CITIBANK N.A. v. KUNG KWOK WAI, DAVID

1987. No. A5037

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

------------------

---------------------

J U D G M E N T

---------------------

1. These proceedings are protracted. I expressed concern in the course of counsel's submissions and I prefer to say no more on the subject. A great deal of evidence has been led. A great number of witnesses have been paraded before this court. The issues joined between the parties are without complexity and I am glad to be able to deliver my judgment immediately at the conclusion of counsel's submissions.

2. This is a claim by the plaintiff against the defendant for earned commission and loss in the acquisition of $20M bear bonds issued by Paribas Investment (Asia) Limited. The $20M bear bonds were acquired from the underwriters Paribas Asia (1986) Limited. I shall call it "Paribas".

3. Mr Kung is the defendant. Mr Kung's elderly mother is apparently a lady of means. On the 28th flay 1987, a Swiss account was intended to be opened for the mother of Mr Kung who was sent by his monther's solicitor to attend at the offices of the plaintiff for a form. A Swiss account was thereupon opened for the mother of Mr Kung, and in the process, a Hong Kong dollar Time Deposit Account to the extent of some $23M was opened with the plaintiff. The Hong Kong dollar Time Deposit Account was known to the plaintiff as an account not being personal to the defendant, but by his family tie to such a substantial amount of Hong Kong dollars, the defendant was regarded by the plaintiff as a prospective customer for its private banking activities. It was agreed between the plaintiff and the defendant that the plaintiff was at the material time wholly owned by Citi Corp., that Citi Corp. was then a shareholder of Citi Corp. Scrimgeous Vickers International Limited, and that Citi Corp. Scrimgeour Vickers International Limited then owned Citi Corp. Scrimgeous Vickers Hong Kong Limited, formerly known as "Vickers de Costa & Co. Hong Kong Ltd." I shall call Vickers de Costa & Co. Hong Kong Ltd. "Vickers".

4. Mr Kung himself was an active investor in, among other things, stocks, bonds and shares. It was on the 28th May 1987 that Mr Kung met Eddie Leung of the plaintiff. Mr Eddie Leung focused his attention on marketing in the private banking sector of the plaintiff. It was his personal preference. Subsequent to the meeting of Mr Leung and Mr Kung, it is alleged by the plaintiff that Mr Kung placed an order for British Airport Authority shares and that the purchase was recorded in Exhibit P2. Mr Kung denies having placed any order for such British Airport Authority shares the plaintiff.

5. Mr Leung was not terribly pleased by the attitude of Mr Kung. Wherever the truth lies, Mr Leung caused the shares to be cancelled with no resultant loss to the plaintiff, and the plaintiff was also not pressing for any earned commission from Mr Kung.

6. It cannot be denied that within the contemplation of all, in its private banking sector, the plaintiff provided facilities to clients or prospective clients for either a fee or commission. Mr Kung said many a time that Mr Leung was touting for his business. It is a matter which has been left unsaid explicitly, but there can be no doubt that in serving Mr Kung the plaintiff in its private banking sector was no different from the position of any ordinary broker.

7. After the unpleasant encounter of the British Airport Authority shares, on the 15th July, Mr Kung spoke to Mr Leung on the telephone, in which, so it is alleged by the plaintiff, an order for the said $20M bear bonds was placed. The issuance of these bonds was through placees as well as public subscriptions. There was a deadline for placees and there was a different deadline for public applications for subscription. In this conversation, these two venues were broached. In fact, in a gratuitous lesson given to Mr Leung, Mr Kung draw attention to the fact that some bonds were placed with institutions, brokers and the like as placees and that the public would also be able to make applications to subscribe for the same bonds.

8. The order allegedly placed on the 15th was for at least $20M bear bonds, in the range between $20M to $40M. Later, Mr Leung attempted to enquire from Mr Kung as to how many more bear bonds beyond such a minimum limit as allegedly set on the 15th July that Mr Kung would like to take up. His attempt so to seek instructions was unsuccessful : it was either on the 16th or the 17th, a Thursday or Friday, Mr Leung failed to communicate with Mr Kung but spoke to a lady said to be in Mr Kung's office. Whether Mr Leung was correct in describing the office as Mr Kung's office, the outcome was that he failed to contact Mr Kung with a view to consulting him as to whether he would like to take up more bonds above the floor ceiling that he had set.

