MANSION HOUSE SECURITIES LTD. AND ANOTHER v. CHEN YIK YEN

Agency - authority of Bank to settle customers securities dealings on stock exchange with broker - actual and apparent or ostensible authority of agent - broker's right of action against customer for wrongful acts on part of agent - broker's powers where customer in default to broker in supplying scrip for shares sold and monies for shares purchased - whether broker negligent in not selling unpaid for shares purchased on falling market forthwith upon default - Held: 1. Bank's actions within actual authority as agent and customer liable for wrongful acts of Bank; 2. Due to Bank's actions broker has good cause of action direct against customer; 3. On the facts broker's delay in realising unpaid for shares reasonable; 4. Judgment for broker for $1,264.282.96; customer's counterclaim dismissed.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

H.C. Action No.6525 of 1984

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JUDGMENT

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1. In what circumstances and to what extent is a bank the agent of a customer? The answer to that question invariably depends on the facts. The facts which give rise to that primary issue in the present action, occurred during 1984 when the defendant was a customer of the 1st plaintiff ('Mansion House') which is a securities broker dealing in stocks and shares through the Hong Kong stock exchanges. He was also a customer of the 2nd plaintiff ('Bullion Company) who are bullion brokers and members of the Chinese Gold and Silver Exchange Society. In relation to certain dealings carried out by Mansion House and the Bullion Company on those exchanges, on behalf of the defendant, they claim he is indebted to them in the total sum of $1,264,282.96 together with interest at 4% over the Hong Kong prime rate from 5th September 1984 to the date of payment.

2. The defendant, who was also a customer of the Hong Kong and Shanghai Banking Corporation ('Bank'), had on 1st March 1984 been referred by Mr. W.E.F. Simpson, the Manager of the Holland House Branch of the Bank, to the plaintiffs. At that date Mansion House was but no longer is a member of the Hong Kong Bank Group. The defendant at that time enjoyed overdraft facilities of $1,500,000 from the Bank secured on shares in which he was a relatively substantial dealer. Until May 1984 the settlement of dealings in relation to shares which were not secured to the Bank, was effected directly between the Mansion House and the defendant. Mansion House at that stage also accepted personal cheques from the defendant in settlement of shares he had purchased.

3. The evidence of Miss Irene So, an Executive Director of Mansion House was that towards the end of May 1984 she informed the defendant that from 1st June 1984 Mansion House would require him to settle transactions either by cashier's order or through his Bank at the Holland House Branch. According to her the defendant informed her that he preferred settlement through his Bank and further instructions were accepted from him on that basis. This meant that where shares were purchased Mansion House would exchange with officers of the Bank the new share scrip for payment and in the reverse situation, when shares were sold, Mansion House would exchange their cheque for the share scrip of the sold shares upon the scrip being tendered to it by the Bank.

4. The defendant vigorously disputed that he agreed to this alleged new arrangement. But there is substantial agreement that the present proceedings are the culmination fo an unusual and certainly an unfortunate mistake by the Bank in lodging to the credit of the defendant on 7th July 1984 six cheques received from Mansion House for sums totalling $1,363,084.20. Earlier on 5th or 6th June 1984 the defendant had instructed Mansion House to sell 16,800 shares in Jardine Matheson Ltd., 6,100 shares in Hang Seng Bank Ltd., 70,000 shares in China Light & Power Ltd. and 47,400 warrants in Hutchison Whampoa Ltd. These securities were sold and the cheques for $1,363,084.20 issued on 7th June 1984 by mansion House represented the net proceeds available to the defendant in exchange for the scrip.

5. The evidence adduced by Mansion House was that on the morning of 7th June 1984 Mr. Simpson from the Bank phoned the Settlement Department of Mansion House enquiring whether there were any settlements to be effected that day in relation to the defendant's dealings on the stock exchange the previous day. Mr. Simpson was informed that there were and told that a messenger would later that morning attend at his office with cheques for the net proceeds in exchange for the appropriate scrip. I was informed that all settlements by Mansion House were on a "delivery against payment" basis and that its cheques would not be delivered to the selling customer or his Bank, unless they were contemporaneously exchanged for the scrip they represented. Although I was later informed that until this particular transaction it was not uncommon where scrip was not immediately available for cheques to be left with a Bank pending the customer making the scrip available.

