CHINTUNG COMMODITIES LTD v. CHEN AH HUNG BERNARD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. I have now got three summonses before me. Substantially the most important one is the plaintiff's summons for summary judgment under 0.14. I have risen for a few minutes to reflect upon the matter, basically for two reasons. The first is that there is a very large sum of money involved. The second is that this, as far as I am concerned, is the second time round. I have had this case for a day or more at the Mareva injunctions stage. At that stage I also had to consider whether or not the plaintiffs had made out a strong prima facie case.

2. On that occasion I had three arguments advanced, on law, very significantly not in facts, all of which I considered and rejected. This time round I have some new legal arguments and some factual questions raised. I wanted to reflect upon that situation because it could very easily be said that I have approached this position today with the mind which is not exactly clear of prejudice, having regard to what has happened before. But having done the best I can on these new defences, I have come to the conclusion that this defendant has in fact made out nothing that I can regard as an arguable defence.

3. The principal matter to which counsel's arguments have been directed relates to section 45A of the Commodities Trading Ordinance which requires a dealer to provide "in respect of every contract for the purchase, sale and exchange of a futures contract entered into by him in Hong Kong whether as principal or agent" a contract note. Sub-section 2 sets out a number of things which that contract note has to contain.

4. In this case what the plaintiffs as dealers sent to the defendant after the many transactions they entered into in his interest were documents which they called confirmation reports, saying what they had bought and what they had sold as the case may be. It is suggested that these confirmation reports failed to comply with section 45A(2). Certain points of complaint are made, and I am picking out only the principal ones.

5. First it said that the document itself does not state whether the transaction has been entered into by the plaintiffs as a principal or agent, which is what is required by (c). (c) requires him to state if he is acting as principal. That is in fact true. The document is silent upon that matter. The plaintiffs assert that they already covered this in the underlying documentation, which shows that in certain fields, they would always be acting as principal, and in others always as agent or broker. But the document is defective, in the sense that it does not in fact state one or the other.

6. Secondly the document has to state the name of the "commodity exchange" on which the contract has been executed. This is really the defendants' main complaint. He asserts now that there is no such commodity exchange as is described by the name "Loco London", and that there has been a fundamental failure of the plaintiffs either to make contracts or to make contracts at some recognised commodity exchange. Now I have tried to understand this point since an early stage today, and I regret to say I have totally failed.

7. The draft defence which has been put in evidence on behalf of the defendant in paragraph 2 said; "it is admitted that the defendant had given instructions to the plaintiffs to trade in inter alia loco London gold, loco London silver." The documents, these confirmation reports, referred constantly to dealings in loco London gold and loco London silver. I simply do not start to understand how it can be said by this defendant that he does not understand what loco London meant in these circumstances; or indeed to assert that there is no commodity exchange which is not well known under this description "loco London". Indeed there is evidence to that effect filed by the plaintiffs, I think only this morning. The way in which this particular London market operates is there described. I simply cannot start to comprehend, having regard to the documentation, having regard to the instructions which the defendant admits that he gave to the plaintiffs, that in some way he did not understand what the loco London market in gold or silver was. So do not see that there is any substance in that part of the complaint.

8. Then it said in (g): that the note must state whether "it is a new contract or a contract for settlement". That is in substance true in respect of some of these transactions at least. I noticed some have got the initials "N" and "S" against them but majority do not seem to. Then it is said that the trading unit of the commodity has not specified. I am not sure that I understand that because the trading unit seems to me to be specified in most of them as "ounces" or "Deutch marks" as the case may be. But perhaps it was not fully specified. Then it said that the commission is not there. That is certainly true. There is no reference to commission on any of the documents. That again is said to be in the underlying transaction documents.

9. Now the question I have to ask myself is this. Accepting that these failures to comply strictly with all the requirements of subsection 2, took place contract after contract in this case, do those facts give this defendant a prima facie defence of illegality? I have had a number of the authorities upon this matter put before me. It seems to me that this can now be said quite clearly to be a matter of construction. The test which was most clearly expressed by Sachs L. J. in Shaw v. Groom (1970) 2 Q.B. 504 is that which I think I must apply, for the good reason that it has, very recently as I read it, been applied by the Court of Appeal in Hong Kong in Whitehall Finance Ltd. v. Win and Fair Securitites Co. Ltd., no. 187 of 1984.

10. In their judgments both Fuad J. A. and Sir Alan Huggins V. C. referred to the matter as a question of construction, and cite with obvious approval, a passage from the judgment of Devlin J. in St. John Shipping Corporation v. Joseph Rank Limited (1957) 1 Q.B. at p. 288, where Devlin J. was also citing with approval some dicta of Lord Wright. The test I think can now be put thus (and I am reading here from an extract from Sachs L. J.'s judgment in Chitty on Contract Volume I, 25th edition, paragraph 1148.)

"The court must answer the question, does the ambit and intent of a particular statute in the light of any other legislation affecting the subject matter, preclude the plaintiff recovering on the contract if he had committed the offence."

Is it the intention of the legislature to preclude a dealer from recovering on his contract, if in the course of sending out what he calls a "contract note" following the event, he committed the "offences" that I have outlined above. That seems to me the question. Giving the matter the best attention I can, it seems to me to admit of only one answer. It seems to be quite beyond belief to attribute any intention to the legislature that would produce such horrendous consequences from breaches of the statute which seems to me in the main to be trivial to a degree. I cannot see any prospect at all of a trial judge reaching any different conclusion to that.

11. That is really the only matter of any substance which has been put before me at all and by any substance I mean worth considering. A number of other points that has been advanced. It said that Mr. Lai's position requires further inquiry. It seems to me that that is a pure question of fact as to whether that gentleman was accredited. The evidence is that he was not, and the extract from the Public Register seems to support it. Then it said that there has been some breach of the Commodity Exchanges prohibition Ordinance. I confess I do not start to see how that can apply to dealings on exchanges outside Hong Kong, which is the question here.

12. Then questions of fact are now being raised for the first time. There are suggestions of negligence and mis-representation. About that I only say this: If anything like this has been said on the first occasion I might have looked at it with a little more care, notwithstanding the terms of this contract and a highly speculative nature of this business. Because the concept of any obligation to advise being put upon brokers in these circumstances, and the concept of this defendant either needing or heeding any advice that he was offered, both seem to me somewhat farfetched. When they come at the stage they have come on this occasion, I find them totally without any sort of weight or merit at all. In these circumstances in my judgment I think there should be judgment for the plaintiffs for the sum claimed.