CHAN WILLIAM v. VICTORY SECURITIES CO. LTD.

HCA 4647/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4647 OF 1999

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J U D G M E N T

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INTRODUCTION:

1. The plaintiff is a retired merchant. He started trading in shares in 1969/1970 through a Mr Cheung of the defendant securities company. When the business of the defendant company was taken over by the Kou's family in 1970, he started trading through Mr Kou. In 1992/1993, he sold all his shares and operated his factory. In 1995, he ceased operating his factory and resumed speculating in shares. In July 1996, he opened a cash trading account with the defendant company and started trading regularly through Mr Kou of the Kowloon branch of the defendant company. By August 1997 he had about $10 million worth of shares in his account with the defendant company.

2. The defendant company was managed by Mr Kou's daughter, Ms Kou who is in charge of the head office, while Mr Kou, the father operated from the Kowloon office. Mrs Kou, who is the wife of Mr Kou's nephew, is the settlement clerk in the Kowloon office.

3. At the material time in August 1997, the defendant had one computer terminal in the Hong Kong office connected to the Stock Exchange, through which sales and purchases were made. Orders from the Kowloon office were passed onto a dealer in the Hong Kong office for execution. The plaintiff used to place orders directly with Mr Kou in person or by phone. Mr Kou would note down his order in his order book, Exhibit D-2. When an order has been executed, Mr Kou would inform his client and place a tick against the appropriate entry in his order book. At the end of the trading day, the trading record would be printed out from the computer connected to the Stock Exchange. The defendant's staff would verify the orders against that trading record.

4. Settlement would take place on the second trading day after the transaction day. A client who has purchased shares would attend the defendant's office and settle by making payment. Mrs Kou would issue a sold note to the client containing particulars of the shares bought, the unit price, brokerage, stamp duty and the total amount to be paid. She would also issue an acknowledgement of receipt of securities (hereinafter called "AOR") containing the description of the shares bought and the quantity. The shares would not change hand physically but would be held in the defendant's account with the Stock Exchange of Hong Kong under the Central Clearing and Share System known as "CCASS".

5. If a client has sold shares, he would attend the defendant's company on settlement day and surrender his AORs for the appropriate amount of shares in settlement. If the shares represented by the AOR or AORs are more than the number of shares sold, Mrs Kou would make hand written amendments on the AOR showing the balance still available after deduction and return the amended AOR to the client.

6. All went well until September 1997 (or mid August, according to the plaintiff) when plaintiff had a dispute about settlement with Mrs Kou. The plaintiff's case is that as a result of the dispute, he told Mr and Mrs Kou to check the balance of the shares in his account and to sell all his shares; but the defendant ignored his instruction and he was prevented from selling as he had never been given any monthly statement and had no idea the quantity of shares he had. It was only until 31 December 1997 when he was given his monthly statement for the first time. After that he transferred all his shares to Cargary Securities Limited.

7. The plaintiff then lodged a complaint with the Stock Exchange of Hong Kong, but no action was taken against the defendant after the conclusion of the inquiry by the Stock Exchange. However, in the course of their inquiry, the Stock Exchange discovered that a sum of $8,033.50 had been withdrawn from the plaintiff's account. The plaintiff then complained to the police in relation to this withdrawal. After the police investigation, nobody was prosecuted. In mid August 1998, the plaintiff and Mr Kou had a meeting in Tang's Restaurant in Metropole Hotel with a view to settle their dispute. Unknown to Mr Kou, the meeting had been recorded by the plaintiff.

8. In March 1999, the plaintiff filed an action claiming for the $8,033.50 withdrawn from his account and the difference in value of his shares between 19 August 1997 when he instructed the defendant to sell and 31 December 1997 when he was for the first time provided his monthly statement.

9. The dispute in this case is a factual one. The factual issues are whether the defendant had discharged its duty by providing monthly statements to the plaintiff, whether the plaintiff had given instruction to sell all his shares on 19 August 1997 and whether the defendant had unlawfully withdrawn the $8,033.50 from the plaintiff's account.

10. The plaintiff gave evidence while the three Kou's gave evidence for the defendant. The witness statements of two of the defendant's clerks are also admitted in evidence, but on the basis that their evidence is disputed. This case has to be resolved on the credibility of these six witnesses. At the end of the trial, after considering the totality of the evidence, in particular the contemporaneous documentary evidence, and for reasons as will become apparent in my analysis of the evidence, I find the Kou's are honest and credible witnesses and I accept their evidence. Mr Kou is an elderly gentleman of over 80 years of age. Despite his age he has good recollection. Sometimes, he went astray in his evidence, but when properly guided, he was able to give evidence in a forthcoming manner. Mrs Kou was unable to answer some queries about the monthly statements. However, that is understandable as she did not have first hand knowledge of those matters. That apart, her evidence is satisfactory. Ms Kou is a very impressive witness. She knows her business and the operation of the defendant company very well. Her answers in cross examination are direct and spontaneous. She was able to cover the inadequacies of the evidence of Mrs Kou. She is a convincing and credible witness. I also consider Mr Chow and Ms Ng, whose witness statements are tendered in evidence, as honest and credible witnesses. On the other hand, I find the plaintiff a very subjective and stubborn person who is unreceptive to reasons. He was dishonest in exaggerating his evidence. I reject his evidence. The present case is a misfortune of his own creation.

