ROBERT BOWMAN CLARKE v. SUN HUNG KAI INVESTMENT SERVICES LTD AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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RULING

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1. This is a dispute between an investor in the Hong Kong Stock Market and his former broker. For the broker, it is submitted that it is no part of the plaintiff's case : (1) that the defendants wrongfully failed to sell the shares at any other price than HK$13.50, or (2) that the defendants were in breach of contract/duty on any day prior to Black Monday, the 19th October 1987. It is a challenge to the ambit of the plaintiff's pleadings as to "price" and "time". It is argued that the plaintiff must be confined to HK$13.50 for "price" and the 19th October for "time".

2. The real bone of contention seems to be quite plain. It may be shortly stated as follows : What is the meaning of "an automatic stop loss sell order"? Were there alleged breaches of contract/duty with reference to that term on Black Monday, the 19th October 1987 as well as before and after that date? Has the plaintiff also waived by conduct his right to complain of the breaches before, and perhaps after the 19th October 1987 as he allegedly has in respect to the defendants' alleged breach on the 19th October? In essence, these are the questions to be answered.

3. Whether or not the pleadings are sufficiently wide to allow these issues to be canvassed, the controversy between the parties to this action seems to be uninvolved. There is much to be said for the proposition that this action may even be conveniently proceeded with on framed issues, particularly when the claim is relatively small.

4. Much time has been taken on pleadings and the Court is invited to determine their perimeter and prejudice, if any, to the defendants. Paragraphs 5, 6, 7 & 8 of the Statement of Claim are the relevant paragraphs for the purposes of the present application, which read as follows :-

"5 At the time the said purchase instructions were given, the Plaintiff further orally instructed the 2nd Defendant by telephone that any shares of and in New World and Windsor held in the account should be subject to an automatic stop loss sell order at the price of $13.5 per share.

6 In the premises :-

(1) it was an express term of the contract between the 1st Defendant as brokers and the plaintiff as their client that the 1st and/or 2nd Defendants would sell any New World shares in the account when the price of such shares was $13.5 per share, and would sell any Windsor shares in the account when the price of such shares was $13.5 per share;

(2) it was an express or altrnatively an implied term of the said contract, subject to the said express stop loss sell order, that the 1st Defendant would not sell or buy shares on the account without obtaining the Plaintiff's instructions so to do.

7 In the premises :-

(1) the 2nd Defendant owed a duty to the Plaintiff as account executive responsible for the account to comply with the Plaintiff's reasonable instructions given to her in respect of the account and, in particular, to comply with the aforesaid automatic stop loss sell order instruction;

(2) the 2nd Defendant owed a further duty to the Plaintiff not to sell or buy shares on the account, subject to the said express stop loss sell order without obtaining the Plaintiff's instructions so to do.

8     (1) In breach of contract and/or duty as aforesaid, the 1st and/or 2nd Defendants neglected to sell the New World and Windsor shares in the account at the stop loss price of $13.5 per share.

(2) In further breach of contract and/or duty the 1st and/or 2nd Defendants sold the New World and Windsor shares in the account without obtaining the Plaintiff's instructions so to do, at prices below $13.5 per share."

5. I take the view that the effect and purport of the term "an automatic stop loss sell order" in paragraph 5 of the Statement of Claim need be pleaded. It is therefore quite unnecessary for me to consider whether this Court is, in any case, functus officio by reason of a decision on the same topic given on the plaintiff's earlier application to amend. That application of the plaintiff's was chosen to be withdrawn after a determination.