9. On the 18th July, there was a conversation between Mr Leung and Mr Kung, in which, according to f Mr Leung, Mr Kung reneged from his position. In this telephone conversation on the 18th, so Mr Leung testified, Mr Kung complained that the deadline for acquisition fell on the 16th July and that Paribas had dumped bear bonds on him. He allegedly told Mr Leung that because of other arrangement he, Mr Kung, could not take up the $20M bear bonds but that as a gesture of friendship, he would consider taking up half after he had consulted his notes.

10. Mr Kung maintained that on the contrary he was quite straight-forward in this conversation of the 18th with Mr Leung : he told him that there was no order placed; realising that Mr Leung was in difficulty, he was quite prepared to consider lending a helping hand subject to his checking with his papers or "things". But in his cross-examination, Mr Kung introduced yet a further reservation to his charitable attitude. He said that not only did he have to go back to check his papers but that he had to consult with and obtain approval from his solicitor. However, in the later telephone conversation on the 20th July, he confined himself to the "checking on his things" as the only pre-condition to his willingness to consider assisting Mr Leung in $10M bear bonds. Mr Kung further explained that he had overlooked even to instruct his legal advisers on his tentative offer to assist Mr Leung in half of the bear bonds as being one subject also to his consultation with and seeking approval from his solicitor.

11. On the 20th July, Mr Leung followed up the conversation of the 18th and spoke to Mr Kung on the telephone. It is not unfair for counsel for the defendant to suggest that Mr Leung did sound very keen in capturing what Mr kung then said on tape. In that conversation, Mr kung stated that he invited Mr Leung to make merely an inquiry from Vickers and that there was never any order placed for the $20M bear bonds. Mr Kung intimated that if matters should develop further, he would rather prefer to pass them over to his solicitors. In that conversation, Mr Leung complained that he took the words of Mr Kung as good and expressed disappointment with the attitude of Mr Kung as a man of his calibre. Mr Kung was obliquely accused of being insincere and dishonest. He was charged with prevarication. But from the tune of Mr Kung's conversation coming out of the tape, those serious though oblique accusations did not seem to arouse his slightest irritation. In essence, Mr Kung kept on repeating that there was merely an invitation to make enquiry from Vickers, that there was no order placed and that the suggestion to take $10M bear bonds was subject to his checking on my things". Mr Kung did not elaborate. Miss Kwan is prefectly justified in drawing my attention to the fact that Mr Kung has shown himself to be a man who is ever determined to he utterly exhaustive in any account he has to given. On this occasion, he was unusually abrupt.

12. Of these conversations between Mr Kung and Mr Leung, the plaintiff produced two tape recordings, one for the 15th and another for the 20th. For inexplicable reasons, tapes for the 18th, 16th or 17th have not been retrieved. Counsel for the plaintiff concedes that the absence of these tape recordings has not been satisfactorily explained. But I can detect no suspicion or misdeed in the plaintiff's inability to produce these tapes.

13. The tapes available were played. There was agreement between the plaintiff and the defendant as to the Court's proper approach to these taped conversations and its functions. The consensus is duly recorded at pages 16, 17 and 18 of the judges notes, and they may be summarised as follows : it is agreed that the Court could use whatever personal knowledge it has of the Cantonese dialect in the conversation, including emphases and pauses, tune and presentation, subject to one slight reservation, that is to say, "so long as there is no difference between the Court's understanding of the tapes and the agreed transcript and translation". It is agreed that in effect this Court has been given a wider power of evaluation than what a Cantonese speaking juror legitimately has or possesses.

14. The transcript and translation of the conversation on the 15th July are Exhibit A and the transcript and translation of the 20th July conversation are Exhibit C. From the conversation on the 15th July, Mr Kung clearly placed an order for at least $20M bear bonds. He intimated that he wanted at least $20M, between $20M to $40m. When the question of rebate was brought up, he declined of having any of it. Upon a gentle reminder from Mr Leung that he should have the money in time, Mr Kung assured Mr Leung that he had $30M then, in fact slightly over $30M odd in hand. He categorically said, "Oh yes, in any case, I want it". This is as damaging as the rest of the conversation. I have singled out this piece of conversation merely because it was suggested by Mr Kung's counsel that the words "in any case" should be differently understood. I disagree, particularly how those words were used in the Cantonese dialect as coming out from the taped conversation, Exhibit A, when it was played. Nothing said before or after has the effect of making that term less definite. I have touched upon the criticisms levelled at Mr Kung's attitude and his reaction to charges of impropriety in the conversation of the 20th July. As coming out from the played tape Exhibit "P1", decidedly an order was placed on the 15th. The message was explicit, and no other conversations, including subsequent bald denials, to which my attention has been directed has cast any doubt on the clear order so placed by Mr kung. Having listened to the played tape of the 15th July, any other conclusion would be perverse.