THE FACTS:

Monthly statements:

11. The plaintiff complains that he has never received any monthly statement since re-opening his account with the defendant in July 1996. He was only provided with bought notes, sold notes and AORs. It is the plaintiff's case that without the monthly statement he could not know the quantity of shares he had and that prevented him from giving specific orders to sell his shares as he did not wish to sell short which is an offence.

12. This allegation is denied by the defendant whose case is that monthly statements for each month are printed and sent as a matter of course to all its clients on the first working day of the following month. The monthly statements are printed in duplicates on pre-printed forms on which is a space for printing the account number, client's name and address. The top copy would be sent to the clients while the carbon copy would be given to the account executives concerned so as to keep them informed of their respective client's activities. Statements for clients of the Hong Kong office would be mailed by the Hong Kong office, while those for clients of the Kowloon office would be collected by Mrs Kou, who delivered documents to the Hong Kong office every day, and would then be taken to the Kowloon office for mailing. As the address given by the plaintiff in the account opening document is in Chinese, the address would be hand written by Mrs Kou or her colleagues when the statements were delivered to the Kowloon office and then sent by post. The defendant produced undelivered statements in respect of other clients returned through the mail as evidence of its system in printing and sending monthly statements.

13. Ms Kou produced the carbon copies of monthly statements, Exhibit D-1, sent to the plaintiff as evidence in support of the defendant's case that such statements had been printed and sent to the plaintiff. These copies were discovered by her when the Kowloon office moved in March/April 2000 from the 8th floor to its present location on the 3rd floor of the same building.

14. Mr Chong on behalf of the plaintiff disputes the authenticity of these copies and suggests that they were recent concoction produced only on the first day of trial. He also challenges the authenticity of these copies as Ms Kou has said in her evidence that the defendant does not keep hard copies of the statements. Ms Kou's explanation for the late production is that she had produced to the Stock Exchange the internal daily and monthly accounting statements in relation to the plaintiff's account which counsel assumed to be copies of monthly statements sent to the plaintiff. It was only during conference with counsel that the misunderstanding was discovered and hence she sought leave to produce the original carbon copies. As for Mr Chong's second attack, Ms Kou explained that the defendant company indeed did not keep carbon copies of the statements which were given to the account executives and the copies now retrieved had been kept by Mr Kou in his capacity as the plaintiff's account executive and not kept as such by the defendant company. I have no reason to doubt Mr Mayne's integrity and Ms Kou's explanation.

15. Mr Chong refers to the discrepancies in the closing prices of the shares as stated in the copy of statement given to the plaintiff by Mrs Kou allegedly on 31 December 1997 and that as stated in the carbon copy of the statement dated 31 December 1997 in Exhibit D-1. He submits that the discrepancies show that the carbon copies are recent concoction. Mrs Kou could not offer any explanation for the discrepancies. However, Ms Kou explained as follows. The monthly statements were not printed from the main computer as that would take hours. They were printed from a back up computer after downloading the information onto the back up computer. The closing prices were not available until very late at night and were not available at the time of printing. Thus while the balance as shown on the statement is in respect of the balance as at the close of the last trading day, the closing prices are those of the day before. The closing prices have no significance except for margin accounting purposes. Hence the closing prices as shown in Exhibit D-1 reflect the closing prices on 30 December 1997. On the other hand, the closing prices as shown in the plaintiff's copy reflect the closing prices on 31 December 1997. [It is convenient to note here that the plaintiff's copy must therefore have been obtained on or after 2 January 1998 and not on 31 December 1997 as he alleged.] I have compared the closing prices of Stock Codes 257 and 517 as shown on the various monthly statements in Exhibit D-1 with those published by the Stock Exchange of Hong Kong. Except for the statement dated 30 September 1997, the closing prices as published by the Stock Exchange support Ms Kou's account. The closing prices of the two stocks in the statement of that month were those of 26 and not 29 September, while 27 and 28 September were non-trading days. Because of the overall consistency throughout the months, I assume the single inconsistency shown in the statement of September was the result of delay in updating the closing prices by one trading day. I accept Ms Kou's explanation about the time lag in closing prices as shown on the statement and the record of the Stock Exchange, which makes sense and is supported by Stock Exchange closing prices.

16. In a separate context relating to the alleged appropriation by the defendant of a cheque for $8,033.50, Ms Kou has been searchingly cross examined by Mr Chong in respect of the carbon copies of the statements for July and August 1997. Mr Chong suggests that these statements are recent concoction because according to those statements the amount to be carried forward to August is not the same as the amount brought forward from July. Ms Kou explained that there was a major alteration in the computer system between July and August. Prior to the change, the settlement system operated separately from the main computer system, and settlement was done by calling the dealing sheet and checking the AORs. The old settlement system did not truly reflect the position as at the time of settlement. Hence the statement for July included payments which were not actually effected before settlement day. This explains the difference between the amount carried forward and brought forward. Under the new system effective after August, the two amounts are the same. Having checked the statements for September 1997 and thereafter, I find the amount brought forward and carried forward as shown on the statements are the same. It was zero. I did not lose sight of the fact that the plaintiff's dispute with the defendant started in mid August or September and thereafter he had few transactions through the defendant. Nevertheless I am satisfied with Ms Kou's explanation.

