Lam Chi Kin David v Deutsche Bank AG

Chan Sek Keong CJ (delivering the judgment of the court):

[2] The material facts are as follows. In November 2007, the appellant became a private banking client of the respondent. He signed the following agreements with the respondent:

(a) an agreement called “Deutsche Bank Master Agreement for Foreign Exchange Transactions and Derivatives Transactions” dated 28 November 2007 (“the Master Agreement”);

(b) an undated document called “Service Agreement” (“the Service Agreement”);

(c) a Risk Disclosure Statement dated 28 November 2007, for all types of accounts; and

(d) a Security Agreement dated 28 November 2007 (“the Security Agreement”).

Subsequently the appellant signed two other documents, viz:

(e) a Short Term Facilities/Foreign Exchange Facility dated 21 July 2008 (“the Short Term/Foreign Exchange Facility”); and

(f) a Declaration of Pledge (First Party) dated 28 August 2008.

[3] The Master Agreement is intended to apply to all transactions between the respondent (referred to therein as “the Bank”) and the appellant (referred to therein as the “Counterparty”) as the recital states that the respondent and the appellant “have entered and/or anticipate entering into one or more transactions (each a “Transaction”) that are or will be governed by this Master Agreement”. Clause 9 of the Master Agreement provides that the respondent and the appellant may “enter into such Transactions under this Agreement as they may from time to time determine” and that such Transactions include, without limitation, the following: (a) FX Transactions and Currency Option Transactions; (b) Equity Option and Equity Swap Transactions; (c) Swap Transactions; and (d) Other Transactions.

[4] Clause 2.5 of the Master Agreement provides that each Transaction shall not become effective until the Counterparty has signed the respondent’s Service Agreement and other documents requested by the respondent from time to time (see [23] below for the text of cl 2.5). The Service Agreement provides, inter alia, for the granting of credit facilities to the customer. Pursuant to this provision, the respondent granted to the appellant a credit line of United States Dollar (“USD”) 200,000,000 on the terms of the Short Term/Foreign Exchange Facility (see [2(e)] above). The credit facilities granted to the appellant under the Short Term/Foreign Exchange Facility were secured (or collateralised) by the appellant’s currency deposits held by the respondent under the Security Agreement.

[5] In connection with or pursuant to these two agreements, the appellant opened two accounts with the respondent: (a) a Private Wealth Management Account (Account No 6017180) (“the Advisory Account”); and (b) a Foreign Exchange Gem Account (Account No 2658540). In this appeal, only the Master Agreement and the Service Agreement are material to the issues raised by the parties. As will be seen, the legal relationship between the Master Agreement and the Service Agreement is crucial to the determination of the issues arising in this appeal.

[6] The Transactions that the appellant entered into with the respondent that are relevant to this appeal were foreign exchange (“FX”) contracts made under a “Carry Trade Investment Strategy”. This strategy involved the appellant in arbitraging on the interest rate differentials between different currencies. The appellant would buy currencies carrying low interest rates and convert them into other currencies carrying higher deposit interest rates, and thereby lock in a guaranteed gain from these differences in interest rates. However, as is common knowledge, this kind of carry trade also carries with it the risks associated with fluctuations in the exchange rates of the currencies involved.

[7] The appellant is a knowledgeable and sophisticated currency arbitrageur. As will be seen, he appeared to have a better understanding of how foreign exchange market worked than the respondent’s officers who were servicing his trading account (ie, the Advisory Account). The currencies which the appellant was allowed to trade in under the Short Term/Foreign Exchange Facility covered 23 currencies. However, in this appeal, the relevant currencies are Australian dollars (“AUD”), Swiss Francs (“CHF”), Japanese Yen (“JPY”) and New Zealand dollars (“NZD”).

[8] In early October 2008, the foreign exchange market became very volatile and the relevant exchange rates of the currencies of the appellant’s Transactions started to move against him. On 7 October 2008, the respondent faxed to the appellant a letter (“the 7 October 2008 letter”) informing him that his “collateral availability” in relation to his currency deposits in AUD and NZD were “Negative USD610,000”. This collateral shortfall increased the next day. On 8 October 2008, the respondent faxed another letter (“the 8 October 2008 letter”) to the appellant informing him that based on that morning’s rates of AUD 0.7084, NZD 0.6248, JPY 101.30 and CHF 1.1416, there was “a shortfall in [the appellant’s] account approximating USD2.3mil”. Both letters contained the following note:

The meaning of the note is clear beyond any doubt. Thus, the two letters were not demands for additional collateral or for any action to be taken by the appellant vis-à-vis his financial position with the respondent. They were intended for information and discussion purposes only.

