RICHARDSON GREENSHIELDS OF CANADA (PACIFIC) LTD. v. CHOU TAI CHUAN, CECILIA

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HEADNOTE

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SECURITIES AND FUTURES TRADING ON MARGIN - CUSTOMER TRADING AGREEMENT UNDER WHICH BROKERS BOUND TO SUPPLY CUSTOMER WITH RISK DISCLOSURE STATEMENT - FAILURE TO SUPPLY SAME - ORDER FOR NEW TRIAL OF ISSUE WHETHER CUSTOMER WOULD HAVE TRADED IN FUTURES EVEN IF SHE HAD BEEN SUPPLIED WITH RISK DISCLOSURE STATEMENT BEFOREHAND - QUESTION OF WHETHER (DUTY UNDER CUSTOMER TRADING AGREEMENT TO SUPPLY SUCH STATEMENT APART) BROKERS WERE UNDER A GENERAL DUTY, OR HAD HERE ASSUMED A DUTY, TO WARN ALONG LINES OF SAME DISCUSSED - ON POSITION OF BROKERS LIQUIDATING UNDER-MARGIN ACCOUNT: HELD THAT THEY ARE FREE TO DECIDE IF AND WHEN TO SELL THE SECURITIES OR FUTURES HELD ON THAT ACCOUNT, AND THAT THEIR DUTY TO THE CUSTOMER IN REGARD TO SUCH LIQUIDATION IS LIMITED TO SELLING AT CURRENT MARKET PRICES AS AND WHEN THEY SELL IF THEY DECIDE TO SELL.

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JUDGMENT

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Bokhary J (giving the first judgment at the invitation of Kempster JA) : -

INTRODUCTION

1. This is an appeal by a customer from a judgment delivered by Nazareth J on July 16, 1990, in yet another case between brokers and customer arising out of the global market crash which began on "Black Monday", October 19, 1987. As usual, the customer was on margin.

2. The defendant customer is the appellant. The plaintiff brokers are the respondents.

3. She became their customer on June 24, 1987. That happened under an agreement in their printed form headed "Customer Trading Agreement". I will refer to it as "the CTA". As one sees from the CTA, the number which they assigned to her account appears thereon.

4. At first she traded only in securities. Later on she traded also in Hang Seng Index futures. Upon that happening the CTA extended also to her dealings in futures - and her account became a securities and futures margin account.

5. It should perhaps be mentioned that the brokers had sued the customer's husband (whom they made the 1st defendant) as well as the lady herself (whom they made the 2nd defendant). The husband's first line of defence - which was quite simply that he was not a party to the account - succeeded; and he has dropped out of the picture accordingly.

6. The customer (as I shall refer to the wife who admitted and averred her status as a customer) defended and counterclaimed on the merits. The brokers' claim succeeded; and the customer's counterclaim was dismissed. The judgment in favour of the brokers is for $12,236,707.38 plus interest and costs.

7. This is how that sum was arrived at. The brokers contended - and the learned judge found - as follows. The account was liquidated because the margin thereon was not maintained. Such liquidation began on October 27, 1987 (the day after the day on which trading on the stock exchange and the futures exchange resumed following the closure over the four trading days following Black Monday). It was completed on November 10, 1987 : the securities were sold from October 27 to November 10, 1987, while the futures were sold on October 28 and 29, 1987. Upon such completion the account was $12,236,707.38 in debit.

8. The customer appeals against the award against her and the dismissal of her counterclaim. The brokers support the result below. They do so on the grounds on which the learned judge proceeded save in one respect. In that respect they have filed a respondent's notice challenging one of the learned judge's conclusions.

ISSUES

9. A large number of issues were canvassed before us. It would be convenient to deal with these under the following sub-headings.

(1) Was it proved that the account was liquidated leaving it $12,236,707.38 in debit?

