HARVESTER STOCK INVESTMENT CO v. KWAN SIU MAY

1983 No. 11515

IN THE HIGH COURT OF JUSTICE

BETWEEN

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JUDGMENT

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1. The Plaintiff was at all material times a member of the Kam Ngan Stock Exchange

2. When the Plaintiff first opened, it bought and sold stocks and shares for its clients on a "cash basis", that is to say the client had to pay by the next "business day" following the transaction. It also bought and sold on its own account, but in not very large amounts.

3. At all material times the Defendant, Madam Kwan Siu-may, ("Miss Kwan" to the Plaintiff's employees a "Mrs. Chan" to Dr. Leung, of whom more later), was a client of the Plaintiff.

4. About 1975 the Plaintiff noticed a falling-off in the number of its customers. It caused inquiries to be made, and learned that it was "out of step" with the trends in the market place in that it did not permit its clients to trade "on margin". It decided, therefore, to stop the erosion of its custom and to follow the "trend", by allowing those of its customers who so wished, to open "margin trading accounts" with it. The Defendant was one of those customers who wished to open such an account, and she did: Exactly when is not agreed. For the purposes of this judgment, it will suffice for me to say that, from 5th December 1979, she traded daily on margin until the unhappy events of August and September 1982.

5. The Plaintiff is composed of persons of Han origin, who are at ease with the Cantonese tongue and Chinese calligraphy, but by no means at home with English: No criticism of the Education Department is intended by those remarks - but the fact is of some importance in relation to some of the bundles and to many of the exhibits put before me.

6. The Plaintiff's customer documents are, of course, in English, but, like the uniform of the late Gunga Din, "nothin' much before, an' rather less than 'alf o' that be'ind". The Plaintiff's explanation of their wording is that the documents were copied from someone else's, without regard to the significance of the wording or to their possible legal interpretation. I shall return to this subject later.

7. The contractual arrangements between the Plaintiff and the Defendant, I hold, on the facts and the evidence presented to me, to have been partly written and partly oral. The written parts are to be found at B1 and B4 and Exhibit 2. Originally the Defendant's margin was fixed at 50%, then 70% and eventually, for a while, at a very late stage, 90%.

8. What happened was this. When the Defendant wished to buy shares, she gave orders to the Plaintiff, through Mrs. Lui Leung Ka-man ("Ka-man"). The Plaintiff, using its own money, or credit facilities granted to it by its banker or other financial institutions ("bankers"), executed those orders through Mr Kwan Cheong-yiu ("Kwan") on the floor of the Exchange. The scrip of the shares so purchased (with the accompanying signed transfer form) was then deposited by the Plaintiff with its bankers as security against its credit facilities with them. The Defendant's margin account was then debited with (i) the cost of the shares, (ii) the amount of stamp duty payable on the Bought Notes, and paid by the Plaintiff, (iii) brokerage commission on the transactions and (iv) handling fees on(i), (ii) and (iii). The handling fees were calculated at the rate of interest chargeable to the Plaintiff on its draw-down on the credit facilities to which I have referred, plus about 4% - 5%.

9. When the Defendant wished to sell shares, she gave her order to Ka-man. After the Plaintiff had executed the order, the proceeds of sale, less stamp duty, brokerage and handling charges, were credited to her margin account. The handling charges were calculated on the transaction at the same rate as on a purchase.

10. After the close of the market on each trading day, the Plaintiff made a calculation of what percentage of the value of the scrip held by it for the Defendant was the amount of the debit balance in the margin account; and, if that were above the agreed margin percentage, the Defendant could be, and at times was, asked to take remedial action, such as depositing cash, depositing scrip or selling scrip held by the Plaintiff for her. If it were equal to, or below, that margin percentage, no action was taken by the Plaintiff.

11. An example of that situation is the position at 31st March 1982, as seen from Exhibit 4, C61 and D88-90: At that date the Defendant, as she confirmed, owed the Plaintiff $14,673,902. 81; the Plaintiff held scrip for her to the value of $15,857,899 and the handling charges for that month amounted to $254,705.30. Her margin position at the close of market on that day was, therefore, 89%.

12. If the Defendant wished to withdraw scrip or cash, she could do so if the result would not increase her margin over the agreed percentage. It was considered by the Plaintiff, however, that, in exceptional circumstances, and with its consent, such withdrawals could be made even if the margin percentage were exceeded.

13. If the Defendant wished to transfer money or scrip from her account to that of another, the same provisions would apply.

