LIPPO SECURITIES LTD. v. G.A. MANAGEMENT LTD. AND ANOTHER

HCA 17830/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 17830 OF 1998

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J U D G M E N T

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1. The plaintiff carries on and at all material times carried on business as a securities broker. The 1st defendant was a customer of the plaintiff having opened a margin trading account in November 1995 with the plaintiff. The 2nd defendant was at all material times a director and a shareholder of the 1st defendant. The other director and shareholder of the 1st defendant at all material times was Siu Wai Yip ("Siu"). The 2nd defendant and Siu each owned 50% of the shares in the 1st defendant. They each held 1 share out of the 2 issued and paid up shares.

2. As a result of the Asian financial crisis in October 1997 which caused a sharp decline in property values and share prices, the value of the shares held by the plaintiff as collateral on the 1st defendant's margin trading account dropped significantly. Despite demands, the 1st defendant failed to deposit cash or provide further collateral securities in its account with the plaintiff. The plaintiff instituted these proceedings on 21 October 1998 against the 1st defendant as principal debtor in respect of the amounts owing to the plaintiff under the margin trading account and interest thereon and against the 2nd defendant as guarantor under a continuing guarantee provided by the 2nd defendant to the plaintiff.

3. On 13 April 1999 the plaintiff obtained judgment in default against the 1st defendant for the sum of HK$5,303,439.28 and fixed costs. The amount owing under the judgment was reduced to HK$4,359.092.48 after due credit was given for proceeds received from the sale of shares held as collateral and the deposit of HK$30,000 by a cheque received by the plaintiff. As has been pleaded by the plaintiff, as at 1 November 1999 the amount owing to the plaintiff in respect of the 1st defendant's account was HK$4,359,092.48. It was agreed between the parties in the course of the trial that should the court find that the 2nd defendant was liable to the plaintiff on the continuing guarantee then the plaintiff would be entitled to judgment in the said sum of HK$4,359,092.48 with interest thereon at judgment rate from 13 April 1999 until payment.

Undisputed facts

4. The 1st defendant opened a margin trading account with the plaintiff in November 1995 through the account executive Leong Sai Cheong ("Leong") who was employed by the plaintiff at all material times. In 1991 Leong and the 2nd defendant were colleagues working for the same group under Banque Indosuez. The 2nd defendant worked for the bank and Leong worked for W I Carr Securities which was part of Banque Indosuez's group. They knew each other since 1991 although both of them denied that they had maintained close personal contact with each other since then.

5. Leong joined the plaintiff in about October 1995 working under the sales team headed by the executive director Michael Leong ("Michael"). Leong knew at that time that the 2nd defendant had established his own consultancy business in the name of the 1st defendant and he approached the 2nd defendant to encourage him to open a margin trading account with the plaintiff. This the 2nd defendant agreed to do. The account was to be a corporate margin trading account in the name of the 1st Defendant.

6. On 30 October 1995 Leong went to the 1st defendant's offices and brought with him a number of documents to be signed by Leong and his co-director Siu so that the 1st defendant could open a margin trading account. There is also no dispute that one of the documents signed on that occasion was the unlimited continuing guarantee of the 2nd defendant in favour of the plaintiff ("the guarantee"). The 2nd defendant does not deny signing the guarantee but he denies that he is liable to the plaintiff under the guarantee.

7. In 1997 the 2nd defendant also maintained two personal margin trading accounts with the plaintiff through Leong. On 19 March 1997 and 19 August 1997 respectively, he signed a margin client's agreement with the plaintiff for the opening of each of the said accounts which was opened shortly thereafter. He also maintained a personal trading account for commodities and futures trading with Lippo Futures Limited, an associated company of the plaintiff. On 19 March 1997 he signed a customer's account agreement with Lippo Futures Limited.

The defences

8. The 2nd defendant in his re-amended defence and counterclaim relied on a number of defences to the claim on the guarantee :

(1) that he has no knowledge of the signature of a personal guarantee in favour of the plaintiff (para 3). The particulars provided are that the bundle of account opening forms including the guarantee was produced to the 2nd defendant by Leong for signature at the time of the opening of the account. It is pleaded that Leong never informed the 2nd defendant that within the bundle of documents there was a guarantee to be executed by the 2nd defendant. Leong told him that they were standard account opening documentation and persuaded the 2nd defendant to sign at every relevant space on the documents in the bundle and he took them away saying that he would fill in the missing particulars and then return one set to the 1st defendant after completion of the account opening formalities. In essence this is a plea of non est factum. However, Mr Sham, counsel for the 2nd defendant, in his closing submissions abandoned any reliance on the plea of non est factum.

