HO CHING YI v. CORE PACIFIC YAMAICHI SECURITIES (HK) LTD.

DCCJ 13988/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 13988 OF 2000

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JUDGMENT

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1. This case involves a dispute between a securities trading company and its customer. On 10 December 1999, the Plaintiff opened a securities cash trading account at the Kwun Tong Branch of the Defendant. Since then, the Plaintiff complained that he had not received any monthly statements from the Defendant, and as a result he alleged that he was not aware of the allotment of certain bonus warrant shares to his account. He subsequently learnt about this, and so he brings the present action against the Defendant to claim for the loss that he has allegedly suffered by the late selling of the bonus warrant shares.

2. The following facts are not in dispute. According to an announcement made in an English and a Chinese newspapers on 26 November 1999, bonus warrants shares ("Warrant Shares") would be issued to any registered holders of the shares of Hwa Kay Thai Holdings Limited ("Hwa Kay Tai") on 31 January 2000. The announcement also stated that the register of members of Hwa Kay Thai would be closed from 26 to 31 January 2000. The Plaintiff, through the Defendant, bought 900,000 shares of Hwa Kay Thai on 21 January 2000. He subsequently sold the same on 26 January 2000. According to the said announcement, the Plaintiff was still the registered holder of the shares of Hwa Kay Thai on 31 January 2000, and so the Plaintiff's account was credited with 180,000 Warrant Shares on 3 February 2000. On the same day, the Defendant's branch manager, Mr. Leung Kwok Wai (the Defendant's first witness), made a number of attempts to contact the Plaintiff by telephone trying to notify the Plaintiff about the allotment of the Warrant Shares, but without any success.

3. Subsequently on 11 April 2000, the Plaintiff made a complaint through telephone to the Defendant's second witness, Ms. Leung Sau Ying Jacqueline, complaining about the non-receipt of monthly statements. After making some inquiries, Ms. Leung found out that the Defendant's staff had wrongfully put down the address of the Plaintiff in the Defendant's record. Instead of room "1901", the Defendant's staff had put down the wrong apartment number of "901", and as a result the Plaintiff did not receive any monthly statements from the Defendant. After learning about this, Ms. Leung sent the monthly statements covering the period from December 1999 to March 2000 to the Plaintiff the next day.

4. Later on 28 April 2000, Ms. Leung spoke with the Plaintiff over the telephone again, but this time in relation to another complaint. During that conversation, the Plaintiff also mentioned that he had received the monthly statements, but he requested for a copy of the Chinese translation of such statements. Ms. Leung subsequently provided the Plaintiff with the same on or about 5 May 2000. On 18 May 2000, the Plaintiff had a meeting with the senior staffs of the Defendant to discuss the complaint relating to the non-receipt of monthly statements, and he also sold the Warrant Shares on the same day at a price of $0.24. This concludes the facts which are not in issue.

5. Despite the trading records of the Warrant Shares which showed that their highest price was $0.60 on 11 February 2000, the Plaintiff claims that the highest price of such shares should be $0.64. After knowing the allotment of the Warrant Shares, the Plaintiff sold the same on 18 May 2000 at a price of $0.24, and the Plaintiff therefore claims the price difference, calculated as follows, as damages:

($0.64 - $0.24) x 180,000 Warrant Shares = $72,000

6. It is the Plaintiff's case that the aforesaid loss was caused by the breach of duty on the part of the Defendant in supplying the monthly statements. However in the course of the trial, the Plaintiff learnt that, even if he were to succeed, the amount of damages would be substantially reduced (see paragraph 22 below), the Plaintiff therefore changed his stance and alleged that there was a duty on the part of the Defendant to notify him about the allotment of the Warrant Shares when his account was credited with the same on 3 February 2000.

