GR EAT CITY ENTERPRISES LTD v. UBS AG

HCA 1217/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1217 OF 2009

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J U D G M E N T

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INTRODUCTION

1. The plaintiff commenced this action in May 2009 suing the defendant for damages for breach of contact with interest and costs. The claim is denied by the defendant.

2. As pleaded, the plaintiff’s case is in gist that the defendant, as an investment bank, has breached its contract with the plaintiff in:

(a)  using the plaintiff’s money (deposited in an account with the defendant (“the plaintiff’s account”)) to trade in stocks without the plaintiff’s knowledge, consent or authority.  The said trades were transacted by the defendant’s staff, one Mr Wang (“Wang”), for which the defendant is vicariously liable;

(b)  allowing Wang to so trade.

3. The period of stock trading activities lasted from 20 June to 28 August 2008.  By 10 October 2008, the plaintiff instructed the defendant to cease stock trading.  Further, on 27 November 2008, the defendant sold all stocks in the plaintiff’s account (as instructed by the plaintiff).

BACKGROUND

4. The plaintiff is a BVI company which was purchased “off the shelf” for opening and operating the plaintiff’s account (it is common ground the plaintiff was purchased with Wang’s assistance).

5. The individuals admittedly in control of the plaintiff are a Mr Shao and a Mr Jin, both from the Mainland (respectively “Shao” and “Jin”).

6. The defendant is (and was) a world-renowned bank.  The defendant’s unit involved in this action was the North China desk of the Wealth Management division (commonly known as its “private bank”, which term has been used by some of the defence witnesses during trial) (“the said division”).

7. Until Wang’s resignation in September 2008, his corporate title was a director of the said division.  According to Wang’s witness statement, he worked as a client adviser (“CA”) and the scope of his duties:

“… involved finding prospective clients, managing [the defendant’s] relationship with its existing clients, and assisting clients manage their asset portfolios” (para 1, Wang’s witness statement).

8. Shao and Jin are close friends and have been in business together for many years.  They were introduced to Wang by a common friend, one Mr Zhu, around Chinese New Year, 2008.  This was followed by meetings and telephone contacts in mid- and late-February, March, May and June 2008.

9. In late-February 2008, English account opening documents were sent by Wang to Shao and Jin for their signature (in March 2008).

10. Meanwhile, Shao and Jin were in the process of selling a piece of land (together with the superstructure and business above it) in Zhuhai by way of the transfer of company shares (together with the company’s assets and liabilities) (“the Zhuhai sale”).  Two sums were received by Shao and Jin through corporate vehicles:

(1)   in Zhuhai: RMB9.4 million for the sale of a Mainland company the principal asset of which was a piece of land in Zhuhai;

(2)   in Hong Kong: about HK$260 million through the plaintiff as commission payable to Shao and Jin for providing consultation and organization services and for locating the Hong Kong buyer (who paid the commission) (“the said $260 million”).

The said $260 million was later deposited into the plaintiff’s account.

FINDINGS OF FACT AND WITNESSES’ CREDIBILITY

11. As pleaded, the plaintiff’s case regarding the trading of stocks through the plaintiff’s account is:

“[Shao and Jin] were not interested in investing, but merely wished to open an account with the Defendant for deposit purposes and to facilitate their business dealings in Hong Kong” (para 17(5), amended statement of claim).

The defendant’s case is in short to the contrary (see also para 21 and 25 below for more details).

12. The plaintiff called Shao, Jin and a Mr Yu (a relative of Jin and a partner of the Zhuhai land sale transaction) (“Yu”) to testify in support of its case, while the defendant called Wang and Ms Or (the CA who took over some of Wang’s work) (“Or”) to do so.

13. The defence also called a Mr Greuter (“Greuter”) and a Mr Jeffries (“Jeffries”) as witnesses.  Greuter’s testimony concerns:

(a)   the defendant’s e-banking service (through which bank account holders, such as the plaintiff, can login and peruse the state of their accounts through the internet); and

(b)   records of the login sessions of the plaintiff’s account (details of the login sessions will be mentioned below where necessary).

Jeffries testified as to how he conducted forensic examination of Wang’s mobile phones and SIM cards.  The examination identified several text messages (details of these text messages will appear below).  The testimony of both Greuter and Jeffries is largely undisputed.

