Mr Justice Morison :
Introduction
- In this case, Mr Sharad Patel [Mr Patel], a successful business man, film producer and director, and entrepreneur, was a customer of the Bank of India [the Bank]. Both Mr Patel and his companies had accounts with the Bank for very many years. Initially, Mr Patel opened an account with the Bank in Nairobi; subsequently he opened an account at the Bank's City of London branch and then, for family reasons, he moved his accounts to the Bank's Wembley Branch. He was a greatly valued customer of the Bank, which made facilities available to his companies to a considerable extent and looked after his investments which he traded through Morgan Stanley. From 1989, Mr Patel says he was "particularly happy" with the service he received from the Wembley Branch, which was managed by a Mr Rawlley and his co-manager or deputy, Mr Narewdra Patel. On advice from Mr Rawlley, Mr Patel opened a savings account with the Bank in Jersey. On February 26 1993 Mr Patel signed an agreement to open a capital account in Jersey and he agreed that he would use the Jersey branch's facilities for both deposits and monies received from any of his film productions world-wide. He also transferred to Jersey substantial deposits he then held with the Bank at their Paris Office. At the same time he continued to hold company and private overdraft accounts at Wembley. He used as security for the borrowings the capital account opened in Jersey.
- The principal claim he makes against the Bank arises out of losses he sustained as a result of currency trading in 1998. Mr Patel blames the Bank for those losses. He says that the Bank failed to carry out his instructions and closed out his positions to his disadvantage. I shall deal with this claim first.
Currency trading in 1998
- In late 1994, the Bank mooted the idea that Mr Patel might wish to consider trading in currency. Shortly after the time when the Jersey branch became involved in currency trading, the manager there, Mr Rajmohan, and Mr Patel met to discuss this possibility. Initially, Mr Patel was not interested as he was busy making films and travelling in the course of his business, but the matter came up again in May 1996 when Mr Patel, at Mr Rawlley's suggestion, travelled to Jersey and was met at the airport by Mr Rajmohan. He was shown around the Jersey branch, taken to drinks at a pub and then to lunch at a Chinese restaurant. They went back to the branch where he was asked to sign some documents, which he did. Time was short as the flight was due to leave not long afterwards. In his witness statement, Mr Patel says that he was "a bit tipsy" when he signed the documents; that he did not read them before he signed them; and had thought he was signing "account opening forms" which were in blank. No further explanation about the documents was given to him before he signed them. Documents were then sent by the Jersey Branch to the Wembley branch which were the documents which Mr Patel had signed in Jersey but which had now, also, been countersigned by the Bank. When Mr Patel received these documents "about two or three weeks later" he read them for the first time. The documents were a Security Agreement, a Risk Disclosure Statement and a Trading Agreement incorporating Rules of Trading. He recognised as his own the signatures and initials on the documents and understood precisely what they were because "I had been involved in currency trading with Morgan Stanley, so I know how the system works." He noted that the Bank had wide powers of control over the operation of the Trading Account in relation to limits and margin requirements. He said it was a complete surprise to him as nothing had been said by Mr Rajmohan in Jersey, and Mr Patel considered the Bank's controls to be too wide.
- Accompanying these documents was a letter from Head Office sanctioning his trading limits at US$10million and asking him to sign his acceptance of that limit together with a margin requirement of 10% with a requirement that the cover could never be lower than 50% of the agreed margin limit. Mr Patel objected to having to provide margin as set out in the Head Office letter. "The level of cover was not required, especially having regard to the extent of my investments with the Bank and my credibility." Mr Patel proposed to the Bank that the trading limit should be increased to $20 million which could be covered by one of his Jersey accounts which held an amount in excess of $2million and that there should be no margin call until the level had fallen to 10%, as opposed to the 50% limit. Mr Patel says that the terms were agreed orally over the telephone with Mr Rajmohan, but that the latter told him that he would have to obtain approval from Head Office for the new terms. It is his case that Mr Rajmohan flew from Jersey to London "to see me with the new documents to sign". He believes that the date of the visit was June 14 1996. He says that the two of them went through the documentation altering various clauses and initialling them. The Bank apparently refused to remove the margin cover requirement but did reduce the percentage at which a call could be made down to the 10% he had requested. "After reaching an agreement on the terms, Mr Rajmohan agreed to go away to have the documents re-typed at the Head Office". He returned later, according to Mr Patel, with the fresh documentation which was satisfactory as "the changes had been incorporated". Mr Patel says that he then signed all the documents: "[Mr Rajmohan] left me with one of the three or four copies that had been signed." But he told Mr Patel that he would send him a copy signed and endorsed by officials of the bank once that had been done, and he took the remaining copies away with him. Mr Rajmohan is no longer alive; the Bank have no copies of any new trading agreement; Mr Patel "cannot now find" the copy he had kept. "I did not subsequently receive a copy of the documents endorsed by the Bank."
- Whatever were the terms agreed between the parties, Mr Patel commenced to trade in foreign currencies. Between October 1997 and May 1998 he entered into four contracts for the purchase of yen with pounds sterling. He staked £12 million, £3 million each contract. Those positions were still open when, in the middle of June, 1998, the yen started to weaken against the pound: in other words the yen moved against Mr Patel's four open positions. The four contracts were made on an exchange rate varying between 198.50 and 221.32. They were showing substantial losses. Either during the night of 14 June or during the afternoon of 15 June 1998 it is common ground that there was a telephone conversation between Mr Patel and a Mr Basak, a trader employed by the Bank. There was a discussion about the state of the yen [around 235yen/£1] and there was a rumour or feeling that it could weaken yet further, to some 270 yen/£1. It is Mr Patel's case that Mr Narayanan, the manager of the Jersey branch, joined in the telephone conversation and gave the same advice as the trader, namely that he should cover half his position [£6 millions] and "watch the situation overnight." Thus it is pleaded that
"Mr Basak and Mr Narayanan obliged [Mr Patel] to agree to hedge the risk in respect of half the total."
- It is also common ground between the parties that sometime after this telephone conversation there was another with Mr Basak, and, says Mr Patel, Mr Narayanan as well. The yen had continued to fall and the trader repeated the view that the yen would fall to 260-270 yen to the pound and "as a consequence [Mr Patel] was obliged to agree to cover the rest of the position."
- After that night Mr Patel's open positions were closed to the full extent of £12 millions: the four buy yen positions amounting to a stake of £12 millions were matched by two sell yen positions with a total outlay of £12 millions. It is part of Mr Patel's case that he told the Bank the two sell yen contracts were "to be entered into as short term cover only and that the positions [presumably the four sell contracts] should remain open." On 17 and 19 June 1998, Mr Patel entered into two further contracts: the earlier one was a sell yen contract and the later one a buy yen contract, each contract was for £6 millions. Thus the position after these trades was as follows:
| Contract No: |
Date |
Sterling amount |
£/yen Rate |
Buy/Sell |
| 3644A |
27/10/97 |
£3M |
198.50 |
Buy Yen |
| 5759A |
05/03/98 |
£3M |
208.22 |
Buy Yen |
| 222 |
27/03/98 |
£3M |
216.50 |
Buy Yen |
| 1326 |
27/05/98 |
£3M |
221.32 |
Buy Yen |
| 1617 |
15/06/98 |
£6M |
236.25 |
Sell Yen |
| 1619 |
15/06/98 |
£6M |
236.60 |
Sell Yen |
| 1728 |
17/06/98 |
£6M |
230.40 |
Sell Yen |
| 1790 |
19/06/98 |
£6M |
225.72 |
Buy Yen |
The Pleadings
- Because of the way the case developed it is necessary to consider the pleadings with some care. Mr Ter Haar QC on Mr Patel's behalf, submitted in his closing submissions that the parties' written submissions at the end of the trial were like ships that passed each other in the night. To some extent that was a fair point and its validity can only be assessed by an analysis, amongst other things, of the pleadings which gave rise to a certain amount of debate during the trial itself.
