IBI ASIA (SECURITIES) LTD. v. BANK OF CREDIT AND COMMERCE HONG KONG LTD. (IN LIQUIDATION)

HCCL249/95

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST NO.249 OF 1995

---------------

---------------

____________________

J U D G M E N T

____________________

Introduction

1. This is a remarkable case. It turns upon recollections of a dinner table conversation some 12 years ago, and of telephone calls made two weeks thereafter. Its events take place against the background of the October 1987 Stock Market crash. It involves a well-known bank, now in liquidation, and the restructuring of a listed company, New Era Land, formerly owned by Mr Chim Pui Chung. It has as its main players one bank executive, two stock market investors, their mutual sharebroker, and an alleged share deal that went sour. It involves a claim for which damages are sought by an assignee, pursuant to an assignment (or, possibly, assignments) the provenance of which has not been fully explained. And it has involved, in the 12 years it has taken to get to trial, three firms of solicitors, seven counsel, and fully six amendments to the Statement of Claim, an application to re-amend the claim for the seventh time having been made, and refused, at this trial during the Defendant's final submission.

2. It is, therefore, not a case with an uneventful history. Nor, for that matter, is it a case in which an answer readily presents itself.

The Parties

3. The 1st Plaintiff, IBI Asia (Securities) Limited ("IBI"), is a stockbroker and a member of the Hong Kong Stock Exchange. The 2nd Plaintiff, Osceola Limited ("Osceola"), is an entity of which the Court has been told little about, save that it appears that it is a sister company of IBI. Its presence in this action is solely by reason of an Assignment dated 15th May 1988, the Recital of which reads, in part :

"(A) The Assignor and the Assignee are associated companies.

(B) Bank of Credit and Commerce International S.A. (the 'Customer') is indebted to the Assignor in respect of (inter alia) certain securities trading transactions carried out by the Assignor on behalf of/with the Customer, all such indebtedness outstanding at the date hereof (whether incurred in connection with such transactions or otherwise and whether comprising principal, interest, commissions, fees or otherwise) being hereinafter referred to as the 'Customer Debt'."

Clause 1 of this Assignment records that in consideration of the payment by Osceola to IBI of the sum of HK$5,371,898, IBI assigned to Osceola "all of its rights, title and interest in and to the Customer Debt".

4. The Defendant ("the Bank") is the entity which, it is alleged, bears the responsibility of indemnifying IBI, the broker, and thus Osceola, qua Assignee, against the cost of the shares the subject of the alleged transaction which forms the basis of this claim. The events leading to this transaction are considered in more detail later in this judgment, and in particular the events of the evening of 12th October 1987 involving a dinner held at the Hung Fuk Mun Seafood Restaurant, Granville Road, Tsimshatsui attended by five friends, Messrs Charles Lee and Ramon Rao of the Bank, together with Mr Johnson Ko and Shouson Chen, and Mr Albert Ha of IBI.

5. But that is to get ahead of the story. For present purposes suffice to say that on 30th October 1987, IBI was the broker responsible for 'crossing' on the Board of the Stock Exchange the sale and purchase of a block of three million new shares in New Era Land and Securities Investment Company Limited ("New Era"), and thereby, pursuant to the rules of the Exchange, rendering itself personally liable to the sellers for the proceeds of sale. The problem in this case, however, is that the alleged purchaser of these shares, one Mr Charles Lee of the Bank, disputed making this deal in the first place, with the result that IBI was, so to speak, left holding the financial baby. Having paid out the significant sum of $6.6 million to the vendors, Messrs Johnson Ko and Shouson Chen, and having received the share certificates in return, it was unable to deliver this scrip and to collect these funds from the alleged counterparty, the Bank. Thereafter, on 3rd February 1988, the block of 3 million shares was sold in the market at a price of $0.40 per share, thereby realizing $1,440,000 and leaving a net balance claimed of HK$5,199,930, the entitlement to the recovery of which, it is argued, has now been assigned to, and presently vests in, Osceola.

6. Perhaps at this stage, however, I should sketch in a little of the background.

The Factual Background

7. In 1986 the Defendant bank had in its possession, in the form of a pledge securing indebtedness, some 70% of the issued share capital, that is some 18,900,000 shares, in a property company, New Era. New Era was formerly a company controlled by Mr Chim Pui Chung who (trading as C&M Securities Co.) had pledged these shares to the Bank to secure a debt in the order of HK$41,400,000.

8. It is tolerably clear, and I accept, that the Bank's game plan was to attempt to recoup this indebtedness via the realization of these shares, and pursuant thereto the Bank had had discussions with a number of potential investors. In the event, in April 1987 the Bank found a new investor in the form of one EIE Development Co. Ltd., a Japanese concern, and an agreement was concluded between the Bank and EIE for an injection of funds and property assets into New Era as well as its corporate restructuring. Accordingly, the Bank, which was then in the position of majority shareholder, oversaw and managed the restructuring of New Era. In the interim, the shares of New Era were suspended from trading on the Stock Exchange on 17th November 1986, the last trading price of each such 'old' share being $1.34, the high and low during the preceding six month period being HK$1.42 and HK$1.37 respectively.