17. Further, according to Mrs Kou when the plaintiff complained in September 1997 that the defendant had misappropriated his 40,000 shares in Stock Code 517, she asked the plaintiff to check his monthly statement. The plaintiff did not complain that he had not received his monthly statement but responded that he could not read English and that he had AORs representing 40,000 shares more than what Mrs Kou said he had. This suggests that the plaintiff's complaint about not receiving the monthly statement is a recent concoction.

18. Having considered the totality of the evidence, I accept Ms and Mrs Kou's evidence that monthly statements have been sent to the plaintiff at his factory address and Exhibit D-1 are genuine carbon copies of those monthly statements.

The withdrawal of $8,033.50:

19. I shall begin with this claim which is a very simple claim. The plaintiff relies on the Stock Exchange inquiry which discovered from the documents and records supplied by the defendant the withdrawal of the above sum from the plaintiff's account.

20. The defence is also very straight forward. On 31 July 1997, the plaintiff telephoned Mr Kou and placed an order to purchase 200,000 shares in Stock Code 138 at $1.83 per share. The order was duly recorded in Mr Kou's order book and passed to his dealer, Mr Chow, in the Hong Kong office for execution. Mr Chow confirmed that the order had been executed and Mr Kou confirmed that with the plaintiff accordingly. Later that night at about 11:00 p.m., upon verifying the trading record from the computer print out, the defendant discovered that the purchase had not been effected. Mr Kou instructed Mr Chow to buy back 200,000 shares in Stock Code 138 at whatever price in the following morning to fulfil that order.

21. As soon as the market opened, at 10:00 a.m. on the following day, Mr Chow purchased a total of 340,000 shares in Stock Code 138 at $1.83 in three lots of 152,000, 50,000 and 138,000 shares. 200,000 shares were allocated to the plaintiff while the balance was for the defendant's other clients. Exactly 7 minutes later, however, another client, Mr Fung, successfully bought 200,000 shares of the same stock at $1.79.

22. Unfortunately, when the data were keyed into the computer by the defendant's staff, the two purchases were mixed up. That would result in Mr Fung having to pay for his shares at $1.83 each and in the plaintiff having to pay 4 cents less per share. The entries could not be reversed. The mistake could only be rectified manually outside the computer system. The defendant thus issued a cheque in the amount of $8,033.50 which represented the net difference between the two transactions inclusive of brokerage and stamp duty and debited the plaintiff's account. This cheque was made in the name of the plaintiff but was a bearer's cheque so that it could be cashed by anybody. A member of the defendant's staff, who has since resigned, was instructed to cash the cheque and deposit the money into Mr Fung's account to make good the overpayment by Mr Fung. Ms Kou explained that the purpose of issuing the bearer's cheque in the plaintiff's name is to make sure that the payment could be traceable into the plaintiff's account.

23. The defendant produced computer printouts of the transactions of 31 July and 1 August 1997 which show the purchase of the 340,000 shares at $1.83 at 10:00 a.m. and the 200,000 shares at $1,79 at 10:07 a.m. Mr Chong for the plaintiff disputed the admissibility of these printouts as well as other similar printouts in respect of other trading dates and submitted that these printouts could not be admitted as to the truth of their content. To that argument Mr Mayne readily conceded but submitted that those printouts could be admitted as original exhibits and invited me to draw inference as to the truth of their content. The printouts were generated from the computer connected to the Stock Exchange at the end of each trading day. They show the Broker Number, date and time of each transaction, the identity of the stock, the quantity, price, and the corresponding broker for the other party to the transaction. The data tied in well with the account of the defendant. Accepting the evidence of Ms Kou about the source of the printouts and the totality of the evidence, I have no difficulties in drawing as the only irresistible inference that the contents in the printouts are true, even in the absence of evidence from the maker of the printouts, i.e. the Stock Exchange of Hong Kong.

24. However, so far as this particular transaction is concerned, I do not even have to rely on the printout to reach my conclusion. Nor do I need to rely on the copy of monthly statement, Exhibit D-1, produced by the defendant. The plaintiff's account is a cash trading account and not a margin trading account. The amount due to the plaintiff from his sale of shares and the amount he has to pay for his purchases were settled in the normal course of events on settlement day two days after the day of the transaction. The plaintiff impressed me as an extremely cautious person. He wrote notes on the statement and used little stickers to write additional notes if necessary. Despite his complaint that he had never received monthly statements, he placed orders for sale and purchase of shares and proceeded to settlement. He had no complaint whatever about the money he had to pay or was entitled to receive on any settlement date. The inference to be drawn is that his dues and liabilities were properly settled on each settlement day; that is, he paid and received the correct amount in accordance with his purchases and sales. He does not dispute that he purchased 200,000 shares in Stock Code 138 at $1.83 per share. The total amount of that purchase was $367,537.10 as shown in the bought note dated 1 August 1997. He must have paid that amount in settlement and obtained his AOR for the shares. As he had no complaint about any shortage of payment due to him or overpayment in any of his settlements, the inference is that the amount of $8,033.50 debited from his account is an amount which should not have been in his account. Further, the bought note is a contemporaneous document recording a transaction date of 1 August 1997 and not 31 July 1997. This corroborates Mr Kou's evidence that the purchase was executed on the following day to cover the mistake on 31 July 1997.

