Michael Eric Alexander Bos Mak v. Wocom Commodities Ltd. and Others

CL No. 19 of 1991

IN THE SUPREME COURT OF HONG KONG

CIVIL JURISDICTION

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J U D G M E N T

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1. This action was originally set down for hearing for six weeks. It lasted twice that length. One of the reasons for the increased length has been the fact that as originally framed, the case was confined to a factual dispute turning on the question of whether a stop/loss order had been given in the coffee shop of the Sheraton Hotel in the early hours of the morning of the 9th July 1990 and, alternatively, whether other orders had or had not been given later in the day. Late last autumn, the Plaintiff's case was expanded to include an allegation that the 1st Defendant had, unbeknown to the Plaintiff, been acting as principal when it purported to act as agent. No doubt, there was an endeavour to keep the hearing dates for which Counsel's brief fees had probably already been committed. When leave to amend the pleadings was given there was no alteration to the estimated hearing length, despite the fact that the issues involved in the new plea were quite separate from and likely to be equal in length to those in the existing plea. No doubt also the Court, at that stage, was conscious that nearly two years earlier the first fixture of the trial of the action had been aborted, very much at the last minute, due to the fact that the parties were not ready. This had, therefore, become a case which was clearly destined to be tried and yet unlikely ever to be ready for trial, no matter how much time would be given to the parties. Unfortunately, it was also not noticed that there had been no order for witness statements to be exchanged and to be used as the witnesses' evidence-in-chief. If there had been such an order, I doubt that this action could have commenced in January this year since, from my observation, those statements would not have been ready prior to the trial.

2. Critical to the matters that were canvassed during the course of the case were transcripts of telephone conversations made automatically at the 1st Defendant's premises on a 64 channel recording machine. The telephone transcripts extended to 2 full box files, at least in the English version, and were the subject of minute examination throughout the course of the trial. The net result has been 11 box files of transcripts of the evidence.

3. Much of the evidence turned out to be repetitive and in many instances scarcely of relevance to the main issues; matters relating to credibility were exhaustively examined.

4. In keeping with the expansive approach to almost everything in this case, the pleadings run to a full box file. The fact that this case was transferred to the commercial list a long time ago does not appear to have had any effect on the Jength and intricacy of the pleadings. Moreover, the pleadings were amended at least once on each side after the commencement of the trial and further discovery was given during the course of the hearing.

5. The issues in this action can, in my view, be stated in a few words. The first is whether the Plaintiff issued stop/loss orders at a meeting in the early hours of the 9th July 1990 at the coffee shop of the Sheraton Hotel. The stop/loss orders alleged by the Plaintiff are that his pound sterling position should be closed once the level of $1.7930 was reached and his Canadian dollar position should be closed once the level of $1.16 was reached. The second is as to whether the order which was placed at about 1.47 p.m. on the afternoon of the 9th July at $1.8020 "or better" was the Plaintiff's order or whether the Plaintiff had given a stop/loss order at that level. The third issue is whether the Plaintiff authorized the placing of the stop/loss order which was placed in at 2.51 p.m. on the same afternoon at a level of $1.810 bid and which was subsequently carried out at 3.45 p.m. on the same afternoon. The claim based on attempts by Mr. Mak to trade thereafter was all but forgotten by the end of the trial. It certainly did not feature in the closing addresses. Finally on this aspect remains the question as to whether the order to close the Canadian dollar position which was executed at C$1.1568 was the Plaintiff's order.

6. The issues which were raised by the amendments late last year can be stated as to whether the 1st Defendant was acting as principal or agent in the spot forex transactions with the Plaintiff and, secondly, if the 1st Defendant was acting as principal in some or all of those transactions whether the Plaintiff was aware of that fact.

The Plaintiff

7. The Plaintiff is a man who comes from a wealthy background; he was educated partly in the United States where he obtained a degree in business administration and finally in 1979 a degree in international management. He stayed in the United States until about 1985 and appears to have been involved in real estate investment and development where he was an officer of a corporation in which he acted as a real estate broker. In about 1984 or 1985, the Plaintiff returned to Hong Kong. He says that he was interested in commodities trading but that he did not know much about either commodities or foreign exchange. He seems to have had no employment since returning to Hong Kong. Apparently he devoted his life to speculation in commodities and, specifically with regard to the matters involved in this action, to speculation in spot foreign currency. He was introduced to the 1st Defendant by a Mr. William Lo, who was also a witness in this case. Since Mr. Lo was about to become related to the Plaintiff, instead of introducing Mr. Mak to the 1st Defendant and becoming the Account Executive responsible for his account, Mr. Lo took the Plaintiff to see, inter alia, the 2nd Defendant, who subsequently became the Account Executive under whose control the Plaintiff's account was.

8. At that stage, the Plaintiff was dealing on behalf of Pyrenee Ltd., which was a company owned by the Plaintiff's family. The Plaintiff commenced dealing in gold. Those commodities were bought on recognised exchanges with the 1st Defendant acting as agent. Later, the Plaintiff started dealing in other types of commodities, including in particular loco London gold and loco Comex. There is no exchange upon which loco London gold is traded nor was there any exchange upon which loco Comex gold was traded. I am quite clear that the Plaintiff was well aware of this and well aware that the 7st Defendant was acting as principal in the transactions which it had with the Plaintiff in respect of these items. It appears that there were a few dealings in foreign exchange under the Pyrenee account. In September 1988, the Plaintiff opened an account in his own name with the 1st Defendant and, thereafter, traded both in commodities and in foreign exchange until the events which formed the subject of this action took place. Until that time, the Plaintiff dealt exclusively with the 1st Defendant in relation to commodities and spot foreign currency.

The 1st Defendant

9. The 1st Defendant acted as broker and as I find a dealer. It commenced trading primarily as a commodity broker. As such it dealt for clients on various commodity exchanges around the World. When the loco London gold business first started, it too offered that service to its clients, but as such instead of acting as a broker, it acted as a principal. The 1st Defendant's business in spot forex was originally small. For reasons which I will outline later, I have no doubt that the 1st Defendant has always acted as principal in relation to spot foreign exchange contracts. I consider that many of the difficulties which have arisen in this ease, stem from the fact that the 1st Defendant was attempting to equate as far as possible the dealing in spot foreign exchange with the dealing in other commodities.

10. At this stage, it may be convenient to summarize briefly the arrangement of the 1st Defendant's office. Central to the whole operation was the dealing room. The dealing room was, it seems, out of bounds to everybody except the authorized dealers. Any communication between the dealing room and anybody outside was either done by telephone or by means of chits which were passed in and out. The 1st Defendant was serviced, first of all by Account Executives, who were responsible for being a liaison with outside clients and, secondly, by the Customer Service Department. The 2nd and 3rd Defendants at the material times performed the function of Account Executives of the 1st Defendant. It seemed that the title for the more senior Account Executives was Investment Manager but nothing turns on this as the duties performed were, so far as this case is concerned, the same. Some of the documentation which was signed on the opening of client's accounts with the 1st Defendant suggests that the Account Executives were agents of the client. Such a suggestion was repeated in the 1st Defendant's Defence, see for example, paras. 2(7) and 5(2). In my view, however, it is quite plain that the Account Executives were no more than servants of the 1st Defendant and they were paid partly on commission.

11. If a client of the 1st Defendant wished to obtain a spot foreign exchange quote, the Account Executive or Customer Service Department representative would phone through to the dealing room and ask for a quote. He would be given two prices, a buying price and a selling price. The prices were usually, at least by July 1990, 10 points apart. By way of example, in this judgment a typical quote I will be referring to for pound sterling as against US dollars would have been $1.7920/30. Those prices would be immediately relayed to the client. Until such time as the person in the dealing room were to shout "out", the quote would remain open for acceptance by the client. In a fast moving market that could be quite a short period. The dealing room would apparently provide the quotes partly on the basis of indication rates which were available on at least two text screen services, one provided under the name "Reuters" and the other "Telerate". The foreign exchange screens of those services provide indication rates which are fed in to the system on a continuous basis by various participating institutions, usually banks. It is important to note that these rates are not quotes they are merely indication rates. The dealing room also has direct lines to a number of dealing rooms in other institutions, specifically, I understand, banks. If the client accepts the quote given by the dealing room his Account Executive informs the dealing room as to whether the client is a buyer or a seller and as to the amount involved. The Account Executive then fills in a comparatively simple form which is time chopped and passed into the dealing room. The dealing room then fills out a similar form, summarizing the transaction, which is passed out and initialled by the Account Executive.

12. An alternative method of dealing is for the client to place an order at a price level which the market has not reached, so that in the event of the market reaching that level, the order will be executed. There are two types of such order which are relevant to this case, the first is, an "or better" order and the second is a "stop/loss" order. If an "or better" order is put in at a particular level, once the market reaches that level, the order will be executed at that price or at a better price so far as the client is concerned. A stop/loss order, on the other hand, is an order primarily to prevent further losses on a position held by a client. If a stop/loss order is put in at a particular level, once the market reaches that level, the stop/loss order will be triggered and the order will be executed. The difficulty with a stop/loss order is that once the order has been triggered, the specific price at which it will be executed is not limited and if the market were to move adversely against the client in a short space of time, he may well suffer a greater loss than if the deal had been done at the level of the stop/loss. Again these types of orders are placed by the Account Executive on the instructions of the client.

13. The rather strained and complicated division of labour between the dealing room and the Account Executives, seems to me to be explained by a desire to give at least the semblance that there is some independence between the Account Executive with whom the clients are directly dealing and the source of the quotes and the prices which are eventually arrived at.

14. In 1990 there was a re-arrangement in the "products" dealt with by the 1st Defendant as a result of a re-organization of the Wocom Group of which it was a member. That change is explained in a letter of the 15th May 1990 which was sent to the 1st Defendant's customers. It contains a reference on the second page that the 1st Defendant will cease to act as a broker or dealer for commodity futures trading but will continue to act as a broker and dealer for all foreign exchange contracts. I will come to this particular statement later when I deal specifically with the second part of the Plaintiff's claim.

The 2nd Defendant

15. The 2nd Defendant had been an Account Executive of the 1st Defendant for some time prior to meeting the Plaintiff. He was the investment manager assigned to the Plaintiff's account. He came across in the witness box as being a precise man and someone who knew how to handle the difficulties involved in the rather volatile circumstances of commodity dealing and leveraged foreign exchange dealings. He was a man not prone to take chances but rather to take what he would consider as calculated risks with the downside of the losses limited as much as possible.

The 3rd Defendant

16. The 3rd Defendant was an Account Executive of the 1st Defendant. The Plaintiff appears to have had a much closer understanding with him than with the 2nd Defendant. As a result, it is accepted on all sides that when the Plaintiff conducted his dealings with the 1st Defendant, he did so primarily through the 3rd Defendant. He did so with the concurrence of the 2nd Defendant who remained the person in charge of the Account.

17. The 3rd Defendant came across as a person who is of a far more easy going nature than the 2nd Defendant. He might well have had a facility to trade in commodities and futures but, overall he came across to me as a far less intelligent person than the 2nd Defendant. He clearly had allowed himself to be very influenced by the Plaintiff. The Plaintiff was no doubt responsible for supplying a large amount of both the 2nd and 3rd Defendants' income in the way of commissions which were derived from the Plaintiff's trading. Moreover, the 3rd Defendant derived substantial side advantages from the Plaintiff and in particular trips to Macau and a trip to Bangkok, which I shall mention, and also a payment of HK$180,000 sometime in 1989 together with a promise of a great deal more money at some future and unspecified time when the Plaintiff would be prepared to hand it over. Overall the 3rd Defendant was far too involved in the Plaintiff's affairs and far too mixed up in what the Plaintiff was doing for him to act as an impartial dealer. Hence when he gave advice to the Plaintiff he probably could not give impartial advice and this was in my view the root cause for the instances in the telephone conversations which I shall come to later, when the 3rd Defendant expressed remorse at what had happened. The 3rd Defendant had some years experience in commodities and forex dealing and he was clearly attracted to the chartist approach. This, as I understand it, is basically trying to derive some assessment of the future course of the currencies from an analysis of the historical movements. I approached his evidence with a great deal of caution, since he started with the handicap of having written two conflicting accounts of some of the events pertinent to this action. For completeness, I would mention that the 3rd Defendant was often referred to in the telephone conversations as "Fat Lun".