It is not surprising that the 2nd defendant abandoned the defence of non est factum. For it to succeed a defendant must establish not only that there was a radical and fundamental difference between what he signed and what he thought he was signing but that there was also a lack of negligence on his part, i.e. that he took all reasonable precautions in the circumstances to find out what the document was (Saunders v Anglia Building Society [1971] AC 1004]. In his evidence the 2nd defendant said that he did not look at the documents and that he did not carefully check what the documents that he signed consisted of. It seems to me that on his own evidence it would have been impossible for him to show that there was a lack of negligence on his part and the defence of non est factum was bound to fail. Hence it is not surprising that such defence was abandoned.

(2) that the guarantee was executed by mutual or common mistake. This plea was added by way of a late amendment to the defendant's pleading. It is pleaded in para 3 as follows :

"The 2nd Defendant avers that it was never the parties' intention that the 2nd Defendant should execute a personal guarantee and the Guarantee was executed by mutual or common mistake.

Particulars

During October 1995, about one week prior to the signing of the documents referred to under paragraph 3 herein, Mr Leung Sai Cheong approached the 2nd Defendant and offered the 1st Defendant a securities margin trading account with US$5 million limit at the interest rate of prime plus 3% and the brokerage rate of 0.25% stating that apart from those terms, the Plaintiff would not require any other conditions except that they would hold the shares purchased by the 1st Defendant as security."

(3) In the alternative, the 2nd defendant asserts that he signed the whole bundle of documents in his capacity as a director of the 1st defendant but unaware of the fact that he was asked to sign the guarantee as a result of the plaintiff's misrepresentation (para 4). The same particulars given under para 3 are provided as particulars under this alternative plea.

(4) Further or in the alternative, that the 2nd defendant unilaterally mistook the nature of the bundle of documents as a result of which it signed the same which included the guarantee. Mr Sham made it plain in his closing submissions that the 2nd defendant was no longer relying on the allegation of unilateral mistake as a defence to the claim on the guarantee.

9. Thus the remaining defences were one of mutual or common mistake alternatively, misrepresentation. It is of course for the 2nd defendant to establish these defences in answer to the claim on the guarantee.

The witnesses

10. The plaintiff called as witnesses Woo Peter Ping ("Woo") the chief executive officer of the plaintiff, Wong Ke Chin ("Wong") a compliance officer of the plaintiff and Bosco Cheung ("Cheung") a director of the compliance department of the plaintiff. The 2nd defendant gave evidence and also called Leong. I have no hesitation in accepting the evidence of the plaintiff's witnesses. I am satisfied that they are honest witnesses who gave their evidence truthfully. I cannot say the same for the 2nd defendant and Leong. In my judgment the 2nd defendant and Leong were not truthful in their evidence of the circumstances surrounding the execution of the guarantee. Parts of Leong's evidence were also at variance with the evidence of the plaintiff's witnesses. Where Leong's evidence was at variance with the evidence of the plaintiff's witnesses I have no hesitation in preferring their evidence to that of Leong's evidence.

The evidence

11. It was the plaintiff's case that there was a standard practice in the plaintiff to require a director of a corporate customer opening a margin trading account to provide a personal guarantee as further security for the corporate customer's indebtedness to the plaintiff under the margin trading account. However, where the customer was known to be a substantial concern or where it had substantial assets then there was no need to require a director to provide a personal guarantee. In the case of a company with a small capitalization like the 1st defendant which had a nominal share capital of $10,000 with 2 shares of $1 each paid up, in effect a $2 company, a personal guarantee was required. Woo, the chief executive officer of the plaintiff, gave evidence about this. Wong who joined the plaintiff in 1996 also gave evidence of his understanding of the plaintiff's standard practice at the time he commenced his employment with the plaintiff.

12. It is clear on the evidence adduced by the plaintiff, which I accept, that before a new margin trading account could be opened with the plaintiff, the account executive in charge of that account had to submit the relevant account opening forms duly completed and signed to the new account opening officer. These would be submitted together with the account approval form which was in duplicate. The top copy was a thin sheet whilst the bottom copy was a thicker sheet. On the reverse of the bottom copy was a printed sheet titled "new account check list" which listed the documents required for the opening of a new account whether individual or corporate ("the new account checklist"). The new account officer would then check and review the documents and submit the account approval form for the opening of the new account. Although Woo said that he was the one who had to approve all new accounts but in his absence from the office then Mr Rigby or Cheung could approve them, the evidence of Cheung was that he himself could approve the opening of new accounts even when Woo was in the office. I think that Woo was probably mistaken when he said that he was the only one who could approve new accounts when he was in the office. I am satisfied that his credibility as a witness of truth has not been undermined because of this.