14. Because credibility (and reliability) of the witnesses is important to the determination of this action, I should repeat the approach I adopted in earlier decisions when assessing the same:

“The assessment of a witness’s credibility and/or reliability is a task frequently undertaken by the court in litigation (in fact, very often an essential task). I consider the following to be the appropriate test to adopt:-

‘There are two objective tests for assessing a witness’s credibility regarding a matter to which he has testified:-

(a) whether that part of his testimony is inherently plausible or implausible;

(b) whether that part of his testimony is, in a material way, contradicted by other evidence which is undisputed or indisputable (an example often given of such evidence is contemporaneous documents).

Further, where it is shown that a witness has been discredited over one or more matters to which he has testified (using the above tests), this fact is relevant to the assessment of his overall credibility. Likewise, regard may be had to a witness’s motive for deliberately not giving truthful testimony. For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest’.

(See, for example, the decisions in Chiu Chi Tong v. Lau Chong Sai & Another, HCA 765/2002 (para. 28) and Yu Ming Investment Ltd. v. Pang Ru Chuan, Richard, HCA 814/2002 (para. 13))”

(Star Glory Investment Ltd v Kai Tuo (HK) Technology Co Ltd and Others, HCA 3523/2002 (13 August 2005), para 12).  The same will be adopted in this action.

15. Further, this is a case where two conflicting versions of fact have been put forth by the parties.  The main factual conflict is so drastically different that it cannot sensibly be attributed to mistake (the plaintiff’s case that Shao and Jin have at one stage mistakenly believed they had signed a written authorization will be addressed below).

16. Thus, reliability is not in issue (reliability here refers to a witness’ ability to observe, recall and recount the relevant factual events accurately); instead, the issue to be resolved is essentially one pertaining to credibility.

17. In the context of this action, whether the plaintiff has given verbal authorization is not a matter which can be judged by its own inherent plausibility or implausibility.  It is therefore not a matter over which the impermissible approach set out in The Popi M [1985] 1 WLR 948 should apply (see also Ide v ATB Sales [2008] EWCA Civ 424 (28 April 2008), para 1 to 6; Datec Electronic Holdings Ltd and Others v UPS Ltd [2007] 1 WLR 1325, para 46 to 50).  The impermissible approach was described in the ATB Sales judgment as follows:

“… a trial judge was not compelled to choose between two theories, where the evidence was unsatisfactory … it was not possible to proceed on the basis of eliminating the impossible and deciding that the remaining explanation, however improbable, must be the cause … the concept of proof on a balance of probabilities had to be applied with common sense … ” (para 3 thereof).

The ATB Sales judgment contrasted the above with the evidence in the appeal before the court as follows:

“As a matter of common sense it will usually be safe for a judge to conclude, where there are two competing theories before him neither of which is improbable, that having rejected one it is logical to accept the other as being the cause on the balance of probabilities” (emphasis supplied) (para 6 thereof).

This is more akin to the issues in this action.

(a)  Opening the plaintiff’s account

18. The events leading to the opening of the plaintiff’s account are not directly relevant to the main issue in this action.  They are, however, relevant to:

(1)   the source of the said $260 million which was deposited into the plaintiff’s account;

(2)   the purpose for which the plaintiff’s money was deposited into the plaintiff’s account.

These, in turn, will shed light on which of the competing factual versions is more probable.

19. It is undisputed the said $260 million was profit gained by Shao and Jin as a result of the Zhuhai sale.  Despite the refusal of the plaintiff’s witnesses to admit it (half-heartedly by Shao and more firmly by Jin), the sum must have been part of the price for the Zhuhai sale:

(a)   although structured as a transfer of company shares, it is obvious the Zhuhai sale was principally about the most valuable asset (that is, the land lot in Zhuhai) (Shao testified that it was worth something in the region of RMB100 million);

(b)   the Hong Kong buyer was to pay for both the price for the Zhuhai sale (RMB9.4 million) and the so-called commission (the said $260 million);

(c)   there is no commercial sense for a buyer to pay commission (equal to about RMB228 million) which was many times more than the purchase price, and no sensible explanation has been given;

(d)   the transaction was structured so that, while the Zhuhai sale was effected in the Mainland, the commission agreement was executed in Macau, and the said $260 million was paid in Hong Kong (which on its face has no connection to the Zhuhai sale apart from the identity of the buyer).

