Lee Wei Man Karen v. Hong Kong Forex Investment Ltd.

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Civil Action No. 876 of 2001

_____________

Judgment

_____________

Causes of Action

1. The defendant company was a leverage foreign exchange trader. In September 1997, the plaintiff through the introduction of her acquaintance, Ms Muk of the defendant, signed an agreement ( the Agreement" ) with the defendant to open an account and began trading in foreign exchange. When the plaintiff closed her account in March 1998, she had incurred a total trading loss of about $340,000. More than eighteen months after the closing of her account, the plaintiff came to know that throughout the period she traded with the defendant Ms Muk did not hold the license required and issued by the Securities and Futures Commission. She is now seeking to recover the aforementioned trading loss from the defendant in these proceedings. The causes of actions are :(1) breach of clause 5.1 of the Agreement of the agreement ; (2) breach of clause 8.1 of the Agreement and (3) misrepresentation.

Breach of Agreement/Clause 5.1

2. Clause 5.1 of the Agreement related to discretionary account and provides:

" The Trader hereby declares that none of its employees or representatives shall accept any appointment by the Client as the Client's agent to operate the Account for and on behalf of the Client unless a separate agreement is entered into between the Trader and the Client in accordance with the provisions of Rule 8 of the Conduct of Business Rules and any other statutory requirements as may from time to time be in force."

Ms Muk handled the account of the plaintiff. The plaintiff alleged that all transactions were conducted on her behalf without her prior approval or instructions. Therefore the plaintiff argued that as her account was operated as if it was a discretionary account, the defendant was in breach of clause 5.1.

3. Ms Muk admitted there was an occasion when she got the instructions wrong and as no damage was done she had been forgiven by the plaintiff and continued to handle her account since. She maintained that apart from this occasion all transactions were conducted with prior approval and instructions of the plaintiff. On the other hand the plaintiff said none of the numerous transactions executed on her behalf was made with her prior approval or instructions. The plaintiff also said she did not realise that she had the right to make her decision until she was told by a friend in December that she should made her own decision in each transaction.

4. The plaintiff described how and why she opened the account to trade in foreign exchange and how and why she deposited money in her account on various occasions. If what she said is true she had been na?ve and motivated only by greed when she traded in foreign exchange with the defendant. The plaintiff was well educated and came from a well off family. She is intelligent, a university degree holder in mathematics and has been helping his father in the running of the family business. I do not believe she was so easily misled by Ms Muk as to nature of the account and the effect of the Agreement as she described. Equally I do not believe she was motivated merely by potential profit. According to Ms Muk, the plaintiff took a keen interest in trading in foreign exchange, and the plaintiff did not follow her strategy or advice invariably. In this regard, I preferred Ms Muk's evidence. I find the plaintiff did not trade in foreign exchange simply because of potential gain. Like many other small speculators, she seemed to enjoy the "fun" or satisfaction of being correct in predicting the market movement . There would be no such "fun" or satisfaction if she was not allowed any part in making the decision.

5. The alleged conduct of Ms Muk was outrageous and continued throughout the period the plaintiff had her account with the defendant. Yet the plaintiff deposited money in her account on three occasions after she allegedly came to know her right from the friend that she could and should made her own trading decisions. The plaintiff closed her account in March 1998. Before that she did not make any complaint against Ms Muk to the defendant or to the Securities and Futures Commission. Her present complaints was only triggered off some eighteen months later when she was alerted to the fact Ms Muk did not hold the required license to handle her account.

6. I find the plaintiff is the person who would not hesitate to maintain her legal rights. She would not have tolerated the conduct of Ms Muk and would not have delayed the complaint for such a long time.

7. I am not satisfied that the plaintiff has proved on the balance of probabilities that Ms Muk executed the transactions without her prior approval or instructions. I find the defendant has not been in breach of clause 5.1 of the Agreement.

Causation of Loss or Damage/breach of clause 5.1

8. If contrary to my finding, the transactions were executed without the prior approval or instructions of the plaintiff, the same would have been ratified by her. It is not disputed that she was informed of these transaction soon after they were executed. She made no request or indication that these unauthorised transactions should be set aside. Clause 5.1 did not entitle the plaintiff to wait indefinitely adopting the ' head I win, tail you lose' attitude. She had to exercise her right within reasonable time when she came to know about these unauthorised transactions. Any losses beyond the reasonable period would not have been caused by the defendant. There was no evidence to show what losses the plaintiff has suffered within these reasonable periods. In fact the plaintiff's case was not presented along this line.