13. The account approval form in respect of the 1st defendant's account was filled in by Leong and he signed the form as the one who prepared the same. There was blanks in the document as regards, for instance, the net worth of the company and the estimate of its annual income. The amounts filled in for the limit for cash trades, margin trades and Hang Seng Index were US$5 million for each of these and these were filled in by Leong in his handwriting. He also filled in the commission rate of 0.25%. The new account officer who signed this form after the words "documents approved" on this form was Steve Chan. Woo was the director who approved the opening of the account by signing after the words "approved by" in the form and by putting his initials after the words "director's approval". The opening of the account was approved on 16 November 1995 which was the date written on the form.

14. There is no real dispute that all the relevant documents for the opening of the account as well as the guarantee must have been placed before the new account officer at the time he put his signature after the words "documents approved". Woo said that Steve Chan as the new account officer put his signature there to indicate that all the required documents were completed. Woo also explained what kind of documents were required for the opening of a corporate account which included client information sheet, signature card, client's margin agreement, authorization to trade and other relevant documents. He gave evidence also that a personal guarantee would be required if applicable. He explained that this meant that for instance, in respect of a company listed on the stock exchange or a company with substantial assets then it was not a must to obtain a personal guarantee from a director of a corporate client. But in the case of a company with small capitalization like a $2 company or a $50 company the plaintiff required a personal guarantee. Wong joined the plaintiff only in May 1996 but he confirmed that there was such a standard practice in the plaintiff about requiring a personal guarantee from a director of a corporate client where the company did not have substantial assets. He also said that for a $2 company it was a must for a personal guarantee to be given by a director. As a compliance officer he knew of the company's practice and according to him it was common knowledge within the plaintiff.

15. Leong denied that there was a practice in the plaintiff which required a personal guarantee from a director of a company with small capitalization like the 1st defendant which was in effect a $2 company. He said that he never discussed this policy with his superior Michael and he never overheard discussions about this practice with the plaintiff's staff. He said in effect that insofar as he was aware there was no such policy. I do not believe him. The new account checklist on the reverse of the account opening form made it plain that one of the documents required for a new account was an unlimited continuing guarantee "when applicable". Although the plaintiff was unable to produce the original of the bottom copy of the 1st defendant's account opening form, on the evidence of other contemporaneous accounts opened shortly before and after the opening of the 1st defendant's account, it is abundantly clear (and I so find) that the reverse of the bottom copy of the 1st defendant's account opening form must have contained the new account checklist which provided that an unlimited continuing guarantee was required "when applicable". This was explained by Woo as the company's standard policy which required a personal guarantee from a director except where the company had substantial assets.

16. Leong even denied that he was aware of the new account checklist on the reverse of the form at the time that he himself filled in the form in respect of the 1st defendant's account. He said that the first time that he noticed the new account checklist was several months after he joined the plaintiff. I do not believe him. He is an intelligent man who was professionally qualified as a chartered accountant. He worked successfully in the securities business since about 1991 and was described as one of the top salesmen of the plaintiff. I do not believe him when he says that he was not aware of the company's policy requiring personal guarantees from a corporate account customer with a small capitalization like the 1st defendant. I also do not believe him when he said that he was not aware of the new account checklist at the time the 1st defendant's account was opened.

17. It is significant that Leong was also the account executive who opened a corporate margin trading account for MCI Financial Ltd ("MCI"). The approval for the opening of this account was also given on 16 November 1995 and the form was also signed by Leong. The directors and shareholders of MCI were at all material times also the 2nd defendant and Siu although in this company Siu owned 67% of the company whereas the 2nd defendant owned 33%. The account approval form did not give any details of the net worth or annual income of MCI. MCI was a company with a small capitalization of 10,000 shares of $1 each with $10,000 paid up. There is no dispute that in respect of this margin trading account a personal guarantee was given by Siu who was a director of MCI although Leong said that he had no knowledge of a guarantee being provided by a director of MCI. I do not believe him. He was the account executive in charge of this account. There is no doubt that Siu did provide a personal guarantee for the opening of the MCI margin trading account. Siu has not complained about providing this guarantee nor has he disputed the validity of this guarantee. The fact that a personal guarantee was supplied for the MCI margin trading account in my judgment supports the plaintiff's case that there was a standard practice that required a personal guarantee from a director of a corporate client opening a margin trading account save where the corporate client was known to be a substantial concern or had substantial assets.

