TEXTUNA INTERNATIONAL LTD v. WOCOM COMMODITIES LTD

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Appearances: Tong for the Plaintiff

Ribeiro for the Defendant

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JUDGMENT

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1. Now Saxena was a broker ⁽¹⁾; Mr. Agarwal was a dupe; and the former became "that affable familiar ghost which nightly gulls him with intelligence"⁽²⁾: And those facts constitutes the fons et origo of this unhappy dispute between two seemingly innocent parties, the conduct of each of whom in the autumn and winter of 1982 reflects no credit on either of them.

2. On a date in 1959, of which I was not told, the father of Mr. Pramod Agarwal ("Agarwal") set up in Hong Kong a firm known as Textiles Unique Agency ("T.U.A.").

3. In 1979, Agarwal came to Hong Kong, and became the de facto proprietor of T.U.A.

4. On 23rd May 1980 G.S.P. Finance Ltd. ("G.S.P.") was incorporated, a director of which was, at all material times, a Mr. Sutham Chansrichawla ("Sutham"): B129. Rakesh Saxena ("Saxena") was a director of G.S.P. from 25th May to 1st September 1982.

5. On 29th May 1981, the Plaintiff was incorporated: B2. The subscribers were Agarwal and his wife: B21, and, at all material times, they were the directors of the Plaintiff: B23. It was said to be "international traders, shoppers, importers, exporters, commercial agents, trustees & etc.": B24.

6. On 22nd March 1982, the Defendant was incorporated: B62; and its registered office was given as "2nd floor, Hutchison House": B64. Saxena was neither a director nor a shareholder of the Defendant.

7. On 8th January 1982, Saxena was registered as a Dealer's Representative (B527) for Wocom Securities Ltd. ("W. S. L."): B526.

8. On 10th September 1982, Wocom Forex Ltd. ("W. C. F.") was incorporated: B67; and Saxena was named as a Director and a Shareholder (B108) in the annual return of 11th November 1982: B107.

9. On 12th November 1982, Saxena applied to the Commissioner for Securities for registration as a Dealer's Representative for the Defendant: B516-524. That was supported by a Statement in Support, signed by Mr. Dale Beerman ("Beerman"), the Managing Director of the Defendant: B525. On 1st December 1982, Saxena was so registered: B529, and he was notified at the Defendant's registered office: B528.

10. T.U.A. passed into the de jure control of Agarwal on 1st April 1983: B133.

11. I should pause here to explain that the Wocom Group of Companies("Wocom"), an offshoot of the Wing On Group, consisted of a holding company, Wocom Holding Ltd. ("W.H.L."), Wocom Ltd. ("W.L.") a wholly-owned subsidiary, which later became the Defendant as I shall explain W.F.L. is wholly-owned subsidiary and W.S.L., a subsidiary.

12. Rudolph Wolff, a nineteenth century London broker, opened a Hong Kong subsidiary, Rudolph Wolff (H.K.) Ltd. ("R.W.H.K.") in 1979, that later became W.L., which was the first Wocom Company before Wocom qua a Group came into existence. The business of W.L. was sold to the Defendant, who then carried out Wocom's commodities' business. When dealing on the markets in the United States of America, the Defendant deals through the Rudolph Wolff Company in New York, Rudolph Wolff Commodity Brokers, Inc. ("R.W.N.Y.").

13. The principal witness for the Defendant was Mr. Brian Milton James Dilworth ("Dilworth"), who was originally with R.W.H.K. When W.L. sold its commodities' business to the Defendant, Dilworth joined the Defendant as an Executive Manager. He became a director of W.S.L. in 1981, of W.F.L. in 1982 and of the Defendant in 1984.

14. That part of the Plaintiff's Hong Kong business with which I was principally concerned, was the purchase from Japan of polyprolyene bags and slings ("PP bags") for sale to Korea, where they would be filled with cement, and the bagged cement would be sold to India. The Plaintiff's Japanese clients required payment in Yen, and, Agarwal told me, the Plaintiff required to have in hand either Yen or a contract with a supplier of Yen, in order to know how to fix the purchase price of the PP bags with its Japanese customers.

