CORE PACIFIC-YAMAICHI FUTURES (HK) LTD v. CHAN CHUN KIT

CACV 353/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 353 OF 2004

(ON APPEAL FROM DCCJ NO. 175 OF 2004)

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J U D G M E N T

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Hon Tang JA (giving the judgment of the Court):

1.  The defendant was the client of the plaintiff under a trading agreement (“the agreement”) entered into in or about November 2001. Under the agreement, the plaintiff agreed to provide investment services, including but not limited to, dealing in futures contracts, subject to the terms and conditions set out therein.  It is not disputed that under the agreement, in the event of adverse movements in the market, the plaintiff was entitled to require further margin to be provided on demand failing which the plaintiff was entitled to close out any or all open contracts of the client.  At the material time, the account executive serving the defendant was Mr Li Chun Ho, Benny (“Li”).

2.  On 23 October 2003, on the instruction of the defendant the plaintiff purchased 20 Hang Seng Index Futures Contracts for the month of October 2003 on behalf of the defendant.  At 4:11 p.m. on the same day, those contracts were closed out at a loss of $384,860. 

3.  This is the plaintiff’s claim for the trading loss.  It is the plaintiff’s case that because of adverse movement of the market, further margins were required in respect of the contracts, and that in spite of Li’s efforts he was unable to contact the defendant between 12:38 p.m. and 4:09 p.m. 

4.  The defendant has filed a defence and counterclaim.

5.  By a summons dated 15 March 2004, the plaintiff applied for summary judgment as well as to have the defence and counterclaim struck out on the ground, inter alia, that it disclosed no reasonable defence and cause of action against the plaintiff.  Acting Registrar, R Yu struck out the defence and counterclaim and entered judgment in favour of the plaintiff.  The defendant appealed and Judge W Wong reversed the order and granted unconditional leave to the defendant to defend.  On 22 November 2004, Rogers VP gave leave to the plaintiff to appeal.

6.  The judge gave his decision at the conclusion of the hearing before him but gave no reason.  However, it appeared from the transcript of the hearing that he was probably of the view that there had been a variation of the agreement such that the defendant was not obliged to provide further margin on 23 October. 

7.  The variation is pleaded in the defence as follows:

“5.	Save and except that the standard form of the Agreement contains, inter alia, those provisions set out in paragraph 3 of the Statement of Claim, Paragraph 3 of the Statement is not admitted.  The Defendant says that by subsequent agreement between the Plaintiff and the Defendant as evidenced by many dealings, the standard form of the Agreement is varied in the following manner:-
	(a)	the Defendant is not required to keep and maintain any Futures Margin in his Futures Account as security or guarantee for the performance of the Defendant of his obligations under the Agreement;
	(b)	the Defendant is allowed and/or permitted to place order(s) for the sale and/or purchase of Futures Contracts even though the Defendant has not maintained any Futures Margin in his Futures Account;
	(c)	whenever the Defendant purchases Futures Contracts and subsequently sells or closes out the same on the same day resulting in trading loss, the Defendant is allowed and/or permitted to settle such trading loss after the close of market and if the subsequent sale or closing out of the Futures Contract results in trading gain to the Defendant, the Plaintiff would settle the same with the Defendant after the close of market; and
	(d)	whenever the Defendant purchases Futures Contracts and decides to hold on to the same, the Defendant is allowed and/or permitted to deposit Futures Margin into his Futures Account after the close of market (hereinafter collectively called “the Variations”).”

8.  But there was no evidence of any variation of the agreement “evidenced by many dealings” or otherwise.  The only evidence relating to this defence is this sentence in the defendant’s 1^st affirmation:

“4.	In reply to paragraphs 5 through 7 of Li’s Affirmation, I would reiterate paragraph 5 of the Defence and Counterclaim and say that the Agreement is varied by the Variations.”

This is plainly not enough.  On an application for summary judgment, the defendant was obliged to condescend into particulars.  The defendant has failed to support this defence with any particulars.