[9] It is not disputed that while there was a collateral shortfall in the appellant’s account on 7 and 8 October 2008, his account remained in “positive equity” (ie, the mark-to-market value of his liabilities to the respondent was less than the market value of his collateralised assets). However, on 10 October 2008, the shortfall increased further to around USD 5,460,370.02, resulting in the appellant’s account having “negative equity” of USD 1,054,612.74 as well (ie, the mark-to-market value of his liabilities exceeded the market value of his collateralised assets). In other words, if the appellant’s assets were liquidated on 10 October 2008, the proceeds from the liquidation would not have been sufficient to cover his liabilities to the respondent. This was not the case between 7 and 9 October 2008 when the appellant’s account remained in positive equity.

[10] This led to the respondent faxing another letter to the appellant dated 10 October 2008 (“the 10 October 2008 letter”) which stated, inter alia, as follows:

[11] The said letter was faxed to the appellant at about 11.15am (reflecting the appellant’s collateral position with the respondent at around that time). At 4.32pm, the respondent’s relationship manager, Ms Cynthia Chin Mei Lin (“Ms Chin”) telephoned the appellant. During this conversation, Ms Chin told the appellant that the respondent would not close out his account immediately, but only that he should give a commitment to remit additional funds (to his account) to cover the negative equity by 13 October 2008. Ms Chin also estimated that the loss which the respondent would suffer if all of his FX contracts were closed out on that day would be about USD 1 million.

[12] At 5.06pm, Ms Chin telephoned the appellant and told him that she had no authority to “sit on this one million” negative equity position overnight, unless the appellant made a commitment to remit additional funds to his account by 13 October 2008. During this conversation, the appellant protested that the respondent had no right to ask for such a commitment as he had been promised a 48-hour grace period (“the Grace Period”) for any margin call by the respondent. Ms Chin acknowledged that such a promise had been made, but replied that the respondent could close his account immediately if it did not want to do business with him. The appellant refused to give the commitment Ms Chin wanted because (as he later candidly admitted in his evidence) he knew that he would not be able to honour the commitment by 13 October 2008 (because even if he had funds in other banks, he would not be able to remit the funds as it needed two business days to do so: see [42] below). At 7.19pm, the appellant informed Ms Chin that he was unable to remit any money to cover the negative equity. He proposed to Ms Chin that his FX positions be closed out partially on that day, and the rest on 13 October 2008 (which was the next business day for trading in the foreign exchange market) to reduce his Total Exposure temporarily. At 7.53pm, Ms Chin telephoned the appellant to inform him that his proposal had been rejected and that the respondent would close out the various FX contracts in his account.

[13] On 13 October 2008, the respondent faxed the appellant a summary of the Transactions it had done on 10 October 2008 to close out his FX contracts, and followed it up with a letter of demand dated 13 October 2008 which read as follows:

[14] The appellant rejected the demand and instead commenced the present proceedings against the respondent for damages for breach of duty in not closing out some of his FX contracts in a timely manner as he had instructed Ms Chin to do and also in closing out all his FX contracts on 10 October 2008. The respondent countered by filing a counterclaim for the amount of USD 1,191,779.27 (later amended to USD 1,206,738.59) being the net amount due from the appellant. The appellant denied liability on the ground the respondent was estopped from closing out his FX contracts on 10 October 2008 during the Grace Period.

[15] The material issues which came before the JC for decision were as follows:

(a) whether the three letters dated 7, 8 and 10 October 2008 were margin calls under the Master Agreement and/or the Service Agreement; and

(b) whether the respondent had given the Grace Period to the appellant, and if so, whether it was bound by it, and therefore estopped from closing out his FX contracts until the expiry of the Grace Period.

[16] On the basis of the evidence adduced before him, the JC found as a fact that the respondent did (through the respondent’s managing director, Mr Torsten Linke (“Mr Linke”)) give the appellant the Grace Period to decide how to respond to any margin call. However, he also held that the letters dated 7 and 8 October 2008 were in the nature of margin calls and that therefore the Grace Period expired on 10 October 2008 when the respondent closed out all of the appellant’s FX contracts. At [15]–[16] of the GD, the JC addressed the legal issues, hypothetically or provisionally, in this way:

[17] After analysing the terms of the Master Agreement and the Service Agreement as well as hearing the evidence of the witnesses, the JC made the following findings at [73] of the GD:

It should be noted that although this passage made no reference to the 8 October 2008 letter, the JC had found, at [24] of the GD, that the Grace Period in relation to the 8 October 2008 letter would also have expired on 10 October 2008.

