD 40,690,522.37 sold at a rate of 58.34 for JPY 2,373,885,075 NZD 5,079,561.11 sold at a rate of 58.65 for JPY 297,916,259 USD 177,471.46 sold at a rate of 98.87 for JPY 17,546,603 USD 1,135,239.43 sold at a rate of 98.80 for JPY 112,161,656 As the Advisory Account was in “negative equity”, the proceeds from the above transactions were not sufficient to cover the plaintiff’s liabilities. On 13 October 2008, the defendant wrote to the plaintiff claiming that a sum of USD 1,135,239.43 remained outstanding from the plaintiff after the execution of the margin call transactions and requested for payment of this sum. The plaintiff did not respond to this request for payment at all.

Amendments to the plaintiff’s claims

On 11 November 2008, the plaintiff commenced the present action against the defendant to recover the losses he suffered following the margin call transactions: First, the plaintiff claimed that he had instructed Cynthia Chin on or about 23 September 2008 to proceed with a conversion of NZD 50m to USD at a then favourable rate of 0.6920. However, the defendant allegedly failed to proceed with the plaintiff’s instructions. As a result, the plaintiff suffered an alleged shortfall of USD 5,460,370.02 between the Collateral Value provided to the defendant and the plaintiff’s Total Exposure in his Advisory Account. Secondly, the plaintiff also alleged that the defendant had wrongfully closed out his FX positions in breach of the notice requirement under the defendant’s terms and conditions as well as the grace period which was purportedly promised to him. He claimed that the margin call was only made on 10 October 2008 when the defendant required him to clear his margin shortfall within the same day even though he was entitled to one clear business day under the defendant’s terms and conditions (cl 2.6 of the Master Agreement) and/or to a 48-hour grace period as promised. The plaintiff informed the defendant that he was unable and/or unwilling to remit additional collateral to clear the shortfall. Accordingly, the defendant closed out the plaintiff’s FX positions at the close of 10 October 2008 which resulted in the loss of all his deposits with the defendant (estimated to be in excess of NZD 30m) and a further sum of USD 1,135,239.43 due and owing to the defendant which forms the subject matter of the defendant’s counterclaim. Thirdly, the plaintiff alleged that the defendant, in breach of its duty of care, provided an inaccurate or unreliable computation of the margin shortfall in its letter dated 10 October 2008.

Subsequently, on 24 February 2009, the plaintiff amended his Statement of Claim. The plaintiff added details to his claim that Cynthia Chin had failed to respond to his instructions on 23 September 2008. According to the plaintiff, on 23 September 2008, he had sent an email to Cynthia Chin on a NZD transaction he wanted to carry out. He wanted to convert NZD to USD in light of the general downward trend of the NZD at that time. He issued an instruction to convert NZD 10m to USD if the rate of 0.6933 could be reached. Cynthia Chin failed to respond and the NZD/USD rate deteriorated throughout the day on 23 September 2008. The plaintiff claimed that in view of the defendant’s expertise and resources to monitor the currency market, the defendant had a duty to advise the plaintiff that it was impractical or imprudent to hold on to the NZD/USD dollar order at the rate of 0.6933.

The plaintiff also included an additional ground against the defendant. The plaintiff alleged that upon the margin shortfall on 7 October 2008, the defendant was entitled to and ought to have closed the plaintiff’s Advisory Account so as to limit his liabilities to the defendant. Additionally, since the plaintiff was a customer with very substantial cash deposits with the defendant, the defendant had an implied duty to monitor and manage the plaintiff’s Advisory Account properly and to act...

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