7. The Defendant does not dispute that its staff had wrongly put down the Plaintiff's address in the Defendant's record, and as a result the Plaintiff did not receive the monthly statements covering the period from December 1999 to March 2000 until April 2000. However the Defendant seeks to deny liability on the following grounds:

(a) there was no legal obligation on the part of the Defendant to send monthly statements to the Plaintiff, or to notify him of the receipt of any bonus warrant shares;

(b) the Plaintiff has failed to prove that his alleged loss is caused by the Defendant's wrongdoing, which is disputed;

(c) the Plaintiff is not entitled to claim for any loss by reason of his own intervening act in not selling the Warrant Shares at an earlier time;

(d) the Plaintiff is precluded to make a claim against the Defendant by reason of the exemption clause contained in Clause 4.7 of the agreement made by the parties when the Plaintiff opened his account ("the Agreement"); and

(e) the fact that the Plaintiff has failed to follow-up on his complaint amounts to operative acquiescence and waiver, and this relieves the Defendant from its liability.

8. I will deal with these issues in turn.

Legal obligation to supply monthly statements to the Plaintiff or to notify the Plaintiff of the receipt of the Warrant Shares

9. It is not an issue that the Agreement does not contain an express term that the Defendant was legally obliged to supply monthly statements to the Plaintiff, or to notify him of the receipt of any bonus warrant shares. In the absence of such an express term, the court should then consider whether a term of similar effect should be implied in the Agreement.

10. Based on the facts of the present case, I do not see that there is any basis for the court to imply a term to such effect in the Agreement. According to the evidence of the said Ms. Leung, who was previously employed as an assistant manageress of the Compliance and Audit Department of the Defendant, there was a Code of Practice for Persons registered with the Securities and Future Commission ("the Code of Practice") issued by the Securities and Future Commission ("SFC"). According to the Code of Practice applicable at the relevant time, a securities trading company should provide its clients with a regular statement of account, which should only be at least one statement every 3 months. However so far as she knew, it was not a trade practice for all the securities trading companies in Hong Kong to send monthly statements to their clients. A new Code of Practice was issued in April 2001 which provided for the supply of monthly statements, however such Code of Practice was not applicable in early 2000. Further, she was not aware of any rules or trade practice which required a securities trading company to notify its clients of the receipt of any bonus warrant shares.

11. Ms. Leung is a person who is specialised in supervising securities trading companies and is familiar with the rules and regulations issued by the SFC. Further, she does not any direct interest in the present case as she has left the employment with the Defendant in June 2000. In such circumstances, there is no reason for me to doubt the accuracy of her evidence, of which I accept without any reservation.

12. The Plaintiff testified in the trial that so far as he knew, every securities trading company in Hong Kong would supply monthly statements to their customers. However as he is not an expert in such trade, his evidence carries far less weight as compared with that of Ms. Leung. In the absence of a trade practice to that effect, it is not possible for the court to imply a term that the Defendant, at the relevant time, had to supply monthly statements to the Plaintiff, or to notify him of the receipt of any bonus warrant shares. Furthermore, as the issuance of the Warrant Shares was made known to the public by Hwa Kay Thai in newspapers announcement and the Plaintiff could always check the stocks in his account, it is not necessary for the court to imply the aforesaid terms in the Agreement so as to give business efficacy to the same.

13. The Plaintiff also testified that he was told by a lady, who helped him to open the account, that the Defendant would supply monthly statements to him. However the said Mr. Leung, the Defendant's branch manager who assisted the Plaintiff in opening his trading account, disagreed with the Plaintiff's evidence in this regard. Having carefully considered all the evidence, I prefer to accept the evidence of Mr. Leung and I do not find the Plaintiff to be a completely honest or truthful witness. I fully appreciate that it is a rather cruel comment to make in relation to an old man who is over 70 years of age, but that is the only conclusion I can make after listening to his evidence. I shall perhaps explain why.

14. In the trial, the Plaintiff has tried very hard to portrait himself as an innocent old man who does not have very much experience in stock trading. However, the trading records of the Plaintiff speak for itself. The Plaintiff was managed to obtain profit in most of his short term trading. In one of the transactions involving the trading of a stock with the reference number "245", the Plaintiff even managed to make a profit of $200,000, which was about 140% of his original investment of about $140,000. The certainly shows that the Plaintiff, or at least "his friend" who assisted him in the trading of stocks, is not an inexperienced investor.