9. Pursuant to the restructuring plan, a Proposal to Shareholders was published on 18th September 1987, together with Notice of an Extraordinary General Meeting. As is inevitable with such things, the details of the restructuring are many and various. For present purposes, however, the point to note is that there was to be a placement of 'new' New Era shares to existing holders of 'old' shares on the basis of two 'new' shares and one detachable warrant for every one 'old' share held at a par value of $0.25 per 'new' share. In overall terms, after the restructuring the share capital of New Era was to change from 27 million to 850 million issued shares, plus 450 million detachable warrants.

10. A timetable for the implementation of this restructuring was drawn up. This revealed that after the holding of the Extraordinary General Meeting, there would be a resumption of trading in existing 'old' shares on Wednesday 7th October 1987, with the last day of trading 'cum-all' to be Friday, 16th October 1987. The Offer was to close at noon on Monday, 19th October, the Certificates for Placement Shares and Warrants issued to existing shareholders were to be dispatched on Thursday 5th November, and dealing in the Warrants and Placement Shares issued to existing shareholders was to commence on Tuesday 10th November 1987. Prior to the commencement of such formal dealing, there was, of course, likely to be a 'grey market' in operation, as indeed transpired to be the case, and it is just such 'grey market' activity which is at the forefront of this case.

11. It seems fair to say that the success of the restructuring plan was a matter of conjecture within the Bank. Indeed a Memo dated 29th September 1987 from Charles Lee, the officer in charge of the Bank's investment portfolio and one of the main figures in this case, outlined to his superiors his expectations of the share price which it was anticipated would be achieved as a result of the restructuring exercise. This Memo records, also, the Stock Exchange's request that in the event that there appeared to be a 'false market' in New Era shares on the resumption of trading 'cum-all' on 7th October 1987, "BCC can sell its New Era shares in the market if it is considered necessary in order to regulate the market and also to increase the number of shares available to the public for dealings". It is worth noting at this stage that as at the date of writing this Memo, Mr Lee recorded the view that "it may be just a little ambitious" to expect New Era's share price to reach a 'cum-all' price of $4.50, albeit that this was not impossible since this would point to an ex-share price of $1.20 and a warrant price of $0.80.

12. In fact, in terms of market price achieved, Mr Lee's expectation was to be pleasantly confounded. When the old shares recommenced trading 'cum-all' on 7th October 1987 they reached a high of $8.80, an astonishing figure when contrasted with the company's net asset value of approximately 30-40￠ a share, and the Bank was able to take clear advantage of this share bubble; as its internal records illustrate, the Bank was able to sell into the market a total of 2,556,000 New Era shares on a 'cum-all' basis at an average price of HK$7.66 net during the period 7th to 16th October 1987.

13. This then forms the broad background to the dinner on the evening of 12th October 1987, and to the events following two weeks thereafter.

The Principal Issues for Decision

14. A significant number of matters had been canvassed at this trial, but in my view the events of this case break down into three broad issues :

(i) Was there an agreement at the dinner on 12th October 1987 as the Plaintiffs allege, and, in turn, what transpired during the telephone conversations which took place between 26th to 30th October 1987?

(ii) If there was such an agreement, was it enforceable in light of the provisions of section 76 of the Securities Ordinance, Cap.333?; and

(iii) If and in so far as there was such an enforceable agreement, has a loss been proved which is recoverable by either the 1st Plaintiff, IBI, or by the 2nd Plaintiff, Osceola?

15. It became clear during the course of this trial that within this broad framework a number of sub-issues were thrown up, but it is fair to say that the latter summary represents the overall shape of this dispute.

16. Before examining each of these issues, however, I note at the outset what seemed to me to be an air of unreality pervading this case. I do not know how or why it took but a month short of 12 years to come to trial (or, for that matter, why a not insignificant element of the case necessitated an amendment in terms diametrically opposite to that originally pleaded), but it seems to me that it is inherently unsatisfactory to have a delay of this magnitude in a case such as this which, at bottom, turns upon no more than two sets of conversations, one at dinner and the other over the telephone, with witnesses who were once friends purporting to recall the content and import of what was said well over a decade ago.

17. I come now to the three issues.

(i) The Events of 12th October 1987 and thereafter

18. There is no doubt that the dinner on the evening of 12th October 1987 at the Hung Fuk Mun Seafood Restaurant constitutes the fulcrum of this case. Notwithstanding the six amendments to the Statement of Claim, paragraph 3 thereof remained substantially unaltered during the history of this action.

19. This alleges that on that evening an agreement was reached between Mr Johnson Ko and Mr Shouson Chen of the first part, Mr Charles Lee and Ramon Rao of the second part, and Mr Albert Ha of the third part to the effect that :

(i) Ko and Chen would sell and the Defendant Bank would purchase 3 million new New Era land shares and 1.5 million warrants at the total price of $6,900,000;

(ii) that such sale and purchase should be effected through the Stock Exchange as soon as practicable after the respective commencement dates for the trading of the 'new' New Era shares and warrants; and that

(iii) IBI, through Mr Ha, would be engaged by the parties to act as their stockbroker in these transactions.

