TAI FAIR SECURITIES LTD. v. NG KWONG YAN

1994, No.A1018

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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The Plaintiff's Claim

1. The plaintiff is a stockbroker and a member of the Stock Exchange. In its statement of claim, it alleges that the defendant was a customer, and entered into agreement on or about 3 November 1993 (subsequently amended to 4 October 1993) relating to the operation of a cash securities trading account with the plaintiff. In terms of this agreement, the plaintiff was authorised to purchase and sell stocks and shares listed at the Stock Exchange at the defendant's request. The plaintiff says that, between 4 November 1993 and 18 January 1994, it executed a large number of transactions on behalf of the defendant with a total turnover in excess of $100 million. Under the agreement, the defendant was obliged to pay the price, including brokerage, duty and levies, "within a prescribed time". The statement of claim does not seem to say what is "the prescribed time", but does allege that, if, within 4 bank trading days or other agreed period, the defendant defaulted in making payment, the plaintiff was authorised to sell securities held by it. The defendant agreed to pay interest, not exceeding Hong Kong Prime Rate plus 12 % on all overdue balances. In certain transactions, details of which are given, it is said that the defendant failed to pay, and interest is due. The stocks involved in these transactions were sold at the request of the defendant and the proceeds set off against what was due to the plaintiff. There was a shortfall amounting to $621,321.46, which is the sum claimed from the defendant. The plaintiff also claims interest, now calculated to be $12,331.94.

2. The stocks concerned in the plaintiff's claim are those of Emperor (China) Investment Holdings Limited (Emperor), Allied Properties (Hong Kong) Limited (Allied), First Pacific Company Limited (First Pacific), Double Glory Development Limited (Doub2le Glory), Robert Fleming & Company Limited (Robert Fleming), The Great Eagle Holdings Limited (Great Eagle) and Orient Telecom Holdings Limited (Orient).

The Defence

3. At the trial, the defendant was not represented, but she was when she filed her defence. In this defence, the allegations regarding the agreement were not denied. It is admitted that the defendant did purchase the stock as alleged. The defence goes on to say that, on 10 January 1994, Peter Tam Man Chuen, an employee of the plaintiff, was instructed by the defendant to sell the Emperor, Great Eagle and Orient stock at, respectively, $8.50, $7.00 and $5.50. The defendant pleads that, if this stock was sold at a lower price on a later date, the further losses were due to the failure or neglect of Mr Tam to diligently execute his instructions, and the defendant should not be liable. It is said that the defendant was always willing to settle the net losses, and is not liable for interest.

4. In a written statement, which was in Chinese characters, but has been translated to me, the defendant says that she started to trade with the plaintiff on 4 November 1993. They were cash transactions, and settlement was to be effected one day after the transaction. After a few transactions, Mr Tam suggested to her that she should settle only the difference between the buying and selling prices. "I only have to pay the commission and the interest and then I could gain the difference in the prices of the shares." The transactions initially were uneventful, but, when the Stock Exchange introduced auto-matching, Mr Tam told her that when she gave him instructions, her transaction "had to be behind the big customers, so it was difficult for him to buy for me." Mr Tam said the defendant should follow his advice and let him buy for her. "On the other hand, Mr Tam had not taken away the prices I quoted, being the prices at which I am willing to buy the shares. As a result, too many shares were brought and that was beyond what I could afford. And emotionally I was put under pressure too big for me." On Monday, 10 January 1994, she ordered Mr Tam to sell all the shares in her account. On Tuesday, over the telephone, Mr Tam told her that he had only sold part of the shares. She asked him why he had not sold all the shares. Mr Tam replied that he thought the prices would go up, and told her to wait patiently. On 14 January 1994, Mr Tam told her he had sold all the shares, but on the next day, Mr Leung of the plaintiff told her that some of the shares had not been sold. He felt frightened and cheated. Apart from this statement, in answer to an attempt by me to understand the issues, the defendant said that Mr Tam had bought only 100,000 shares without her authority. She instructed him to buy 100,000 shares in Emperor, but he bought 200,000. That is when she told him to sell all the shares.

5. In so far as this statement raises defences not pleaded, I suggested, and Mr Yim agreed, that I should treat the defence as amended to include these additional defences.

6. During cross-examination of Mr Tam, one of the plaintiff's witnesses, the defendant told me that she had not decided to leave the market altogether. She gave instructions to Mr Tam to buy the First Pacific and the Double Glory shares on 14 January. She instructed Mr Tam to sell all her Emperor shares at whatever price a buyer was prepared to pay. The same applied to the Allied shares, the Robert Fleming shares, the Orient shares and the Great Eagle shares. Firstly, she gave instructions to sell at a specific price, and then at whatever price a buyer was willing to pay. All the shares in disputed transactions were bought on her instructions, save for 100,000 Emperor shares. On the same day, after she calculated the figures, costing several millions, she decided she could not afford this so she told him to sell them all, but he refused to sell them for her. He did so in order to earn more interest. Mr Tam told her he had sold the Allied shares at $2.95, but, on Monday, told her they he had not sold them.