10. Here the evidence was not as cogent as it might have been. But the documents adduced by way of hearsay notice were capable of supporting the learned judge's conclusion that it was more probable than not that the account had been liquidated leaving it $12,236,707.38 in debit. Before us the admissibility of those documents was not challenged on behalf of the customer. Rather it was submitted on her behalf that they are of little or no weight. I can understand that submission. But at the end of the day I am unable to accept it. It is true that there is no evidence identifying the person or persons who decided upon or carried out the liquidation. It is also true that Mr David Ka, the account executive for this account, was identified in the hearsay notice as the maker of some of the crucial documents but did not so identify himself when he was put in the witness-box on behalf of the brokers. But the documents show : what happened on the exchanges; what passed between those in the brokers' offices and their dealers on the trading floors; and what eventually went out from the brokers to the customer. Not all of them bear the customer's account number. But they all fit in terms of the dealings which they reflect. That is sufficient to prove on a balance of probabilities that those dealings resulting in that debit balance took place on that account.

(2) What would the position if that had not been proved?

11. As this issue does not arise on my view of how issue (1) ought to be decided, I propose to do no more than to note the customer's contention, namely, that the brokers' claim ought then to be dismissed. It is accepted on the customer's behalf that, as no cross-claim for the return of the securities is made, success on issue (1) alone would not entitle her to any relief on her counterclaim.

(3) Were the brokers instructed on October 19, 1987, to sell all the customer's securities and futures?

12. The customer and her husband gave evidence that he in her prsence gave Mr David Ka such. instructions on the telephone. Mr Ka said in the witness-box that he could not recall whether or not that happened. I can therefore readily understand the customer's deep disappointment at the learned judge's refusal to find that such instructions had been given. But he saw and heard Mr Ka, the customer and her husband. He regarded that response of Mr Ka's as one of many mindless incantations of inability to recall. Most importantly, he said in the clearest terms that he was not prepared to accept the evidence of the customer or her husband of such instructions unless the same was supported by other evidence. He did not view - and he was not bound to view - any of the evidence before him as affording such support. It would not matter therefore if what he regarded as powerful indications against such instructions having been given were in fact neutral. His conclusion would have been the same even if he had regarded them as neutral - although his confidence in the correctness of his conclusion may have been diminished. I do not think that we are entitled to interfere with the learned judge's conclusion on this issue.

(4) What would the position be if such instructions had been given?

13. The customer's contention is that the judgment against her ought to be reduced to $942,132.38 by reason of the result which a reasonably competent and conscientious broker could have achieved pursuant to such instructions. As this issue does not arise on my view of how issue (3) ought to be decided, I do not propose to do more than note that contention.

(5) Were the brokers instructed on October 21, 1987, to sell all the customer's securities and futures?

14. The customer gave evidence that such instructions were given. Mr David Ka said in the witness-box that he could not recall whether or not they were given. On the question whether instructions to sell were given on October 21, 1987, the learned judge's approach and conclusion were the same as his approach to and conclusion on the question whether instructions had been given on October 19, 1987. Once again - and on the sane basis - I do not think that we are entitled to interfere.

(6) What would the position be if such instructions had been given?

15. As before I do not propose to do more than note the customer's contention. It is that the judgment against her ought to be reduced to $3,499,822.38 by reason of the result which a reasonably competent and conscientious broker could have achieved pursuant to such instructions.

(7) Did the brokers have a duty under the CTA to supply the customer with a Risk Disclosure Statement?

16. The learned judge held that they did. They challenge that conclusion by way of a respondent's notice. The CTA - which is as I have said in the brokers' printed form - is worded so that one has the customer, made to refer to herself as "the undersigned", addressing the brokers. It opens thus : -

"In consideration of your agreeing, at my request, to open and maintain one or more accounts ('the Account(s)') in the name of the undersigned and to act as brokers for the undersigned in respect of transactions in securities, commodities, precious metals, foreign exchange and any other investment services provided by you, as principal or agent of Richardson Greenshields of. Canada Limited and/or its affiliates, as the case may be, whether on margin or otherwise ('hereinafter collectively referred to as 'the said transactions') the undersigned hereby agrees, represents and consents as follows : -"

The next two clauses read:-

"1. All the said transactions made by you for me shall be subject to the constitution; by-laws, rules, rulings, regulations, customs and usages of the exchange or market, and its clearing house, if any, where made, and to all laws, regulations and orders of any governmental or regulatory authority that may be applicable.

