EMPEROR FUTURES LTD. AND ANOTHER v. LA BELLE FASHIONS LTD. AND ANOTHER

HCA 12310/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 12310 OF 1997

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(Cases Heard Together)

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J U D G M E N T

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Introduction

1. There are two actions before me: HCA 12310 & HCA 12312 of 1997. Both are brought by the same plaintiffs, Emperor Futures Limited ("Emperor Futures") and Emperor Finance Limited ("Emperor Finance"). They and Emperor Securities Limited ("Emperor Securities") are members of the Emperor Group. The corporate defendants are La Belle Fashions Limited ("La Belle") in the first action and Hubbard Company Limited ("Hubbard") in the second. Ms Amy Ng Siu My ("Ms Ng") is the second defendant in both actions. She is and was at all material times a director and shareholder of the corporate defendants and another company called Moon Sky Company Limited ("Moon Sky").

2. La Belle and Hubbard were clients of the plaintiffs. They traded in Hang Seng Futures Index futures through Emperor Futures acting as their broker and utilizing marginal loan facilities extended by Emperor Finance. Ms Ng was the personal guarantor of their liability to the plaintiffs.

3. It is the plaintiffs' case that both La Belle and Hubbard had made heavy losses in their trading, exceeding $3 million in the case of La Belle and $1.1 million in the case of Hubbard as at the end of October 1997. But all the defendants had refused to settle the amounts due to the plaintiffs with interest. Hence the present actions.

4. The grounds of defence raised by the defendants are wide ranging. They include misrepresentations, undue influence, breaches of the rules of the Hong Kong Future Exchange ("HKFE") by Emperor Futures, matters relating to a transfer of funds from the Hubbard futures account no. 4728 to La Belle's finance account no. 4718 of $2,233,522 on 10 October 1997 ("the Transfer"), and failure to carry closing instructions on La Belle's futures positions. The defendants also counterclaim for, inter alia, various declarations and damages to be assessed.

Primary facts that are not in dispute

5. Although a number of factual issues have been raised, some of the primary facts are not in dispute. I will set them out under the following heads: (1) Dealings of Ms Ng's personal account and Moon Sky's account; (2) Opening of accounts by La Belle and Hubbard and the accounts documents; (3) Transactions generally; (4) The Transfer; and (5) Debit balances. In the course of doing so, I will also highlight some of the more contentious issues.

(1) Dealings of Ms Ng's personal accounts and Moon Sky's accounts

6. Prior to La Belle and Hubbard becoming customers of the plaintiffs, Ms Ng had already opened an account no. 2454 in her own name on or about 19 March 1996 with the plaintiffs and Emperor Securities; and an account no. 3399 in the name of Moon Sky on or 1 November 1996 with the plaintiffs. Ms Ng had signed account documents for these two accounts, including margin loan agreements. She also signed a personal guarantee for the liability of Moon Sky to the plaintiffs.

7. Between March 1996 and the beginning of June 1996, Ms Ng traded in securities using her securities account no. 2454 with Emperor Securities as her broker and traded in futures on the HKFE using her futures account no. 2454 with Emperor Futures as her broker. Emperor Finance through the finance account no. 2454 extended margin loan facility to Ms Ng in the above trading. She had executed over 500 lots of futures through the said futures account. For the first four months, she often engaged in day trades, that is, transactions of which positions were opened and closed on the very same day.

8. From November 1996 to the beginning of June 1997, Moon Sky acting through Ms Ng traded in futures on HKFE using futures account no. 3399 with Emperor Futures as its broker and Emperor Finance through finance account no. 3399 extending margin loan facility. In the course of dealings, Ms Ng gave trade instructions on behalf of Moon Sky. More than 800 lots were executed through the its future account. Moon Sky ceased trading after 5 June 1997. On the following day, pursuant to Ms Ng's instructions, the credit balance in the Moon Sky futures account were transferred to her finance account no. 2454 ($176,434.78), La Belle's finance account no. 4718 ($300,000) and Hubbard's finance account no. 4728 ($300,000). Moon Sky futures account was then closed on 19 June 1997.

(2) Opening of the accounts by La Belle and Hubbard & the accounts documents

9. On or about 29 May 1997, Ms Ng signed on behalf of La Belle a set of written documents with the plaintiffs for the purpose of opening accounts. Several days later on or about 2 June, Ms Ng signed on behalf of Hubbard another similar set of account-opening documents with the plaintiffs. As noted, Ms Ng was already by then a client of the plaintiffs. The circumstances under which the above documents were signed were subject to dispute. The defendants alleged that they were signed as a result of various misrepresentations and undue influence. I will deal with the circumstances later when I come to the evidence.

10. The documents Ms Ng signed on behalf of La Belle and Hubbard were virtually identical in terms. They comprised a client agreement with Emperor Futures ("the Client Agreement"), a general loan and security agreement with Emperor Finance ("the Loan Agreement"), a facility letter with Emperor Finance ("the Facility Letter"), a memorandum, a letter of authority; and a risk disclosure document ("the Risk Disclosure Document"). She had also signed a personal guarantee for both companies ("the Guarantee"). I will deal with some of the clauses of these documents later.

(3) Transactions generally

11. La Belle's account with Emperor Futures, known as futures account no. 4718, recorded all futures positions it opened, held and closed from time to time. La Belle's account with Emperor Finance, known as finance account no. 4718, recorded margin loan facility extended by Emperor Finance to La Belle. Likewise for the case of Hubbard's futures account no. 4728 (with Emperor Futures) and its finance account no. 4728 (with Emperor Finance). Daily and monthly statements of accounts were sent to La Belle and Hubbard respectively.

12. In the course of dealings, it was Ms Ng who on behalf of La Belle and Hubbard gave trade instructions to and communicated with Mr. Wilson Lee Wai Shing, senior marketing manager of the plaintiffs ("Mr Lee").

13. The general operation of clients' futures and finance accounts by the plaintiffs, as applicable to La Belle and Hubbard, is not in dispute. Its legality is. I will briefly set out the operation here and come back to the defendants' challenge later.

14. Where a client traded in futures on margin, that is, utilizing margin loan facility extended by Emperor Finance, two accounts would be opened: a futures account with Emperor Futures (the trading account), which would record the trades; and a finance account with Emperor Finance (the loan account), which would record the drawdown on the margin loan facility so extended. These accounts were all computerized. Trading and credit limit were set for each client.

15. When a client trading on margin executed a futures contract, a sum of money was transferred from the finance account to the futures account, sufficient to maintain the level of margin required by HKFE (the initial margin). When that client held a future position and there was adverse movement in the Hang Seng Index Futures, further level of margin would be required by HKFE. A further sum of money would then be transferred from the finance account to the futures account to maintain the requisite margin level (the maintenance margin). These transfers of funds were always made when the transactions had been input to the computer. Thus, the futures account was never in deficit, so as to fully comply with the HKFE rules.

16. After the close of each trade day, whenever the occasion so demanded, an accounting entry would be made to transfer an appropriate sum of money from the finance account to the futures account, sufficient enough to maintain the level of margin stipulated by HKFE; and resulting in either a drawdown on the margin loan facility extended by Emperor Finance (if any credit balance in the finance account was insufficient), or in a transfer of client's money from the finance account (if there was sufficient credit balance) to maintain margin level for the futures positions held. Whenever the balance in the finance account was in debit, margin calls would be made to the client even if the deficit fell within the credit limit.