18. The evidence also showed that one of the corporate clients recommended by the 2nd defendant through Leong to open a margin trading account with the plaintiff did not provide a personal guarantee from one of its directors. The corporate client was Mercuries-Jeantex Holdings Ltd ("MJ") and the opening of the account was approved on 4 March 1996. The account approval form was also signed by Leong and he estimated the net worth of the company at that time to be HK$200 million with an annual income of HK$10 million. Leong, however, said in evidence that at the time this account was opened MJ did not provide any financial statements. It should be observed that this is contradicted by the client information sheet signed by a director of MJ dated 1 March 1996 where the director when dealing with the information requested as to net worth, net profit for the previous year, volume of business, estimated net worth and estimated annual income stated "per audited accounts attached". The said director in dealing with the information requested of branches and affiliates also stated "per audited accounts attached". It seems to me that the contemporaneous document show that the audited accounts for the year ended 31 March 1995 were supplied to the plaintiff before the account was opened despite Leong's denials. Leong denied that the said audited accounts were supplied to him by MJ when the account was opened and he did not remember seeing those accounts then. His recollection was that the audited accounts were only given to the plaintiff subsequently when an application was made for a loan some months after the account was opened. I do not believe Leong. I am satisfied that the contemporaneous client's information sheet correctly reflects the fact that the said audited accounts were attached to that document and that the plaintiff received the same before the account of MJ was opened. The accounts show that MJ was a substantial concern and in accordance with the plaintiff's standard practice no personal guarantee was required from one of its directors.

19. I have no hesitation in accepting the evidence of Woo and Wong and in rejecting the evidence of Leong on these matters. I believe Woo and Wong and disbelieve Leong. I find that the plaintiff did have a standard practice in place at the time that the 1st defendant opened its account. I find that it was the plaintiff's standard practice to require a director of a corporate customer opening a margin trading account to provide a personal guarantee as further security for the corporate customer's indebtedness to the plaintiff under the margin trading account save where the corporate customer was known to be a substantial concern or had substantial assets. I also find that Leong knew and was aware of this standard practice at the time the 1st defendant was asked to open a margin trading account with the plaintiff.

20. The 2nd defendant gave evidence that Leong met him around end Oct 1995. At that time Leong knew that he had a financial consultancy business in the 1st defendant. Leong offered to open a margin trading account for the 1st defendant with US$5 million for trades and with a brokerage commission of 0.25%. Interest on the margin account would be prime rate plus 3%. He was further told that the shares purchased would be kept by the plaintiff as collateral. He said that he asked Leong what else was needed and he was told nothing else was needed apart from the shares which had to be kept as collateral. He said that he agreed to those terms. Leong gave evidence of this meeting with the 2nd defendant and said that he told the 2nd defendant that he was starting a new job with the plaintiff and encouraged him to open an account for share trading purposes and for subscription for initial public offerings. He told the 2nd defendant that it was a simple matter of filling out some forms and returning the same to the plaintiff. He offered a credit line of US$5 million and told him that the commission rate that he was going to charge was 0.25% and that the interest charge on the credit line was to be the standard rate of prime plus 3% per annum. He also told the 2nd defendant that he would not be able to take any of the shares purchased under this account as they would be held as collateral. In cross-examination Leong went further and said that he also told the 2nd defendant that there was no need for a personal guarantee to be given for the opening of the new account. He, however, did not say this when he was examined in chief. This was also not mentioned by the 2nd defendant in his evidence. I have no hesitation in disbelieving Leong on this. I find that he never said to the 2nd defendant at the said meeting or at any other time that there was no need for a personal guarantee to be given or anything of the sort.

21. The 2nd defendant also gave evidence that about one week after his meeting with Leong, Leong came to the 1st defendant's offices in the afternoon of 30 October 1995 bringing with him the documents to sign for the opening of the 1st defendant's account with the plaintiff. He had telephoned to say that he was coming. He said that Leong told him to sign the documents quickly as he had to go shortly. The documents were printed forms in blank and he signed at the places where stickers had been placed to indicate where he should sign. He said that there was no time for him to have a look at the documents and he did not notice that the guarantee was amongst the documents that he signed. He said that he did not expect to sign the personal guarantee and that if he had been told that he had to sign a personal guarantee for the 1st defendant's liability under the margin trading account he would not have opened the margin trading account on that basis. He also said that he did not carefully check what the documents that he signed consisted of. He accepted that about one week later he also signed account opening forms for MCI but he said that at that time he did not particularly pay attention also to the documents at that time.

