XCHRX MANCIPLE LIMITED v. CHAR ON MAN

1993, No. A7498

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

(Action No. 7498 of 1993)

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JUDGMENT

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The Background

1. On 14 April 1987, the defendant opened a securities trading account with Sanyo Securities (Asia) Limited (Sanyo), which carries on business as stockbrokers, bond brokers, stock dealers and underwriters. At the end of October 1987, the defendant was indebted to Sanyo in the small sum of Yen 6,488 having asked Sanyo to sell all the shares in his account. At about 12 November 1987, the defendant placed an order with Sanyo to purchase 10 shares in Nippon Telephone and Telegraph Corporation (NTT) at a price of Yen 25,500,000. Against this purchase, the defendant deposited $500,000 as security. At about 17 March 1988, the defendant placed an order to purchase a further 10 shares of NTT at a price of Yen 23,869,700, and deposited $300,000 with Sanyo as security. On 7 August 1992, Sanyo sold the 20 shares of NTT. As a result to these transactions, it is alleged in the statement of claim, the defendant became indebted to Sanyo in the sum of Yen 31,968,031, together with interest. On 21 August 1992, Sanyo assigned this debt to the plaintiff. It is alleged that, as at 31 July 1993, the amount due amounted to Yen 33,947,374.

2. The plaintiff applied for summary judgment, and this was granted on 11 July 1994 by Master Jennings. The defendant now appeals against this decision.

The Approach

3. The defendant must satisfy me that he has a reasonable probability of showing a real or bona fide defence; i.e. that his evidence is capable of belief. If the evidence of the defendant is not reasonably capable of belief in any material respect, it cannot be said that there is a fair and reasonable probability that the defendant has a real or bona fide defence.

The Instruction to Sell

4. One of the defences raised by the defendant in his affirmation is that -

"On or about September 1989, the Japanese stock market had fallen substantially and so was the value of my NTT shares. On or about 8 September 1989 the value of my NTT shares had fallen to such an extent that all my money in the HK$ account was just sufficient to pay off the money I lost. In order to stop any further losses which I considered was extremely likely, I instructed Mr Note to sell all the 20 NTT shares for me and to debit my HK$ Account to pay off the losses. Mr Note agreed to do so. At the time when I gave instructions to Mr Note my overall accounts with Sanyo were about even. Any outstanding balance either in favour of Sanyo or me after my accounts were terminated was a matter of a few thousand yens only."

5. According to Mr Takuro Ito, an accountant employed by Sanyo, Mr Note was employed as a sales manager by Sanyo from 23 January 1986 to 31 March 1988. He went from Sanyo to join a company named Asian Dragon Investment Limited (ADI). It is not suggested by the plaintiff that the defendant was informed that Mr Note was no longer employed by Sanyo. In fact, after Mr Note left Sanyo, Sanyo continued to send copies of the defendant's customer's ledger to the defendant; the only change being that, after the defendant's name, the letters "ADI" were added. There is nothing unreasonable in the defendant believing that his account was still being handled by an employee of Sanyo. Certainly, if the defendant did instruct Mr Note to sell his NTT shares, I cannot decide at this stage that Sanyo had no responsibility for Mr Note failing to carry out those instructions.

This must be a triable issue.

6. If it is so that the defendant instructed Mr Note to sell his NTT shares, there must be a triable issue on the extent of the defendant's liability to the plaintiff; the difference between some Yen 33 million and Yen 3 or 4 million.

7. Mr Barlow, who appears for the plaintiff, argues that I should find that the defendant's assertion that he instructed Mr Note to sell his shares does not raise a triable issue because it is inherently incredible and is contradicted by his conduct and the contemporary documents. I prefer to consider whether his evidence is reasonably capable of belief.

8. There is no evidence from Mr Note before me, and no other evidence that directly contradicts what the defendant says about his instruction to sell. Accordingly, if I am to find that the evidence of the defendant is not reasonably capable of belief, it must be on the basis that his assertion is inherently incredible, or improbable, or contradicted indirectly by his own conduct or documentary evidence.

9. It is true that the defendant's conversations with Mr Note were not recorded in any contemporaneous document, but this does not entitle me to find that this renders the defendant's evidence as not reasonably capable of belief. It is not unusual, in the experience of the courts, that people do not record in writing conversations that, looking back, were important. There is no suggestion on the part of the plaintiff that instructions such as that the defendant says he gave should be in writing or confirmed in writing. We all know that, certainly in Hong Kong, instructions to brokers to buy and sell shares are not usually required to be made in writing.

10. Mr Barlow points out that the defendant is imprecise as to the date on which he gave the instructions. This is so, but I do not think this justifies me in drawing an adverse inference against the defendant. The evidence is that the price of NTT shares were falling steadily in August - September 1989. If the defendant was deliberately lying about his instruction, one would have expected him to fix as the date on which he says he gave the instruction as a date more favourable to himself.

11. It does appear, from the plaintiff's own evidence, that Mr Note gave an instruction 8 September 1989 to debit the defendant's Hong Kong dollar account and credit his margin account. This is certainly consistent with what the defendant says; it is what one would have expected to happen if an instruction had been given to sell his shares and close out the account.

12. Mr Barlow says that no motivation is suggested for Mr Note to fail to carry out the defendant's instructions. This is true, but I do not think the defendant be expected to know what the motivation might have been. It might have been that, in the turmoil of a busy day, Mr Note simply overlooked the instruction, or that he gave instructions to someone else to do it, and that person failed to carry out the instruction, or, in some other way, there was a break-down in communications.