18. The history of the matters relating to this action and in particular the events from the 6th of July through to the 12th of July were examined minutely during the course of the trial. Assisted by the transcripts of the telephone conversations, the parties went through a detailed analysis of those telephone conversations and, in many instances, often a minute by minute analysis of the actions and thoughts of the parties involved. Some of that I thought was unrealistic. In my view people remember their overall impressions of events, these inevitably become coloured by what has happened subsequently. No doubt hearing telephone conversations again, does help to jog the memory but I consider that caution is necessary in the approach that was made. I shall not go into each and every allegation, but I intend to outline the events as I find they happened, alluding, only when necessary to the allegations and counter allegations.

Matters leading up to the events of the 9th July

19. For the purposes of analyzing the events of the 9th of July, it suffices to say that in the early part of 1990, Mr. Mak was allowed to deal in large amounts of foreign currency without providing any margin security or collateral. He was allowed to deal specifically in sums of US$40m or ￡40m and had a settlement limit of US$2m. In simple terms that meant that he could buy or sell US dollars up to the limit of $40m or ￡40m, without providing any margin at all and if the loss on his account were within the range of US$2m, he would not be required to make any settlement. This arrangement seems to me to have been quite extraordinary. To call this leveraged foreign exchange dealing is to ignore the fact that there was no security up by the Plaintiff. To call the Plaintiff's dealing "speculation" is to my mind to use a euphemism. The Plaintiff seems to me to have merely had the intention of profiting from a likely movement of the foreign exchange markets without thought for hedging an underlying asset or any intention to take delivery of the currency being dealt in. In cases where the losses on his account were to exceed US$2m, the Plaintiff was required to settle the difference within 36 hours.

20. In the early part of 1990, Mr. Mak's account showed a deficit and he was told that by the 31st May he would have to provide a banker's guarantee for US$1m and securities, to be pledged to the 1st Defendant, to a market value of the same amount. That he agreed to do. However, from the end of April his account went into substantial credit and by the month of June when the 2nd Defendant left Hong Kong for Canada, the account showed a floating profit in excess of US$2m. Whilst the 2nd Defendant was in Canada from the 9th of June to the evening of 6th July, a Mr. Kingsley Lai was designated the Account Executive responsible for the Plaintiff's account, although the 3rd Defendant with whom the Plaintiff was clearly very much more friendly than either Mr. Lai or the 2nd Defendant continued to be the person with whom and through whom the Plaintiff primarily dealt.

21. On 23rd June, the 3rd Defendant accompanied the Plaintiff and his wife on a trip to Thailand paid for by the Plaintiff. He arrived back in Hong Kong later than apparently he should have done and was not in the office until the 26th June. That was the day when Mr. Mak's account went into deficit for the first time since the 27th of April. Mr. Kingsley Lai started discussions with the Plaintiff as to what the various limits in respect of Mr. Mak's trading would be, in view of the fact that Mr. Mak was now unwilling to provide any bank guarantee. Eventually, an arrangement was arrived at, at a lunch meeting at the Victoria Hotel on Thursday 28th June. The material part of the agreement for this case being that whereas Mr. Mak would be allowed to maintain open positions up to US$40m or ￡40m with a waiver of the initial margin requirement, the settlement limit was reduced to US$1m. It was also agreed that the Plaintiff would square his Canadian dollar position by the 6th July. The terms of what I find were agreed at that lunch meeting were set out in the letter of 1st July 1990 which was apparently sent by the 1st Defendant by hand to the Plaintiff on the 5th July but never signed by him.

22. On Friday the 29th June, the Plaintiff held a ￡40m short position in sterling and he closed that at $1.7452 and $1.7451. The following Monday however, the Plaintiff again sold sterling short, this time ?20m at $1.7463 and a further $20m at $1.7473. These levels are not greatly different from the level at which he closed his position on the previous Friday. However, the price of sterling did not go in the direction which Mr. Mak had clearly anticipated and margin calls were made. On the 4th July, the Plaintiff paid the 1st Defendant HK$4m on a margin call and, on the 5th July, he paid the Plaintiff a further HK$1.9m after a further margin call. This money was not apparently Mr. Mak's money, but was money which Mr. Mak had access to by reason of the fact that his mother kept substantial deposits in a bank account to which he had access without, it seems, the need for very much consultation.

23. Friday the 6th July was an eventful day. Mr. Mak had currency options which expired that day. He had purchased them at a considerable premium but they expired worthless. The price of sterling meanwhile had continued to drop and a further margin call of US$624,156.35 was made. That was required to be paid by noon on Saturday 7th July. The fact of margin calls was itself a source of constemation to Mr. Mak since the letters were sent by hand to his home in Estoril Court where he lived, apparently, with his elder brother and he was concerned that he might lose face if his brother were to see that he was losing large amounts in his currency speculation. At the lunch on the 28th June, Mr. Mak had agreed to square his Canadian dollar position by the 6th July and Mr. Mak was clearly very conscious of this. In a conversation in the early hours of the morning of 6th July, he asked Mr. Kingsley Lai if he could have a further extension of two weeks in which to square the Canadian dollar position. Mr. Kingsley Lai said that he would try to negotiate on his behalf with the people responsible at the 1st Defendant for agreeing to the limits; in particular there was a Mr. Marcus Hung to whom he would have to talk. In the afternoon of that day Mr. Mak told Mr. Kingsley Lai that he would pay the margin call which was roughly HK$4.86m on the Monday. The delay apparently did not concern Mr. Kingsley Lai who indicated that it would be alright, but he went on to say in the same conversation that he had not mentioned the Canadian dollar position to Mr. Marcus Hung and would only talk to him about it if Mr. Marcus Hung mentioned it.

24. By this stage, a further factor had become of some importance. Mr. Mak had been involved in some deals in Switzerland with a party which, from what I could determine, was likely to go into receivership. In order to save what sums Mr. Mak had already put into Switzerland and, perhaps, to make further investments, Mr. Mak needed a considerable amount of money to be transferred to Switzerland in the coming week. It is my impression that although, as I have indicated, Mr. Mak had at his disposal large amounts of his mother's money without the necessity of directly informing her of what amounts he was helping himself to and the reasons therefor, if he were to pay both on the margin call and use the amounts that he wanted to transfer money to Switzerland, he would be putting himself in a position where, at the very least, he would have to disclose to his mother what was happening and the reason why he was using so much money. He saw as his way out of his difficulties, having the settlement limit on his account raised back to $2m which would then allow his account to go into deficit up to that amount without his having to pay margin calls. An immediate increase to that level would solve the imminent problem of paying the margin call which had been made on the 5th July.

25. The 2nd Defendant arrived back from Canada in the evening of the 6th July and was met at the airport by the 3rd Defendant. They had a meal together. Although the 3rd Defendant told the 2nd Defendant in broad terms that there was a floating loss on Mr. Mak's account he did not go into details. Mr. Leung then went home but later that night went back to the office somewhere between midnight and 1 o'clock in the morning. He looked at the overall picture of Mr. Mak's account; he saw that it was in deficit but he was still doubtless suffering from jetlag and he did not wish to talk to Mr. Mak at that stage. He did however see Mr. Kingsley Lai who, again, gave him an up-to-date picture which included the fact that there was the outstanding margin call, which Mr. Mak had promised to pay on the Monday, and that there was the Canadian dollar position, for which Mr. Lai had not obtained an extension of the settlement date. Mr. Lai also told the 2nd Defendant that there was to be a credit committee meeting on the Monday afternoon when, in particular, the period for the settlement of Mr. Mak's account and the exact meaning of 1½ days or 36 hours in the context of foreign exchange dealing and Mr. Mak's settlement periods were to be discussed.

26. In the meantime, unbeknown to the 2nd Defendant, the 3rd Defendant had several telephone conversations with the Plaintiff. It is clear, and indeed this also emerges from the Plaintiff's previous conversations with Mr. Kingsley Lai, that there were grounds for believing that sterling was likely to rise in the near future, but fall in the longer term. Nobody could predict when the changes would take place nor the extent. The content of the telephone conversations over this period seem to me to be typical of the predictions that were to be read in newspapers from time to time: various events, such as the outcome of G7 meetings and announcements of employment figures, were considered likely to be determinative of the movement of the currency or, at least, relevant thereto. From these conversations, it emerges that both Mr. Mak and the 3rd Defendant were groping as to their predictions and ditherers in their outlook. There is no doubt that the Plaintiff appreciated the difficulty that he was in. In the early hours of Saturday morning, he pointed to the difficulty of his meeting the margin call. At one stage in a conversation shortly after 9 o'clock on the Saturday morning, the Plaintiff blamed the 3rd Defendant for not pressing him to close his position and the 3rd Defendant retorted by saying that when the time came to take a decision, the Plaintiff would think about the matter for so long until the opportunity to hit a particular price had evaporated.

27. The Plaintiff and the 3rd Defendant, however, thought that a way out of their difficulty would be if they could persuade the 2nd Defendant to take up the Plaintiff's request for an increase of the settlement limit to US$2m with the 1st Defendant. They discussed on the telephone how they would try and persuade the 2nd Defendant that it was necessary for that to be done. They agreed that they would ask the 2nd Defendant to come out for drinks early on the Monday morning.

Meeting at the Sheraton Hotel the 9th July 1990

28. In the early hours of the morning of 9th July 1990, the Plaintiff and his wife met the 2nd and 3rd Defendants in the coffee shop of the Sheraton Hotel. According to the Plaintiff, three things were agreed, in the first place, a stop/loss order at US$1.7930 was placed in respect of the pound sterling position, in the second place a stop/loss order at $1.6 was placed in respect of the Canadian dollar position and thirdly the 2nd Defendant agreed that the Plaintiff's settlement limit would be raised to US$2m unless by 11 a.m. the following morning (i.e. the Monday), the Plaintiff had been informed that the 1st Defendant had rejected that request.

29. I have no hesitation in holding that there was no such agreement in respect of any of the three matters which I have outlined above. The primary discussion at that meeting centered around the settlement limit and the 2nd Defendant agreed to attempt to secure a rise of the limit to US$2m. I find as a fact that he made no promise that the settlement limit would be increased. There was some discussion as to closing the pound sterling position that was towards the end, probably just as they were all about to leave, the 2nd Defendant wanted the Plaintiff to close his position and the level of $1.7920/30 was discussed, but there was no agreement that the position would be closed at that rate, still less that a stop/loss order would be placed. There was little if any discussion as to the Canadian dollar position.

30. In reaching my conclusion, I, of course, take into account the evidence of the witnesses and I have assessed that both on its own and in the light of what happened thereafter and the evidence in respect thereof.

Events of the morning of the 9th July

31. Soon after 8 a.m. on the 9th July the Plaintiff called the 1st Defendant's offices and spoke to Mr. Edmond Hung. He asked for the prices of sterling, Canadian dollars and D. Marks. Significantly, he did not ask whether his alleged stop/loss order had been placed, he merely requested that the 3rd Defendant be informed of the prices. The next recorded conversation is at about 8.49 a.m.. On that occasion Mr. Edmond Hung rang the Plaintiff and told him that the price had suddenly jumped to $1.7948. The Plaintiff said in evidence that when he had that conversation with Mr. Edmond Hung, he immediately thought that his stop/loss order had been executed. I cannot accept that. In the first place, not only did he not mention any stop/loss order but he did not ask Mr. Edmond Hung at what level his stop/loss order had been executed and in that respect I would contrast that with the conversation he had at 3.45 p.m. that day. As I have already noted a price level will trigger a stop/loss order but it will not determine the specific price at which the deal will be closed which may be above or below the stop/loss figure. In the second place, all he asked was whether the price which Mr. Edmond Hung had quoted was a real price. This seems to me to be a question that is asked by a person who is thinking what to do. He again ends the conversation by requesting Mr. Edmond Hung to ring the 3rd Defendant which Mr. Edmond Hung indeed did almost immediately. Thereafter, there was as I find a conversation between the Plaintiff and the 3rd Defendant and I would simply say that I do not accept Mr. Mak's version of this telephone conversation where he says that he pleaded with the 3rd Defendant to put in the stop/loss order.

