CHINA EVERBRIGHT FINANCE LTD AND ANOTHER v. CHAN YUNG AND ANOTHER

HCA 18300/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 18300 OF 1999

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R U L I N G

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Introduction

1.  On 19 July, I gave the 2^nd Defendant leave to serve a series of interrogatories on the 1^st Defendant.  The 1^st Defendant's solicitors had failed to attend and so the order was made unopposed.  This is a summons to revoke that order.  It is supported by a lengthy affirmation from the solicitor who had conduct of the case, explaining why she did not appear.  I do not propose even to attempt to summarise her reasons.  Clearly it was a mistake on her part.  Had she scrutinised the cause list more closely she would have found the matter listed before me and would have attended to argue the summons.  I regard this as a matter which goes to costs.  I do not think that the 1^st Defendant should be penalised for his solicitor's unfortunate, but avoidable, absence.  Mr Ting, who was not the solicitor in question and who appears for the 1^st Defendant today, has argued very forcefully that I should not have made the order because the interrogatories asked for are simply not relevant on the parties respective pleaded cases.

The nature of the claim

2.  This is an action by the Plaintiffs, the 1^st Plaintiff, being a securities house, against the 1^st Defendant to recover the sum of $6.356 million together with an amount of interest exceeding $4 million, on a margin trading account, the Plaintiff, also being a licensed money lender, having granted the 1^st Defendant a margin trading loan facility to enable him to trade on that basis.  The 1^st Plaintiff has also sued the 2^nd Defendant who placed the orders for the sale and purchase of shares on the margin account on the 1^st Defendant's behalf.  The 1^st Defendant's case is that he had not authorized the 2^nd Defendant to enter into a margin account on his behalf but only on a cash trading account.  This being the position between the two Defendants, the Plaintiffs have sued the 2^nd Defendant in the alternative for breach of his warranty of authority that he had the 1^st Defendant's authority to deal on a margin account.  It seems clear that they are bound to succeed against one or other of these Defendants depending on the court's view as to whether the 1^st Defendant had authorised to the 2^nd Defendant to enter into a cash or a margin trading account.  If it was the latter, the Plaintiffs will recover against the 1^st Defendant, if it is the former then they will succeed against the 2^nd Defendant for breach of warranty of authority.

How the right to the interrogatories is said to arise

3.  There are no contribution or indemnity proceedings between the Defendants which, given the nature of the dispute between them, must be right.  The 1^st Defendant's plea is to the effect that the margin trading account with the 1^st Plaintiff was not authorised, consequently the 1^st Plaintiff is not entitled to recover under it.  The 2^nd Defendant's defence to the claim is that he had been authorised to establish this account by his disclosed principal (the 1^st Defendant) and therefore, as agent, he can have no liability under it.  The 1^st Defendant says that he was inexperienced in terms of trading in shares.  He only wished to make one particular $10 million investment in one share and therefore only gave authority for a cash account which suited his purpose perfectly well.

4.  As to the 1^st Defendant's experience or otherwise it is clear that he held, or holds a securities account with a company called OSK Securities Company Limited.  He says so in his witness statement.  On 11 January 2006, the 2^ndDefendant's solicitors wrote to the 1^st Defendant's solicitors to ask for production of the statements relating to that account.  No reply has been forthcoming.  Nothing was done by the 2^nd Defendant to produce a reply to that enquiry until the summons for these interrogatories on 17 July.

5.  The interrogatories are all designed to show the 1^st Defendant's level of experience in trading of securities particularly, I suppose, on a margin account.

6.  Mr Yau, in pressing for an order, submits that where the trial judge will have to decide where the truth lies as to what type of account the 2^nd Defendant was authorised to open and operate for the 1^st Defendant, he will necessarily have to consider the 1^st Defendant “experience, sophistication and propensity to trade”.  The answers to the interrogatories will serve a very proper purpose in enabling the 2^nd Defendant to prepare his case.  He will be better prepared and not have to issue a subpoena to third parties such as stockbrokers in order to get them to produce the 1^st Defendant's account statements.

The 1^st Defendant's reply

7.  Mr Ting says that these interrogatories do not meet the requirement of relevance having regard to the pleaded issues.  At best they can only come in as a matter purely going to credit which the 2^nd Defendant will have to limit and content himself with cross-examination at the trial.  He draws particular attention to the requirement of relevance as well as to the embargo on fishing interrogatories.  The issue is whether on or not he authorised the opening of a cash or, a margin account.  The fact that the 1^st Defendant may or may not have operated a margin account in the past is neither here nor there.  This is a stark issue of fact as to what instruction was given.

Conclusion

8.  I am afraid that I disagree with Mr Ting's analysis.  Whilst, I suppose that logically just because a man may be an experienced margin trader does not mean that this makes it more likely that he gave instructions, on this occasion, to open a margin account.  The whole flavour of his case is that he was inexperienced, certainly in Hong Kong, in this activity.  The fact that it has emerged from his witness statement that he does or did have an account with another securities broker does bring into sharper focus the level and extent of his experience in this field.  Mr Ting accepts that his client will be susceptible to answering questions about this in cross-examination.  Once that quite proper concession is made, which is correctly made by Mr Ting, then it becomes very clear that the court ought to have the full documentary picture before trial, as must his opponent.  This aspect of the level of the 1^st Defendant's trading experience really lies at the heart of the dispute between these two parties.  Without these answers the court will be proceeding on a restricted view of the evidence.  This is relevant to the pleaded issue.  Just because the question is posed in a narrow form: did he or did he not authorise a cash account as opposed to a margin account, does not mean that a view of the 1^st Defendant's previous trading experience is irrelevant or unnecessary.  For my part I consider it an important part of the overall picture which the 2^nd Defendant and, as a result, the court should have a sight of before trial.

9.  I will therefore direct the 1^st Plaintiff to answer all of these interrogatories within 28 days of today.  Whilst the trial is only a few weeks away, the nature of the interrogatories is such that the task of marshalling the information asked for will not be onerous.  These will not therefore be “oppressive” as understood by the rule which prohibits the administration of oppressive interrogatories.

10.  I will now hear the parties as to costs.