15. On the 20th July, bald assertions of denial were made by Mr Kung. Even the conversation which Mr Kung claims to have previously on the 18th July, it would add little to those denials made on the 20th. As I have said, Mr Kung's reaction to the serious, though oblique accusations made on the 20th July by Mr Leung and the lack of embellishment in his bald denials on that occasion, were very much out of character. In the end, I am left with little alternative but to prefer the version of Mr Leung as to what transpired on the 18th July. The crux of the matter is that the conversation of the 15th July was a clear message. Nothing elsewhere said has in any way affected the validity of such a definite order placed on that day.

16. Mr Kung's viva voce evidence is a poor performance in the light of the irrefutable taped evidence of the clear order on the 15th. Mr Kung displayed incredible tenacity in searching for material in his attack of the Order he had pleged. Despite the taped conversion of the 15th July, he gallantly argued that in the overall communication no order was in fact placed. His testimony is unimpressive. Throughout the Court was at loss as to what he really hoped to achieve. If his evidence had been given with sincerity, he must have been a man tragically misguided. This Court has no wish to be more unkind than it is necessary, but listening to Mr Kung, one is driven to that inevitable conclusion. From his demeanour and on his evidence, Mr Kung is simply a witness not worthy of credence.

17. I find that an order was placed on the 15th for the $20M bear bonds. On the evidence I also find that the order was duly executed. The other witnesses were primarily on peripheral controversies. I have also taken into consideration that apart from page 161 of the Bundle, there was no kept book-record produced to this Court, evidencing the execution of the order so placed by Mr Kung.

18. The Defence has the merit of brevity. It contains a bare denial to the assertions of the plaintiff. In the final submissions of counsel, for the first time further issues are advanced. First, it is put forward as a positive case that no order was placed or instructions given to acquire the $20M bear bonds. Counsel makes great play of the pleading of the plaintiff in paragraph 3 of the now Re-Re-Amended statement of Claim : the word "purchase" is singled out for criticism. This was a case of acquisition of shares either by public subscription or a direct issue from the underwriter. It was not technically a case of purchase, in the strict sense of that word, as Mr Chan has contended. "Purchase" as pleaded in paragraph 3 of Re-Re-Amended Statement of Claim conveys no technical meaning such as that sought to be put on it by Mr Chan, counsel for the defendant. It merely connotes acquisition by whatever means. Indeed, Miss Judy Chan herself, the lady with considerable experience called on behalf of the defendant from Wardley, described an order of like nature as a purchase or buying of shares or bonds. There is no merit in counsel's criticism.

19. In the same paragraph of the Re-Re-Amended Statement of Claim, attack is mounted at another word "placed". It is submitted that Paribas Investment (Asia) Limited was the issuer and that the bonds were thus not placed by the issuer on the market. Whether Counsel is correct or not in the technical sense, the common parlance - as indeed Mr Leung in his evidence so stated in alternatve terms - draws no distinction between placed, issued or subscribed. Mr Leung spoke of a placement by Parabis and a placement by Vickers indiscriminately. The parties knew exactly what the disputes were. The word "placed" as pleaded in paragraph 3 of the Re-Re-Amended Statement of Claim has no technical connotation. I see no merit in counsel's submission on the word "placed".

20. It is also sought to be argued by Mr Chan for the defendant that in fact the order was, if placed by the defendant, defeasible by two ambiguities or alternatively subject to two conditions. The ambiguilties lie in how many shares were ordered, i.e. the quantum, and the source from which those shares were to be procured. Instructions were said to be unclear, so contends Mr Chan, as to the precise quantum of shares "wanted" by Mr Kung. It was equally obscure, so runs Mr Chan's arguments, as to from whom shares were to be procured, Vickers or Paribas. Because of` these fundamental ambiguities, so Mr Chan submits, the formation of the contract between the plaintiff and the defendant for the alleged acquisition of the shares lacked certainty. Thus, it is contended that there was no concluded contract on account of these uncertainties.