15. The Plaintiff is a small company, though in business in a very large way. At all material times it consisted of Agarwal (one of the two co-directors), a manager, Mr. Vrajla J.E. Oza ("Oza"), a typist and two clerks. Oza was the Manager of T.U.A. from about 1962 until Agarwal arrived in 1979 to take charge of the office. Oza became the Manager of the Plaintiff on its incorporation.

16. The only witnesses to give oral evidence for the Plaintiff were Agarwal and Oza, and, for the Defendant, Dilworth and a Mrs. Cheung Kwok Yan-choo, a director of the Defendant and Group Management Controller of Wocom. The final preliminary point I should mention is that Agarwal was frequently without the Colony, as appears from his passport, which was produced to me, and from the analysis of his journeys at B137

17. The overseas contracts of the Plaintiff, together with their supporting documents, appear in Bundle C, and Mr. Ribeiro has informed  me that he accepts, and does not challenge anything in, the analyses of Bundle C prepared by Agarwal, which appear in prefixes CI to CXII; and that concession extends to the cross-references given to me for entry on those pages.

18. The Plaintiff, apparently, used a number of banks and financial institutions for the purposes of its business, and, early in 1982 commenced to use the services of G.S.P. (albeit not exclusively). Agarwal was introduced to G.S.P. by Mr. Ashok, a manager in B.C.C.I. Finance International Ltd. (an Associate of Bank of Credit and Commerce International S.A. of Luxembourg). Initially introduction was to Sutham, but later transactions were conducted with and through Saxena. Agarwal tells me that he does not know the exact date when he first came to know Saxena, but says that it was in early 1982, and that he did "a lot of business" through G.S.P., worth.something in the region of HK$10 million. Those transactions continued until the late summer of 1982, when Saxena transferred his services from G.S.P. to Wocom - I use that word advisedly at this stage, because the identity of the corporate being to whom he transferred his allegiance, has been a matter of hot contention.

19. Here I must digress again.

20. Saxena was not called, and an affidavit was sworn by Mr. Garry Paul Miller on 14th March 1985 to explain the situation. On that day, I granted an application to admit in evidence an initialled draft proof, prepared by the Defendant's solicitors in Hong Kong, sent to Saxena in England and returned by him. M.F.I.2, which was the original of the second document in Exhibit G.P.M.4 to that affidavit, thereupon became Exhibit 15 in this action. It was, therefore, available to be, and was, commented on by Agarwal in his evidence. The evidence of the Plaintiff concerning its oral dealings with the Defendant was, therefore, with the exception of two telephone conversations between Agarwal and Dilworth, incapable of challenge by the Defendant, save under the head of Agarwal's credibility.

21. Agarwal assured me that neither his father's firm nor the Plaintiff knowingly indulge in speculation on the Futures Market - and, indeed, that is part of the Plaintiff's case. In paragraph 3 of Exhibit 15, Saxena averred that the Plaintiff had undertaken trading through G.S.P. in 1982 not merely for the purpose of its own business but also for speculation. That allegation was abandoned, quite properly, by Mr. Ribeiro on behalf of the Defendant after examination of the G.S.P. documents disclosed on Discovery. That particular untruth in Exhibit 15 is something to which I shall revert later in this judgment.

22. Be that as it may, on 3rd September, Agarwal for and on behalf of the Plaintiff, opened an account with the Defendant. He signed a "General Agreement for Customer Accounts" which clearly appointed the Defendant as broker for the Purchase and sale of, or as dealer in, commodities and futures interests therein and options thereon: Exhibit 6. He also signed a "Mandate for Company Account(s) Commodity Futures and Options Transactions": Exhibit 8. He signed a "Name Confirmatory Letter": Exhibit 2 and, more significantly, a "Risk Disclosure Statement" furnished under Rule 1.55 of the Commodity Futures Trading Commission: Exhibit 1; and also a "Trading Authorisation Limited to Purchases and Sales of Commodities": Exhibit 4: that last document was an unequivocal appointment of an agent and attorney-in-fact to buy and to sell (including short sales) at any time, and from time to time, in his absolute discretion, commodities, commodity futures or options on margin or otherwise for the Plaintiff's account and risk. All those documents were originally signed by Agarwal on 3rd September, but, as they did not bear the company chop, they were returned to Agarwal to have that affixed, which he did. Exhibit 4, however, being a document of exceptional contractual importance required a witness, and Oza acted as that witness. On 9th September the Plaintiff arranged with Indian Overseas Bank ("I. O. B.") for a telegraphic transfer to the Defendant of £105,000, and a receipt was issued (B216) bearing the words "Trading Deposit A/C". The significance of those words appears not to have then been apparent to Agarwal.

