WILLIAM REIDY v. BNP INTERNATIONAL FINANCIAL SERVICES (HONG KONG) LTD.

HCA 17026/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 17026 OF 1998

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J U D G M E N T

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1. The parties commenced a private banking relationship in February 1983, which continued until November 1987, immediately after the notorious crash of the Hong Kong stock market. The Plaintiff sues the Defendant for losses he sustained on his investment account, which he alleges were caused by the Defendant's breach of its contractual and/or fiduciary duties towards him.

2. The Plaintiff, and for the Defendant Mr Rosene, Ms Powers and Ms Luk all gave evidence, and all did so straight-forwardly and well. I had no reason to believe that any of them told anything other than the truth to the best of their recollection. The demeanour of the witnesses has not played any part in influencing me to arrive at the findings of fact which follow.

3. The Plaintiff was at all relevant times the deputy managing director of Dow Jones Markets (Asia Pacific) Limited, whose main function was to provide information about the financial markets down wires to people who hired its screens.

4. On 7 February 1993, the Plaintiff opened an account with the Defendant, and the parties executed the following three agreements which together regulated their contractual relationship:

(1) Custodian and Investment Management Agreement (Discretionary);

(2) Agreement for Loan Facilities and

(3) Charge and Security Agreement.

5. In terms of the Custodian and Investment Management Agreement the Defendant was appointed as custodian to open a custodian account in its books in the Plaintiff's name, and the custodian was further appointed as Investment Manager "to manage the investments in the manner specified in the Terms and Conditions of the Custodian and Investment Management Agreement attached".

6. Clause 12(b) of the Agreement provides as follows:-

"Custodian with the consent of the Client hereby also agrees to act as Investment Manager of the Investments and in such capacity shall have power in its absolute and unfettered discretion to invest, reinvest and make such changes as to any Investments as it may deem desirable without any obligation to give prior notice thereof to the Client and with power generally to do such acts in relation to the Investments as the Custodian may from time to time deem necessary or proper or otherwise to be in the interests of the Client and in the event of the Custodian (in its capacity as Investment Manager) exercising its powers under this Clause, then the powers of the Custodian (as Custodian) referred to in the Agreement shall be limited and reduced, as appropriate."

7. In relation to fees the Agreement provides that the Plaintiff shall pay a quarterly fee to the Custodian representing 1/8 of 1% of the market value of all investments held, with a minimum fee of US$250.00 per quarter; in addition he was liable to pay transfer and handling charges on transactions effected by the Defendant on his behalf.

8. Clause 18 is an Indemnity clause which I deal with later in this judgment:

9. The Charge and Security Agreement provided inter alia as follows:

"(1) In consideration of BNP International Financial Services (Hong Kong) Limited ("IFS") making or continuing advances or otherwise giving credit or providing any financial or other facilities or services to me ... I hereby agree and declare that all rights and interests (if any) which from time to time I may have in or to stocks, bonds, shares and other securities, or to cash deposits placed with any bank or other financial institution by IFS on my behalf ... shall stand charged with and constitute a continuing security for:

(a) the payment to IFS on demand of all moneys (in whatever currency) now or at any time hereafter due and owing to IFS by me

(2) The charge hereby created ... shall be a continuing security not to be considered satisfied by any intermediate payment of the whole or part of the sums at any time due and owing to IFS by me ...

(3) In the event of the market price of the Security so charged declining during the continuance of any of my liabilities whether payable on demand or otherwise I undertake from time to time either (as you may direct) to keep up a margin to your satisfaction in the value of the Security by depositing other approved securities or to pay off such part as you may require of such liabilities as are not payable on demand.

(4) (a) As additional security ... for the Liabilities it shall be a fundamental term arising on all deposits of cash ... that no part of the Deposit shall be repayable until such time as the full amount of the Liabilities shall have been paid to and received by IFS..

(5) I agree that IFS may, so long as I have any liabilities to IFS, at any time and without notice to me:

(a) notwithstanding the terms of repayment of the Deposit set out in Clause 4 of this Agreement, set off and apply against any Liabilities of mine to IFS any sums (whether or not then due and irrespective of the currency of the sum) standing to my credit on any account whatsoever in my name or otherwise held by IFS for my account ....

(d) exercise a right of general lien over all rights and interests (if any) which from time to time I may have in or to the Security held by IFS whether for safe custody or otherwise with power for IFS to sell the same or any part thereof if necessary without being under any liability to me in respect of the price obtained or any other terms of such sale or disposition so as to satisfy any of my liabilities to IFS ..."

10. In terms of the Agreement for Loan Facilities, the Defendant confirmed that it was prepared to offer the Plaintiff financial facilities inter alia upon the following terms and conditions:

"Repayment

By notice in writing on demand by us to you, at any time.

Collateral

(a) Charge and Security Agreement (including Rights of Set off, Consolidation and Lien).

For the purposes of assessing the margin referred to in clause (3) of the Charge and Security Agreement, the market value of the security (as therein defined) and/or substituted and/or additional security shall never be less than the percentage referred to in column II below of the total moneys outstanding from time to time that relate to the security provided for the cash advances referred to in column I below. All collateral will be subject to our prior approval.

Column I	Column II
(Security provided for cash advances)	(%)
Cash advances secured by bonds in different currency	140%
Cash advances secured by shares in different currency	160%
Cash advances secured by cash in different currency	125%"

11. There were 3 distinct phases in the Plaintiff's investment dealings with the Defendant. In May and July 1993 the Plaintiff invested a total capital amount of US$301,790.75, all of it invested in the Defendant's Asian equity portfolio with an element of leveraging, which portfolio was operated by the Defendant on a discretionary basis. The Plaintiff's account was handled by Robert Bunker and Pauline Gatley on behalf of the Defendant.

12. Although the Plaintiff's portfolio increased in value between February 1993 and December 1995, he was not satisfied with its performance. Since Mr Bunker and Ms Gatley had left the Defendant's employ, the Plaintiff's account was taken over and handled by Mr Roger Rosene, the Defendant's Senior Vice-President (Investment). He introduced himself to the Plaintiff at a meeting in early December 1995, and followed this up by a letter on 13 December 1995 outlining some investment ideas, including "a portfolio of high yielding Asian convertible bonds leveraged in Yen (with downside foreign exchange cover)".