The Plaintiff's Evidence

7. Mr Tam gave evidence. He said that the defendant commenced trading in early November 1993. Her activities increased from a daily turnover of a few hundred thousand to a few million dollars in mid December. The defendant usually sold the shares within 2 to 3 days of buying them. On alternative trading days, she came into the office and settled her account. The defendant carried a pager and a portable telephone. She placed orders over the telephone. She recorded her transactions in a notebook and consulted this when she settled. She did not dispute any transaction until January 1994. At that time, the price of the shares held by the defendant dropped substantially. Between 10 and 14 January 1994, the defendant, with her husband came into the office on several occasions. On or about 11 or 12 January, the defendant collected all the proceeds of the sale of shares and she suggested depositing $1 million with the plaintiff in order to monitor the market for a few days. On 13 and 14 January, the defendant instructed him to sell all her shares except 20,000 Emperor. These shares were sold at a substantial loss. On 15 January 1994, she told Mr Leung that she would come on 17 January to settle. She did not do so. On 18 and 19 January, the plaintiff sold the remaining 20,000 Emperor shares as they were entitled to do under the agreement. Mr Tam said that he did not give the defendant a copy of the agreement because she did not ask for one; this was the practice of the plaintiff. Mr Tam denied that he had asked for authority to buy shares on his own initiative. He did not buy shares except on the defendant's express instructions for the price she stipulated. The same applied to sales. Apart from the 20,000 Emperor shares sold when the defendant did not pay, all other shares were sold on her instructions at the prices stated by her. He did not give advice on shares; he simply followed the defendant's instructions. He explained the Stock Exchanges auto-matching system. The buying and selling of all the shares, save when the Robert Fleming shares were purchased, was done under the auto-matching system. Under this system, the broker feeds into the computer the fact that he wishes to buy or sell a fixed number of shares at a fixed price. The computer then seeks to match this offer, and concludes a deal if it is able to do so. If it cannot, by the end of the trading day, the offer must be fed into the computer the next day. Mr Tam denied that, on 10 January, the defendant told him to sell all her shares. It would be necessary for her to instruct him to sell specific shares at specific prices; she did not do so. If she had told him to sell all the shares at the best price obtainable, he would have told her that she must stipulate the price. He did not advise her at any time not to sell because the prices of the shares might go up. Prior to the disputed transactions, the defendant had made a profit of about $300,000 from her trading.

8. Mr Leung gave evidence for the plaintiff. He was responsible for the settlements with clients. He dealt with the defendant's account. There had been no problem with the account before January 1994. He saw her between 10 and 14 January 1994. She came to settle. She looked very unhappy and said that the plaintiff should not have transacted for her. Her eyes were red as if weeping. When asked if, on the occasion when she cried, whether she had suffered a loss or a profit, Mr Leung said he did not take notice. On 14 January 1994, he spoke to the defendant over the telephone and told her the amount due. She said nothing significant, and that she would come on the Monday to settle. She came on the Monday, 17 January, and he gave her copies of the broker's notes. She left with these.

9. When I asked Mr Leung about the occasion when the defendant seemed to be weeping and saying that the plaintiff should not have transacted for her, he said that, in fact, the defendant was not complaining, but she was expressing her gratitude. He did not really understand what she was saying, but he did not attempt to clarify. Apparently, the Cantonese phrase used by Mr Leung could indicate that the person speaking was grateful. I suppose it is something like the person receiving a gift saying, in English, "You should not have done that", meaning that the generosity was unnecessary. Nevertheless, I was unhappy with Mr Leung's evidence on this point. It seems incongruous to me that a person should look "very unhappy", appear to be weeping, and yet being expressing gratitude, without Mr Leung inquiring into the problem.

The Payment into Court

10. At this stage of the proceedings, Mr Yim noticed that, included in a large bundle of papers prepared by the defendant and served shortly before the trial, was a notice of payment into court by the defendant. Mr Yim and his instructing solicitors did all they could to avoid this coming to my attention, but, for reasons best known to herself, the defendant insisted that I should see this document, which I had not then seen. When I looked at the notice of payment into court at the defendant's insistence, I asked her why she had pressed the matter. She seemed incapable of giving an explanation. I can assume only that she thought that because Mr Yim had taken pains to ensure that I did not see it, it was in her interests that I should see it. I explained the situation to her. She had no objection to me continuing with the trial. I was satisfied that I could do justice in the matter, and that I would not be influenced by the defendant's payment into court. I decided that it was in the interests of both parties that I should continue.