[18] The issues for our decision are the same as those set out at [15] above. We will now address them.

[19] The first issue is whether the three letters were, or in the nature of, margin calls under the Master Agreement and/or the Service Agreement. The JC held that all three letters were margin calls for the following reasons (see the GD at [23]):

(a) the appellant admitted that because of the shortfall of USD 610,000, the respondent was entitled to close the Advisory Account on 7 October 2008;

(b) the appellant had instructed Ms Chin at 4.59pm on 7 October 2008 to place a “Limit Order” to sell AUD 10 million for CHF at the AUD/CHF exchange rate of 0.8413 for the purpose of reducing the shortfall;

(c) the appellant gave similar instructions to Ms Chin on 8 October 2008 with respect to selling his NZD for JPY for the same purpose; and

(d) the appellant’s own conduct showed that he, as a seasoned FX investor, knew exactly what he was required to do when his account fell into margin shortfall.

[20] With respect, we are unable to agree with the JC’s approach in determining the legal rights of the respondent under the letters dated 7 and 8 October 2008. In our view, these two letters were clearly not margin calls and were not intended as margin calls. They were notifications, to the appellant, of his “collateral availability” (the 7 October 2008 letter) and his Advisory Account shortfall (the 8 October 2008 letter), and were “for discussion purposes only”. Having regard to the note contained in each letter (see [8] above), the contents of the letters were self-explanatory. We do not agree that the appellant’s admissions and instructions referred to at [19] above are capable of conferring rights on the respondent under the 7 and 8 October 2008 letters if the letters themselves carry no such rights. The appellant’s admissions or instructions to Ms Chin to take action on his FX contracts cannot change the meaning or purport of the said letters. The instructions given to Ms Chin on 7 and 8 October 2008 could only have been given pursuant to the invitation to discuss the appellant’s FX positions. Hence, those instructions were not an admission of the respondent’s contractual rights to close his FX positions without notice, and those letters were not notices. Furthermore, as will be seen, the admission said to have been made by the appellant occurred during the various conversations between the appellant and Ms Chin after he had received the 10 October 2008 letter which requested him to “take immediate steps to restore the shortfall in the Collateral Value by 5pm Singapore time [that day]”. The transcripts of these conversations show clearly that the appellant denied that the respondent was entitled to close his FX positions until the expiry of the Grace Period to respond to the margin call. The instructions of the appellant to Ms Chin to close some of his FX positions were an attempt to meet the respondent’s request to reduce his Total Exposure, nothing more. A seasoned currency arbitrageur, like the appellant, would be expected to act in that way, even in the absence of any margin call, if he felt that the exchange rates were moving against him. Even the respondent itself did not consider the 7 and 8 October 2008 letters to be margin calls because the letter of demand dated 13 October 2008 (see [13] above) made no reference to the 7 and 8 October 2008 letters but only to the 10 October 2008 letter as the basis for closing out all of the appellant’s FX positions. The JC’s findings were clearly inconsistent with the express words of the 7 and 8 October 2008 letters.

[21] On the other hand, we agree with the JC that the 10 October 2008 letter was a margin call as it was expressed to be so (the appellant does not dispute this). This letter would have been entirely superfluous if the previous two letters had been margin calls. It was an express notice to the appellant to “either provide additional security” or to “reduce [his] Total Exposure”, then amounting to USD 5,460,370.02, which was the shortfall between the Collateral Value of the appellant’s securities and his Total Exposure (the expressions “Collateral Value” and “Total Exposure” are defined in the Service Agreement under the section “Credit, banking and foreign exchange facilities”). Although the 10 October 2008 letter gave the appellant until 5pm to respond to it, he did so by telephoning Ms Chin to discuss the steps needed to be taken by him to meet the request. His proposal of a partial closing out of his FX positions (involving NZD 20 million), and the rest on 13 October 2008, in order to reduce his Total Exposure was rejected. According to him, he was hopeful (from his experience) that after the G7 meeting scheduled for that weekend (ie, 11 and 12 October 2008), of which the respondent was aware, the currency market would turn in his favour. He was proven correct, as the exchange rates of the currencies he traded in did move in his favour on 13 October 2008.