13. On 19 December 1995, on the Plaintiff's instruction, the Defendant liquidated the investments in his portfolio. On 24 January 1996, Mr Rosene met the Plaintiff to discuss what he wished to do with the liquidated funds held in his account. Since the Plaintiff had at an earlier meeting expressed an interest in a convertible bond portfolio with Yen leveraging, Mr Rosene made a presentation to him based on the premise that the Plaintiff would borrow the equivalent of US$268,830.00 in Yen and invest that borrowing in convertible bonds, while retaining his liquidated funds on deposit. This proposal would produce a leveraging effect of 0.63 to one in the Plaintiff's portfolio.

14. There is no dispute that having listened to this presentation, the Plaintiff told Mr Rosene that he wanted his existing cash together with an equivalent amount of Yen borrowing to be invested in convertible bonds, which would produce a leveraging effect of 1 to 1 in his portfolio. Indeed Mr Rosene endorsed in manuscript on the bottom of his presentation: "please use existing cash plus 1 to 1 Yen funding to participate in CB's (try for 20 issues)", which the Plaintiff duly signed.

15. Thereafter, between January and November 1996, the Plaintiff's account was invested in a convertible bond portfolio with a 1 to 1 Yen loan facility as had been agreed, which portfolio was also managed by the Defendant on a discretionary basis. Although the account increased in value during that time, the Plaintiff was again dissatisfied with its performance, and in November 1996 he instructed Mr Rosene to liquidate his convertible bonds as he wished to go into the equities market, in which he told Mr Rosene his friends had been making far better returns than he had made on his convertible bonds portfolio. Mr Rosene asked him if he wished to retire his Yen funding loans on their next maturity date, however, the Plaintiff was emphatic that he wanted to continue using the Yen funding for his share trading, and did not want the loans repaid.

16. Mr Rosene explained to the Plaintiff that he (Rosene) had no experience in equities trading, and since the Defendant only operated a small number of equities funds, if the Plaintiff did not wish to invest in any of those funds, he would have to make his own decisions regarding the purchase and sale of equities. The Plaintiff agreed that he would do so, and Mr Rosene testified that he distinctly remembered the Plaintiff boasting to him that he had his own sources of information for share trading, including a 24-hour access to Telerate information (namely the information marketed by his own company), and therefore he would have no problem in picking his own equities trades. He also mentioned that he was doing equity trading elsewhere at the time (he had an investment account with Lippo Securities, as it transpired from his own evidence).

17. In this third phase of his investment activities therefore, from December 1996 onwards the Plaintiff decided for himself which equities he would buy and sell at any given time, and based on his decisions he gave buy and sell orders to the Defendant to execute on his behalf. He continued to use the Yen loan facility, which continued to be managed by the Defendant on a discretionary basis on his behalf. He built up a portfolio consisting of Hong Kong equities, including blue chips and "red chips" (the latter being PRC company shares traded on the Hong Kong stock exchange). His investments continued to prosper, and by 31 December 1996 his assets had increased in value to approximately US$898,586.00 securing a loan of US$478,564.00, namely providing an asset to loan coverage of approximately 214%.

18. On 30 April 1997, the Plaintiff withdrew US$322,997.00 from his account, which was slightly more than the total amount of capital which he had invested in the account since its inception in February 1993. In other words, the assets which remained in the account after the withdrawal constituted the profits which the Plaintiff had made on the capital which he had invested with the Defendant. As at 30 April 1997 the total value of his assets stood at US$642,046, and the adjusted net asset value of his portfolio was US$236,360.

19. The relationship thereafter continued on the same basis, namely with the Plaintiff deciding upon his own equities trades, which translated into buy and sell orders which he communicated to the Defendant to execute on his behalf.

20. His investments continued to perform well until the end of August 1997: as at 29/08/97, his assets were valued at US$833,601, securing a loan of US$364,594, leaving the net asset value of his portfolio at US$469,007.77, with a loan coverage of 229%.

21. As from 30 August 1997 the Plaintiff had the shares of only 3 companies in his portfolio: 222,000 China Everbright shares, which he had purchased in June 1997; 40,000 Ka Wah Bank shares, which he purchased on 26 August 1997; and a very small holding of 47 New World Development shares, which he obtained on 3 July 1997.

22. His fortunes changed dramatically thereafter: the value of his portfolio steadily declined in September to a gross asset value as at 30/09/97 of US$589,113, with a net asset value of US$229,369.68, representing a loss in the net asset value of some US$240,000.00 during that month. (The record shows that he did not trade on his account at all in September 1997.)

23. The Plaintiff's travel schedule in September and October 1997 was as follows: 7 to 17 September Tokyo/Sydney on business, 30 September to 4 October Sydney on business, 7 to 15 October Hawaii on holiday, and 20 to 22 October Tokyo on business. He conceded that he did not at any time communicate his specific travel schedule to the Defendant or any of its agents.

24. Mr Rosene in turn left Hong Kong on holiday on 30 September until 12 October 1997 and testified that before he left he checked his client's accounts on his computer screen, leaving his colleagues Ms Powers and Ms Luk to stand in for him as necessary during his absence. There is no dispute that nobody from the Defendant contacted (or attempted to contact) the Plaintiff during September, nor thereafter until 21 October.

25. The market continued to drop, and at the end of trading on Friday 17 October 1997 the Plaintiff's account was under-collateralised by approximately US$100,000.00. This was picked up by the Defendant's credit department on 21 October, and they sent a memo to Mr Rosene instructing him to rectify the situation. Mr Rosene telephoned the Plaintiff's office to inform him of this development, and was told that the Plaintiff was in Japan. After several calls Mr Rosene eventually managed to contact him at about midnight that night in his hotel room, and informed him that the net value of his portfolio had fallen to approximately US$22,338.47, leaving his loan from the Defendant under-collateralised by US$105,958.62. He advised the Plaintiff to liquidate his portfolio as soon as the market opened on the following day. The Plaintiff told him that he did not want to sell in view of the large losses in the portfolio, and since he believed that the market was likely to bounce back up. He asked Mr Rosene not to sell and undertook to meet him on Thursday morning 23 October after his return to Hong Kong. Mr Rosene agreed to these arrangements.