15. Further according to the evidence of the said Ms. Leung and the public announcement made by Hwa Kay Thai, the Plaintiff, in order to obtain the Warrant Shares, had to retain the shares of Hwa Kay Thai at least until 24 January 2000, so that the Plaintiff would be shown as a shareholder of Hwa Kay Thai when the register of members was closed on 26 January 2000. The 2-days difference is the consequence of the "T+2" rule, which requires transaction to be completed 2 days after the placement of an order. If an investor wanted to sell the shares at the earliest opportunity and yet wanted to obtain the Warrant Shares, the earliest time that he could sell the shares of Hwa Kay Thai was 25 January 2000. The fact that the Plaintiff sold the shares of Hwa Kay Thai strategically on 26 January 2000, which was shortly after the earliest possible date, tends to suggest that the Plaintiff, or at least "his friend" who helped him with his investment, should have known about the allotment of the Warrant Shares by Hwa Kay Thai, and the significance of the "T+2" rule and the date for the close of register of members. I do not believe that it was only a coincidence that the Plaintiff bought and sold the Hwa Kay Thai shares at those particular times. In such circumstances, it is very difficult for me to accept that the Plaintiff is an inexperienced investor as he has claimed himself to be, or that he was not aware of the allotment of the Warrant Shares at the material time.

16. Indeed, according to my observation, the Plaintiff was very evasive when he was cross-examined on a number of issues. Firstly, he was very reluctant to disclose anything about "his friend" who assisted him in the investment of shares. If such "friend" were to exist, judging from the trading records of the Plaintiff, "his friend" must be a very experienced investor. Under such circumstances, it is only natural that the Plaintiff does not want the court to know anything about "his friend".

17. Secondly, he was very reluctant to tell the court about the financial resources for his investment. At first, he testified that he was only a retired person with no saving. However when he was asked as to how he had the financial means to execute all the trading as reflected in his account, which involved tens and hundreds of thousands of dollars, he, for the first time, alleged that all such trading was conducted for and on behalf of his daughter-in-law's parents. Later, when he was being further questioned that he did not have any beneficial interest in the Warrant Shares since they belonged to someone else, the Plaintiff changed his evidence again and alleged that, only for the Hwa Kay Thai shares, they were owned jointly by his son, his daughter-in-law's parents and himself. However, even this new piece of evidence is not convincing. The Plaintiff could not tell the court the exact proportion or amount of his share in the Hwa Kay Thai shares, and he also could not give a good explanation as to why, amongst all the shares, only the Hwa Kay Thai shares were jointly owned as alleged. Hence I do not believe that the Plaintiff was telling the truth.

18. In the course of the trial, the Defendant has also produced an audio tape recording a telephone conversation between the Plaintiff and the said Mr. Leung of the Defendant. The contents of the conversation show that, contrary to the Plaintiff's evidence, he was aware of the price of the Warrant Shares before 18 May 2000. Quite surprisingly, the Plaintiff, without any substance and for the first time in the trial, widely alleged that the tape was fabricated. This unsubstantiated denial also casts doubt on the creditability of the Plaintiff's evidence.

19. Based on the aforesaid, I do not find that there was any legal obligation, whether based on contract or tort, that the Defendant had to supply monthly statements to the Plaintiff, or to notify him about the allotment of any bonus warrant shares. The Defendant did provide a service of supplying monthly statements, or the Defendant might try to inform its clients over telephone about the allotment of certain bonus warrant shares. However, these were only services provided by the Defendant, and one should not confuse these with any legal obligation on the part of the Defendant to provide the same. Indeed, the allotment of these shares would invariably be announced publicly by public-listed companies, and so there is no basis for the court to impose an obligation on a securities trading company to bring such news to its clients. In Hong Kong, there are a lot of securities trading companies which may have to handle voluminous trading for their clients each day. To require such companies to notify their clients about any public news concerning their clients' trading is too onerous a duty to be imposed on such companies.

20. As I have already found that the Defendant did not owe any duty to the Plaintiff to supply monthly statements or to notify him about the receipt of any bonus warrant shares, this would have been sufficient to dispose of the Plaintiff's claim. However for the sake of completeness, I would also deal with the other grounds of defence put forward by the Defendant.