                2. The undersigned hereby undertakes with you that the undersigned will : -

17. Rule 431 of the Rules of the Futures Exchange provides that customers be supplied with a Risk Disclosure Statement before the acceptance or carrying on of a futures account. It was the practice of the brokers to supply their customers with such a statement in conformity with that rule. But that was not done in the present case. For the brokers it is argued that that departure from their practice was not a breach of their contract.

18. How in light of clause 1 of the CTA is that argument put? Well, it is argued on behalf of the brokers that the clause binds their customers but not them. I reject that argument, regarding it plainly wrong for four main reasons.

19. First, it runs counter to the plain wording of the clause. The clause says that all the transactions shall be subject to the rules of the exchange. It does not say that all the transactions shall be subject to the rules of the exchange for the purposes of placing obligations on the customer without conferring any rights on her while conferring rights on the brokers without placing any obligations on them.

20. Secondly, the nature and wording of clause 1 is to be contrasted with that of clause 2 which clearly lays down obligations on the part of the customer to the brokers but not obligations the other way round. Under clause 2 the customer gives undertakings in terms.

21. Thirdly, there is the preamble to the CTA. It is there that one finds stated the consideration moving from the brokers. Essentially it is their promise "to act as brokers". I have yet to hear of an exchange - even one "red in tooth and claw" (an expression from a case to which I will come in due course) - which has no rules or which disavows any concern for the protection of the public. The futures exchange has, as we have seen, made a rule requiring a Risk Disclosure Statement. Is the promise "to act as brokers" to be qualified by the reading in of some expression such as "without being bound by the rules of the exchange even though the customer is so bound"? I can see no justification for that.

22. Fourthly and finally, one sees that the fifteenth and final clause of the CTA provides in terms that the ... agreement ... shall ... bind [the brokers]".

23. The brokers were bound under the CTA to supply the customer with a Risk. Disclosure Statement if clause 1 binds both parties. In my view it is plain that it does. But this may nevertheless be worth noting. The CIA is in the brokers' printed form; and there is no doubt that one of the things which clause 1 does is to confer on them the benefit of binding their customers. So if there were any ambiguity in the clause it ought to be resolved contra proferentem so as to bind them too.

24. In my view, the brokers had a duty under the CTA to supply the customer with a Risk Disclosure Statement.

(8) Were the brokers in breach of that duty?

25. Yes. They do not challenge the learned judge's finding that they did not supply the customer with a Risk Disclosure Statement before they started buying futures on her behalf.

(9) Can the rejection of the customer's evidence that she would not have entered the futures market if she had been supplied with a Risk Disclosure Statement be allowed to stand?

26. She gave that evidence in chief; and she was not challenged on such evidence in cross-examination; but the learned judge rejected the sane nevertheless.

27. There are a number of differences between this issue and the one in regard to whether or not instructions to sell had been given. One difference has to do with the nature of each issue. There the question was, "What happened?". Here the issue was "What would have happened?". The learned judge's approach to each issue was also different.

28. He was not prepared to accept that she would not have gone into the futures market simply because she said so. But he did not say - as he said of her evidence in regard to instructions to sell - that he would not accept her evidence unless it was supported by other evidence. Rather - after observing that it would be easy for her in the events which had happened to "persuade [herself] that had [she] known the risk she would not have gone within a mile of futures contracts" - he embarked upon an examination of the inherent probabilities as he saw them from a neutral starting point. He commenced that examination by saying that the customer : -

" ... was a businesswomen, intelligent, strong willed, dominant as she herself claimed, and with at least an adequate knowledge of share and futures trading (notwithstanding that she may have misunderstood [counsel for the brokers'] questions about hedging by taking the opposite position in futures).".