32. I do not accept Mr. Mak's suggestion that there was a telephone call to the 3rd Defendant at about 10 minutes past 8 in the morning when the 3rd Defendant said that he had forgotten to put in the stop/loss order.

33. Just after quarter past 9 that morning, the first of a flurries of activity of that day took place. The 3rd Defendant rang back to the 1st Defendant's offices and was told that the price of sterling had risen to $1.7970. His call was then transferred to the 2nd Defendant who had just arrived back. There is no mention in that call of any stop/loss order. It is quite clear that the 2nd Defendant was of the view that the Plaintiff's position should be closed off and the 3rd Defendant tried to explain why the Plaintiff had dithered. The telephone call concluded on the note that the 3rd Defendant would ring the Plaintiff and speak to him. This conversation is again inconsistent with a stop/loss order having been placed at the Sheraton meeting. I agree with Mr. Tang that this call must have been contrived if there had been such an order. The 3rd Defendant asked that Mr. Edmond Hung should also speak to the Plaintiff and give him the prices. It appears from the transcripts that within half a minute of that call finishing Mr. Edmond Hung did indeed ring Mr. Mak and put the 2nd Defendant onto the line. By that stage, Mr. Mak was apparently in conversation with the 3rd Defendant, who was at home, and the Plaintiff said that he would ring the 2nd Defendant later.

34. In my judgment, the next call that took place was indeed a call when Mr. Mak rang the 2nd Defendant. That conversation was recorded and timed at 9.30 a.m.. Again there was no mention of a stop/loss order. If there had been a stop/loss order placed at the Sheraton the previous night, it is more than remarkable that the 2nd Defendant reminded the Plaintiff of the conversation of the previous evening when he said that the position should have been closed at $1.7920/30. The Plaintiff could only be expected to have rounded on the 2nd Defendant if a stop/loss order had been missed. Instead, he gave a lame chartist explanation for not closing the position.

35. The Plaintiff's explanation for his not even mentioning the alleged stop/loss order during the course of the 9.30 a.m. conversation is that in some other telephone conversation which took place prior to 9.30 a.m. when the 2nd Defendant again interrupted the Plaintiff's telephone call with the 3rd Defendant, the 2nd Defendant had blamed the 3rd Defendant for missing the stop/loss order. I have no hesitation in entirely rejecting the Plaintiff's suggestion that such a conversation took place. The Plaintiff's description of the 2nd Defendant swearing over the telephone about the 3rd Defendant sounded made up. The Plaintiff's explanations for not blaming the 2nd and 3rd Defendants for failing to put in the alleged stop/loss order are unbelievable. His manner of giving evidence when he explained time and again in relation to telephone conversations how he did not want to embarrass the 2nd and 3rd Defendants because he knew the telephone calls to Wocom were being recorded, rang hollow. His suggestions now and again that there were hidden messages or subtle meanings in what he said I also have no hesitation in rejecting. The Plaintiff suggests that after the stop/loss order at $1.7930 had been missed, he regarded it as no longer a matter for which he was responsible and that, again, he gave as an explanation for the things he said and failed to say. Again, I have no hesitation in rejecting what the Plaintiff has said in this regard; it is based on a stray phrase in a conversation to which I shall come later.

$1.8020 or better order

36. The Plaintiff's next allegation is that he placed an order at about 9.30 a.m. on 9th July both with the 2nd Defendant and with the 3rd Defendant which was again a stop/loss order, this time the level was $1.8020. I reject this. The telephone conversation at 9.30 a.m. is clear. Although the level was talked about as a level at which the pound sterling position would be closed, there was no firm order given. It was clear in the telephone conversation when the 2nd Defendant asked the Plaintiff, the Plaintiff said that he wished the 3rd Defendant to "do it according to the machine". That, as I understand it, was that when the level would be reached the 3rd Defendant would watch the screen and the order would be placed according to the Plaintiff's and the 3rd Defendant's reactions at the time. Again, I feel that this was simply another opportunity for these two persons to dither in their approach to dealing. Mr. Mak's suggestion that he was prepared to allow the 3rd Defendant to put in the order when the market reached the level, rather than put in a stop/loss order, because the 3rd Defendant pleaded with him because he had his own position, is in my view fanciful. Again it was as an excuse thought up by Mr. Mak.

37. After the conversation at 9.30 a.m. little appears to have happened and no orders were placed by the Plaintiff either through the 3rd Defendant or by any other means. At about a quarter to 2 in the afternoon, the next flurry of activity took place. There was first of all a call from Mr. Melvyn Chan at Wocom to the 3rd Defendant at home, when Mr. Chan was told that the 3rd Defendant was asleep. The 3rd Defendant says that he was not sleep but simply lying on his bed. Within the next two minutes, however, it is clear that Mr. Chan rings Mr. Mak and almost at the same time the 3rd Defendant rings Mr. Chan. The upshot of those conversations is that the Plaintiff and the 3rd Defendant are left to speak to each other, naturally in an unrecorded conversation since the 3rd Defendant was still at home. Approximately a minute later, the 3rd Defendant rang Mr. Chan and gave the order to buy at 20 "or better". The 3rd Defendant says, and as there was particular challenge to his evidence in this regard I should make clear specifically that I accept this part of his evidence, that the Plaintiff insisted on putting on the limit for the order. That conversation as recounted by the 3rd Defendant was challenged on behalf of the Plaintiff as being far too detailed a recollection of what took place. I accept the 3rd Defendant's account of it as being his reconstruction as best he could of what was said on the telephone on that occasion. Mr. Mak says that he spoke to the 3rd Defendant at about 2 o'clock and begged him to put in a firm order, because at that stage the price was in the region of 10/20, 15/25. I do not accept that and again I find that alleged telephone conversation by Mr. Mak is a fabrication. The truth seems to me to be this, that Mr. Mak gave the order to buy to the 3rd Defendant at 20 "or better" at 13.46 p.m. just prior to the 3rd Defendant ringing Melvyn Chan and placing the order in. At about 2 o'clock Mr. Mak took a shower, he was about to leave with his car which had broken down and the people had either arrived or were about to arrive to tow it away. Just after 2 o'clock, Melvyn Chan rang the 3rd Defendant and told him that the "or better" order could not be done and that the price was now 30/40 and then 25/35. Just a few minutes later, Melvyn Chan again told the 3rd Defendant over the phone what the prices were, and indeed, at that stage that they did seem to have dropped to 28/38 and then 20/30. The 3rd Defendant told Melvyn Chan to wait another 15 minutes. At 2.15 p.m. there is a recorded conversation again between Melvyn Chan and the 3rd Defendant. By that stage, the 3rd Defendant anticipated that some of the position might have been closed off. The price according to the telephone transcript was then 10/20. Hence, the 3rd Defendant might legitimately have thought that part of the deal had been done. That call was brief and it finished with the 3rd Defendant telling Melvyn Chan to wait another 5 more minutes then to call "him" i.e. Mr. Mak after he had cancelled the order. The 3rd Defendant said he was going to take a bath.

38. At 2.21 p.m., Mr. Melvyn Chan did indeed call Mr. Mak, again the conversation was brief, Mr. Mak asks "How is it?" Mr. Melvyn Chan simply says "Cannot be done" and Mr. Mak says in reply "Cancel." It is abundantly clear to me that Mr. Mak cancelled the order of his own volition having indeed himself put in the "or better" order. Mr. Mak's excuse was that the "or better" order was not a proper order and it should have been a stop/loss order. He says he was on the telephone to the 3rd Defendant when Melvyn Chan rang him and he had just heard about the order.

39. With hindsight, of course, one sees that a great deal of the money that was subsequently lost might have been saved if a firm order had been put in. At the time, however, it was a gamble which, apparently, very nearly paid off. For some reason, and it may be due to the opening of the European market at about that time, the price of sterling did indeed drop and it very nearly dropped to the exact level at which the "or better" order could have been executed. I do not accept Mr. Mak's explanation as to the reason why he cancelled the order, namely that it was not a proper order and that it was not his order. In my view, he wanted to hold on to the position because he thought sterling would drop. Neither do I accept what Mr. Mak says about just having heard about the order from the 3rd Defendant. I consider that it is quite likely that Mr. Mak set the time limit during which the order was to be open until about 2.20 p.m. because he was going off to the garage with his car and wanted to be around if and when a deal was likely to be done. Be that as it may, I am quite clear, quite independently of any such theory that the order was placed and cancelled on the Plaintiff's instructions as I have outlined.

40. Mr. Kingsley Lai returned to the office after lunch at almost exactly the time that the order was being cancelled, he says he arrived in time to see Melvyn cancelling the $1.8020 order. The time chop for the cancellation is 2.21 p.m.. Mr. Mak said that he left his flat at about half past 2 to go and get his car fixed. At 2.37 p.m. that afternoon, the 2nd Defendant had a further conversation with the 3rd Defendant in which the 3rd Defendant makes reference to a previous conversation with the Plaintiff. The 2nd Defendant clearly expresses his consternation in his question to the 3rd Defendant where he says "Why has it not been hit?" indicating of course why had Mr. Mak's position not been closed? The 3rd Defendant explains that he was hampered as to the $1.8020 or better order. At the end of the conversation, the 2nd Defendant says that he had called Mr. Mak but had been asked to call him back 5 minutes later.

41. Sure enough at 2.40 p.m., the 2nd Defendant called the Plaintiff and the first thing the Plaintiff said was "I have told them to cut but they cannot manage to cut it." The 2nd Defendant then says that if he really wanted to cut it, he should cut at any price, there was then an interchange and on the telephone transcript, there are the words "not my business". Mr. Mak says that he was saying these words to Benjamin Leung. However, he was saying that as he was walking around his car in the carpark that was about to be towed, possibly bending down and looking at the certain positions where the tow truck was going to tow the vehicle. In my view, these words were not said to Mr. Leung, they were said by Mr. Mak to those who were working on the car at the time. I do not accept what Mr. Mak says that he regarded the whole matter as not his business because the 3rd Defendant had made a mistake and had assured him that he would talk to management to get matters straightened out. The Plaintiff's assertion that this was a subtle way of indicating that the 2nd and 3rd Defendants had to bear the responsibility for their fault in not executing the alleged stop/loss order and yet shielding them from the consequences of revelation by reason of the fact that the conversation was recorded, is in my view, and I so hold, yet another fabrication by the Plaintiff designed in some way to salvage his case. Having listened to the tape, I could hear that there was indeed a difference in tempo between the way those words were said and the rest of the tape. In my view Mr. Mak wanted to wait in the vain hope that the market would drop a little, whereas the 2nd Defendant clearly warned the Plaintiff that the market was likely to rise and that his information from his banking fricnds so told him. Mr. Mak appears towards the end of the conversation to have slightly mellowed his views and to be prepared to cut his position. But the conversation ended on an inconclusive note with the telephone call being cut and Mr. Mak apparently being more concerned about what was happening to his car than what was happening to his short sterling position.

42. Half a minute after that conversation ended, Mr. Leung again telephoned the 3rd Defendant and repeated what Mr. Mak had said that the 3rd Defendant had not cut the position for Mr. Mak. The 3rd Defendant again repeated that he had been given a limit and that is why the 20 "or better" order had been put in. The 2nd Defendant was clearly at this stage extremely frustrated and one can understand why. He could see the Plaintiff's position getting worse and he could not persuade Mr. Mak to see sense namely that the position should be closed immediately. It is quite clear the person who was dealing with Mr. Mak was primarily the 3rd Defendant and the 2nd Defendant was really attempting to advise the Plaintiff through the 3rd Defendant. The conversation ended with the 3rd Defendant saying that he would call Mr. Mak. Almost immediately after that conversation finished, Mr. Kingsley Lai rang the 3rd Defendant and asked him whether he knew what was happening, he described it as a big mess. The conversation did not last very long. The 3rd Defendant said something which I find barely distinguishable on the tape, but which has been transcribed as being he was discussing with the 2nd Defendant an "undercutting price". This expression clearly caused some confusion in Mr. Lai's mind and whilst he was still expressing some surprise and, I have no doubt, trying to work out of the meaning of that expression, the 3rd Defendant said that the Plaintiff would be calling him. Mr. Kingsley Lai thereupon stopped the conversation. I do not read this conversation and the reference to a big mess as meaning that the 3rd Defendant had missed placing a stop/loss order first thing in the morning. Rather I see it as Mr. Lai trying to galvanize the 3rd Defendant into some action and trying to persuade him to instill some urgency in the Plaintiff to stop him dithering.