- The Points of Claim assert that on 25 June 1998 the yen/sterling rate of exchange had moved to 235.73. At that rate, the two sell contracts made during the night of the 14/15 June [numbers 1617 and 1619] were showing a profit. The Points of Claim continue:
"On 25 June 1998, [Mr Patel] instructed Mr Narayanan of [the Jersey branch] to close contracts 1617, 1619, 1728 in order to realise an overall profit. Mr Narayanan refused to follow [Mr Patel's] instructions and did not close any of the contracts.
On 26 June 1998 the yen rate reached 239. Again, on 26 June 1998, Mr Narayanan refused to follow [Mr Patel's] instructions to close the three contracts. If he had done so, a profit would have been realised on all three transactions.
By letter dated 26 June 1998, in breach of contract, [the Jersey branch] informed [Mr Patel] that it was not in a position to open up any existing positions unless [Mr Patel] were to bring in adequate additional margin. [The Jersey branch] stated that unless additional margin were provided, it would have no option but to square off the existing positions.
On about 17 July 1998, without the express authority of [Mr Patel] and in breach of the terms of its authority, [the Jersey branch] closed off all of [Mr Patel's] open contracts against each other, causing [Mr Patel] to suffer substantial losses.
At no time did the level of margin cover in [Mr Patel's] account fall below that required under the terms of the
Trading Agreement of 14 June 1996. In the premises, BIJ was not entitled or authorised to call for additional cover, to oblige [Mr Patel] to cover his position, to refuse to allow him to trade or to close off his open positions.
In the premises, in breach of the terms of its authority, [the Jersey branch] [paragraph 34 of the Claim]
1. Obliged [Mr Patel] to enter into contract Nos. 1617 and 1619, causing him to sustain a loss on these transactions.
2. Refused to close off contract nos. 1617, 1619 and 1728 on 25 alternatively 26 June 1998, thereby depriving [Mr Patel] of a profit on the transactions.
3. Closed off [Mr Patel's] open positions on about 17 July 1998, thereby causing him to suffer a considerable loss on the transactions and depriving [Mr Patel] of the opportunity to close the contracts one by one, in order to realise a profit. But for the action of [the Jersey branch] [Mr Patel] would not have closed contract nos. 3644A, 5759A, 222, 1326 and 1790 until the transactions became profit making. He would have closed the contracts at a level of about 195, a position reached by the Yen on 30 October 1998."
- The allegation that the Bank "obliged" Mr Patel to enter into the two sell Yen contract during the night of 14/15 March 1998 was further particularised. Mr Patel's case was pleaded thus:
"Mr Basak [the trader] and Mr Narayanan [the Manager] "prevailed upon [Mr Patel] to enter into the contracts, by telling him that the situation was very grave, by informing him that they believed that the consequences would be potentially disastrous if he did not do so and by being insistent that [he] should enter into the contracts."
- The particulars of the loss alleged are set out in a Schedule to the Points of Claim and is in four parts. The first part sets out the "Losses caused by the Bank in closing all open positions on 17 July 1998" and these losses are quantified at a total of £1,447,633. The second part of the schedule lists the "loss of profits on contracts 3644A, 5759A, 222, 1326 and 1790 [the buy yen contracts]". "But for the Bank's breach of contract, [Mr Patel] would have maintained open positions in relation to [those contracts] until 30 October 1998. He would then have closed the positions. Accordingly, [Mr Patel] has lost profits on the transaction as follows" and a table is then set out with a total figure of lost profit of £1,923,135. The third part of the schedule is headed "Loss of profit on contract nos. 1617,1619 and 1728 [the sell yen contracts]". "By reason of the Bank's refusal to close out [those contracts] on 25 June 1998 [Mr Patel] lost profits on the transactions as follows" and the figure claimed under this head is £100,284. Alternatively, Mr Patel says that these same sell Yen contracts should have been sold on 26 June 1998, in which case the profit would have been £345,189. The fourth part of the particulars of loss relate to unparticularised expenses for which there was no specific figure claimed and which is no longer an issue.
- In the Bank's defence it is pleaded that Mr Patel was not 'obliged' to enter into the two sell yen contracts on 14/15 June 1998. At 19 June 1998 "all Mr Patel's positions were squared and his losses
were crystallised at Yen 331,560,000. At the then USD/Yen exchange rate this was US$2.45 million." The Bank admitted that by fax dated 25 June 1998 Mr Patel instructed them to close the three sell yen contracts. The bank further admitted that they refused to comply with the instructions, whether on 25 or 26 June 1998, "unless Mr Patel provided additional margin money". The Bank admitted that they sent the letter of 26 June referred to, and averred that the letter stated that "unless additional margin were provided, it would have no option but to square off the existing positions." It was denied that by writing the letter the Bank were in breach of contract. It was further pleaded that
"[The Bank] were contractually entitled to refuse to comply with Mr Patel's request contained in his letter dated 25 June 1998, and thereby open up [the buy Yen contracts] since this would have meant that he held open positions of £18 million, which was in excess of his trading limit of US$20 million. On 25 June 1998 £18 million equated to US$30,093,191. On 26 June 1998 £18 million equated to US$30,274,455."
Further or alternatively .. [the Bank] was contractually entitled to refuse to comply with Mr Patel's request contained in his letter dated 25 June 1998, and thereby open up [the buy Yen contracts] unless he provide additional margin
"(i) For the percentage of margin actually held as against the necessary margin would have been 11.76% on 25 June and
12.23% on 26 June, as set out in the table in Schedule 1.
(ii) Whatever the percentage of margin actually held as against the necessary margin, [the Bank] was entitled under clause 4(a) of the first part of the Guarantee Agreement to require Mr Patel to deposit as additional margin such sums as in its absolute discretion it seemed necessary for its protection."
The Bank also contended that if the June 1996 agreement had been made as Mr Patel alleged, then under clause 11 of the Rules of Trading section of the Guarantee Agreement it would have unilaterally restored the 50% requirement for the margin account.
- In Mr Patel's Reply it is accepted that had his request of 25 June 1998 been complied with his open positions would have exceeded his trading limit, however it was asserted that
"..[the Bank] did not refuse to comply with Mr Patel's request on the ground that he would have exceeded his trading limit. In the premises, if
the Bank intends to allege that it would have refused to allow Mr Patel to exceed his trading limit, the Bank is put to strict proof of that allegation."
Mr Patel asserted that at no time did the margin account fall below the 10% figure and clause 4(a) of the first part of the guarantee agreement relied upon by the Bank as giving them a discretion to require additional margin if it deemed it necessary for their own protection was not a part of the trading terms between the parties.
"For the avoidance of doubt, [Mr Patel] believes that he would not have agreed to the inclusion of clause 11 within the June Guarantee Agreement. In the premises, it is denied that the term formed part of the June Guarantee Agreement."
In any event, Mr Patel asserted in the Reply,
".. at all material times, Mr Patel was in a financial position to increase the level of margin provided by the Bank, by providing other funds as security. In the premises, he would have been able to comply with a request for additional margin made pursuant to the terms of the agreement between the parties. If the Bank had made such a request and if, which is denied, the Bank was entitled pursuant to the agreement between the parties to do so, Mr Patel would have provided such additional security."
- At the outset of the trial, Mr Swainston QC wished to make a submission that Mr Patel's claim in relation to his currency trading was hopeless. He said that the essential issue was whether the Defendant were entitled to refuse to carry out the instructions which Mr Patel gave them on 25 June 1998. The answer to that question was clear, whether or not Mr Patel was right about the June 1996 agreement, in respect of which no copies survived, and the Bank's witness, Mr Rajmohan, was dead. It was not Mr Patel's case that by that Agreement his permissible trading limit had been altered. It followed, therefore, that by instructing the Bank to close the sell Yen contracts Mr Patel was requiring the Bank to accept a new, greatly increased trading limit. The Bank were entitled to refuse that request for that reason even if that was not the actual reason why they refused it. He referred to the passage in Chitty on Contracts [Vol I 25-013] which states the general rule to be that if a party refuses to perform a contract on grounds which are wrong or inadequate "he may yet justify his refusal if there were at the time facts in existence which would have provided a good reason, even if he did not know of them at the time of his refusal." I refused to accept this submission partly because a part 24 application could have been made earlier; partly because all the witnesses had come to court to give evidence; and partly because his submission could be made at the end of the Claimant's case, and I indicated that I would not put him to his election as I was deferring his submission rather than rejecting it. That was a decision which was, I think, acceptable to Mr Ter Haar QC. In due course the submission was repeated at the end of the Claimant's case, but I refused to accede to it and the case went the full distance.
