Patel & Anor v Bank of India

A bank operating a foreign-exchange trading account may refuse instructions that would exceed the agreed trading limit or leave the account inadequately margined. A contractual power allowing the bank to take action necessary for its own protection may operate independently of any prior breach of the margin provisions, where the wording supports that construction. Losses caused by matching transactions are irrecoverable where the claimant authorised the trades and the only pleaded alternative strategy was not feasible. A claim based on an unpleaded alternative strategy may attract nominal damages only.

Mr Sharad Patel and Asia Centre plc claimed damages from the Bank of India arising from foreign-exchange trading conducted through the Bank’s Jersey branch. The principal allegations concerned covering transactions in June 1998, the Bank’s refusal to follow instructions to reopen or close positions, and its subsequent closure of the account. The claim also included allegations concerning an unauthorised 1997 trade, a missing account, and the Bank’s entitlement to take a turn on foreign-exchange transactions.

The claim was tried in the Commercial Court. The central issues were whether the trades were authorised, whether the Bank had contractual power to refuse the June 1998 instructions and close out the positions, whether the agreed margin requirement had been reduced from 50 per cent to 10 per cent, and whether any recoverable loss resulted.

1. The claim was dismissed. Mr Patel authorised all the relevant currency transactions. The allegation that he had been obliged or coerced into entering the covering trades was unsupported. The losses produced by matching buy and sell positions were therefore trapped and irrecoverable.

2. The documents established a trading limit of US$20 million and a 10 per cent deposit margin, but Mr Patel failed to prove any agreement reducing the 50 per cent margin trigger to 10 per cent. The documentary evidence and the subsequent margin notices were inconsistent with the alleged variation.

3. The Bank was entitled to refuse Mr Patel’s instructions of 25 June 1998. Compliance would have required positions exceeding the trading limit and, on the agreed margin terms, the account had insufficient margin.

4. Clause 4(c) of the Guarantee Agreement gave the Bank a self-standing contractual right to take whatever action it considered necessary for its own protection, including hedging or liquidating positions. That right was not conditional upon a prior breach of clause 4(b). The Bank was consequently entitled to close out the positions in July 1998.

5. Even if the close-out had been a breach, the pleaded loss of chance was worthless. The only pleaded strategy was to reopen the original buy-yen contracts, which was not feasible because of the trading-limit and margin constraints. An unpleaded alternative strategy could not found substantial damages.

6. The claims concerning an unauthorised 1997 transaction, a missing account, and an alleged agreement that the Bank would not take a turn on foreign-exchange transactions were rejected. The Bank was entitled to charge through the difference between its customer spot rate and the interbank rate.

This was a first-instance decision of the High Court (Commercial Court). The judgment does not state any prior appellate decision.