14. If the Defendant wished to deposit more cash or scrip, she could do so at any time

15. If either party wish to have the account closed, then, subject to the payment of a balancing sum, that could be done at any time: Otherwise the Defendant could continue indefinitely - buying and selling without ever having her debit balance called in. If "bonus shares" or "rights issues" became available to the Defendant by virtue of her scrip being held for her by the Plaintiff (and for the Plaintiff by its "bankers"), the Plaintiff obtained them for her, deposited the additional scrip against her margin account and debited that account with the cost of the purchase.

16. Examples of such "non-trading" transactions are set out in Exhibit 18

17. Bought and Sold Notes are rather less than more in standard form, and examples appear at Exhibits 11A an14A(1) and 20 and 13A(1). In each case, when such Notes were sent to the Defendant, they were accompanied by Bought or Sold Confirmation Notes in duplicate, one for retention and one for return: Examples of those Confirmation Notes are at Exhibits 11B and 14A(2) and 20(p.2) and 13B. The wording of those Confirmation Notes are as follows:-

Bought Confirmation Note (old style):-

"This is to confirm that we are holding for your account the following shares:-   against which we have made you a loan of HK$_____________________ (Hong Kong Dollars__________________________________.) and on which amount handling charges is payable by you at the rate of ______% per month/annum and this loan is redeemable at call by either party.   I confirm the above:   Yours faithfully, HARVESTER STOCK INV. CO.,"

Bought Confirmation Note (new style) :-

"This is to confirm that we are holding for your account the undermentioned shares, against which advances are made unto you with handling charges payable by you, details of which are as follows:

Name of Shares

Quantity

Amount

 

Yours faithfully,

HARVESTER STOCK INV.CO.,"

Sold Confirmation Note (old style) :

"The following shares have this day been sold according to your instructions, to be delivered from our holdings for your account, and the net proceeds will be credited to your account on due date.

Shares

Price

I confirm the above:

Yours faithfully, HARVESTER STOCK INV. CO.,"

Sold Confirmation Note (new style):-

"The following shares have this day been sold according to your instructions, to be delivered from our holdings for your account, and the net proceeds will be credited to your account on due date.

Name of Shares

Quantity

Amount

I confirm the above:

Yours faithfully, HARVESTER STOCK INV. CO.,"

18. How a "loan" can be "callable" by "either" party, has not been explained to me

19. The Plaintiff sent Statements of Account in duplicate to the Defendant at the end of each month, and they are contained in Bundle D. The Defendant's margin account as such was kept at the Plaintiff's premises: It is recorded in Exhibit 3. That was a document which she was entitled to inspect - but it was not copied to her. It was on that file that the margin percentage, calculated at the end of the day, was supposed to have been recorded daily - it was not recorded with such regularity. Both the file (Exhibit 3) and the Statement of Account, Bundle D, were kept in English, although some Chinese characters did occasionally appear in Exhibit 3.

20. I must now return to Exhibit 18, which was prepared for the use of the Court by Mr Lui Kwok-keung("Lui") following some cross-examination of Kwan on certain entries in Bundle D. What Lui told me, and it was not seriously challenged, was, inter alia this: On 18th January 1979 the Defendant made three "cash" purchases and on 19th December she made two sales on a "cash" basis - the numbers of the Bought and Sold Notes appear under item 1 on Exhibit 18. They were taken by Lui from the Plaintiff's day book, and, of course, do not appear in Exhibit 3. On 18th December 1979 the Defendant's "cash" Purchases amounted to $342,394.10; the next day, 19th December, her sales amounted to $137,667.50. As those were not margin purchases, she was immediately indebted to the Plaintiff in the balance of $204,726.60. On 20th December 1979, the Defendant gave to the Plaintiff a cheque drawn on Hang Seng Bank for $80,000: That left her indebted to the Plaintiff in the sum of $124,726.60 and, by agreement, that sum was debited to her margin account. On that day she had shares in her margin account to the value of $182,750 and, consequently, her margin at close on 20th December was 68%. Those who kept her margin account made an entry in the column "Amount paid/received" in these terms: "LOAN $124,726.60" and, later, in the Statement of Account for the month of December 1979 sent to her, under 20th December there was an entry "LOAN", in each case the sum being the debit balance "transferred to" or "debited against" her margin account. Among the matters which I have to determine is whether or not that constituted a "loan" for the purpose of the Moneylender's Ordinance.