23. There followed 15 speculative dealings on the Plaintiff's account with the Defendant, effected by Saxena: see A16/7; items (i) to (xv). On 29th September 1982 Saxena, qua "Executive Director and Chief Dealer of W.F.L.", wrote to T.U.A. (for the attention of Agarwal) enclosing a W.F.L. brochure. The significance of that letter, also, appears to have escaped Agarwal.

24. From 8th October to 13th October (A14E; para. 6), Saxena executed a further 9 speculative dealings: A17/8; items (xvi) to (xxiv).

25. Agarwal informed me that he and Saxena reached an agreement on 13th October, that the prior speculative dealings would be transferred into a new account in the name of Agarwal personally, and would not be the responsibility of the Plaintiff. Agarwal told me that Saxena also agreed that he would not thereafter engage in any speculative trading on behalf of the Plaintiff. There were divers other terms in that conversation, but I need not refer to them here. Notwithstanding J that, Saxena effected 7 further speculative dealings on the Plaintiff's account: A18/9; items (xxv) to (xxxi).

26. Up to the commencement of the hearing, the Plaintiff sought to have set aside all those speculative tradings on the grounds clearly appearing from paragraphs 3-8 of the Amended Statement of Claim: A14B-14H. When he opened the Plaintiff's case, Mr. Tong told me that the Plaintiff, quite properly, in my judgment, was not going to pursue that allegation in respect of transactions (i)-(xxiv). At a later stage in the proceedings, and after the principal documentation had been proved, Mr. Tong further informed me that the Plaintiff, again, in my judgment, very properly, was to abandon its allegation in respect of the remaining items (xxv) to (xxxi).

27. I was left, therefore, with the sole task of deciding the allegations contained in paragraphs 9 to 14 of the Amended Statement of Claim: A14H-A14K.

28. The basic questions which are left for me to decide are: -  

29. Having seen and heard Agarwal, and having considered his  explantations, having considered his evidence against the documents and having compared his evidence with Dilworth's and having read the "statement" of Saxena, I have come firmly to the conclusion that Agarwal is a reliable and truthful witness, and somebody whom I should believe. I formed a very favourable impression of him when he gave his evidence, and he did not shirk difficult issues or try to evade any points against himself. Naive, yes he was certainly, almost to the point of folly - but untruthful, in my judgment, he was not.

30. It did appear at one time that there might be some conflict between the evidence of Agarwal and the evidence of Dilworth. I do not believe that is so, because I accept Mr. Dilworth, although clearly someone very much on the defensive, as a basically truthful man; but as one who does not clearly remember the minutiae of those days, as they really meant very little to him then - whereas, they meant then, as they do now, a great deal to Agarwal. In so far as there may be any conflict between Agarwal and Dilworth, I prefer the evidence of Agarwal.

31. I have indicated one clear lie in Saxena's statement, and, save to indicate that the document is riddled with inconsistencies and half-truths, I need only say that I have come to the conclusion that no weight should be attached to the document. If, almost inconceivably, it should be said that the document should be given some weight, I would say but two things in answer: first, that the weight should be minimal; second, that, in so far as it conflicts at any point with the evidence of Agarwal, Agarwal's evidence is to be preferred and accepted.

32. It follows, therefore, and I also find as a fact, that Saxena did say to Agarwal what is alleged, and that it was a warranty or representation, and one on which Saxena intended Agarwal to act.

33. Quite clearly the warranty/representation is actionable. It was, as I have found, intended to be acted upon; it was to protect Saxena from either discovery, with possible consequent dismissal, or from being sued there and then, together with the Defendant, at the instance of the Plaintiff and, possibly, of Agarwal himself. I do not believe that it behoves me to say any more on that point.