21. As I understand Mr Chan to say, the instructions allegedly given for the acquisition of bonds were in any case subject to conditions as to (a) quantum yet to be specified, (b) source deriving source deriving exclusively from vickers and (c) prior confirmation. As to the instructions allegedly given pending confirmation, Mr Chan now intervenes with an observation that my understanding of his submissions, in this aspect, is incorrect. Counsel claims to have never submitted that prior confirmation was an alleged condition to the instructions for purchase, if even given. Be that as it may, these and the other points raised by Mr Chan for the first time in final submissions are not matters specifically pleaded. There has been no warning given of the pursuit of these intended arguments. This court is indeed taken by surprise and embarrassed.

22. No point is taken on behalf of the plaintiff that the defendant ought not to be permitted to raise and pursue these belated issues. Nevertheless, the net result is that no attention was focused on any of these contentions, that no questions were asked on these issues, and that matters were not or pot properly broached, investigation or tested. The plaintiff has thus been deprived of the opportunity to dispel whatever obscurities, now contended. On these, this Court has not been adequately assisted. Unless matters are self-evident or obvious, there seems to be no warrant for allowing myself to be influenced by these suggestions of possible obscurities or ambiguilties. This is not the way that litigation should be conducted. I find no justification for attaching any of these conditions to the instructions. I do not find any uncertainties weighty enough to affect the validity in the formation of the contract for the clear order placed by Mr Kung. On the contrary, there is ample evidence from Mr Leung that the order placed for the acquisition of the $20M bear bonds was without qualification. Mr Leung emphasized the unqualified firm instructions to acquire the bonds at the stage of his evidence when his attention was closely drawn to the two methods of acquiring these bonds, by public subscriptions or through direct issues. There can be no doubt that Mr Leung rejected the suggestion of a limitation in his instructions from Mr Kung to obtaining the bonds exclusively from Vickers.

23. The order was executed. Mr Leung was adamant that instructions were complied with and the order executed. The plaintiff founds its claim on the implementation of the order placed by Mr Kung in this action against the defendant. The plaintiff's stance is implicitly that there has been no breach of instructions in the order placed by Mr Kung and that there was no limitation or qualification as to how or from whom the bonds were to be acquired.

24. The conditions sought to be argued by Mr Chan are not even supported by his own client, who denies having given instructions, having placed an order on the 15th July : there was no order and hence there could not have been any conditions. Neither are these matters supported by the plaintiff's witnesses : Mr Leung testified that there was no qualification. In fact, as a necessary implication from his claim that the order was executed, Mr Leung has further categorically denied any breach. That disposes of the first submission of Mr Chan raised for the first time in his final submissions.

25. Secondly, counsel contends that the order placed was not executed or the alleged execution of the order has not been pleaded or proved. Mr Chan submits that the plaintiff failed to plead the effect of the conversation of the 15th July. I do not share counsel's criticism. I can see no merit in that contention. The effect of order has been sufficiently pleaded in ordinary language, and there is amble evidence of its compliance.

26. Thirdly, Mr Chan contends for the first time again on behalf of the defendant that the plaintiff's claim for damages has not been sufficiently pleaded or proved. Paragraph 4 of the Re-Re-Amended Statement of Claim pleads that the plaintiff was "entitled" to be paid the commission. There was no request for particulars. Entitlement to a commission as specifically pleaded, I agree with Miss Kwan for the plaintiff, would suffice.

27. Turning to damages, some complications surfaced in the course of Mr James Fan's evidence. What in fact transpired was that Paribas sold $20M bear bonds to the plaintiff who acquired these bonds on the instructions of the defendant. The bonds so acquired were given to the plaintiff at a discount. I find that the actual discount is a reasonable amount for the plaintiff to charge as commission. It was clearly understood by the parties that the plaintiff was to be reasonably remunerated. Commission at the rate of any discount offered by Paribas in the circumstances represents a reasonable rate of commission to be charged by the plaintiff on Mr Kung, the defendant, for the order for $20M bonds. In fact, the contrary was never suggested by Mr Kun or anyone throughout the proceedings. Commission was thus expected to be charged. The discount offered by Paribas, I find, represented a fair and reasonable commission to be so charged.