25. The above account tallies with what is shown in the carbon copy of his statements for months of July and August 1997. Accepting Ms Kou's evidence that there were some aberrations between the opening and closing balances in the statements of July and August under the former settlement system, I start with the credit balance of $372,826.62 brought forward from July, which were the proceeds of sale of 72,000 shares in Stock Code 1138. The August statement shows that on 1 August an amount of $359,503.60 was debited from the plaintiff's account in respect of his purchase of 200,000 shares in Stock Code 138. It should be noted that that amount was in fact based on the purchase price of $1.79 per share and not $1.83 which the plaintiff had placed order for. Then on 5 August his account was debited an amount of $5,289.52, which the plaintiff has no complaint about. The irresistible inference is that this amount was paid over to him in settlement of the proceeds from his previous sale less the price for the purchase of Stock Code 138. This leaves a balance of $8,033.50, which was precisely the difference which the plaintiff should have paid because his purchase order was placed at $1.83 per share. From these entries, the only inference that could be drawn is that the plaintiff has been under-debited for $8,033.50, while another client, Mr Fung, who placed order for purchase at $1.79 has been over-debited for the same amount. The record of transaction as generated by the defendant's computer, though the truthfulness of which is disputed by the plaintiff, also corroborates the defendant's account. Again the inference to be drawn is that these records are true records.

26. In view of the above, I am driven to the conclusion that the amount of $8,033.50 was properly withdrawn from the plaintiff's account to make good an under-debit resulting from the defendant's mistake in mixing up the transaction of the plaintiff with that of Mr Fung. This claim must therefore be dismissed.

THE DISPUTE:

12 and 13 August 1997:

27. According to the plaintiff, his dispute with the defendant arose under the following circumstances. On 12 and 13 August 1997, he sold 88,000 and 32,000 shares in Stock Code 517 respectively, which would be due for settlement on 15 August. On 15 August, he sold another lot of 94,000 shares of the same stock, which would then be due for settlement on 19 August. He presented a number of AORs totalling 128,000 shares of that stock to Mrs Kou on 15 August in settlement of the 120,000 shares sold on 12 and 13 August. Under the normal practice, Mrs Kou would have accepted his AORs and returned one to him with an endorsement showing a balance of 8,000 shares. However, on that occasion, Mrs Kou said she was busy and asked him to come back for the amended AOR after close of trading. He left as he was told. But when he returned upon close of trading Mrs Kou told him that she had sent all his AORs to the Hong Kong office for accounting purpose and asked him to come back again the following day. He asked for a temporary receipt, but Mrs Kou refused.

28. All these events were denied by Mrs Kou who could only recall that the plaintiff did not settle the transactions made on 12 and 13 August on time. The plaintiff's allegation is incredible. Mrs Kou was responsible for settlement. All that involved was to check the sold note against the AORs and to endorse on one of the AORs with the quantity of shares on balance and to stamp it with the defendant's chop, an exercise that would take no more than a couple of minutes. There is no reason why Mrs Kou would not have performed those functions but ask the plaintiff to come again after the market closed. For reasons as I shall explain later, I accept Mrs Kou's evidence that the events as alleged by the plaintiff did not occur.

19 to 20 August 1997:

29. According to the plaintiff, on the following trading day, which was 19 August, the plaintiff went to the Kowloon office with AORs for 106,000 shares in Stock Code 517 to settle his sale of 94,000 shares made on 15 August. On the way, he telephoned Mr Kou through his mobile telephone and placed an order to sell 160,000 shares in Stock Code 517 and to buy 200,000 shares in Stock Code 257. However, when he reached the Kowloon office and asked about the AOR for the balance of the 8,000 shares in Stock Code 517 from his previous sale, Mrs Kou said she could not find the AOR. The plaintiff became very dissatisfied and refused to deliver his AORs for the completion of the sale of Stock Code 517 effected on 15 August. He accused Mrs Kou of "swallowing" his shares and demanded Mrs Kou to check the share balance in his account and to sell all his shares at market price immediately. Mrs Kou did not carry out his instruction and had a big quarrel with him. At the time Mr Kou was standing next to the door of his room and saw the quarrel. Mr Kou asked him to come again on the following day and said he would ask Mrs Kou to give him the AOR. The plaintiff left without surrendering his AORs for the sale of Stock Code 517 made on 15 August.

30. The plaintiff says on 20 August he chased Mrs Kou again for the AOR in respect of his 8,000 shares in Stock Code 517. Mrs Kou said he did not have such shares and his shares were gone. He became very angry and had another big quarrel with her. Then Mr Kou invited him into his room. He quarrelled with Mr Kou and said he would not settle his sale on 15 August as he was afraid that the defendant would not give him back the balance of his shares from the AORs he was going to surrender. Eventually, the dispute was settled with the plaintiff surrendering his AORs for 106,000 shares in Stock Code 517 and Mrs Kou giving him a supplementary AOR for 20,000 shares which included the balance of the 8,000 shares from his settlement on 15 August and the balance in respect of his sale of 94,000 shares on 15 August.

31. According to the plaintiff, while the dispute over the two transactions were settled, he was still dissatisfied. He said the defendant's credibility was poor and he did not want to deal with the defendant anymore. He told Mr Kou to check the balance of his shares in his account and sell all of them at market price. Mr Kou tried to pacify him saying that they were good friends and that he could not check his balance in the Kowloon office. Mr Kou asked the plaintiff to talk to his daughter in the Hong Kong office. The plaintiff then asked Mr Kou to write down the telephone number of Ms Kou on the defendant company card, saying that he did not wish to write it down lest Mr Kou would accuse him of getting it wrong.