21. On Christmas Eve, 1979, the Dependant sold shares to the value of $95,424 and that amount was credited to her margin account. She asked the Plaintiff for $90,000, and it issued to her a cheque drawn on Banque Belge for that sum. I have no doubt, on the evidence before me, that that was a "withdrawal", and, equally, that neither party expected that that particular sum would ever be "returned" to the Plaintiff. Be that as it may, it was entered in Exhibit 3 as a "loan" and appears on D1 as a "loan". On that date she had shares to the value of $803,900 deposited with the Plaintiff, and at the close of market and after the issue of the cheque, she was indebted to the Plaintiff in the sum of $403,811 and her margin was 50%.

22. Three days later the Defendant made "cash" purchase to the value of $248,181.10, and she made "cash" sales to the total value of $210,974.35. The Defendant did not make payment in settlement, but arranged, once again, have the debit balance debited to her margin account. Those who kept Exhibit 3 described that transaction as a "LOAN", and indicated therein that it was the balance of Bought Note 13458 and Sold Notes 13537 and 13538. In D1 it also appears as a "loan". After that "transaction", her margin percentage was 42%.

23. On 4th January 1980 the settlement figure of a Bought Note relating to a parcel of Hutchison Shares in the sum of $12,400.50 was debited to her margin account, but was described in Exhibit 3 as a "loan" and also in D2, the first page of the Statement of Account for January 1980. She was then indebted to the Plaintiff in the sum of $128,173, but her deposited shares were worth $955,050 and her margin percentage at the close on that day was 13%.

24. On 23rd January 1980, her margin account was in credit to the sum of $299,426.95. At that time she had on deposit 30,000 Hutchison Whampoa shares, 19,000 Cheung Kong, 15,000 Far East Consortium, 6,000 Hong Kong Land, 10,000 HsiCheong, 30,000 Wheelock A and 2,000 International Holding Development. Not unnaturally she wished to draw on her credit, and she asked for $299,000. The Plaintiff, of course, issued a cheque to her for that amount - it was drawn on Hang Lung Bank. That transaction appears as a "loan" in Exhibit 3 and on D4.

25. On 8th May 1980 she deposited $34,302.60. Whether or not that was in relation to a margin call nobody seemed to know. On the same day she sold shares to the value of $133,780.20, and that sum was credited to her margin account. For reasons unknown to the Plaintiff, the Defendant required to withdraw $1,715.10 from her account. The Plaintiff issued a cheque in that amount drawn on the Hang Lunk Bank. Once again that appeared as a "loan" in Exhibit 3 and it was also described as such at D10. At close on that day she was indebted to the Plaintiff in the sum of $2,489,138; the value of her deposited shares was $3,206,345; and her margin was 77%.

26. On 26th May 1980, among the shares pledged by the Defendant to the Plaintiff against her margin account, were 10,000 Hong Kong Land: (They had, presumably, been sub-pledged by the Plaintiff). Those shares entitled her to subscribe for a Rights Issue, and that she wished to do. The Plaintiff, therefore, purchased for her her entitlement, namely 1,333 shares, at a total cost of $9,197.70. In Exhibit 3, that transaction appears under the description "LOAN FOR LAND RIGHTS $9,197.70". At D11 it appears merely as a purchase of Hong Kong Land Rights at $6.90 each. At the close of market on that day, the Defendant's shares pledged to the Plaintiff were valued at $2,664,000 and her indebtedness amounted to $1,714,987. Her margin balance, consequently, was 64%.

27. On 29th May 1980 the Defendant made a deposit of $3,511.50. No one seems sure whether that was a response to a margin call or not, or what was the reason therefor. On that day, the Defendant instructed the Plaintiff to transfer $155.45 from her margin account to the margin account of another client of the Plaintiff, Mrs. Chau. That order was executed by the Plaintiff on that day, and the $155.45 was deposited in Mrs. Chau's margin account with the Plaintiff. At the close of market on that day, the value of the Defendant's shares pledged to the Plaintiff was $2,912,475 and her indebtedness amounted to $2,065,124, making her margin 70%. That was entered as a "loan" on C16 and D12.

28. It was never suggested by the Defendant, nor even in the course of argument, that the Plaintiff was entitled to call for the "repayment" of those specific sums, with or without interest - they merely went into the "melting pot" of the Share Dealing Margin Account. Indeed it could not have been suggested on the evidence adduced before me.