17. When the balance in a client's futures account exceeded the margin level required by HKFE, an accounting entry would be made to transfer the excess amount from that account to his finance account, usually after close of business of the last trade day before weekend or public holiday.

18. Under the agreements, the credit limit of the margin loan facility extended by Emperor Finance under the agreements to La Belle and Hubbard was each fixed at $1 million. However, on occasions, the limit had been exceeded in the course of dealings to maintain the margin level. Whether Emperor was entitled to so increase the credit limit is in dispute.

(4) The Transfer

19. At the close of business on 9 October 1997:

(1) La Belle held 21 futures positions;

(2) La Belle's futures account no. 4718 stood in credit to the sum of $2,132,750;

(3) La Belle's finance account no. 4718 stood in debit to the sum of $1,157,846.90;

(4) Hubbard held no futures positions, having closed out all its positions previously on 7 October;

(5) Hubbard's futures account stood in credit to the sum of $2,233,522,50; and

(6) Hubbard's finance account stood in debit to the sum of $2,026,223.18, which was less than the credit balance in the futures account no. 4728.

In the early hours of 10 October, an accounting entry was made by the plaintiffs transferring all of the credit balance in Hubbard's futures account no.4728 to La Belle's finance account no. 4718. The plaintiffs said the Transfer was made by a settlement clerk inadvertently and that Ms Ng had on or about 16 October rectified the mistake. The defendants contend that the Transfer was made without authority and was therefore wrongful and that the plaintiffs had subsequently failed to carry out Ms Ng's instruction to reverse it.

20. As a result of the Transfer, La Belle's futures account no. 4718 remained unchanged, still showing a credit balance of $2,132,750 but its finance account no. 4718 came into credit to the sum of $1,075,675.60, being the difference between $2,233,522,50 transferred from Hubbard's futures account no. 4728 and the original debit balance of $1,157,846.90. In respect of the Hubbard's accounts, its futures account no. 4728 showed a nil balance, and its finance account no. 4726 remained in the debit to the sum of $2,026,223.18.

21. After 10 October 1997, there were no further trades in Hubbard's accounts. But La Belle continued to hold futures positions until 28 October when on that day, the plaintiffs closed out all the positions after a sharp fall of the Hang Seng Index. It was the defendants' pleaded case that Mr Lee had failed to close out the positions as instructed.

(5) Debit balances

22. The plaintiffs' claims are the debit balances in the accounts with interest. Subject to the question of liability, the defendants do not seem to dispute the amounts of the debit balances in the accounts. As at 29 October 1997, the debit balance in the La Belle's finance account was $3,003,705.9 and interest in the sum of $8,046.17, with interest on the principal accruing at the contractual rate of 3% per annum above the HSBC best lending rate. As at 5 November 1997, the debit balance in Hubbard's finance account was $1,176,223.18 and interest in the sum of $18,725.37 with interest on the principal at the same contractual rate. Pursuant to Ms Ng's instructions, securities held in her personal account no.2454 were sold on 23 October 1997, yielding a net sum of $2,464,982.39. The plaintiffs are prepared to give credit to this in diminution of its claims.

23. With the above in mind, I now turn to the evidence.

24. To substantiate their claims, the plaintiffs have called 5 witnesses: their managing director, Ms Vanessa Fan Man Sheung ("Ms Fan"), Mr Lee, Mr James Wither ("Mr Wither"), a solicitor of the plaintiffs' solicitors, Mr Tang Chi Wah ("Mr Tang"), a clerk in the employ of the plaintiffs' solicitors, and Mr Eric Lai Hing Wah ("Mr Lai"), a settlement clerk formerly working for the plaintiffs. Ms Ng is the only witness for the defendants.

25. Their evidence is summarized below.

Ms Fan's evidence

26. As managing director of the plaintiffs and Emperor Securities, Ms Fan was responsible for their general management and operations. She also regularly liaised with Mr Lee concerning the status of individual client's trading and loan accounts.

27. She first referred to an extract from the companies' operation manual and explained the procedure for opening new accounts. Although the manual had been updated from time to time, the procedure remained basically the same since 1994. The staff had been instructed to adhere to it strictly. The marketing agent in charge of opening of the new account would send to the potential client a full set of documents to be filled in by client. Client had to sign the documents and guarantee (if applicable) and submit all relevant supporting documents. The agent had to ensure that the client (and the guarantor, if any) understand not only the procedures for margin calls, dealings and settlements, but also the risks involved, especially the risks relating to futures trading. In particular, the agent needed to point out for the client's notification and consideration before opening an accounting the risk disclosure statement of the Client Agreement printed in bold letters.

28. Ms Fan then described the general operation of the accounts as outlined above in (3) Transactions generally. She further explained that the extent to which margin calls were rigorously pursued depended on the circumstances of the particular client, e.g., whether he held securities in his account affording collateral or had in the past responded to margin calls promptly. She also pointed out that the transfer of the excess amount from a client's futures account to his finance account made at the close of business on the last trade day of the week or before a public holiday was made by the settlement department as a matter of practice without reference to the marketing department or client.

29. She then dealt with the statements of accounts. At the end of a trade day, all transaction details were input to the computer by the settlement department. Thereafter, daily statements of accounts would be printed overnight. Where the margin requirement had been increased, whether by opening of new futures positions or by virtue of adverse index movements, resulting in a drawdown on the credit facility, a daily statement for both the futures and finance account would be printed out. Where there had been movement in the futures account but the overall requisite margin had not increased and no transfer of funds was made from the finance account to the futures account, only the daily statement for the futures account would be printed out. On the following working day, staff at the settlement department would check the number of daily statements so printed, collate them, place them in envelopes and pass them onto the administrative department for posting.

30. At the end of each month, monthly statements of all futures accounts and finance accounts with movement(s) during the month and/or with outstanding balance and/or with portfolio were always printed (as at the last trade day of the month) and sent out. The procedure for dispatching them was similar to that for the daily statements except, given the work involved, it would usually took a few days.

31. It is Ms Fan's evidence that daily and monthly statements for the futures and finance accounts held by La Belle and Hubbard had been sent to their registered address for the period up to and including 31 October 1997. Thereafter, only monthly statements of La Belle's finance account had been printed out. They were likewise sent to La Belle's registered address.

32. She confirmed the accuracy of the various statements for both La Belle and Hubbard.

33. Ms Fan said that from March to the end of July 1996, Ms Ng's personal account no. 2454 was handled by a Ms Louisa Lee, who had since left the plaintiffs' employment. She had met Ms Ng on several social occasions. At the beginning of August 1996, the plaintiffs assigned the servicing of that account to a team headed by Mr Lee. Shortly thereafter, an informal meeting was held at the request of Ms Ng. It was attended by Ms Fan, Mr Lee, a Mr Prince Wong of Mr Lee's team, Ms Ng and her friend, Ms Goh. At that meeting, Ms Ng asked Ms Fan to tell her staff to give her favourable treatment. At that juncture, in Ms Ng's presence, Ms Fan told Mr Lee that when making margin calls on Ms Ng, he should be flexible and give her plenty of leeway because she was a good client and held securities in her account. She turned to Ms Ng and told her that Mr Lee and his team would accommodate her in every way. To her mind, until the fall in the market in October 1997, Ms Ng had been a good client. She and her companies had always paid up promptly whenever margin calls were made.