32. Mrs Kou's evidence is that the plaintiff settled all the transactions made on 12, 13 and 15 August on 19 August. She recalled that the plaintiff surrendered two AORs for 46,000 and 42,000 shares, which neatly settled his sale of 88,000 shares on 12 August. According to Ms Ng, another of the defendant's clerk, whose statement is admitted as a disputed statement, the plaintiff refused to surrender any AOR in respect of the 32,000 shares sold on 13 August saying that according to his accounting record and memory the number of shares matched his AORs on hand and that it was not necessary to surrender any AOR for deduction. As the plaintiff was an important client and friend of Mr Kou, Ms Ng did not insist on the deduction. In respect of the transaction on 15 August, he surrendered two AORs for 20,000 and 78,000 shares to Mrs Kou. Mrs Kou took and cancelled the one for 78,000 shares and endorsed on the other one with a balance of 12,000 shares after deducting 8,000 shares when she should have deducted 16,000 shares. She rigorously disputed that the plaintiff at the time had any combinations of AORs making up 106,000 shares in Stock Code 517. She also denied issuing him with a supplementary AOR for 20,000 shares as the plaintiff alleged and refuted the plaintiff's allegation that he had demanded for his monthly statement or a balance check on his account.

33. According to Mr Kou, he saw the plaintiff arguing with Mrs Kou through the window in his room on 19 August, but they were not quarrelling. He knew around those two days the plaintiff had been complaining about shares missing from his account.

34. I think it would be convenient to analysis the evidence of the parties up to this stage of development. The plaintiff's account of the events is at variance with the defendant's. However, the defendant's account is fully supported by uncontrovertible documentary evidence while the plaintiff's account is wholly discredited by those evidence. Mr Mayne has prepared a chart showing the plaintiff's sales and purchases and movement of all the AORs concerning the plaintiff's shareholding in Stock Code 517 which is the only stock in dispute. I have re-formatted and simplified the chart which is now annexed as Appendix I and forms part of this judgment. The plaintiff does not challenge the accuracy of the chart. In fact, he could not as the chart was prepared using undisputed data. The chart shows the balance of the shares represented by each of the nine AORs in the hands of the plaintiff as at various points in time. By no combination of any of these nine AORs between 15 July and 15 August can the plaintiff make up 128,000 shares which he says were handed over to Mrs Kou for settlement of the 120,000 shares sold and which formed the cause of his dispute with Mrs Kou on 19 and 20 August.

35. On the other hand, there were two AORs which added up to 88,000 shares which support Mrs Kou's account. The chart, the monthly statement and sold note show that the plaintiff sold 32,000 shares on 13 August for which no deduction has been made on any of the AORs. This supports the evidence of Ms Ng. It also supports the evidence of Mr Kou that round about that time the plaintiff was disputing about his 40,000 shares in Stock Code 517. The way the plaintiff presents his evidence is such that the variance between his evidence and the documentary evidence could not be explained as a mistake in the documents or failure in his recollection. I am therefore bound to reject the plaintiff's evidence and accept the defence evidence that the sale on 12 August was settled with two AORs for 42,000 and 46,000 shares and there was no quarrel about endorsement on any AOR.

36. The chart also shows between 12 and 18 August, no combination of any of the remaining seven AORs could add up to 106,000 shares as would support the plaintiff's evidence. I am mindful of the fact that if the AOR for 46,000 shares mentioned above had not been surrendered to settle the transaction on 12 August, one combination is possible using that AOR. But that would be inconsistent with both the plaintiff's and the defence evidence. I therefore had to discount that possibility and proceed on the basis that AOR had been surrendered. The chart also shows there is no AOR for 20,000 shares other than the one issued on 6 March in respect of a much earlier purchase. So the plaintiff's evidence about the big quarrel on 20 August over the AORs which was settled with Mrs Kou issuing him a supplementary AOR for 20,000 shares must be untrue. This variance with documentary evidence could not be resolved on the basis of a failure in recollection by the plaintiff, but points conclusively to the plaintiff's dishonesty in concocting a positive case against the defendant. Incidentally, the chart also shows Mrs Kou's mistake in under-deducting 8,000 shares. This together with the 32,000 shares which the plaintiff refused to be deducted adds up to 40,000 shares. I am bound to accept Mr and Mrs Kou's evidence and reject the plaintiff's. I also find up to that stage, the question about monthly statement has not been raised.