[22] The next issue is whether cl 2.6 of the Master Agreement applied to the 10 October 2008 letter. If it did, the appellant would only be obliged to deliver any additional collateral requested by the respondent “within one business day’s notice”. It is not disputed that the 10 October 2008 letter would not comply with cl 2.6 as it only gave the appellant up to 5pm to provide additional collateral or to reduce his Total Exposure. In the event, the JC held that cl 2.6 did not apply to the 10 October 2008 letter. His reasons are set out in the GD at [34]–[39]. But before we examine these reasons, it is necessary that we first examine cl 2.6 (as well as cl 2.5) of the Master Agreement to see what they expressly provide.

[23] Clauses 2.5 and 2.6 of the Master Agreement provide as follows:

[24] The Master Agreement, as its name implies, is intended to apply to foreign exchange trading and derivatives transactions. Prima facie therefore, it applies to the appellant’s FX contracts. But, as stated in cl 2.5, no Transaction (defined as any transaction between the respondent and the counterparty under the Master Agreement) is effective vis-à-vis the respondent until and unless the Service Agreement has first been signed – the signing of the Service Agreement is a condition precedent to the respondent’s obligations under the Master Agreement. In other words, the Service Agreement becomes part and parcel of the Master Agreement, or vice versa with respect to any Transaction made under the Master Agreement. There is no room to read the Service Agreement as an agreement completely divorced from the Master Agreement.

[25] Under cl 2.6, the respondent has the absolute discretion to prescribe the amount of the margin and the collateral that the appellant must provide at any time and from time to time, and if the respondent deems the collateral to be insufficient, the appellant must deliver additional collateral “within one business day’s notice”. The appellant is entitled to be given one business day’s notice to meet such an obligation – this is implicit or inherent in cl 2.6. The expression “business day” is not defined in the Master Agreement, but in the Service Agreement, it is defined (under the section “Bank statements”) as “a day other than Saturday or Sunday on which banks and/or foreign exchange markets are open for business in Singapore and/or such other financial centres as [the respondent] may choose”. Clause 2.6 also provides that a failure to provide additional security shall constitute an Event of Default under cl 5 of the Master Agreement, on the occurrence of which the respondent may terminate any one or more or all outstanding Transactions at its sole discretion on the date specified. An “Event of Default” in cl 5 refers to six events, including “any Event of Default (as defined in the Service Agreement)” as provided by cl 5.1(c). These cross-references reinforce the conclusion that the Master Agreement and the Service Agreement have to be read together with respect to each Transaction.

[26] The JC accepted the appellant’s argument that the Master Agreement was applicable to all of the appellant’s Transactions, but he nevertheless held that this legal fact did not “inexorably lead to the conclusion that the margin call made by the [respondent] on 10 October 2008 was necessarily governed by cl 2.6” (see the GD at [33]). He held that cl 2.6 of the Master Agreement did not apply to the 10 October 2008 margin call because it was not made pursuant to cl 2.6, but under the Service Agreement, and therefore the appellant was not entitled to the one business day’s notice to meet the margin call in the 10 October 2008 letter.

[27] Let us now examine the JC’s reasons, which he set out at [34]–[39] of the GD as follows:

[28] To summarise the reasoning in the above passages, the JC essentially took the position that cl 2.6 was “not designed to give the [appellant] time before the [respondent] could close the FX contracts when the account [was] in margin shortfall” (see the GD at [36]). Rather, “cl 2.6 [conferred] a right on the [respondent] to require the [appellant] to deliver additional collateral in such an amount if the [respondent] so [required]” (see the GD at [36]). The one business day’s notice only applied where the respondent decided to invoke cl 2.6. In his view, the 10 October 2008 letter was a request to clear the shortfall under the Service Agreement because it mirrored the language of the Service Agreement in referring to maintaining not less than 100% of the appellant’s Total Exposure. Accordingly, cl 2.6 of the Master Agreement did not come into play. On the other hand, cl 6 of the “Credit, banking and foreign exchange facilities” section in the Service Agreement provides that if at any time, the “Collateral Value is less than 100% of the Total Exposure, [the respondent] may exercise [its] Rights on Termination” [emphasis added].