34. Under cross-examination, she denied the suggestion that the operation of the accounts by the plaintiffs was unheard of in the trade. She agreed that Emperor Futures had to comply with the HKFE rules but denied that they had breached any of the relevant rules. As to the Transfer, she said Mr Lee told her about the mistake some days afterwards. To Ms Fan, the easiest solution was to reverse it. That could be done without the client's consent. But since according to Mr Lee, he had already contacted Ms Ng who agreed to leave the balance at the La Belle finance account, she simply asked Mr Lee to follow up with the matter. She agreed that no consent from for the Transfer had been subsequently obtained. In response to my questions, Ms Fan said the plaintiffs would only derive very insignificant advantage by keeping the funds mistakenly transferred in the La Belle's finance account. The interest earned was negligible.

35. Finally, she agreed that the version of events concerning the Transfer put forward by the plaintiffs and in particular by Mr Lee had changed. Initially, it was alleged that the Transfer was permissible since Ms Ng had conducted herself in such a way that all the companies controlled by her were of one entity for the purposes of trading in futures. Ms Fan explained that after the downfall of the market in October 1997, the plaintiffs needed to deal with many legal actions. Mr Lee was probably confused and she was not concerned with and consequently did not have clear recollection on the details. When the matter was further probed into, the true picture then emerged.

Mr Lee's evidence

36. Mr Lee had been the senior marketing manager of the plaintiffs since February 1995. His duties included, inter alia, processing or supervising the processing of the preparation of all necessary documents for the opening of new accounts, liaising with clients concerning the status of their accounts and making margin calls. It was part of his duty to notify the marketing agents of any amendments to the plaintiffs' standard form contracts and other account opening documents as well as any updating of procedure and guidelines for accounting opening.

37. He described the standard procedure he would go through with clients when a new account was to be opened thus. He would explain the various documents to the client. The documents were client agreement, risk disclosure agreement, general loan and security agreement, letter of authority, margin loan facility letter and memorandum, and guarantees if the client was a corporation. The risk disclosure agreement was required by HKFE to be supplied to and signed by client. Further, he would inform the client, inter alia, the following:

(1) That Emperor Finance was offering margin facility to the client to maintain the margin level required by HKFE.

(2) That the amounts drawn down on the facility would be recorded in the finance account.

(3) That there would be a limit on the credit facility.

(4) That depending on the client's record in responding to margin calls, Emperor Finance, where necessary, might extend temporary credit in excess of the credit limit for the purposes of maintaining the required margin level and covering the costs of acquiring or settling futures contracts. That was because owing to fluctuations of the Hang Seng Index Futures, the required margin level or finance cost might not be immediately ascertainable in the course of a trade day.

(5) That Emperor Futures had the authority at any time to draw down on the loan facility for maintaining the required margin level and to settle debit balances in the futures account.

(6) That margin loans would be drawn down in the finance account and transferred to the futures account automatically to ensure maintenance of the margin level required by HKFE. These drawdowns and transfers were necessary because the required level or margin varied according to the daily fluctuations of the Hang Seng Index Futures.

(7) That credit amounts in the futures account, surplus to margin requirement, would be transferred back to the finance account to reduce any debit balance there. Where no futures positions were held in the futures account, the remaining credit balance would also be transferred to the finance account.

(8) That it was common for futures brokers in Hong Kong to offer similar services, that is, to have a separate finance company handling the financial requirements of the client's trading.

(9) That futures trading involved high risks as stated in the risks disclosure statement.

(10) That the client's financial exposure in futures trading depended on the fluctuations of the Hang Seng Index Futures.

(11) That a margin call would be made on the client whenever the finance account was in debit.

38. Where the client was a limited company, he would inform the guarantor that liability under the guarantees was unlimited and that the extent of the guarantor's liability would depend on the extent of the corporate client's financial exposure under the futures contracts.

39. He took over the responsibility of servicing Ms Ng's personal account no. 2454 in August 1996. He and another colleague met with Ms Ng. The meeting was to enable them to look after the account properly. Mr Lee explained to Ms Ng the margin requirement for futures trading and also the risks involved. Ms Lee also confirmed with her the trading and credit limit. She did not want to increase the limits. Mr Lee asked her about her investment strategy. He had the impression that she was an active speculator, having engaged in day trades and knowing what she was doing. Ms Ng requested to have another meeting with Ms Fan, which duly took place a few days later. His evidence on what happened at this meeting is similar to Ms Fan's.

40. By the end of October 1996, Ms Ng requested Mr Lee to open a new corporate account for futures trading. Since it had been some months he last met Ms Ng and he had hitherto no opportunity to explain the operation procedures in full, he therefore followed the standard procedure of opening accounts and explained all the above matters to her as if she was a new client. Upon signing of the account documents, Moon Sky's account no. 3399 was then opened.

41. Towards the end of May 1997, Ms Ng requested to open two more accounts in the name of other companies controlled by her for futures trading, one for "buy" orders and one for "sell" orders. This led to the opening of La Belle's account no. 4718 on 29 May 1997 and Hubbard's account no. 4728 on 2 June 1997. He could not remember why the two accounts were opened on different dates.

42. Mr Lee personally handled the opening of the accounts of La Belle and Hubbard. But he could not remember the events fully because between November 1996 and June 1997, 262 new accounts were opened and he had personally handled many of them when he followed the same procedure and referred to same types of documents. But he was certain that he had explained to Ms Ng all the above matters when La Belle's accounts were opened because over 6 months had lapsed since Moon Sky's account was opened. For Hubbard's account, Mr Lee said that it was possible that he had simply told Ms Ng that the position would be the same as La Belle's account because it was opened only 4 days later, the contractual documents were identical, and the trading and credit limits were the same. It was equally possible that he might have explained some of the above matters. He could not be sure.

43. He denied that he had made any of the misrepresentations to Ms Ng as alleged. In particular,

(1) He would not have told her that the mode of operations of the accounts was not unusual, had no problems or entailed no risks, was in La Belle's, Hubbard's or her interest or was legal. The accounts were opened at Ms Ng's request. He had no reason to persuade her to do so by mentioning such matters. In any event, when La Belle' account was opened, Ms Ng would have known how her account no. 2454 and Moon Sky's account no. 3399 were operated. She should have known or expected that the new accounts would be operated in the same way.

(2) He would not have told Ms Ng that Emperor Futures and Emperor Finance could be treated as the same entity. He might have said that they were both members of the Emperor Group.

(3) He could not remember if, when La Belle's account was opened, he mentioned to Ms Ng anything about the facility letter previously signed by her on behalf of Moon Sky. However, he was sure that if he did or Ms Ng had asked him about it, he would not have told her that the facility letter to be signed by her on behalf of La Belle was the same as the one for Moon Sky. The contents of the letters were not identical. Clause 4 of the Moon Sky facility letter provided that the total amount outstanding with interest that Moon Sky owed to Emperor Finance would not exceed the credit limit of $1 million whereas the same clause 4 in the La Belle facility letter went on to state that Emperor Finance reserved the right to increase or reduce the credit limit at any time in its sole discretion. As the senior marketing manager, Mr Lee had to notify the marketing staff of all the amendments and updating of the standard form contractual documents. Accordingly, he would have been aware of the amendment. Further, when La Belle's account was opened, he would have no particular reason to mention Moon Sky's facility letter. Had Ms Ng asked her about it, he would have first checked Moon Sky's facility letter, discovered that the terms were not identical and would have told her so.