26. At 9:15 a.m. on Thursday morning the Plaintiff met Mr Rosene and Mr Mirasol, who was the head of BNP's credit department. The Plaintiff was given a detailed account of the drop in his portfolio, and was informed that at the close of trading on the previous day (22 October 1997) his loans exceeded his assets by nearly US$20,000.00, and his loans from the Defendant were under-collateralised by US$132,054.71. Mr Rosene told him that he would have to inject a lot more cash into his portfolio in order to reinstate his margins and to avoid forced selling of his portfolio by the Defendant. The Plaintiff made it clear that he did not want to sell his shares, and was willing to put in additional funds to put his account on a sound footing again. He issued a Hong Kong dollar cheque in favour of the Defendant for the equivalent of US$50,000.00, (thus providing a collateral cushion of approximately US$30,000.00), which was accepted by Messrs Rosene and Mirasol, whereafter the Defendant left their offices.

27. Within an hour Mr Rosene telephoned to inform him that the market was falling seriously and that his US$30,000.00 cushion was fast disappearing. He also informed him that since the meeting he had received instructions from his manager that all margin accounts were to be closed, and he asked the Plaintiff if he would agree to liquidate his account. He said that the Plaintiff's shares should be sold immediately to stop the damage; he remained on the telephone and gave the Plaintiff a "live-time" account of how the value of his shares was falling as they spoke. The Plaintiff finally reluctantly agreed to liquidate his account; Mr Rosene still remained on the telephone, relaying to him the falling prices that were being obtained as the bulk of his shares were sold by the Defendant.

28. There is no dispute that the liquidation of the Plaintiff's account left him with a net shortfall of US$54,918.87 which represented the amount by which the loans to him exceeded the proceeds of selling all his shares. This amount is the subject of the Defendant's counterclaim against the Plaintiff, together with interest thereon.

The November 1996 Oral Agreement

29. It is important to note the change in the parties' rights and obligations which took place as a result of the oral agreement which they concluded in November 1996 that henceforth the Plaintiff would invest the proceeds of his convertible bond account in equities trading, and the Plaintiff would himself choose which equities to buy and sell, and the timing thereof, and he would relay his buy and sell orders to the Defendant to implement on his behalf.

30. Although there was no express reference to any of the three written agreements which they had originally entered into, and no express amendment thereof, their aforesaid oral agreement necessarily constituted an implied suspension of paragraph 12(b) of the Custodian and Investment Management Agreement (Discretionary), in terms of which the Plaintiff had agreed to act as the Investment Manager of the Investments, "... and in such capacity shall have power in its absolute and unfettered discretion to invest, reinvest and make such changes as to any Investment as it may deem desirable without any obligation to give prior notice thereof to the client and with power generally to do such acts in relation to the capital Investment as the Custodian may from time to time deem necessary or proper or otherwise to be in the interest of the Client ...".

31. Clause 12(b) of the Agreement reflected the parties' intention at the time that the agreement was entered into, namely the 17 February 1993, that the Plaintiff would invest solely in the Defendant's Asian Equities Portfolio Fund, which would be managed on a discretionary basis on his behalf by the Defendant. These provisions continued to apply in the 2nd phase, after the Plaintiff had instructed the Defendant to liquidate his investments in the Asian Equities Portfolio Fund and reinvest the proceeds in the Defendant's convertible bond portfolio, which was also managed on his behalf by the Defendant on a discretionary basis.

32. However the parties' express oral agreement in November 1996 to the effect that the Defendant would no longer manage the Plaintiff's investments on a discretionary basis, rather that the Plaintiff would decide in his own discretion which shares to buy and sell and the timing thereof, relaying his buy and sell orders to the Defendant to execute on his behalf, by necessary implication suspended the operation of Clause 12(b) of the original Agreement, for the duration of the new, oral agreement (which in the event, proved to be until the termination of the parties relationship in October). It will be recalled that at the Plaintiff's specific request the Defendant agreed to continue to extend its Yen loan facility to him, which it would continue to manage for him on a discretionary basis. The parties also envisaged, and impliedly agreed, that the remaining provisions (other than clause 12(b)) of the three written agreements would continue to apply.

33. I note that in a letter dated 11 March from the Plaintiff's then solicitors to the Defendant, the nature of the parties' relationship after November 1996 was expressed in the following terms:

"Between November 1996 and January 1997 our client's interest in the convertible bond portfolio was liquidated on his instructions and the Bank ceased to act as discretionary manager of the portfolio, although the bank did continue to manage the Yen loan account and time deposits. The bank's fees under the Custodian and Investment Management Agreement remained unaltered, and no agreement was entered into."

That is in my view an accurate summary as far as it goes, save only that the assertion that "no agreement was entered into" should read that no written agreement was entered into.

34. The position is expressed in similar terms in paragraph 13 of the Plaintiff's amended statement of claim:

"13. The Plaintiff's Hong Kong equities portfolio was to be operated in accordance with buy and/or sell instructions from the Plaintiff. However, the Custodian and Investment Management Agreement was not expressly varied and its provisions conferring discretionary powers on the Defendant continued to apply in practice in so far as the Yen loan account and time deposit were concerned. Accordingly, subject to the oral agreement between the Plaintiff and Defendant that the Hong Kong portfolio would not be restructured without the Plaintiff's instructions, the relationship between the Plaintiff and Defendant continued as before and were still governed by the written agreements. Further, the Defendant remained entitled to and continued to charge fees as per the written agreement."