Causation

21. In my judgment, the Plaintiff's claim should also fail, or at least his claim is only limited to nominal damages, as he has failed to establish the causal link between the alleged breach of duty and the loss. Firstly, as I have mentioned above, I do not accept that the Plaintiff was not aware of the allotment of the Warrant Shares at the material time. In such circumstances, even if the Defendant had breached its duty in failing to supply the monthly statements or to notify him about the allotment of the Warrant Shares, the Defendant was aware of such fact through some other means, and the alleged loss was not therefore caused by any breach of duty on the part of the Defendant.

22. Secondly, in establishing the necessary causal link, the Plaintiff must prove with creditable evidence that, on a balance of probabilities, he would have sold the Warrant Shares at the highest price had the Defendant not been in breach of its obligation. However, the price of the Warrant Shares only reached its record highest on 11 February 2000. Had the Defendant sent the monthly statements to the Plaintiff, the Plaintiff, putting his case at the highest, would only have been able to learn about the allotment of the Warrant Shares in March 2000 when he was sent with the monthly statement of the preceding month. By that time, the price of the Warrant Shares had already dropped to about $0.35. Indeed according to his own evidence, the Plaintiff admitted that he would have held on to the Warrant Shares without selling them if he had learnt about the allotment of such shares in March 2000. In such circumstances, the Plaintiff's alleged loss resulting from the late selling of the Warrant Shares was simply not caused by the failure on the part of the Defendant to supply the monthly statements.

23. As I have mentioned above, the Plaintiff in the trial changed his case and alleged that the Defendant also had a duty to inform him about the allotment of the Warrant Shares when the Plaintiff's account was credited with the same on 3 February 2000. However even if there was such a duty, which I have already ruled against, it is common ground that share prices rise and fall and it is unlikely that anyone would predict with substantial certainty as to those share prices. Indeed, the trading records of the Plaintiff show that the Plaintiff would not have been able to sell all his shares at the highest prices within a certain period. The key point I want to emphasize here is that the Plaintiff's own investment decision might have played a very important role in determining when he sold a particular share. As the stock market is a highly volatile market, it is very difficult for the Plaintiff to prove that his late selling of the Warrant Shares was caused by the alleged breach of duty, and not by his own investment decision. Hence in my judgment, the Plaintiff has failed to establish the necessary causal link.

24. Further, it is the Plaintiff's own evidence that he entirely depended upon "his friend's" advice as to when to sell or when to buy a particular share. In such circumstances, the decision to sell a particular share was actually made by someone else. In the absence of any evidence from such person, the Plaintiff simply cannot prove that his loss was caused by the alleged breach of duty on the part of the Defendant.

The Plaintiff's own intervening act

25. It is the Plaintiff's own case that he had received the monthly statements on or about 13 or 14 April 2000 and the Chinese translations of the same on or about 6 or 7 May 2000, and yet he did not sell the Warrant Shares until 18 May 2000. According to the Plaintiff's explanation, he did not understand the English in the monthly statements and so he did not know about the allotment of the Warrant Shares until 18 May 2000. The Plaintiff claimed that he had tried to ask some students in the street to explain to him the contents of the statements, but without any success. It was only on 18 May 2000 that someone in the lobby of the Liu Chong Hing Bank explained to him the contents of the statements, and so he was not aware of the allotment of the Warrant Shares and their price before 18 May 2000.

26. In my judgment, the Plaintiff's explanation is entirely incredible and incapable of being believed. Instead of adopting the easy way of asking the staffs in the Defendant to explain to him the contents of the statements, the Plaintiff decided to seek assistance from strangers in the street. This, in my view, was quite ridiculous. Further the Plaintiff was very evasive during cross-examination, and he refused to name the branch of the Liu Chong Hing Bank in which he had sought the alleged assistance. Finally, the audio tape produced by the Defendant shows that the Plaintiff was aware of the price of the Warrant Shares before 18 May 2000, and this contradicts the Plaintiff's own evidence that he was not aware of the allotment of the Warrant Shares before the said date. Hence I reject the Plaintiff's evidence in this regard.

