CHAN TING LAI also known as PETER CHAN TING LAI v. SAME FAIR CO. LTD.

HEAD NOTE

                The effect of non-compliance with Section 26(2) of the Commodities Trading Ordinance, Cap. 250 which requires dealers' agents and employees to be "registered representatives" and Section 28 that the Assistant General Manager who was not registered under the Ordinance as a dealer's representative and conducted transactions in commodity dealings for the Plaintiff on behalf of the defendant Company was to render the contract between the plaintiff and the defendant illegal,

                 (See Cope v. Rowlands 2 M. & W. 150 at 710, Victorian Daylesford Syndicate, Limited v. Dott (1905) 2 Ch. 642 at 630 and Anderson Limited v. Daniel (1924) 1 K.B. 138 at 143)

                Judgment entered for the plaintiff for the return of $50,000 as money had and received (paid over by him to the defendant company) as a deposit for engaging the latter in commodities dealings for the former as being an exception to the general principle of law that a party to an illegal contract has no right under it, namely that the plaintiff falls under the class of investors (persons resorting to commodities dealings) whom Cap. 250 intended to protect, and as such he was not in pari delictum to the extent that the defendant was.

                Kearley v. Thompson (1890) Q.B. 742 at 745-746 considered.

                Barclay v. Pearson (1893) Chancery Division 154 at 167, and Gray v. Southhouse (1949) All E.R. 1019 applied.

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT VICTORIA

CIVIL JURISDICTION

ACTION NO. 5210 OF 1984

_________________

BETWEEN

_______________________

___________

JUDGMENT

___________

1. This case was heard ex parte the Defendant Company which failed to appear through its own representative or legal representative. It has turned out to have involved subtle points of law.

2. In essence this is an action for the return of $50,000 as money had and received with a claim for interest thereon on the ground that the said sum paid over by the Plaintiff to the Defendant as a deposit for engaging the latter in commodity dealings for the former was paid under an illegal contract in that P.W.2 who was the Assistant General Manager of the Defendant Company and through whom the transactions for the Plaintiff were handled was not registered under the Commodities Trading Ordinance as a dealer's representative at all the material times. The Defendant in its pleadings has denied liability and counter-claimed. P.W.2 gave evidence to that effect. He was in fact convicted of dealing as an unregistered representative. I specifically find as a fact that the Defendant Company contravened Section 26(2) and Section 28 of the Ordinance with the result that the contract for brokerage service between the parties was illegal. Section 26(2) prohibits trading as a dealer unless every director or employee accredited to the dealer company is registered under Cap. 250 and Section 28 requires that a dealer's representative shall be registered as such representative before he can deal for a dealer. Section 30 lays down the criteria for refusal of registration.

3. Whether the contravention of Sections 26(2) and 28 rendered the Contract between the parties illegal hinges on if the Cap. 250 meant to prohibit the contract. (See Cope v. Rowlands, 2 M & W 157 at 710 mid-page) The facts of this instant case are not dissimilar to Cope the ratio for which may conveniently be summarized by quoting the judgment from bottom of page 710 to 711:

"In order to decide this point, it is only necessary to look at the statute itself. If its object had been simply the pecuniary advantage of the Mayor and Corporation, it would have been wholly unnecessary to have made any provision for securing the good conduct of the persons admitted. The more that should be allowed to practise, the larger the revenue of the city; but the enactment, that all persons who should act as brokers should be admitted by the Court of Mayor and Aldermen under such restrictions and limitations for their honest and good behaviour as the [159] Court should think fit and reasonable, shews clearly that the legislature had in view, as one object, the benefit and security of the public in those important transactions which are negotiated by brokers. The clause, therefore, which imposes a penalty, must be taken (in the language of Lord Holt, above referred to) to imply a prohibition of all unadmitted persons to act as brokers, and consequently to prohibit, by necessary inference, all contracts which such persons make for compensation to themselves for so acting; and this is the contract on which this action (so far as it relates to brokerage) is brought. "

4. In Victorian Daylesford Syndicate Limited v. Dott (1905) 2 Ch. 624 at 630, Buckley J. (later Lord Wrenbury) having referred to Cope stated the test as "If I arrive at the conclusion that one of the objects is the protection of the public, then the act is impliedly prohibited by statute, and is illegal. "

5. In Anderson Limited v. Daniel (1924) 1 K.B. 138, the Court of Appeal held that, as the object of the statute in requiring the vendor to give the statutory invoice under the Fertilisers and Feeding Stuffs Act 1906 and imposing on him a penalty in the event of his default is to protect the purchasers of the fertilizers, the effect of non-compliance with the requirement is not merely to render the vendor liable to the penalty, but also to make the sale illegal and preclude the vendor from suing for the price. The test of protection of the public expounded by Lord Wrenbury in Dott was adopted with approval by Bankes L.J. in Anderson Limited at pages 143 to 144.