Implied Terms

35. It is the Plaintiff's case (paragraph 7 of the amended statement of claim) that

"In accordance with the common intention of the parties and as a matter of law there were implied terms of the overall agreement between the Defendant as banker and Plaintiff as customer.... as follows:

7.1 The Defendant would, in exercising its discretionary powers in relation to the Plaintiff's investments, use reasonable care and skill;

7.2 The Defendant would, in giving advice to the Plaintiff in relation to his investments, advise fully and competently;

7.3 The Defendant would report to the Plaintiff any substantial or unusual movements in the market prices of shares contained in the Plaintiff's portfolio as and when the same occurred, alternatively within a reasonable time thereof;

7.4 That any advice given by the Defendant to the Plaintiff would be relied upon by the Plaintiff in determining whether or not to restructure his investments and/or loan exposure and, if so in what respect and/or to what extent;

7.5 (Abandoned)

7.6 That the terms of the written agreements and the terms and conditions of the Custodian and Management Agreement would be construed, performed and/or enforced in a manner consistent with the Code of Conduct for Persons Registered with the Securities and Futures Commission ("the Code").

8. The Code provided, at all material times, inter alia, as follows:

8.1 In conducting its business activities, a registered person should act with due skill, care and diligence, in the best interests of its clients and the integrity of the market;

8.2 A registered person should have and employ effectively the resources and procedures which are needed for the proper performance of its business activities;

8.3 A registered person should seek from its clients information about their financial situation, investment experience and investment objectives relevant to the services to be provided;

8.4 When providing advice to a client a registered person shall act diligently and ensure that his advice and recommendations in relation to clients are based on thorough analysis and take into account available alternatives;

8.5 A registered person shall ensure at all times that any person he employs or appoints to conduct business for or with clients or other registered persons is fit and proper and otherwise qualified, including having relevant professional training or experience, to act in the capacity so employed or appointed."

8.6, 8.7 }(abandoned).

36. I am satisfied that it was an implied term of the parties' agreements, (and Mr Reyes accepts) that the Defendant would, in exercising its discretionary powers in relation to the Plaintiff's investments, be bound to use reasonable care and skill. It is not part of the Plaintiff's case that in the first two phases of the Plaintiff's investment activities, when his investments were managed by the Defendant on a discretionary basis, that the Defendant failed to exercise reasonable care and skill. Since the Plaintiff's complaints against the Defendant all relate to the third phase only, and in relation to the Plaintiff's equities portfolio, and since there was no element of discretionary management of the Plaintiff's equities portfolio by the Defendant during that time, the existence of such an implied duty on the part of the Defendant does not advance the Plaintiff's case, bearing in mind that the Plaintiff had expressly accepted responsibility for deciding the nature and timing of his equities investments.

The Defendant's provision of information and advice

37. I am further satisfied that it was an implied term of the parties' "overall agreement" (and again Mr Reyes accepts) that the Defendant would, in giving advice to the Plaintiff in relation to his investments, be obliged to advise fully and competently.

38. The Plaintiff's case in this respect is set out in paragraph 14 of the amended statement of claim:

"14. In the period from January to October 1997 the Defendant continued to advise the Plaintiff in relation to his investments. The Plaintiff relied on and acted upon such advice as the Defendant had intended, alternatively as the Defendant ought reasonably to have foreseen;

PARTICULARS OF ADVICE

14.1 In various telephone conversations with the Plaintiff both Luk and Miss Powers provided information and opinion on the prices and prospects of particular shares as well as views on the state of the market in general;

14.2 Specific shares discussed included China Merchants, China Everbright, Ka Wah Bank and China Eastern. The discussions involved Luk and Miss Powers offering general comments as well as precise buy, sell and hold recommendations;

14.3 The Defendant issued a monthly and quarterly newsletter which typically contained "house" views on the state of and prospect for the Hong Kong stock market;

14.4 In the Defendant's "Hong Kong Weekly Strategy" newsletter of 8 September 1997, headed Life After the Hand over, it was stated, inter alia:

"Only the best managed blue chip companies such as Hutchison and Citic Pacific will continue to prosper...

Established diversified red chip companies such as China Resources, China Merchants, China Travel and COSCO Pacific are likely to remain market favourites with their parents' rich assets in Hong Kong."

14.5 In his then capacity as trustee of Dow Jones Market (Asia Pacific) Limited's pension fund, which was managed by the Defendant, the Plaintiff received various letters from the Defendant containing views on the Hong Kong and world securities markets;

14.6 One such letter was dated 12 September 1997 from Miss Powers which stated, inter alia:

"The past month must surely go down as one of the most volatile in the Asian region .... I think we have seen the bottom of these markets and are currently in the process of rebounding...

I agree with Frederick Tsang of BNP Prime East who recommends, in the attached report, the well-established red chips ... China Resources, China Merchants, China Travel and COSCO Pacific. I also recommend BNP's China fund which ... continues to do very well despite the recent volatility in the market ...

Please don't hesitate to give me a call if you wish to be more active in the Hong Kong market... "

14.7 In August 1997 Luk told the Plaintiff he must sell a warrant position based on a "below collateral position"; and

14.8 On 24 August 1997 Luk recommended and advised that the Plaintiff buy Ka Wah Bank shares which the Plaintiff purchased the same day in reliance on the said recommendation and advice."

39. This aspect of the Plaintiff's case in my view remained vague and unfocussed. It was apparent from the evidence that both Miss Luk and Miss Powers did provide information and sometimes opinions on the prices and prospects of particular shares, as well as views on the state of the market in general. The Plaintiff's allegations, however, are left hanging in mid-air, as it were, since he failed to identify any particular advice or information which was relied upon by him, and which is alleged to have been negligent or to have caused him any loss. Thus also he repeatedly stated in his evidence in chief that particular information or advice or recommendations "influenced my investment considerations and were discussed with BNP staff...", without identifying whether the advice was negligent or whether he suffered any loss as a result of receiving it.

40. Even in relation to the specific shares particularised, the Plaintiff's allegations are couched in general terms - see paragraph 14.2 above of the Statement of Claim - and fall far short of the sort of allegations which would be needed to found liability on the part of the Defendant for advice negligently given by its agents.

41. Even if one were to put the Plaintiff's case at its highest possible in relation to these specific shares, namely by assuming that the Plaintiff purchased the shares in question specifically on the recommendations of Miss Luk or Miss Powers, the facts do not support any conclusion that their recommendations were wrong or negligent.