28. But then what is the commission in the circumstances? The plaintiff could not legitimately retain the bear bonds, and they had to be disposed of. Paribas reluctantly accepted a re-sale. Mr James Fan disclosed that, as appears on page 161 of the Bundle, at the time of the resale the market price stood at 97% of the nominal price of $20M and that the original sale price in the acquisition of the bonds by the plaintiff was in fact readjusted so as to reduce loss as an indulgence granted to the plaintiff. Mr James Fan told the Court that the originally acquisition price was at a discount of 98.75% although he was not absolutely sure. In the circumstances, on the balance of probabilities I find 98.75% as being the discount granted by Parispas on the original acquisition by the plaintiff of the $20M bonds. There is no evidence to the contrary and Mr James Fan did categorically say so, though with some reservation.

29. 98.75% discount represents $250,000. The subsequent readjustment was for the purpose of reducing the actual loss in the acquisition and resale of the bonds between the plaintiff and Paribas. In reality, the loss should have been $350,000, between a discount of 98.75% and the resale market price at a discount of 97%. Therefore, $50,000 was granted by Paribas in favour of the plaintiff by way of indulgence. This $50,000 represents, in my view, what the plaintiff had obtained from Paribas in the circumstances by way of mitigation of damages. The net result is that, the plaintiff was entitled to claim commission represented by the discount of 98.757% i.e $25 0,000, plus the actual loss in the transaction after acquisition and resale in the sum of $300,000 (i.e. the difference between 98.5% and 97%), totalling $550,000.

30. Paragraph 4 of Re-Re-Amended Statement of Claim and the amendments introduced today do not, in my view, reflect accurately this obvious position as interpreted from the evidence of Mr James Fan. This is a matter not unknown to Mr Chan, counsel for the defendant, who must have fully appreciated the significance of the evidence of Mr James Fan and counsel had also the benefit of the exchanges between Bench and Bar on arithmetic. It is pointless to prolong the agony. In the circumstance. I would treat the Re-Re-Amended if Statement of Claim as if it had been properly further amended so as to cover the conclusion I have reached and the damages I have assessed. If any precedent is needed, it is Keith v. R. Gancia & Co. Ltd., [1904] 1 Ch. 774 at p.789 per Vanghan Williams L.J ., where the Lord Justice said : "It is pain that all the parties came into Court prepared to try the question of what is the effect of ........ That being so, all necessary amendments must be treated as made." After all, Isaacs and Rich J.J. observed in Australia : "so long as a court is supported to exist for the purposes j of securing justice, as measured by the law, so long, in our view, must it strive to see that litigants are not to be regarded as playing a game where momentary oversight of counsel is to be necessarily fatal". Martin v. Hogan [1917] 24 C.L.R. 234 at p.256.

31. In the circumstances, the plaintiff succeeds against the defendant in the sum of $550,000, $250,000 represents the commission earned and $300,000 a sum, in fact, not in dispute, represents the loss in the acquisition and resale of the bonds between the plaintiff and Paribas.

32. This case has caused much concern. Proceedings ate protracted. The defendant was unjustifiably persistent. Subject to what counsel have to say, I ought to mark the displeasure of the Court with a more stringent arder of costs against the defendant, except for today, on a common fund basis. As for costs for today, the additional labour was necessitated by the unexpected final approach adopted by the defendant in his counsel's submissions. However, the proposed amendments as granted would appear to have fallen short of giving coverage to the claim of the plaintiff as justified by the evidence given. A fair order, again subject to what Counsel have to say, for today's appearance should be : no order as to costs.

(Submissions on costs)

33. I have voiced my dissatisfaction with the way in which the clear order placed on the 15th July with the plaintiff by the defendant was sought to be challenged. I have also said enough against the defendant in my judgment. I need say no more. I order that :-

(1) Judgment for the plaintiff against the defendant for $550,000 with interest thereon from the day of the writ to judgment at 8% per annum;

(2) Costs, except for today, against the defendant, such costs to be taxed on a common fund basis;

(3) No order as to costs for today.