CHEN YIK YEN v. MANSION HOUSE SECURITIES LTD. AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

(Appellate Jurisdiction)

CIVIL APPEAL No. 185 OF 1985

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JUDGMENT

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Power, J. :

1. The Respondents, Mansion House Securities Ltd.  and Evans Carrera Lowe trading as Mansion House Bullion Company sued the appellant Chen Yik Yen for monies alleged to be owing from share and bullion dealings. The respondents were given judgment for the sum of $1,264,282.96. The principle issue was whether the Hong Kong and Shanghai Bank had, when accepting certain cheques from the 1st respondent and depositing them in the account of the appellant, been acting as the agent of the appellant. The appellant in his Notice of Appeal agrees that this question of agency was the crucial issue in the case. He says that the judge erred in law and in fact in concluding the existence of such an agreement and was wrong in holding that the bank acted within its actual or ostensible authority in depositing the cheques in his account.

2. During 1984 the appellant was a customer of the 1st respondent ("Mansion House") which is a securities broker dealing in stocks and shares. He was also a customer of the 2nd respondent ("the Bullion Company"), who are bullion brokers and members of the Chinese Gold and Silver Exchange Society. The appellant, at the beginning of 1984, had overdrafts facilities secured on shares to the extent of $1.5m at the Holland House Branch of the Hong Kong and Shanghai Bank ("The bank"). Until May 1984 he settled share transaction, in relation to all shares except those secured to the bank, by dealing directly with Mansion House which accepted his personal cheques. Miss Irene So, an Executive Director of Mansion House, said in her evidence that towards the end of May 1984 the appellant agreed that settlement thereafter would be through the Hong Kong and Shanghai Bank and she said that further instructions were accepted from him on that basis. As regards sales of shares this involved, according to her evidence, the exchange of a cheque, from Mansion House, for the appropriate scrip, from the bank. The appellant in his evidence denied that there had ever been any such agreement.

3. On either the 5th or 6th of June the appellant instructed Mansion House to sell 16,800 shares in Jardine Matheson Ltd., 6,100 shares in the Hang Seng Bank Ltd., 70,000 shares in China Light & Power Ltd.  and 474,000 warrants in Hutchison Whampoa Ltd. These were sold and 6 cheques totalling $1,363,084.20 were issued on the 7th of June 1984 by Mansion House representing the net proceeds of the sale. As the scrip was not available when the cheques were sent to the bank it was agreed, according to the evidence called by the respondents, between Mr. Simpson of the bank and Mr. Luk of Mansion House that the cheques would be held by the bank while enquires were made about the scrip. At this time, the appellant's overdraft with the bank amounted to $1,019,394.28. On that day, 7th of June although the scrip had still not become available, the bank lodged the 6 cheques to the credit of the appellants account. This produced a credit balance therein of $343,689.00. Mansion House contended that the bank was not authorised to do this because they did not deliver the scrip. The appellant contended that the bank was not authorised to do it because it had never been authorised by him to conduct share negotiations on his behalf. Both of these parties then orally and in writing requested the bank to reverse the lodgement. This, however, was not done. What the bank, in fact, did having cleared the cheques was to cancel the appellant's overdraft limit of 1.5m. The matter was further complicated by the fact that the messenger who took the cheques to the bank was given scrip for 7,200 shares in Hong Kong Telephone Company. These shares were not connected with the sales actually ordered by the appellant. They were, however, on the appellants instructions, sold and the amount of this sale must be taken into account when the indebtedness of the appellant to Mansion House is being calculated.

4. Mansion House and the appellant after the 7th of June, sought to resolve the matter by negotiation. In the course of these negotiations, the appellant gave mansion House a signed cheque in blank. The purpose for which it was given was disputed and it is necessary for us, at this time, to canvass the facts relating to that dispute. Suffice to say that the net proceeds of $310,692.00, from the sale of the Hong Kong Telephone Company shares, were deducted by Mansion House from the figure of $1,363,084, the amount wrongly credited to the appellant's account, producing a figure of $1,052,392 which was then written, by representatives of Mansion House, onto the blank cheque. The cheque was presented but was dishonoured by the bank on the 8th of June. There is a dispute as to whether it was dishonoured because of an instruction from the appellant or on the initiative of the bank because of an insufficiency of funds in the appellant's account. After further negotiations on the 9th of June, the bank made a direct transfer to Mansion House of $329,895 being the balance that was then in the appellant's account. The appellant said that this was done without his authority. When this payment is taken into account, it produces, according to the arithmetic of Mansion House, an overall indebtedness by the appellant to Mansion House for share tradings of $972,774. These figures are arrived at by taking into account all of the share tradings including the price which Mansion House had to pay to purchase the shares for which the scrip had not been produced. It also takes into an account an indebtedness of $170,025 which arose on the 8th of June 1984 out of the purchase by Mansion House of 182,000 shares in Hong Kong Land for the appellant. He paid for 32,000 of these but not for the remaining 150,000 and Mansion House eventually had to resell them, as they were entitled to do under their Customer Trading Agreement, on the 25th of July for $301,319 which left a net loss on the transaction of $170,025, which, Mansion House contend, must be borne by the appellant.