The Defendant's Evidence

11. The defendant gave evidence. She told me that she had been a clerk, but had not worked since 1982. She was now a housewife. She had undergone secondary education. She first started trading in shares through a bank in 1992. She was taught by some acquaintances how to do this. She was not well off so she traded only in small quantities, making long term investments. She was introduced to Mr Tam and signed the agreement with the plaintiff. She did not expect Mr Tam to give advice on what to buy and what to sell. She started trading through the plaintiff on 4 November 1993. She sued money she had borrowed from her family, including her husband. The problem started in mid December 1993. Very often in the evening Mr Tam would tell her he had bought excessively. "They bought double", at least once or twice a week. She complained to him about this. She said - "Do not buy too many as I cannot afford it". She did not complain to anyone else because Mr Tam told her he had lost a lot of money, and it would help him to buy more - that it did not matter. She thought it was all right; she trusted him. She forgave him. She complained to him in January when she discovered the quantity had become very big. She asked him not to buy too many for her any more. This was before 7 January. On that day, he bought 100,000 extra Emperor shares. She was very afraid when he told her. On that day, she told him to sell all the shares purchased earlier in the day the following Monday; that is, the Emperor, Allied, Robert Fleming, Orient and Great Eagle shares. She bought the First Pacific and Double Glory shares on 14 January. Mr Tam had not sold the other shares by then. She bought these as long term investments, but, when she told her husband about this, he said that she should not trust the plaintiff, and she should sell these shares too. The defendant said she ordered 100,000 shares in Emperor because Mr Tam had insider information about them. He told her to buy them because they would go up. She should not have to pay because they fell in price. Mr Tam stalled and did not follow her instructions to sell them; he sold only 50,000. He told her he would not sell any more. He told her to observe them for longer; the price might go up. When they went down, Mr Tam told her to wait patiently. She insisted that they be sold. The same applied to the other shares. He refused to sell them. He said the price would go up and she must wait. She instructed him to sell on Monday whatever the price. Mr Tam told her that he could have sold them but he refused to do so.

12. Under cross-examination, the defendant was referred to transactions earlier than those in dispute contained in broker's notes she had produced. She said that some of these were not authorised by her, but she was unable to be specific as to which these were. She agreed, however, that she settled the transactions. The defendant was reluctant to say that, up to 7 January 1994, she had made a profit on her dealings. She said she did not calculate this. She seemed to accept that she had made a profit, but she did not have any idea at all how much this might be. The defendant said that the practice was that she would instruct Mr Tam during the day, he would call back and tell her whether he was able to buy or sell, and in the evening he would call her and tell her that he had bought too much. She said that Mr Tam bought too much because he bought in a great hurry. He would apologise for this. This happened once or twice a week. The defendant did not remember from when Mr Tam began to buy too much, but she thought it was from the introduction of the auto-matching system. She said that Mr Tam bought the shares twice so the number was doubled. Sometimes he bought the extra shares at a lower price; sometimes at a higher price. The defendant denied she was a shrewd and experienced market player; she said was just a housewife and inexperienced. She said that she was not clear how she could complain about this conduct by Mr Tam because she had not been shown the agreement. She did not know how to handle this so, if he bought too much, she would tell him to sell immediately. She did not complain to the lady who introduced her to Mr Tam because Mr Tam told her not to tell her that the defendant was being allowed to trade on the differences between the buying and selling prices. She did not feel angry or annoyed when Mr Tam bought too much; she felt frightened and did not know what to do to complain. She thought Mr Tam bought too much to earn more brokerage. It did occur to her to complain to the authorities, but she did not know how. When asked why she continued to trade through Mr Tam if he was behaving in this way, she explained that, on one occasion when visiting the office, Mr Tam said that he had lost a lot of money and worked for the plaintiff to repay his debts. He said he was already so old and had to compete with young men. It was hard job. He only wanted to earn more money, and appealed to the defendant to help him. The defendant responded that, at most, she would trade through him one or two more times because he had already bought too much for her, and that put her in a bad condition emotionally. She continued to trade with Mr Tam because she felt sorry for him. She did not expect him to treat her like this and harm her. He begged her to continue trading with him in January 1994. She was inexperienced; she did not know what to do. She did not ask anyone for advice. The defendant said that when she told Mr Tam to sell her shares, he told her to wait a few days. When she repeated that she would like to sell, he said that he told her to wait and that's it. He told her that if he said it was OK, it was OK. She thought he could decide this. She thought this was strange, but she did not tell anybody, not even her family, until the end. She then changed this and said that she told her husband in mid December. Then she changed again and said that she did not tell her husband, because she did not have time. He worked late. He was sick and busy; she did not want to bother him. She discussed other matters with him but not this one. She did not know whether what Mr Tam did was right or wrong. She said that she did not have any health problems at that time; she was able to handle life normally. When questioned about particular transactions before the trouble started, the defendant said frequently that she "had no impression" of them, but later would remember about them. Regarding the block of 110,000 Emperor shares purchased on 7 January 1994, she said that she told him to buy only 10,000, but he bought 100,000 more. She was given 114 broker's notes early in January 1994. She was very frightened by this. The amount bought was too big; she was too frightened to check the notes to find out which were correct and which were incorrect. It was put to the defendant that she had decided, on 11 January 1994, to wait for the market to rebound. She responded that she did not think so; she really did not have "any impression" about this. She was asked again why she did not report Mr Tam failure to follow her instructions to the authorities or Mr Tam's boss. She said that the figures were so big and she was very frightened. She kept telling him to sell, but she did not know to whom she could complain. In spite of telling Mr Tam to sell all her shares on 10 January 1994, she bought more shares. She did this because she thought Mr Tam had sold her other shares. She did not wait for confirmation of this. Then she said that when she bought the shares in First Pacific and Double Glory, she knew that Mr Tam had not sold all her other shares. She bought these for the long term, but when she told her husband, he said that there were many suspicious points about the broker's notes and that she should sell the shares the next day. The defendant said that she did not object to Mr Tam's over-buying because he had already bought. The defendant agreed that, once shares were bought on 7 January 1994, it would be prudent to wait to see whether the market was going up or down the next trading day. Nevertheless, she says, she gave Mr Tam instructions to sell all her shares on the same day as they were bought.