29. Let us take that last consideration first. Its significance is both obvious and considerable. Was the learned judge's view thereon supported by the evidence? Plainly it was not. There was no evidence that her knowledge of futures trading was adequate by any standard let alone for the purpose of a proper assessment of the risk of entering a market such as the futures market. It is after all a market of the type described by. Staughton, J in Derail v. El Nasr [1968] 1 Lloyd's Rep. 356 at p.366 as a "man-made jungle ... red in tooth and claw". It is also a market in which, as that case makes clear, customers are very much on their own once they get into it. Now the evidence in the present case, far from showing that the customer had an adequate knowledge of futures, suggests that she knew little of them and was under a misapprehension as to much about them. She seems to have known that one index point up or down meant $50 per contract up or down. Beyond that she laboured under the misapprehension that Hang Seng Index futures operated in the same way as "stocks". She did not even know what the Hang Seng Index was. She thought that it was something which went up provided that the turnover was large. I leave aside the point that a sharp correction, let alone a major drop, not to mention a crash, can produce a large turnover. But she did not seem even to know that the Hang Seng Index is determined by the prices of a selection of shares rather than prices across the board. The learned judge referred to the possibility that she "misunderstood" questions put to her by counsel for the brokers in regard to hedging. Nobody has suggested that the questions themselves were confusing. Nor has anybody offered any explanation as to why anyone with "an adequate knowledge of share and futures trading" would misunderstand them.

30. Let us look at the Risk Disclosure Statement which it was the practice of the brokers to supply to their customers (but which they did not supply to this customer, now arguing that they were not obliged to supply it to her and that it would have made no difference - so arguing even though they had not cross-examined her on her evidence that it would have made all the difference). It begins by telling potential customers that the activity which they are contemplating "is a high risk activity in which it may not be possible to limit the extent of potential liability". Having said that, it goes on immediately to say this: "Before you buy or sell a contract you should be certain that you can afford to lose not only the money you put up initially but additional money as well." All of that is then illustrated by reference to "Financial Exposure", "Settlement Procedures" and "Use of Funds". Then one comes to the end of the beginning of the statement, where this is said: "These are not the only parts of this material that are important. You should study all the material carefully, and ask questions about it that may occur to you, before you enter your first transaction".

31. The next part of the statement deals with "Nature of the Contracts", "Margin", "Daily Price Limits" and "Settlement of Contracts".

32. Then we come to "Risk". It is of course the disclosure of the same which is the raison d' etre of the statement. The first paragraph under this head reads : -

33. Even after all that, the next and concluding paragraph under the head of "Risk" reads : -

"This brief statement cannot, of course, disclose all the risks and other significant aspects of the commodity markets. You should therefor carefully study and become familiar with all aspects of commodity futures trading.".

34. So I repeat that the learned judge's view of the adequacy of the customer's knowledge of futures trading was a significant consideration on this issue and that the evidence does not support his view.

35. On that alone, I feel unable to allow the result at which he arrived on this issue to stand. And when I examine the other matters which he took into consideration, I am fortified in my view that justice demands that we interfere with the result at which he arrived.

36. The learned judge as I have noted began by observing that the customer was a "businesswoman". The evidence, such as it was, was that she and her husband were in the China trade. Let us assume what I suppose the learned judge felt, namely, that such a person would have some experience of assessing commercial risks. Even so, is it to be supposed that such experience tends to make persons prone to plunge into new enterprises despite learning of the dangers attending them - let alone having such dangers emphasised? If anything, I would have thought the contrary more probable. And is it to be supposed that such experience tends to make persons prone to go into new enterprises in respect of which the depth of their ignorance is underlined for them? Again, I consider the contrary more probable.

37. Then the learned judge said that the customer was "intelligent". But I see no basis for saying that an intelligent person is more likely than a foolish one to be undeterred by warnings such as those in the Risk Disclosure Statement.

38. "Strong willed and dominant" is the final description applied to the customer by the learned judge. No intelligent person is going to suppose that his or her strength of will is going to overcome the hazards of the futures market or that he or she would somehow or other be able to dominate them. Moreover, there is no evidence that she was strong willed or dominant about entering the futures market at all, let alone that she would have remained so in the face of a Risk Disclosure Statement.