[29] With respect, we again are unable to agree with the JC’s approach in interpreting the 10 October 2008 letter as having been given under the Service Agreement and not the Master Agreement for the following reasons:

(a) First, as both the Master Agreement and the Service Agreement apply to each Transaction (cl 2.5 of the Master Agreement provides for it expressly), cl 2.6 of the Master Agreement would apply to the 10 October 2008 letter unless it has been excluded by the Service Agreement. There is nothing in the Service Agreement which excludes the operation of cl 2.6 of the Master Agreement.

(b) Second, the Service Agreement does not expressly authorise the respondent to terminate the appellant’s account or to close out his FX positions without giving any notice to the appellant, even in a situation where “the Collateral Value is less than 100% of the Total Exposure”. The Service Agreement provides (under the “Remedies” section) that it is only on the occurrence of an Event of Default that the respondent may:

Clause 1 (under the “Security” section) provides that “[the respondent] may require [the appellant] to provide security for [the appellant’s] Liabilities (sometimes at very short notice in view of market movements)”. Clause 9 (under the “Events of Default” section) provides that it is an Event of Default if there is any “[f]ailure to provide any additional collateral when [the respondent] require[s]”. It is implicit or inherent in this provision that prior notice must first be given to the appellant to provide additional collateral, as otherwise no failure to provide security could arise. This raised the question of how much notice is required to invoke the right of termination. There are only two possibilities. First, if cl 2.6 of the Master Agreement applies, a failure to comply with a one business day’s notice is sufficient to cause an Event of Default. If cl 2.6 of the Master Agreement does not apply, then cl 9 (of the Service Agreement) would require, according to established principles of interpretation, reasonable notice. This approach is consistent with the structure of the Master Agreement read with the Service Agreement with respect to each Transaction they apply to. It also accords with commercial sense, as it would be surprising if, in the business of wealth management, banks could give themselves the right to close their clients’ accounts without giving any notice at all.

(c) Third, the respondent served the 10 October 2008 letter on the basis that both the Master Agreement and the Service Agreement applied to the margin call because it referred to them expressly.The fact that no reference was made specifically to cl 2.6 of the Master Agreement was neither here nor there: it did not make cl 2.6 any the less applicable, as there was no need to mention the clause itself. If the respondent intended to make the margin call under the Service Agreement only, it would not have referred to the Master Agreement. The respondent should know under which agreement it was invoking its rights to make the margin call.

(d) Fourth, the 10 October 2008 letter expressly required the appellant to “take immediate steps to restore the shortfall in the Collateral Value by 5pm Singapore time today”, and to do so by providing “additional security to [the respondent] or [by reducing] [his] Total Exposure” [emphasis added]. The letter expressly requested additional collateral in terms of the ambit of cl 2.6. No doubt, the Service Agreement also refers to the reduction of his Total Exposure. But there is no difference in substance between reducing the shortfall and providing additional security to reduce the shortfall – one is only the means to achieve the other. In the present case, cl 6 of the “Credit, banking and foreign exchange facilities” section (reproduced at [27] above) does not refer to a “shortfall” but to the restoration of “the Collateral Value to more than 100% of the Total Exposure”, and this can only be done by providing additional collateral. We see no inconsistency between cl 2.6 of the Master Agreement and any of the provisions of the Service Agreement in this regard.

(e) Finally, if there is any doubt as to whether cl 2.6 of the Master Agreement was applicable to the 10 October 2008 letter, there is no reason why the court should not apply the contra proferentum rule of construction for the benefit of the appellant. The respondent cannot be allowed to rely on any ambiguity in its own documentation to its own advantage to deny the appellant any rights at all in this respect. This rule of construction applies not only to the interpretation of contractual terms within a single document but also across two or more documents if they are both connected with the transaction in question, as in the present case.

[30] For these reasons, we are of the view that cl 2.6 applied to the 10 October 2008 letter, and under that clause, the appellant was entitled to one business day’s notice to restore the state of his account to the satisfaction of the respondent, either by providing additional collateral or by reducing his Total Exposure. Accordingly, we find that the respondent was in breach of its obligations to the appellant in closing out all his FX positions on 10 October 2008.