6. However, when that occurred it was strictly on the condition that the particular Bank would merely hold and not present the cheques for payment until the scrip were available. When Mansion House's messenger attended on Mr. Simpson on the morning of 7th June 1984, the shares sold were not available. Mr. Simpson telephoned Mr. D. Luk, the then General Manager - Administration of Mansion House, informing him that the scrip were not available and suggested that isntead of returning the cheques he would hold them unbanked until he made enquiries about the scrip. Mr. Luk, who gave evidence, stated he agreed to the cheques being retained on that condition. At that stage the defendant's overdraft amounted to $1,019,394.28. Although a few days earlier it had risen to $3,703,109.28 under what the defendant alleged was a temporary arrangement for which Mr. Simpson had obtained approval from the Central Office of the Bank.

7. Later on 7th June 1984 when the scrip were still not available the Bank lodged the six cheques to the credit of the defendant's account which produced a credit balance of $343,689.92. What happened subsequently is hotly disputed by the parties except on the one matter which has in reality led to the present proceedings. Mansion House and the defendant are in complete agreement that the Bank was never authorised to present those cheques. Mansion House maintains that as the Bank was never able to produce and exchange the scrip for the cheques, the condition on which the Bank held the cheques was never satistified. Accordingly the Bank was not authorised by Mansion House to lodge the cheques. The defendant asserts that he never authorised settlement to be effected through the Bank and therefore Mansion House were not authorised to pay the cheques to the Bank. In other words, he maintains the cheques were not accepted by the Bank as his agent. He points to the close relationship between the Bank and Mansion House as further evidence negativing agency.

8. A number of steps were taken by the parties and the Bank to rectify the position which the Bank's mistake had created. Both Mansion House and the defendant orally and in writing immediately requested the Bank to reverse the lodgment. The defendant stated that Mr. Simpson's first oral reply was to wait until the cheques were presented for clearing as Mansion House would probably by then stop payment. If that had happened that would have been one method of rectification. But payment was not stopped. Mr. Simpson gave a written reply to Mansion House's request by letter on 13th June 1984, when he stated that he had not received the original of the letter from the defendant requesting that the entries be reversed and concluded with the sentence "Our investigations concerning this account are still pending and we shall revert upon satisfactory completion." Two other background factors also occurred on 7th June 1984. The first was that according to the Bank's own records they obtained a special clearance of the mistakenly banked cheques. The second was that according to the  defendant on that same day his draft limit of $1,500,000 was cancelled.

9. The cancellation of the overdraft limit was fatal to alternative steps taken by Mansion House instead of simply stopping its own cheques. What happened was that at a meeting between Miss So of Mansion House and the defendant he signed a cheque drawn on his account at the Holland House Branch of the Bank in favour of Mansion House but with the amount left blank. According to Miss So the defendant accepted her suggestion that he should hand to Mansion House a cheque for the same total amount as the six cheques which, on being negotiated, would offset the total of the six cheques from Mansion House banked into his account by mistake. Miss So stated that the reason why the amount was left blank was that when the messenger had called at the Bank to uplift the scrip in exchange for the 6 cheques he was given scrip for 7,200 shares in The Hong Kong Telephone Co. Ltd. which, of course, were not the subject of those 6 transactions. These Hong Kong Telephone Co. Ltd. shares were sold on the instructions of the defendant on 7th June 1984. Miss So stated that when the defendant signed the blank cheque, her staff had yet to ascertain the precise net proceeds from the sale that day of The Hong Kong Telephone Co. Ltd. shares which required to be deducted from the total of the other 6 cheques. Miss So's evidence was that the defendant was in a hurry and was unable to wait until that net amount was available and the deduction calculation completed.

10. The defendant agreed that he signed a blank cheque but according to him it was tendered for two separate purposes. First, to provide Mansion House with security and to maintain its books in order overnight, pending the resolution the next day of the difficulty caused by the mistaken banking. Secondly, once the wrong banking had been rectified, Mansion House had authority to complete the still blank cheque for the amount he owed in relation to 150,000 shares in Hong Kong Land purchased on 8th June 1984. There was also another dispute over the blank cheque. Miss So stated the defendant called and signed the cheque during the afternoon of 7th June 1984. The defendant asserted that he signed it at a meeting on 9th June 1984. In any event it is undisputed that late on the afternoon of 7th June 1984, after deducting the net proceeds from the sale of The Hong Kong Telephone Co. Ltd. shares of $310,692, from the $1,363,084.20 mistakenly banked, Miss So filled in the blank cheque for the balance of $1,052,392.20 and banked it into Mansion House's account at the Bank. The banking was able to be made as late as 5 p.m. under a special arrangement Mansion House had with the Bank to lodge cheques after normal banking hours. I would record that apart from Mansion House being a member of the Hong Kong Bank Group sharing common directors, there was also a direct telephone line between Mansion House, the Holland House and all other branches of the Bank.