34. I now pass to the very difficult question of agency. A wealth of authority was put before me, as appear from the appendix to this judgment: But, in this case, it is a pure question of fact, within established and accepted principles. There is one preliminary aspect of it, however, which I will deal with shortly so as to get it out of the way as it were. It appeared at one time that much reliance were being placed on the terms of Exhibit 4 to disprove the express or implied agency of Saxena to act for the Defendant. I have unhesitatingly come to the conclusion that Exhibit 4 is irrelevant to that issue. It is perfectly possible and feasible for Saxena to be the agent of the Plaintiff in the terms of Exhibit 4 for some purposes, and yet to be the agent, express or implied, of the Defendant for other purposes. Exhibit 4, therefore, does not constitute a bar to any finding of agency by me in this action.

35. I must now revert to the evidence of Dilworth. While I have found him to be an essentially truthful witness on matters of which he has direct knowledge, I could not but be influenced by his noticeable change of attitude when under any form of criticism, however slight. That defensive mentality did him no credit. I do not accept his explanation of the documentation relating to Saxena's "commissions", although I do accept that Dilworth probably believes it, to be true. In my judgment, a commission is a commission, by whatever name you describe it, if it is directly proportionate to the monies brought in by the activities of that particular person to the company which is paying out such proportion. But I do not have to examine each and every facet of the activities of the Defendant vis-a-vis Saxena, because many of those matters were wholly unknown to Agarwal at any material time. I am satisfied that at material times Saxena was not a servant of the Defendant. I am not, however, satisfied that he was never a servant of the Defendant - quite the contrary. In my judgment, as a matter of fact, and as a matter of law, Saxena was a servant of the Defendant until the incorporation of W.F.L..

36. That has at least one material result: the first is this - that when the Plaintiff had its first dealings with Saxena after he left G.S.P., he was then a servant of the Defendant. Thereafter the Defendant did nothing to disabuse the Plaintiff of such knowledge. That being so, the Defendant in my judgment must be taken to have held out Saxena as its servant at all times material to the issues on I am now deciding.

37. If I were wrong in coming to that conclusion, I would nonetheless come to the conclusion that the Defendant had, at all material times, held out Saxena as its agent. To commence at the beginning, there can be no doubt that Saxena was authorised by the Defendant to, and did, put Exhibits 1, 2, 3, 4, 5, 6 and  7 (each a document of the Defendant) into the hands of the Plaintiff by giving them to Agarwal to sign. He was not then acting as agent for the Plaintiff, and he could have acted as agent for the Plaintiff only after Exhibit 4 had been signed and chopped with the Plaintiff's chop: (But even then, as I have held, there is nothing to prevent him continuing to be agent of the Defendant.). The Defendant did nothing to disabuse the Plaintiff of that notion, and, on that alone without more, it must be held to have put forward Saxena as its agent for some purposes throughout the material times.

38. But there is much more. While Saxena undoubtedly in law was the "attorney-in-fact" and agent of the Plaintiff to buy and to sell commodities, all his other activities at the offices of the Defendant and at his home, equipped with "on-line screens", was qua agent of the Defendant. In my judgment, the Defendant is, and must be, responsible for what Saxena said and did, provided that it was not outside the scope of that implied authority. I listened intently to the submissions made by Mr. Ribeiro on the extent of implied authority, and, fascinating though that subject was as presented by him to me, it has no bearing, in my judgment on the activities of Saxena in this case. None of the matters complained of could possibly be said to be outside the scope of somebody in the position of Saxena, and I so hold.

39. Without going into these matters at any considerable length, and without anyway wishing to restrict myself to any particular point, I would observe that Saxena was acting as a liaison officer for the Defendant; he was treated by Mrs. Cheung as non-salaried staff or personnel; he obtained a licence as a dealer's representative for the Defendant; the Defendant sent in a tax return relating to him; he signed order chits; he was asked, and expected, to make margin calls on clients - he could hardly be doing that as agent for the clients- the margin-call documents which were for internal use only, that is to say they were not to be sent out or posted, were handed to Saxena for action by him; his office was still within the offices of which the Defendant was a predominant company; he shewed Agarwal around the Defendant's offices and also the dealing room; he introduced Agarwal to Dilworth, who at that time was Executive Manager of the Defendant; he asked for a deposit from the Plaintiff for the Defendant. Qua agent of the Plaintiff he placed orders with the Defendant - but qua agent of the Defendant he caused those orders to be transmitted to R.W.N.Y.: That is not a major point, but, I believe, one which should be mentioned. In my judgment, the oral and the written evidence placed before me is overwhelmingly in favour of my finding as a fact that, at all material times, Saxena was acting for and on behalf of the Defendant, or was held out as acting for and on behalf of the Defendant, and was acting within that express or implied authority.