[31] We should add, just to put the appellant’s conduct in its proper perspective, that the evidence shows that the appellant was trying very hard to comply with the terms of the 10 October 2008 letter by seeking to stagger the closing out of his FX positions. He had four conversations with Ms Chin after receiving the said letter and had wanted Ms Chin to reduce his Total Exposure by closing out some of his FX positions first and the rest on the following Monday, 13 October 2008. However, Ms Chin was not authorised to agree to carry out the appellant’s suggestions as the respondent had already made up its mind to close out all of his FX positions on that day because of the deteriorating situation in the foreign exchange market. For example, the telephone conversation recorded at 7.19pm is as follows:

[32] As we have stated earlier, the JC found that Mr Linke had promised the appellant, at a meeting between them sometime in July 2008, that the appellant would have the Grace Period to respond to any margin call, but he concluded that, in law, the promise did not operate as an estoppel against the respondent insisting on its strict contractual rights as the appellant had not relied on the promise to his detriment such as to make it inequitable for the respondent to resile from that promise. The respondent has not appealed against the factual finding of the existence of the promise, but the appellant has appealed against the legal finding that there was no promissory estoppel. Therefore, the issue before us is whether the JC’s decision on this issue is correct in law.

[33] In coming to this finding, the JC examined the divergent case law on the subject and concluded that the main reason for this state of affairs was that the courts had given different meanings to the requirement of detrimental reliance. He referred to Spencer Bower, The Law Relating to Estoppel by Representation (Piers Feltham et al eds) (LexisNexis UK, 4 Ed, 2004) (“Bower”) at p 481 where detriment was described to mean: (a) incurring expenditure of money and time; (b) incurring a liability; (c) change of position; and (d) deprivation of a benefit (see [55]–[56] of the GD). At [57] of the GD, the JC stated the following overarching principle of promissory estoppel which he was able to distil from the divergent case law and academic opinions:

[34] Applying the overarching principle he identified, the JC held that the appellant had failed to prove that he had suffered any detriment in relying on the respondent’s promise of the Grace Period so as to make it inequitable for the respondent to resile from its promise. He held that the appellant’s remittance of additional funds to the respondent to secure his FX contracts was not detrimental to him, as he had not alleged that he had suffered any financial loss or other detriment in transferring the additional funds (see the GD at [65]). He also held that the appellant had not suffered any detriment in having been denied the Grace Period as he had not been willing and able to deliver additional collateral, and that would have been the case even if 72 hours had been given to him to meet the margin call. The JC’s reasons are set out at [64]–[67] of the GD as follows:

[35] With respect, we are unable to agree with the JC’s decision and his reasoning as set out in these passages. In our view, the JC took an overly narrow view of detrimental reliance in the present context of promises made by bank officers when soliciting private banking clients. The appellant was the respondent’s “private banking” client, a description that signifies the importance of the appellant to the respondent as a desirable source of its business (and revenue). The appellant’s business was not insignificant for an individual in the wealth management industry in Singapore. The respondent had given him a credit line of USD 200 million to enable him to engage in the carry trade. The buying and selling of currencies is a profitable business. Further, according to the appellant, he had traded more than 10 currency options through the respondent, and the respondent would have earned considerable fees for executing them. The respondent would also have benefitted considerably from the large cash deposits which the appellant had placed with the respondent as security for his Transactions. His Total Exposure on 10 October 2008 was equivalent to NZD 88 million. In our view, the respondent’s word should be its bond in the context of this case.

[36] It is trite that under a system of floating currencies, exchange rates are unstable as they are determined by many factors, and therefore the FX market can become very volatile at times. For this reason, the more time given to the customer to close out any outstanding FX positions the better for him, and conversely, the worse it might be for the respondent. A 48-hour grace period (which could be stretched to mean two business days) for such purposes is thus a very valuable right or privilege to a sophisticated customer like the appellant, as it gives him more time to decide what to do – to take his losses immediately, to average down his investment by buying more FX contracts, or as in the present case, to maintain his FX positions until the next business day.

[37] In the present case, the appellant wanted to partially close out his FX contracts (ie, NZD 20 million on 10 October 2008 and the balance of NZD 68 million on 13 October 2008) in order to reduce his Total Exposure as requested by the respondent. He explained that, from his own experience in FX trading, the foreign exchange market was more likely than not to move in his favour because the next business day would be after the conclusion of the G7 meeting scheduled for that weekend. It would seem that the respondent was fearful that the appellant’s FX positions would deteriorate further, thus increasing his exposure to the respondent. Hence, the respondent was determined to close out all his FX positions on 10 October 2008 after the 5pm deadline, which it did. As it turned out, the appellant’s reading of the FX market after the G7 meeting was correct – the market did move in favour of the appellant on 13 October 2008 – in contrast to the apparent panic exhibited by the respondent.

