SUPREME COURT OF SINGAPORE
24 September 2024
Case summary
Rajesh Harichandra Budhrani v INTL FCStone Pte Ltd and others [2024] SGHC(A) 29
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Decision of the Appellate Division of the High Court (delivered by Judge of the High Court Philip Jeyaretnam):
Outcome: The AD dismissed an appeal against the GDHC’s finding that the appellant had not been wrongly pressured, influenced or misled into selling his silver futures contracts.
Pertinent and significant points of the judgment
• Given that FCStone was entitled to forcibly liquidate Mr Budhrani’s positions if he had not voluntarily done so, it did not matter whether Mr Budhrani was pressured or influenced to do so. In any case, the court was not persuaded that the Judge had erred in finding that there were no threats, influence or misrepresentations. The call transcripts indicated that all participants were operating under pressure, but that pressure came from the fall in the market and not from any improper conduct on the part of FCStone’s employees: at [41].
Background
1 The appellant, Mr Rajesh Harichandra Budhrani, is an accredited investor. He had a margin trading account with the first respondent, INTL FCStone Pte Ltd (“FCStone”), a Singapore-incorporated company, for the trading of silver futures contracts. This allowed him not only to trade in silver futures via FCStone as his broker-dealer but also to borrow from it when purchasing these silver futures contracts. The relationship between Mr Budhrani and FCStone was governed by a Bullion Trading Agreement (which comprised of several documents, including a Customer Agreement) and a Client Agreement.
2 To begin trading on margin, Mr Budhrani had to furnish an amount of margin described as the Initial Margin. FCStone would charge interest and hold the equity in his account as collateral for the loans extended to him to purchase these contracts. Equity here referred to the overall net value of the margin trading account, which included both Mr Budhrani’s deposited cash and the market value of his open positions in silver futures contracts. If the price rose, Mr Budhrani stood to gain from the leverage he enjoyed by borrowing from FCStone. If the price fell, Mr Budhrani would face the possibility that the equity in his account would not meet the contracted margin ratio (“the Maintenance Margin”). If that happened, FCStone was entitled to make a margin call requiring Mr Budhrani to top up his account or to close positions so as to meet the Initial Margin.
3 At the beginning of the trading day on 13 March 2020, Mr Budhrani held 88 silver futures contracts. In the course of the day as prices fell Mr Budhrani was informed by FCStone’s employee, Ms Chandrawati Alie (who is the second respondent), over the phone that his account was in “margin deficit”. Mr Budhrani then sold 15 of his 88 silver futures contracts, bringing his total down to 73.
4 On 14 March 2020, which was a Saturday, FCStone sent Mr Budhrani e-mails attaching his daily statement for 13 March 2020. The statement reflected that there was a margin call on his account dated 13 March 2020 for the sum of US$398,527.60. On 16 March 2020, which was the next trading day, FCStone sent Mr Budhrani an e-mail which expressly stated that his account had a margin call for US$398,527.60.
5 The price of silver fell further over the course of 16 March 2020. As a result, Mr Budhrani had several conversations over the phone with Ms Alie and Ms Song Oi Lan, another employee of FCStone (the third respondent), during which he instructed them to sell his contracts. He sold seven of his contracts between 10.38am and 3.38pm, leaving him with 66 contracts (the “66 Contracts”). During this time, Mr Budhrani had made arrangements for sums of money to be transferred to his account by 17 or 18 March 2020.
6 During the rest of 16 March 2020, Mr Budhrani gave instructions to sell the 66 Contracts in tranches. After Ms Alie informed Mr Budhrani on 16 March 2020 at approximately 10.30pm that the last of his contracts had been sold, she added that his account had a deficit of US$277,000. Mr Budhrani refused to accept this, claiming that he was wrongly advised that he would have suffered a much lower loss if he agreed to liquidate his contracts. In the light of these developments, Mr Budhrani did not transfer further sums of money into his account as originally intended.
7 Mr Budhrani then commenced the claim below against FCStone, Ms Alie and Ms Song for breach of the contractual agreements. He also alleged that the contracts were sold as a result of their undue influence, duress, misrepresentation and/or breach of duty of care. In particular, he claimed that there was a breach of a collateral/oral contract for him to settle the margin call by 18 March 2020.
8 The Judge found in favour of the respondents. FCStone was not in breach of contract as it was not contractually disentitled from offering Mr Budhrani information. There was also no contractual obligation for FCStone to allow Mr Budhrani to settle the margin call by 18 March 2020. On the contrary, the agreements entitled FCStone to liquidate Mr Budhrani’s contracts. This was supported by its internal policy which allowed it to take “escalation actions” when the Margin Ratio of a client fell below 20% (“20% Policy”). The Judge also rejected his claims in duress, undue influence, misrepresentation and negligence.
9 Mr Budhrani appealed, contending that the respondents were not entitled to liquidate his positions.
Decision
FCStone was entitled to liquidate Mr Budhrani’s positions unilaterally and would have done so if he had not liquidated them voluntarily
10 In the court’s view, the case boiled down to the issue of whether FCStone was entitled to liquidate Mr Budhrani’s positions unilaterally if he had not given instructions for FCStone to do so. If FCStone was so entitled, then it would be irrelevant even if FCStone had issued the alleged threats or made the alleged representations said to have pressured or influenced Mr Budhrani into giving instructions for the sale of his remaining silver futures contracts. This is because Mr Budhrani’s instructions were not needed for those sales. If FCStone was not entitled to do so, then there would be a breach of contract on its part: at [32], [34] and [35].
11 The contractual arrangements between the parties provided FCStone with a broad discretionary power for FCStone to take steps necessary to protect its financial interests without notice to Mr Budhrani or prior demand for margin, or before the time given for meeting any margin call had elapsed. This position was reinforced by other contractual clauses which indicated that Mr Budhrani was expected to monitor his transactions and comply with all margin requirements: at [26] and [30].
12 It was undisputed that the Margin Ratio fell below 20% by 3.38pm on 16 March 2020. According to the 20% Policy, specified escalation actions were to be taken as a result. The 20% Policy was therefore relevant to FCStone’s assessment as to how and when it would come to the view that steps were necessary to protect its financial interests. The court further noted that Mr Budhrani was reminded of the 20% Policy on various calls on 13 and 16 March 2020: at [36], [37] and [39].
13 There was also evidence that FCStone had duly formed the view that it had to act on the basis of the 20% Policy given the fall in silver prices on 16 March 2020. Ms Alie and Ms Song’s superior testified that if Mr Budhrani had failed to liquidate his positions voluntarily, he would have issued instructions to proceed with a forced liquidation: at [40].
14 Given that FCStone was entitled to forcibly liquidate Mr Budhrani’s positions if he had not voluntarily done so, it did not matter whether Mr Budhrani was pressured or influenced to do so. In any case, the court was not persuaded that the Judge had erred in finding that there were no threats, influence or misrepresentations. The call transcripts indicated that all participants were operating under pressure, but that pressure came from the fall in the market and not from any improper conduct on the part of FCStone’s employees: at [41].
This summary is provided to assist in the understanding of the Court’s grounds of decision. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s grounds of decision.