KO LAI KUEN v. LI TAK MING AND OTHERS

HCA 1731/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1731 OF 2010

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D E C I S I O N

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Introduction

1.  This is the defendants’ application to set aside the judgment entered on 3 September 2011 in default of defence.

2.  The background leading to this application can be summarized as follows.

3.  It is common ground the plaintiff was a successful business lady, and the 1^st defendant (“Li”) was an experienced bullion trader and he introduced himself as such to the plaintiff.

4.  The plaintiff was introduced to Li in mid-April 2009.  She told Li she had no idea about investing in the bullion market.  Li on the other hand told her of his experience and track records in investment.

5.  They met again in September 2009 when the plaintiff indicated she was interested in investing in bullion through Li.  At this point the parties’ version of event diverge.

6.  Li claims that he introduced two investment plans to the plaintiff: a basic plan which was supposedly more conservative and a high risk plan which was more aggressive.  He says the plaintiff chose the high risk plan.

7.  On the other hand, the plaintiff says in September 2009 she still could not decide whether to invest in bullion.  Li kept boosting his expertise and previous successes in the matter.  A prospectus outlining the basic plan was given to the plaintiff by Li.

8.  Finally, in October 2009, the plaintiff signed several documents:

(a) 交易主約dated 7 October 2009 (translated as “the Investment Agreement (Chinese)” by the plaintiff and “the Master Trading Agreement” by the defendants);

(b) 補充協議 (undated) (“the Supplemental Agreement”);

(c) 居間合同 dated 7 October 2009 (“the Agency Agreement”).

9.  The net effect of the above documents was that the plaintiff authorized the 2^nd defendant (“Marketing Strategic Mgt”) to manage her fund of US$500,000.  Li claims that the authorization was for aggressive trading in bullion (which term would include gold and silver) whereas the plaintiff says she only authorized Li to make mid-term investment in bullion (judging from the contents of her 2^nd affirmation, she considered this to refer to gold only).

Issues in this application

10.  The parties’ dispute in this action, gathered from the contents of the statement of claim and the parties’ affirmations, is factual in nature.

11.  On the plaintiff’s part, she asserts in gist that:

(1)  the defendants would buy gold for her when its price fell below US$1,050 per ounce and sell the same when its price rose above US$1,200 (a price gain of US$150, or 14.286% above US$1,050);

(2)  the expected capital gain would be 25% within a short time;

(3)  the defendants would report to the plaintiff regularly and do so in any event if she should suffer a capital loss of 50% or more.

The plaintiff’s fund (US$500,000) was deposited with the 3^rd defendant (“Millennium”) in two respective sums on 9 October and 13 October 2009.

12.  On the defendants’ part, it is said that the plaintiff chose the high risk investment plan.  Her loss was caused by the subsequent unfavourable investment environment, and not the defendants’ fault. It is also the defence case Li has fully explained the investment risks to the plaintiff, and that she was kept abreast of the state of her investment account until its liquidation.

13.  According to the account statement attached to Li’s 4^th affirmation (exhibit “LTM-11”):

(a)  by 13 November 2009 (just over one month after the plaintiff’s deposits) about half of the plaintiff’s fund has already been lost in bullion trades conducted during the period;

(b)  the plaintiff’s capital was completely lost by 24 March 2010 (about 5 months after the plaintiff’s fund deposits) but for Millennium’s further deposits into the plaintiff’s trading account;

(c)   however, because of the defendants’ further deposits (totalling US$740,000), the plaintiff’s trading capital was not exhausted until 23 April 2010 (when the total loss suffered was about US$1.238 million in total);

(d)  in other words, bullion trading of the plaintiff’s account continued from 24 March to 23 April 2010 (a period of about one month) only because of Millennium’s fund injections.

14.  For the reasons set out below, I do not accept the defendants’ version of events to be believable.

15.  First, Li asserts in his 4^th affirmation:

“[on] or about 27^th or 28^th October 2009, I called the Plaintiff and told her that if the gold price fell further, we had to stop all trading. … ” (para 41 thereof).

Li has not explained why he would do so at the end of October 2009.  As stated above, the plaintiff’s capital was half lost only by mid-November 2009 (para 13(a) above).  In addition, for reasons not immediately apparent, instead of ceasing trading at any time before 24 March 2010, Millennium kept injecting funds into the plaintiff’s account since 29 October 2009.