(4) He would not have told Ms Ng that the extent of La Belle's financial exposure from engaging in futures trading was confined to and could not exceed the credit limit of $1 million, set for the margin loan facility granted to La Belle. There could be no conceivable reason why he would have made such an untrue statement to her. She should have understood that La Belle's financial exposure would depend on movements of the Hang Seng Index Futures. The purpose of extending margin loan facility by Emperor Finance was to enable the margin level required by HKFE to be maintained for futures trading. Thus, futures losses of La Belle and Hubbard and the credit limit of the margin loan were two different matters. He did not say anything to lead Ms Ng to confuse them.

(5) He would not have told Ms Ng that the extent of her liability as guarantor was limited to $1 million, nor said anything to lead her to believe that to be true.

44. After their opening, La Belle's account was used only for "buy" contracts in futures whereas Hubbard's account was used for "sell" contracts.

45. On several occasions, Ms Ng had asked Mr Lee, which he did, to explain some of the statements of account sent to her or her companies but he could not remember when she did so nor in relation to which accounts. The matters related to the presentation of data in the statements of account. Ms Ng had never queried the accuracy of any statement of account or objected to any of them.

46. Mr Lee then dealt with the Transfer. In his first witness statement dated 24 November 1998, Mr Lee said the following about the Transfer:

"20. As at 9 October 1997, the deficit of La Belle's loan account was in excess of the credit limit. The credit balance in La Belle's trading account was the Futures Exchange prescribed maintenance margin of its Futures Contract. That balance could not, therefore, be withdrawn to offset the deficit in La Belle's loan account. In order to reduce the deficit in La Belle's loan account, on 9 October 1997 I authorized the transfer of HK$2,233,522.50 from the trading account of Hubbard with Emperor Futures to the loan account of La Belle, so that the balance in that account became HK$1,075,675.60 in credit after the transfer...

21.1 Normally, the credit balance of the trading account in excess of margin requirements will be transferred to be see-off against the debit balance of the loan account of the same company. In this case, the [Transfer] was made instead to settle La Belle's loan account debit...Ms Ng subsequently approved [it].

21.2 As I have stated, Ms Ng led Emperor Futures and Emperor Finance to believe that her own trading account (with Emperor Securities) and those in the names of Hubbard and La Belle were for the same beneficiary, namely Ms Ng and the funds (to operate the accounts) were coming from the same source, namely Ms Ng. Before this transfer, ms Ng had no other occasions instructed us to transfer funds between her own account and the accounts of Hubbard and La Belle."

47. He now said the incident had been mis-described in his first witness statement. He did not authorize the Transfer nor was it made for the reason so stated. The Transfer was not made to settle the debit balance in La Belle's finance account although it brought about the same result. The Transfer was not made as a result of Ms Ng's having led the plaintiffs to believe that this could be done because of previous inter-account transfers authorized by her. Mr Lee explained that the errors were made because he had failed to read the witness statement with sufficient care before signing it and did not realize that the plaintiffs' solicitors (who prepared the statement) might not have fully understood what he had told him about the Transfer. The handling solicitor spoke only English and Mr Lee had some difficulty to communicate with him. Although Mr Lee obtained his degree in Canada more than 10 odd years ago, he had not used English often since then. After counsel had been appointed, Mr Lee was questioned closely on the contents of his first witness statements. Hence the errors were discovered.

48. Mr Lee now described what had actually happened about the Transfer was this. Hubbard closed out all it futures positions on 7 October 1997. As at 9 October, which was the last trade day of the week, Hubbard's future account no. 4728 stood in credit in the sum of $2,232,522.50. The settlement department made a mistake and transferred it to La Belle's finance account no. 4718.

49. On the following working day, i.e., 13 October, from reading Hubbard's statements of account dated 10 October prepared by the settlement department, Mr Lee noticed that the debit balance in Hubbard's finance account exceeded the credit balance of $1 million but he was unaware then of the mistake. He explained that at that stage he did not even notice the Transfer. He was extremely busy after the long weekend going through the finance statements for debit balances and making margin calls. In October, he was handling 300 to 400 clients. He was not mindful of the fact that Hubbard had closed out all its positions 7 days ago on 6 October and so there should have been a credit balance in its finance account following the weekend when the entire credit balance in its futures account would have been transferred to its finance account. He had no reason to study La Belle's finance account then showing credit balance because of the Transfer, or to call up account statements for La Belle or Hubbard from the previous week. The transfer, as described in the statements, appeared on the surface to be a usual transfer from futures to finance account of the same client.

50. Mr Lee therefore called Ms Ng, making a margin call on Hubbard. Ms Ng said she would call back, which she did on 14 October, whereupon she asked Mr Lee to look into Hubbard's account because there ought to be sufficient funds there. Mr Lee then investigated the matter and, with the help of the settlement department, realized for the first time an accounting error had been made resulting in the Transfer.

51. On 15 October, Mr Lee telephoned Ms Ng and told her about the error. He told her that it made no difference whether the sum went into Hubbard or La Belle's account. The Transfer could be reversed in which case a margin call on La Belle had to be made and answered. Alternatively, the Transfer could be left where it was but if so, the margin call on Hubbard would still need to be met. He asked her for instructions. Ms Ng then decided that the Transfer need not be reversed but should stand and instructed Mr Lee to that effect. To him, her instructions meant in effect she authorized the Transfer. Mr Lee could not remember if she gave those instructions on 15 or 16 October. In any event, in a partial response to the margin call on Hubbard, Ms Ng deposited $300,000 into its finance account no. 4728 on 16 October and a further sum of $550,000 into the same account on 22 October. During this period, Mr Lee continued to call Ms Ng asking her to pay in further money to cover the deficit in Hubbard's finance account. As at close of business on 22 October, the debit balance in Hubbard's finance account stood at $1,726,223.18, which still exceed the credit limit of $1 million.

52. Mr Lee denied the suggestion that on or about 15 October, he telephoned Ms Ng and made a margin call on La Belle. He did not do so because following the Transfer, La Belle's financial account no. 4718 was in credit throughout the week. He also denied that on 16 October, after he had told Ms Ng about the Transfer, she refused to consent to it; that he made excuses about the Transfer; that he refused to reverse the Transfer; or that thereafter, Ms Ng repeatedly told him to reverse the Transfer. In fact, Ms Ng had never argued with him about the Transfer. When he first told her about it, she was less than happy and asked him how the plaintiffs could be so careless. However, she had never instructed him to reverse the Transfer. If she had so instructed Mr Lee, he would have done so.

53. Although Ms Fan had told him to follow up, Mr Lee did not ask Ms Ng to confirm in writing her instructions regarding the Transfer. His explanation was this. First, he was busy handling many of the accounts which had been affected by the drastic fall of the index. Secondly, the Transfer had already been made and Ms Ng having elected that it should stay where it was, there was no urgency to obtain written confirmation because no further accounting step needed to be taken. Thirdly, after putting it off, he simply forgot about it. And that was the main reason.

54. From 20 to 23 October, the Hang Seng Index Futures fell continuously and sharply. As at the close of business on 22 October, the resulting balance in La Belle's finance account was more than $1.5 million, well exceeding the credit limit of $1 million. On 23 October, Mr Lee telephoned Ms Ng, informed her of the positions, made margin calls on both Hubbard and La Belle, and asked her to consider closing out La Belle's futures positions. La Belle was then holding 21 futures positions. Ms Ng told him firmly that she wanted to hold all the 21 positions. Mr Lee then told her to consider selling off the 20,000 Hong Kong Bank shares in her personal account no. 2454. The market value was over $4 million by then. She agreed and instructed Mr Lee accordingly, which was duly effected.