39. The evidence was that, after a friend of hers had on a social occasion ventured the view that if she was making a profit on shares then she should trade in futures as well, she "became interested" in futures. Presumably she wanted to make money not lose it. Well, the last page of the Risk Disclosure Statement has a place for her to sign (and a place for the witness to her signature to sign) in acknowledgment and proof of - as one sees at the top of the page - her receipt of the statement and her understanding thus expressed:-

"I understand that because of the volatile nature of the commodities market, the purchase and. sale of commodity futures contracts involves a high degree of risk and is not suitable for many members of the public and that such transaction should be entered into only by persons who have read and understand (and I have read and do understand) the Risk Disclosure Statement for Commodity Futures and who understand the nature and extent of their rights and obligations and are aware of the risks involved. I also understand that a person should not trade in commodity futures contracts unless he/she is able to sustain substantial financial losses.".

She was only interested. But even if she was keen or determined, it was profit she was after. The statement talks of "substantial financial losses". And she was to sign and have her signature witnessed. Why being strong willed and dominant would cause her go ahead rather than baulk is not explained. Here was a friend talking about profits. Ana here would have been brokers asking her to sign so that it could be proved that she understood that she might sustain substantial financial losses. The brokers do not suggest - and they could not suggest - that they would have encouraged her to sign the statement unread or otherwise to take it at all lightly let alone as so much nonsense. I note in passing that they themselves are no longer in the futures market.

40. Finally on this issue, I would say this. In truth the learned judge does not seem even to have made any finding - let alone sustainable finding - that the customer appreciated the risk in question. He said that she could not have been "wholly" unaware of the risk. Being partially aware is not good enough. And I have already referred to his observation that it would be easy for her to persuade herself that she would not have gone within a mile of futures if she had known the risk. That does not sit well with the view that she had known it beforehand.

(10) If that rejection cannot be allowed to stand, what course is to be adopted?

41. This issue now arises. For the customer, Mr Benjamin Yu on whose shoulders much of the burden of her case has fallen by reason of his leader's inability to attend the last few days of the hearing, suggested that we adopt a course involving two things. The first is the making of a finding that the customer would not have entered the futures market if she had been - as she should have been -supplied with a Risk Disclosure Statement. The second is the deduction from the judgment of $12,236,707.38 a sum representing what Mr Yu suggests is the customer's net loss on futures, namely, $9,615,210.00 in order to reduce the judgment against her to one of $2,621,497.38. But we pointed out to Mr Yu that even if we were minded to interfere with the learned judge's finding that the customer would still have gone into the futures market if she had been supplied with a Risk Disclosure Statement, we might not be prepared to go so far as to substitute a finding that she would not have, and might confine ourselves to ordering a new trial on that issue. And we asked him whether it would be more sensible, if we were to order a new trial on that issue, to leave to be tried at the same time the financial consequence of success on the part of the customer. Mr Yu agreed that it would be. Certainly it is the brokers' case that an inquiry would be necessary if this issue arose.

42. I am convinced that it would be unjust to the customer to allow the learned judge's finding against her to stand. At the same time I am not convinced that it would be just to the brokers to go the whole length of simply substituting a finding in her favour.

(11) Apart from the CTA, was there any general duty on the part of the brokers to warn the customer along the lines of the Risk Disclosure Statement?

43. The learned judge held that there was no such general duty. The customer's argument for such a duty is essentially erected on a view expressed obiter by Kerr LJ in Cornish v. Midland Bank [1985] 3 All ER 513. In that case the customer executed a second mortgage in favour of her bankers without appreciating, or being told by them, that it was so worded as to secure not only a loan of ¢ 2,000 for renovations to a farmhouse jointly owned by her and her husband, but also unlimited further advances to him. Advances were made to the husband by the bankers under the mortgage in their favour. When the farmhouse was eventually sold, the proceeds of sale barely covered the first and second mortgages and the sale expenses. The customer sued the bankers; and the Court of Appeal held that: by choosing to embark upon an explanation of the effect of the second mortgage, the bankers had assumed a duty to give the customer an adequate explanation of the same; that their failure to explain that it extended to further advances to her husband constituted a breach of that duty; and the she was entitled to damages flowing from such breach. The ratio of that case is relied upon by the customer in this one under an issue to which I will come in due course.