The plaintiff's telephone conversations with Ms Kou:

37. I shall now move onto the plaintiff's evidence about his contact with Ms Kou on the afternoon of 20 August. The plaintiff says, he rang up Ms Kou asking for the balance as he wanted to sell all his shares. Ms Kou told him to phone again after two weeks and then hanged up. He called again and warned her that share price could fluctuate a lot in two weeks and repeated his demand for a balance check. Then Ms Kou said he had nothing in his account and the shares of all of the defendant's clients were held by the defendant as a pool. The plaintiff then warned her that his shares were worth $10 million. To that Ms Kou replied it was not much and she could pay him double as compensation and hanged up. The plaintiff rang again and told Ms Kou that he had AORs in his hand bearing the defendant's chop. Ms Kou said if she could not find the shares in his account, he could not sell and the AORs in his hands were useless. Then she hanged up again. The plaintiff phoned back and Ms Kou told him not to call again. The plaintiff telephoned again, but when he identified himself, he was not put through. According to the plaintiff, these telephone calls were made in the course of a few days since 20 August. Ms Kou says that she never received any telephone call from the defendant on 20 August or any telephone calls as described by the plaintiff at any other time at all. She said the plaintiff did contact her on 21 August about the rights subscription of Stock Code 257, but at no time did the plaintiff complain about not receiving his monthly statements or demand a check on his account or to sell all his shares. It might be strange that the plaintiff having obtained Ms Kou's telephone number from Mr Kou did not complain about anything on 21 August but talked about share subscription. However, the state of affairs at that stage was that the defendant was tolerable in not deducting 32,000 shares from his AOR. There was little point to raise the issue with Ms Kou. I accept Ms Kou's evidence and reject the plaintiff's.

21 August to 30 December 1997:

38. In a nutshell, this part of the plaintiff's case is that despite repeated demands the defendant refused to provide him the balance of the shares in his account and ignored his instructions to sell all the shares in his account. The defendant's defence is a total denial and that the plaintiff traded through the defendant as usual. The theme in this part of the plaintiff's case is that he was all along trying to sell whatever he could sell to get his shares out of the defendant company and he offered a reason for every purchase he made during that period.

39. On 21 August, according to the plaintiff, he went to see Mr Kou in the Kowloon office. He related to him the telephone conversations he had with Ms Kou and said he dared not trade through the defendant again. Mr Kou asked him to give him two more days to check and assured him that he would deal with all new transactions separately and ask Ms Kou to hurry up with the checking. With Mr Kou's assurance that the shares bought could be sold and in the hope that by continuing trading through the defendant the checking would be expedited, he placed order and purchased 20,000 shares in Stock Code 297, which was only a small transaction.

40. He enquired about the progress of the balance check on 25 August 1997 and repeated his demand or request to sell all his shares. Mr Kou replied that the balance was not available and asked for two more days. That meeting ended in a quarrel. This is denied by Mr Kou.

41. On 27 August the plaintiff saw Mr Kou in the Kowloon office. Mr Kou told him that the balance was not yet available. The plaintiff wanted to sell what he could sell. So he sold the 20,000 shares in Stock Code 517 in respect of which he had obtained a supplementary AOR issued by Mrs Kou and sold 20,000 shares in Stock Code 297 which he purchased on 21 August and which Mr Kou agreed to treat separately. He told Mr Kou that originally he wanted to purchase 500,000 shares in Stock Code 326 but because the defendant's credibility was poor he wanted to sell all his shares and leave. Then he went to the toilet, but upon his return, Mr Kou told him that he had purchased the 500,000 shares in Stock Code 326 for him. He protested that he had not placed any order for the purchase but Mr Kou refused to cancel the transaction. Thinking that if he insisted on cancelling the purchase he could not get his money for the earlier sale of Stock Codes 517 and 297 back, he reluctantly agreed on condition that Mr Kou would give him the share certificates for the newly bought shares instead of keeping them in the defendant's custody. Mr Kou agreed but said it would take 15 to 20 days. That explained why despite his demand to sell all his shares he still purchased further shares through the defendant. The picture he was trying to paint is that he sold the shares in Stock Code 297 and 517 first and then the purchase of Stock Code 326 was forced on him.

42. Mr Kou denied he had forced the purchase of 500,000 shares in Stock Code 326 on the plaintiff. His evidence is that when he first saw the plaintiff that morning, the plaintiff placed an order for purchase of those shares saying he had received certain information about the stock. In fact the share price rose significantly after his purchase. Then later in the day, the plaintiff placed an order for the sale of his shares in Stock Code 517 to pay for the shares in Stock Code 326 he bought earlier in the morning. According to the order book, Exhibit D-2, the plaintiff placed order for purchase of the 500,000 shares in Stock Code 326 early in the morning and sold his shares in Stock Code 297 later in the day and eventually his shares in Stock Code 517 almost at the end of the day. The record in the order book is a contemporaneous record. There is not a hint before trial that the plaintiff would give evidence about the order of these transactions. It is impossible that the defendant could have re-written the order book to meet the plaintiff's case. The plaintiff's allegation that he sold first before he was forced to purchase the 500,000 could not be true. He is obviously twisting the fact to fit his case that he was trying to sell his shares and leave the defendant company because of the disputes over settlement, when in fact those disputes have not arisen at that stage. His statement for August also shows that he had a very substantial book profit arising from that purchase which supports Mr Kou's evidence that the purchase was a conscious decision of the plaintiff who was "acting on information" (though he failed to actualise that profit and suffered a loss eventually when he sold later). Mr Kou's spontaneous reply on this issue upon cross examination has every ring of truth in it. I give full weight to the entries in the order book and accept Mr Kou's evidence and reject the plaintiff's. He was not trying to get his shares out of the defendant company at the time.

43. On 8 September 1997, Mr Kou informed the plaintiff by phone that he had to make subscription for the rights issue in respect of his shares in Stock Code 257. He told Mr Kou to sell sufficient amount of his shares in that stock to pay for the subscription and warned that if he failed to sell and arrange for the subscription, he would sue the defendant. Mr Kou then confirmed that the sale order had been executed. The transaction was settled on 10 September.