16.  Secondly, also according to Li’s 4^th affirmation:

“… On 24^th March 2010, the Plaintiff went to the office of one of my associated company in Hangzhou. When I saw the Plaintiff, I gave her a detail statement of account and informed her that her investment had suffered a total loss. The Plaintiff then demanded that I should refund her US$500,000 on or before the 15^th of April 2010 and she further threatened me that if I did not sign a document stating that I agreed to pay her back the money she would use means to prevent me from leaving Hangzhou … For fear of my own safety I wrote out the Plaintiff’s demand and signed on it under duress and without my agreement … ” (para 47 and 48 thereof).

17.  The transaction details in the account statement (see para 13(a) to (d) above) do not support what Li told the plaintiff.

18.  It is not entirely accurate to say the plaintiff’s investment “had suffered a total loss” on 24 March 2010.  As stated above, trading could continue beyond 24 March 2010 (up to 23 April 2010) because of Millennium’s further deposits into the plaintiff’s trading account (see para 13(c) and (d) above).

19.  In other words, if the 24 March 2010 events were as deposed to by Li, he has not told the plaintiff the whole story in relation to her investment capital.

20.  Moreover, allegation of the written promise to refund the plaintiff’s capital having been obtained by threat (para 16 above) (which logically should have brought about an end to the plaintiff’s investment) is inconsistent with the trading activities in the plaintiff’s account afterwards.  If these reflect the defendants’ attempt to recoup their financial loss, this shows an extremely cavalier attitude on the defendants’ part with regard to the good practice of keeping client’s fund separately from their own.

21.  Apart from the above, Li’s assertion about offering the so-called basic investment plan would not have made any practical difference (whatever the precise terms of such plan were).  This is because as long as the plaintiff has authorized Marketing Strategic Mgt to trade in bullion on her behalf, precisely the same loss would still be incurred during the same period (9 October 2009 to 23 April 2010).

22.  In view of the above matters, I have grave doubt as to Li’s credibility with regard to the other parts of his 4^th affirmation.

Conclusion

23.  The guiding principles for the exercise of the court’s discretion in a setting aside default judgment application are trite. The defendants accept that they have the burden of showing a real prospect of success on the merits of their defence.

24.  Because I have rejected Li’s evidence for lack of credibility, the defendants have not been able to discharge the burden.

25.  Li also argues that it is the plaintiff’s own pleaded case the misrepresentations were those of Marketing Strategic Mgt and Millennium, and he was only their agent (para 10, statement of claim).  It is not the law an agent can never be held liable for tortuous act(s) he committed as an agent.  The factual context of this case shows that Li ought to be held liable as well.  After all, Li must have been the individual in whom the plaintiff reposed trust and it must have been Li’s words which led her to enter into the agreement to invest in bullion.

26.  Millennium also argues that the plaintiff has sued the wrong party: she has expressly pleaded that she was suing a Hong Kong company.  However, it can be seen from the Investment Agreement (Chinese) that the other contracting party was a BVI company.

27.  Several things should be noted in this connection:

(1)  the Hong Kong company and the BVI company have precisely the same name;

(2)  Li was a shareholder and director of both companies;

(3)  the plaintiff was directed by Li to, and she did, (i) sign the Investment Agreement (Chinese) with the BVI company, but (ii) deposit her fund into the Hong Kong company’s bank account.

28.  It can be inferred from the above that both companies were part of the same scheme devised by Li (either alone or with others) to entice the plaintiff (perhaps also other investors) to take part in the investment plan promoted by Li.  The judgment against Millennium cannot therefore be considered erroneous.

29.  For the above reasons, this application is dismissed.

Costs order nisi

30.  There is no apparent reason to depart from the usual rule that costs should follow the event.  There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that the costs of this application be paid by the defendants to the plaintiff.

31.  I consider summary assessment of costs to be appropriate.  The above costs shall thus be so assessed.  For this purpose:

(a)  the plaintiff be at liberty to lodge with court and serve a statement of costs within 7 days from today;

(b)  the defendants be at liberty to lodge with court and serve a statement of objections within 7 days thereafter.