MAGUSTA SECURITIES LTD v. CHUI YIM FONG

HCA12032/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.12032 OF 1999

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J U D G M E N T

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1. This is a trial of an action brought by the plaintiff, Magusta Securities Limited, against the defendant, Chui Yim Fong.

2. The plaintiff is a securities house and the plaintiff employs a number of account executives or runners. One of them was Leung Ka Yee. Leung Ka Yee was well-acquainted with the defendant, Chui Yim Fong, who was apparently a housewife. They went back a few years before 1997 when, according to the defendant, Leung was working for another broker's house and the defendant was a client of Leung and was trading through Leung. Leung came to work for the plaintiff sometime in mid-1997, and that was when the defendant started her account at the plaintiff with Leung being her broker. It was a cash account, and that is to say transaction has to be settled on a T+2 basis, that is two trading days after a trade, settlement has to take place. This was the norm in the market.

3. The history of the account of the defendant as shown by the documents in the agreed bundle of documents starting at page 3 up to page 21, revealed a trading history starting from late June 1997 until 15 October 1997. The plaintiff's case is that by 15 October 1997 the defendant was indebted heavily to the plaintiff mainly because of some substantial buying towards the end of September and the beginning of October 1997. The market apparently peak around that time, possibly a little bit earlier, and substantial falls in the market took place in earlier October. The plaintiff's case is that when shares that could be sold had been sold in the defendant's account, the defendant owed to the plaintiff in the sum of some $1.165 million as of 19 October 1997. The defendant denied that she was responsible for the sums claimed and particularly for the shares said to have been traded in her account from late September onwards. Paragraph 7 of the amended Statement of Claim sets out quite clearly the particulars of the shares which were traded from 30 September up to 15 October, resulting in the large loss.

4. The defence raised by the defendant, however, was not limited to just she did not trade in those shares alleged in paragraph 7. The defence was and persisted until the very end is that from mid-September onwards because of an alleged moving of house, the defendant ceased to trade, and she therefore did not trade at all for the period from mid-September to mid-October, the critical period and she also denied having made payments to the plaintiff company from about late September onwards. The critical issue, therefore, in the case, is whether she did trade during that critical period from mid-September to mid-October.

5. The plaintiff attempted to show that she did trade by a careful analysis of her account and of her payments. This can be seen in the document, which is called the 2nd Supplementary Bundle of Documents, starting from page 1. It shows, starting from the trading on 2 September, a payment made of $149,050.97, and that sum was derived from a netting off exercise as a result of a number of buys and sells. That document is called "cash securities account table" showing the breakdown of the transactions, and it shows further the payments made to and by the defendant. The rest of pages 2 to 5 show that. Page 6 shows the trading on 19 September and the payment made on 19 September in the sum of $109,286 transferred from the bank account of the defendant to the bank account of the plaintiff on 19 September. Then there is the next payment made by the defendant on 22 September in the sum of $9,795; page 7 of that table goes on to show on 23 September, a payment from the defendant's bank account of $11,249. It then shows on page 10 of the table, a payment of $2,627.66 from the defendant's bank account on 3 October; then on 6 October, a payment from the defendant's bank account of $48,923; then on page 11 of the table, it shows on 7 October, a payment of $57,097 from the defendant's bank account. All these payments, according to the table, from the defendant to the plaintiff, each one of those was as a result of a netting off exercise shown in the table because of a number of purchases and sales.

6. The plaintiff called Ms Christine Liu of the Hong Kong Bank to give evidence and Ms Liu produced by way of Exhibit P25, the primary documents which substantiate to the full the entries in the letter dated 11 September 2001, Exhibit P23, from the Hong Kong Bank to Magusta, detailing the payments made to the plaintiff's bank account on the various dates starting from July 1997 until mid-October 1997. Now, it is clear to me, by looking at P23 and P25, that the payments that the plaintiff relied on, as having been made by the defendant from the defendant's bank account to the plaintiff's bank account, as set out in the plaintiff's table which I refer to earlier, in settlement of the trades carried out in the defendant's account in September and October had been made. Each of these payments had been clearly proved. The defence or explanation given by the defendant is that she did not realize that these payments had been made; she did not understand why they were made; she questioned that they were made and she denied that she had made payments in September and October to the plaintiff company at all. It seems to me that on the critical key issue as to whether the defendant had carried out any trade from mid-September onwards, which depended on whether the defendant had made any payments to the plaintiff in settlement of trade, the facts alleged by the plaintiff had been clearly proved.