20. Several conclusions can be drawn out of the above:

(1)   Shao and Jin have not been entirely candid about the true nature of the Zhuhai sale and, more importantly for present purpose, the nature of the said $260 million;

(2)   because of the foreign exchange restrictions of the Mainland, it is unlikely the said $260 million could be easily remitted back to the Mainland (this part of Wang’s testimony is not challenged);

(3)   in view of the above, the probable reasons for Shao and Jin not to “come clean” about the true nature of the said $260 million are they do not want to admit:

(a)   the transaction was so structured to enable part of the price of the Zhuhai sale to be paid in Hong Kong;

(b)   such Hong Kong payment was probably intended for investment outside the Mainland (whether it also served to overcome the Mainland foreign exchange restrictions and/or avoid Mainland tax is irrelevant for present purpose);

(c)   the part of Wang’s testimony that the said $260 million (or at least the bulk of it) was not money which they intended to put to other specific use in the foreseeable future.

21. The above matters support the part of Wang’s testimony to the effect that, after he was introduced to, and became acquainted with, Shao and Jin:

(a)   they informed him they wanted to consider investment opportunities in Hong Kong, and would like to open an account with the defendant (para 6, Wang’s witness statement);

(b)   they were only interested in investing in stocks of major Chinese companies listed in Hong Kong (para 10.1(b) and 16.3, Wang’s witness statement).

22. Wang’s contemporaneous correspondence with his then superior, Ms Ku (“Ku”), is consistent with the above:

“[Shao and Yu [Jin was perhaps still unknown to Wang], who expected to be paid in cash in Hong Kong currency] need to know how to make investment for these cash” (Wang’s e-mail dated 25 February 2008).

23. Further, it was through Zhu’s introduction that Shao and Jin came to know Wang.  Zhu’s dealing with the defendant (through Wang) was Zhu’s share-trading account with the defendant (which was having a good return at the time).  It would be surprising if Zhu had not mentioned his share-trading when (if not before) he made the introduction.  Thus, it would be quite unlikely Shao and Jin did not know of the stock investment business of the defendant (and Wang).

24. Consequently, the above matters (some of which are circumstantial) point to Wang’s testimony about the plaintiff’s purpose for opening the plaintiff’s account to be the more preferable factual version.

(b)  Operating the plaintiff’s account – verbal authorization

25. As pleaded, the verbal authorization relied upon by the defendant was:

“At the 28 May 2008 dinner meeting … [Shao and Jin] told [Wang] that of [the said $260 million] they were aiming to invest around HK$100 million … They orally instructed [Wang] to help them purchase and sell Hong Kong stocks … This oral agreement was not subject to dollar limits on purchases and sales of individual stocks”;

“As regards the types of stocks to be purchased, it was … agreed … that the main focus … may be on China-based companies listed in Hong Kong which were market leaders in their respective industries in China. Once [it was] agreed broadly on the types of stocks … [Wang] would then be entitled to buy and sell stocks without requiring specific instructions from either [Shao or Jin ] or the Plaintiff … [Wang] told [Shao and Jin] that … he would tend to operate [the plaintiff’s account] in such a way that (i) where there was a profit on a specific batch of stock, sell; or (ii) where no profit had been made, hold; or (iii) where there was a loss, hold or buy more to lower the average price … without requiring specific instructions …”

(emphasis supplied) (para 36(2)(i) and (v), amended defence).  The pleader also pleads that the above:

“… was an oral agreement between the Plaintiff and the Defendant on 28 May 2008, varying the nature of [the plaintiff’s account] to operate on a discretionary basis” (para 36(3), amended defence).

26. Various criticisms have been levied against Wang’s testimony which was given in support of the above.  The only ones which warrant specific discussions below are:

(1)   Wang has not recorded the said verbal agreement, nor was there any record of the same;

(2)   the said verbal agreement was unknown to anyone of the defendant, especially Wang’s superior Ku, or Or who took over from Wang, until after the plaintiff’s complaint in October 2008;

(3)   Wang’s version has changed from an agreement reached on 28 May 2008 to one which merely confirmed an earlier discussion dating back to February 2008.

27. The defendant being a reputable financial institution with well-established internal regulations and procedures, para 26(1) (failure to record) and 26(2) (failure to report) above are highly likely to fall short of the requirements of those regulations and procedures (details of the same have not been explored during trial because of the state of the pleadings).

28. Wang has in short been unable to give a satisfactory explanation for para 26(1) and (2) above.  In the factual context of this action, the inability to explain could have resulted from one of two reasons below:

(a)   Wang fabricated the verbal agreement;

(b)   other reasons, such as Wang has not fully complied with the defendant’s internal regulations or procedures in failing to record the verbal agreement, or to inform his colleagues of the same (if in fact there were regulations or procedures regarding these matters).