- However, the submissions made by Mr Swainston QC elicited the revelation that Mr Ter Haar QC, on Mr Patel's behalf had a different understanding of what the case was really about. For the Bank, Mr Swainston QC saw the case as turning essentially on the question whether Mr Patel had duly authorised the covering transactions on the night of 14/15 June 1998 and whether the bank were entitled to refuse to comply with Mr Patel's written instructions given on 25 June 1998. It was the Bank's case that Mr Patel was not 'obliged' in any sense known to lawyers to enter into the covering trades, and that the Bank was entitled to refuse to open up the positions, as Mr Patel had requested in his letter of June 25. They were entitled to refuse both because the margin was below the 50% requirement and because of the trading limit. The pleaded loss was based upon the assumption that Mr Patel's instructions should have been complied with, and a claim which blamed the Bank for what might be called the losses which were 'locked in' after the covering positions taken during the night of 14/15 June 1998. As the Bank saw it, Mr Patel's case was simply that he should have had the opportunity to keep open his buy Yen contracts [5 of them] and await the improvement in the market until October 1998 when he could have closed them out at a profit. This is certainly how I had read the pleadings.
- For Mr Patel, Mr Ter Haar QC suggested that the real and important issue was whether the Bank were entitled to close Mr Patel's positions at the end of July 1998. He said that the Bank had never put forward the reasons why it acted as it did in July 1998. He submitted that Mr Patel was claiming damages for the loss of a chance to trade his positions in such a way as he could meet the margin requirements and end up with a profit. By closing him out at the end of July, that opportunity was lost. Although nothing was said about this alternative trading strategy in Mr Patel's witness statement [as opposed to the case advanced that all buy contracts should have been opened, as the letter of June 25 requested], Mr Ter Haar QC submitted that he was entitled, as the pleadings stood, to ask Mr Patel about such an alternative strategy in his re-examination. There was an objection taken to this course of action: the re-examination did not arise out of the cross-examination and was, in my judgment, objectionable also on grounds advanced by Mr Swainston QC. Had Mr Patel been advancing such an alternative case, it is clear that the strategy would have had to have been pleaded and investigated. The Bank believed that Mr Patel was running out of money. It was not prepared to gamble its own money on Mr Patel's behalf nor to allow him to open up positions in excess of his then trading limit. For such a strategy to work, Mr Patel would have to show that he had sufficient funds to maintain his margin account on a step by step basis. By August 1998, the margin account would have fallen below even the 10% margin limit for which Mr Patel was contending. A new case at the end of Mr Patel's evidence would have required an adjournment, new pleadings and probably further reports from the two experts whom the parties had instructed. I refused to permit this line of questions on the grounds of relevance. Nonetheless, Mr Ter Haar QC still concentrated on this point in his closing submissions:
"
the Court is now in the unusual position of having to deal with a claim pleaded and maintained by the Claimants which has not as yet been addressed by the Defendants. The problem is made more acute by reason of the fact that the Defence sets out no answer of substance to [paragraph] 34.2 of the Particulars of Claim and is therefore non-compliant with the requirements of the CPR."
- I have to say that I think Mr Ter Haar QC adopted this course because, at the end of the day, it was clear that Mr Patel had no other case to run. If the Claimant had thought that the pleadings were non-responsive in a material respect, that could and should have been raised at an earlier stage in the management of this case. There was no mention of this alleged 'problem' in the Claimants' progress monitoring sheet, no directions were sought about it when the matter was before the Court for Directions on 20 June 2003 nor in the Case Management Information Sheet prepared by Mr Patel's solicitors. I infer from the fact that no such application was made that the alleged pleading defect was not in the thinking of Mr Patel's advisers before the trial commenced. Further, I infer from the fact that Mr Patel's witness statement made no mention of an alternative strategy, and nor was it dealt with by Mr Patel's expert, who in the event never gave evidence, that such was not part of Mr Patel's case until shortly before the trial or at the trial. The words "But for" in paragraph 34.3 plainly link the claim that the Bank should not have closed him out, to the only strategy which was mentioned in the pleadings and referred to in Mr Patel's witness statement, namely that he would have kept open the buy yen contracts until the market made them profitable in October 1998. But that could only be done if the Bank had been willing to accept his instructions to leave those positions open, as instructed in his letter of 25 June 1998. In other words, the claim for wrongful closing out was inextricably linked to the claim that the Bank should have complied with the instructions contained in the letter of 25 June 1998 and added nothing to it. This is confirmed by the fact that Mr Patel's expert report was posited on the basis that the two 'covering trades' done on the night of 14/15 June 1998 had not been made. Thus, the explanation for the lack of a pleading as to the reason why the bank closed out Mr Patel's positions in July is that it was not then appreciated by the parties or their advisers that such was needed. It is not the fault of the Bank; with respect to Mr Ter Haar QC, it is his ingenuity in seeking to advance a separate claim about closing the account, as though paragraph 34.3 stood on its own, that is responsible for the problem over the pleadings which he has identified.
- However, in the list of issues prepared for case management purposes, paragraph 8 provided:
"Whether [the Bank] was in breach of contract in squaring Mr Patel's open positions off against each other and applying Mr Patel's fixed deposits in reduction of his consequential liability to [the Bank]."
Paragraph 34.3 refers to the fact that the Bank closed off his open positions on or about 17 July 1998. The open positions referred to are the buy yen contracts [see paragraph 33] and, as I have said, the whole of the case is pleaded on the basis that Mr Patel was forced to enter into corresponding, opposite deals - the thrust of the case centres on the trades done between June 14 and 19, and the Bank's conduct in relation to them. But even if I were satisfied that Mr Patel was not obliged to enter into the transactions and even if the Bank were entitled to refuse to accept his trading instructions I must still, I think, deal with the case that the Bank had no contractual right to close the account at the end of July 1998, having squared off his positions in their books on July 17 1998, whatever damage, if any, the breach is said to have caused.
Findings of fact
- I am able to make my findings of fact on the basis of all the evidence which I have heard: the oral evidence on behalf of the Claimants came from Mr Patel, his wife and one of his sons. I should say at once that Mr Patel is clearly a respectable member of the Asian community both in this country and in Kenya. But he was not, I fear, an entirely reliable witness. In general terms, he has tried to blame everyone, except himself, for the substantial losses which he incurred on his currency trading activities in 1997/8. Having started banking on a 'no correspondence' basis with the Bank he now wishes to hold the bank to account: his allegations include an allegation that the Bank have lost or misappropriated a deposit account which, he says, was opened in 1991; they have hidden an agreement which he says he made in June 1996; they have tampered with tape recordings which have been disclosed in this action. Not a shred of evidence supports these allegations. In making my judgment as to his reliability as a witness, I put aside his obvious reluctance to give direct answers to questions, which was not, I think, a symptom of unreliability so much as a desire on his part to advocate his case from the witness box. His failure to be responsive to questions was not, in my view, an indicator of unreliability or playing for time. In making my findings of fact I shall indicate, more precisely, the respects which have led to my conclusion about his reliability.
