WAN TIM FUK v. GLORY SKY PRECIOUS METALS LTD

[English Translation -英譯本]
HCSA 31/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO.31 OF 2008

(ON APPEAL FROM SCTC NO. 35843 OF 2007)

--------------------------------------

--------------------------------------

JUDGMENT

Background

1. Liu Lai Ha (廖麗霞) and Fu Ning (傅寧) were former employees1 of Glory Sky Precious Metals Limited (“Glory Sky”), having worked respectively as accounts manageress and business operations manager.

2. Liu and Fu met the claimant on the afternoon of 23 May 2002, introducing and explaining to him the investment in precious metals.

3. The claimant said Fu introduced him to the concept of “overall win and loss”, explaining that although one would win on some transactions and lose on others, one would still enjoy an overall win by “winning five dollars, losing two dollars”.  The claimant expressed an interest in the investment but considered the risks too high for him.  He then suggested investing $100,000 and asked whether he could leave the market if he lost $20,000 so that he could still take back the remaining $80,000.  Fu answered in the affirmative.  The claimant then entered into a client’s agreement (“the agreement”) with Glory Sky, with Fu signing for and on behalf of the company, and became a client of the company.  The claimant’s case was that before signing the agreement, he did not have the opportunity to study the contents of the agreement, including the exemption clauses contained therein.

4. Subsequently, the claimant deposited two sums of money totalling $100,000 on the evening of 23 May and on 25 May into the account opened with Glory Sky.

5. The claimant alleged that on 29 May Liu conducted a number of transactions without the claimant’s prior consent, as a result of which the claimant suffered loss.  Eventually, following negotiations with Glory Sky, the claimant closed his positions and left the market on 6 June, but he could only get back slightly more than $34,000.

The claim

6. The claimant commenced proceedings against Liu, Fu and Glory Sky to recover his loss2.  He claimed that Liu and Fu had breached their oral agreement with him, had been negligent and had conducted unauthorized transactions.  He also claimed that Glory Sky had breached the agreement by failing to provide him with any service, had been negligent in failing to provide adequate training to its employees and yet receiving undeserved benefits, and had caused him loss and damage in terms of mental stress and time loss.

7. Liu and Fu contended that the transactions were conducted with the claimant’s authorization and that the investment loss arose from unusual market fluctuations on the evening of 29 May.

8. Glory Sky, on the other hand, contended that the transactions the claimant instructed Liu to conduct were not within its scope of business.  The company, it was said, provided an investment platform but not investment advice.

9. The presiding officer ruled in favour of the claimant after trial:

Findings of fact

...

20. I accept and find that all the essential and material facts in the present case are as described by the claimant in his evidence (to which the defendants did not raise any or any serious challenge when they cross-examined the claimant), including that he entered into the agreement on the basis that the 1^st and 2^nd defendants guaranteed to arrange a stop-loss order which would be triggered if the investment loss amounted to $20,000, and that the trading arrangement of ‘winning five dollars, losing two dollars’ was in place.

21. In light of the said findings of essential facts and the evidence as a whole, I make the following inferences:

(1) The provision in the agreement which required all buy-and-sell orders to be placed by [Liu] was for the purpose of empowering the appellant to accept [Liu’s] orders as valid.  There is no question of [Liu] or [Fu] having full powers to place orders arbitrarily without authority of the claimant.

(2) Irrespective of whether the parties had reached a consensus on the investment strategies on any given day, both [Liu] and [Fu] were under a personal duty to ensure that the claimant’s consent had been obtained before they placed any order on his behalf with the appellant.

(3) [Liu] and [Fu] were under a duty to ensure that all transactions on behalf of the claimant were carried out subject to the ‘win five, lose two’ rule and the stop-loss limit of $20,000.

(4) The said duties were duties within the scope of work of [Liu] and [Fu] as the appellant’s employees.