9.  Also, we agree with Mr Man, counsel for the plaintiff, that in any event the variation was not supported by any consideration and was not enforceable.   

10.  Another defence relied on by the defendant arose out of a voicemail which the defendant left on Li’s personal mobile phone

11.  The defendant’s case on this point can be found in para. 9 of the defence:

“9.

Paragraphs 6 and 7 of the Statement of Claim are denied and the Defendant says that shortly before 12:30 pm on the 23rd October 2003, the Defendant called Li on his portable and had a telephone conversation with Li.  During the telephone conversation, the Defendant instructed Li to sell/close out the Contracts if the index was above 12,000 points at 2:30 pm on the same day and if the index was below 12,000 points at 2:30 pm on the same day, the Defendant instructed Li to hold on to the Contracts.  Shortly after this telephone conversation, the Defendant again called Li but Li was out.  The Defendant called Li on his portable and left a voice message to Li instructing him to sell the Contracts at about 2:30 pm on the same day and if the same could not be sold, to hold to the Contracts.  Despite of the aforesaid instruction from the Defendant to Li, Li sold the Contracts at about 4:11 pm on the 23rd October 2003 in direct contravention of the instruction of the Defendant resulting in the trading loss of HK$382,000.00 to the Defendant.”

12.  If the contracts had been closed out at 2:30 p.m., the loss would have been $230,860.  According to Li, he had not checked his voicebox until after the contracts had been closed out. 

13.  Mr Man’s submission turns principally on the construction of this provision in the agreement:

「

2.2

客戶可以口頭、書面或透過京華山一期貨不時批准的任何電子方式發出指示、進行期貨帳戶的交易、轉移或提取資金、必須註明期貨帳戶名稱、帳戶編號或京華山一期貨指定的其他形式身分證明。客戶的指示均不可撤銷，除非京華山一期貨另行同意，則不在此限，並於京華山一期貨實際收到指示後，方為有效。」

14.  This point turns on whether mere receipt of an instruction would bind the plaintiff or actual notice was required.

15.  Mr Man accepts that if the client had left a message on the voicebox of the business line of the plaintiff for an account executive then the plaintiff must accept that it had been received by the plaintiff even if the message had not been listened to by the account executive.  Similarly, he would accept that if a fax had been sent to the official fax line of the plaintiff then the fax message must be regarded as having been received even before it was seen by an account executive.  He also accepted that if a client had communicated with an account executive on the account executive’s mobile phone and given instruction that would be regarded as having been actually received by the plaintiff.  He fairly accepted that it would serve the purpose of the plaintiff to permit such means of communication, for example, the account executive might be out to lunch and the client could call him on his mobile phone and give instructions.

16.  However, in this event, the message would not be regarded as having been received by the plaintiff until the account executive had actually listened to the message.  In other words, in the case of a voicemail on the plaintiff’s business line it would be regarded as having been received even if nobody had listened to it.  But that in the case of a voicemail left on the private mobile phone of the account executive actual notice was required.

17.  In our opinion it is at least arguable the instruction must be regarded as having been received when the voicemail was left.  Li was out of the office at the time the voicemail was left.  Since the plaintiff accepts that communication with an account executive through his mobile phone was acceptable when he was out of the office, in the absence of any clear provision in the agreement, we see no reason why actual notice as opposed to receipt was required.  That being the case we believe there is an arguable defence for the loss beyond $230,860.  We are satisfied that there is no defence to $230,860 and would allow the appeal to the extent that judgment should be entered in favour of the plaintiff for $230,860.

18.  Although the plaintiff has only been partially successful on appeal since they had to come to this court for the relief, the plaintiff should nevertheless have the costs of the appeal.  We make an order nisi to that effect.  The order will become effective unless the defendant applies within 14 days of the handing down of this judgment for a different order.

19.  Mr Man has informed us that in the event we give judgment in the plaintiff’s favour for $230,860 only, the plaintiff did not wish to proceed for the balance.  That being the case, there is no need for us to make any other order.