55. However, in the course of 23 October, the hang Seng Index Futures fell by 1,100 points such that at the close of business, the deficit in La Belle's finance account had increased to more than $2.7 million. The sale of Ms Ng's securities realized some $3.8 million, but after setting off against the previous debit balance, the credit of her finance account no. 2454 stood at $2,465,394.43 as at 23 October. That was insufficient to cover the deficits in La Belle's and Hubbard's accounts.

56. On 24 October, Mr Lee spoke to Ms Ng again, informed her that her securities had been sold but the proceeds were insufficient to cover the deficits. He again asked Ms Ng to consider closing out La Belle's 21 futures positions. She refused. She said that she was on her way to Shanghai and Mr Lee had to await her return. She did not say when she would come back. Mr Lee told her that because of the deteriorating market, he could not hold on indefinitely without liquidating La Belle's account unless she could pay in more money.

57. On 27 and 28 October, the Hang Seng Index Futures continued to fall sharply. Mr Lee repeatedly attempted to contact Ms Ng but to no avail. In the morning of 28 October, the index at one stage dipped to 8000 points. Mr Lee was worried that it would fall further. When trading resumed in the afternoon, after consulting Ms Fan, he closed out all of La Belle's futures positions.

58. On or about 29 October, Mr Lee was able at last to speak to Ms Ng when she called from Shanghai. He informed her of the latest position. She appeared to take the news calmly. She asked him at what points La Belle's futures positions had been closed out and he told her accordingly. Mr Lee reminded her that she needed to pay in more money to cover the deficits in the accounts. Ms Ng asked statements of accounts be sent to a friend of hers. Then on 30 October, Mr Lee received a 2 page fax from Ms Ng which was signed by her but dated 29 October, by which she authorized a Candace Fong to handle accounts no. 2454, 4718 and 4728, and requested that the statements of those 3 accounts for the month of October 1997 be sent to a fax number specified. The statements were then faxed to that fax number as requested.

59. Mr Lee denied the suggestion that on or about 24 October, Ms Ng instructed him to close out all of La Belle's futures positions. Mr Lee pointed out that there was no reason why he would not have carried out the instruction if indeed it had been given. The market was falling, the deficits for both La Belle and Hubbard continued to increase even after the sale of Ms Ng's securities. Finally, Mr Lee denied the suggestion that after the commencement of the actions, he spoke to Ms Ng on the phone and told her that "the counting party of all her trades were with Emperor Finance". In fact, the plaintiffs never traded against Ms Ng or any of her companies. It was a strict policy of the plaintiffs not to do so.

The evidence of Mr Wither and Mr Tang

60. Mr Wither and Mr Tang were called to deal with the proper service of demand letters to La Belle, Hubbard and Ms Ng. Ms Ng had not admitted in her pleadings service of the demand pursuant to the guarantees. (As will be seen later, in her oral evidence, Ms Ng denied that she had ever received the demand letters at all.)

61. According to Mr Wither, on 6 November 1997, the plaintiffs' solicitors sent two demand letters in respect each action - one to the corporate defendant at its registered address and one to the guarantor, Ms Ng, as the address stated on the guarantees. They were sent by ordinary and registered post. There was nothing in the file to suggest that the letters had been returned undelivered. And there was no reason if the letters had been so returned, but the same was not recorded in the file.

62. Mr Tang was responsible for physical dispatch of all outgoing mail of the plaintiffs' solicitors in November 1997. One of his colleagues prepared records relating to outgoing mail immediately before the mail was physically handed to him for delivery. Any mail to be sent by registered post would have the word "REGISTERED" chopped in red ink beside the details of the addressee in the book. On 6 November 1997, he dispatched the four demand letters to La Belle, Hubbard and Ms Ng by registered post. According to the mail delivery book, the four letters were sent by registered post. He also produced copy of the relevant certificates of posting in support. Mr Tang did not notice any of the letters had been returned. He personally did not handle registered mail undelivered and retuned to the office.

Mr Lai's evidence

63. Mr Lai was a clerk working in the settlement department of the Emperor Group, including the plaintiffs. He had left their employment since April 2000. His evidence mainly dealt with how the Transfer was made.

64. He first explained the procedure of how to transfer the credit balance in a client's future's account into the finance account of the same client. The transfer was made by the settlement department and therefore formed part of his duties. At the material time, the practice was to effect the transfer either on a Saturday, or on the first public holiday immediately after a trade day. The transfer was made without consultation with and independently of the marketing department. It involved several steps. The computer would generate a document called a "margin status report" which identified the credit balances in the client's futures account with Emperor Futures. The credit balance was then transferred to the same client's finance account with Emperor Finance by the settlement clerk who manually instructed the computer to debit the client's futures account and credit the same client's finance account with the same amount.

65. The computer then generated two further documents, viz., a client account movement log which was a list of all the futures accounts out of which the credit balances had been transferred as above; and a margin account deposit/withdrawal listing which was a list of all the finance accounts into which such credit balances had been as transferred above as well as the amounts so transferred. These documents were checked against each other as well as against the margin status report by the settlement clerk to ensure correctness of the manual input.

66. On 10 October 1997, Mr Lai was the only settlement clerk on duty. The working hours for night shift were from 6:00 p.m. on the previous day until 2:00 a.m. As part of his duties, he carried out transfers as aforesaid on that night.

67. Mr Lai was unable to locate a copy of the margin status report used by him on 9 October. However, the other two documents used were available. The client account movement log bearing at its top left corner the print-run date and time of "10/10/97 01:26" showed (in the final item) the debit entry made in Hubbard's future account no. 4728 in the sum of $2,233,522.50. The margin account deposit/withdrawal listing bearing at its top left hand corner the print-run date and time of "10/10/97 1:38" showed (in the second item) the credit entry made to La Belle's finance account no.4718 also in the sum of $2,233,522.50.

68. Although the margin status report was not available, Mr Lai believed that it must have shown a credit balance in Hubbard's futures account no. 4728 of $2,233,522.50. Otherwise he would not have debited that account with that amount. He could not explain why he made the mistake. Perhaps when he instructed the computer to make the credit entry, he keyed in "4728" instead of "4718". Or perhaps he had misread the numbers. He had also failed to spot the error when checking the documents. He made the Transfer in the early hours of 10 October, which was Chung Yeung Festival, a public holiday. He did so without consulting and independently of the marketing department.

69. He was not aware of the mistake until sometime later, as to exactly when he could not recall, when a colleague told him that a mistake had been made.

70. Mr Lai denied that the suggestion that it was in fact not a mistaken transfer; that he deliberately made the margin status report unavailable so that the defendants could not verify the accuracy; and that this evidence about the Transfer was untrue.

Ms Ng's evidence

71. Ms Ng gave evidence in her own capacity and as a director of La Belle and Hubbard.

72. She came to Hong Kong from Shanghai when she was a teenager. She could not read English.

73. She had traded in stocks before but only started to trade in futures after opening accounts with the plaintiffs. She agreed that there were two meetings before the opening of La Belle's account. At the first meeting, Mr Lee did not explain anything about margin requirement or mention anything about credit limit. At the second meeting, Ms Fan was introduced to her. Ms Fan told Mr Lee and his colleague to treat her well. She could not recall Ms Fan mentioning anything about flexibility.