- The first issue is whether Mr Patel was 'obliged' to enter into the two trades on the evening of 14/15 June 1998. This allegation was formally abandoned by Mr Ter Haar QC on his client's behalf, and rightly so. There is no doubt that a telephone call took place during which Mr Patel gave instructions for the first of the two trades [sell yen - 1617]. There is a conflict of evidence as to the timing of the telephone call and whether Mr Narayanan participated in it. As to the timing, Mr Patel and his wife both say that the call came in the night after they had retired to bed and were asleep [in England]. I am inclined to think that Mr Patel and his wife are wrong in their recollection as to the first conversation. The second plainly took place during the night after the first trade was actually executed shortly after midnight BST. The reason why I reach this conclusion is that the trader, when responding to a question from Mr Patel, told him that the Japanese market "will open in late hours, actually when Japan opens in their trading hours it will open" and then, later in the conversation, the trader said "it will open actually in the midnight to-day between 11.00/11.30". Putting this information together, it appears more likely that the conversation did not take place in "late hours" and that there was some time to go before the market in Japan opened. The Bank's evidence was that the call was made in the late afternoon. It is unfortunate that the Bank's tape does not reveal the time. Mr Basak, the trader, gave evidence and I believe what he told me about this. Dr Patel, Mr Patel's partner, remembered being woken at home on the night of 14 June by a telephone call from the Bank, following which she noted that Mr Patel was irritable and not his usual cheerful self. I am sure that a telephone was made late at night but that was, in my judgment, not the first but the second call. It is likely that Mr Patel was upset about the second rather than the first call because by the time of the second call the Japanese market had opened and the currency had moved against Mr Patel as had been predicted by the trader in the first call and, therefore, the plan to cover half the open position was put into effect, bringing with it a loss on his trading account, which had hitherto only shown profits.
- The transcript of the taped telephone call shows that Mr Patel was having an informed discussion with the trader as to the way he anticipated the market would move when it opened. None of what is recorded in the tape goes anywhere near supporting, let alone proving, that Mr Patel was prevailed upon to enter into the first trade. Mr Patel's immediate instinct was to suggest that the tape was not complete or had been tampered with in some way. He accordingly obtained the assistance of an expert to review the tape. The conclusion reached by the expert [Mr Mills, a specialist in network forensics] was that the tape of this conversation was
"complete and without interruption apart from a short 'break' at line 3 page 2 of the transcript, where the dealer takes the line off for approximately 4 seconds
The break is not an edit but a switching out of the line whilst he talked to someone else within the dealer room."
Mr Ter Haar QC did not call his own expert but the Bank relied upon this witness' report as part of its own case, as the procedural rules permit. There is no record of Mr Narayanan speaking to Mr Patel during this conversation. However, I heard evidence from the trader and he explained that there was a switch which he pressed in the dealing room to engage the tape recorder. The fact is that the tape does not record what might be called the normal pleasantries and which Mr Basak was normally meticulous to observe. I think, therefore, that there must have been some conversation before the record button was pressed. Mr Narayanan denied speaking to Mr Patel; Mr Patel said he did participate in the call. Since there never was an arguable case for saying that Mr Patel was 'forced' or 'obliged' to enter into the two contracts that night, it is not necessary for me to reach a conclusion on this matter. As between Mr Patel and Mr Basak, I would prefer to accept what the latter said, and he confirmed Mr Narayanan's recollection. On the other hand, the Bank were worried about Mr Patel's open positions and I can quite well understand a bank official reminding Mr Patel of the dangers of leaving his positions open if, as was believed at the time, there was a risk that the Yen would weaken further, immediately after the market in Japan opened. Mr Patel confirmed in his evidence that the trades done that night were authorised by him; indeed, I think he never intended to suggest otherwise. The plea that he was 'obliged' to enter the trades did not amount to a plea of duress or that Mr Patel's will hade been overborne so that in law the trades were done without his consent. A claim that he acted under duress is not credible and was never advanced. Mr Patel is a competent businessman, quite well able to look after himself, and the idea of him being overborne is ridiculous. He had what might be called a healthy disrespect for his bankers and did not hesitate to threaten the removal of his accounts from the Bank if they did not live up to his expectations. Had Mr Narayanan tried to bully him, he would have got short shrift, in my view. In any case, the tape of a call which took place on 15 June, in the day-time, shows that Mr Patel had no complaints against the Bank at this time. Mr Basak apologised that he had called so late during the night "I am sorry to bother you" to which the reply was "you're taking care of your customers". Therefore, there is and was no substance to the allegation that Mr Patel was "obliged" to enter into any transactions as alleged in the Points of Claim.
- It is not suggested in the pleadings that the trades which he completed on 17 and 19 June were procured by duress or that he was obliged to enter into them. However, in his witness statement, Mr Patel said that on 19 June 1998 he "was required [by Mr Narayanan] to enter into [contract 1790] to cap the open position for the same reasons as he had given me previously." At the end of the day, Mr Patel accepted in evidence that he had authorised both transactions. The first of the two, a sell yen contract, was an attempt by Mr Patel to cash in on a market which he hoped would be moving his way; but he took the wrong view and covered his position with the trade on 19 June 1998. Mr Patel told me, and I accept, that he was telephoned, as had been agreed, on his arrival in Nairobi. He was told the state of the market and I am prepared to accept that it was suggested to him by the Bank that he cover his open position. He said that, in a temper, he told the Bank to do what they wanted. But he also said that when he wrote his letter of 25 June 1998 he did not then know that the covering transaction had actually been made. I am afraid that this last statement was untrue. On Day 2 of the trial, Mr Patel was being asked about this letter in the context of the Bank's contention that compliance with it would have taken him well over his trading limit. In order to avoid the difficulty, Mr Patel said that when he wrote his letter he was unaware whether the 1790 transaction had been completed, because he had finished the phone call with the Bank, when this trade was being discussed, on the basis that 'they must do what they wanted'. This, I regret, was a deliberate untruth. But he persisted in the lie by suggesting that the pleadings contained typographical errors. I asked Mr Patel again [Day 2 page 55, lines 18-20] whether it was his evidence that he was unaware that the 1790 transaction had gone through at the time when he wrote the letter and he repeated the lie. Yet, as can be seen from contemporary documents, Mr Patel had himself, on 25 June 1998, the date of the letter, made calculations of the losses on his positions on the basis that the 1790 transaction had been done. He then maintained that as he was in Nairobi at the time, having just arrived there, there was a lot of confusion. However the documentary evidence shows that on 22 June Mr Patel received by fax a four page document setting out clearly the valuation of all his positions including 1790. In the light of this material, I suggested to Mr Patel that he must have known of the trade when he wrote his letter, and his response was to say that the letter had been drafted by a friend, a banker. When it was suggested that he would have given the friend the 4 page fax Mr Patel replied that he was just a banker and not a foreign currency dealer. I regret that this episode showed Mr Patel in a very poor light. Not only was he prepared to lie initially, but he tried to bluff his way out of trouble by inventing other explanations which do not seem credible. Had this been a lie about an issue which did not really matter, then his credibility might have remained intact. What this sequence of events show, I think, is that he deliberately tried to lie his way out of a difficulty in his case and was persistent and inventive in the process.
- The net result is, therefore, that Mr Patel was not obliged to enter into any transaction, whether as alleged in his pleadings or in his witness statement. He is bound by all the trades. And must take the consequences of them. Because he had bought £18 million worth of yen and sold £18 million worth of yen, whichever way the market moved the losses which he incurred when he had these matching transactions were 'trapped'. The first part of the schedule of losses is irrecoverable.
- In order to understand the case which Mr Ter Haar QC wishes to advance and which concentrates on the Bank's decision to close out Mr Patel's position at the end of July, it is necessary to return to the events in June 1996, when Mr Patel says that he and the Bank entered into a new agreement under which the margin requirement was specified to be 10% and not 50%. To be clear, it was common ground that Mr Patel was required to open a margin account which represented 10% of his trading limit. It is common ground that Mr Patel's original trading limit was US$1 million but was increased to US$2 million on 14 June 1996. The Bank has the right not to carry out an instruction if the margin account has less than 50% of the trader's actual or potential losses. The precise details are set out in the Bank's trading conditions. Mr Patel says that the 50% figure was, by express agreement between himself and the Bank, through Mr Rajmohan, reduced to 10%.