11. The presentation of the now filled in former blank cheque led to a number of important consequences. At the close of business oh 7th June 1984, if the defendant's cheque had been cleared, his account would have been $1,519,134.28 overdrawn which would have been just above his earlier limit. On the morning of 8th June 1984, the defendant lodged two cheques from Jardine Fleming Ltd. totalling $895,019.25, to the credit of his account which would have reduced it below that limit. However, later on 8th June 1984 the defendant's cheque for $1,052,392.20 was dishonoured by the Bank on the ground that payment had been stopped by the defendant. The defendant denied that he ever gave instructions for the cheque to be stopped. Whatever the authority the cheque was clearly stopped on that ground and the reversal on 8th June 1984 of that debit put the account in credit in the sum of $329,895.17.

12. On 9th June 1984 the defendant and Mr. Luk attended on Mr. Simpson at the Bank in a further attempt to resolve the problems which had arisen. Mr. Luk asked for payment in full for the 6 cheques mistakenly presented by the Bank. The defendant's overdraft limit of $1,500,000 having been cancelled on 7th June 1984, he was unable to make payment from his account at the Bank. Before that meeting ended a further complication arose. Mr. Simpson made arrangements to lodge to the credit of Mansion House the remaining credit of $329,895.17 standing in the defendant's account. Both Mr. Luk and the defendant are agreed that the defendant neither signed a cheque or any other written authority for that lodgment. From the documents it is clear that a direct transfer was made from the defendant's account at the Bank to the account of Mansion House at the same Bank. Mr. Luk stated that Mr. Simpson told them he proposed to make such a direct transfer and no objection was made by the defendant. The defendant denies that he was told.

13. This credit reduced the indebtedness of the defendant to Mansion House on share tradings to $972,774.24. The plaintiffs further claim that the defendant was indebted to the Bullion Company under the bullion account in the sum of $291,508.72. The total of this twofold indebtedness makes up the $1,264,282.96 claimed in the present action.

14. One of the evidential difficulties in the present case is that neither Mr. Simpson or any other officer of the Bank gave evidence nor, of course, is the Bank a party. However, from the common evidence of the witnesses for both partiss and the agreed documents, the position is tolerably clear. Although I appreciate that the Bank may have other explanations which might conflict with the evidence I have heard. What is clearly established is that once the 6 cheques were mistakenly presented, there were a number of meetings between the parties and the Bank in an attempt to rectify matters.

15. A meeting of all these parties was held on 9th June 1984 attended by, among others, Miss So, Mr. Luk, the defendant, Mr. Simpson, his superior Mr. T.J. Henderson then District Manager Central of the Bank and Mr. K.W.K. Wong, Mr. Wong was also a bank officer and his presence arose from the fact that Mr. Simpson went overseas on leave immediately after this meeting and in his absence Mr. Wong became Acting Manager of the Holland House Branch. At this meeting the defendant was reminded that one solution to the problem would be if he produced the scrip for the sales represented by the 6 cheques. He declined to do so until the cheques were reversed but mentioned that while the China Light and Power Ltd. shares were held by Jardine Fleming Ltd., the Bank held the remaining shares. At Mr. Henderson's request the meeting adjourned so that a thorough investigation could be made into the Bank's records of the defendant's shares. Other proposals were that the Bank would grant a new overdraft sufficient to meet the amount of the stopped cheque upon the defendant granting the Bank a mortgage of his residential flat. These initial. discussions were all carried out orally. However, on 28th June 1984 the Bank for the first time in writing informed the defendant that it declined to reserse the cheque entries but that it would do so upon satisfactory security being provided. The Bank's letter concluded:

"We believe that through our co-operation the matter can be resolved soon."

On 10th July 1984 the Bank wrote to Mansion House informing it that the defendant was arranging a mortgage and upon a valuation being completed the Bank:

"...would grant him the loan after all legal procedures and documents are set up."