20. There is some common ground in terms of what went on at the outset of the dinner. The five persons involved were clearly then friends and, from what I could gather, possessed a certain easy familiarity with each other, being used to meeting relatively frequently. Mr Ko and Mr Chen were clients of the Bank and apparently dealt with both Mr Ha and Mr Lee in the course of their frequent stock market forays. They often talked together. In fact, a recent example had been a previous request by Mr Ko to Mr Lee to borrow some 'old' New Era stock in order to sell and lock in the then high price the stock was fetching, thereafter repaying the Bank with the equivalent in 'new' New Era shares. This request Mr Lee had earlier refused. It is again common ground that the dinner discussion did not turn to the subject of the New Era restructuring, and the trading possibilities inherent therein, until Mr Ha of IBI arrived last at the restaurant, having been heavily preoccupied that evening with the placement of shares in another listed company, Stelux Holdings.

21. This latter topic in turn led Mr Ko to ask Mr Ha whether he could place out his own existing New Era shares in the 'grey market' at a discount calculated on that day's closing price, a suggestion which was refused by Mr Ha. There also seems little doubt, albeit nothing specifically turns on it, that Mr Ko, whose earlier request to borrow scrip had been refused, still felt that the Bank was not taking sufficient commercial advantage of the trading possibilities thrown up by the New Era restructuring, and said so. At this point, however, the two accounts fundamentally diverge.

22. In essence, the Plaintiffs' case, as seen through the prism of the evidence of Mr Ko and Mr Ha (neither Mr Shouson Chen nor Mr Ramon Rao attended nor gave evidence) is that at this dinner a deal was struck which would have allowed the Bank the chance profitably to hedge its own position whilst guaranteeing Messrs Ko and Chen an effective placement of their own New Era shares at a guaranteed, albeit discounted, price. And that, as pleaded, the deal alleged to have been so concluded was that Mr Lee on behalf of the Bank agreed to pay $6,900,000 against the delivery, via Mr Ha as broker, of 3 million 'new' New Era shares and 1.5 million warrants, such delivery to take place when the new shares began to trade.

23. From the viewpoint of the sellers, Messrs Ko and Chen, the figure of $6,900,000 represented the sale of 1 million 'old' New Era shares at a 15% discount from the closing price of $8.15 that day, and required also, since they were to deliver not 'old' but 'new' New Era shares, the absorption of the 50￠ which, under the restructuring arrangements, was to be paid for the conversion of each 'old' share into two 'new' New Era shares. So far as Mr Ko was concerned, presumably also this represented a variation upon the earlier scheme previously rejected by Mr Lee whereby Mr Ko had wished to borrow 'old' scrip against repayment of such to the Bank with the equivalent in 'new' shares.

24. The evidence on behalf of the Plaintiffs is that Mr Ha confirmed the correctness of the specific figures discussed and noted them down on his business card, and that they all shook hands, Mr Ha commenting that they had brought him some business. There is, so far as I can recall, no evidence as to who picked up the tab for dinner and drinks, nor for that matter that at the 'China City" Nightclub to which Mr Ko said they repaired thereafter.

25. The evidence of Mr Lee, the only witness called on behalf of the Bank, is to the contrary. He accepted that these matters were generally discussed, but he was emphatic that no deal was concluded between himself and Messrs Ko and Chen. So far as he was able to recall, Mr Ko did indeed propose an alternative scheme of a sale of 'old' shares satisfied by delivery of the 'new' ("What if we put it another way" is his recollection of how Mr Ko put it), and he accepted that he did, in his own words, "stop and think" about the suggestion that he sell shares in the market 'cum-all' and buy back 'ex-all' from Mr Ko. He further recalls Mr Ko urging him that "it must be possible" and of Mr Ko offering to absorb the 50￠ rights-fee "to make it sweeter".

26. Nevertheless, Mr Lee's firm evidence was that he did not take up the offer and that no deal was made, uppermost in his thinking at that time being a concern in terms of the Bank's existing obligation under the restructuring, and pursuant to the relisting, to report its dealings in New Era shares to the Stock Exchange. Indeed, his concern in terms of the Bank's position with the Stock Exchange was amplified in cross-examination when he indicated that he would have had to have reported the sale of 1 million 'old' shares on a 'cum-all' basis, and that if he then had acquired 3 million 'ex-all' shares, he did not know if he would be reprimanded, this type of dealing possibly being viewed by the Exchange as "creating a false market".

27. As to the events of the dinner, in my view all three witnesses gave evidence well, and in fact there was not a lot to choose between them in terms of demeanour, albeit there was no disguising the apparent scorn which Mr Ko and Mr Ha felt about what they obviously regarded as a clear deal reneged upon by Mr Lee. Mr Ko in particular struck me as buccaneering character who gave evidence with the insouciance of someone who had seen his net worth crumble in the market crash of October 20th-23rd, during which the market was famously closed for four days, from a level of plus $70,000,000 to minus $30,000,000, yet had lived to recover and prosper. Mr Ha, too, was clear in his own perception of events, commenting that this was one occasion in a long brokerage career (in which he is no longer involved) wherein he had been let down on a deal.

28. By contrast, Mr Lee had a quieter and far more reflective demeanour, although he gave his evidence in a calm and controlled manner, and in my view reflected a keen insight into the market, a trait accepted by Mr Ko who noted that prior to these events, he had respected Mr Lee's views. Possibly the only inconsistency, if it can be so called after a 12 year lapse, during Mr Lee's evidence was that in chief he had said that he had told Mr Ko that his new suggestion was "not possible", whilst in cross-examination he was inclined to think that "I don't think that I made a response".