(5) Except for the first transaction and the transaction effected on 6 June upon leaving the market, all transactions involving the claimant’s account were conducted without his consent and/or approval.

          Liability to pay compensation

22. Having considered the matters aforesaid, I find that [Liu] and [Fu] were grossly negligent in that they failed to conduct transactions on behalf of the claimant in accordance with the ‘win five, lose two’ rule and the stop-loss limit of $20,000, and the appellant, as the employer of [Liu] and [Fu], is vicariously liable for their negligence.  I am of the view that the exemption clauses in the agreement do not cover vicarious liability for the negligence of [Liu] and [Fu]; in any event, I accept the claimant’s evidence and find that as he did not have the opportunity to read the contents of the agreement before signing it, the exemption clauses do not satisfy the requirement of ‘reasonableness’.

23. ...

24. Having considered the evidence as a whole, I find that the claimant has failed to prove that the appellant is liable to pay compensation to him on any ground other than vicarious liability. .

He ordered that Liu, Fu and Glory Sky be jointly and severally liable to pay the claimant compensation in the sum of $50,000 together with interest and costs.

10. Glory Sky applied for a review of the ruling, but the presiding officer dismissed the application.

The appeal

11. Glory Sky appeals against the decision3 on four grounds, the gist of which can be summed up as follows:

(1) The so-called vicarious liability was neither the claimant’s cause of action against Glory Sky nor an issue at trial.  Glory Sky was never aware that it might have to shoulder such a liability and did not raise any question or adduce any evidence on that matter at trial.  The presiding officer’s ruling that Glory Sky is vicariously liable is wrong in law, procedurally improper and also unfair to Glory Sky.

(2) The nature of Liu’s and Fu’s liability towards the claimant is relevant to the question of whether Glory Sky is vicariously liable.  However, the presiding officer’s finding on the nature of the two persons’ liability is far from clear.

(3) The presiding officer erred in finding that the exemption clauses in the agreement contravened the principle of “reasonableness”.

I will now deal with the grounds of appeal in turn.

The presiding officer’s inquisitorial duty

12. Hearings before the Small Claims Tribunal are inquisitorial in nature.  The presiding officer is required to make enquiries into matters he considers relevant to the claim regardless of whether those matters have been raised by any parties4.

13. If a matter is not raised by the parties but by the presiding officer of his own accord, he should take the following steps in performing his inquisitorial duty:

(1) Inform the parties what the matter involved is and explain why it is relevant to the claim.

(2) Enquire of the parties about their positions on the matter.

(3) Deal with the matter in accordance with the positions of the parties; if necessary, give directions on the preparation of trial on that matter, such as the calling of witnesses and production of documents.

(4) Conduct appropriate enquiries into the matter at trial, which include leading the parties in their evidence and examining witnesses, and if necessary, putting questions to the parties and witnesses, and inviting the parties to make submissions.

(5) Make a ruling on the matter after thoroughly considering all the evidence and the applicable legal principles.

14. In the present case, although none of the parties had raised the issue of Glory Sky’s vicarious liability, the issue was plainly relevant to the claim, and the presiding officer was under a duty to enquire into the issue and related matters.  Regrettably, the presiding officer failed to perform his inquisitorial duty by taking the abovementioned steps.  He had never mentioned or explained to the parties the meaning of vicarious liability; nor had he enquired about their positions or directed them to prepare for trial on the issue of vicarious liability and related matters.  At trial, he made no enquiries into the issue of vicarious liability and related matters; he simply stated his ruling that Glory Sky was vicariously liable when he was delivering a summary of his reasons for decision.

15. In my judgment, the presiding officer erred in law and procedure in dealing with the crucial issue of vicarious liability.  At trial, Glory Sky could not have known that it might be vicariously liable.  Nor did it have the opportunity to put forward its defence and adduce evidence; to cross-examine the claimant, Liu and Fu; or to make submissions on the issue.  This being the case, it was unfair for the presiding officer to find Glory Sky vicariously liable.