22. Leong gave evidence that after his meeting with the 2nd defendant regarding the opening of the 1st defendant's account with the plaintiff his sales assistant or secretary prepared the documents for the client to sign and he did not go through the documents to check to see what documents were included. He said that the particulars were probably not filled out by his secretary at that time and that stickers were placed there at places to indicate where the customer should sign. On his evidence I accept that it is probable that the account opening forms were handled by his sales assistant or secretary Rita Tam. However, he must have told her that it was a corporate margin account which was to be opened as the relevant documents for a corporate margin account were taken to the 1st defendant's offices by Leong. Leong said that he did not go through the documents. After the 2nd defendant signed the documents at the places where stickers were placed, Leong said that he took them to the other director Siu for him to sign the same. Leong said that he did not look at the documents that they signed. He also said that he did not know that there was a guarantee included in the account opening forms.

23. I accept that Leong had the assistance of his sales assistant or secretary Rita Tam who put together the documents to be signed by the new corporate customer for the margin trading account. These were the documents that he took with him to the 1st defendant's offices for the 2nd defendant and Siu to sign. It is significant that even his sales assistant knew that it was a requirement that a personal guarantee from a director was required as she must have placed the guarantee in the bundle of documents to be signed on that occasion. This further supports the plaintiff's case that there was the standard practice in the plaintiff as I have already found. This must have been known to Leong's sales assistant. I am satisfied that Leong being the account executive in charge of the account knew and was aware that a personal guarantee was required in the case of a company like the 1st defendant. The 1st defendant's account was an important account for Leong to secure as he must have realized that the 2nd defendant was in a position to introduce some of his clients to him. Leong himself personally went down to the 1st defendant's offices for the specific purpose of obtaining signatures to the documents that he had brought with him. In my judgment Leong must have gone through the documents if only casually either on his way to the 1st defendant's offices or whilst at the 1st defendant's offices when the 2nd defendant and Siu were signing the documents. I do not believe him when he said that he did not notice that there was a guarantee in the bundle of documents that he had brought with him. I find that he knew that the 2nd defendant was required to sign a guarantee and he knew that one of the documents that he had brought with him on that occasion was the guarantee.

24. I accept that the 2nd defendant might have signed the printed documents in blank with details filled in subsequently. The 2nd defendant is also a professional man having qualified as an accountant in 1988. He had about 8 years experience in auditing work and was later a financial consultant handling fund raising and acquisition activities. He was also an experienced investor in the stock market. I do not believe him when he said that he did not look at the documents that he signed on 30 October 1995 and that he did not notice the guarantee amongst the documents that he signed. I also do not believe him when he said that if he had been told that he had to sign a personal guarantee he would not have opened the margin trading account for the 1st defendant on that basis. I find that he did look at the documents that he signed on 30 October 1995 and that he knew that he was providing an unlimited continuing guarantee to the plaintiff when he signed the guarantee. I also find that when he signed the documents on 30 October 1995 he knew that he was required to sign a personal guarantee for the opening of the 1st defendant's margin trading account and he was prepared to do so. The fact that he might have signed it in blank with particulars to be filled in later does not affect the validity and enforceability of the guarantee.

25. An important matter also to bear in mind is the evidence of Wong. He gave evidence that in about early 1998 he had a discussion with Leong and showed him the guarantee asking him whether the account opening forms in respect of then 1st defendant's account had been signed in front of him and Leong confirmed that they had. He asked Leong to sign on the space for the signature of the witness on the guarantee but Leong told him that he would think about it but then he declined to sign as witness on the guarantee. Leong did not tell him why he would not sign. He reported the matter to his superior Cheung. He denied the suggestion that Leong told him that the guarantee was a mistake and was not part of the agreement and that he would not sign it as witness. Leong, however, gave evidence that at that meeting with Wong he told Wong that he would refuse to sign the guarantee as witness as it was not agreed with the 2nd defendant that the personal guarantee should be supplied and further that he had not witnessed the signing of it. He said that he gave those reasons for refusing to sign as witness on the guarantee when Wong approached him on the matter in early 1998. On this dispute of fact I have no hesitation in accepting Wong's evidence and in rejecting Leong's evidence. I believe Wong and disbelieve Leong. I find that in early 1998 Leong admitted to Wong that he had witnessed that 2nd defendant signing the account opening forms including the guarantee. I also find that he did not tell Wong that the guarantee was a mistake and was not part of the agreement.