29. I do not propose to go further through Exhibit 18: The examples that I have given cover the range of what I have called "non-trading transactions"

30. In August and September 1982, there were falls in the Stock Market which left the Defendant exposed to a point where she could not cover her indebtedness. Her margin percentage rose from 80% on 26th September to 98% on 30th September, and on 4th October her indebtedness was $9,046,839 against deposited shares worth only $8,214,312. She made no further deposits of money or scrip and, on 4th October, the Plaintiff commenced to sell her up.

31. On 6th March 1983, the indebtedness was $2,420,105.66; that is the sum claimed in the Statement of Claim. The Plaintiff closed her account on 29th February 1984, at which time her indebtedness was $2,859,101.97.

32. I dwelt some time on the wording of the Bought and Sold Notes before referring to Exhibit 18. The wording of those, and of the entries in Exhibit 3 and Bundle D, which I have just read, must have played a large parental role in relation to paragraph 11B and prayer B of the Amended Substituted Further Re-Amended Defence and Counterclaim, to which I must now come. The Defendant urges upon me that the manner in which the Plaintiff conducted the Defendant's account (as recited by me) amounted in law to moneylending, and that, therefore, the Plaintiff, not being a licenced money-lender, cannot recover anything from the Defendant, but, on the contrary, must account to her for all handling fees, commission and brokerage fees charged and received by it from her.

33. By a combination of ss.7(1) (a) and 23 of the Moneylenders Ordinance, the Plaintiff, if it were a money-lender, would not be entitled to recover anything from the Defendant. What then is a money-lender? Such is defined in s.2(1) of the Ordinance, and

"means every person whose business (whether or not he carries on any other business) is that of making loans ....., but does not include the persons specified in Part 1 of the First Schedule;".

Part 1 of the First Schedule is a list of "Exempted Persons", but stock-brokers are not included therein. Quite clearly the definition would cover a stock-broker who carried on the business of stock-broking and the business of making loans.

34. Loan is not defined in the Ordinance, but in the definition section it is said:-

"to include advance, discount, money paid for or on account of or on behalf of or at the request of any person or the forbearance to require payment of money owing on any account whatsoever, and every agreement (whatever its terms or form may be) which is in substance or effect a loan of money, and also an agreement to secure the repayment of any such loan,".

35. That is not exhaustive, and, quite clearly, the Ordinance was intended also to cover on "ordinary" loan in the accepted sense of a word. However, even if I come to the conclusion that the Plaintiff's business was both that of stock-broker and of money-lender, and that what I have described above comes within the definition section as a "loan", I would then have to consider whether that was an "Exempted Loan" as listed in paragraph 5 of Part 2 of the First Schedule.

36. Mr Ismail urges upon me that, if I find the Plaintiff's payments to be "loans" and its charges to be "interest" as defined in s.2(1) of the Ordinance, but find the loans to be Exempted Loans, nonetheless the Plaintiff would be caught by s.27(1) of the Ordinance. That section comes under Part V of the Ordinance, and s.3(1)(b) of the Ordinance provides that Parts II and III shall not apply to such loans. Mr Ismail points out to me that there is no reference there to Part Iv (which is not applicable in this particular case) or to Part V.

37. The Plaintiff has satisfied me, and, as a matter of law also, I hold, that it does not have a business of making loans. The "system" which I have described, and which is not in dispute, is part and parcel of, and not a separate business from, its business of stock-broker. On a proper construction of B1 and B3, in the form of the agreed translation (Exhibit 2), the agreements were to enable the Defendant to purchase shares through the Plaintiff qua stock-broker, but on credit. The credit was arranged in the manner described in the world of stock-broking as "margin trading". If I ask myself "what was the object of the whole exercise?" between these parties, the answer must clearly be that it was stock-broking with credit extended to the client. It would stretch imagination to breaking point to say that it was moneylending in the guise of stock-broking. And, I must add, I have already held that there were not two separate businesses conducted by the Plaintiff. In Talcott Factors Ltd. v. G. Seifert Pyt. Ltd.⁽¹⁾ Nagle, J., at p.1207, said:-

"...... one must look at the real nature of the arrangement and not at the motive or object which the parties hope to achieve by their arrangement, ...... The real test is to be found in what, in fact, they have done and the legal effect of the documents they have entered into. ".

38. In this context I respectfully adopt the approach of Mayo, J., and his gloss on the judgment of Nagle, J. (supra), in Edward Wong Finance Co. Ltd. v. Hui t/a Gold Pine Textiles Co. & Anor.; Edward Wong Finance Co. Ltd. v. Fung t/a Futex Enterprise & Ors.⁽²⁾ , at p.5.