42. In relation to China Merchant Haihong Shares, on 24 April 1997 Miss Luk informed the Plaintiff that a private placement of such shares was available. The Plaintiff purchased 4,000 such shares on that day and sold them on the same day for a profit of over $3,000.00. He subsequently purchased another 60,000 of these shares on 28 May 1997 and subsequently sold them in 2 lots in June, netting an overall profit of over $600,000.00 thereby.

43. In relation to China Everbright shares, the Plaintiff purchased 510,000 such shares in March and April 1997, and subsequently sold them on 25 April, making a profit of over $680,000.00. In May he bought another 30,000 such shares, and sold them the following day for a profit of approximately $18,000.00.

44. It is true that in June he purchased 222,000 China Everbright shares, which were sold when his portfolio was liquidated on 23 October 1997, at a very substantial loss of HK$3,225,309.70. It is vital to note however, that the price table shows that the Plaintiff would have realised a healthy profit on the shares if he had sold them at any time between 6 August and 1 September 1997. Therefore even if he had established - which he did not - that he had purchased such shares on the specific recommendation of Miss Luk or Miss Powers, his case would fall far short of establishing any liability on their part or the Defendant's part for the loss which he subsequently suffered, since it was his own decision not to sell the shares at a profit when he could have.

45. In relation to the Ka Wah Bank shares, on 26 August 1997 Miss Luk informed the Plaintiff that there was a rumour among brokers that Ka Wah Bank share prices would increase to about $24.00, from the $18.90 for which they were trading on that day. The Plaintiff testified that he interpreted this tip from Miss Luk as a strong recommendation that he should buy such shares, and he did instruct her to buy 40,000 such shares for his portfolio on that same day (26 August 1997). When his portfolio was subsequently liquidated on 23 October 1997 he did sustain a loss on such shares.

46. Importantly, however, the price table shows that Miss Luk's tip was in fact an excellent one, since on 29 August the shares reached a high of HK$24.20. It is simply not tenable, in my view, for the Plaintiff to suggest that the loss which he eventually sustained on the sale of the shares should be laid at Miss Luk's door for "recommending" that he bought the shares, when the facts show that the rumour which she passed on to him did in fact materialise, and that he could have avoided the loss which he eventually sustained on the sale of these shares by selling them on 29 August, on which date he would in fact have realised a profit of $212,000.00 on them.

47. Similar considerations apply in relation to the China Eastern shares: he purchased 316,000 such shares on 5 and 6 May 1997 at prices between $2.35 and $2.40 per share, and subsequently sold them on 25 June 1997 at a loss of $180,177.29. However, the price tables show that on 26 August China Eastern shares reached a high of $3.10 per share, so if the Plaintiff had held onto the shares and sold them on that date he would have made a profit. (There is no suggestion that Miss Luk or Miss Powers or anybody other than himself was responsible for the decision to sell the shares when he did on 25 June).

48. As for the monthly and quarterly newsletters which the Plaintiff received from time to time, it is important to note that they all carried a disclaimer which specifically stated that the Defendant believed the information therein to be reliable, "but we do not represent that such information is accurate or complete and should not be relied on as such. This report should not be construed as an offer or solicitation to buy or sell any investments. Opinions in the report are subject to change without notice.... please note that any investments referred to in this report may not be suitable for everyone and if in doubt you should seek independent financial, legal, tax, accounting and regulatory advice."

49. The Plaintiff accepted in cross-examination that he was aware that such newsletters generally contained such disclaimers. More fundamentally, however, there has been no evidence or suggestion that any of the advice or information contained in these newsletters was negligent or wrong.

50. By contrast the Plaintiff did specifically identify Ms Powers' letter of 12 September 1997, and the Defendant's "Hong Kong Weekly Strategy" newsletter of 8 September 1997, which was an enclosure to Ms Powers' aforesaid letter.

51. The first point to note is that none of these letters were addressed to the Plaintiff. The evidence clearly established that they were addressed and sent to the Plaintiff's co-director of Dow Jones Markets (Asia Pacific) Limited, Mr MacMahon, who was a fellow trustee with the Plaintiff of the company's pension fund.

52. Furthermore, accepting for present purposes that Miss Powers should have anticipated that MacMahon would distribute or show her monthly letters to the Plaintiff, it is also to be noted that the letters, although containing information in relation to equity markets generally, were sent to MacMahon specifically in relation to the Defendant's management of the company's pension fund, and not in relation to any personal investments by MacMahon or the Plaintiff (to which different considerations might well apply).

53. The letter of 8 September did express the house view that: "Established diversified red chip companies such as China Resources, China Merchants, China Travel and COSCO Pacific are likely to remain market favourites...", and the letter of 12 September injected a personal view by Miss Powers: "I agree with Frederick Tsang .. who recommends .. the well established red chips .. China Resources, China Merchants, China Travel and COSCO Pacific ...."

54. Ms Powers was emphatic in her testimony that since she sent these letters on a monthly basis to some 30 clients (which fact she had made clear to MacMahon), statements in the letters such as the aforesaid ones should not under any circumstances be interpreted by any of the individual addressees (let alone by the Plaintiff), as a recommendation to each such individual client.

55. The point is well made in my view: a prudent and responsible response by any of the 30 addressees, and a fortiori by a more remote reader such as the Plaintiff, would have been to contact Miss Powers if they were interested in any of the particular recommendations or opinions expressed, and discuss with her whether the recommendation was appropriate to the circumstances of their particular case. Indeed Ms Powers' letter in question invited just such a response: "Please don't hesitate to give me a call if you wish to be more active in the Hong Kong market...".

56. If the Plaintiff chose to directly act upon such statements in the letters, by going out and buying any of the shares mentioned without first discussing with Miss Powers or any of the Defendant's other agents whether such purchases would be suitable to his particular circumstances, then in my view the Defendant cannot be held liable for any loss which he might thereafter have sustained in consequence, if such were proved, of his having acted upon such information or recommendation.