29. Looked at in the round, I am inclined to think that Mr Harris was broadly correct when he submitted that all three were articulate men, and that none had obviously been 'caught out' in his version of what had transpired at the restaurant. And that each in his own way reconstructed what each believed actually had occurred.

30. The events of the night of 12th October are not, however, the end of the story, and once again there is strong diversity in the evidence of the telephone calls during the period 26th to 30th October 1987. It is again common ground that these three gentlemen spoke on the telephone. What is not agreed, however, is the content of these conversations. Mr Lee's version can be briefly summarized, albeit he had considerable difficulty adequately recalling telephone conversations of which no contemporaneous note had been made by any of these parties. He said that he was contacted on the telephone by Mr Ha, the broker, on or about 26th October (that is, the first day on which the market had reopened) and asked if there were any problems with the deal of 12th October. Mr Lee's evidence is that he had immediately responded by saying "What deal?", or words to that effect. He further said that thereafter he spoke to Mr Ko, who had also telephoned him and who, so far as he could tell, was clearly at that time traumatized by the crash, but that he, Mr Lee, had declined Mr Ko's pleas to comply with the alleged transaction.

31. Mr Ko's evidence in terms of this conversation differs. He did not plead with Mr Lee as alleged, nor was he in any sense in tears ("an insult" was the way he put it), and he says that he recorded his indignation at Mr Lee's position before ringing off.

32. I think it fair to say that Mr Lee's evidence about subsequent telephone contact is distinctly hazy, although he clearly and definitely denies authorizing Mr Ha to 'cross' the shares on the Stock Exchange on 30th October, as we know in fact occurred.

33. Mr Ha's evidence as to subsequent telephone contact is far more problematic, given that on one material aspect there are two competing versions of events. Mr Ha originally said in his evidence-in-chief that on 26th October he had had two conversations with Mr Lee. During the first conversation, he had asked Mr Lee if there were "any problems" with the deal done on 12th October, and had been told in terms "No". Thereafter he had rung a second time to discuss the deal again and he had been told not to 'cross' the transaction on the Stock Exchange until he was instructed to do so. Thereafter, on this version, there was one further conversation on 30th October, having attempted to contact Mr Lee earlier in that day, when he informed Mr Lee that in fact already he had 'crossed' the deal on the Exchange without having spoken to him because he felt that he could not wait. On this account, Mr Lee had allegedly said "No problem".

34. It was noticeable that when giving his evidence upon this first version of events, Mr Ha was pressed strongly by Mr Miu, the Plaintiffs' Counsel, but that he was emphatic that he had not spoken to Mr Lee on 30th October until after 'crossing' the transaction. At the outset of his evidence the following morning, however, Mr Ha announced that he had read his witness statement overnight, not having done so before as he had believed that his witness statements would comprise his evidence-in-chief. And that he now thought that the version in his supplementary statement was correct, that he had had an earlier conversation on 30th October with Mr Lee in which he had asked Mr Lee if he could cross the transaction, and that "Mr Lee had said yes". Mr Ha also wished to change his evidence of the previous day in a further particular : Mr Lee, he said, had never told him in the second telephone conversation on 26th October not to 'cross' the transaction without his further instructions, and that "nothing like that had ever been said".

35. It is difficult not to feel a real sense of unease about a change of evidence of this nature, albeit in fairness to Mr Ha he had been told that he was entitled to refresh his memory from the witness statements if he wished. Nevertheless, this unease about the reversal of evidence during the trial is mirrored by further unease about a like change in stance in Mr Ha's statements, the 'second version' having appeared in his Supplementary Witness Statement, so Mr Harris told me, at about the same time as the section 76 point was raised by the Defendant. This was also accompanied by a 180 degree change of stance in the pleading in the Statement of Claim wherein at paragraph 7 (by amendments in brown) there was reversed the effect of the first conversation on 26th November (from 'instructed to effect' to 'instructed not to effect' a sale until 30th October), there being added by the same amendment a positive instruction by Mr Lee to Mr Ha on 30th October to effect a sale and purchase on that day.

36. The differing versions of the content of these telephone calls during the week beginning 26th October surprisingly constitute the major part of any other evidence to which the Court may make circumstantial reference in an attempt to discern the existence or otherwise of an agreement on 12th October. For, remarkably, this dispute has attracted very little in the way of any contemporaneous paper trail. Apart from the squiggled notation on Mr Ha's business card, which certainly is consistent with a discussion of the topic if nothing else, together with the relevant Contract Note dated 30th October 1987 for settlement on 2nd November 1987, detailing the purchase by IBI on behalf of the Bank of 3 million 'new' New Era shares at the price of $2.30 ($2.30 'ex-all' being the rough equivalent of $6.90 'cum-all' less 10￠ to take account of the warrant element), it is striking that there is no form of documentary assertion whether by letter, memo, fax or otherwise by IBI to the Bank either confirming the existence of the alleged deal or complaining when the alleged deal went off (which at the latest was by 2nd November 1987). Nor, somewhat surprisingly given the not insignificant size of the transaction, is there any discovered contemporaneous memorandum within IBI on this topic, although in the papers there does appear a copy of a statement dated 30th December 1987 taken from Mr Ha by one William So. Neither this statement, nor the circumstances surrounding its taking, was canvassed with Mr Ha in his evidence, and the Court first learned of its existence during final submissions when its existence was pointed out by Mr Miu, who told the Court that he thought that the document represented an "internal memo" to the Stock Exchange. I have no idea whether Mr So is, or was, a Stock Exchange employee, or for that matter whether he is or was one of the Plaintiffs' lawyers. However, if and in so far as it can be of any weight, I note two things from this document : first, the account of the sequence of telephone calls differs from the account of the telephone calls of 26th October given in evidence by Mr Ha, and further states that the telephone call on 30th October dealt with a situation that had already taken place, namely the 'crossing' of the shares; and second, it records that Mr Ha had had a meeting in early November with Mr Rizvi and Mr Kapour of the Bank where he "told the whole story", and that they promised to investigate.