74. Before Moon Sky's accounts were opened, she called Mr Lee and told him of her intention to open an account in Moon Sky's name. Mr Lee said he would send the documents to her, explained the contents to her over the phone and after she had signed it, he would send someone to collect them. After Ms Ng had received the documents, she called Mr Lee. He told her that the contents of the documents were just the same as she had signed before. (Presumably, Ms Ng meant the documents for her personal account no. 2454.) He went on to say that there would be two accounts: one for futures and one for finance. These two accounts were hers but she had to authorize the plaintiffs to make internal movements of money, which would be her own money, to facilitate trading in futures. Mr Lee further said that such mode of operation was the usual practice of the trade. Such authority would bring convenience to clients and was good to them. As to the loan agreement, she initially told Mr Lee that she did not need the credit facility. Mr Lee told her that it was a kind of service provided by the plaintiffs and it was for her benefit to have it. If she needed the facility, she could make use of it immediately. And if she did not need it, she could simply leave it here. The credit limit was set at $1 million. Further, Ms Ng was required to sign a personal guarantee. She found the arrangement reasonable and signed the documents. That was how Moon Sky's accounts were opened.

75. The accounts of La Belle and Hubbard were opened in similar circumstances: Ms Ng made a call to Mr Lee; documents were then sent over to her; over the phone, Mr Lee explained to the contents in similar terms; and she signed the documents. In particular, Mr Lee told her that the documents were the same as those for Moon Sky's account and her personal account; and that the credit limit was the same as Moon Sky's and her personal account, which was $1 million; and that the plaintiffs' mode of operation of accounts was common in the trade. She relied on all these before signing the documents. Now that she had obtained legal advice on the documents, she knew that the credit limit could be increased at any time without her knowledge and that liability under her personal guarantees was unlimited. She would not have signed them had she known of the truth.

76. She also said that she had now become aware that the plaintiffs' operation of the accounts was in fact not common trade practice. In this connection, she referred to her opening of an account with another broker, Tai Fook Securities Limited, in 1999. No finance account was opened. Again, had she known that it was the common practice, she would not have signed the documents with the plaintiffs for opening accounts for La Belle and Hubbard.

77. Ms Ng said she opened two set of accounts, one for buying and one for selling. According to her, it would be safe to trade in this way. Presumably, she was referring to the "hedging" of accounts and its beneficial effects.

78. Ms Ng said she did not know that facility would be granted from the finance account in order to maintain the required margin level in the futures account.

79. She confirmed that she had received the statements of accounts for La Belle and Hubbard but she did not fully understand them. She had asked Mr Lee to explain them to her over the phone on several occasions but was still not entirely clear. So she took the statements to his office whereupon he explained them in detail to her. But he did not explain the operation of transfer between the futures and finance account.

80. In the beginning of October 1997, following the advice of Mr Lee, she decided to close all the positions in Hubbard's futures account no. 4728. For La Belle, there were still 21 open positions. Mr Lee did not call her on either 13 or 14 October. It was on 15 October that Mr Lee called her and made a margin call on La Belle. He told her that she had lost money. That evening, after consideration, she decided to observe further. On 16 October, she intended to deposit $300,000 into La Belle's finance account no. 4718. She wrote on the bank deposit slip the account no. 4718. Before she was to fax the slip to Mr Lee, following the practice as required of her by Mr Lee, Ms Ng telephoned him and told him that she was to deposit $300,000 into La Belle's finance account no. 4718. Mr Lee asked her to deposit it into Hubbard's account instead. Finding it surprising, Ms Ng asked Mr Lee why. Mr Lee then told her that the plaintiffs had transferred a sum of money from Hubbard to La Belle on her behalf. He did not tell her how much had been transferred. Ms Ng objected to the transfer. Mr Lee just said the transfer had been made any way and it was just the same to her, whether it was La Belle or Hubbard. Ms Ng disagreed and asked him to reverse it. Mr Lee made up other excuses but upon Ms Ng's insistence, he said he would do it as soon as possible and the latest by the end of October. But since it was urgent, he asked Ms Ng to deposit money in Hubbard's finance account no. 4728 first. Ms Ng then changed the number already written on the slip from 4718 to 4728 and faxed it over to Mr Lee.

81. On 17 October, Ms Ng called Mr Lee to see if the reverse had been made. He said he was working on it.

82. On 20 or 21 October, Ms Ng again asked over the phone if the reverse had been made. Mr Lee simply asked her to make deposit of $1 million in the La Belle's financial account. She refused. On 22 October, the market dropped. Mr Lee made a margin call on Ms Ng but he had not made the reverse yet. Ms Ng was then worried about her loss. She thought she should be responsible for the loss up to 15 October. She said it was up to 15 October because the wrongful transfer had not been made on that day yet. She calculated the loss and arrived at around $800,000. She rounded it up to $850,000. The excess would simply stay in the account. As she had already deposited $300,000 on 16 October, she made a further deposit of $550,000. Following the usual practice, she called Mr Lee and told him that she had deposited $550,000 into La Belle's finance account. Mr Lee told that that the reversed had not been made yet and she had to deposit the money into Hubbard's finance account. Ms Ng followed what Mr Lee said and wrote down account no. 4728 on the slip.

83. On 23 October, Ms Ng decided to sell the securities in her personal account because of the falling market. She had to go to Shanghai. So she called Mr Lee and asked if he had reversed the transfer. That had made her unable to sell futures positions. Apparently, she was referring to the possibility of hedging by using Hubbard's account for selling futures positions. Mr Lee said he was still working on it and nothing could be done. That evening, Ms Ng became worried about Mr Lee's failure to reverse and decided to ask him to close all the positions the following day. On 24 October in the morning, while she was on her way to the airport, she called Mr Lee and instructed him to close the positions at a "better point" or if that could not be done had them closed on 24 October. She pointed out to him that she had no further money after the deposit of $550,000. She asked him yet again if the reverse had been made to which he did not say anything. On 29 October, Mr Lee told her that the positions had all been closed at 8000 points the previous day. She was very angry about it.

84. She denied that she had ever received the demand letters sent to her. She came back from Shanghai on 10 November 1997. She checked the mailbox but did not see the letters.

85. Finally, she thought the loss after 15 October should not be her responsibility because since then the accounts were not controlled by her any more.

86. A number of points arose out of her cross-examination.

87. She admitted that she was careful in putting money for speculation in futures and that she did not find any inaccuracy in the statements of accounts.

88. She also admitted that she was the majority shareholder of La Belle and Hubbard. In 1997, La Belle engaged in the fashion business. Before that, it engaged in manufacturing and wholesaling goods to Japan and Taiwan. She controlled the goodwill of these customers. In the best year of trading, the turnover was about $3 million. La Belle at one stage also rented a shop in Landmark, Central. Hubbard also engaged in the wholesale business similar to that of La Belle. In 1997, Hubbard also held 4 properties: the registered office of La Belle and Hubbard, two shops at a commercial building and a residential property at the Redhill Peninsula. They were all sold in 1999.