44. Under the present issue, the customer relies on what Kerr LJ went on to say obiter in that case, dealing with whether the bankers would have had a duty to give an adequate explanation of the second mortgage even if they had not chosen to embark upon a explanation of the same. He inclined to the view that they would have It is necessary to set out the whole of what he said in that regard, which is this (at p.521j to p.523a):-

"There remains, however, a third issue which was also argued before us. This is the question of whether the bank was under any duty to proffer any explanation or advice to the plaintiff before she signed the second mortgage. In the event this is not a matter which requires to be decided in the present case. But in view of the general importance of this issue I will briefly summarise counsel's arguments and express a tentative view on this issue.

 

45. I propose to refrain from expressing any conclusion on this issue. First of all, anything I say thereon would necessarily be obiter since no success flowing from this issue could put the customer in a better position than she would be in as a result of success on the basis of the CTA - a basis on which, in my judgment, she is entitled to succeed to the extent which I have indicated. Secondly, one sees Kerr LJ's references to evidence of standard banking practice and expert evidence. In the present case we do not even have adequate evidence of what went on in these brokers' offices let alone among brokers in general at the material time.

(12) If there was such a general duty, did the brokers comply with it?

46. Strictly speaking, no answer is required. But since the answer is so short, I might as well give it. No, they did not. It was not even suggested - nor could it have been suggested - that they had done so.

(13) What would be the result if there was such a general duty as well as a failure to comply with it?

47. Again, no answer is, strictly speaking, necessary. But again as the answer is so short, I might as well give it. In my view, the result would be the same as under issues (9) and (10), which have to do with the brokers' failure, in breach of the CTA, to supply the customer with a Risk Disclosure Statement.

(14) Apart from the CTA and any general duty on the part of the brokers to warn the customer along the lines of the Risk Disclosure Statement, had the brokers embarked upon any such warning so as to attract a duty to give an adequate warning?

48. Here we come to what was actually decided in Cornish v. Midland Bank (supra). The view which I have formed on the position under the CTA makes it unnecessary for me to answer this question. But it seems to me desirable that I say all least this much thereon. The brokers dealt with the customer through Mr David Ka. So woefully inadequate was what he told her about futures that it has put his employers in a position to argue that his utterances were not merely less than an adequate warning but actually amounted to practically no warning at all. So the brokers would invert and pervert the proverb and say that: "A few crumbs is better than half a loaf''.

49. If I were not of the view which I have formed on the position under the Risk Disclosure Statement, I would have felt duty-bound to give the most anxious consideration to the following questions. Might there not indeed be a general duty to warn as contended for the customer? Or might it not be right to hold that utterances by brokers in regard to extra-hazardous activities such as futures trading made without or practically without any warning put them in no better a position than would such utterances accompanied by an inadequate warning? I need say no more than that I am by no means persuaded that principle, authority, justice, commercial good order or common sense dictate an answer favourable to the brokers on either question.

(15) If there was such a duty, did the brokers comply with it?

50. Here I respond as I did under issue (12).

(16) What would be the result if there was such a duty as well as a failure to comply with it?

51. And here I respond as I did under issue (13).

(17) In liquidating the customer's account were the brokers under any duty to her wider than the one stated in China & South Sea Bank v. Tan [1990] 1 AC 536?

52. That case was between creditor and surety, the debtor having defaulted. The Privy Counsel held that whether, and if so when, to realise the security were questions which the creditor was free to decide, and that his duty to the surety was simply to sell at current market prices if and when he decides to sell. In my view, the distinction between the position of a creditor entitled to realise security and that of brokers entitled to liquidate an under-margin account is too fine for us to hold that such brokers are not free to decide whether, and if so when, to liquidate, or that their duty to the customer is wider than one to sell at current market prices if and when they decide to sell. In my judgment, brokers who are entitled to liquidate a customer's under-margin account are free to decide if and when to sell the securities or futures held on that account, and their duty to the customer in regard to such liquidation is limited to selling at current market prices as and when they sell if they decide to sell. So I would decide this issue against the customer, who contends that the brokers were under a duty of care to her in regard to when to liquidate. They were not.