26. It is clear that by early 1998 the relationship between the plaintiff and Leong had become strained. Leong left the plaintiff on 1st April 1998 although he said that he himself resigned. Leong himself had a personal margin trading account with the plaintiff which was a delinquent account as at March or April 1998. He also had about 5 to 7 customers with delinquent accounts with the plaintiff shortly before he resigned. His relationship with the plaintiff must have become strained as a result of this. In December 1998 the Plaintiff resorted to litigation against Leong when it instituted proceedings against him for approximately US$45,000 on his own delinquent account. Judgment was entered in default and Leong was allowed to pay off the judgment by instalments. It seems to me that as his relationship with the plaintiff was deteriorating in early 1998 he was determined not to assist the plaintiff in its recovery claim in respect of amounts owing by the 1st defendant. For this reason he refused to sign the guarantee as a witness when approached by Wong to do so. I am satisfied and I find that Leong did in fact witness the signing of the guarantee by the 2nd defendant on the occasion that he took the documents for signature at the 1st defendant's offices on 30 October 1995 and that he knew that the 2nd defendant was providing the guarantee in accordance with the plaintiff's standard practice.

27. The two remaining defences relied on at the time when counsel for the 2nd defendant made his closing submissions were mutual or common mistake alternatively, misrepresentation.

Mutual or common mistake

28. On the facts as I have found them there was no mistake in the providing of the guarantee to the plaintiff for the purpose of opening the 1st defendant's margin trading account with the plaintiff. I find that the 2nd defendant has failed to establish that the guarantee was executed by mutual or common mistake.

29. Furthermore, it seems unlikely in any event that the 2nd defendant could rely on the pleaded facts as raising a defence of mutual or common mistake which would render the guarantee void. Mr Lee, counsel for the plaintiff, submitted that for there to be an effective mistake rendering the contract void the mistake must be as to the subject-matter of the contract. That was not the case put forward by the 2nd defendant and in any event the 2nd defendant was not entitled to rely on this as a defence.

30. It seems to me that on the authorities of Associated Japanese Bank International Ltd v Credit du Nord [1989] 1 WLR 255 and Jan Albert (HK) Ltd v Shu Kong Garment Factory Ltd [1989] 2 HKC 156 the mistake must be such as to render the subject matter of the contract essentially and radically different from the subject matter which the parties believed to exist. I accept Mr Lee's submissions. I also agree with Mr Lee that the 2nd defendant's defence of mutual or common mistake is, on the facts pleaded and the particulars provided, not a mistake as to the subject-matter of the contract of the guarantee. This defence is misconceived. It is in effect a plea of non est factum which is doomed to failure on the facts as I have found them.

31. In my judgment the defence of mutual or common mistake raised fails.

Misrepresentation

32. It was submitted by Mr Sham that the 2nd defendant signed the guarantee as a result of the representation made by Leong that the bundle of documents were the standard account opening forms of the plaintiff and that Leong had never informed the 2nd defendant that there was in fact a guarantee included in that bundle of documents to be signed by the 2nd defendant. Before the 2nd defendant can succeed on misrepresentation he must show that there was a representation of fact made which induced him to enter into the guarantee and which said representation of fact was false. I observe that it is not alleged that at the time the 2nd defendant signed the guarantee there was any representation made that the bundle of documents did not include the guarantee. Further, the assertion that Leong told him that the bundle of documents were standard account opening forms was not false on the facts as I have found them. It was standard practice in the plaintiff to require a personal guarantee from a director of a corporate client for a margin trading account in the case of a company with a small capitalization like the 1st defendant and the representation that the documents were standard account opening documents was not false. The 2nd defendant has failed to establish that he was induced to sign the guarantee by a misrepresentation by Leong. The defence of misrepresentation in my judgment also fails.

33. As the 2nd defendant has failed to establish any of his defences the plaintiff is entitled to judgment against the 2nd defendant. I give judgment to the plaintiff in the sum of HK$4,359,092.48 with interest thereon at judgment rate from 13 April 1999 until payment. The 2nd defendant's counterclaim is dismissed. I also make an order nisi for costs of the action and the counterclaim in the plaintiff's favour against the 2nd defendant. The 2nd defendant's own costs in the action and the counterclaim are to be taxed in accordance with Legal Aid Regulations.