[38] The JC held that the appellant’s transfer of funds from other banks to the respondent as security did not constitute a “detriment” to him in the context of promissory estoppel. However, the appellant did more than that. In our view, there was sufficient detrimental reliance by the appellant as he changed his position: (a) by obtaining a very substantial credit line from the respondent to give business to the respondent; and (b) by providing collateral (which he had to transfer from his accounts with other banks) to the benefit of the respondent. Without the benefit of the Grace Period to allow him to decide on the best course of action if and when a margin call is made, he might not have exposed himself to such large FX positions. In the present case, the respondent made the wrong move in closing out the appellant’s FX positions prematurely and against his wishes, and caused a substantial loss exceeding USD 1 million in his net FX positions, which the respondent has now claimed from him. In our view, there was sufficient detrimental reliance by the appellant that made it inequitable for the respondent to resile from its promise to honour the Grace Period.

[39] We are also unable to agree with the JC’s view that because the appellant was unwilling and/or unable to provide additional collateral for the shortfall, even if the Grace Period had been extended to 72 hours (ie, up to 14 October 2008), it was not inequitable for the respondent to enforce its strict rights under the Master Agreement and the Service Agreement (assuming that cl 2.6 was not applicable). In our view, the appellant’s refusal in this respect would not affect his legal rights. If he was entitled to the Grace Period to respond to the 10 October 2008 letter, he was under no obligation to give the commitment that Ms Chin required. Furthermore, the appellant had also explained why he could not have fulfilled his commitment, even if he had the funds, as at least two business days’ notice was required to transfer such funds. Indeed, in retrospect, the respondent’s insistence on a commitment by the appellant made little practical or commercial sense. The appellant could have easily given a commitment without having any intention of honouring it in the knowledge that he would not be able to do so since by 13 October 2008, as explained by him (see [42] below), he could only effect transfer of funds from another bank (assuming he had such funds) on two business days’ notice. Thus, the commitment served no purpose whatever because the respondent would not have been better off even if the appellant had given the commitment. The respondent would not have gained anything from it. We do not see why the appellant’s candour and honesty in this regard should prejudice his right to insist on the Grace Period in order to provide additional collateral or to reduce his Total Exposure. In fact, as we have stated earlier, the appellant did the only thing that was feasible before the close of 10 October 2008 (ie, to reduce his Total Exposure by closing out partially his FX positions, but not to crystallise his Total Exposure by closing out all his FX positions on that day). Indeed, for this reason, it is arguable that the appellant had complied with the terms of the 10 October 2008 letter, but the respondent was in breach of it by rejecting a partial closing out of his FX positions to reduce his Total Exposure. The respondent, in requesting additional security by 5pm that day, was imposing a requirement that could not be fulfilled in practical terms, and it had to resort to the excuse of a commitment to crystallise the appellant’s Total Exposure instead of reducing it. As this point was not argued, we do not need to rule on it. Nevertheless, we do find the respondent’s conduct in this case rather surprising, given its own acknowledgement that it had given the Grace Period to the appellant.

[40] Furthermore, in our view, even if it is arguable that there was no detrimental reliance on the facts on this case, we would hold that the appellant is entitled to succeed in this appeal on the broader principle set out at para V.5.17 of Bower, where it is stated:

The principle is that where the promisor has obtained an advantage from giving a promise to the promisee, he should not be allowed to resile from his promise on the basis of promissory estoppel. We are of the view that this principle is particularly relevant in the context of private banking where if the banks and financial intermediaries engaged in the business of wealth management cannot be trusted with their words, they should not be allowed to be in this business. The courts should not allow a bank to claim that “my word is not my bond”, and should be sufficiently astute to find inequity, and where it is possible to do so within legal limits, to hold the promisor to his word in a case, such as the present, where the respondent has obtained an advantage from his promise at the expense of the promisee. In the circumstances, we find that the respondent was estopped from making the margin call in the terms of the 10 October 2008 letter.