- As I have said, there is no documentary record relating to this agreement. The basis on which this part of the claim is advanced is the oral evidence of Mr Patel, Mr Patel's son and his long-time partner Dr Patel. I have summarised Mr Patel's evidence in paragraphs 3 and 4. Dr Patel is a GP and, in my view, a reliable witness. Her recollection is that it was in May that Mr Rajmohan came to her house in North London with a document for Mr Patel to sign. She said that she had met Mr Rajmohan before, probably at some Bank function to which she and Mr Patel had been invited. She tried to date the time when Mr Rajmohan came to her house with the document. It was at a time when they had recently acquired their house [in April, I think] and were in the process of doing it up. Her recollection is that the house was still incomplete and the kitchen had not been finished. She says she can remember preparing some snacks for Mr Rajmohan and that he was shortly to leave for Jersey. She said that this was a different visit from the time when she and her husband gave a party to which Mr Rajmohan was invited in September that year. Her witness statement is dated 27 May 2003 and she had first been asked about this shortly before that date. She said she remembered that after the visit there were some papers lying around on which she saw lots of Mr Patel's signatures. Mr Vijendra Patel works for his father in his film business. He makes films, such as commercials, in Kenya, and documentaries. He can recall Mr Rajmohan coming to his father's office on 14 June 1996 when his father went through a business agreement. He put the meeting, in his witness statement as early to mid 1996 but explained that this was a mistake. It should have said middle 1996. But he also said in the statement, made in April 2003, that it was in mid-June. He thought it was the early part of June or mid June so that he intended to say early to mid June rather than early to mid 1996. He did not involve himself in margin trading but as a result of hearing Dr Patel's evidence he was able to recall that his father had gone to Jersey in May and was dissatisfied with what he was told and the meeting with Mr Rajmohan, according to what he was told, was to put right what Mr Patel was concerned about following his visit to Jersey. He said he could not put a date on the visit by Mr Rajmohan. He said he could be sure about the visit itself as he had served coffee to Mr Rajmohan. He said he understood the meeting to be about "some margin trading they were going to do with the foreign exchange which I later found out to be the Margin Trading Agreement."
- Do the documents which exist help on this issue? When the Bank opens a trading account for one of its customers, there are four documents which are generated. The first is a facility letter. This letter accepts the customer's request for the opening of a Margin Trading for the purpose of booking trading transactions carried out from time to time. The letter identifies the Trading Limit and identifies the margin [invariably 10%]. It is common ground that in this case there are two such letters, the second of which is signed by Mr Patel: the first is dated 15 May 1996 where the trading limit is US$10 million and the second is dated 14 June 1996 where the trading limit is US$20 million. In both cases the margin requirement is specified as 10%. Both letters refer to "security Documents" namely a Risk Disclosure Statement, a Security Deposits and Guarantee Agreement and F.D [the Deposit]. The first letter referred to a "Fixed deposit of US$1 million in your name with us"; the second to a fixed deposit of US$2 millions "in your name with us". In each case, the fixed deposit is 10% of the Trading Limit, which had been increased according to the second letter, and as is accepted by both parties. The second is a document which is called the Guarantee Agreement in the form of a letter addressed by the customer to the Bank. This sets out the terms and conditions upon which the Bank will permit its account to be used and is expressed to be
"in consideration of your opening and maintaining an account or accounts for me and on my behalf for the purchase and sale of certain currencies from time to time I the undersigned hereby agree as follows:
.
3. You shall have the right and absolute discretion and are hereby authorised at your election and without notice to me to cancel or not to act upon any opening trading orders given to you by me at any time prior to their execution.
4. (a) I shall deposit with you sufficient funds at such level as you may specify from time to time in such currency as may be acceptable to you but such currency not being GB pound shall be notionally converted into GB pounds at the rate specified by you from time to time to cover the margin requirements.
(b) I shall at all times maintain the minimum margin required by you from time to time sums as you may require to maintain and upon notice from you I shall deposit with you not later than such date as you may appoint additional margin which you may in your absolute discretion deem necessary for your protection failing which you will have an absolute discretion to effect such act or acts as you deem fit to protect your interests which act or acts will be binding upon me as if proper instructions to effect the same had been duly given by me to you. I hereby irrevocably accept that in carrying out such act or acts as aforesaid you owe no duty or obligation of whatever nature to me to reduce or eliminate my loss.
(c) You shall also have the right to take whatever action in the market you may deem necessary for your own protection including without prejudice to the generality of the foregoing the right to hedge any opening position of mine by taking out a contra position. Where I hold open positions taken out at different times you shall have the right to choose which positions should be liquidated and in which order.
(d) In the event that I fail to comply with the obligations specified to subclause (b) above all elsewhere herein whether or not you terminate this agreement as hereinafter provided you shall have the right at your election without call or notice and at my risk as to loss to liquidate my account(s) in whole or in part by public or private sale of any or all the property and the assets held by or deposited with you or to hedge the same. Upon demand I shall pay promptly any deficiency in any of my accounts upon the closing in whole or in part of such accounts however the same arise and agree to indemnify you fully against any loss claim or damage suffered by you as a result of misfeasance or non-feasance. The enforcement of any right hereunder shall not operate as a waiver, release or discharge in whole or in part of any deficit or debit balance which may occur in may accounts with you.
..
17. Any call, notice, demand or other communication sent by you to me by whatever means (including telephone, messenger, mail, hand or personal visit) to my address as hereafter in writing notified to you shall be deemed sufficient notification for all purposes hereunder and the contents of your mailing record shall be conclusive evidence for the purpose of all disputes arising out of my dealings with you and your staff.
.
23. I recognise that in FX trading spot prices vary from institution to institution and from minute to minute and that it may prove impossible to effect trades even at advertised prices. Thus I agree to accept that such price as you may offer me from time to time is the best price then available.
- There is one such letter in existence which was signed by Mr Patel in May 1996. Forming part of the same set of documents is one entitled "Rules of Trading" which "shall apply to all transactions traded by Bank of India, (the Bank)
.
2. Margin Requirement
The client shall deposit and keep deposited with the Bank such percentage of the total value of the trades undertaken from time to time (ordinarily 10% thereof) as the Bank shall specify to ensure performance of his contractual commitments such margin ("necessary margin") to be kept at the required percentage of total trades at all times as specified hereunder:-
(a) The bank may require additional margin from the Client in the event that adverse trading conditions shall have caused the amounts held by way of margin actually held (or notional margin in the case of floating loss) to fall below that figure which is equal to 50% of necessary margin both in case where a contract remains open (i.e. before a contract is fulfilled by making or taking delivery of the currency or by closing out) and where a loss has been realised, and the amount required by way of additional margin shall be that amount which will restore the balance of margin actually held (or effective margin in the case of floating loss) (both hereinafter called "effective margin") to the requisite amount and additional margin shall be calculated according to the daily closing (or opening) price based on the following formulae.
i) Margin Deposit - Floating Loss (or Actual Loss)
= Effective Margin
ii) Necessary Margin Effective Margin
= Additional Margin
Sums required for Additional Margin shall be deposited with the Bank on the same day as advised by the Bank whether verbally or in writing. In the event of any failure so to do on the Client's part the Bank may in its unfettered discretion decline to implement the client's trading instructions and liquidate at the Client's risk as to loss the whole or any part of his accounts without notice to that effect.
(b) Provisional Margin
In addition to the foregoing the Bank may in its absolute discretion require the deposit of sum by way of provisional margin in the event that by reason of unfavourable market conditions the client's effective margin (although amounting to 10% of the Client's commitments) is considered insufficient to provide the Bank with adequate protection.
There is one copy, extant, of the Rules, which has been signed by Mr Patel on each page [pages 7 9].