Assessment of the Evidence

13. I have no difficulty with the evidence of Mr Tam. His evidence was straightforward, and is consistent with the probabilities and the contemporaneous documents. He impressed me as an honest witness. His evidence was a lot more impressive than that of the defendant. I am not so comfortable with the evidence of Mr Leung. I do not think he was telling me the truth about the defendant's visit to the office when she appeared to be upset. I think it is probably so that the defendant was distressed at that time, and did express her unhappiness with the plaintiff allowing her to buy so many shares. But nothing really turns on this point.

14. The defendant was a very unsatisfactory witness. I do not believe her evidence where it conflicts with that of Mr Tam. She changed her story from time to time, and it seemed to me that she was prepared to say anything that appeared to her at the time to suit her case. It is not credible that Mr Tam would have behaved as the defendant says he did, which the defendant recognised as very strange behaviour, without her seeking to complain or do something to stop him from buying shares for her that she did not want. I cannot accept that she did this because she felt sorry for Mr Tam. I cannot believe that Mr Tam absolutely refused to sell her shares when she instructed him to do so. There is no acceptable reason why he should have behaved in this bizarre way. I do not believe that, when the defendant instructed Mr Tam to buy 10,000 shares in Emperor, he bought 100,000 extra shares. The 100,000 shares in Emperor were purchased at $8.80, giving a total cost of $880,000. He did not have the defendant's money when she says he did this. It is inconceivable that Mr Tam would use his employer's money to buy a large number of shares costing a large sum of money that his client did not instruct him to buy, especially if, in the past, the defendant had, as she said she had, complained about him buying too many shares. The defendant's evidence that, while very frightened and instructing Mr Tam to sell all her shares, she bought other shares is also not acceptable. This is just not consistent with the picture that the defendant's was trying to paint. The truth of this matter is that the defendant became more and more confident in her trading; the pattern is that she increased the quantity and value of her purchases as time went on. She did not expect to lose a large sum of money. When she did, she had a terrible shock. She is now trying, in any way possible, to avoid responsibility for her own actions. I feel very sorry for her. But she is responsible for her own greed and foolishness; she cannot transfer that responsibility to Mr Tam.

15. I reject the defendant's case and accept that of the plaintiff.

The Interest

16. I am not happy with the plaintiff's case on the claim for interest. It seems to have been calculated in a most casual way. The defendant, with good cause, does not accept the plaintiff's figures. I have been shown no calculations that are satisfactory to me. The defendant is liable to pay interest at a rate not exceeding the Hong Kong Prime Rate plus 12%. This is said to amount to 18%, but I have not heard any acceptable evidence of this. I give leave to the plaintiff to file evidence by affidavit or affirmation to establish its claim to the interest. This is to be served on the defendant, who must respond thereto within 14 days. I will then decide whether a further hearing is necessary to hear oral evidence.

The Result

17. In the result, the plaintiff succeeds on its main claim, and I grant judgment in its favour in the sum of $$621,321.46. I will receive further evidence on the claim for interest. It seems to me that the plaintiff is entitled to its costs, and I make an order nisi to this effect. For the benefit of the defendant, this means that the defendant must pay the plaintiff's costs unless, within 14 days, she is able to show me good reason why she should not do so.