7. I have therefore no doubt that the documentation material produced to the court, as well as the oral evidence given to the court clearly shows the plaintiff to be right. Three witnesses gave evidence for the plaintiff : Mr Chui, Ms Lam and Ms Christine Liu of the Hong Kong Bank. The defendant gave evidence for herself. I have no doubt on matter of credibility of the witnesses concerned that the plaintiff's witnesses are to be believed and their evidence can be accepted. I reject the evidence of the defendant. She advanced very little documentation and whatever documentation she advanced was in fact not a complete documentation, e.g. her passbook. I think the court was initially made to believe that there was no matching of figures in terms of payment because the defendant produced only her passbooks from the savings account but it turned out that the payments were not made from the savings account but from her undisclosed bank accounts, also with Hong Kong Bank. Ms Liu of Hong Kong Bank gave evidence and by way of Exhibit P24 reveal that there were many accounts of the defendant and the key account of the defendant from which the vital payments were made was the account 472-196195-833.

8. On the documentary evidence side, much of the key document which ought to have been produced to the court by the defendant was not produced, document such as her book into which she said she entered all her trades which was subject of the complaint later on; documents such as her bank statements, from which one can then see what payments were made or received during the critical time. So, both on the oral evidence as well as on the documentary evidence, the defendant gave no help to the court, and what she did produce were positively misleading.

9. I therefore conclude on the basis of that key issue alone that the plaintiff's case succeeds but I do not wish to pause here. It seems to me that the inherent probability is that she did not suddenly stop trading in mid-September, although there was a move in the house, but that was not a sufficient reason for her suddenly stop trading. Nor is that inherently probable the case she wish the court to believe that she did not really read every day her statement or read the brought and sold notes which were sent to her with the daily statement or that she did not even read her bank statements so that she did not realize that payments had been made from her bank account. The story told by the defendant that she did not know or realize that substantial payment had been made from her bank account to the plaintiff's bank account in September and October is simply incredible.

10. The evidence also shows that there were settlement discussions between the defendant and Mr Chui. There are two different versions, but as I indicated earlier, I prefer Mr Chui's version, although there is not much dispute that they were negotiating for settlement and she was offering to make payment. It is inconceivable that if she was not responsible for the trades in her account, she would even be making offers, of 30% or 50%, and therefore it seems to me that the defence that she was not responsible for trades shown in the account is just simply not credible. There was towards the end of the trial, passing reference and evidence to Leung's utilization of the account with the permission of the defendant, (there was reference in the Leung's statements made in 1999 at page 133 onwards in the translation) and there are references in the statement to the close relationship between Leung, to the Leung's daughter being tutored by the defendant and to Leung's trading through the defendant's account with the defendant's permission and to the defendant and Leung would do regular accounting exercise between themselves on the division of the respective profits and losses in the account. It is not necessary for me to come to any firm view on this because as I have indicated earlier on the main issue it had been clearly shown and proved to my satisfaction that the plaintiff is correct and that the defendant is responsible for the trading done in the account from September onwards. But if it is necessary to express any view then I believe the reality was probably that Leung Ka Yee did trade in the defendant's account with the defendant's permission and that the account was used by the defendant for the duo purpose of trading herself as well as allowing Leung Ka Yee to trade in her account. This being the case, the defendant must be responsible for everything that happened in the account. So on that alternative basis she would equally be responsible.

11. I find therefore that the plaintiff is entitled to judgment in the sum claimed of $1,165,640.43 together with interest at prime plus 8.5% per annum on that sum from 20 October 1997 up till today and thereafter there would be interest at judgment rate. I award costs of the action also to the plaintiff.