37. This 'statement' apart (as to the provenance of which I remain unsure), it is however fair to say that from the Plaintiffs' point of view the documentary cupboard is bare. In the circumstances, I think that Mr Harris was probably justified in his comment that on its face it does not look as if IBI at least had a claim that they thought it worth writing a letter about.

38. To a certain extent the contrary position is true for the Bank, although I recognize that all post-event letters are susceptible to criticism as self-serving. On 2nd November 1987, after the relevant Contract Note had apparently been left at the Bank's premises, Mr Lee wrote a letter of the same date to IBI outlining his position, in particular his rejection and the return of the relevant Contract Note for the alleged purchase of the 3 million shares, whilst reaffirming the three non-controversial transactions in New Era shares to which he accepted he had agreed. This letter concluded thus :

"Please do not treat us a simple institution where you can conveniently slip your unwanted bargains/contract notes even though they may look advantageous when compared with the prices at which the securities are currently being dealt with. We will not hesitate to report similar discrepancies to the appropriate authorities in future, if necessary."

39. Curiously, this letter attracted no reply. Mr Lee wrote again to IBI two days later, on 4th November 1987, as a result of the disputed Contract Note being again left "at the Bank's reception counter for the attention of Mr Lee". In this letter he complains of a failure to understand his earlier letter of 2nd November, and that "you have not had the courtesy of including an explanation, verbally or in writing, as to why you continue to leave these Contract Notes at our reception counters".

40. In truth, the image of a disputed Contract Note or Notes (Mr Lee was unable to explain to the Court why complaint was being made also in his letter of 2nd November as to other contract notes which appeared unexceptional and incorrectly referenced) bouncing between IBI and the Bank's reception counter appears both unprofessional and vaguely comical, had the consequences not been so serious. In any event again this letter attracted no reply, although (even more curiously) a letter from IBI dated 9th November 1987 made no reference to the disputed transaction, but instead confined itself to the admitted 'grey market' transactions between the two parties. From this it almost appears that there was a desire on IBI's part not to make official reference to this transaction, at least by letter.

41. This, however, is not quite the end of the documentary story. Apparently unbeknown to the Bank, or Mr Lee, as a result of this transaction having been 'crossed' on the Board of the Stock Exchange, an arrangement had been entered into between IBI and its sister company, FEB Finance Limited ("FEB"), as to which more later, whereby upon the Bank refusing to accept the deal and to pay for the 3 million 'new' New Era shares, FEB had advanced funds to IBI to cover the shortfall and, in turn, again without reference to the Bank, had opened a margin account in the name of the Bank. The October 1987 and November 1987 statements of this account were then sent to the Bank which, on their face, represented that there existed an indebtedness on the part of the Bank to FEB. It is common ground that the Bank had had no contact in this connection with FEB, and it is perhaps unsurprising that on 9th December 1987, Mr Lee wrote a stern letter of complaint to FEB, the body of which read :

"This is with reference to your margin call statement dated 27 November 1987, a copy of which is enclosed for your easy reference.

We recall that such a similar statement for October 1987 was also received by us which, after consultation with Ms Anna Mak of IBI Asia Securities, this original statement was collected from us by hand and we were informed that the details in there were for some other account. In other words, we understood it to be a matter of the wrong addressee. We would therefore expect a correction to take place immediately. When this was repeated with the Bank of Credit and Commerce HK Ltd as once again the addressee, we feel that it would be very appropriate for us to write to you that at no time ever has this bank been involved in any margin trading activity with your esteem institution and or your associates. We want to make it clear that we do not wish to be sent these margin call statements anymore (erroneously or otherwise) and your confirmation, by return, of this will be appreciated."

The evidence of Mr Lee is that after this letter, which attracted no reply, nothing more was heard from FEB.

42. The final documentary reference to this transaction came in December 1987 when, in response to a request to the Bank from IBI's auditors, Peat Marwick, purporting to verify balances extant as at 31 October 1987, Mr Lee deleted the reference to the 3 million New Era shares, writing by hand thereon :

"Item as cancelled above is not in order. Please refer to copies of correspondence enclosed which are self explanatory."