No doubt these joint efforts to remedy the situation, in which the Bank was participating, were a factor in causing Mansion House and the Bullion Company to defer immediately exercising their contractual penal powers, under the agreements entered into by the defendant when he commenced trading, to close the outstanding accounts of the defendant in their books.

16. In the event no mortgage was executed or any new overdraft granted by the Bank to enable the defendant to meet his indebtedness to Mansion House and the Bullion Company by recourse to his account at the Bank. As a consequence, Mansion House was faced with having to obtain scrip for the shares represented by the 6 cheques and to obtain payment for the Hong Kong Land shares purchased on 8th June 1984. In relation to the first of these matters Mansion House obtained instructions from the defendant on 22nd June 1984 to buy back on the market 16,800 shares in Jardine Matheson Ltd., 6,100 shares in Hang Seng Bank Ltd., 70,000 shares in China Light & Power Ltd. and 47,500 warrants in Hutchison Whampoa Ltd. Under the stock exchanges rules Mansion House as broker was obliged to effect payment or provide scrip within 24 hours of any dealings on the exchange and as broker had earlier been obliged to meet the obligation of the defendant as principal, to supply those scrip to the purchaser. The defendant, in turn, remained liable to put his broker in possession of the equivalent amount of scrip. These oral instructions of the defendant to Mansion House were confirmed in writing by letter which was produced in evidence.

17. Turning to the Hong Kong Land shares, the defendant on 8th June 1984 paid $98,382 to Mansion House in full settlement of 32,000 shares which had been purchased that morning. Payment for the balance of 150,000 shares, purchased in the afternoon for $471,345, remained outstanding. These shares were sold on 25th July 1984 yielding $301,319.20 leaving on this transaction a net indebtedness of $170,025.80. To close the bullion account, the Bullion Company sold a remaining 100 taels of gold on 9th July 1984 and 10,000 ounces of silver on 11th July 1984 resulting in the bullion account showing a loss of the $291,508.72 which is also included in the present claim.

18. Lengthy, complex and often contradictory evidence was adduced by the parties. Whether Mansion House has established that payment of the 6 cheques totalling $1,363,084.20 was made to the defendant depends on the narrow issue, did the Bank receive payment as agent of the defendant? The evidence of Miss So for Mansion House was that when she informed the defendant of his option to settle personally by cashier's cheque or for settlement to be effected by the Bank on his behalf he gave instructions that settlement was to be made at the Bank. If those instructions were given then I would have no difficulty in finding that the Bank acted as the defendant's agent on settlement. In that event it would matter not, as between Mansion House and the defendant, that the Bank as the latter's agent mistakenly presented the cheques. The defendant would be liable. The position would have been no different to that which would have arisen had Mansion House settled direct with the defendant personally and conditionally handed him the cheques but he thereafter presented the cheques without producing the scrip. In either event Mansion House would have a good cause of action against the defendant.

19. The new alleged settlement procedure was not recorded in writing and any finding largely depends on credibility. I have had the advantage of observing both Miss So and the defendant giving evidence for long periods when they were subject to lengthy cross-examination. In support of a finding on credibility in favour of Miss So on the settlement procedure I was referred to three previous occasions when it was alleged that settlement was effected by Mansion House at the Holland House Branch of the Bank when the Bank acted as the defendant's agent. The first transaction was on 1st June 1984 when 780,000 shares and 40,000 warrants in two companies were sold. The second was oh 5th June 1984 when a further 62,000 warrants and 152,000 shares in four other companies were sold. The third transaction was on 6th June 1984 when 21,000 warrants and 102,300 shares in two other companies were sold.

20. The defendant accepted that these transaction occurred but strongly disputed the method of settlement. First, he denied that Miss So had indicated late in May the new alternative method of settlement and further denied he agreed to or authorised any settlement procedure whereby the Bank was to act as his agent. Secondly, in relation to the three settlements on 1st, 5th and 6th June he disputed that settlement had been effected by the Bank on his behalf. The defendant stated that on each of those three occasions a different and earlier established procedure was followed. This involved the defendant in each case visiting Mansion House shortly after 9 a.m. and by arrangement with Miss So's secretary, a clerk from Mansion House accompanied him to the lobby of the Holland House Branch of the Bank. According to the defendant the Bank physically held possession of scrip owned by him in two different circumstances. Some was held as security for his overdraft. These shares were held at the Security Department of the Bank at a nearby but different location. When any of those shares were sold they were usually sold by the Bank direct without the defendant personally being involved with the proceeds being lodged by the Bank direct to his account. Exceptionally, the defendant would attend on the Security Department and personally uplift some of the secured shares for subsequent dealing if the remaining secured shares were then considered by the Bank to be sufficient to secure the overdraft.