43. Thereafter, I find as a fact that almost immediately there was a conversation between the 3rd Defendant and the Plaintiff. That must, it seems to me, have taken place at about 2.48 p.m. that afternoon. I accept the 3rd Defendant's version of that conversation where he says he explained to the Plaintiff that the 2nd Defendant was grumbling and making a lot of noise and that sterling kept on going up and there was no definite limit to it and that Mr. Mak should put in a stop/loss order at $1.81 on bid, that is, therefore, at $1.8100/10, that Mr. Mak should not hesitate and he should not say later that he wanted the order withdrawn. I hold that Mr. Mak agreed and confirmed that order. As a result at 2.50 p.m., the 3rd Defendant rang the 2nd Defendant and put in the order at $1.810 bid. The dealing slip is time chopped at that time. As matters turned out later if the level had been pitched slightly higher the order would not have been executed and such a high loss might not have been suffered. I have no doubt that in retrospect the 3rd Defendant felt that he might have advised a higher level and was sorry he had not. I have equally no doubt, though, that it was the Plaintiff who gave the order at the price at which it was fixed.

44. Great play was made by the Plaintiff that the dealing slip was made out by Mr. Kingsley Lai and that in one of the later telephone conversations, Mr. Lai had complained to the 3rd Defendant about being asked to make out the dealing slip and saying he did not know what was going on between the 2nd and 3rd Defendants. There were nit-picking discrepancies in the various witnesses evidence as to exactly who was where and doing what at the time. I do not draw any conclusions of dishonesty or dissemblance in those. I consider that they are consistent with an overall recollection of events but dimming of memory of detail over the passage of time. The most likely course of events is that the 2nd Defendant spoke to the 3rd Defendant in his own room and then immediately thereafter came out and sat in the trading hall next to Mr. Kingsley Lai and because the 2nd Defendant had or wanted to make another telephone call at that time, he asked Mr. Kingsley Lai to make out the slip. I have no doubt, having seen the 2nd Defendant in the witness box and noted his tense character over the period of time he was giving evidence, that he was tense at the time and, indeed, annoyed. I do not equate that with any culpability upon his part as suggested on behalf of the Plaintiff.

45. Some point was sought to be made out of the fact that the 2nd and 3rd Defendants had used the term "bid" when defining the price. I consider it was probably an unusual expression for them to use when trading, but I do not find any dishonesty in what they said in the witness box with regard to their normal use of the expression.

46. Matters then quietened down for about an hour. At 3.44 p.m., Mr. Mak rang the 1st Defendant and spoke first of all to Edmond Hung and then to the 2nd Defendant. During the course of that conversation, Mr. Mak's short sterling position was closed. The first question that Mr. Mak asked at the beginning of that conversation was whether the order had been hit or not. In my view, there was only one explanation for this, Mr. Mak had his financial pager, he could see the prices on it and he saw that the prices were close to the level of his stop/loss order. He knew, therefore, that the order was about to be hit and so whilst he was at the garage, where he says he was, he went to the phone and phoned Wocom to find out the level at which his order had been hit. One contrasts that question, uppermost on the Plaintiff's mind, with the absence of any such question in the conversations early in the morning.

47. There is not one word of recrimination, in the whole of that telephone conversation. There is not one word of suggestion on Mr. Mak's part that the 2nd or 3rd Defendants had been responsible for an enormous loss during that day. The 2nd Defendant indeed went further and told Mr. Mak that first of all he should have cut at $1.7920 and then at least it should have been cut at $1.8020. An incredible thing to say if the 2nd and 3rd Defendants had failed to place stop/loss orders. Some play was sought to be made as to whether Mr. Leung was referring to a $400,000 loss between $1.7920 and $1.8020 or the difference between $1.8020 and the level at which the position was in fact cut. In my view, looking at the conversation in context, it is clear that Mr. Leung is right that he was, indeed, referring to the difference between $1.8020 and $1.8110.

48. Mr. Mak sought to suggest that the reason he rang Wocom at 3.44 p.m. was that the 3rd Defendant had telephoned him just prior thereto. Mr. Mak's evidence was that the 3rd Defendant had telephoned him at approximately 3.40 p.m. or thereabouts. At that stage, Mr. Mak was in the garage, where his car was to be repaired. He says he was talking on his portable telephone and the reception was bad. As a result, he says, he lost contact with the 3rd Defendant, who had just had time to inform Mr. Mak that a stop/loss order at $1.81 had been put in. Mr. Mak says that he looked at his pager and after the phone was cut the first thing he did was to ring Wocom to try and cancel the order. I find as a fact that none of this happened. It is clear from the chronology that at that time the 3rd Defendant was on his way from his home, which I understand is in Kowloon, to the Wocom offices which were at the Wing On Centre near the Victoria Hotel. He drove to work. He did not have a portable telephone. He arrived at Wocom at 4 o'clock or thereabouts. The Plaintiff's Counsel was forced into the position of having to suggest to the 3rd Defendant that the telephone call was placed from somewhere outside Wocom, such as from a restaurant or from the management office at Wing On Centre. This in itself is most unlikely. Certainly I can hardly think of anywhere to stop to make a telephone call if one were to drive from the Hunghom side of the Cross Harbour Tunnel to the Wing On Centre, particularly if one were doing it at 4 o'clock in the afternoon. Moreover, when the 3rd Defendant arrived back at Wocom the first call he made to Mr. Mak was to Mr. Mak's home. He was told by the maid that Mr. Mak had gone out and he then contacted Mr. Mak at his office. He would not have called Mr. Mak at his home had he, some 25 minutes earlier, being calling Mr. Mak on his portable telephone in the garage.

49. This telephone conversation at 4.08 p.m. between the 3rd Defendant and Mr. Mak is, in my view, quite telling. This is the first time after the closing of the position when Mr. Mak was informed that he might not be allowed to sell short again until he had put his account position into order. It is also, as far as I can determine, the first reference in the recorded telephone conversations of the 9th July where the Canadian dollar position was referred to. However, there were two far more important things to my mind. First of all, as in all previous conversations that day including the conversation in the course of which the pound sterling short position was closed, the Plaintiff made no reference to his alleged stop/loss order. In the course of the 4.08 p.m. conversation, the Plaintiff said that he had made a mistake and should not have allowed "them to hit". There was considerable dispute as to whether the word there should be "you", "him" or "them". To my mind, it does not make any difference. The implication which I derive from that is that, at the very least, Mr. Mak had been aware of the order and had been in a position to stop it. I have no doubt that the 3rd Defendant was very upset at the situation. He had over the years allowed himself to become far too involved in Mr. Mak's dealings. Primarily, he gave Mr. Mak advice as to how to trade. I have no doubt that when it turned out that his advice was not the best, he felt very bad about it. The sums that were being dealt with were far in excess of anything which the 3rd Defendant had at the time and to the 3rd Defendant must have seemed massive amounts in the way of a personal fortune at the time. Insofar there are references in any of the telephone conversations, either directly or indirectly to the 3rd Defendant being wrong, making mistakes and making atonement, in my view, it is quite clear that they are all references to advice given by the 3rd Defendant which proved to be wrong. They were made in the context of trying to mollify a most exceptional client. The reference to being all doomed together and the 2nd Defendant killing his son, seems to me to have been in the context of Mr. Mak ceasing to trade, failing to pay Wocom, Wocom then looking to the 2nd Defendant under guarantees, which the Plaintiff and 3rd Defendant might have thought were still in existence and generally the flow of money in the form of profit to the Plaintiff and commissions to the 2nd and 3rd Defendants being cut off. I accept what the 3rd Defendant said about this conversation.

50. Both the sequence of events and what was said during the telephone conversations indicate clearly that the events took place as the Defendants allege and not as the Plaintiff has tried to construct. To find otherwise would be perverse.

51. I do not intend in this judgment to go into all the subsequent events following the closure of the short sterling position. I have noted the points made on behalf of the Plaintiff and I have to say that none of them have come anywhere near to making me think that the Plaintiff might be correct in his evidence as to the primary facts relating to the events which occurred in relation to his trading on the 9th July.

Tai Sang Bank Building Meeting

52. Mr. Mak arranged for the 3rd Defendant to come and see him in his office in the Tai Sang Bank Building as soon as the 3rd Defendant could get away from the office in the afternoon of the 9th July. It ended up with both the 2nd and 3rd Defendants going to that meeting. Exactly who first suggested that the 2nd Defendant should go with the 3rd Defendant seems to me not to matter very much. Again considerable play was made by the Plaintiff's Counsel as to alleged discrepancies in the evidence as to that. In my view, it matters not a jot and the discrepancies were largely immaterial. The meeting started off on a difficult note, as might be imagined. To break the ice the 2nd Defendant asked for payment for some shares which had recently been bought by Mr. Mak's sister. Mr. Mak says that the meeting commenced primarily with the 3rd Defendant being scolded for his misdeeds. This is in keeping with the rest of his evidence where he says that he confined the scolding to times when there were no recorded telephone conversations. The 2nd and 3rd Defendants deny there was scolding, although it is clear from their evidence that there was a form of post-mortem and, inter alia, the fact that the stop/loss could have been pitched higher was mentioned. The 2nd and 3rd Defendants were not disposed to antagonise the Plaintiff because in my judgment all the Plaintiff did in this respect was to make remarks which indicated that the 3rd Defendant could have given him better advice.

53. During the course of that meeting, there was a telephone conversation between Mr. Kingsley Lai and the 2nd Defendant in which Mr. Kingsley Lai gave the 2nd Defendant what could best be described as the interim bottom line terms upon which the 1st Defendant was prepared to allow Mr. Mak to trade. These were that Mr. Mak should meet the margin call immediately and that he should discuss the next day how he was going to pay up the loss which at that stage was standing at approximately US$2.8m. Mr. Kingsley Lai related that Mr. Marcus Hung had said that unless the margin call payment of US$600,000 was paid, there would be no trading. There was a time limit of 8.20 p.m. that night for the payment but on analysis, I cannot see that the time limit made any difference, since without the payment there would have been no trading whether before or after that hour.

54. I mention one phrase at the end of the conversation which has featured in the case. Mr. Kingsley Lai told the 2nd Defendant not to step in the dung again. The 2nd Defendant says he did not understand at the time exactly what Mr. Kingsley Lai was referring to. He says he thought that he was merely telling him to be careful. Mr. Kingsley Lai says that the allusion was to a previous occasion in which a trader, with whom the 2nd Defendant had been dealing, had failed to pay his debts. I believe both parties. I consider that the attempt by the Plaintiff's Counsel to suggest that it was acknowledged on behalf of both Mr. Lai and the 2nd Defendant that the 2nd Defendant had done something wrong that morning, was yet another attempt on behalf of the Plaintiff to make bricks without straw.

55. As I will refer to later, I consider that the main topic of conversation at this meeting was as to whether Mr. Mak could trade without paying further money and as to whether his settlement limit could be raised. I specifically reject Mr. Mak's evidence that this meeting was in great part directed to scolding the 3rd Defendant. Mr. Mak wanted to trade again but I hold, specifically; that he put no order in. No quote was ever obtained and it was quite clear that until the 1st Defendant was satisfied as to the margin call payments, further trading was out of the question. The persons at the meeting were no doubt preoccupied because of the deficit on the Plaintiff's account but there was no animosity. Indeed the party consisting of Mr. and Mrs. Mak and the 2nd and 3rd Defendants then proceeded to have dinner at the Yat Yuen Restaurant on the 38th Floor of Shun Tak Centre.