9. The argument on the plaintiff's behalf runs as follows. Ms Muk should not have operated the account as if it was a discretionary account and therefore if it was not so operated the plaintiff would not have suffered any loss. This is too simple an argument defying logic and legal principles governing causation of damages and, ignoring what really happened as alleged by the plaintiff. Of course, if Ms Muk operated the account without informing the plaintiff of the transactions and without her ratifications, and subsequently incurred a loss of $340,000 when the account was closed, it could then fairly and definitely be said that the loss was caused by the breach of clause 5.1. This is not what plaintiff alleged to be the case. Her case is that she agreed to trade in a discretionary account and what was left undone was merely the signing up a formal agreement in that respect. The course of dealing was intended by her before she allegedly came to know she could make her own decisions ( which I find to the contrary). After she came to know her right to make her own decision, she continued to ratify the transactions made without her prior specific instructions. The immediate cause of the loss was buying or selling at the wrong time. However each of these decisions was as much as hers as well as Ms Muk's in the particular circumstances of this case. In view of all these, I find the loss is not caused by the alleged breach of clause 5.1 even if such breach has been proved.

Breach of Agreement Clause 8.1

10. Clause 8.1 provides:

"The Trader shall only accept, conduct or implement the ---orders or instructions of or on behalf of the Client---with all the laws, rules, regulations, guidelines ---. The Trader may at its sole discretion ---refuse to accept or carry out any ---trading---on behalf of the Client on the ground that ---the acceptance---may result in any breach or likely breach of any of the aforesaid laws, rules, regulations, guidelines---"

Ms Muk omitted to renew her license with the Securities and Futures Commission and was therefore not holding the required license at the time she handled the account of the plaintiff. The defendant was prosecuted and fined for this. It was argued on behalf the plaintiff that the defendant was in breach of clause 8.1and the breach caused the said loss of $340,000.

11. I accept the submission on behalf of the defendant clause 8.1 is wholly for the benefit of the defendant and as such can be waived by the defendant. The Agreement imposed a general obligation on the defendant to carry out the trading orders of the plaintiff. Clause 8.1 provides exceptions to this general obligation under specified circumstances. Ironically clause 8.1 would not have entitled to defendant to refuse to implement the orders of the plaintiff. If the defendant had refused to implement any order of the plaintiff and she sued it for loss of profit, clause 8.1 could not have been relied on as defence. This is not the case here. The plaintiff is suing the defendant for implementing her orders. The cause of action based on breach of clause 8.1 is wholly misconceived and must fail.

Causation of Loss and Damage

12. I accept the submission of behalf of the defendant that under the provisions in the relevant governing ordinance absence of the license of the trader did not ipso facto render the transactions invalid. The plaintiff instructed the defendant to carry out certain transactions and which instructions were carried out. Her complaint was that Ms Muk omitted to renew her license. The absence of license did not cause the loss.

Misrepresentation

13. The defences witnesses explained how the defendant came to omit to renew the annual license of Ms Muk. They were unshaken by the vigorous cross-examination on the plaintiff's behalf. Ms Muk would have had no trouble at all in renewing her license if she submitted her application form. There was no advantage but every disadvantage for Ms Muk and the defendant not to renew the license. I cannot see any good reason for them deliberately choosing not to renew the license. I accept their evidence that it was purely an omission on the part of Ms Muk and other staff members of the defendant. There was no fraudulent misrepresentation as alleged on behalf of the plaintiff.

14. It can be said that the defendant was guilty of misrepresentation by conduct by holding out Ms Muk as its licensed representative. One of its directors fairly conceded that if the omission to renew Ms Muk's license caused any damage or loss to the plaintiff, the defendant would not dispute the claim. As pointed out by the defendant's counsel, it is trite law that the plaintiff must prove she was induced into entering into contract. The plaintiff claimed that she had no idea that Ms Muk was holding or not holding a license. She in fact did not know Ms Muk required such a license until she read the newspaper some eighteen months after closing her account. She was not induced into entering into contract with the defendant by the misrepresentation. Furthermore once again the trading loss has nothing to do with the misrepresentation. The trading loss is not caused by the misrepresentation.

15. For all these reasons, the plaintiff's claim must fail and is dismissed. There also be an order nisi for costs in favour of the defendant with certificate for counsel.