89. She had signed the risk disclosure documents but could not recall if Mr Lee had explained to her the risk involved in trading futures. However, she said she knew that trading in futures was risky when opening accounts for La Belle and Hubbard. She also knew that when she signed the Loan Agreement, a loan was to be provided to her. When she did not have enough money to cover the margin, Emperor Finance would lend the money to her. Mr Lee had told her so and she found it reasonable. By the time she opened the accounts for La Belle and Hubbard, she already knew that one account for futures trading and one account for finance would be opened. She went on to say that Mr Lee had told her that it was the practice of every broker to operate the accounts in such a way.

90. Initially, Ms Ng said she could not remember if Mr Lee had made any margin call that exceeded the $1 million credit limit. It was then pointed out to her that the documents showed that there were at least 4 occasions where either the deficit for La Belle or Hubbard exceeded $1 million. She then agreed that Mr Lee did make margin call on the deficits on 3 October. It was also pointed out to her that for her own personal account no. 2454, the credit limit of $1 million had been exceeded on occasions. However, she insisted that she did not know that the facility extended through the finance accounts might temporarily exceed the pre-fixed credit limit because of the market fluctuations.

91. Ms Ng had not stated in either of her two witness statements that she had told Mr Lee of her intention to open selling positions after the Transfer. She said she had forgotten about it.

92. She had not told Mr Lee that she would only be responsible for the loss up to 15 October 1997. When pressed further, she said Mr Lee knew about it. She then went on to say that on 16 October, she told him that she would ignore the accounts until he made the reverse. Again, this point was not mentioned in her witness statements. Another point also missing was on how she had calculated the loss to be $550,000.

93. She was asked about her telephone conversation with Mr Lee on 24 October. She said that she had no idea of the market as at that day; that it was up to Mr Lee who was in control of the accounts; and that she was merely making a suggestion to him to close the positions. That again was contrary to her witness statement where she said she told Mr Lee to close all her positions in her best interest immediately and told him he'd better close all her positions on that day.

Central grounds of defence

94. There is no dispute about the debit balances in the various accounts. There is also no dispute that under Clause 13(a) of the Client Agreement and Clause 1(2) of the Loan Agreement, La Belle and Hubbard are, prima facie, liable to the plaintiffs for such debit balances. Ms Ng is also prima facie liable under clause 1 of the Guarantee. The question is whether the defendants can successfully establish their defence. An additional ground of defence in Ms Ng's case is whether a proper written demand had been made.

95. In the first version of the defence and counterclaim dated January 1998, the defendants seek to rely on the Transfer and wrongful increase of credit limit beyond $1 million. The amended version only dealt with typographical errors. The Re-amended version dated September 1999 is a complete overhaul adding new allegations of misrepresentations, breach of HKFE rules on Emperor Futures's part, failure to reverse the Transfer and close the La Belle's futures positions. In April 2000, further amendments were introduced to include undue influence and Emperor Futures's failure to ensure La Belle's net worth was sufficient to meet risks and potential losses of trading. Last minute amendments were also sought in the course of the trial. With respect, the defendants' pleadings were drafted in a very convoluted way. Hereinbelow, I will endeavour to deal with the central grounds of defence in turn.

Misrepresentations

96. The defendants alleged that three types of misrepresentations, namely, "accounts misrepresentations", "loan misrepresentations", and "guarantees misrepresentations" had arisen out of the dealings between Ms Ng and Mr Lee when the La Belle and Hubbard accounts were opened. In short, under the "accounts misrepresentations", the defendants alleged, inter alia, that the plaintiffs misrepresented that the operation of accounts was not unusual; imposed no risk on the defendants; and did not prejudice the defendants' interest. Under the "loan misrepresentations", the plaintiffs were said to have misrepresented that the finance account would be used to provide loan to cover margin requirements; that the contents of the Facility Letter was the same as the facility letter signed by Ms Ng for Moon Sky; and that the maximum credit limit was $1 million and the corporate defendants' liability was limited to $1 million. Finally, under the "guarantees misrepresentation", the plaintiff had wrongfully misrepresented that Ms Ng's personal liability under the Guarantee was limited to $1 million. As they all depend on the circumstances under which the accounts were opened and how the documents were signed, I will deal with them together.

97. The effect of Ms Ng's evidence is that she simply trusted Mr Lee and believed what Mr Lee had told her before signing the documents. Ms Ng, however, had not explained why she had done so. One possible reason seems to be that she did not read English. Therefore she had to rely on Mr Lee. But in the course of giving evidence, on two different occasions, Ms Ng was able to answer counsel's questions, put in English, without interpretation. I doubt very much if she really did not understand English as alleged. More importantly, Ms Ng's allegations do not sit happily together with other aspects of her evidence. No doubt she had considerable business in doing business. She knew that trading in futures was risky. She must have learnt it from her active trading through her personal account no. 2454 and Moon Sky account no. 3399. She admitted that she was careful about using money to trade in futures. That is also partly reflected by how she had asked Mr Lee to explain the account statements to her in detail; and partly reflected by her strategy of hedging. I do not think a careful speculator like her would simply believe whatever Mr Lee said, especially when she had to sign personal guarantees thereby attracting potential personal liability.

98. Further, as rightly pointed out by Mr Yu, counsel for the plaintiffs, Ms Ng had failed in her oral evidence to substantiate some of the particulars on misrepresentations. For example, there is no evidence to show that it was uncommon to have operations in the trade similar to that of the plaintiffs; and that Mr Lee had said that the plaintiffs' mode of operation involved no risk or did not prejudice the defendant's interest. Indeed, Ms Ng said she knew there was risk. And there is no explanation why she had failed to do so. Lastly, given the importance of these allegations, there was no reason why they were only raised for the first time almost two years after the commencement of these actions.

99. For the foregoing reasons, I reject her evidence on misrepresentations in totality.

100. In my view, there is no reason why Mr Lee would have made gone through the opening procedure in the way as alleged by Ms Ng. It was not simply a matter of convenience. It involved making statements contrary to the contents of the documents. Why would Mr Lee need to do it? I cannot find any reason on the evidence before me. I accept Mr Lee's evidence on the circumstances under which the accounts of La Belle and Hubbard were opened and how the accounts documents and guarantees were signed by Ms Ng.

101. Accordingly, the defence on misrepresentations fails.

Undue influence

102. The defendants alleged that prior to the signing of the account documents and the guarantees, the plaintiffs through Mr Lee had exerted undue influence on Ms Ng. It also allegedly arose out of the circumstances under which the accounts documents and guarantees were signed. As I have already rejected Ms Ng's evidence in this respect, this defence also fails.

Wrongful increase of credit limit

103. The defendants alleged that credit limit had been increased beyond its limit of $1 million without their knowledge. Linked to this ground is the allegation that Ms Ng did not know how the accounts were operated.

104. I have already accepted the evidence of Mr Lee on the circumstances leading to how the accounts of La Belle and Hubbard were opened. I therefore find that prior to the signing of the accounts documents, Ms Ng knew that Emperor Finance, where necessary, might extend temporary credit in excess of the credit limit for the purposes of maintaining the required margin level and covering the costs of acquiring or settling futures contracts. Clause 4 of the Facility letter for both La Belle and Hubbard clearly provided that Emperor Finance could increase the credit limit at any time at its sole discretion. As a result of Mr Lee's explanation and the previous trading through Ms Ng's personal account no. 2454 and Moon Sky account no. 3399, Ms Ng and through her the corporate defendants all knew how the plaintiffs operated the accounts. The statements for La Belle and Hubbard also showed that on several occasions, the credit limit was exceeded. The accuracy of the statements had not been challenged.