43. So much for the documents. The final circumstantial aspect upon which the Court has been addressed by both Counsel is in terms of the commercial probability of the disputed transaction. Mr Miu has gone so far as to suggest (certainly at the outset) that the probability was that this transaction was consistent with the Bank creating a 'false market', albeit this was specifically denied in evidence by Mr Lee and, in truth, was not comprehensively developed. In any event, I reject this notion. For his part, Mr Harris suggested that the alleged deal itself made no substantial commercial sense because he said the $6.90 purchase price per 'old' share represented the figure of $2.30 per 'new' share in the 'grey market', and that the evidence was clear that Mr Lee was familiar with the 'grey market' prices at a considerably lower level since he had personally effected transactions therein on behalf of his own private clients. In short, Mr Harris suggested that the prevailing prices of 'old' shares and those of the 'new' in the 'grey market' rendered such a deal inherently improbable, particularly given the avowed purpose of the New Era's restructuring, which was to retire Mr Chim's debt. Moreover, records existed of the Bank successfully selling into the market (the highest price obtained 'cum-all' being $8.80), and of the Bank notifying the Stock Exchange by letter of its sales activities.

44. Notwithstanding these competing arguments, however, I do not think that the 'commercial probability' line of argument greatly assists, and I decline to accord this much weight as a factor in the equation. It seems to me that the concept of commercial probability can more safely be evaluated only in light of established intention, and I am bound to say that I am far from sure, on the curious sequence of events revealed by the evidence in this case, that the full picture of events has emerged, particularly when the ingredients of the dispute are leavened with the volatile events of the intervening Stock Market crash.

45. Be that as it may. Speculation achieves little. The Court can but do its best on the evidence before it, and in this context it is clear that there were indeed discussions in the broad terms of the agreement alleged at the dinner on 12th October. Equally it is clear that that event spawned agitated telephone calls in the week beginning 26th October between Mr Lee on the one hand and Mr Ha and Mr Ko on the other. Mr Rao also was apparently telephoned, but there has been no evidence from him in this case.

46. On the basis of what I have seen and heard, it seems clear that, in their own minds at least, Mr Ha and Mr Ko believed a deal to have taken place, and said as much on the telephone. In this context Mr Harris did not pursue the pleaded allegations of conspiracy and bad faith against Mr Ha and Mr Ko, and in my judgment he was entirely right to do so. On the other side of the coin, however, I am satisfied also that Mr Lee, for his part, held a contrary view and belief, and duly said so.

47. In all the circumstances, I am disinclined to make a finding, 12 years after the events in question, that any of these witnesses have deliberately been untruthful, or that in their evidence they were doing other than express to the Court their respective beliefs as to the true position. In so saying, I do not overlook the myriad of inconsistencies and unanswered questions that have arisen on both side of the fence. Evidence of the dinner and telephone conversations apart, I have been particularly struck by the lack of subsequent documentary complaint by IBI (in this connection it has not even been possible, I am told, to locate a letter before action) and by the way that FEB, having unilaterally opened a margin account in the name of the Bank, then desisted upon Mr Lee's emphatic rejection of the position, both on the telephone with Miss Mak and in correspondence.

48. A further stark imponderable is why in the circumstances Mr Ha chose to 'cross' the transaction on the Board of the Exchange, thereby crystallizing IBI's liability to place the vendors, Mr Ko and Mr Chen, in funds, and to seek redress against the Bank. I am not satisfied on the evidence that such 'crossing' took place with the concurrence of, or upon the direct instructions of Mr Lee, and in this context I am bound to say that I think it more likely that of the two versions proffered by Mr Ha to the Court in terms of the sequence of telephone calls, the 'first version' probably represents his own recollection and belief, and that whatever transpired between these two men on the telephone, as a matter of fact he nevertheless went ahead and 'crossed' the transaction on 30th October 1987 before he contacted Mr Lee later that day.

Conclusion

49. At the end of the day, having seen the witnesses and heard the evidence, and having reviewed the state of the pleadings, I am not satisfied that the Plaintiffs have established, on the balance of probabilities, that there was a concluded agreement in the terms alleged in the Statement of Claim. Having taken the view earlier expressed on the evidence as presented to the Court, the observations of Lord Brandon in Rhesa Shipping Co. Step Ahead v. Edmunds & Another [1985] 2 All ER 712, at 718 (a case cited to me by Mr Harris) are in my view apposite :-

" My Lords, the late Sir Arthur Conan Doyle in his book The Sign of Four describes his hero, Mr Sherlock Holmes, as saying to the latter's friend, Dr Watson: 'How often have I said to you that, when you have eliminated the impossible, whatever remains, however improbable, must be the truth?' It is, no doubt, on the basis of this well-known but unjudicial dictum that Bingham J decided to accept the shipowners' submarine theory, even though he regarded it, for seven cogent reasons, as extremely improbable.

In my view there are three reasons why it is inappropriate to apply the dictum of Mr Sherlock Holmes to which I have just referred to the process of fact-finding which a judge of first instance has to perform at the conclusion of a case of the kind here concerned.

The first reason is one which I have already sought to emphasise as being of great importance, namely that the judge is not bound always to make a finding one way or the other with regard to the facts averred by the parties. He has open to him the third alternative of saying that the party on whom the burden of proof lies in relation to any averment made by him has failed to discharge that burden. No judge likes to decide cases on burden of proof if he can legitimately avoid having to do so. There are cases, however, in which, owing to the unsatisfactory state of the evidence or otherwise, deciding on the burden of proof is the only just course for him to take." (emphasis added)

50. In the particular context of this case, I have no hesitation in deciding this case in this manner. On the state of this evidence, in my view it is not possible to say with any safety whose story is to be preferred, and in my judgment this is the only just course to adopt.