Meeting at Hilton Hotel

56. The next incident of note is that there was a meeting arranged this time at about 12 midnight which took place at the Hilton Hotel in the early hours of 10th July. At that meeting there was Mr. Mak, Mr. Bill Kwok, who is the Managing Director of the 1st Defendant and the 2nd and 3rd Defendants. Surprisingly, there is little dispute about what took place at that meeting. Importantly it was made clear to Mr. Mak that there would be no trading unless he produced money. Significantly, Mr. Mak made none of the complaints which formed the subject of this action. There was no suggestion of a stop/loss order having been placed at the Sheraton Hotel. There was no complaint about the $1.8020 "or better" order. There was no complaint about the final sale. There was no complaint about Mr. Leung having agreed to increase the settlement limit. This would be particularly surprising, it seems to me, since Mr. Mak's story had already begun to emerge in the telephone conversation he had, primarily with the 2nd Defendant, starting at 10.49 p.m. that night. Even in that conversation, he does not make any mention of missing a stop/loss order which he now says had been placed at the Sheraton Hotel the night before, nor does he make any reference to the "or better" order, he simply says that the final order was not placed by him and that he had told the 3rd Defendant many times that day to shoot the target. His story is clearly unformulated by that stage. I do not accept his explanation in respect of the 10.49 p.m. conversation that there were unguarded remarks made during the course of a long conversation where he dropped his guard and made incriminating remarks which were recorded and could subsequently be listened to. I accept what the 2nd Defendant said about this conversation. At first, he did not appreciate exactly what Mr. Mak was saying. Later, he realized that Mr. Mak was upset at having lost so much money and that he was saying things in desperation and making use of the 2nd and 3rd Defendants as an excuse. In view of the importance of the Plaintiff to the 2nd and 3rd Defendants as a source of income, I have no doubt that the 2nd Defendant would have preferred if possible to pacify the Plaintiff rather than pick up every word he said and have a row with him.

The formulation of the Plaintiff's story

57. After the meeting at the Hilton Hotel, Mr. Kwok took Mr. Mak home by car. Mr. Mak apparently told Mr. Kwok to go back and listen to the tapes but made no specific allegations. Shortly thereafter, however, Mr. Mak's story began to take shape in his mind. At 1.30 a.m. that morning of the 10th July, Mr. Mak phoned the 3rd Defendant at the Wocom offices and asked him to come out. The Plaintiff drove down in his car. The 3rd Defendant got in and they drove back to the car park at Estoril Court. It was then that the Plaintiff's story first began to take form. He said that he was going to blame the 3rd Defendant for an oversight for having missed an order. The 3rd Defendant's immediate reaction was that Mr. Mak was talking about the $1.8020 "or better" order. He reminded Mr. Mak that everybody in the company knew that it was Mr. Mak who cancelled the order. Mr. Mak, however, said that he was talking about an order he had placed earlier that morning, at the level of $1.7930 which the 3rd Defendant had missed and later he cancelled the $1.8020 order. He would say that he cancelled the "or better" order because when he came to know about that, which was not an order placed by him, of course he would have to cancel or withdraw the order. Mr. Mak was then going to go on to say that for some reason unknown to himself, the 3rd Defendant had covered the position at $1.8100. Mr. Mak explained that he had done the calculations and that if his position had been covered at $1.7930, the loss would have been merely about $2m. He also went on to say that he was going to say that the 2nd Defendant had promised at the Sheraton Hotel that the settlement limit would be raised to $2m. I accept the 3rd Defendant's version of what happened.

58. The Plaintiff says that there was indeed a meeting; all that happened was that the 3rd Defendant came downstairs from the Wocom offices and the Plaintiff scolded him whilst the 3rd Defendant said nothing. The Plaintiff then stopped scolding him because he felt he was getting nowhere. I find that the Plaintiff's evidence on this stretches the imagination beyond proper limits when read on paper and was simply unbelievable as recited in the witness box.

59. Shortly after this meeting, Mr. Mak called Mr. Kingsley Lai at about quarter past 2 that morning. He started by making unspecific allegations against the 3rd Defendant; he said that the 3rd Defendant had done something wrong. Then he went on to say that at $1.79 he had been telling Fat Lun the whole morning to hit the target. The purpose of this conversation seems to have been to explain to Mr. Kingsley Lai that he had been promised that he could trade again. Mr. Mak went on to say that at the Sunday meeting at the Sheraton, the 2nd Defendant had said that he would negotiate an increase in the settlement limit for Mr. Mak at $2m. Later in the conversation Mr. Mak said that he had been told that there was no problem with the settlement limit of $2m and that if there were to be a problem he would be called. At one stage whilst he was saying that he had asked Fat Lun to hit the target at $1.7930, he said that that had been decided on the previous evening. All these allegations, however, are made in the context of Mr. Mak wanting to trade and it is clear that what Mr. Mak was doing was using all sorts of excuses to try to persuade Kingsley Lai to put pressure on the 1st Defendant to allow him to trade again, so that by speculating he could recover some of his lost position. As a result of that call, Mr. Kingsley Lai called the 2nd and 3rd Defendants into a meeting and warned them to be careful of Mr. Mak. No doubt at that stage he appreciated that the close relationship that existed between 2nd and 3rd Defendants and the Plaintiff might be a cause of problems. There is every reason to suspect that Mr. Kingsley Lai was concerned that the Plaintiff might manipulate the 2nd and particularly the 3rd Defendant.

The "white telephone" conversation

60. Later that morning at 4.23 a.m., there was a telephone conversation between the 3rd Defendant and the Plaintiff. That conversation was deliberately made on a white telephone. Apparently it was thought at the time that the white telephone which was in one of the offices at Wocom was not connected to the recording machine and, therefore, it was thought that the parties were able to speak freely. I was urged on behalf of the Plaintiff to consider this call carefully, because it was said that unlike other telephone calls which the Plaintiff knew to be recorded and therefore felt inhibited, in this telephone conversation, the Plaintiff was uninhibited. Therefore, it was said, the transcript was likely to reveal the true situation. I have considered the transcript of that phone call more than once fully and carefully together with what was said about in the evidence and of course the submissions that were made. I consider that the Plaintiff's Counsel is correct in one aspect. It is a revealing telephone conversation. It clearly reveals the Plaintiff in a very bad light and it does nothing to assist his case. On the contrary, if it were possible, it damages it further.

61. The conversation starts by the Plaintiff saying that although he has money to make the margin call payments, he does not want to use it by paying Wocom. A clear indication to my mind that that part of his mother's money to which he had easy access was earmarked in his mind for use in Switzerland. The Plaintiff clearly felt insulted. He felt that he was a very rich person and came from a very rich family. He felt his credit worthiness was beyond reproach and that the 1st Defendant and those responsible for running it should appreciate how wealthy he was, a factor which he regarded as being widely known in Hong Kong and Macau, and they should have allowed him virtually unlimited credit. It seemed that the Plaintiff in effect believed that his and his family's wealth not only demanded as of right the unsecured credit which he was clearly already allowed, but made it unreasonable not to allow him such further credit as his fancy required. One of the points in the conversation on which on the Plaintiff's behalf great reliance is placed namely the suggestion that the 2nd and 3rd Defendants had made mistakes. Read in context what that passage said was that the Plaintiff liked trading at Wocom, he had never complained in the past when the 2nd and 3rd Defendants had made mistakes (which were unspecified), and that he regarded everybody in Wocom as being one of his brothers. It was for that reason that he was very disappointed that now when times were bad for him, Wocom would not let him trade. He then went on to say that he could trade with other people. There was one remark in the course of the conversation where Mr. Mak says that "Today you ...... hit my target". Taken out of context, as it was in argument, it might give credence to the suggestion that the Plaintiff was complaining that the final order at $1.81 was not placed by him. However I consider that when taken in context all Mr. Mak was doing was bemoaning the fact that his position was closed, he was not suggesting that he did not authorise it.

62. It seems to me on reading this conversation that insofar as the 3rd Defendant expressed himself to be at fault, it was in giving wrong advice. Towards the end of the conversation it is clear to me that the Plaintiff and 3rd Defendant were travelling over old ground demonstrating clearly to any impartial listener that they had dithered and been indecisive which had led to positions being held whilst the market moved against them. I conclude my remarks in relation to this conversation, which is said to be so revealing, by pointing out that I have found on a fair and proper reading and taking into account the evidence that there was no admission that either the $1.8020 "or better" order or the $1.8100 bid order was unauthorized. There was no mention at all of a stop/loss order at the Sheraton. The indication in that conversation was that Mr. Mak would pay his debts. When the 3rd Defendant used the word atonement he had been referring to the wrong advice which he had given the Plaintiff. As he said in his cross-examination, and I accept, during the 9th July the Plaintiff had been asking him if there was need to cover: I am quite certain that the indecisive nature of the two participants to which I have already referred led to dithering that dithering led to further losses. The 3rd Defendant was acknowledging his role in that process.

The prospect of litigation

63. The position of the respective parties namely the Plaintiff and the 1st Defendant became increasingly crystallized and hardened. The 1st Defendant was insistent that Mr. Mak should make an immediate payment and wanted payment of at least half the amount that was owing, namely US$1.4m. Mr. Mak, on the other hand, was willing to talk in terms of paying $800,000 in 30 days and $2m by the end of August. The parties were clearly far apart and Mr. Mak was getting no closer to being able to trade. If Mr. Mak could not trade immediately with Wocom, he was threatening to withdraw all his business from Wocom. At one stage, at about 8.30 p.m. in the evening of the 10th July, which I shall return to later, the 2nd Defendant went to Mr. Mak's flat and he was treated to a meal. The object of the visit was, in first place, to try and persuade Mr. Mak to pay what was owing. Nothing could be arranged. During the course of that visit Mr. Leung mentioned that the 1st Defendant had already instructed lawyers. Mr. Leung told Mr. Mak that if he did not pay it was likely that Wocom would sue him. Mr. Mak's reaction was that he became angry. During the course of that visit to Mr. Mak's flat, the 2nd Defendant spoke to Mr. Kingsley Lai on the telephone at 9.40 p.m.. It is noteworthy that the telephone conversation started with a reference to the matter going to Court and as to how Mr. Mak threatened dire consequences for all involved should that happen. Mr. Kingsley Lai was more concerned with Mr. Mak's outstanding Canadian dollar position. Mr. Leung told Mr. Lai that the Plaintiff did not care about the Canadian dollar position. The 2nd Defendant said, in the witness box, that the Plaintiff merely said to inform him at what level the Canadian dollar position was squared.

64. I have no doubt that the information which the Plaintiff gathered as a result of the 2nd Defendant's visit provoked the Plaintiff into the subsequent action which he took.

The 3rd Defendant's written statements

65. The Plaintiff's Canadian dollar position was cut at 38 minutes past midnight in the morning of the 11th July. Those at the 1st Defendant were unable to contact Mr. Mak on the telephone at that stage and so a fax was sent informing him of the fact and of the level. However, just after 1.30 a.m. in the morning, the Plaintiff rang Wocom and persuaded the 3rd Defendant to come up to his home. Whilst the 3rd Defendant was at the Plaintiff's home, the Plaintiff tricked the 3rd Defendant into making the statement which on its face supports part of the Plaintiff's case. I have no hesitation in holding that that statement was dictated by the Plaintiff. As has been pointed out to me, it has all the hallmarks of the formal language which the Plaintiff is capable of using, at least from time to time.

66. Moreover, when the statement itself is looked at, it can be seen that two points are made. In the first place, the primary point of the statement is the alleged promise by the 2nd Defendant at the Sheraton meeting that the Plaintiff's settlement limit would be raised to $2m unless the Plaintiff were informed by 11 a.m. the next morning. Here we have the final crystallization of the Plaintiff's story in this regard. If one considers all the transcripts of telephone conversations, one can see that it was the Plaintiff's inability to trade that troubled him. He wanted the settlement limit raised so that he could trade. It is therefore that which forms the key feature of the statement.