21. In addition to the secured shares, the defendant stated that he owned other shares some of which were held not by way of security but out of courtesy by the Bank in a safe in the Manager's office occupied by Mr. Simpson. The defendant, who is a medical practitioner, at that period was in charge of a clinic also situate in Holland House and he stated that it was convenient for these remaining unsecured shares to be held by the Bank on that basis. The defendant intimated that as these shares were unsecured he could deal with them without reference to the Bank. The shares dealt with on all those three prior occasions, he continued, were among those unsecured shares held by the Bank under this courtesy arrangement. The defendant stated that on those occasions on reaching the Bank lobby with the clerk from Mansion House he would request delivery of the shares from the Manager's office and then personally settle with the clerk in the lobby by exchanging the scrip for the Mansion House cheques. He would then himself lodge the cheques to the credit of his account at the Bank and return to his clinic upstairs before 10 a.m. when it opened to receive patients. So in summary the defendant's evidence was that those three transactions were settled at the Bank's premsies, not by the Bank as his agent, but by him personally. If that is what occurred then obviously the Bank was not involved in the settlements and they were conducted direct by the defendant with Mansion House.

22. I accept that it was undisputed that the defendant visited Mansion House nearly daily during this period and that his clinic was also in Holland House where the Branch of the Bank which held his account was situated. Those two factors may tend to make more credible what would otherwise by itself be a remarkable explanation. I have taken both factors fully into account in his favour. Having done so I still have no difficulty in rejecting his explanation. Where the evidence of the defendant conflicts with Miss So's I prefer the evidence of Miss So. When I review the whole of the evidence on that basis I am satisfied on the balance of probabilities that the defendant authorised Mansion House to conduct settlements of share dealings from 1st June 1984 with the Holland House Branch of the Bank as his agent.

23. I am further satisfied that when Mansion House elected to conditionally leave the 6 cheques the Bank conditionally accepted them on that basis, as agent for the defendant. I record that at no stage after informing Mansion House that the Bank would generally act as his agent on future settlements did the defendant before the 6 cheques were received give notice to Mansion House that the authoirty was withdrawn. I am satisfied that the cheques were received by the Bank within its actual authority as agent of the defendant. As a matter of law it would have been sufficient if the cheques were received within the Bank's apparent or ostensible authority. I would record that even if the cheques had not been received within the Bank's actual authority, they would certainly have been received within its apparent or ostensible authority.

24. The defendant duly received on 7th June 1984 the sum of $1,363,084.20 for the sale of shares but failed to tender in exchange the scrip for those shares. I further find that Mansion House were therefore entitled, pursuant to the Customer Trading Agreement entered into with the defendant on 1st March 1984, to purchase equivalent replacement shares in the market which it did on 25th June 1984 at a cost of $1,426,877.80. In terms of the Customer Trading Agreement, Mansion House is entitled to recover the net cost of the replacement transaction plus the net loss on the resale of the unpaid for 150,000 shares in Hong Kong Land. I find that the total sum payable together with interest under the agreement after allowance is made for the net proceeds of the sale of the Hong Kong Telephone Co. Ltd. shares and the direct transfer of $329,895.17, amounts to $972,774.24.

25. Moving on to the defendant's bullion trading I confirm that the second part of the claim alleges that the defendant is indebted to the Bullion Company in the sum of $291,508.71. Miss So stated that when the defendant first visited her on 1st March 1984 that in addition to new Account Questionnaire and the Customer Trading Agreement for securities executed with Mansion House he also signed an acknowledgement in relation to bullion trading addressed to the Bullion Company and was handed a copy of a document 'Standard Terms and Conditions of Bullion Trading'. The Acknowledgement was dated 1st March 1984 and witnessed by Miss So. In addition to agreeing to be bound by the Standard Terms and Conditions of Bullion Trading, the acknowledgement also recorded the following acknowledgement by the defendant:

"I/We understand that metal trading involves a speculative activity in fast moving, high leveraged markets where prices are subject to sharp fluctuations which may result in a severe loss of my/our capital and I/we are willing and able to assume the financial risks and other hazards of metal trading."