39. "The real nature of the arrangement", and what the Plaintiff and Defendant have done, and the legal effect of the documents which they have entered into, was stock-broking with credit. I am quite satisfied that there was no intention on either party, and it was never their "motive or object", to engage in moneylending, illicit or otherwise.

40. I now come to the definitn of loan, and, again, I respectfully adopt the words of Mayo, J. in Edward Wong Finance Co. Ltd^.(2), where he said, at p.5,

"What the definition section is attempting to define is a wide range of activities which can under certain circumstances constitute loans".

41. The definition section is, indeed, wide, for the draftsman has confined "which is in substance or effect a loan of money" to "every agreement" in the fourth line of that definition, instead of to the whole definition. Assuming that Mayo, J. and I were wrong, and every advance of whatever kind, every discount of whatever kind, every sum of money paid for or on account of or on behalf of or at the request of any person, was objectionable under the Ordinance unless "exempted", I shall now consider paragraph 5 of Part 2 of the First Schedule. That reads as follows:-

"A loan made by a company ..... whose ordinary business does not primarily or mainly involve the lending of money, in the ordinary course of that business. ".

42. I have already held that the ordinary business of the Plaintiff does not primarily, or mainly, involve the lending of money, so what I have to determine is whether what was done by the Plaintiff was in the ordinary course of the stock-broking business. The Plaintiff has satisfied me that, if what it did in law amounted to loans, then those loans were made by it in the ordinary course of the stockbroking business.

43. In Edgelow v. MacElwee⁽³⁾, McCardie, J. said, at pp.206 and 207:-

"Each case must depend on its own peculiar features. It is ever a question of degree ...... The Act of 1900 was a severe but beneficial measure. Its object must always be remembered. On the one hand a legitimate business must not be checked if the lending of money is reasonably and bona fide incidental to its successful prosecution. On the other hand the law must not permit an apparently legitimate business to be made the mere cloak and pretext for the unlawful trade of an unregistered money-lender. Evasion of the Moneylender's Act should be repressed, and judges, I think, should be astute to recognize the possibilities of ingenious subterfuge and subtle device. ".

44. That, of course, was an extreme case where a solicitor under the pretext of carrying on his profession was, without doubt, carrying on the business of money-lender instead. Having been suspended for two years for misconduct, he commenced lending money. In two years he issued 17 writs in respect of bills or cheques he discounted or money he advanced, yet in none of them did he make a claim for professional costs, nor did he ever send the bill of costs to any of the persons named as the Defendants. Be that as it may, the dicta of that very learned judge which I have just recited are explained and, to a degree extended, in Official Assignee of the Property of Koh Hor Khoo &Ors., Bankrupts v. Ek Liong Hin Ltd.⁽⁴⁾. The Respondent, whose primary business was that of rubber merchants and shippers, also had a godown storage department and made loans to selected customers on the security of goods stored in the godown, in order, they averred, to retain their existing customers and to gain fresh ones. The Board held that that was not moneylending. In the Reasons of the Board⁽⁴⁾, delivered by The Rt. Hon. L.M.D. de Silva, he said, at p.189, of the Company's view that they were not moneylending:-

"..... the correctness of the view held by the company is immaterial to their case. The important thing is that it was genuinely held. If it was, then the moneylending transactions were carried out with the object of preserving and advancing the business and therefore for the purposes of the business. ...... It is sufficient . ..... that the moneylending transactions are undertaken genuinely for the purposes of the business, that is, with the object of preserving, advancing or otherwise assisting the business and not necessarily in connection with its primary objects. ".

45. In this case, as I have said, and as I have found, the commencement of margin trading was for the purpose of preventing a further loss of clients, of holding those that the Plaintiff had and of encouraging others. In Premor Ltd. v. Shaw Brothers (a firm)⁽⁵⁾, Lord Denning M.R. said, at p.983:-

"It seems to me that, in order that it should be in the course of the primary business, it must be associated with a transaction of that business so as to be linked with it. ",

and he went on to refer to the "link" in the Privy Council case to which I have just referred. Diplock L.J., as he then was, said, at p.987:-

"The lending of money must be "in the course of" some business other than that of lending money; that is to say, it must be associated with transactions entered into as part of some other business ..... that is to say, the money must be lent with the primary object of promoting the success of such other business and not to obtaining profits on the loans. ".