13. It is then said by Mr Barlow that what the defendant says about what the balance of his account would be after his instructions were carried out is "unreal". I do not agree. There may be criticisms to be made of his assertion, but I do not believe that I can find at this stage that it is not reasonably capable of belief. The defendant does not say on what basis he came to his belief, but if he had referred to his copies of his customer's ledger, and he had not, on about 8 September 1989, received his copy of the ledger dated 31 August 1989, which may well be so, he would have seen from the latest copy ledger in his possession, that dated 31 July 1989, that his debit balance was Yen 39,171,860 and the value of the NTT shares were Yen 33,800,000, leaving a balance of Yen 5,271,860. His Hong Kong dollar account yielded Yen 5,727,060.

14. And, Mr Barlow says, if the defendant had given the instruction he says he did, he would have soon realised that it had not been carried out. He would have seen this from the copy customer's ledgers he received after he gave his instruction. The defendant says that he did indeed see this from the copy ledger for the month of September 1989. He says he immediately contacted Mr Note, who reassured him that his instruction had been carried out and that was why his Hong Kong dollar account had been transferred to his securities account. Mr Note said that there had probably been some mistake in the accounts department and he would sort it out. The defendant says that he did not receive copies of his customer's ledger account after September 1989. Of course, there are some unsatisfactory aspects to this. It might be argued that the defendant, if he is telling the truth, would have been put on guard when he saw that, apparently, his instructions had not been carried out, and he would have confirmed his instructions in writing, or, in some other way, satisfied himself that all was in order. Against this, the defendant saw for himself that part of his instructions - the transfer of his Hong Kong dollar account had been carried out - and that might well have reassured him that his message had got through. It might also be said that it is improbable that the defendant would cease receiving his copies of his customer's ledger. This would have greater strength if Mr Note had not been involved in handling the defendant's account in some other business. It is not unreasonable that, after Mr Note instructed Sanyo to transfer the defendant's Hong Kong dollar account, Sanyo sent the copy ledgers to him. And if, indeed, Mr Note realised that there was trouble brewing because he had not carried out the defendant's instructions, he might well have told Sanyo to send the copy ledgers to him. These matters, in my view, can be resolved properly only at trial.

15. The statement of claim pleads that, on 13 August 1990, Sanyo sent to the defendant a margin call letter requiring him to deposit Yen 26,295,559. Mr Ito confirms that "it was sent to the Defendant at his home address on 13th August 1990" and it was not returned by the Post Office. Mr Ito does not produce a copy of the letter. I would like to have seen this. If the defendant had received this letter, he would have had difficulties in explaining why he did not respond to it. He says he did not receive it. He says he was not in Hong Kong at the time. This is unsatisfactory, but the unsatisfactory features can be tackled properly only at trial. I do not think I am entitled to deprive the defendant of his day in court on this basis.

Illegality

16. This is sufficient to dispose of the matter. If the defendant has one defence that is reasonably capable of belief, it is not necessary to inquire whether or not he has other defences that are such. But in case I am wrong in what I have said earlier in relation to the defence that the defendant gave instructions for his NTT shares to be sold, I will express my view on another defence raised by the defendant.

17. The defendant says that, according to Japanese law, it was illegal to sell NTT shares to anyone except a Japanese national. If this is so, various defences may be open to the defendant, including the voidability of the transactions relating to the NTT shares. In this respect, Mr Momford relies on a statement in Libyan Arab Bank v. Bankers Trust Co. [1989] 1 Q.B. 728 by Staughton J. at 743F -

"Performance of a contract I excuse if (i) it has become illegal by the proper law of the contract, or (ii) it necessarily involves doing an act which is unlawful by the place where the act has to be done. "

18. Just what it is that the Japanese law prohibits is in dispute. I have evidence before me from two Japanese lawyers. They differ as the effect of the Japanese law. One says that, although the law prohibits ownership of NTT shares by, in essence, non-Japanese legal persons, the Japanese government interpreted this to mean that a person whose shareholding was not registered was not an owner. The evidence of the other Japanese lawyer contradicts this. I must say I would be surprised if the Japanese law allowed ownership of shares in NTT to rest with a foreigner provided that the ownership was not registered. The usual purpose of legislation of this nature is to keep the control of communications out of the hands of foreigners. My experience of this type of legislation, including similar Hong Kong legislation, is that the law takes precautions to ensure that control cannot be exercised indirectly, as well as directly. However, I am not an expert in Japanese law, and I cannot resolve the dispute. Foreign law is a matter of fact in our courts, and, if there is a dispute as to the effect of that foreign law, this can be resolved only by evidence.

19. Mr Barlow makes the point that it is said that the Japanese law does not impose any penal sanctions for its breach. It is not my understanding of the law that this is necessary before the dictum by Staughton J. applies. What is made unlawful is unlawful, whether or not specific penalties are prescribed for a breach. In any event, it may be, for all I know, that Japanese law, like our law, does allow the imposition of penalties for breach of a statute, in some circumstances, although the statute does not prescribe them.

The Result

20. In the result, in my judgment, the defendant has put forward defences that raise triable issues. The appeal is allowed. The defendant is allowed unconditional leave to defend.

The Costs

21. There seems no reason why the defendant should not have his costs, here and before Master Jennings, and I make an order nisi to this effect.