Because of the findings made under the other sub-headings above and below, which constitutes circumstances pointing to the existence of a verbal agreement, I conclude that Wang’s inability to explain did not result from sub-para (a) above (whether it resulted from sub-para (b) above is irrelevant for this action).

29. The criticism set out in para 26(3) is unjustified by the facts.  In Wang’s witness statement, he already narrated that:

(1)   from late-February to late-March 2008, there were discussions about Shao and Jin wanting to invest around $100 million in Hong Kong stocks (para 17.2 thereof);

(2)   during a meeting on 19 April 2008, “[Shao emphasized] again that he was only interested in investing in stocks and that he would leave the day to day running of [the plaintiff’s account] to [Wang]” (emphasis supplied) (para 22 thereof);

(3)   both in earlier meetings/discussions and the 28 May 2008 meeting, it was agreed that Wang would discuss the stock-trading strategy with Shao and Jin from time to time, but once a broad strategy had been agreed upon, Wang could trade in the manner quoted in para 25 above.

30. On the other hand, the plaintiff’s witnesses testified that they never authorized Wang to trade in stocks.  In fact, Wang has persistently tried to persuaded Shao and Jin to do so (on about 8 occasions), but on each occasion Shao and Jin told Wang they were risk-adverse and not interested in anything except pure money deposit.

31. Because of the findings made under the sub-headings above and below, I do not accept such testimony to be truthful and therefore reject it.

(c)  Operating the plaintiff’s account – plaintiff’s knowledge

32. As stated above, stock trading transactions appeared in the plaintiff’s account from 20 June to 28 August 2008.

33. It is common ground (or at least undisputed):

(a)   trading confirmations were automatically generated and mailed from the defendant’s Singapore office to (and received by) the plaintiff;

(b)   monthly statements were mailed to, and received by, the plaintiff.

34. Both Shao and Jin admitted in their testimony they knew of the stock trading activities after they had perused the above documents.  However, they contended they only received them in the latter half of July 2008 (Shao’s witness statement states that he received the statement in mid- or late-July 2008 (para 32 thereof)). 

35. I agree with the defendant’s submission that the claim is untrue:

(1)   from the table prepared by the plaintiff (showing the dates of the postal chops), the time differences (between the Singapore postal chops and the Shanghai postal chops) range from 3 days to 27 days (with the majority falling within the 4- to 9-day range).  It can be inferred it would take:

(a)   a lot less time for the Shanghai post office to send them to the plaintiff;

(b)   no more than a few days’ time for documents to be mailed from Hong Kong to Shanghai;

(2)   the statement showing the plaintiff’s account up to 1 July 2008 was mailed from Hong Kong on 2 July.  It is inherently implausible it was only received on 19 or 20 July (as Shao asserted);

(3)   further to sub-para (2) above, during the recorded telephone conversation of 2 July 2008 between Wang and Jin, Wang informed Jin the statement would be sent to Jin (this is supported by the courier record).  During his telephone conversation on 14 July 2008, Jin told Ms Wong of the defendant that he had received the statement.

36. It is also asserted that the documents were in English and were not understood by Shao/Jin; this is demonstrably incorrect (by the documents in the trial bundles) and can be summarily dismissed as being untrue.

37. Further to the above documents, there is undisputed record that Wang has sent an text message to Jin on 20 June 2008 (Wang testified he sent it to both Jin and Shao).  The said message sets out the stocks which Wang had traded in the plaintiff’s account.  The plaintiff’s case is that, while Wang might well have sent the said message, it was never received by the plaintiff.

38. It is true there is no direct evidence showing the receipt of the said message.  However, Jin’s re-examination shows that he had been using a “Motorola” mobile phone, but he gave a “Nokia” mobile phone to the plaintiff’s expert for finding out if the said message had been received (the expert did not find record of the said message in it).  Also, Jin told Or on 26 September 2008 the preferred means of communication between them was text messaging through his mobile phone.

39. By reason of such apparently inexplicable and/or inconsistent acts, I am inclined to find that the said message had in fact been received.