46. I am quite satisfied that the loans, if they were ever loans, were made in the ordinary course of the stock-broking business, and there was nothing exceptional about them to carry them without the perimeters of that business. They were intimately connected with the transactions of the plaintiff's business and were for the purposes of the business, in the senses to which I have referred. But I would go further, and say that the Ordinance must be construed, however widely it appears, at first glance, to be drawn, to accord with general principles. To use modern parlance, 'a loan is a loan is a loan'. The very nature of a loan is that it should be repaid, and the very nature of a moneylending loan is that it should be repaid with interest. There is not a single instance in the whole of the evidence placed before me of a specific sum of money being advanced with any intention by either party that that specific sum should ever be repaid, whether it be the purchases of the shares, whether it be withdrawals, whether it be transfers to other parties or whether it be the purchase price of bonus shares, rights issues or loan stock (the scrip of which is immediately retained in the "pool" of securities against future trading). Hong Kong stock-brokers would never qualify for "Best of Breed" awards, but it is going too far to say that, by allowing their clients to "play the market" on credit, they have descended into the nether world of moneylending.

47. I now pass to the question of interest: It is urged upon me that the manner in which the interest is calculated and charged in this case is of assistance in determining the true nature of the transactions. It is not suggested for one moment that the interest here comes under Part IV of the Ordinance, but the fact that it is calculated monthly on all the transactions, both buying and selling, plus the stamp duty and brokerage fee, is said to be indicative of moneylending. In my judgment it is not; it is called a "handling charge", and a handling charge it was. The description which I have given above of the various duties that the Plaintiff performed qua stock-broker for the Defendant, the while itself incurring interest with its bankers, is indicative of two things: One, that the interest charge was intimately connected with the Plaintiff's duties as stock-broker to the extent that it should be considered part and parcel of the whole transaction. Two, it represented truly a charge for handling the margin account opposed to the actual buying and selling on the floor of the Exchange: But, in any event, it is not interest on a "loan", for I have held that there was no loan. That is sufficient to dispose of the charge that, notwithstanding that the loan is not an exempted loan, then nonetheless, the Plaintiff would be caught by s.27(1). For those reasons I hold that that plea does not avail the Defendant.

S.27 relates to an

"agreement between a moneylender and a borrower or intending borrower for the payment of costs, charges and expenses ...... incidental to or relating to and the negotiation for or the granting of the loan or the guaranteeing or securing of the repayment thereof. ".

48. In my judgment that has no application to a matter such as this, where the agreement is not a money lending agreement as envisaged by s.37(1), and where the costs, charges and expenses relate to the handling of the stock broking account and not to negotiations in 1979, or earlier, leading to the written part of the agreement between the parties.

49. If I were wrong on all those matters, I would still hold that the Plaintiff would not be precluded from suing, by reason of the provisions of s.36. S.36 preserves agreements made before the commencement of the 1980 Ordinance. The wording of s.36(1) is quite clear,

"This section applies to any agreement made before the commencement of this Ordinance for the payment of any loan or for the payment of interest on any loan ....",

S.36(2) provides:-

"Nothing in this Ordinance shall render any agreement or security to which this section applies void or unenforceable. ".

50. Mr Ismail urges upon me that that means "any agreement made in accordance with the provisions of the Moneylender Ordinance 1911". But that is not what it says, and, in the immediately preceding section, there is a number of references to the 1911 Ordinance. In my judgment "any" means "any", and, if the legislature had intended that section to apply only to agreements valid under the 1911 Ordinance, or agreements "lawful and valid immediately before the coming into force" of the Ordinance, it would have said so in the exceptions to sub-section (2). Nothing else in that section avails the Defendant, and no plea has been advanced to me under sub-sections 2(a) or (b). In any event, if the Defendant were a money-lender as an adjunct, or as a subsidiary business, to its business of stock-broking, it would have been exempted from the provisions of the Moneylender's Ordinance 1911 by virtue of s.6(c) of that Ordinance, because at no material time was the Plaintiff carrying on any business with the

"primary object of lending money, in the course of which and for the purposes whereof he lends money.".