57. In any event, it is important to remember that as a matter of simple causation, if the Plaintiff did thereafter sell shares at a lower price than he had purchased them for, bearing in mind that he was "calling his own shots" as to both which shares to buy and sell and the timing thereof, it would require a careful investigation of the price-history of the share in question in order to ascertain whether the Plaintiff could, by selling at a different time from that which he chose, reasonably have avoided the loss which he ultimately sustained.

58. As for Ms Luk's alleged "advice" that the Plaintiff should sell his warrants, this was in my view another example of the Plaintiff's muddled approach to this aspect of his case. On 25 June 1997 Miss Luk telephoned and informed him that the warrant holding in his portfolio was not acceptable as collateral, and that in consequence he was under-collateralised, and that it was necessary for him to restore his margin cover, either by selling the warrant holding or by injecting more cash into his portfolio. The Plaintiff sold his holding of Pacific Rim Infra Management Enterprises warrants, and sustained a loss thereon of $122,790.00.

59. He testified that he was very disappointed and upset at having to bear the loss on the sale of these warrants, since he had not been advised by the Defendant ahead of his purchase thereof that it would not be acceptable as collateral. I note that the Agreement for Loan Facilities makes no mention of warrants being acceptable as collateral. Nor did he suggest that he had purchased the warrants as a result of any advice or recommendation from the Defendant; the situation was rather that warrants were becoming popular at the time, and it was his own decision to purchase them.

60. In any event, this was not an example of "investment advice" from the Defendant: the Plaintiff was contractually bound to maintain his margin at the levels agreed in the Agreement for Loan Facilities, and the Defendant (via Miss Luk) simply informed him that since he was under-collateralised, he should restore his margin position. Furthermore he was not obliged to sell the Pacific Rim warrants at that time in order to restore his margin; on his own evidence he was given the alternative of injecting more cash into his portfolio.

The Defendant's alleged implied obligation to "report to the Plaintiff any substantial or unusual movements in the market prices of shares contained in the Plaintiff's portfolio as and when the same occurred, alternatively within a reasonable time thereof."

61. This alleged implied term, and the Defendant's alleged breach thereof, were central to the Plaintiff's case as presented. He alleges that the Defendant breached such alleged implied term by failing to inform him "as to the state of his investments and/or loan in the period from 3 October to 21 October 1997...". Had the Defendant not thus failed to inform him "he would have sold his investments or part of his investments on or after 3 October 1997 at substantially higher prices than those which were obtainable by the Defendant in late October 1997. Alternatively the Plaintiff would have had an opportunity to so sell but was deprived of the chance to act upon the falling Hong Kong equities market and, in particular, the falling prices of shares in the Plaintiff's portfolio by the Defendant's said failure".

62. In evaluating these allegations it is relevant to bear in mind that the Plaintiff was, to the Defendant's knowledge, a more knowledgeable and experienced investor than the average man in the street. By 1997 he had been investing through the Defendant for over 3 years, and for the whole of 1997 he made his own investment decisions. All of the witnesses called for the Defendant testified that the Plaintiff had told them that he had access to the necessary information to enable him to decide on his own share trades, including up to date "real-time" prices via his telerate screen.

63. The Plaintiff testified that he could not particularly recall saying such things, however he did concede that he was indeed confident of his own abilities at the relevant time to decide what equities to buy and sell, and agreed that he did have access to the relevant information about the markets by virtue of his work. Part of his functions with Dow Jones Telerate was to market on-line information in relation to the foreign exchange, bond and equity markets. He had a telerate screen in his office which provided him with constant access to the "real-time" prices of shares. As a trustee of his firm's pension fund, he was under a fiduciary duty to review the investment decisions which were made by the Defendant (which managed only the fixed interest portion of the fund) and Credit Lyonnais (which managed the equities portion of the fund). The size of the fund was something "below $100m", according to the Plaintiff.

64. Having dealt with the Plaintiff as a client for some three years prior to 1997, both in his capacity as a trustee of the pension fund and as an individual investor, the Defendant was well aware of his work duties and experience.

65. I find on all the evidence that the Plaintiff did assure Mr Rosene and Miss Powers and Miss Luk that he was confident of his ability to choose his own equities trades, and that he did have access through his work to the necessary information to enable him to do so. He also told at least Mr Rosene that he had another securities trading account apart from that with the Defendant (which he said in evidence was with Lippo Securities, was not leveraged and was valued at some $200,000.00).

66. I am satisfied that the Plaintiff knew the general effect of leveraging on his portfolio, and in particular he knew that in practise it meant that his shares both increased and decreased in value at twice the rate that they would have without any leverage. The Plaintiff concedes that he knew that in 1997 the Hong Kong equities market was a volatile one, and particularly so the red chip market. He knew about the "Asian economic crisis" as it was happening in September and October 1997. I am satisfied on the evidence that he knew that a leveraged portfolio, such as his, was much more volatile than an unleveraged one, and that it was accordingly more exposed and vulnerable during such an economic crisis.

67. The Plaintiff emphasized that he only received his monthly statements of account some two to three weeks after the end of the preceding month, so that he would have received his September monthly statement only around 20 October 1997. I note that he does not suggest that he complained about this to the Defendant at anytime, or asked that he be sent such statements earlier. There is no doubt that he knew that he could not rely on a 2 or 3 week old statement of account to give him an accurate picture of the current state of his account, particularly in a volatile market.

68. In my view, no such term as is contended for was implied in "the overall agreement" between the parties, to the effect that the Defendant was under an implied obligation to report to the Plaintiff any substantial or unusual movements in the market prices of the Plaintiff's shares.

69. It should be recalled that clause 5 of the Charge and Security Agreement provides, inter alia:

"I agree that IFS may, so long as I have any liabilities to IFS, at any time and without notice to me:

(d) exercise a right of general lien over all rights and interest (if any) which from time to time I may have in or to the security held by IFS.... with power to IFS to sell the same or any part thereof if necessary without being under any liability to me in respect of the price obtained or on any other term of such sale or disposition so as to satisfy any of my liabilities to IFS ..."

70. In terms of clauses 3 and 5 of the Agreement, the Defendant had the right, at any time that the Plaintiff's account fell below the levels stipulated in the Agreement for Loan Facilities, to demand more collateral or to liquidate the account in whole or in part without reference to the Plaintiff, as it saw fit to protect its interests as creditor.

