SAN FU & CO (a firm) v. SO SUN YUEN

IN THE COURT OF APPEAL

1986, No. 114
(Civil)

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Coram: Sir Alan Huggins, V.-P., Power & Penlington, JJ.

Date of Hearing : 3th & 14th November 1986

Date of Judgment: 3rd March 1987

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J U D G M E N T

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Sir Alan Huggins, V.-P.:

1. The appellant Defendant seeks to challenge a finding by the trial judge that the Defendant did not give instructions to the Plaintiffs on 3rd September 1982 for the closing of an account between them.  In particular it is contended that the judge gave unacceptable reasons for disbelieving the Defendant's own evidence.

2. The Plaintiffs are a firm of gold dealers and the Defendant is a speculator who dealt through them. By 3rd September 1982 the Defendant had sold more gold than he owned and was short of 800 taels.  His agreement with the Plaintiffs required him to deposit with them a margin of $10,000 in cash per 100 taels of gold bought or sold.  On 3rd September the price of gold rose steeply and he paid to the Plaintiffs $90,000 by two cheques, one of $50,000 and one of $40,000 which were drawn on different accounts.  That left him with a book credit of $56,212.60.

3. The dispute relates to the events on the evening of that day, after the Hong Kong market had closed. There is no doubt that the Defendant was all along of the opinion that the price had reached a peak and would fall, so that he could make good his shortfall at a lower price than that at which he had sold, and thus make a profit.  The Plaintiffs thought otherwise.  In spite of his opinion, the Defendant says, he directed the Plaintiffs to close his account.  The Hong Kong market having been closed for the day, it was impossible to close his account until the following day. According to him he therefore directed the Plaintiff to buy for him on the London market 900 ounces as a hedge against his being proved wrong.  There is no doubt that 900 ounces were purchased for him on that day, but 900 ounces were also sold for him on the same day, and there is no independent evidence as to which transaction was effected first. The Defendant alleges that, having bought the London gold as a hedge against a price rise, he discovered that the price had fallen as he expected, and therefore he sold before the price fell any further. The Plaintiffs allege that the Defendant's purchase of London gold was not a hedge at all but that, initially, he sold in London as a further speculation based on his be1ief that the price would fall. They say that the price continued to rise so that the Defendant took fright and bought before the price went up yet further.

4. Unfortunately the judge did not take a positive finding whether the sale of London gold by the Defendant on 3rd September 1982 was effected before or after his purchase on that day.  Such a finding might have gone a long way to proving or disproving the Defendant 's allegation that the purchase was a hedge against loss in Hong Kong.  What the judge did say was that the transactions

"Clearly disclose a belief that the market would fall, a belief quite inconsistent with his version of the events and of the sequence of the sale and purchase of London Gold on the night of the 3rd September."

However, a belief that the market would fall was not inconsistent with the Defendant's version of the sequence of sale and purchase in London gold as it was understandable that he should discard his hedge if the price had begun to fall as he had expected it would.  Looked at it in isolation his be1ief was inconsistent with an initial purchase, but looked at in the context of his worldwide position it was not. It is, of course, a fair comment that, if the Defendant bought in London with a view to hedging against a loss in Hong Kong, it is strange that he sold again before the market closed in London.  However it would be difficult to sell in London and to buy in Hong Kong at precisely the same time and it would not be unreasonable for the Defendant to conclude that, assuming the London price had continued to fall, his edge had been unnecessary and that he could minimize his London loss by selling when he did.  As Mr. Mumford submits, the judge has adopted a circular argument in disbelieving the Defendant's evidence.

5. Presumably neither side appreciated before the trial that the credibility of the witnesses would fall to be judged to a large extent upon their truthfulness in relation to the sequence of the sale and purchase in London, for that sequence is a matter upon which it ought to be possible to obtain independent evidence from London very easily.  The documentary evidence before the judge was of little assistance.  The first statement of the Defendant's account as at 3^rd September 1982 had in it some figures which, it was suggested, might indicate that the purchase preceded the sale.  That was based upon the interpretation of the figures “3/9” and “4/9” as relating to 3^rd September and 4^th September respectively and upon the assumption that, although the sale was on 34d September in London, it was on 4^th September in Hong Kong.  Since the London market closed before midnight in Hong Kong that argument does not hold water.  The account was shown to be wrong in another respect and the corrective account did not include any indication at all as to the sequence of the transactions.

6. Another reason the judge gave for disbelieving the Defendant when he said he gave an order to close his account was:

“He must have known or would have certainly been told that that was not possible while the Hong Kong gold market was closed.  And as to his counsel's submission that it would have been an open order to close his account, that would be contrary to the usual procedure in which sales were always against prices ascertained and confirmed.”