- There is, in addition, a Security Agreement giving the Bank security over specified assets. There is one such Agreement dated May 15 1996 and running to 7 pages of text, with two pages headed Schedule. There is one version of the Security Agreement which identifies, in typescript, Mr Patel at an address in California as the customer. I will call this version 1. Each page, apart from the schedule, is signed by Mr Patel. The Schedule on version 1 identifies the security as "Deposit Accounts". The first page of the schedule is signed by three officers of the Bank in Jersey and Mr Patel has signed the second page of the schedule. This is the version which was sent to Mr Patel on 29 June 1998. There is another copy of version 1 which was provided to the Claimant's solicitors on May 23 2002. On the first page Mr Patel has written "security limited to $2,000,000 [Two million only]". There is a second version, version 2, of this Agreement which identifies the customer simply as "Sharad Patel", in handwriting of which there are three 'copies'. Each copy is the same, apart from the Schedule. Each page of the Agreement is signed by Mr Patel against a cross, which I think is an indication by the bank as to where he was to sign. The first copy was sent to Mr Patel's lawyers by the Bank's Jersey attorneys on 21 August 2001. It did not have attached to it the Schedule. The second copy was sent to Mr Patel's lawyers on 23 May 2002. This schedule identifies the security given as Deposit Account 11763 and contains the words "To be signed by Bank". It is unsigned by the Bank. Mr Patel has signed this Schedule. There is then a security sheet which says "lien for USD 2,000,000. This sheet is signed by three Bank officials. There is a line through this page. The third copy of version 2 was found in the bank's security file. This is a copy of the second copy of this version.
- In addition to the security agreements there was a Risk Disclosure Statement dated 15 May 1996 and signed by Mr Patel. This document simply warns him of the risks of Forex trading, although Mr Patel was aware of those risks since he had dealt in this market before. Finally there is a letter from the Bank approving an application for sanction of a Forex trading limit, with a place for the customer's signature by way of acceptance. There are two such documents in this case: the first is dated May 15 1996 and the second is dated June 14 1996. Each has been signed by Mr Patel. The first refers to a limit of US$ 10 million, the second, in response to a letter signed by Mr Patel dated June 13, 1996, is for the limit of US$20 million. There is no dispute between the parties that these documents reflect the true bargain between the parties. The essential dispute to which this part of the case relates is whether, as Mr Patel alleges and the Bank denies, the parties agreed that the 50% figure in the margin arrangements had been changed to 10%.
- In the light of this evidence I can make my findings on this issue.
(1) Whilst there is cogent evidence that Mr Rajmohan did not visit Mr Patel on June 14, because he must have been in Jersey as the Chase payments system shows, and he made no expense claim for any such visit, I am inclined to believe that in all probability Mr Rajmohan did visit the Patel household around this date. I think it unlikely that Dr Patel has confused this visit with a visit in September when Mr Rajmohan attended a party. I regarded her evidence as likely to be right in general terms but not right about the date. In my view, Mr Patel at least wished the margin trading agreements to reflect the increase in the margin trading limit. But I think he also would have noticed that the security schedule in the first version of the security agreement did not accurately reflect what the true position was: the first version of the Security Agreement identified the security as "Deposit Accounts". There was only one deposit account and it was already pledged to the Wembley Branch of the Bank. I think that Mr Patel noticed this and understandably wanted it to be corrected.
(2) The security position was as follows. Mr Patel's various companies had overdrawn accounts with the Bank at their Wembley branch. These were sterling accounts. As indicated in paragraph 1, Mr Patel opened a deposit account in Jersey into which all his monies from various sources were placed. This was a US$ account. In order to protect the Bank from adverse movements in the sterling/dollar rate they ultimately agreed with Mr Patel that the margin would be "3 bps on cross currency". There is documentary evidence to support this agreement, first in the Bank's own documents, second in Mr Patel's own papers and third on the various agreements [on behalf of his companies] which Mr Patel signed accepting the 3 bps margin. In his witness statement, Mr Patel suggested that the Bank "had ignored our agreement that the margin could be reduced to nil". This statement was untrue but I am prepared to accept that Mr Patel may not have had in his mind the true state of play, although Mr Swainston QC suggested, with some force, that this was another example of Mr Patel's lack of credibility.
(3) At all events, the deposit account in Jersey is numbered 11763. I believe Mr Patel when he told me that the letter of 13 June 1996 was drafted by the Bank so as to establish for the Bank's record a request to a higher limit. The position as to security was complicated by the fact that the Wembley Branch had a lien over the whole of the deposit account as security for the overdrafts on Mr Patel's companies' accounts in Wembley. The Bank were happy to carve out from that lien a lien in favour of the Jersey branch for US$ 2,000,000 for use as Mr Patel's margin account. The Bank's internal documents show that this was done and the security agreement, version 2, copy 2 corrects the problem. In my judgment there is nothing odd or sinister about the two versions of the Security Agreement and the alterations to the Schedules. The Schedule was an attachment, and nothing of significance comes from its omission from the first copy sent to Mr Patel. What the documents show, in my view, is that the Bank carefully adjusted the Schedule to accord with the mutual intention of both parties.
(4) But did the Bank also make a change to the 50% requirement? I think not. First, the first time that the allegation of a change was made was on May 14 1999. Mr Patel's explanation for this is that he had been advised by a banking friend to say nothing until the Bank had forwarded the documents to him. This was an unnecessarily defensive position for Mr Patel to take if he had a clear recollection that the 50% requirement had been dropped to 10%. If Mr Patel is to be believed, he must have been aware at all times that there was no 50% requirement as a result of this alleged special deal. Second, even though the Bank may have prepared the letter asking for an increase in the trading limit, had he wanted a reduction in the 50% limit as well he would surely have asked the Bank to include that request in his letter of 13 June 1996. Third, the internal documents disclosed by the Bank are only consistent with a change to the trading limit and nothing more. There is no record of the alleged deal in the Bank's files. Fourth, Mr Patel was sent a series of notices requiring more margin and referring to the 50% limit, without Mr Patel referring to the alleged new agreement. Finally, it seems to me improbable in the extreme, that the Bank would have been willing to deviate from their invariable requirement for a 50% limit to accommodate Mr Patel. It is true that he was dealt with more favourably than other customers to reflect the bank's view of his good standing and apparent wealth; on the other hand Forex dealing is a risky business, as the disclosure statement shows, and as Mr Patel well knew. I can think of no good commercial reason why the Bank would wish to expose itself to considerable extra risk by lowering the limit to 10%. If this had really been a sticking point for Mr Patel then I simply cannot understand why he did not correct the bank every time they referred to it. I am not prepared to believe that Mr Narayanan told him that he need not pay attention to margin calls; but even had he done so, that does not deal with the 50% point.
(5) Because Mr Patel was required to sign each page of the second version of the new security agreement, the evidence of Dr Patel and Mr Patel's son can, broadly, be accepted. Neither knew precisely what Mr Patel was signing. Dr Patel recalls pages lying around which had been signed by Mr Patel and that is consistent with what I believe happened. Mr Rajmohan could probably have gone though the agreements and needed to check whether the deposit could have been carved out of the deposit account in Jersey and how that should be worded in the schedule to the security agreement. I prefer to reach this conclusion than to conclude that the three Patels are all lying.
(6) I conclude therefore that Mr Patel has failed to prove on a balance of probabilities that he entered into an agreement with the Bank whereby the 50% limit was reduced to 10%.
- I return, therefore, to the facts leading to the Bank's closure of the account and the parties' submissions on that issue.