44. This event also damaged the plaintiff's credibility. His evidence is that the defendant refused to inform him the balance of the shares in his account. At the time, he only had three kinds of stocks in his account. Firstly, he had 500,000 shares in Stock Code 326, the purchase of which, he says, was forced on him but which Mr Kou agreed he could sell separately from what he had in his account. Secondly, he had 695,000 shares in Stock Code 257. There was no dispute as to the quantity of his share holding in this stock. The defendant has informed him the amount of shares he had and the amount of rights issue he had as a result of which he sold some of the shares to pay for the subscription. Thirdly, he had a quantity of shares in Stock Code 517, which is the only stock in respect of which there was a dispute. Ms Ng says that the plaintiff refused to allow her deduct 32,000 shares sold on 13 August and Mrs Kou says she made an under-debit of 8,000 shares, making a difference of 40,000 shares. That forms the main subject matter of his complaint to the Stock Exchange of Hong Kong.

45. Thus at this stage, apart from the shares in Stock Code 517, there was no dispute as to the quantity of the other shares the plaintiff had in his account and he knew what he had. He subsequently sold the shares in Stock Code 326 on 13 and 14 October. If he was really serious in wanting to sell all his shares and leave the defendant company, he could have sold the 500,000 shares in Stock Code 326 much earlier. His evidence that Mr Kou delayed him by saying that it would take 15 to 20 days to obtain the share certificate is incredible. Why would Mr Kou have done so? The share certificates would have been obtained in a day through CCASS. Similarly, if he was serious in wanting to sell his shares, he could have easily sold his shares and rights in Stock Code 257, about which there was no dispute. But instead, he instructed Mr Kou to sell only such amount of those shares as was sufficient to pay for the subscription for further shares. When asked why he did not sell his shares in this stock, the plaintiff was extremely evasive. Eventually, his answer was that he insisted to sell both stocks together. Such an answer is a far cry from someone who was so fed up with his stock broker and was serious about selling all his shares and quit. He had AORs in respect of the shares in this stock. If he was really minded to sell all his shares, he could have sold such amount as shown in his AORs less the 40,000 shares in dispute and reserve his rights. Under cross examination, he said he could not do so as he was told by Mrs Kou and Ms Kou that the AORs were useless and he just kept on waiting to be informed of his balance. His explanation for not selling as he wished is wholly incredible. I draw as the only reasonable inference that the plaintiff was not really intending to leave and there is no truth in his allegation about the defendant refusing to tell him his share balance and refusing to sell his shares.

46. The plaintiff kept on phoning Ms Kou but could not reach her. It was only until 15 November under the threat of instituting legal action that Ms Kou answered his telephone call. Ms Kou told him that he only had 180,000 shares in Stock Code 517 in his account. He protested saying there must be some more shares and demanded compensation. But Ms Kou hanged up the phone.

47. The plaintiff's theme in this part of his case is that he was insisting for a copy of his monthly statement, demanding a balance check and ordering sale of all the shares in his account. His evidence when tested against the totality of the evidence, the documentary evidence, in particular the Order Book and AORs he had in hand at the various points in time, is incredible and inherently improbable (see paragraph 54 below). I reject his evidence and accept the defendant's.

31 December 1997:

48. According to the plaintiff, on 31 December 1997, the plaintiff went to Mr Kou's office and threatened to jump out of the window together with him if he did not give him the balance in his account. He was then given for the first time a monthly statement dated 31 December 1997. The statement shows that he had 196,000 shares in Stock Code 517 and 695,000 shares in Stock Code 257. Mr and Mrs Kou denied there was such a traumatic incident. Mrs Kou recalled that the plaintiff called at the end of December and said he wanted to collect his statement of account for December in person and collected it in January 1998. Mr Kou has no knowledge of that incident at all.

49. The copy of statement as produced by the plaintiff differs from the carbon copy as kept by the defendant, Exhibit D-1. The statement produced by the plaintiff shows closing prices as at 31 December 1997, whereas the carbon copy shows the closing prices as at 30 December 1997. Thus the copy produced by plaintiff was a copy generated on request made on or after 2 January 1998. He wrote some self serving notes on the statement. Those notes are not acknowledged by the defendant and I ignore them. I think nothing significant turned on that statement or from the circumstances in which the statement was given to him. If at all the circumstances show anything, it is that nothing eventful accompanied the delivery of the statement and that the plaintiff exaggerated in his evidence about the traumatic incident in the hope of winning sympathy.

Settlement talk:

50. The plaintiff relies on the recorded conversation of his meeting with Mr Kou in August 1998 as evidence of admission of liability on the part of the defendant. According to the transcript, the plaintiff put to Mr Kou that the defendant failed to provide monthly statement and refused to allow him to sell his shares. All along it was the plaintiff and his wife putting forward his case without Mr Kou giving any proper response based on which I could find any admission of liability. Mr Kou sounded apologetic and admitted mis-management on the part of the defendant company. Mr Kou explained that he was trying to be accommodating to the plaintiff in the hope of winning him back as his customer. According to Mr Kou, when the question of compensation was raised, he rose to his feet and wanted to leave. I accept Mr Kou's evidence and reject the recording and transcript as evidence of admission of liability on the part of Mr Kou or the defendant.