67. The other matter mentioned in the statement is the suggestion that the 3rd Defendant was at fault in failing to place the stop/loss orders which had been placed with the 2nd Defendant allegedly at the Sheraton meeting. When read carefully it can be seen that the statement only barely implicates the 3rd Defendant to the extent that it is said that the 2nd Defendant instructed the 3rd Defendant to execute the stop/loss orders on the pound sterling and the Canadian dollar positions at 8 a.m. on the 9th July. There is, therefore, an admission of a default or failure to act on the part of the 3rd Defendant. It is noteworthy that there was no reference there to the $1.8020 "or better" order nor is there any reference to the closing of the positions being unauthorized. The Plaintiff does not by that stage seem to have turned his attention to any allegation in respect of the "or better" order. Furthermore, given the amiable and pliable nature of the 3rd Defendant and given the fact that he felt beholden to the Plaintiff for the greater part of his income and was clearly much in awe and influenced by him, it is perhaps understandable that the 3rd Defendant could be tricked into making an admission of omission, but it would probably have been a very different thing for the Plaintiff to have asked the 3rd Defendant to admit that he had traded wrongly and in an unauthorized manner.

68. The 3rd Defendant considered that by giving the statement to the Plaintiff, he would in return persuade the Plaintiff to propose terms of settlement which would be acceptable to Wocom. I agree with the Plaintiff's Counsel's criticism of the 3rd Defendant's approach since he seems unspecific as to what those terms would be. This, however, is part of the trouble of doing business in the early hours of the morning and I am sure by that stage the 3rd Defendant was not thinking straight particularly given the events of the preceding 48 hours. Moreover, the 3rd Defendant did not, as I have already said, come across to me as a remarkably intelligent person. The 3rd Defendant says that the Plaintiff promised that he would not use the statement in litigation and that he had made up his mind that should the statement ever come to light, he would simply deny the contents of it. The 3rd Defendant said that he was at a loss to find a reason to refuse writing the note and I consider that the influence which the Plaintiff exerted over the 3rd Defendant caused the 3rd Defendant to write that note.

69. I have given the matter of the statement written out by the 3rd Defendant very careful consideration because clearly this was a contemporaneous statement and the least that could be said about it is that the 3rd Defendant was giving conflicting versions of what had occurred. Nevertheless, I am convinced that the contents of this statement were a total fabrication on the part of the Plaintiff and the statement was dictated by the Plaintiff.

70. I accept the 3rd Defendant's evidence that he was not given a copy of the statement by Mr. Mak although of course, it would have been very easy to have copied it on the fax machine. I also accept that the 3rd Defendant did not tell anybody of that statement until after the issue of the Plaintiff's writ whereupon he confessed to having made it and was thereupon asked by the 1st Defendant's own solicitors to make a written statement in respect thereof. That he did on the following day, namely, the 7th August.

71. The 3rd Defendant later tried to retrieve the statement from the Plaintiff during a visit to his apartment which he made in the company of Mr. Leung. On the evening of 11th July at about 8 o'clock, they went to the flat and Mr. Mak searched the 2nd and 3rd Defendants apparently looking for tape recorders. Mr. Mak apparently accused the 2nd and 3rd Defendants of making mistakes. The 2nd Defendant's reaction was that Mr. Mak was crazy. Mr. Mak was talking in terms of suing for opportunity lost. There was no conclusion to that meeting in the evening of the 11th July and at about 5 a.m. the following morning the 12th July, the 2nd and 3rd Defendants went back to Mr. Mak's flat. The 3rd Defendant used an excuse that the 2nd Defendant might want to telephone his wife in Canada to persuade the 2nd Defendant to use the phone in another room. Whilst he was out of the room he tried to persuade the Plaintiff to give him back his statement. The Plaintiff refused. It is clear that by this stage, the 3rd Defendant was beginning to realize the difficulty of the situation in which he had placed himself.

72. A strong attack on the 3rd Defendant's credibility was mounted, in part based on the fact he had secured payments of $180,000 both from Mr. Mak and Wocom without telling the other party of the other's payment. These were to help him pay a customer for losses which another client had sustained but for which the client was blaming the 3rd Defendant. Eventually the 3rd Defendant did not have to pay as much of the client's losses as he had at first feared. He did not however repay the balance to Mr. Mak and he also was able to secure a loan from the 1st Defendant which was attributable to the same sum. That latter loan was to be written down after a year. I can see how the 3rd Defendant got himself into the situation. In part by reason of the fact that he wanted to keep his own affairs to himself, he did not want to reveal the full picture to the other parties. In respect of the 1st Defendant there was no doubt a considerable reluctance on Mr. Hung's part to reveal that he had taken money from Mr. Mak. Hence when he was asked about where the money came from to reimburse the client he made up a story which left Mr. Mak out. In respect of Mr. Mak, Mr. Hung no doubt felt that if he could obtain and retain cash from him, which was part of a larger sum which the 3rd Defendant says that Mr. Mak had said he would pay the 3rd Defendant following a successful series of deals, then Mr. Hung felt he was justified, in his own mind at any rate, in keeping it. I have borne this incident in mind in assessing the evidence of the 3rd Defendant. I consider that it does reveal an opportunistic and perhaps a greedy streak. I do not consider that Mr. Hung's dissemblance and lack of candour with the parties involved is something which makes his evidence in this case unbelievable.

Conduct and Credibility of Mr. & Mrs. Mak

73. It is an inevitable conclusion of the findings which I have already made that the Plaintiff has acted not only as a liar but as a knave in the most acerbic sense of that word. Having seen him at length in witness box, this is the conclusion to which I feel I must inevitably come.

74. I have not specifically dealt with the evidence given by Mrs. Mak. She is a former actress. The kindest thing that can be said about her evidence is that it was given in a manner of an actress who has learnt her lines but has yet to perfect her acting. I point to only 2 passages in her evidence. The first is a passage at the commencement of the cross- examination by Counsel for the 2nd and 3rd Defendants where she extolled the virtues of her husband as she saw them. I was reminded of it by Mr. Fung. I agree with him the passage speaks for itself. It is about as a jejune a speech as one could imagine. The other is her account of what happened at the Tai Sang Bank meeting on the 9th July. In my view uppermost in the mind of the Plaintiff and I have no doubt foremost in the conversation was the fact that the Plaintiff was not allowed to trade and that he wanted his settlement limit raised. This part of the conversation seems to have escaped the attention of Mrs. Mak who said that all that happened was that her husband scolded the 2nd and 3rd Defendants. If I merely found her evidence useless it would be to do injustice to the Defendants. Her naive attempt to give evidence favourable to her husband's case is in truth a manifestation of misplaced loyalty and of the underlying malicious scheme of the Plaintiff to deceive this Court.

The Judgment in default

75. I cannot leave this part of the case without mentioning the judgment in default and the setting aside thereof. Time for service of the Defence was extended from time to time and the last extension expired on the 16th November 1990. That was a Friday afternoon. It must have been abundantly clear to the Plaintiff and, in particular, to his legal advisers that the 1st Defendant, there was only one Defendant at the time, would be defending this action. Unfortunately, the Defendant's Counsel was not able to prepare the draft document in time for it to be checked by the client and the corrections made for filing that day. At 9.30 a.m. on the Saturday morning, without more ado, the Plaintiff's solicitors arrived at Court and managed to enter judgment in default. That same morning an order for a stay of execution was obtained on the basis of an affidavit which was filed by the Defendant's solicitors. The affidavit exhibited the draft Defence. Indeed the draft Defence apparently arrived at the Plaintiff's solicitors at the time they had gone over to Court. The application to set aside the judgment was resisted tooth and nail. One of the major items that was used in that resistance was the 3rd Defendant's statement. I feel compelled to express my judicial indignation at the incident and at the thought that the 3rd Defendant's statement might have been used to perpetrate a gross travesty of justice mounted on the back of what was clearly gamesmanship and what I termed "fast foot work" by the Plaintiff's legal advisers. If it were in my power to alter the award of costs arising from this incident, I would do so.

2nd and 3rd Defendants' telephone conversation

76. Before passing to the next part of the case, there is one further telephone conversation to which I will refer. It took place again, as apparently was usual in this case, in the early hours of the morning. Just before 5 a.m. on the 12th July, a conversation started between the 2nd and 3rd Defendants. That is recorded. It was the subject of much consideration in the evidence and in the submissions. In it the 2nd Defendant discussed with the 3rd Defendant a statement which the 3rd Defendant had given. It refers to amending that statement. On consideration of that telephone conversation and of the evidence given in relation to it, it is clear to me that that conversation is referring to a statement which Mr. Hung had given some hours earlier to the 1st Defendant's lawyers. When he had come out of the meeting with those lawyers, he had apparently been lighthearted and said words to the effect "I did not say yes, I did not say no".

77. It is clear to me that when the 3rd Defendant first saw the solicitors, he was still trying to help the Plaintiff. By giving a vague and indefinite statement to the solicitors, he no doubt felt that in some way some solution to the Plaintiff's problems could be found. The fact that his statement to the solicitors was so vague had caused consternation within the 1st Defendant's organization and in particular to Mr. Kingsley Lai. The 3rd Defendant was saying in the course of the conversation that he had promised Mr. Mak that he would help him and that he could not go back on his word. I consider that parts of this conversation do not reflect well on the 2nd and 3rd Defendants. What they should have said to each other was, "We will tell the truth and leave it at that". Instead of that they were working out things which could be said which would in some way try and help the Plaintiff. I have been particularly cautious in my approach to both the 2nd and 3rd Defendant's evidence as a result of this conversation but it does not alter my view of the credibility of the evidence which they have given and specifically in the respects which I have found.

Canadian dollar position

78. During the course of the trial, little was said or argued about the Canadian dollar position of the Plaintiff. It had been opened as against US dollars in May of 1990 on three separate days, the total amount being $30m. The position had been rolled over and in comparison to sterling, at any rate, although the price had moved, it had not moved anything like the extent to which that latter currency had. It seemed to have been of little interest to the Plaintiff. I reject the Plaintiff's evidence that there was any stop/loss order placed at the Sheraton meeting. As I have said I do not consider that the Canadian dollar position featured much, if at all, at that meeting. I accept Mr. Leung's evidence about the meeting on the 10th July to which I have already referred. In my view, the Plaintiff clearly gave his consent to the squaring of the position and that was squared at the rate of $1.1568.

Plaintiff's Orders to sell

79. The Plaintiff's case is that on 3 occasions after his short position had been closed he tried to place an order to sell ￡40m sterling short. The first occasion was said to be in an unrecorded conversation when he says he rang the 2nd Defendant from the garage where his car was being repaired, the second occasion was in the Tai Sang Bank Meeting and the third occasion was at the meeting at the Hilton Hotel in the early hours of the morning of the 10th July.

80. In respect of the first occasion I do not believe any such call took place. The Plaintiff says that he was told by Mr. Leung that the 1st Defendant could not take any orders from the Plaintiff until the position had been checked with Mr. Bill Kwok. The alleged conversation does not fit in with any of the recorded conversations. I believe that Mr. Mak made this conversation up to justify his overall case. But even if there were such a call any selling by Mr. Mak was clearly quite out of the question. On any footing his account was clearly well over the limit for placing any further orders without making very substantial payments and that he was not prepared to do. I have no doubt that at the meetings at the Tai Sang Bank and at the Hilton Hotel the Plaintiff was expressing his desire to be able to trade again. Clearly no firm quotes were obtained and no orders were placed as they simply would not have been accepted. It is fair to say that by the time of the closing speeches this part of the Plaintiff's claim seems to have been well lost in obscurity.

Principal and Agent

81. The other part of the Plaintiff's case is based upon the allegation that by reason of an agreement between the Plaintiff and the 1st Defendant, the 1st Defendant would charge commission of 0.0002 points on each sale or purchase with the value of over ￡2m or US$2m transacted through the 1st Defendant. That charge or commission would be by way of remuneration for the 1st Defendant acting as agent for the Plaintiff. In the Reply, the allegation is expanded and the Plaintiff avers that the 1st Defendant could act as principal in respect of transactions of or below the value of ￡2m or US$2m. The Plaintiff's case is that unbeknown to the Plaintiff, the 1st Defendant was making a profit on the spot forex transactions which it undertook as agent, or alternatively was acting as principal again unbeknown to the Plaintiff, therefore, the Plaintiff was entitled to rescission and to all the secret profits which the 1st Defendant made. This claim is one which is of course made against the 1st Defendant.