51. However, this conclusion does not represent the end of this particular chapter. During his final submission, for purposes entirely connected with the operation of section 76 of the Securities Ordinance, Cap.333, with which subject I deal shortly, Mr Miu submitted to the Court that in addition to what he referred to as the 'tripartite' agreement of 12th October, there was in fact another operative agreement which took place on 30th October between Mr Lee and Mr Ha of IBI which, if I understand his argument correctly, itself constituted an agreement to buy and sell shares and thereby replaced, at least for section 76 purposes, the agreement allegedly entered into on 12th October at the restaurant dinner.

52. I reject this proposition unreservedly. Apart from the fact that nothing of the sort is pleaded, it is unsupportable on the evidence, not least because I have specifically declined to accept Mr Ha's 'second version' regarding the telephone call to Mr Lee on 30th October 1987. And even if on 30th October 1987 Mr Lee had instructed Mr Ha to 'cross' the deal (which I have found not to be the case), such a situation could hardly avail the Plaintiffs in this case, since any such conversation between broker and buyer could but have been of an administrative nature consequent upon any earlier agreement between the alleged principals thereto.

53. So that this alternative line of attack, which appeared to first see the light of day only in final submission (and which doubtless lay behind the further application, as rejected, to amend the Statement of Claim) in my judgment does not assist the Plaintiffs either.

(ii) The Issue of Enforceability

54. The conclusion reached in terms of the first issue is itself dispositive of this case. In the event that I be wrong in that conclusion, however, I turn now to the issue of enforceability on the premise that such agreement had been successfully established.

55. This element of the case focuses specifically upon the application of section 76 of the Securities Ordinance, Cap.333, the specific wording relevant to this case being highlighted below :

"76. Dealers not to engage in option or forward trading

(1) Except as provided in regulations, a dealer (including an exempt dealer) shall not transact in Hong Kong, or hold himself out as being prepared to transact in Hong Kong-

(a) any dealing whereby the dealer confers on any person an option to purchase from or sell to the dealer any securities listed on the Unified Exchange; or

(b) any dealing in any such securities which is completed later than the end of the next trading day after the dealing was entered into.

(2) Any dealer who contravenes subsection (1) shall, subject to subsection (3), be guilty of an offence and shall be liable on conviction to a fine of $5,000.

(3) It shall be a defence to any criminal proceedings brought under subsection (2) in respect of a dealing mentioned in paragraph (b) of subsection (1) for the accused to prove that he took all reasonable and practicable steps to secure completion of the transaction within the period permitted by that paragraph.

(4) A contract entered into in contravention of subsection (1) shall not be enforceable by either the dealer or the other contracting party." (emphasis added)

56. At the outset it is worth clearing some legislative undergrowth. As I understand the position, there is no dispute between Counsel that section 76 was in force at the time of the events the subject of this case. Nor (I think) that the New Era shares, whether pre or post-restructuring, constituted securities within the definition thereof in the Ordinance. However, if and in so far as this is not conceded, I find that, as a matter of law, they fall within this rubric, as do (lest it be suggested otherwise) the attached warrants.

57. So far as a "dealing in securities" is concerned, this is defined thus :-

"'dealing in securities' (證劵交易), in relation to any person (whether acting as principal or agent), subject to section 3(1), means making or offering to make an agreement with any other person, or inducing or attempting to induce any other person to enter into or offer to enter into any agreement-

(a) for or with a view to acquiring, disposing of, subscribing for or underwriting securities;

(b) the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of securities; "

58. Mr Harris submits that the dispute of the existence of the agreement on 12th October 1987 notwithstanding, any such agreement is caught by the provisions of section 76(1)(b), and thus rendered unenforceable by section 76(4).

59. There seems to be little answer to this argument because, on the face of the Contract Note, completion was not to be until 2nd November 1987, whilst of course the shares in fact were not 'crossed' on the Stock Exchange until 30th October 1987.

60. As I understand the position, Mr Miu did not take his stand on this aspect of the case. Indeed, he appeared to accept that, viewed in isolation, any agreement of 12th October 1987 was indeed caught by section 76. To the contrary. His argument - to which I have made earlier reference - was that whilst 12th October represented 'a deal', the actual 'dealing' in question, at least for section 76 purposes, was that between Mr Ha and Mr Lee during the telephone call of 30th October 1987.

61. Apart from the fact that specifically I have not accepted Mr Ha's 'second version' of events in terms of this telephone call, and think it more likely that, if and in so far as there was a Ha/Lee telephone conversation on the 30th as to 'crossing' the shares, such occurred after the event, I do not in any event agree with the proposition that any such telephone call on 30th October, as opposed to the meeting at the restaurant on 12th October, constituted the relevant 'dealing in securities' for the purposes of section 76. I do not see how this can be sensibly argued, and I dismiss this submission, which was as unexpected as it is untenable.

62. Lastly under this head, I refer briefly to the expert evidence of Mr Richard Witts, called on behalf of the Plaintiffs. Whilst Mr Witts' expertise in the area is unquestioned (and indeed his report was essentially undisputed in cross-examination by Mr Harris) he did not address section 76 nor its implications, albeit his evidence was of assistance in terms of his explanation of the 'grey market', and further for his confirmation of the consequence in terms of broker's liability resulting from the 'crossing' of a transaction on the Board of the Stock Exchange.