40. There were 2 recorded telephone conversations in early July 2008 between Wang and Jin:

(a)   in the conversation on 2 July (when Wang called apparently about various bank account documents having been mailed), Jin raised the subject of recent stock market price movements.  This does not sit well with Shao’s and Jin’s version that from February to June 2008, Wang has on about 8 occasions persuaded them to trade stocks, but was on each occasion turned down by them;

(b)   in the conversation on 4 July (when Wang called to confirm a remittance), Jin again raised the subject of recent stock market price movements.  The following exchange then followed:

“前兩天並不怎麼樣。前三、四天 … 它因為連跌了十天嘛。跌下來買一點，跌下來買一點，回上去就馬上好了。 … 但是我想今年可能是你跟邵總的最好的機會。 … ” (emphasis supplied) (Wang)

“你在搞我們放心的” (Jin)

Jin explains that his answer was in truth a subtle and polite way of putting a stop to Wang’s yet another attempt to persuade him and Shao to trade in stocks.  I find the explanation nothing more than a lame excuse.  First, as has happened two days earlier, Jin was the one who initiated the stock talk.  Secondly, Wang’s statement was not a persuasion, but was an opinion of his outlook of the stock market.

Two further observations arise out of the above conversations:

(1)   during the 2 July conversation, after hearing Jin said that the stock market was fluctuating, Wang responded “沒關係啦” which must have been a comforting remark in context;

(2)   the quoted part of the 4 July conversation was accompanied by laughter from both sides; it also mentioned further stock purchases if the stock market should fall further, and that the time period should be a good (investment) opportunity for Shao and Jin.  All these remarks are consistent with Wang’s version concerning the verbal authorization.

41. In addition to the above, there is credible evidence (such as contemporaneous business records of the defendant, audio recordings or internet login session records):

(a)   Wang tried, as early as in May 2008, to ensure the plaintiff has been sent the e-banking login kit and the statements of the plaintiff’s account;

(b)   since 22 July 2008, the plaintiff has accessed the plaintiff’s account by e-banking login (11 sessions in July 2008, 13 sessions in August 2008 and 5 sessions in September 2008).  The undisputed evidence is that the “Equities”, “All investments” and “Securities Transactions” web pages have been accessed.  These show clearly the stock trade transactions.

42. In the above circumstances, I agree with the defendant that:

(1)   the testimony of the plaintiff’s witnesses to the effect that the plaintiff only knew of the stock trading transactions in late July 2008 is unbelievable;

(2)   Wang was entirely open about the state of the plaintiff’s account from the beginning.

43. Shao and Jin claim that they contacted Wang on 27 or 28 July 2008 to confront Wang about the unauthorized stock trades in the plaintiff’s account.  They further claim that Wang admitted it was his wrong-doing, that he would not do so any more and that he would revert the unauthorized transactions.

44. However, this matter (the importance of which should be obvious) has not been mentioned in the amended statement of claim (especially the part concerning complaints made to the defendant).  Also, Wang apparently continued to trade even after 28 July.  And there is no evidence that the plaintiff further complained to Wang about this.  This can only be due to (i) the plaintiff’s lack of knowledge thereof, or (ii) it somehow did not complain despite such knowledge (either (i) or (ii) is inherently implausible (evidence of the plaintiff’s login sessions in July 2008 is repeated (para 41(b) above))).

45. In view of the matters set out above (and those set out in para 46 to 47 below), I find the claims set out in para 43 above to be untruthful.  Moreover, as will be discussed further below, these claims also cast doubt on the plaintiff’s allegation that, until after 29 October 2008, Shao and Jin erroneously believed that they had been tricked by Wang (and later by the other staff of the defendant, such as Or and Ku) into signing written authorizations empowering the defendant (through Wang) to trade in stocks on the plaintiff’s behalf.

(d)  Events after Wang’s resignation

46. After Wang’s resignation in September 2008, Or, who took over the plaintiff’s account, first contacted the plaintiff on 25 September 2008.  In a telephone conversation with Shao (who was then in Brazil), Or reported to him the stock portfolio in the plaintiff’s account. After having been so told, Shao replied:

“嗯。知道都知道的，… 嗯 … 操作的都應該是你們那邊操作的嘛” (which in context means “Mm, I know I know.  Mm … it should be for your side to handle this, right”)

Shao’s testimony is that he was in Brazil and was woken up by Or’s phone call.  I find that Shao’s response is consistent with someone who:

(a)   did not notice anything out of the ordinary;

(b)   was a bit annoyed by the late-night call;

(c)   was thus hinting that the caller should not have bothered him with such details because the stock trades were supposed to be handled by the defendant’s side.

Any other interpretation (or conclusion) contended for by the plaintiff is again nothing but a feeble attempt to explain away statements adverse to the plaintiff’s case.