(1) As a result of the deals done between June 14 and June 19 1998, he had what might be called trapped losses of Yen 331,560,000. At that stage his margin account, in US$, showed margin available of $2,732,763.51 less his trapped losses which in dollars were valued at $2,455,454.34 leaving him with a total margin availability of $277,300 odd. This would mean that he had insufficient margin to open up any one of the four original buy yen contracts of $3 million each. It is correct to point out that whilst the losses might be called trapped, the positions were all, strictly, open positions although for margin purposes they were treated as offsets against one another. It was only on July 17, as a result of action taken by the Bank, that the losses became crystallised in the sense that they were formally squared off against each other, reducing the currency exchange charges incurred on open positions. Thus no such charges were incurred after that date until July 30, 1998, when the account was closed out. But provided that the terminology is clear, nothing turns on this. Had Mr Patel put up enough margin he was entitled to trade his account. The trapped losses could only have been avoided with a sophisticated plan based upon the benefit of hindsight. Such a plan would have required extra margin and the bank would have been entitled to refuse to contemplate any strategy which either left them short of margin or took Mr Patel over his trading limit. I shall return to this when I consider what losses, if any, Mr Patel suffered by the Bank's decision to close him out.
(2) As at June 25, 1998, his yen losses were valued at $2,351,489.36 which was to be deducted from his available margin of $2,705,382.39 leaving a total margin of US$353,893.03. On that day, Mr Patel wrote complaining that the Bank were refusing to carry out further trades for him without further margin of US$1 million [to reflect the increase in his trading limit to US$ 3million if the first four trades were to be opened up]. He said that he had been told by the bank that there was not enough funds in his group accounts [in Wembley] to cover further losses, thereby exposing the Bank. He complained that he had been asked to cut off his position taken on June 17.
"Until then [that is, after he had carried out a thorough review and audit of his group accounts] I suggest if you allow me to operate my trading account and make deals on existing contracts we have already missed many opportunities and again it may arise in the near future and allow us to buy back the contracts one by one and reduce the losses.
If you agree to my suggestion, we must decide fast to sell the deal No. 1728
as at the present the Yen is trading at 235.73 and again a further opportunity has arisen to sell of deals No 1617 and 1619 with a minor loss and allow the previous contracts a fair chance to recover ( as per your proposed original strategy). The table below crystallises the present position and is for your perusal.
| Deal No: |
£ sterling |
Yen
Purchase price |
Yen
Present Quote |
Yen
Profit/loss |
| 1728 |
6 million |
230.40 |
235.73 |
+ 31,980,000 |
| 1617 |
6 million |
236.25 |
235.73 |
- 3,180,000 |
| 1619 |
6 million |
236.60 |
235.73 |
- 5, 220,000 |
| |
Margin Profit |
+ 23,580,000 |
+ 23,580,000 |
+ 23,580,000 |
@ 235.73
£ sterling |
£100,029.69 |
£100,029.69 |
£100,029.69 |
£100,029.69 |
(3) The Bank responded by setting out its version of the events leading to the trades between June 14 and June 19, in respect of which I have made my findings. Their letter concluded:
"We are not in a position to open any existing positions unless you bring in additional adequate margin. As you have rightly pointed out in your letter, bank has to protect its interest and cannot permit the client to trade on bank's money. Unless additional margin is provided we will have no option but to square off the existing positions."
The last time that Mr Patel had provided margin was in connection with his trade done on June 17. On June 27, Mr Patel wrote again, asking for a copy of "so called agreement executed between myself and your bank as referred to in your .. letter.
Proof of the purported telephone calls or written instruction where instructions are allegedly given by me to your dealer or advice given by your dealer to me on following occasions" and he listed the various telephone calls between June 14 and 19.
"Please advise me present position of all my accounts as you had threatened to me to square off the existing positions if additional margin is not provided by me, while I still maintain that you hold sufficient margins between your Wembley Branch and your Jersey Branch on my accounts.
Your earliest reply will save me from mental agony I am presently undergoing, far away from UK, due to unwarranted situation created by yourselves."
The state of Mr Patel's accounts at this time were: the total amount overdrawn in sterling was £7,730,558.10, which, at a conversion rate of 1.67 [the actual rate plus three basis points, as agreed with the Bank], produced an indebtedness of US$12,910,032. According to the Bank's records there was in the account 11763 [in Jersey] as at 22 June $15,410,424.30. His remaining margin as at June 25 1998 was $2,705,382.39 He was exposed to a trapped loss in Yen of 331,560,000. If there were a swing of only 13.75% in the value of the dollar against the Yen then the whole of the margin account would have been wiped out.
(4) The Bank's evidence was that the Bank were concerned about their own exposure if the margin was eroded by currency fluctuations. That was the evidence of the Chief Executive (Europe) of the Bank and was, according to Mr Narayanan, the principal reason why the bank closed the positions out on 17 July 1998. Thus, the Bank argued that Mr Patel was in breach of his general margin requirement of 10% of open positions because he had not provided margin commensurate with his trading instruction given on June 25. The Bank had called for further margin in their letter of June 26. The amount was obvious and the requirement immediate. Therefore the bank were entitled to act so as to protect their interests under clause 4(b) of the Trading Agreement and, independently of this, under clause 4(c).
(5) Mr Ter Haar QC made the following submissions on this issue:
1. The bank were not entitled to close out Mr Patel's open positions on a proper interpretation of the contractual arrangements; alternatively, the bank is estopped from relying on any such power as might have existed.
2. The words "I shall at all times maintain the minimum margin required by you from time to time" cannot mean exactly what it says because realistically the obligation could be broken at any time of the day or night. The need for margin fluctuates according to the state of the market, so that at one moment extra margin might be required and the next moment none would be required. The Bank's construction would make no business or commercial sense. Clause 2(a) of the Trading Rules defines the circumstances in which there is a right to call for additional margin during the trading period, triggered by a fall below the 50% figure. Whereas, clause 4(b) gives the Bank an additional protection to be operated on notice (whether or not the 50% figure has been broken. Factually, this was not a 2(a) case because 2(a) requires the Bank to specify the amount of margin it is after. After the additional margin had been provided on June 17 [US$135,000] every margin statement thereafter showed a surplus over the minimum margin amount.
3. There never was a notice which specified both an amount and a date. Hence the reliance upon the opening words to the first sentence of paragraph 4(b).
4. As to paragraph 4(c) the bank cannot be said to have arrogated to itself a right to act unilaterally when the client is not in breach of a requirement under 2(a) or 4(b). Alternatively, the Bank is estopped from so arguing "because the Bank has clearly represented that so long as you provide the margin that we require from time to time, we will not unilaterally act without your instructions".
5. Even if the Bank were entitled to refuse to carry out the instructions contained in Mr Patel's letter of June 25 that did not, of itself, entitle the Bank to liquidate his positions. The question is not what would have happened had the invalid instruction not been given, but, rather, what would have happened had the bank not closed out Mr Patel's positions.
- I can now summarise my conclusions on this aspect of the case. In the first place, the Bank were entitled to refuse to carry out Mr Patel's written instructions given on June 25 both because of the shortfall in margin and because it exposed them to open positions in excess of Mr Patel's trading limits. The margin issue depended upon whether I accepted Mr Patel's evidence about the alleged agreement on June 14, 1996. Mr Patel's instruction triggered a margin requirement of US$3,009319. The small amount of margin which Mr Patel then held amounted to 11.76% of that requirement. Therefore if Mr Patel were right the trigger for the replenishment of the margin had not been pulled because the 10% of 10% was never reached. However, had the trigger been 50% then the Bank were entitled to refuse his instructions on that ground and that is the conclusion I have reached. Quite apart from that, of course, Mr Patel was seeking to increase his trading limit and the bank were entitled to refuse his instruction on that ground too. Thus, the picture is that the Bank were calling for more margin; Mr Patel's response was to ignore what they were saying and instead gave an instruction which the bank were entitled to reject in the absence of more margin. After Mr Patel was told of this he did nothing to change his instructions or to seek to advance an alternative trading strategy. Instead he 'turned on' the Bank blaming them for all his troubles and starting to advance a case in which he denied giving instructions for some of the trades.
