HCA006648/1987
1987 No. A6648
IN THE SUPREME COURT OF HONG KONG
HIGH COURT
------------------
BETWEEN
F.E.B. FINANCE LIMITED
Plaintiff
and
YEA KWONG YU
Defendant
------------------
Coram: Hon. Liu J. In Chambers
Dates of hearing: 9th May, 1988
Date of delivery of judgment: 9th May, 1988
-----------------
JUDGMENT
-----------------
1. This is an appeal from a Master's decision. The point is short and can be conveniently disposed of in a few words. What is being challenged are the misrepresentations pleaded in the Defence and Counterclaim.
2. Paragraphs 4, 5,6 and 10 of the Defence and Counterclaim are set out below :
"4.
At all times prior to and at the time of the signing of the said agreement, the said Mr Cortez represented to the Defendant who relied upon the said representation and acted on the same, that the Defendant would be provided better service and more professional advice if he dealt with the said two companies with which Mr. Cortez was associated. "
"5.
It was further represented to the Defendant by the said Mr Cortez, acting for an on behalf of the aforesaid two companies, or alternatively being held out as having the authority to make the said representations, that in respect of any transactions that the Defendant undertakes with FEB Commodities Ltd. in respect of the Hang Seng Index Futures, the Defendant's loss would be limited to the extent of the margin of $15,000 paid in respect of each contract. "
"6.
Further, the Defendant says that at no time was it adequately or at all explained to him the risks, if any, that were attendant in investing in Hang Seng Index Futures."
"10.
Despite repeated protests by the Defendant in respect of the said unauthorised purchase the said Mr. Cortez assured and advised the Defendant to take up the contracts as it would ensure to his benefit since in Mr Cortez's professional view the market outlook was bullish and he had made the purchase on behalf of the Defendant to underline the fact that the Defendant would receive better and more professional service and advice with FEB Commodities Ltd."
3. The first two paragraphs contain specific allegations of misrepresentations. Mr Fung, counsel for the plaintiff was prepared to accept "ignorance of the risks involved" and "assurance of a beneficial purchase" pleaded in the latter two paragraphs also as oblique misrepresentations.
4. It is the contention of the plaintiff that as against an assignee of a debt from the creditor of the defendant, the defendant is not entitled to claim "damages for misrepresentation" as in prayer (1) of the Counterclaim. On this basis, the plaintiff applied to the learned Master to strike out prayer (1). The application was not acceded to and was dismissed, hence the instant appeal.
5. The defendant was the former customer of the creditor/assignor, a broker in the Hong Kong Stock Exchange and the Hong Kong Futures Exchange. It is alleged that by various misrepresentations of one Mr Cortez, acting on at least one occasion for the creditor/assignor, the defendant was induced to enter into a contract with his former broker for commodity and stock trading and has suffered loss and damage. Upon liquidation of the defendant's trading account with the creditor/assignor, the debit balance stood at over $1 million. Thereafter, the creditor/assignor assigned its debt to the plaintiff. In this action, the defendant seeks to counterclaim against the assignee of the debt damages for the said misrepresentations.
6. Miss Kwan for the defendant confirmed to the Court that the misrepresentations pleaded were not fraudulent misrepresentations. Counsel left it unspecified as to whether these misrepresentations s were negligent misrepresentations or innocent misrepresentations. Be that as it may, the misrepresentations as alleged did not arise out of and were not closely connected with the very contract for trading because they were held out as an inducement to the defendant prior to and independently of it.
7. The position was succinctly summed up in the case of Stoddart v. Union Trust, Ltd. (1) and followed in the Australia case of Provident Finance Corporation Pty. Ltd. v. Hammond (2) . What has been decided is : a claim in damages founded on alleged fraudulent m misrepresentation perpetrated by a party inducing another to enter into a contract with him could not be invoked by the party so misled against the assignee of the debt of the party making the misrepresentation unless a rescission is claimed before the notice of assignment. The ratio, as I see it is that such an inducement, whatever the nature of the misrepresentation, did not arise from the contract but was itself an actionable wrong independent of it.
8. In the instant case, the alleged misrepresentations evidently did not arise out of and were not closely connected with the contract between the defendant and his creditor. No damages claim on such misrepresentations can be, on the authorities I have referred to, raised by the defendant against his creditor's assignee i.e. the plaintiff.
9. The decision of Stoddart has been criticized in Treitel, 6th Edn. p.p. 509 and 510 and Chitty, Vol. 1 25th Edn. para. 1308 at p. 320. However, the ratio in Stoddart has been affirmed in no less than three editions of Halsbury as well as Cheshire and Fifoot. As a decision, Mr Justice Lush in Provident Finance v. Hammon (3) described it as not as "much criticised". Stoddart has stood the test of time for many years. I ought to follow it. Any challenge to such time-honoured principle should be taken to the Court of Appeal, if the defendant is so minded.
10. I am driven by the authoriities cited to hold that prayer (1) of the Counterclaim cannot be supported.
11. It is not quite necessarily for me to go to the other two grounds raised by Mr Fung. Indeed, the alleged misrepresentation in this case wholly lack the vital particulars. Counsel for the plaintiff was critical of the omission in these allegations to isolate the portions said to constitute misrepresentations and facts alleged to be untrue. As they are, these passages and prayer (l) of the Counterclaim cannot stand. Moreover, Mr Fung submitted that the defendant had yet to clarify whether the alleged misrepresentations were fraudulent, negligent or innocent. In response to that criticism, Miss Kwan for the defendant merely intimated that they were not fraudulent misrepresentations.
12. Lastly, counsel for the plaintiff submitted that what is pleaded are only assertions of future conduct or intention and not statements of fact, past or present. It is debatable whether paragraph 5 is pleaded as a statement of fact. But as analysed by counsel for the plaintiff, it is necessary, in these circumstances, to aver that the statement in each case was false and that Mr Cortez either did not hold that opinion or as a reasonable man having his knowledge of the creditor's state of affairs could not honestly have held the opinion that he expressed.
13. The allegations, as they are presently put, are grossly lacking in essential particulars and unsupported by requisite legal ingredients.
14. As it stands, the prayer is not obscure though defective. Matters may readily be put right. However, it is encumbent upon the defendant to plead all the necessary ingredients, failing which the alleged misrepresentations must fall. There has been no application made on behalf of the defendant seeking time and indulgence for putting his house in order. Suffice it for me to say, they are totally deficient.
15. For all these reasons, it remains for me to say that the appeal must be allowed with costs against the defendant. The order made by the learned Master must therefore be set aside. Prayer (1) of the Counterclaim be struck out. Costs of the application before him and this appeal be costs for the plaintiff against the defendant.
16. Time was pressing. I gave the main reasons for my determination. I said that I would reduce my judgment into r writing, which I now do.
(B. Liu)
Judge of the High Court
(1) [1912] 1 K.B. 181
(2) [1978] V.R. 312
(3) [1978] V.R. 312 at p. 318 lines 34 & 35.
Representation:
Mr Daniel Fung instructed by M/s Kao, Lee & Yip for the plaintiff.
Miss Susan Kwan instructed by M/s Liau, Ho & Chan. for the Defendant.