(18) Would the brokers have been in breach of such wider duty if it existed?

53. I detect no evidence upon which such a breach could be found. Evidence from other brokers, or other persons in the field of securities and futures, that even at the time, and without the benefit of hindsight, everyone in the brokers' position realised for good reason that the only sensible thing for the brokers to have done was to sell much earlier - and that they could have done so at better prices - might have established such breach. But there was no such evidence - or its equivalent - in the present case.

(19) What would the result be if the wider duty existed and had been breached?

54. If that were the case, then some inquiry to ascertain the damage flowing from such breach and the extent to which it diminished the debit on the account would have had to be directed. As it is, the issue does not arise.

CONCLUSION

55. I would allow the appeal to the extent of :

56. As to the costs of this appeal, I would favour an order nisi that the parties be left to bear their own costs.

Kempster J.A.:-

57. For the reasons given by Bokhary J, with which I agree, I would allow this appeal to the extent and in the terms of the order which he proposes.

Mayo, J.: -

58. I have had the advantage of reading the judgment of Bokhary, J.

59. I am in entire agreement with the conclusions he reaches on issues 1, 2, 3, 4, 5 and 6.

60. I regret that with the greatest respect I disagree with the conclusion he reaches on issue 7.

61. Ground 4 on the Grounds of Appeal reads as follows : -

"Having found that the Plaintiff was under a contractual duty to supply a non-disclosure statement to the 2nd Defendant before commencing to trade in futures contracts, and that the Plaintiff had failed to do so, the learned judge erred (a) in law in holding that the 2nd Defendant had the burden of proving that the breach caused the loss, and (b) in law in holding that the breach had to be the cause of the loss and (c) in fact in failing to find that the breach of duty was a cause of the loss suffered by the 2nd Defendant in her trading in index futures."

62. There is also a Respondent's Notice in this connection. In this it is contended that by virtue of the provisions contained in the Customer Trading Agreement the Respondent was not under any contractual obligation to supply a Risk Disclosure Statement.

63. The Customer Trading Agreement is framed as a communication addressed to the Respondent by the Appellant and as one would expect is in a standard form.

64. The introduction to the Agreement and clause 1 thereof are in the following terms : -

"RICHAROSON GREENSHIELDS OF CANADA (PACIFIC) LIMITEDD

18th Floor, China Building 29, Queen's Road C., Hong Kong, Tel. 5-258211 - Telex: HX73053 CUSTOAER TRADING AGREEAENT

GENTLEMEN:

In consideration of your agreeing, at my request, to open and maintain one or more accounts ("the account (s) ") in the name of the undersigned and to act as brokers for the undersigned in respect of transactions in securities, commodities, precious metals, foreign exchange and any other Investment services provided by you, as principal or agent of Richardson Greenshields of Canada Limited and/or its affiliates, as the case may be, whether on margin or otherwise ("hereinafter collectively referred to as "the said transactions") the undersigned hereby agrees, represents and continents as follows:-

 

1.      All the said transactions made by you for me shall be subject to the constitution, by-laws, rules, rulings, regulations, customs and usages of the exchange or market, and its clearing house, if any, where made, and to all laws, regulations and orders of any governmental or regulatory authority that may be applicable."

65. In my view it is clear that clause 1 is an obligation moving from the Appellant and requires her to conform to all of the requirements by the Authorites referred to therein. There is nothing in Clause 1 or in my view, in any other clause in the customer Agreement which requires the Respondent to be subject to any Rules or regulations which may be imposed by a Third Party.

66. I do not consider that it assists the Appellant that the Hong Kong Futures Exchange Rules required the Respondent to provide their customers with a Risk Disclosure Statement.

67. This requirement did not form part of the Customer Trading Agreement and there is no other document in existence which gives rise to a contractual relationship between the parties in this connection.

68. With the greatest respect to the trial judge I consider that he was wrong in finding that there was a contractual requirement for the Respondent to furnish the Applicant with a Risk Disclosure Statement.