82. Having heard all the evidence, I am satisfied as to two matters. First, that the 1st Defendant at all times acted as principal in relation to spot foreign currency dealings and, secondly, that the Plaintiff was well aware of this and went ahead and dealt with the 1st Defendant on that basis. In those circumstances, that is the end of the Plaintiff's case in this respect too.

83. On this aspect of the case, it is clear to me that the method of trading of Wocom was explained to the Plaintiff by the 2nd Defendant. When the Plaintiff first started trading at Wocom using the Pyrenee account he was ignorant of almost all types of trading, whether it be commodities or anything else. The 2nd Defendant explained it to him. One of the things the 2nd Defendant explained to the Plaintiff was about loco or local London gold. The 2nd Defendant was clear that he explained that in those transactions the 1st Defendant acted as principal or "banker" as he called it. Later, Mr. Mak started dealing in currency futures. It was not until May 1988 that Mr. Mak dealt in spot foreign currency but that was only for one month. In September 1988, Mr. Mak opened his personal account with the 1st Defendant and it seems that probably soon after his marriage in March 1989, he started regular dealing in spot foreign currency as well as in futures. Mr. Leung was clear that he had explained to Mr. Mak that dealing in spot foreign currency was like dealing in loco London gold and that therefore the 1st Defendant was acting as banker.

84. I couple this with the fact that it is apparent that Mr. Mak spent a great deal of his time in the Wocom offices. He, of course, was not allowed in the dealing room, but he was almost a permanent nightly fixture in the trading hall. Given the way in which dealing was accomplished in particular with the Account Executives obtaining quotes from the dealing room and the dealers in the dealing room shouting "out" when the price changed on the screens, I find it difficult to conceive how that form of trading could have been accomplished, had the 1st Defendant been acting as an agent and obtaining and passing on quotes from banks.

85. The Plaintiff could never have succeeded in maintaining its case for as long as it has done in this respect had it not been for what I regard as the unfortunate pleadings of the Defendants. I have already alluded to the filing of the original Defence. At that stage, the only matter at issue between the parties was whether the various orders had or had not been placed. Regrettably it was overlooked that the (1st) Defendant had made an admission that it was acting as agent. I accept Mr. Kwok's evidence as to that. I also accept his explanation as to the filing of the Particulars which were late and were filed at the commencement of a hearing which resulted in the eleventh hour adjournment of the aborted trial of the action in 1992. He said that the Particulars were provided by Counsel so late that nobody at Wocom looked at them. I can well understand that that was true. I do not consider that the manner which the pleadings were prepared by the Defendants is indicative of the fact that the 1st Defendant was indeed acting as agent. Rather what I have given careful consideration to is the fact that clearly the 1st Defendant did not convey to its own lawyers precisely the role which it was playing in relation to spot foreign currency. I have, therefore, carefully considered whether, it it had not conveyed that to its own lawyers, it had properly conveyed that to its clients. Given the facts of the case and no doubt the complications that existed at the time in relation to establishing what had and had not passed between the parties in July 1990, I have no doubt that this matter which was immaterial at the time had escaped the attention of all concerned.

86. Great play was made by the Plaintiff of the fact that the public documents of the 1st Defendant and its associated companies and, indeed, of its ultimate holding company referred to the 1st Defendant acting as a broker. Sometimes the quotations relate to the 1st Defendant being a trader and broker. Again Mr. Mak does not claim to have seen, let alone relied on any of these documents.

87. There was a rearrangement in the nature of the dealing conducted by the 1st Defendant as a result of the reorganization of the Wocom Group. That change is explained in a letter of the 15th May 1990 to which I have already referred and it contains a reference on the second page that the 1st Defendant will cease to act as "your broker or dealer for all your commodity Futures trading but will continue to act as your broker and dealer for all foreign exchange contracts". Mr. Kwok explained in his evidence that this letter was prepared by the 1st Defendant's lawyers and he thought it was correct using the terminology broker in the context as he understood it.

88. The Plaintiff is correct that there is no document specifically describing Wocom as a principal in relation to spot forex. I do not lose sight of the fact that in the daily market letters it is stated that Wocom may act as principal or agents. Mr. Mak said that he did not read the Daily Market Reports. I have no reason to doubt that. I have no doubt he regarded the information therein as yesterday's news. The reason he did not read it is symptomatic of the fact that he was well versed in the spot forex business. Mr. Mills-Owens refers to the fact that the word broker appears 43 times in the documentation relating to the Pyrenee account. That is however not all that surprising when one sees that the word broker has been used as the shorthand reference for for the 1st Defendant.

89. The General Agreement For Customer Accounts forms part of a collection of documents in a book form which Mr. Mak was asked to sign in 1990. Its wording is all embracing and covers the 1st Defendant acting both as a broker and a dealer. From one point of view no doubt it protects the 1st Defendant and allows for flexibility but it does not limit matters so that the client is fixed with knowledge that the 1st Defendant acted as agent.

90. In the Trading Authorization which was not signed by Mr. Mak the 1st Defendant uses the word Agent as the word referring to Mr. Benjamin Leung (or any director). A point which Mr. Mills-Owens submitted was incongruous.

91. In none of the 1st Defendant's confirmations of contract, Statements of Account and Difference Accounts, which were all documents that were provided to the clients, was it stated that the 1st Defendant was acting a principal. Indeed in confirmations of contract in 1987, copies of which were exhibited P.5, the documentation on the same pages relate to contracts where Wocom acted as principals (namely loco London Gold) and others where they acted as agents specifically where currency contracts were purchased on the IMM exchange. That was not apparently the case in more recent documentation which does not have both types of contract on the same sheet. Both Section 45A of the Commodities Trading Ordinance and Section 75 of the Securities Ordinance require contracts to which those sections relate to contain where the dealer is acting as principal, a statement to that effect. Those Ordinances of course do not relate to spot forex. No doubt also stock exchange regulations require stockbrokers to disclose if they act as principals; there may also be a difference in the incidence of stamp duty in such transactions. But that again has no bearing on spot forex dealing which hitherto seems to have been devoid of regulation.

92. Mr. Mills-Owens relied upon the Wocom brochure which seems to have been issued in about April or May 1990 as not indicating that the 1st Defendant was acting as principal in spot forex and indeed in using the words "We maintain dealing lines with major international banks and brokers to ensure quick executions of orders for clients". Whilst not specifically stating that it acts as agent that is at least consistent with that position.

93. It has to be accepted that the term broker usually means someone who is acting as a middleman. In spot foreign exchange contracts it seems that banks and other institutions may use the services of specialised brokers particularly when they want to hide their own identity from parties with whom they may be dealing. A number of extracts from books relating to trading both in Hong Kong and elsewhere were produced by the Plaintiff's legal advisers. Indeed reference was also briefly made to the draft Bill to regulate Leveraged and Foreign Exchange dealings, and to the explanatory memoranda. None of these, it seems to me, leads to the conclusion that the 1st Defendant was or must be taken to have been acting as agent in the spot foreign currency transactions with the Plaintiff.

94. Of course, until the reconstruction of the Wocom group, to which I have referred previously, took place, the 1st Defendant was indeed acting as broker in relation to futures and commodities. As Mr. Bill Kwok said in evidence, if somebody had stopped him in the street and asked him what the 1st Defendant's business was, he would have said it was a brokerage house. None of the public documents, however, seem to have been drawn to the attention of the Plaintiff still less does he aver he relied upon them. The same is true of the brochure, apparently produced in about April or May 1990 to which I have just referred. Again, the Plaintiff never saw or relied upon this document.

95. The account opening forms of the 1st Defendant could have been far more clearly drafted. Many points were taken on them including the multiple use of the word broker. However, in view of the fact that many of those instances of use relate to documents where the word "broker" is used as a shorthand for the 1st Defendant, these documents do not in my view take the matter any further. Again, the Plaintiff does not say he relied on that. Rather the Plaintiff says he relied upon statements of Mr. Antonio Chan, Mr. Kingsley Lai, Mr. Bill Kwok, the 2nd Defendant and the 3rd Defendant. The Plaintiff says that at a dinner hosted at the Fook Lam Moon Restaurant which seems to have taken place on the 13th December 1989 Mr. Bill Kwok asked whether Mak considered the two points which the 1st Defendant charged the Plaintiff to be fair. Mr. Bill Kwok denied saying any such thing. I accept what Mr. Kwok says and indeed what Mr. Antonio Chan said and also what Mr. Alan Hung and Mr. Kingsley Lai also said about the Plaintiff's behaviour being consistent with knowledge that the 1st Defendant was acting as principal in spot forex transactions.

96. The 1st Defendant's method of trading in relation to spot foreign currency was originally that for deals and excess of US$250,000, it would charge 2 points for a day trade and 3 points for a night trade. That is explained in a memo from Mr. Antonio Chan dated the 23rd November 1984. This memo was made the subject of minute examination on behalf of the Plaintiff in an attempt to show that the 1st Defendant was indeed acting as agent. It contains a sentence "All executions will be performed by other financial institutions and it should be understood that such institution and Wocom perform on a "not held basis''''. I accept what Mr. Antonio Chan says of this memo. Mr. Antonio Chan's English was clearly not good. Unlike other witnesses, I noted that he did not appear to understand the questions before they were translated for him. It is, therefore, not surprising that he left it to his secretary to translate what he wanted to say. There was obviously difficulty in translating the concept which was eventually referred to by the words "not held basis". His secretary could not understand how to put it in English and so they used the words "not held basis" which were words which Mr. Chan gave his secretary. They were words which Mr. Antonio Chan felt he understood the meaning of. He said that the point was to tell Account Executives and customers that they should not compare any rates which they might have obtained from other institutions against those quoted to them by Wocom.

97. I might also add that the 3rd Defendant gave a strained interpretation of the meaning of the words "All executions would be performed by other financial institutions". He said, in effect, it only applied to trading in the West Coast of the United States. That, it seems to me, cannot be right, but I do not regard the 3rd Defendant's misunderstanding of this document, which does not seem to have been something to which he paid any attention certainly during the period relevant to the events in this Action, as in any way significant. Nor do I find his evidence in this respect alters my view on his credibility generally.

98. In late 1988, Mr. David Kwok was still Managing Director of the 1st Defendant, a committee, which did not seem to have had a very long life called the Product Development Committee, considered foreign exchange dealings. They wanted to increase the amount of business the 1st Defendant did in spot forex. The committee was critical of the large dealing spread quoted by the dealing room. The committee recommended a new regime in which for a period of 3 months, pips would not be added. That meant the two points for day trade and three points for night trade would be removed. Following that in late December, Mr. David Kwok whilst he was still the Managing Director, sent a memo to all relevant staff of the 1st Defendant including the Account Executives telling them of the new arrangements and that the dealers would be quoting prices with a small dealing spread as far as possible in order to attract more business in spot forex trading so that the dealers could create positions in foreign currencies for the house dealings. Nothing was said in the two memos about the two points, but Mr. Chan told me that what in fact transpired was that because he was unhappy about the removal of the points entirely eventually a compromise was arrived at, whereby two points would be added for deals in excess of US$2m or ￡2m. No memo to that effect was produced. Whether one existed or not, is an open question, it seems there might have one but nobody is certain. Even the memos of December 1988 which were produced, were only produced late as a result of searches through various persons' files rather than from the 1st Defendant's own files which apparently no longer had them. I would also draw attention to the fact that on the 1st January 1989, Mr. Bill Kwok took over as Managing Director. He clearly had a different management style which entailed allowing the staff very much greater flexibility in what they did and the way they did it; there was clearly less documentation that was generated under his regime. I would add here that Mr. Bill Kwok said that he divided his time equally between the Wocom business, the Fortuna Hotel which he ran and the parent company's business. Hence he only gave about a third of his time and attention to Wocom's business.