63. It follows from the foregoing, therefore, that in my judgment the Plaintiffs fail also upon the section 76 issue.

(iii) The Issue of Loss

64. In light of my conclusions upon the first two elements, this is very much a subsidiary part of this case, albeit it requires examination of the position of the Plaintiffs.

65. On the face of the pleadings, the 1st Plaintiff, IBI, maintains a claim for commission in its own right, having by the Assignment dated 18th May 1988 assigned to the 2nd Plaintiff, Osceola, its rights in the 'debt' due from the Bank to IBI, such rights having arisen by reason of the Bank's pleaded obligation to indemnify IBI for the price of the 3 million shares.

66. The Assignment to Osceola, of course, begs the question about what it was that IBI had to assign. Putting to one side for the moment Mr Harris' arguments that the pleaded claim is in damages whereas the Assignment is framed in terms of debt, what actually happened, so far as IBI was concerned, is that pleaded in paragraph 11A of the Claim, namely, that after the Defendant had refused to settle the transaction in dispute, and in order to overcome problems posed by the liquidity and capital requirements of the Stock Exchange, IBI "sought and obtained an advance from FEB Finance Limited in the sum of $6,639,990", in return for which IBI gave FEB an indemnity "the effect of which was to create a contingent liability in the books of [IBI]".

67. So far so good. Despite the construction arguments, and notwithstanding criticism of the muddled language of the indemnity, the broad framework at least is discernible.

68. However, very late on in the trial it emerged (it must be acknowledged, at the instance of Mr Miu) that a recent company search had disclosed that FEB, to whom IBI had been under a contingent liability, had been wound-up pursuant to a Members' Voluntary Liquidation in 1996. The consequence, as Mr Harris pointed out, was that it appeared that FEB was no longer in a position to make any repayment demands of IBI, so that in fact IBI had suffered no loss. Indeed, any monetary sum accruing to IBI or its assignee in these circumstances would, said Mr Harris, constitute an unjustifiable windfall. And in any event, all that Osceola had been assigned was a debt, when all that IBI had ever had was a claim for damages or, possibly, an indemnity.

69. Mr Miu sought to meet this submission by saying, in terms, that the inter-corporate arrangements between IBI, FEB and Osceola constituted no more than "behind the door accounting", that the "problems must have been resolved", and that "everything now converged on the 2nd Plaintiff", not least by reason of the existence of a further assignment, not disclosed on the papers, but referred to another document deep than the bundles and not referred to until final submission, which is in the form of a letter dated 18th May 1988 from FEB to the Bank and headed "Assignment to Osceola Limited of your indebtedness to F.E.B. Finance Limited and related security". This purported to give notice to the Bank that :

"...by an Assignment Agreement, FEB has assigned to Osceola ... with effect from the date hereof all FEB's rights, title and interest to and in and/or under:-

(a) all your indebtedness to FEB as at the date hereof, no matter how incurred and whether comprising principal, interest, commissions, fees or otherwise ('your debt');

..."

Somewhat oddly, given the factual matrix revealed by this case, this letter concludes that :

"Notwithstanding the above assignment, until further notice from Osceola, we hereby authorize and instruct you to continue to pay to FEB all moneys due and to become due in respect of your Debt and/or under the Documentation; FEB will receive such payments on trust for Osceola and will account to Osceola accordingly."

70. There is no evidence about this apparent FEB/Osceola assignment, which itself appears premised upon a non-existent debt, and for his part Mr Harris has made it clear on behalf of his client that he does not accept that there was such an assignment, that there has been no pleading or discovery thereof, and no evidence led, notwithstanding that it is now suggested that it forms an integral part of the claim underpinning Osceola's right to recover in terms of the action as pleaded.

71. The Commercial Court is not often confronted with a submission that, in effect, 'everything must have been sorted out', such as that Mr Miu put up in this regard. Indeed, he appeared a trifle exasperated that such technical points were being taken. With respect, I do not see why. It behoves every litigant to prove his case, and I should have thought that in the circumstances this issue merited detailed analysis and preparation. This case had already been adjourned for the best part of a morning to accommodate the Plaintiffs to call a further witness, a Mr Brian Chan, upon the loss issue, although in the event I was not particularly assisted by his evidence either. Not only did Mr Chan clearly have little or no independent recollection of events in 1987 and 1988 when he was Group Financial Controller of the IBI Asia Holding Group, but on this point his evidence failed to assist, possibly because at the time he was called it had not been realized that FEB was no longer in existence.

72. Be that as it may. I have no desire to speculate upon the precise position as it now enures in terms of IBI's contingent liability, if any, and whether IBI or Osceola would have been entitled, in the alternative to the present damages claim, to a declaration as to an indemnity. Suffice to say, for the purposes of the action in its present form, had the first two issues in this case been resolved in the Plaintiffs' favour (which is not the case) in any event I am not satisfied either that IBI or Osceola have established a case that there is an entitlement to the damages now claimed. Perhaps the confusion could have been cleared up by a further adjournment to explore the precise position in light of the apparent existence of this other assignment, but none was requested. And, as I have earlier observed, this element of the case is rendered less immediate by the conclusions I have reached upon the first two issues.

Order

73. The result of this lengthy and necessarily detailed judgment, therefore, is that this action must be dismissed, with costs to the Defendant, such costs to be taxed if not agreed. I so order.

74. I thank Counsel for their assistance.