69. Of necessity, I am at variance with Bokhary, J. on his conclusion to issue 8. The difference between us is that I do not accept that there has been any breach of the Broker's duty as I do not consider that there is any such duty.

70. I regret that I also disagree with the conclusion reached by Bokhary, J. in issue 9.

                    (9) Can the rejection of the customer's evidence that she would not have entered the futures market if she had been supplied with a Risk Disclosure Statement be allowed to stand?

71. During the course of the trial the Appellant was taken through the Model Risk Disclosure Statement.

72. It is not entirely surprising that the Appellant, with the wisdom of hindsight, expressed the view that if she had been acquainted with the contents of the said statement she would not have agreed to speculate on Future Index Trading.

73. It will of course be appreciated that it was undoubtedly the function of the trial judge to assess the truth or otherwise of this evidence of the Appellant. He had the great advantage of being able to observe her as a witness over a considerable period of time.

74. It is perhaps significant that one of the remarks made by the judge in his judgment was that it was his impression that the Appellant was a lady who struck him as being greatly concerned to advance her case.

75. One of the points which was pressed by Mr. Ching on her behalf was her comparative ignorance of Stock Exchange Futures. In the light of the observations made by Nazareth, J. it is perhaps not altogether surprising that the Appellant should give an impression of ignorance when giving evidence on the Risk Disclosure Statement. It would hardly have been in her interests to appear to be knowledgeable on the subjects covered in her evidence.

76. Perhaps even more important than this is the overall background of the case. It was the Appellant's case that it was not David Ka who first introduced the idea of the Appellant Trading in Stock Exchange Futures. She got the idea from one of her lady friends. When she and her friend had luncheon together the topic of investing in shares had been discussed and the Appellant had referred to the profits she had made in buying and selling stocks and shares.

77. The friend had then suggested that the Appellant might like to consider going into Futures Index Trading.

78. The trial judge appears to have formed the impression that the Appellant was an experienced businesswoman and that she was an intelligent person.

79. I find it very hard to believe that the Appellant could have thought that if she entered into engagements of this nature that they would not necessarily attract a much higher risk than simple trading in shares. It seems to me much more likely that she was fully aware of the fact that much higher risks were involved.

80. She made the initial approach to the Respondent to trade in Futures and I can see no reason to fault the findings of the trial judge that on the balance of probabilities it is more likely than not that she would have traded in futures even if the contents of the Risk Disclosure Statement had been read to her.

81. Certainly there is nothing in the reasons which were given by Nazareth, J. in his judgment which would in any way convince me that he was wrong in coming to the conclusion ha din.

82. As I have come to the opposite conclusion to Bokhary, J. it would seem to me to be redundant for me to comment on issue 10.

83. Bokhary, J. declines from expressing a view on issue 11 which is in this form.

84. 11. Apart from the CTA was there any general duty on the part of the Brokers to warn the customers along the lines of the Risk Disclosure Statement?

85. Here I find myself in agreement with the trial judge that no such duty existed. I also accept the validity of his reasoning. I would however wish to add that the circumstances arising in Drexel Burnham Lambert International v. ElNasr 1986 1 Lloyds Law Reports 356 are much closer to those of the present case than Cornish v. Midland Bank 1985 3 All ER 513 which was particularly relied upon by Mr. Ching.

86. At p.368 Staughton, J. defined the duty of care of Brokers towards their customer in these terms:-

                "4. Breach of duty of care

87. With the respect I consider that this is an accurate statement of the duty or rather lack of duty which the Respondent owed the Appellant.

88. I agree with Bokhary's conclusions on issues12 & 13.

89. For the reasons I have already given I disagree with what Bokhary, J. has to say on issue 14.

90. Owing to the differences of views taken by Bokhary, J. and myself there would not seem to me to be much point in making further comments on issues 15 & 16.

91. I would however state that in my view the trial judge was right in holding that the respondents could not be held legally responsible for the manner in which they sold the shares and the Futures. Having said this I personally would dismiss this appeal.

[Appeal allowed in part]