6. Returning to this instant case, the object of Sections 26(2) and 28 read in the light of Section 30 of Cap. 250 was clearly to protect that class of the public who resort to dealers and their representatives for trading in commodities with regulating the conduct of commodity dealing in and out of the Commodity Exchange as the broad objects in the public interest. Therefore, the combined contravention of Sections 26(2) and 28 rendered the contract between the parties illegal.

7. What is really decisive in this case is the effect of the illegal nature of the contract upon the Plaintiff or upon his claim. It is a general principle of well-established law that parties to an illegal contract have no right under it and therefore they cannot claim against each other. "To that general rule there are undoubtedly several exceptions or apparent exceptions, one of those is the case of oppressor and oppressed, in which case usually the oppressed party may recover the money back from the oppressor. In that class the delictum is not par, and therefore the maxim does not apply. Again, there are other illegalities which arise where a statue has been intended to protect a class of persons, and the person seeking to recover is a member of the protected class," (Kearley v. Thompson 1890 Q.B.D. 742 at 745 to 746 per Fry L.J.)

8. There is a distinction between parties in pari delicto and parties who are not. Parties who are within the class of persons falling under the category of those for whose protection the statue was aimed at as one of its objects are not in pari delicto at least not as much as those who had contravened the law incurring a penalty. See Barclay v. Pearson (1893) Chancery Division 154 at 167 per Stirling J. adopting Lord Mansfield's ratio in Browning v. Morris, 2 COWP 790 at 792.

9. The principles expounded in the authorities above-quoted are relevant to the situation of this case in that there was an illegal contract and in that the Plaintiff was not in pari delictum to the Defendant Company.

10. The next question arising is whether the Plaintiff was entitled to judgment in view of the fact, admittedly on his evidence, that he knew at all the material times that P.W.2 was not a registered dealer's representative i.e. the illegal nature of the transactions. In Barclay, it was held that the Plaintiff was entitled to the return of their contribution to a scheme of illegal wagers notwithstanding his eyes were open to the illegal nature of the scheme on the ground that the Plaintiff was not in pari delicto and as an injured person. In Gray v Southouse 1949 All E.R. 1019, it was held that it was not contrary to public policy for a sub-tenant to recover illegal premiums paid in disguise as costs of redecoration in contravention of the Increase of Reat and Mortgage Interest (Restrictions) Act 1920 as amended by Schedule I to the 1939 Act. In that judgment Devlin J. (as he then was) gave the reason as:-

"The Rent Acts are Acts for the protection of tenants, and Parliament might very well have had it in mind that, unless it altered the common law rule, the result would be that the landlord, who would generally be far the more guilty party of the two, would be left in possession of the fruits of his illegality."

11. The celebrated case of Browning v. Morris (1778) 2 Cowp. 790 was referred to in that case.

12. As a person under the protection of Cap. 250, I find that the Plaintiff was not in pari delictum at least not to the extent as the defendant was.

13. There is another hurdle to his claim that from the statement of defence it would appear that the Defendant alleged there that the account of Plaintiff's dealings with the Defendant's Company was in red. However, there is simply no evidence before me to that effect as the Defendant has failed to appear to substantiate his allegations in the pleadings. The Plaintiff has not given evidence on this score either. It may be said that he might not know of the accounts at least not the full details of the transactions involving profits, expenses and losses which were at all the material times in the hands of the Defendant. It remains that there is simply no evidence on the account - whether it is in debit or stands to his credit - and I must not speculate on it. It will be by far too academic for me to go into that in the absence of such evidence. Therefore, this should not be allowed to be in the way of the Plaintiff's claim.

14. For the above reasons, judgment is entered for the Plaintiff as claimed with interest at the Court rate of 13½% per annum from the 2nd of July, 1983 the date of the writ to the time of payment. I deliberately deprive the Plaintiff of interest prior to that date having considered his expressed knowledge of the illegal nature of contract.

15. There will be costs to the Plaintiff on the upper scale with a certificate for Counsel. Indeed I am indebted to Counsel for his useful and able assistance in this case.

16. The Counterclaim is dismissed for want of prosecution with costs accordingly.