- Mr Patel held a large loss position in Yen. The Bank were entitled in my view to protect their potential exposure. The account was dormant because the customer was not prepared to make any trade within his capacity. He wanted his own way and was not prepared to back down. Mr Patel's overall position was weak and if the Yen had moved against the dollar the Bank could find itself losing money if it simply maintained the status quo. The right to take whatever action as the Bank might deem necessary for their own protection was a necessary part of the Bank's armoury to protect them from this sort of situation. In my view there is no commercial reason to read words into clause 4(c). It is a self standing right to take whatever action the Bank deemed necessary. I reject Mr Ter Haar's argument that 4(c) is postulated on the basis that there has been a breach of 4(b). The clause does not say so, and there is no good reason to imply such a restriction.
- Accordingly it is not necessary for me to comment on Mr Ter Haar's other submissions. I can indicate that I agree with his submission that clause 4(b) must be read as a whole and that its opening words do not give rise to obligations and rights independently of the words which follow. In short, I think that they are a preamble to the right of the Bank to give notice that additional margin is required. No kind of formality was required for any notice: it could be oral or written [see paragraph 23 of the Agreement]. The rules of trading give effect to and define the rights to call for margin. The reason why the Bank closed his positions out was because Stalemate had been reached and the open Yen positions were a threat to the Bank and they were not prepared to gamble, as Mr Patel was doing, on the fact that the Yen was going to increase in strength. Mr Ter Haar's case on estoppel not pleaded is hopeless. It is a point on construction not estoppel.
- It follows, therefore, that the bank were contractually entitled to close out Mr Patel's positions. But if they had not been then in my view on the pleadings the loss of the chance was worth nothing. The losses already 'trapped' were losses that had to be suffered. The only pleaded strategy was to open up the four original contracts. That was not feasible for the reasons already given. No other trading strategy was mentioned in the pleadings and nor was any espoused by Mr Patel's expert. Had there been a breach of contract it would have attracted nominal damages only.
The disputed trade in 1997
- There is a very short issue relating to a disputed trade which was done in July 1997. In that month Mr Patel had acquired an open position under which he had purchased US$ with sterling at a rate of 1.6582 USD/£ (contract 1095A). It is his case that that position was closed at a rate of 1.6265 without his instructions. He discovered this when he telephoned Mr Narayanan on 31 July 1997, to give instructions to take the profit only to be told that his position had already been closed down [contract 2005A]. He claims a loss of USD 138,000 under this head. I am afraid that on this part of the case, Mr Patel's evidence was simply not credible. He sought to allege that other deals around this time had also been done without his authority. The documents show that the instructions to close the deal were given on the telephone. That is inconsistent with his case and the trader would not have done the deal without the client's instructions: it would have been regarded as a serious breach of his duty had he done so. No motive or reason could be suggested as to why the bank should have acted as alleged and I reject this claim as incredible.
The claim for an account
- Mr Patel alleged that the Bank had opened an account for him in 1991 and that he had transferred to that account about US$ 2 million. The whole of this part of the case was based upon two documents from the Bank which stated that he had first opened an account with the Jersey Branch in 1991 when in fact it was 1993 and a letter addressed by Mr Patel to a Mr Wilson a Vice President of Bank of America Trust Company (Jersey) Limited in 1989 which requested the Trust Company to transfer US$1 million to Bank of India. There is no record that the trust Company paid any money to Bank of India and no record of it being received. Mr Patel could not say when any monies were transferred nor how much was put into this new account nor what the source of those funds was. What it transpires Mr Patel is talking about is his belief that the US$2 million security which was carved out of his deposit account 11763 was in truth a separate account opened way back in 1991. None of the Bank's records show this; no documents have been produced to support the claim that there was a missing bank account which the bank have lost or not accounted for. I cannot speculate as to whether the instruction to the Trust Company was acted upon or when. There are no records which assist. Mr Patel is obviously wrong to regard the security of US$2 million as coming from a different account than the only one which he held when trading on the Forex market. None of this material persuaded me that there was any case of substance for the claim for an account. The most likely reason for the reference to 1991 is that Mr Rajmohan forgot the real date, or was given the wrong date by Mr Patel. But it was surely an error. This claim must be dismissed; it should never have been made based as it was on nothing substantial.
The Bank took a turn on the transactions
- At the start of the trial Mr Ter Haar asked for permission to amend to add a new claim to the case namely that the Bank were not entitled to take a turn on the transactions entered into on the Forex market. Had such an amendment been granted then that part of the trial would have had to have been vacated because it was not possible for the Bank to defend itself against this allegation without looking carefully to find out what other banks did and to seek further assistance from their expert on this issue. I took the view that a two trial process was not acceptable but I received evidence from Mr Patel about his expectations. It transpired that this additional claim was empty of merit.
I think Mr Patel was being untruthful when he said that he did not understand that the Bank were making a 'turn' on the currency transactions which he instructed them to carry out. His case is that until August of this year, when additional disclosure was made by the Bank, he did not appreciate that the spot rates he was offered were different to the interbank rate which was the rate at which the Bank dealt in currency on its own behalf. Further, he wished to allege that there was an express agreement to the effect that the bank agreed not to charge him anything for the deals he did as they would be making money on the currency differences between what he had in Jersey and his accounts at the Wembley Branch. Mr Patel expected to be charged commission by the Bank, in a transparent way, and that he was told when he started to trade was that the Bank would get the best market rate. The whole of this part of the case was dependent upon Mr Patel being able to show that he was unaware of the Bank taking a 'turn' on the currency deals he was doing. If he had known, he took no exception to this for some 7 years [1996, when he started trading to 2003 when the point was first raised in correspondence]. If he had known but never protested or challenged the Bank until 2003, then his case would look thin. In fact, some of the telephone conversations between Mr Patel and the trading floor at the Jersey Branch were recorded. I should say, in parenthesis, that I am not sure that the Bank were as scrupulous as they should have been about making and keeping these records and that has engendered in Mr Patel's mind the unwarranted suspicion that tapes exist which have not been disclosed. In one of the recorded conversations [Tape 3, page 23], Mr Patel said to the trader "you people eat quarter percent". Mr Patel's response when this was put to him in cross-examination was to say "I am just joking to him". "It was a little friendly conversation and I was just trying to engage myself with them." I am afraid that this conversation makes clear that Mr Patel well knew that the Bank would or might be taking a 'turn' on deals done with him. There is no other sensible explanation for the words "you people eat quarter percent". Whether he said it jokingly or to 'engage' the trader in 1998 he knew what the position was [see day 3pages 19 28]. It follows, I think, that the case he advances about an agreement with the Bank that they would not take a turn or charge a commission was false: root and branch. If there had been any agreement as alleged, and the Bank were in breach of it, Mr Patel would have said so, loud and clear at least by 1999. Why he left it so late to make this allegation is to be explained by the fact that this part of the case has been invented. Further he would not accept that clause 23 of the Letter of Agreement which he signed in Jersey and upon which he relied at this point of his case, namely
"I recognise that in FX trading spot prices vary from institution to institution and from minute to minute and that it may prove impossible to effect trades even at advertised prices. Thus I agree to accept that such price as you may offer me from time to time is the best price then available."
meant that the Bank's price might differ from the price offered by a different institution. In addition, the Bank wrote to Mr Patel, when he queried the prices he was being charged, on 4 September 1998, explaining that they drew a distinction between the spot rate which was ruling the price offered to customers, and the interbank Forex deal rate. Yet he did not respond by alleging that the Bank were not entitled to charge him a different rate from the interbank rate.
- I am afraid that this is an invented claim and has no merit so that by refusing him permission to amend he is losing nothing of any value.
- In summary therefore the claim against the Bank must be dismissed. The Bank were entitled to refuse to comply with the instructions in his letter of June 25; the Bank were entitled to close out his positions in July 1998; the Bank did not vary the 50% limit in 1996; the Bank did not undertake any trades without Mr Patel's instructions; all the trades which Mr Patel did were done with his full knowledge and consent; there is no missing account and the claim for an account must fail; the bank were entitled to take a turn on the deals they did, namely the difference between their spot rates and the interbank rate and Mr Patel knew that that was what they were doing and accepted it.