71. The express term of the Agreement that the Defendant could exercise these rights "at any time and without notice to me", militates against the simultaneous existence of an implied term as contended for by the Plaintiff, to the effect that the Defendant would report to the Plaintiff any substantial or unusual movements in the market prices of shares in the Plaintiff's portfolio.

72. It is also relevant in this context to recall that in terms of clause 12(b) of the Custodian and Investment Management Agreement the Defendant was empowered in the widest possible terms "in its absolute and unfettered discretion to invest, reinvest and make such changes as to any investments as it may deem desirable without any obligation to give prior notice thereof to the client...". It is clear that as discretionary investment manager the Defendant was not under any implied obligation to report to the Plaintiff any substantial or unusual movements in the market price of shares in his portfolio.

73. That aspect, namely the absence of such an implied obligation, was not altered, in my view, by the subsequent oral agreement which the parties concluded in November 1996, which I have held by necessary implication suspended the operation of clause 12(b) of the Management Agreement. To imply such an obligation on the Defendant would be quite inconsistent with the new roles which the parties had agreed upon, the Plaintiff having expressly assumed responsibility for deciding which equities to buy and sell, and having assured the Defendant's agents that he did enjoy 24-hour access to share prices through his telerate screen.

74. Had the "officious bystander" enquired, at the time that the parties agreed on the new arrangement, whether such a term was implied in their agreement, the fair answer in my view is that, not only would the Defendant have insisted that any such implied duty would be quite inconsistent with their newly-assumed roles, but the Plaintiff also would have conceded the same (and would not, I believe, have sought to argue otherwise at that time, bearing in mind his admitted confidence in his own ability to read the markets and decide his own share trades).

75. I agree with Mr Reyes' submission that in any event such an implied term would be incapable of any precise enough formulation to render it workable, in particular in defining what was meant by "any substantial or unusual movements" in share prices which the Defendant would be obliged to report to the Plaintiff.

76. The essence of the Plaintiff's complaints is that the Defendant failed to inform him of what was happening to his investments in particular during the period 3-21 October 1997. It is however important to note that their relationship was not one in which the Plaintiff was passively dependent upon the Defendant to initiate contact with him and inform him of the state of his portfolio, failing which he was left in the dark.

77. I accept - a point which was repeatedly made by the Plaintiff - that the monthly statement from the Defendant and indeed all the other information to which he had access did not inform him what the margin position of his account was. However I am satisfied that he could have easily (as was put to him in cross examination) made a rough calculation of the margin position on his account at any time, since he could easily ascertain his portfolio's value through the prices quoted on the telerate screen to which he had constant access, and he knew the approximate value of his loan, which had remained relatively constant throughout his involvement with the Defendant.

78. He further conceded in cross-examination that there was nothing to stop him from simply telephoning one of the Defendant's agents at any time in order to obtain up-to-date information about his portfolio, including the precise margin position in it. This applied equally whether he was in Hong Kong or travelling. He has testified that he had a heavy travelling schedule in mid-1997, but conceded that he had never communicated this schedule to any of the Defendant's representatives at anytime. He further conceded that he was in Hong Kong during the following highly relevant periods during 1997: 24 to 31 August, 1 to 6 September, 18 to 29 September, 5 to 6 October and 16 to 19 October 1997 (it will be recalled that he travelled to Tokyo on business on 20 to 22 October, where Mr Rosene contacted him at midnight on 22 October). He was quite at a loss to explain why, despite knowing about the Asian economic and financial crisis which was then gripping the region, he did not once telephone any of the Defendant's representatives during these periods, nor indeed at any time between 1 August and 20 October 1997, to inquire as to the position of his porfolio.

79. In a letter which he subsequently wrote to the Defendant dated 24 December 1997 (after their relationship had terminated), the Plaintiff, having described the details of his travel schedule in September and October 1997, frankly conceded: "this does not exonerate me from my personal responsibility to monitor my own investments ...". This concession is particularly pertinent, in my view, bearing in mind that the Plaintiff was only one of many clients which the Defendant had on its books at any given time.

The alleged implied term that the Defendant would conduct itself in a manner consistent with the CODE OF CONDUCT FOR PERSONS REGISTERED WITH THE SECURITIES AND FUTURES COMMISSION

80. In my view this was a further implied term of the parties' agreements, and Mr Reyes accepts that it is "difficult to quibble" with it: it is the Defendant's case that it did at all times act in accordance with the Code.

81. The application of the provisions of the Code add nothing of substance to the Plaintiff's case as it was presented.

82. Paragraph 8.1 of the Statement of Claim reiterates the proposition that the Defendant would, in handling the Plaintiff's investments, use reasonable care and skill, which has already been dealt with as an implied term in the parties' agreement.

83. No evidence was led or particularity provided as to the matters raised in paragraphs 8.2 and 8.3 of the Statement of Claim (that a registered person should employ adequate resources, and seek relevant information from its clients), nor did the Plaintiff identify any respects in which the Defendant is alleged to have breached such provisions, nor did he identify any loss which he allegedly sustained as a result of any such breach.

84. Paragraph 8.4 reiterates the Defendant's alleged implied duty, in giving advice to the Plaintiff in relation to his investments, to advise fully and competently, and has already been considered above.

85. Paragraph 8.5 provides as follows:

"A registered person shall ensure at all times that any person he employs or appoints to conduct business for or with the clients or other registered persons is fit and proper and otherwise qualified, including having relevant professional training or experience, to act in the capacity so employed or appointed."

86. The Plaintiff never effectively pursued this aspect; at the most, vague allegations were made to the effect that Miss Luk was not properly qualified to take over from Mr Rosene in handling the Plaintiff's portfolio during 1997, however they were not followed up or made concrete. Suffice for me to say that from all the evidence which has been presented I have no reason to believe that Miss Luk, or any other of the Defendant's representatives, were anything other than properly qualified and competent for their jobs.

(It should be noted that the Plaintiff has abandoned the breaches of duty which were alleged in paragraphs 24.3, 24.5 and 24.6 of the Statement of Claim.)