27. Based on the aforesaid, I find that the Plaintiff well knew about the allotment of the Warrant Shares before 18 May 2000, and it was his own decision not to sell those shares before the said date. This is further supported by the Plaintiff's own evidence that he would have held on to the Warrant Shares had he received the statements in March 2000. In my judgment, this voluntary decision on the part of the Plaintiff not to sell the Warrant Shares before 18 May 2000 breaks the chain of causation, and hence the Defendant would not be liable to the Plaintiff's claim in any event.

Exemption clause

28. The Defendant is also seeking to deny liability based on the exemption clause in Clause 4.7 of the Agreement, which reads as follows:

"[The Defendant] shall not be under any liability whatsoever to the [Plaintiff] for any loss or damage howsoever suffered or incurred by the [Plaintiff] which arises directly or indirectly from the performance by [the Defendant] of its obligations under this Agreement unless such loss or damage results proven to be directly caused by [the Defendant's] gross or wilful neglect."

29. There is certainly an issue as to whether such clause should be held unreasonable under the provisions of the Control of Exemption Clause Ordinance, Cap. 71. In the absence of full legal argument presented on both sides, I am rather reluctant to express my final view on such issue. As the result of the present action does not depend on the determination of such matter, I decide to leave the same for further argument in the future.

Acquiescence and waiver

30. According to the said Mr. Leung, the Plaintiff only inquired once about the non-receipt of monthly statement in December 1999. Upon the said inquiry, Mr. Leung asked the Plaintiff to notify the Defendant if he still could not receive any statements after a while. However, the Plaintiff did not make any further inquiries or complaints until 11 April 2000. On the other hand, the Plaintiff testified in court that he had altogether made 6 complaints to Mr. Leung, but each time Mr. Leung just asked him to wait. He actually wrote down the dates of such complaints on a piece of bank pay-in slip.

31. As I have mentioned above, I do not accept the Plaintiff to be a truthful witness and so I reject his evidence in this regard. Indeed, there are also a number of other reasons why I should prefer the evidence of Mr. Leung. Firstly, if the Plaintiff had indeed made a total of 6 complaints, there was simply no reason why Mr. Leung or the Defendant would not have paid due attention to these complaints. In particular, it is clear from the evidence that when the Plaintiff lodged his complaint with the said Ms. Leung on 11 April 2000, the matter was handled promptly and the Defendant had not made any attempt to hide the mistake of its staff relating to the Plaintiff's address. Secondly, the statement records show that the Plaintiff had been investing and trading securities actively and without any problems between December 1999 to April 2000 even though he had not received those statements. Under such circumstances, the Plaintiff should have had knowledge of the quantity of stocks in his account, and this was quite inconsistent with the fact that he had made a lot of complaints about the non-receipt of monthly statements during this period of time. Thirdly, two of the dates written on the pay-in slip were actually Sundays, which were not normal business days. Although the Plaintiff explained that he might have put down the dates 2 or 3 days after the making of the complaints, this certainly casts doubt on the creditability of his evidence.

32. After Mr. Leung had asked the Plaintiff to notify him in the case that the latter still did not receive any statements after a while, the Plaintiff did nothing until April 2000. In such circumstances, the Plaintiff's conduct had the effect of representing to the Defendant that the Plaintiff had received the statements. Obviously, the Defendant had relied on such representation in not taking any further action, and this amounts to operative acquiescence and waiver, and the Defendant should therefore not be held liable for the Plaintiff's claim.

Conclusion

33. By reason of the aforesaid analysis, there are a number of reasons why the Plaintiff cannot succeed in the present case. According to my observation, the Plaintiff, or at least "his friend" who assisted him with the trading of stocks, is not an inexperienced investor. They were aware of the allotment of the Warrant Shares, and so they knew when to buy and when to sell the Hwa Kay Thai shares. The Plaintiff only wanted to take advantage of the mistake made by the Defendant's staff in respect of his address, or at least he might have been so advised by "his friend". Hence in my judgement, his claim is totally groundless.

34. Based on the aforesaid, I dismiss the Plaintiff's claim. I also make an order nisi that the costs of this action be to the Defendant with certificate for counsel. The order nisi is to be made absolute after the expiration of 14 days from the date of the handing down of this judgment.