105. In my view, the evidence is overwhelming. This ground must fail.

The Transfer, failure to reverse and to close out positions

106. I accept the evidence of Mr Lai on the Transfer. I do not see any reason why he had to make up the evidence for his ex-employers. And he was not shaken under cross-examination. I find him a truthful witness. I note what Mr Lee had said in his first witness statement about the Transfer. He had now offered an explanation on why such a mis-description had been made. I must confess I have some difficulty in accepting his explanation. But in light of Mr Lai's evidence, I do not think I need to deal with this part of Mr Lee's evidence any further.

107. I accept Mr Lee's evidence on the events happened after the Transfer. He was not shaken under lengthy cross-examination, which lasted for several days.

108. Ms Ng's evidence on these matters is disingenuous. I will explain why below.

109. First, there was no reason for Mr Lee to make margin call on La Belle on 15 October as alleged after the Transfer in blatant disregard of the finance account statement dated 10 and 14 October 1997, especially when they would be sent to Ms Ng soon. Why would Mr Lee make margin call unsupported by the statements which discrepancy would be readily detectable by Ms Ng? She did not come up with any explanation. I doubt if she could ever.

110. Secondly, I find it hard to believe that after she knew of the Transfer, she would have, on two occasions, simply followed what Mr Lee had told her to deposit substantial sums into Hubbard's financial account. She knew that Mr Lee had failed to reverse as promised. That had at least caused her inconvenience, as she could not open "buy" positions for hedging purpose, if not losses in a falling market. Why would she be so compliant?

111. Thirdly, she did not make any complaint to Mr Lee's superior, Ms Fan. In August 1997, Ms Ng had purposely asked to have a meeting with Ms Fan, obviously trying to establish a personal contact with her. In that meeting, Ms Fan had asked Mr Lee to treat Ms Ng well. Now that Mr Lee had mistreated her so seriously, she should have made a complaint to Ms Fan directly. Ms Ng had failed to explain why she had not done so.

112. Fourthly, her evidence as to how she had decided to cut her loss as at 15 October 1997 at $850,000 is simply incredible. What she had allegedly done was altogether unilateral. She had not raised the matter with Mr Lee or Ms Fan, which would only be natural if she really wanted to cut her loss. It must be obvious that in the absence of any consent from the plaintiffs, what she did might not bear fruit. Ms Ng had also failed to explain why she did not mention to Mr Lee of her intention to cut the losses at $850,000. In my view, it is just a desperate attempt to explain why she had made the second deposit of $550,000 in Hubbard's finance account on 22 October. That attempt failed miserably.

113. Fifthly, Ms Ng said that she had abandoned the control of her accounts to Mr Lee, thereby suggesting that she should not be liable for any future loss from 15 October. I cannot see any legal basis for her to do so. Leaving that aside, I do not find any truth in this. Any suggestion of abandonment is inconsistent with her repeated requests to reverse the Transfer, her intention to open "buy" contracts and her instruction to Mr Lee to close out the futures positions.

114. Last but not least, as noted in the summary of Ms Ng's evidence above, some important aspects of her oral evidence on these events did not feature in her witness statements. Her explanation why that was the case is hardly convincing.

115. Accordingly, I find it as a fact: (1) that the Transfer was a mistake made by Mr Lai; (2) that Ms Ng, having been informed of it by Mr Lee, had rectified it on or about 16 October in the sense that she instructed Mr Lee that the Transfer was to stand; (3) that Ms Ng did not request to reverse the Transfer as alleged; (4) that Mr Lee had not failed to carry out the closure instruction on La Belle's 21 futures positions as alleged; and (5) that Ms Ng had instructed Mr Lee to hold on the said futures positions. I also find that under section 9 of the Client Agreement, Emperor Futures was entitled to liquidate La Belle's futures account on 28 October 1997 by closing out all the 21 futures positions.

116. Up to now, I have disposed of most of the factual disputes where Mr Lee's evidence conflicted with Ms Ng's. At this juncture, I think it is apt to mention this. When I assessed Mr Lee's credibility as a whole and on various matters, I had in mind his change of evidence on the Transfer. And I had approached his evidence with caution. In the light of the poor quality of Ms Ng's evidence, which I have sought to demonstrate above, and the fact that there existed other evidence consistent with Mr Lee's evidence, I accept his evidence despite the change and his not very convincing explanation. I also note that there might exist some minor discrepancy between Ms Fan's evidence and Mr Lee's. But I do not think it affects their credibility.

Breach of HKFE rules

117. The defendants relied on several rules of HKFE, including rules 515, 516, 605(b), and 619(a). Emperor Futures accepted that it had to fully comply with the rules. The difficulty is the defendants had not shown that any of the HKFE rules they sought to rely on had been incorporated in the Client Agreement or any of the documents signed by the defendants. The only clause which is relevant is Clause 15 of the Client Agreement which provided that all transactions entered into on HKFE shall be subject to the provisions of this Clause which are prescribed by rule 602 of the HKFE rules, and which shall constitute and be construed as part of the agreement. In any event, the defendants had failed to prove that Emperor Futures had breached any of the HKFE rules. This ground also fails.

Non-service of demand letters

118. Under clause 1 of the Guarantee, liability of Ms Ng as guarantor arose upon a written demand from the plaintiffs. Ms Ng alleged that she had never received the demand letters. In this respect, I accept the evidence of Mr Wither and Mr Tang and find that the demand letters had been properly served on Ms Ng. As noted, I am of the view that Ms Ng is a poor and untruthful witness. I therefore reject her evidence in this respect as well.

Other grounds of defence

119. Mr Tsui, counsel for the defendants, had made submissions on some other grounds. In order not to overburden this judgment, I do not propose to deal with them here. Suffice it to say that I have already carefully considered all of them and with respect, do not find any merit in any of them at all.

120. For the foregoing reasons, all the grounds of defence fail.

Conclusion

121. Accordingly, I will enter judgment for the plaintiffs as follows:

(1) As against La Belle in HCA 12310 of 1997, in the sum of $3,018,952.73 with interest on $3,003,705.90 at the rate of 3% per annum above the best lending rate of HSBC;

(2) As against Ms Ng in HCA 12310 of 1997, in the sum of $3,018,952.73 with interest at 2% per month;

(3) As against Hubbard in HCA 12312 of 1997, in the sum of $1,194,948.55 with interest on $1,176,223.18 at the rate of 3% per annum above the best lending rate of HSBC;

(4) As against Ms Ng in HCA 12312 of 1997, in the sum of $1,194,948.55 with interest at 2% per month.

122. Credit is to be given to the net proceeds of sale of Ms Ng's securities in the sum of $2,464,982.39. There will be an apportionment between La Belle and Hubbard according to the proportion of the judgment sums entered against them. Ms Ng's final liability will be adjusted accordingly as well. I will leave the arithmetic to the parties.

123. The counterclaims in both actions are dismissed.

124. I will make an order nisi that costs of the actions, including any costs reserved, be to the plaintiffs, to be taxed if not agreed. The costs against Ms Ng are to be taxed on an indemnity basis, pursuant to clause 1(c) of the Guarantee. The order nisi shall be made absolute within 14 days after handing down.

125. Finally, I would like to record my gratitude to Mr Yu, counsel for the plaintiffs. He had handled the case with care and competence. His assistance to me was tremendous and had rendered the writing of this judgment less onerous than it otherwise would have been.