It was not possible to close the account that day – and the Defendant admits he was told that – but it would be possible to close it immediately the market opened on the following day.  That is precisely what it was suggested the instructions had been.  This suggestion was rejected by the judge on the ground that the giving of such a standing order would require a purchase to be effected on 4^th September in circumstances different from those normally attending transactions between the parties – all other transactions were effected while the Defendant and the Plaintiffs were in telephonic contact, so that the Defendant could be advised as to the actual price at which the transaction would be carried out.  Mr. Mumford reasonably asked why a different procedure should not be followed upon a closing of the account.  The Defendant was short and would have to buy, whatever the price, to make up the deficit.  It is to be noted that the Plaintiff did not adduce clear evidence to the effect that a standing order to purchase that day at the opening price would not have been accepted, and it is conceded that the point was not taken below. It is difficult to understand why a standing order should not have been accepted. It is true that the Plaintiffs' manager said “after close I would not accept order", but that was in the context of an order to purchase on 3^rd September, and I cannot agree with the submission that the meaning is clearly that a standing order would not have been accepted.

7. The Defendant's version as to the sequence of the London transactions is arguably supported by the tenor of the evidence of the Plaintiffs' manager at p.97 of the appeal record, but I would not regard his evidence as clear on the point. Of rather more weight is the fact that the Plaintiff did not, it would seem, demand any further margin in respect of the transaction in London on 3rd September. If the Plaintiff was of the view that the Defendant was, contrary to the Plaintiffs' advice, going short in London as well as in Hong Kong, it is almost inconceivable that no further margin would have been asked for.

8. The judge gave other reasons for disbelieving the Defendant.  He said:

"it simply does not make sense in all the circumstances why two cheques should have been sent at the same time nor is there any explanation why they should have been paid in at different times.”

If the two cheques were given at the same time, I agree that one would expect them to have been paid in at the same time.  On the other hand it is not so clear why the two cheques should not have been sent at the same time. The Defendant says that he paid $90,000 at the Plaintiffs' request because “there was not sufficient money in his account". One can imagine a very good reason why the two cheques should have been drawn on different accounts and it was not suggested to the Defendant in cross-examination that there was anything sinister in this arrangement.

9. The judge drew an adverse opinion of the Defendant because he

“could give any possible motive or any other reason why Mau or the plaintiff would wish to prevent him closing his account or indeed deny that he gave such instructions. Nor did any explanation emerge from the evidence. The plaintiff did not benefit in any material way; on the contrary, the trust and reputation that are said to be essential in the business would obviously be undermined.

With respect to the judge, the Defendant never suggested that the Plaintiffs would wish to prevent his closing his account, whilst there was an obvious reason for the Plaintiffs' denying that the Defendant had given instructions to close the account, if in fact he had done so: the Plaintiffs would then have failed to obey instructions and would at least be guilty of negligence. That is precisely what the Defendant did suggest in cross-examination.

10. The judge then rejected the Defendant's evidence to the effect that, when he questioned the account rendered to him on 7th September, the Plaintiffs' manager replied that he did not know why the Defendant owed so much “it was the business of the company". The judge's view apparently was that the manager was not a person who would have given such an answer, so the Defendant could not be telling the truth.  All I will say about that is that, whilst it was a legitimate approach, that would not have been enough of itself to justify rejecting the whole of the Defendant's evidence. The judge was entitled to disbelieve the Defendant's evidence that he did not check the account, but the implication from the whole of the paragraph in which he reaches his decision or the point is that the judge found the Defendant's evidence relating to the account of 7th September inherently incredible. As the Defendant had received accounts on 4th and 6^th September, which had shown that the account had not been closed - in breach of his instructions, as he thought - it is difficult to see why he should have bothered to check the later account; he might reasonably adopt the attitude that any loss after 4th September was nothing to do with him.

11. I am naturally reluctant to interfere, with a finding of the trial judge on a matter of credibility, but I am driven to doubt that he has correctly assessed all the evidence, whether or not he came to the right conclusion. It is true that he said:

"As regards Mau and So, despite a degree of brashness and claims to remember details of the market many years back (claims that were not fully tested), I must prefer Mau's evidence to that of So as to content as I have indicated, and also as to demeanour. I do not believe So's evidence and have no hesitation in rejecting his version of the disputed matters."

Also I appreciate that it was the Defendant who sought to make capital out of the transaction in London and that he failed to adduce sufficient evidence to make his point good. Nevertheless, this is not a case where we can say that, had the judge not given the questionable reasons to which I have referred, he would certainly have disbelieved the Defendant. Accordingly I think the only proper course is to al1ow the appeal and to order a new trial. Subject to anything counsel may have to say, I would propose that the costs of the appeal shall follow the event of the re-trial.

Power, J.:

12. I agree and I cannot usefully add anything.

Penlington, J.:

13. I also agree, with reluctance, that this appeal should be allowed and there be a re-trial.

3^rd March 1987