99. One merely has to consider both the terms of the memo of the 22nd December 1988 and, indeed, the fact that the 1st Defendant was not charging points on deals up to US$2m and ￡2million sterling to appreciate that Wocom must have been acting as principal at least on those deals. Had theynot been so acting, they would have been performing a free service for their clients. Furthermore, it would have been a free service which entailed paying the Account Executives commission. As was pointed out, Mr. Mak, when he gave evidence, suggested that he was told by the 2nd Defendant that for deals of "2 million" and under the 1st Defendant would simply quote a price but be acting as agent whereas for deals above "2 million" they would have to obtain quotes. The logical fallacy in that approach did not go unnoticed by the 1st Defendant's Counsel. The inclusion of the words "as agent" cannot have been correct since as I have pointed out the 1st Defendant would on that footing have been providing a free service. As I have already held, the 2nd Defendant told Mr. Mak no such thing. I have already alluded to the evidence given by the Plaintiff's wife and I make no further comment on it save that in this respect, at least, she appeared to have remembered her lines better than her husband.

100. In support of the Plaintiff's case, considerable reliance was made upon a passage in the long telephone conversation on the white telephone. At that juncture, the 3rd Defendant who was suggesting to the Plaintiff that instead of trading in the large amounts which he had been doing he could, in the alternative, trade in small amounts of 2 million or less, but that would entail two matters, first of all, no need to add the two points, but then it was said they would have to let them "read". Reading in this context related to the persons in the dealing room appreciating which way the client would wish to trade and therefore loading the quotes which they gave against the client. The 3rd Defendant gave an explanation of reading, as having two meanings which in the end narrowed down to only one meaning with a shade of difference, namely, reading and severe reading. It seems to me logical that if a client were to be a frequent trader but be limited as to the size of position he could hold, the dealing room indeed would soon catch on as to the only way the client could trade. Assuming that at the time when the client was asking for a quote he held his maximum position, the dealing room would undoubtedly be tempted to quote "a slightly worse price". Again, this one stray sentence in the telephone conversation late at night appears to have been the basis upon which, quite wrongly, much was sought to be founded.

101. A strenuous attack was mounted upon the evidence of Mr. Antonio Chan. He was forthright when he denied that the 1st Defendant was acting as agent in spot forex. He was adamant when he said that the deals which the Plaintiff did with the 1st Defendant had nothing to do with the deals which the 1st Defendant did with outside institutions. The Plaintiff's Counsel has carefully pointed out the parallels between the different categories of deals and the fact that the dealing slips are often consecutively numbered with dealing times being almost identical. On the 5th day of the reply speech, the Plaintiff's Counsel wanted to put in 2 further box files of documents, showing the same pattern occurring in March, April and May of 1989. I refused to allow the admission of new material at that stage and expressed my views on the subject in clear and forthright, if not brusque, terms. It may be that Mr. Antonio Chan was too emphatic. It is clear that it cannot be said the Plaintiff's transactions with the 1st Defendant and the 1st Defendant's transactions with the Third Parties were totally unconnected, but looked at from Mr. Chan's point of view, he regarded himself as taking a position on behalf of the 1st Defendant with regard to the client. He had his own set limits which were increased as the years passed. He regarded it as his job to take the risk or to hedge it as he thought fit. As was pointed out on behalf of the Plaintiff, there may be reasons for believing that the 1st Defendant's capital base was such that the 1st Defendant could not afford to take substantial risks. I believe that however risky the business which the 1st Defendant was indeed undertaking, it was taking those risks itself and it was the skill of the dealers and in particular of Mr. Antonio Chan in managing the 1st Defendant's risks and hedging their positions which kept the 1st Defendant afloat.

102. In para. 10D(4) of the Reply, the Plaintiff alleges that on one occasion, he had a meeting with Mr. Antonio Chan which was set up by the 2nd Defendant and the Plaintiff was shown a stack of documents produced by the 1st Defendant as proof of the fact that the 1st Defendant only acted as an agent in one transaction. When Mr. Mak gave evidence, he did not give evidence to that effect, but merely said that he was shown some account documents which had the time chop and he was satisfied. Much play was made as to Mr. Leung's credibility as to why he left that meeting. It is clear that Mr. Antonio Chan found the 2nd Defendant a slight hindrance and politely hinted that he might have something else better to do, perhaps giving the impression that the matters were confidential, so that the 2nd Defendant who was in a jumpy state and grumbling would leave the room.

103. Finally, I would mention the evidence of Mr. William Lo. Mr. Lo had at one stage been married to Mr. Mak's sister. Shortly after the 1st Defendant amended its Defence in December 1992 to plead that it acted as dealer Mr. Lo asked the 2nd Defendant to go and have tea with him at the Fountain restaurant in the Landmark. Mr. Leung was apprehensive as to what Mr. Lo might want to talk about so he took Mr. Kingsley Lai along with him. In February of the next year Mr. Lo found some other reason for again asking Mr. Leung out, this time because he wanted to meet a fung shui expert. It seemed that Mr. Kingsley Lai knew the expert better but, be that as it may, a meeting was arranged in a nightclub and then the party moved onto a restaurant; Mr. Lo's memory seems to be vague as to whether or not there was extra company that came with the party presumably from the nightclub. I do not propose to go into all the details of that meeting but I would mention that Mr. Lo seemed to shift his evidence in some minor matters. The crucial part as far as this case is concerned is that Mr. Lo said that he asked Mr. Leung what happened to the Mak and Wocom case. According to Mr. Lo Mr. Leung said "Oh well, we are acting as an agent - we did get a dealing quote from the bank and we charged them 2 points." Mr. Lo made a curious slip when he first mentioned this because instead of talking about Mr. Mak he said "Pyrenee". The slip was curious because Mr. Lo had said at the outset of his evidence that the name Pyrenee meant nothing to him. Mr. Lo corrected himself when it was pointed out that he had said "Pyrenee" and not "Mr. Mak". Mr. Lo said he recalled how Mr. Leung had said that Wocom acted for Mr. Mak and because there was no commission he agreed to Wocom having 2 points. Mr. Lo said he went on to ask Mr. Leung how they dealt as Mr. Lo was then dealing with Wardley in spot forex. Mr. Lo said that he asked that question to see if there was any difference between small deals (which is what Mr. Lo considered himself to be doing) and large deals. However if that was what Mr. Lo really wanted to find out he seems to have been particularly inept in trying to find it out as, even on his own version of events, he did not ask that question. Mr. Lo said he happened to bump into Mr. Mak about 4 weeks later in the Mandarin Coffee Shop. That according to Mr. Lo happened by accident and after Mr. Lo had said he had seen Mr. Leung and Mr. Lai, Mr. Mak mentioned the litigation between himself and Wocom.

104. Looking at Mr. Lo's evidence, on its face it stretches credulity beyond limits. At the stage of the litigation that had been reached in February 1993, the Plaintiff's claim was still based simply on the question of what orders had been placed and when. It is more than merely remarkable that Mr. Leung should have suddenly blurted out in as many words that Wocom was acting as agent when it was not even the dispute in the litigation at that time. As I have said, if one merely read this evidence one would have difficulty in believing it. If one had the advantage of seeing Mr. Lo in the witness box, mumbling away as if he were afraid anyone would hear what he was saying, one would have no difficulty in knowing that his evidence was just so much nonsense. It is fair to say that Mr. Lo himself appeared to have no confidence in what he was saying. I am quite certain that Mr. Leung was telling the truth when he said that his immediate and only response to Mr. Lo's direct question about the 2 points was to refuse to discuss the litigation. Mr. Tang suggested I should disregard Mr. Lo's evidence. I cannot do so. It was yet another attempt to deceive this Court. The meeting between Mr. Lo, Mr. Lai and Mr. Leung was clearly a deliberate attempt to try and obtain some sort of admission from these latter 2 gentlemen. That attempt failed but still Mr. Lo came along and tried to make something up.

105. It is interesting to note that Mr. Lo seemed to be fully aware that in respect of loco London gold the dealers were not acting as agents but as principals.

106. Because the 1st Defendant carried on in the manner it did it is to a large extent the author of its own misfortunes in being dragged through this Action in the way it has been. Had it not been for its lax control over the way business was conducted and the Plaintiff allowed to trade without any margin, there could have been neither the allegations in respect of the alleged orders nor disputes as to whether the Plaintiff was aware of the manner in which its business was conducted. A more precise approach to the drafting of the account opening forms rather than an attempt at cover all eventualities would have stopped the Plaintiff's case about the 1st Defendant's alleged secret profits in its tracks.

The 1st Defendant's Counterclaim

107. There only remains the question of the 1st Defendant's Counterclaim. It follows from what I have already held that there were substantial losses on the Plaintiff's account. From the statement of account dated the 31st July 1990 it appears that on the footing that the transactions were carried out as the 1st Defendant has alleged and as I have held they were, the amount outstanding on the account was US$3,572,644.41. It was not argued on behalf of the Plaintiff that there was anything wrong with that figure as a computation and after following through the account documentation it seems to me to be correct. There was however a credit balance in the Hong Kong dollar account of $5,016,285 resulting from the margin call payments to which I have referred. The interest on the US dollar account for the month of July is pleaded as having been calculated on the basis of prime and that apparently came to $27,315.87. If I were to apply the same rate of interest to the HK dollar credit amount that would come to somewhere in the region of $38,353.70. (Perhaps slightly more because the Hong Kong dollar account was in credit from the first week in July rather than the second).

108. Taking the interest as claimed in the Statement of Claim for the month of August at what appears to have been a flat 1%, the interest for the US dollar amount for the month of August would therefore be $35,726.44 and for the Hong Kong dollar amount would be $50,162.85.

109. By the 31st August therefore the Plaintiff's US dollar account was notionally showing a net deficit of $3,635,686.72 whilst the Hong Kong dollar account was in credit $5,104,801.55.

110. On the 31st August the 1st Defendant wrote to the Plaintiff saying that they were consolidating the account and were going to charge the Plaintiff 2% above prime. The conversion rate used was US$1 = HK$7.7625. I consider that the Plaintiff should have paid the sums owing by the 9th and 10th July but even if that is not the appropriate date, unequivocally the sums should at least have been paid on the 31st August. I am prepared to take the rates of interest as used by the 1st Defendant up until the 31st August provided the same rate is applied to both the debit and the credit amounts. Thereafter I consider that the 1st Defendant should be entitled to a rate at 2% above prime lending rate. That is the rate that was mentioned in the letter of 31st August. That is also the rate which would reflect the rate which I would estimate the 1st Defendant would have to pay to borrow money. Given the strictures of the Plaintiff's Counsel as to the under capitalization of the 1st Defendant I can hardly see that they would reasonably be taken to have been able to borrow money at any less.

111. Hence on my calculation the 1st Defendant is entitled to HK$28,222,012.57 less $5,104,801.55 namely $23,117,211.02. In my view the 1st Defendant is entitled to Judgment for that sum plus interest at the rate of 2% above prime lending rate which in case there is any discrepancy I shall determine as the Hong Kong Bank prime lending rate as varying from time to time. I shall leave the parties to calculate the figure and hopefully agree the computation. I would add that I do not consider that it is appropriate to award compound interest although it was faintly argued that it should be.

112. Nothing in this decision should be taken as in any way deciding whether the facts the subject of this Action do not constitute what in law is gambling. There are factors which certainly gave cause for concern but neither party wished to argue the point. I did not feel it right to embark without assistance upon an enquiry as to whether what the Plaintiff had been doing was gambling in the legal sense. There is no doubt that in these days of the rapidly increasing use of instruments collectively known as derivatives great care would have to be taken in formulating any reasoning one way or the other. Moreover public policy considerations may require latitude to the existence of transactions which constitute little more than gambling to give liquidity to a market otherwise counterbalanced by those seeking to hedge more conventional forms of investment. In the absence of argument from the parties I would have found it desirable to have the assistance of an amicus. No doubt if such an issue had been argued it would have entailed further evidence and possibly a raft of extra discovery. Any further extension of this trial was to my mind most undesirable.