5. The total amount claimed is arrived at by adding the sum of $972,774 to the sum of $291,508 which is an amount claimed to be owed to the Bullion Company. These 2 figures produce a total figure of $1,264,282.96, the sum claimed in the action. On the 22nd of June 1984 the appellant instructed Mansion House to buy the shares for which he failed to produce the scrip. This was done on the 25th of June. There were further negotiations between the parties which resulted, by the 10th of July 1984, in the bank agreeing, subject to the completion of formalities, to extend credit under a mortgage to the appellant to allow him to meet his liabilities to Mansion House. In the event, no mortgage was executed, no credit was extended and no scrip was ever produced.

6. The trial judge, rightly in our view, held that the crucial issue in the Mansion House claim was whether it had, to use his words, established that payment to the 6 cheques totalling $1,363,084 was made to the defendant and that this depended on the narrow issue, did the bank receive payment as agent of the defendant. We are satisfied that the trial judge correctly stated and applied the law and that this matter was essentially one of fact and credibility. Indeed, it was upon this basis that the appellant advanced his argument to this Court. The trial judge accepted the evidence of Miss So and rejected that of the appellant. The appellant has suggested that her evidence was wholly unworthy of acceptance. He submitted that the trial judge had not given proper consideration to the fact that there had been no written confirmation of the suggested new procedure, under which he was said to have given the bank authority to act as his agent, and to the fact that there were no written delivery orders or instructions of any sort from him to the bank authorising them to pass shares on his behalf to Mansion House. He submitted that the evidence of Mr. David Luk, which, if accepted, gave substantial support to that of Miss So, was not worthy of any credit and, indeed, that the trial judge indicated that he was not prepared to act upon that evidence.

7. We appreciate that there were no written documents confirming the existence of the new procedure and the share deliveries made thereunder. The trial judge was, however, fully aware of those matters and we have no doubt took them into account when making his assessment of the facts. We cannot agree with the appellant when he says that the trial judge indicated that he was not prepared to accept the evidence of Mr. Luk. He made no such finding. Indeed it seems implicit in his judgment that he accepted the evidence of Mr. Luk and took it into account when arriving at his conclusion to accept the evidence of Miss So.

8. We are satisfied that there was ample evidence upon which the trial judge could arrive at the findngs of fact which he made in this regard and that these findings of fact cannot properly be called into challenge in this Court.

9. The Bullion Company had a claim for $291,508 being losses incurred in trading in gold and silver by the company on behalf of the appellant. The appellant denied that he was informed of the procedures relating to Bullion Trading and, in particular, denied that he had been handed a copy of the Standard Terms and Conditions of Bullion Trading. He stated that he had at all times thought that his bullion account was in credit and alleged that any losses had come about because of failure by the company to exercise proper care and skill in handling his portfolio and in selling, without his knowledge, bullion during adverse market conditions.

10. The judge was satisfied that Miss So had handed the Standard Terms and Conditions to the appellant and was satisfied that the company had, to use his words, "fully explained the substantial risks involved in bullion trading to the appellant." He found that the appellant "understood and accepted the risks of bullion trading" and "well knew that the credits appearing in the statements which were furnished to him were subject to the purchase price paid for bullion not being realized on sale and that deficiencies were met by transfers from his current account". Upon the basis of these findings he held that the Bullion Company had established its claim.

11. These findings of fact were open upon the evidence and are not ones with which an Appellate Court could properly interfere.

12. The judge rejected the appellant's evidence, in support of his counterclaim relating to the bullion transactions, that he had given instructions to liquidate his bullion position on the 15th of June. Given the findings on the Bullion Company's claim, to which we have just referred, we are satisfied that his findings in this regard are also not open to challenge in this Court.

13. The appellant also counterclaimed for loss sustained in the sale of the Hong Kong Land shares. He contended that Mansion House had been negligent in not selling the shares until the 25th of July by which time they had fallen from $3.15 to $2.05. The judge, having considered "the circumstances known to exist between 8th June 1984 and 25th July 1984", made the following findings:-

14. These findings were justified upon the facts as the judge found them and they also are, in our view, not open to challenge in this Court.

15. The appeal must be dismissed.