51. Accordingly, the moneylending plea fails.

52. I now turn to the factual issues between the parties.

53. There was a collapse in the stock market towards the end of September 1982, which put the Plaintiff's clients in some difficulty, none more so than the Defendant, whose margin at that time was in the upper 80's. The Defendant avers that, on 27th September, she gave the Plaintiff a peremptory order to sell all her shares and to liquidate her margin account "at market" on the following day. That pre-supposes that it would have been possible to sell all the shares on the following day at the "close of market" price of the preceding day, (and it would hardly be possible to sell them at the close of market price on the following day). It pre-supposes that there would be buyers for such large quantities of shares being, as it were, "dumped" on the market, (and any such dumping would lower the prices, and make the "at market" a mere pipe dream. ) Furthermore, a large quantity of very valuable shares was in "odd lots", and could not be sold as such readily or easily, because normal trading in those shares is in "board lots". Transferring so many shares in, for example, Hang Seng Bank, would be a cumbersome and difficult and time-consuming job, for the scrip was, as I have indicated, pledged by the Plaintiff to Sun Hung Kai Bank. It was suggested at one time that the Plaintiff could draw on its own pool of Hang Seng Bank shares deposited with Sun Hung Kai Bank, or on Sun Hung Kai's own pool of Hang Seng shares, but that plea, on close examination, does not stand up, and I hold, on the evidence, that there was an inevitable delay in getting the Hang Sang shares into a saleable state.

54. The plea, until the 29th day of the trial, read as follows:

"Later that evening" i.e. 27th September, "the Defendant instructed Miss Leung Ka-man by telephone to sell her portfolio at market the following day and Miss Leung agreed to do so.".

55. I have seen, heard and closely observed all the witnesses in this case. I was impressed by Kwan, Ka-man and Lui, and none of them was seriously shaken in cross-examination. I was not impressed by the Defendant, and comparing her evidence with theirs and with her contemporaneous telephone conversations contributed to convincing me that there never was such a peremptory order to sell. At every point where there is a conflict between those three witnesses and the Defendant over the peremptory order to sell and the Plaintiff's unequivocal agreement to do so, I unhesitatingly prefer the Plaintiff's evidence. It is an interesting commentary on the plea itself, which I have recited from paragraph 5 of the latest copy of the defence, that paragraph 6 alleges misconduct by the Plaintiff in its failure to liquidate the Defendant's portfolio on 28th September "or within a reasonable time thereafter". How a "reasonable time thereafter" can come into the plea I have just read, I do not know, but, if it could, no evidence has been put before me by the Defendant to shew why a reasonable time should be two days; whereas, from the description of the market that was received by me from the Plaintiff, it would appear that, in the confusion following the collapse of the stock market, a much longer time would be necessary and, on all the evidence, my assessment of "reasonable" would, if necessary, be not less than a fortnight.

56. I wondered if, perchance, there had been some misunderstanding between the parties, and, when Dr. Leung came to give evidence, it appeared as if that might have been the explanation, or, rather, an explanation. The gist of Dr. Leung's evidence was this. He was at the Defendant's house and, besides treating her for a gastric disorder, he discussed with her the state of the market. The two of them agreed that it was highly desirable that the Defendant should "get out" of the market "as soon as possible". According to the doctor, the telephone rang, and the Defendant spoke to somebody, to whom he later spoke. He said it was either Carmen or Ka-man. He told me that he heard the Defendant order that person to sell "as soon as possible". When I asked him on this, at the close of his evidence, he informed me that the Defendant had also informed Ka-man on the telephone of his advice to the Defendant, namely that it was imperative she should get out of the market as quickly as possible. The Defendant then asked Dr. Leung to speak to Ka-man on the telephone and to confirm that it would be in order for the Plaintiff to sell his Hang Seng shares, which he had lent to the Defendant to provide her with additional security. Dr. Leung took the telephone and spoke to Ka-man about that, and "confirmed" his permission for the Plaintiff to sell the share scrip registered in his name, but deposited by the Defendant with the Plaintiff as security for her margin account with it. I accept that some such conversation did take place, but, on the balance of probabilities, on my assessment of the witnesses, on my comparison of the evidence of the witnesses with their actions, both contemporaneous and subsequent, I have come firmly to the conclusion that there was no order for the immediate sale of the Defendant's portfolio. I am equally satisfied that there was nothing more than an indication that the quicker the Defendant got out of the market the better, and that no question of "sale within a reasonable time" ever arose. Indeed the question of sale within a reasonable time was never seriously advanced at the hearing. However, on the 29th day of the trial, consequent upon some remarks of mine following the conclusion of Dr. Leung's evidence, Mr Ismail applied for, and obtained from me, leave to amend paragraph 5 to add "alternatively as soon as possible". Mr Mok objected, quite properly, on the ground that Ka-man had never been cross-examined on the question of an agreement to sell as soon as possible, nor had it ever been suggested to her that that was what the Defendant had said or implied. However, I wished to have the Defendant's final pleading reflect her final case. The amendment, however, did not advance her cause, because I have come to a contrary conclusion, as I have just said.