Fiduciary Duties

87. The Plaintiff's case has been advanced upon the basis of alleged breaches by the Defendant of both contractual and fiduciary duties which it allegedly owed him. The nature and scope of the fiduciary duties relied upon are the same as the contractual duties alleged, existing concurrently with and alongside each other.

88. Mr Kat referred me to several authorities which enunciate the general principles applicable. It is well established that a fiduciary relationship may arise:

"where someone relies on the guidance or advice of another, where the other is aware of that reliance and where the person upon whom reliance is placed obtains, or may well obtain, a benefit from the transaction or has some other interest in it being concluded. In addition, there must, of course, be shown to exist a vital element which in this judgment will for convenience be referred to as confidentiality...".

89. Lloyds Bank v. Bundy [1975] QB 326, at 341

"Whenever a stockbroker or other person who holds himself out as having expertise in advising on investments is approached for advice on investment and undertakes to give it, in giving that advice the adviser stands in a fiduciary relationship to the person whom he advises. The adviser cannot assume a position where his self-interest might conflict with the honest and impartial giving of advice."

90. Daly v. Sydney Stock Exchange Ltd. [1985-1986] 160 CLR 371, at 385.

91. On the facts of the present case the fiduciary duties which the Plaintiff alleges that the Defendant owed him do not add anything to his case as presented, since no fiduciary duties have been alleged that are any different from the express and/or implied contractual duties which are relied upon.

92. Specifically in relation to the Defendant's alleged duty to inform or sufficiently inform the Plaintiff as to the state of his investment and/or loan accounts in the period from 3 to 21 October 1997, in my view the same reasons (as set out above) which precluded the existence of any implied contractual duty to that effect, equally precluded the existence of any such equitable or fiduciary duty.

93. It follows from my findings that the Plaintiff has not established that the losses which he incurred were the result of any negligence or breach of contractual or fiduciary duties on the Defendant's part.

Indemnity

94. The Defendant relied, in the ultimate analysis, if I had found against it on the aforesaid issues, upon the provisions of the Indemnity clause in the Custodian and Investment Management Agreement, as absolving it from all liability which it might otherwise have incurred:

"18. Indemnity

The client hereby agrees to indemnify and hold harmless the Custodian and the Custodian (as investment manager) and their respective directors, officers and servants from time to time (hereafter together referred to as "staff") (and such indemnity is expressly declared to inure for the benefit of such persons as aforesaid) against all liability, loss, damage, claims, costs and expenses whatsoever which may be incurred or suffered by the Custodian (as custodian or investment manager) or their staff arising out of or in connection with this Agreement at any time or from any cause whatsoever including but without prejudice to the generality of the foregoing the holding of and dealing with the Investments unless any such liability, loss, damage, claim, costs and expenses shall be caused by their own actual fraud or that of their staff.... and shall not be liable for any loss or damage to the Investments unless such loss or damage be caused by their own actual fraud or that of their Staff."

95. In Chitty on Contracts 28th ed. Vol. 1 at paragraph 14-010 onwards, the learned author states as follows:

"Liability for negligence.

Liability for negligence may be excluded or restricted if words are used which sufficiently indicate that the parties intended, in the context of their agreement, that such should be the case. The following texts or guidelines which were laid down by Lord Morton in Canada Steamship Lines Ltd. v. the Kings [1952] AC 192 at 208 have been subsequently approved and applied both by the Court of Appeal and the House of Lords:

(2) If there is no express reference to negligence, the court must consider whether the words used are wide enough, in their ordinary meaning, to cover negligence on the part of the servants of the proferens. If a doubt arises at this point, it must be resolved against the proferens...

(3) If the words used are wide enough for the above purpose, the court must then consider whether "the head of damage may be based on some ground other than that of negligence"... the other ground must not be so fanciful or remote that the proferens cannot be supposed to have desired protection against it...."

96. The words of clause 18 of the Agreement are in my view wide enough to exclude liability on the part of the Defendant or any of its servant or agents for losses caused by their negligence; indeed the Defendant is expressly indemnified against "all liability... whatsoever .... arising out of or in connection with this Agreement at anytime or from any cause whatsoever ... unless ... caused by their own actual fraud or that of their Staff." It is not alleged by the Plaintiff that any of his losses were caused by fraud on the part of the Defendant or any of its employees.

97. If I were wrong in my conclusions that the losses sustained by the Plaintiff in his investment account were not the result of any breach by the Defendant of any contractual or fiduciary duties which it owed the Plaintiff, the Defendant would in any event be indemnified, in my view, in terms of the aforesaid Indemnity provisions in the Agreement, against all liability towards the Plaintiff which it might otherwise have incurred.

98. I should add that I am not unsympathetic to the Plaintiff's claims. The sudden and severe losses which he sustained in his investment account with the Defendant in September and October 1997 were considerable and no doubt painful. He has failed, however, to establish any legal liability on the part of the Defendant for such losses.

Defendant's counterclaim

99. The Defendant provided financial facilities to the Plaintiff pursuant to the written agreements, and the Plaintiff used such facilities to make investments. As at 26 November 1997, the shortfall between the funds and securities held by the Defendant pursuant to the Charge and Security Agreement and the facilities advanced to the Plaintiff under the Agreement for Loan Facilities, amounted to US$55,956.79.

100. The Agreement for Loan Facilities provided that the facilities granted under the written agreements were repayable together with interest at 1% above the Defendant's cost of funds in the inter-bank market, at anytime upon demand in writing by the Defendant.

101. There is no dispute that the Defendant did demand repayment of this sum on 4 December 1997, and that the Plaintiff has failed to repay any of it. It follows that the Plaintiff is liable for such shortfall, together with accrued interest thereon. As at 3 September 1998 the amount including accrued interest stood at US$58,908.89.

102. I grant judgment to the Defendant in the sum of US$58,908.89, together with interest at the rate of 1% above the Defendant's cost of funds in the US dollar inter-bank market, compounding weekly from the 3 September 1998 until the date of judgment.

103. I make an order nisi that the Plaintiff is to pay the Defendant's costs of these proceedings.