26. The defendant agreed that he received and signed on 1st March 1984 the Questionnaire, Customer Trading Agreement and Acknowledgement but denied that he was handed the Standard Terms and Conditions of Bullion Trading. Miss So stated she did hand that latter document to him and I accept her evidence. Mansion House and the Bullion Company shared the same offices. The defendant stated that Miss So told him that for bullion dealings he was required to put up margins of $15,000 for each 100 taels of gold and $15,000 for each 5000 ounces of silver. He authorised $45,000, from his original deposit of $530,000 with Mansion House, to be provided for these margins. He stated that he told Miss So $45,000 was the maximum sum he was willing to lose on bullion trading and when that limit was reached his positions were to be closed.

27. In fact 200 taels of gold were purchased on 2nd March 1984 and sold on 8th March at a profit of $600 but before substantial service charges were debited. On 2nd March 1984 a further 100 taels of gold were purchased which were sold by the Bullion Company under its penal powers on 9th July at a loss of $45,300. After service charges were deducted the net indebtedness on gold dealings was $60,631. The two lots of silver of 5000 ounces each were sold, again under the Bullion Company's penal powers, on 11th July 1984 for losses amounting to $230,877.72. These two sums make up the total bullion losses of $291,508.72 being the balance of the plaintiffs claim.

28. The defendant stated that until the end of June 1984 the monthly bullion statements he received all indicated that his gold and silver accounts were in credit. Further that he was not asked for additional margin to meet any market fall in prices. The first request for additional funds was made after the bullion was realised. Miss So stated that on several occasions, well before June, she pressed for larger margin deposits but the defendant consistently delayed payment. However, she agreed that the monthly gold accounts prior to realisation showed them to be in credit but explained that those particular accounts merely showed the paper position. Only when a position was clsoed upon a dealing would it be known whether there was a profit or loss on that dealing. Further, the gold and silver accounts were required to be kept in credit. Whenever a net loss arose it was necessary to transfer funds, from the defendant's current account with Mansion House, to preserve the credit position. If at any time the overall position of the defendant's trading were to be considered, it would be necessary to look at the current account and also the market value of gold and silver purchased but not yet resold.

29. The defendant claimed he was unaware of these procedures and it was only shortly before the final sales of bullion that he discovered to his surprise that he been trading at a substantial net loss. The defendant stated that the Bullion Company failed to exercise proper care and skill in handling his bullion portfolio and without his knowledge sold the bullion during adverse market conditions. I am satisfied that the Bullion Company fully explained the substantial risks involved in bullion trading. The defendant is a medical practitioner. He is not only a man of intelligence but was experienced in securities trading. Apart from the dealings relevant to the present action I was referred to two other High Court actions namely No.6922/81 and 7666/81 which showed that earlier he also had substantial securities dealings with other brokers. In relation to the present bullion transactions, he was constantly in communication with Mansion House and the Bullion Company, in respect of gold and silver prices. I am not only satisfied that the defendant understood and accepted the risks of bullion trading but also well knew that the credits appearing in those statements were subject to the purchase price paid for bullion not being realised on sale and that deficiencies were met by transfers from his current account. I hold that the Bullion Company has established that it is owed $291,508.72.

30. Finally, I turn to consider the defendant's counterclaim. The defendant claims that due to the failure of the plaintiffs to exercise due care and skill he has suffered loss. In relation to securities and bullion he pleads that he was deprived of the opportunity of dealing with those investments in favourable market conditions. Further he claims that due to the wrongful acts of the plaintiffs he is entitled to the return of the $45,000 margin deposit in relation to his bullion trading. The defendant's evidence was that he told Miss So on 18th June 1984 to close all his securities and bullion positions. Miss So's evidence was that on 22nd June 1984 he gave instructions only to buy back in the market sufficient shares to discharge his obligation to furnish shares in exchange for the 6 cheques. I accept her evidence.