40. I now pass to the fourth question: That can be answered very simply, yes. For reasons that it is unnecessary for me now to explore in the light of my finding, Agarwal did act on what he was told in November by Saxena, and the Plaintiff, accordingly, and, in my judgment, justifiably on the facts of this case, refrained from going into the market place to buy the necessary Yen at that time.

41. I now pass to the fifth question, which, at one time, seemed to present great difficulty. However, on examination of the oral evidence, and on my assessment of Agarwal. I have come to the conclusion that the Plaintiff was not guilty of a failure timeously to mitigate its damage and, accordingly, that plea by the Defendant must fail.

42. I trust that Counsel will not think me discourteous if I do not analyse the wealth of authority they placed before me, but, as I have said, I have come to the conclusion that this is basically and essentially an issue of fact, and on fact I have decided it.

43. I now pass to the quantification of the loss, and, unless Counsel wish further to address me on that, I propose to take the figures placed before me by Counsel for the Plaintiff as the correct ones and there will, accordingly, be judgment for the Plaintiff in that figure, namely US$348,886.79.

44. I will hear Counsel on the rate of interest, but I must emphasise that I expect it to be a realistic one, having regard to the events described.

45. I will also hear Counsel on the question of costs, but I am at present minded to award the Plaintiff no more than half its costs of the hearing, so much time having been spent on unnecessary matters dealing with issues outside those which, eventually, it fell to me to decide.

(1) Cf. Acts: xviii: 40

(2) W.S.: Sonnets: 73

Appendix to Judgment

 List of Authorities

Garrard & Anor. v. Lewis (1882) 10 Q.B.D. 30

Brocklesby v. The Temperence Building Society & Ors. [1895] A.C. 173

The Union Credit Bank Ltd. v. The Mercy Docks and Harbour Board:

Same v. Same: Same v. Same & Anor. [1899] 2 Q.B. 205

Russo-Chinese Bank v. Li [1910]A.C. 174

Fry & Anor. v. Smellie & Anor. [1912] 3 K.B. 282

Lloyd v. Grace, Smith & Co. [1912] A.C. 716

Soanes v. London & South-western Rly. (1919) 88 L.J. (K.B.) 524

Uxbridge Permanent Benefit Building Society v. Pickard [1939] 2 K.B. 248

Navarro v. Moregrand, Ltd. & Anor. [1951] 2 T.L.R. 674

Attorney General for Ceylon v. Silva [1953] A.C. 461

Ryan v. Pilkington & Anor. [1959] 1 W.L.R. 403

Freeman & Lockyer (a firm) v. Buckhurst Park Properties (Mangal) Ltd. & Anor. [1964] 2 Q.B. 480

Saunders v. Anglia Building Society [1971] A.C. 1039

Moore & Anor. v. Der Ltd. [1971] 1 W.L.R. 1476

Wong v. New Universal Paper Co. Ltd. [1973] H.K.L.R. 59

Daily Office Cleaning Contractors Ltd. v. Shefford (1977) The Times Newspaper 22/4/77

Piermay Shipping Co. S.A.& Anor. v. Chester [1978] 1 W.L.R. 411

Belfont Co. (Hong Kong) Ltd. v. Cheung t/a Hang Tai Finance Co. (1981) Civil Appeal No. 50 of 1981

Amalgamated Investment & Property Co. Ltd. (in liquidation) v.

Texas Commerce International Bank Ltd. [1982] 1 Q.B. 84

Kooragang Investments Pty. Ltd. v. Richardson & Wrench Ltd. [1982] A.C. 462 Archer v. Brown [1984] 3 W.L.R. 350

Tai Hing Cotton Mill v. Liu Chong Hing Bank Ltd. & Ors. [1984] H.K.L.R. 95