[41] The JC also held that the Grace Period could not prevent the respondent from closing out the appellant’s FX positions as the appellant had accepted the respondent’s right to do so. This finding is set out at [68]–[69] of the GD as follows:

[42] With respect, we do not think that the appellant’s answers quoted in this passage were an acceptance that the respondent was entitled to close his FX positions without giving him the Grace Period. The appellant’s answers came at the end of a long cross-examination in which he expressed the opposite view on many occasions. The relevant portions of the questions and answers start at Record of Appeal (“ROA”), Vol III (Part C) at pp 1020–1023 as follows:

[43] In our view, the appellant’s answer (italicised in the extract above at [42]) makes it very clear that his other answers were not intended to suggest that he accepted that the respondent had the legal right to close out all of his FX positions without any notice. The appellant’s defence all along had been that first, he was entitled to be given one business day’s notice to provide additional collateral; and secondly, he had, in any case, been promised 48 hours to respond to any margin call (whether it arose out of a negative equity position or a shortfall in his collateral position in relation to his Total Exposure). In saying that the respondent could close his account, the appellant was acknowledging a physical fact – that he could not prevent the respondent from closing out his FX positions and offsetting his security deposits since it had custody and control of his funds. But this was a far cry from saying that he accepted that the respondent had the legal right to do so. This can be seen in the questions and answers in the earlier stage of his cross-examination which are reproduced below:

[44] In our view, these passages show beyond any doubt that the appellant was holding the respondent to the promise of the Grace Period to respond to the margin call. Ms Chin’s statement that the 48 hours were for margin calls “but now [the appellant’s account] is close out already” was either incoherent or an acknowledgement that it was too late to give the appellant 48 hours to meet the margin call.

[45] For the above reasons, we find that the JC’s conclusion that the appellant had accepted that the respondent had the legal right to close out his FX positions on 10 October 2008 is not supported by the evidence.

[46] Finally, in addition to the defence of promissory estoppel, there was, in our view, another ground on which the appellant would have succeeded in his claim against the respondent if he had pleaded it. In our view, the respondent’s promise of the Grace Period constituted a variation of cl 2.6 of the Master Agreement (see [23] above) as well as cll 5 and 6 under the section “Credit, banking and foreign exchange facilities” of the Service Agreement (see [27] above), with respect to each Transaction of the appellant. The law requires consideration to vary the terms of a contract. The appellant provided consideration when he agreed to do, and did, business with the respondent on those terms – by entering into the relevant FX contracts, which gave both a factual and legal benefit to the respondent (see Ong Chay Tong & Sons (Pte) Ltd v Ong Hoo Eng [2009] 1 SLR(R) 305 and Gay Choon Ing v Loh Sze Ti Terence Peter and another appeal [2009] 2 SLR(R) 332). This made the respondent’s promise binding and had the effect of varying the relevant terms of the Agreements relating to margin calls.

[47] In reliance on the respondent’s promise of the Grace Period, the appellant had also transferred very substantial deposits to the Advisory Account to secure the credit facilities he obtained from the respondent to enter into the very substantial FX contracts. At [6] of the GD, the JC found as follows:

The JC held that the transfer of the additional funds did not constitute a detriment for the purpose of promissory estoppel (it was also not pleaded as such). However, this is a question of law, and in our view, the transfer of the funds constituted only one element in the appellant’s decision to become or remain as a private banking client of the respondent and to do business with it on the basis of the Grace Period to meet any margin call. The respondent’s promise of the Grace Period to the appellant was an inducement to him to engage in FX business. The appellant accepted the promise by transferring the funds to provide the requisite security for such trades. In our view, this would be sufficient consideration to make the Grace Period a contractual term of every FX transaction entered into by the appellant, and to that extent, would constitute a valid variation of the relevant terms of the Master Agreement and the Service Agreement in relation to the time required to make a margin call when it is necessary for the respondent to do so. For these reasons, the appellant’s appeal would also have succeeded on this ground.

[48] To summarise our findings:

(a) the 7 and 8 October 2008 letters were not margin calls;

(b) the 10 October 2008 letter was a margin call but it was given in breach of cl 2.6 of the Master Agreement (which was part of the Service Agreement with respect to every Transaction of the appellant) in that the respondent failed to give one business day’s notice to the appellant to provide additional collateral to meet the shortfall in his Advisory Account;

(c) in any event, promissory estoppel was applicable to the respondent’s promise of the Grace Period, and in consequence, the respondent was estopped from resiling on its promise to allow the appellant the Grace Period to respond to the 10 October 2008 letter; and

(d) in obiter, the promise of the Grace Period constituted a binding undertaking by the respondent to give the appellant 48 hours to meet any margin call, which varied the terms of the Master Agreement and the Service Agreement accordingly.