6. Paragraph 6(1) of the Statement of Claim, so it would seem, seeks to elaborate on the term "an automatic stop loss sell order". The time pleaded therein for action to be taken was "when the price of such shares was HK$13.50 per share". On the face of it, that would include a time on, before or after the 19th October. But this broadest possible coverage as to time has apparently been scaled down to the period commencing from Black Monday, the 19th October, if not to the Black Monday itself. This can readily be seen from paragraph 4(2) of the Reply and the documents at least at the early stages of encounter between the plaintiff and the defendants through their respective legal advisers and between themselves, e. g. the plaintiff's own discovery, the specific discovery sought from the defendants, hearsay notices, correspondence, particularly the one before action on the 4th December, page 78 of the Grey Bundle, etc. In general, pleadings are, as Mr Fok has reminded the Court, of course not to be qualified by these extrinsic materials. But the plaintiff's pleadings as to the relevant time in the Statement of Claim, Particulars and the Reply, if material, have not specifically put the defendants on notice of any period earlier than the 19th October. Paragraph 4(2) of the Reply brings into focus the 19th October. These matters to which I have referred would, in the circumstances, provide justification or further justification for the defendants so to understand the plaintiff's pleadings in the way they did.

7. Paragraph 7 of the Statement of Claim pleads a mirrored responsibility on the part of the 2nd defendant as her duty.

8. As a matter of fact, in view of paragraph 4(2) of the Reply, it would appear highly debatable that whatever the breadth of pleadings as to time, the parties to this action have themselves accepted what transpired on the 19th October as the only time-frame for consideration. Paragraph 4(2) of the Reply refers to a telephone conversation in which the plaintiff was informed by the 2nd defendant "that the said shares had not been sold at the said stop loss price". The plaintiff alleges that thereupon he instructed the 2nd defendant "to rectify the situation by crediting or arranging for the crediting of the account with correct proceeds of sale of the said shares calculated by reference to the said stop loss order per share". The plaintiff "then also requested the 2nd defendant to inform him of the rectification ..... in due course". See paragraph 4(3) of the Reply. To the plaintiff, so it would seem, the matter stood satisfactorily resolved.

9. Therefore, both as a pure matter of pleadings and on the alleged facts, the defendants could reasonably expect to meet a case founded only on liability triggered off by the inaction complained of on the 19th October.

10. The price at which these shares were to be disposed of was unspecified in paragraph 6(1) of the Statement of Claim. But paragraph 5 of the Statement of Claim could be read as setting the price at HK$13.50. I should hasten to comment that it is evidently unclear whether the words "at the price of HK$13.50 per share" were not merely intended by the plaintiff, in paragraph 5, to be a part of the whole commercial or trade term "an automatic stop loss sell order at the price of HK$13.50 per share".

11. Paragraph 8 seems to lend much support to Mr Cheung's complaint that by his Statement of Claim, the plaintiff focuses on the price of $13.50.

12. It is, in my judgment, not without justification that Mr Cheung, counsel for the defendants, resists an attempt to enlarge the sphere of conflict beyond the price of HK$13.50 or prior in time to the 19th October. As to the former, Mr Cheung complains that he lacks the aid of appropriate expert evidence. As to the latter, Mr Cheung explains the need of the defendants to plead waiver. Mr Cheung states categorically that he does not accept the plaintiff as having no knowledge of the market price dropping to HK $13.50 or further before the 19th October.

13. In my opinion, however arguably sweeping the allegations in the plaintiff's Statement of Claim, Particulars or perhaps his Reply are, by the uncertainty created by the vague pleadings the defendants could only be given to understand that the plaintiff's case is founded on HK $13.50 or with rference to the 19th October. In conclusion, the plaintiff must be so confined as submitted by Mr Cheung.

14. The test is not how unrestricted or boundless the language of the general or broad pleadings could possibly be, but how the allegations as pleaded may be reasonably understood in the context and against the known scenario. It is the reasonable objective comprehension of the parties that matters. The defendants are not now concerned with admissibility of evidence. They ask for the issues to be clearly defined. The range within which issues can be legitimately raised and evidence led is, in all the circumstances, of crucial importance to the defendants. As I see it, the defendants' attack at the plaintiff's pleadings is well-mounted and the conduct of the plaintiff in these proceedings must be accordingly regulated.