Vicarious liability

16. Furthermore, the reasons given by the presiding officer for finding Glory Sky vicariously liable are open to question.

17. Put simply, an employer is vicariously liable for an employee’s tortious act towards a third party where the employer has expressly or impliedly authorized that act.  The relevant act must be within the course of employment, which means that the employee involved was acting within the scope of his authority in performing the duties required by the job for which he was employed, or the tortious act must have a sufficient connection with the employee’s duties: Ming An Insurance Co. (HK) Ltd v Ritz Carlton Ltd [2002] 3 HKLRD 844 (Court of Final Appeal).

18. The presiding officer held that: Liu and Fu had given an undertaking to the claimant and were under an obligation to ensure that transactions on behalf of the claimant were conducted subject to the “win five, lose two” rule and the stop-loss limit of $20,000; these were within the scope of their duties as employees of Glory Sky; and as they had failed to perform such a duty and hence been grossly negligent, Glory Sky must be vicariously liable.

19. It is true that Liu and Fu had been authorized by Glory Sky to introduce and explain to the claimant the investment in precious metals.  The crucial question, however, is: when they gave the claimant the undertaking to observe the “win five, lose two” rule and cap the loss at $20,000, were they acting within the scope of their employment?  It was wrong for the presiding officer to draw the conclusion that he did without making enquiries into the issue and allowing Glory Sky to put forward its defence or adduce evidence.

Exemption clauses

20. The presiding officer took the view that the exemption clauses did not cover the Glory Sky’s vicarious liability for the negligence of Liu and Fu.

21. The presiding officer did not specify which of the exemption clauses in the agreement were inapplicable, but what he meant was, it would appear, that all the exemption clauses were inapplicable.  Unfortunately, he did not explain why.  In my view, he should have indicated the reason — be it contractual interpretation or otherwise — for finding the exemption clauses inapplicable.

22. The presiding officer also held that the exemption clauses contravened the principle of “reasonableness” as the claimant was not given the opportunity to study the contents of the agreement before signing it.  Judging from its context, the holding allows for two possible interpretations: first, the presiding officer took the view that Glory Sky had not reasonably drawn the claimant’s attention to the exemption clauses; second, the presiding officer took the view that the exemption clauses did not satisfy the requirement of “reasonableness” under the Control of Exemption Clauses Ordinance.  The presiding officer did not make it clear whether he took the former view or latter view.

23. If the presiding officer was taking the former view, the legal principle is that a party to an agreement is normally bound by the terms of the agreement, irrespective of whether he has read its contents or is aware of the legal effect of the terms: L’Estrange v F Graucob Ltd [1934] 2 KB 394.  Even though the claimant might not have read the contents of the agreement before signing it, once he had signed it, he was bound by all the terms therein, including the exemption clauses.

24. If the presiding officer was taking the latter view, he should first have determined whether the Control of Exemption Clauses Ordinance applied; if it did apply, he should then have proceeded to determine whether it was fair and reasonable to include the exemption clauses having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the agreement was made5.  The presiding officer should have made enquiries into these matters.  It was not open to him to conclude that the exemption clauses failed to satisfy the “reasonableness” requirement solely because the claimant did not have the opportunity to study the contents of the agreement before signing it.

Conclusion

25. For the above reasons, I consider the presiding officer’s ruling against Glory Sky untenable.  The appeal is allowed accordingly.

(Submissions on how to deal with the claim and submissions on costs)

26. In my judgment, the best approach is to remit SCTC 35843/2007 to the presiding officer who tried the claim, so that he will make enquiries into the following two issues and related matters and make a ruling on the basis of the results of such enquiries:

(1)    whether Glory Sky is vicariously liable; and

(2)    whether the exemption clauses in the agreement are applicable.

27. I also order that the costs of this appeal be in the cause of the remitted trial.  The costs of Glory Sky and the claimant in this appeal are assessed at $35,000 and $4,000 respectively.