31. In relation to securities the defendant's principal complaint was that he was throughout willing to pay for the 150,000 Hong Kong Land Ltd. shares purchased on 8th June 1984. The charts produced, showing the comparative weekly and monthly highs and lows of Hong Kong Land Ltd. shares from 1981 to 1985, graphically demonstrate the spectacular fall of the shares from over $12 per share late in 1981 down to a low of $1.96 in July 1984 and recovery to $6.75 during 1985. The defendant purchased the shares on 8th June 1984 at about $3.15. They were sold on 25th July 1980 at $2.05. On 18th June 1984 they were selling at nearly $3. On 22nd June 1984 there were still sales at $2.80. Counsel for the defendant submitted that the fall of 0.975 per share from 18th June to 25th July 1984 represented a loss of $146,250. Rounding up that figure damages under this head of $150,000 were claimed. In relation to bullion losses, it was submitted that the defendant had presumed that all his positions were closed by 22nd June 1984 but only discovered in a solicitors demand letter dated 4th August 1984 that it was not until 11th July 1984 that those positions were closed. During that period bullion prices had fallen. The alleged joint negligence of the plaintiffs, it was further submitted, entitled him to the return of his original margin.

32. The liability of a stock broker was always liable to exist in contract but it is now well established that he also owes a duty in tort to his customer. The broker is liable if he fails to use the due care and skill which a reasonably competent and careful broker would exercise. Where negligence is established, I was referred by Counsel for the defendant, on quantum to 'McGregor on Damages' (14th Edn.) 579 and to Stewart v. Gauty (1841) 8 M. & W. 160.

33. There is no doubt that the Hong Kong Land Ltd. shares were sold at a time and at a price very near the lowest point they have reached in recent years. The issue is whether Mansion House in selling those shares at that time failed to exercise due care and skill. I accept Miss So's evidence that the defendant failed to pay for the Hong Kong Land Ltd. shares in terms of the Customer Trading Agreement and that under Clause 4 Mansion House were entitled to sell the shares. The purchase of the Hong Kong Land Ltd. shares and the defendant's default in making payment coincided with the crisis created by the mistaken banking by the defendant's agent, the Bank, of cheques drawn by Mansion House, to which the defendant was not entitled. The period between the date of purchase on 8th June 1984 and the date of resale on 25th July 1984, while long, cannot be considered in isolation. The inability of the defendant to meet his indebtedness to Mansion House during that period is established. If the proposals to rectify the indebtedness due to the mistakenly banked cheques were implemented that would have improved the defendant's overall liquidity position. Those negotiations took time. On l0th July 1984 the Bank was still writing to Mansion House advising that a loan would be granted to the defendant after his residential property was valued.

34. I accept that the falling market for Hong Kong Land Ltd. shares, which existed on 8th June, 1984, continued to fall for the remainder of June and into July. During this period Miss So and the defendant were in regular communication. Mansion House under its default powers did not have to refer the sale of shares to the defendant but continued to consult him. Indeed, the shares were only sold on 25th July 1984 after he was again consulted when he requested that they only be sold at a price in excess of $2. A price of $2.05 was obtained. I would record that if Mansion House were negligent in not selling the shares within a reasonable time after 8th June 1984 and that time expired before 25th July 1984, the mere fact of consulting with the defendant and obtaining his approval to the subsequent sale would not necessarily cure any prior negligence. However, the continual communication between the parties is evidence of the concern of Mansion House to obtain payment and, if not, of the necessity to sell the shares.

35. At the trial all parties had the advantage of hindsight. On the evidence now available after the event, it is abundantly clear that if the shares had been resold earlier, the losses would have been smaller. Equally, if they had been held a little longer and sold in August, when the market staged a recovery, the losses may have been very much smaller. However, the conduct of Mansion House must be considered in the light of the circumstances known to exist between 8th June 1984 and 25th July 1984. The relevant circumstances included not merely the falling market but the defaulting position and financial circumstances of the defendant, known to Mansion House.

36. When all those factors are considered in their totality, I am not satisfied that Mansion House failed to exercise due care and skill in relation to the dealings in securities. After considering the conduct of both Mansion House and the Bullion Company in relation to the gold and silver dealings I also conclude that the defendant has not established that the plaintiffs failed to exercise due care and skill. On those findings the defendant is also not entitled to the return of the $45,000 sought in the counterclaim. For all these reasons the counterclaim is dismissed.

37. There will therefore be judgment for the plaintiffs in the sum of $1,264,282.96 as claimed. I will hear Counsel further on the rate of interest and costs.