CONCLUSION:

51. For reasons as are apparent from the above analysis of the evidence, I find the plaintiff a dishonest witness and reject his evidence. I accept the defendant's evidence that the plaintiff has not complained about not having received his monthly statement. His complaint that he has not received his monthly statement and his evidence about the traumatic incident on 31 December 1997 are his own concoction and exaggeration.

52. I accept the defendant's evidence that at the time the plaintiff had a dispute with the defendant about 40,000 shares in Stock Code 517. This arose out of the plaintiff's refusal to allow Ms Ng to deduct 32,000 shares in respect of his sale on 13 August 1997 and Mrs Kou's mistake in under-debiting 8,000 shares. This results in the plaintiff having AORs showing a surplus of 40,000 shares which did not agree with the defendant's record. I accept Mrs Kou's and Ms Ng's evidence as their account of the share transactions is fully supported by Appendix I, which proves conclusively that there is no truth in the plaintiff's evidence. The plaintiff's explanation as to why he carried on trading with the defendant at a time when he says he was wanting to sell all his shares held by the defendant is, for reasons as explained above, just incredible. His explanation for not selling the shares about which there was no dispute is unconvincing.

53. The defendant is a stockbroker and the plaintiff was their valued client having shares worth $10 million with their company. He was such an important client that despite all the complaints he made to the Stock Exchange, the Securities Commissioner, the Police and the Secretary for Justice, Mr Kou still wanted to win him back and invited him to lunch, during which unknown to him, his conversation was being recorded by the plaintiff. He was apologetic and wanted to buy the plaintiff's wife presents so as to ease the relationship. With $10 million worth of shares to sell at market price, the defendant would be reaping $25,000 by way of brokerage. In the circumstances, would there be any reason why the defendant would refuse to execute his orders to sell all his shares at market price? Unless the defendant had been carrying on fraudulent business and did not have those shares in their account to meet the transaction, I cannot think of any reason why the defendant should refuse to execute the plaintiff's order to sell. Ms Kou has meticulously shown me through her records, the CCASS records and various counterchecks that at the time the defendant was holding those shares for the plaintiff. Not only that the plaintiff's story is inherently improbable, his credibility has been completely destroyed by the documentary evidence. I am driven to the conclusion that he is fabricating his evidence and his case is nothing but concoction.

54. The plaintiff is a very suspicious person. He had a dispute with the defendant about the 40,000 shares. He complained to the Stock Exchange of Hong Kong about theft of those shares but not about the defendant's failure to sell his shares. The Stock Exchange dismissed his complaint because he could not have those extra 40,000 shares he did not have. He was not satisfied with the outcome of the investigation. He suspected the investigating officer of being bias and even suspected the investigating officer's motive in giving him copies of his monthly statements. He complained and had the investigation officer replaced. He was informed of the withdrawal of $8,033.50 from his account, though he was not informed of the reason. However, by the time the defence was filed in March 1999, reason would have told him that the amount has been rightly deducted from his account because of the defendant's obvious mistake in wrongly allocating the purchases. Yet, in July 1999, he was still pressing the Department of Justice for prosecution. Even assuming that he has not been informed by the Stock Exchange or Police of the reason for the withdrawal, the defence is very explicit and should have been accepted by any reasonable person especially as he has no dispute that he placed order for purchase of the shares at $1.83 and not $1.79 and the amount debited represents the difference of the purchases at those prices. To press for prosecution in the circumstances shows not only that he is unreceptive to reasoning but also he is acting out of malice.

55. The plaintiff has carefully built his case by concocting the dispute on 15 August 1997 so as to set the scene for him to say in his evidence that he was dissatisfied with the defendant's service and instructed the defendant to sell all his shares. The truth was he did have a dispute with the defendant about the 40,000 shares in Stock Code 517 and he complained to the Stock Exchange about theft, but not about the defendant's failure to sell, not at least until half a year later. I have no doubt that he wanted to leave the defendant company but that was as a result of his mistaken belief that the defendant had stolen his 40,000 shares. Also that was in mid September and not in August or under the circumstances of the various disputes over settlement as he alleged. In any event, there was no need to sell all his shares, he could, as he eventually did, give instruction to transfer his shares to another broker. Even if he really wanted to sell, he could have done so in respect of the shares about which there were no dispute. He did not, but that was not because of the defendant's refusal to follow his instruction or to furnish him with his monthly statement. These monthly statements only provide the balance as at the end of the month and are not up to date. The statements may provide a convenient starting point to verify the shares he had in his account but are not as conclusive as the AORs and bought and sold notes taken together. His complaint about not being given his monthly statements is just a concoction to boost up his case. The lack of the monthly statement could not have prevented him from selling. What prevented him from selling may perhaps be his indecisiveness in the falling market, but I do not wish to speculate on that. Suffice it is to say, his case about the disputes and the defendant's refusal to sell when tested against the totality of the evidence, in particular the order book and Appendix I, collapsed hopelessly. Obviously he has allowed himself to cultivate his grievance in the dispute over the 40,000 shares into malice and dishonesty. Because of his mistaken belief that the defendant has stolen his 40,000 shares, he is dishonestly trying to pass his loss as a result of the stock market crash onto the defendant. There is no truth or merit in his case. Accordingly, I dismiss his claim with costs to be taxed if not agreed.

Appendix I

Note: AORs show a total of 40,000 shares more than the balance calculated from actual purchases and sales.