57. The second factual issue between the parties concerns an alleged oral agreement on 17th October 1982, whereat, it is alleged in paragraph 9B of the final version of the Defence, the Plaintiff agreed, in view of its own failure to liquidate the Defendant's portfolio timeously, that it would keep the 1,975 shares in Hang Seng Bank deposited by the Defendant with the Plaintiff as security against her margin account, for a period of up to one year, in the expectation that, during that period, the shares in Hang Sang Bank would recover to such a level that the proceeds of their sale would be sufficient to cover the Defendant's indebtedness to the Plaintiff. I am quite satisfied that there was no such agreement. I am satisfied because I prefer the totality of the evidence for the Plaintiff to the totality of that for the Defendant. I am satisfied because the evidence of the Defendant on this point was not credible. I am satisfied because of the contradictions between the Defendant's oral evidence and (1) her pleading, and (2) the contents of her telephone conversations. The latter are wholly inconsistent with a firm, fixed and settled oral agreement in the terms of paragraph 9B of the pleading. I am also satisfied because of the difference in the tone and manner in which Dr. Leung gave evidence of the events of 27th September and those of 17th October. The difference was very noticeable. Whereas he was sure and firm and unshaken in what he said was his recollection of 27th September, he was infirm, insecure and differentin manner and tone when he came to 17th October. Here again, I believe that the answer may be mistake. It may well be that each party left the meeting of 17th October believing something different; the Defendant and Dr. Leung believing that the Hang Seng Bank shares would be retained and then sold at the appropriate time, or that all the remaining shares would be so held and so sold - there was some confusion as to which it was, but, in the event, which it was is irrelevant; and the Plaintiff hoping against hope that the Hang Seng Bank shares would rise suddenly in value before it were called upon by its bankers to meet its own indebtedness, and thus be obliged to sell the Defendant's deposited scrip. It was quite clear from the evidence of all three of the Plaintiff's witnesses that they had an expectation, a high hope, indeed a belief, that Hang Seng Bank shares would rise again in value, and that they earnestly hoped that they would do so in time to save the Defendant and her account with the Plaintiff. It may well be that those hopes were expressed at the meeting in such a way as to lead the Defendant, in retrospect, to think that a firm agreement had been reached. But it is not necessary for me to go so far. The Defendant has to satisfy me on the balance of probabilities that there was such a valid and binding oral agreement, in one or other form - it is, as I have said, very hard to determine from the evidence if the agreement related to all the shares or solely to the Hang Seng Bank shares, but paragraph 9B of the pleading remains unaltered, and the plea therein is confined to Hang Seng Bank shares. This is a purely factual issue, and depends entirely on my view of the witnesses, their manner, the contents of their evidence, their internal and external contradictions, and whom I prefer. I unhesistatingly prefer the evidence of the Plaintiff's witnesses. That does not mean that I am finding that Dr. Leung has deliberately told me lies and has committed perjury. It is very rarely that a judge can reach a conclusion that what one or other party has been saying in Court are, actually, lies, or indeed that he can find as a certainty that such and such a thing happened or that such and such a thing did not happen. The Defendant has to satisfy me on the balance of probabilities that the alleged agreement was entered into and was binding on both parties. That she has failed to do.

58. Having said those things, it is not necessary for me to analyse the minutiae of the evidence, or, indeed, to summarise the whole of it in this judgment, and I do not, therefore, propose to attempt such an exercise

59. As a consequence of these findings, the concessions made by both Counsel at the commencement of this hearing mean that I need go no further.

60. There will, therefore, be judgment for the Plaintiff on the claim and counterclaim; but as for the terms othe judgment, I must hear Counsel, particularly in the light of what I said earlier on this judgment when I pointed to a difference between the sum claimed and the sum shewn in the accounts.

(1) [1964] N.S.W.R. 1205
(2) 6448/84 and 7115/84 (1/3/85) (unreported)
(3) [1918] 1 K.B. 205
(4) [1960] A.C. 178
(5) [1964] 1 W.L.R. 978

FOOTNOTE

After delivery of this judgment, Counsel for the Plaintiff informed me that the restriction of the Plaintiff's claim to $2,420,105.66 was the result of an agreement between Counsel, by which he considered himself (and his client) bound.