47. During the period from 9 to 29 October 2008, the plaintiff’s complaints changed over time (some of the changes are inconsistent):

(1)   during a meeting between Yu and Or on 9 October, Yu hinted that the plaintiff became aware of the unauthorized trades in September or October 2008.  The wrong was said to be Wang trading beyond the authorized monetary limit (the limit was unspecified at the time);

(2)   during a recorded telephone conversation on 13 October, Shao complained that Wang had only been authorized to trade up to $60 million but he had exceeded that limit.  Shao described the authorization as a verbal one (“我現在發現授權跟我們講的有出入啊”; “我們講的是6000萬”);

(3)   during a meeting on 19 October, Shao and Yu chased for the written discretionary agreement, and Shao contrasted between Wang (who he regarded as a trusted friend who thus was authorized to trade in stocks) and Or (who would not be trusted to trade in stocks);

(4)   during a recorded telephone conversation on 21 October, Yu asked for the written authority;

(5)   during a meeting on 27 October, there was no complaint that the plaintiff had been misled into signing documents;

(6)   during a meeting on 29 October, Shao complained that authority to trade was only given on 28 June, but Wang began to trade on 20 June already.  The complaint of a verbal authorization with a limit of $60 million was repeated.  The wrong was alleged only discovered in October.

48. Despite the above changes, the complaint pleaded in the original statement of claim (filed in May 2009) (and maintained in the amended version) was totally unauthorized stock trades in the plaintiff’s account (para 2 above).

49. Further to the matters set out in para 44 to 47 above, irrespective of whether there was an alleged admission by Wang on 27 or 28 July 2008, a written authorization to trade in stocks obtained by Wang secretly and against the express instructions of the plaintiff:

(a)   would be in the nature of a deception by Wang (which the plaintiff’s witnesses have to agree to during cross-examination);

(b)   would make Wang someone who could not be trusted.

For that reason, even if the plaintiff should (erroneously) believe that there was a written authorization, it is inherently implausible it should only lodge a complaint with Wang, and not do so with the other staff of the defendant until 9 October 2008 (such as Or on (or shortly after) 25 September 2008).

50. The alleged admission of Wang on 27 or 28 July 2008 makes the plaintiff’s story of an erroneous belief of written authorization even less credible (see para 43 above).  In view of such an admission of wrong by Wang, there would have been no sensible ground for the plaintiff to hold such belief (Wang would have relied on such written authorization instead of admitting he was acting wrongfully).

51. The plaintiff contends during the earlier part of the trial that Or has led Wang into asserting that there was a verbal authorization (reliance was placed on the recorded telephone conversations of 4 December 2008 and 11 May 2009 between Or and Wang).  Sensibly, the contention is not repeated in the plaintiff’s closing submissions: para 90, 101 and 102 thereof; it has no substance.

52. There is one further pointer militating against the plaintiff’s case arising from the lateness of its complaint.  Demeanour of witnesses is often regarded as a less than satisfactory matter for assessing their credibility.  In some cases, however, their demeanour can shed light on their personality.

53. The way Shao and Jin behaved when they testified shows that they are far from timid persons; in fact, both have been resolute and unreserved.  Jin, for example, has repeatedly stopped the cross-examiner and requested to have time to write down the questions asked before answering them.

54. They are people unlikely to lodge their complaints with only Wang (who must have been untrustworthy to them (para 49 above)) until after Wang left the defendant, or to delay to lodge the complaints with the defendant.

(d)  Conclusion

55. By reason of the above matters, the following findings are made:

(1)   the said $260 million was profit from the Zhuhai sale;

(2)   the purpose of the plaintiff’s account was to invest in China stocks listed in Hong Kong;

(3)   a verbal agreement was finally reached between the plaintiff and the defendant on 28 May 2008 whereby the plaintiff authorized the defendant to trade in stocks using the fund in the plaintiff’s account;

(4)   the terms of the said authorization were as set out in para 21 and 25 above;

(5)   the stock trades were transacted with the plaintiff’s knowledge, consent and authority;

(6)   the statements of the plaintiff’s account were received by the plaintiff in early July 2008;

(7)   Wang’s text message of 20 June 2008 was also received;

(8)   Wang did not admit on 27 or 28 July 2008 he was wrong to have traded in stocks.

56. For completeness, parts of Yu’s testimony purport to support the plaintiff’s case (and hence the testimony of Shao and Jin).  For the same reasons set out above, insofar as Yu’s testimony is:

(a)   consistent with that of Shao and Jin;

(b)   inconsistent with that of Wang or Or,

it is rejected as being untruthful.

OUTCOME OF THIS ACTION

57. The plaintiff’s claim is accordingly dismissed.

OTHER MATTERS

58. The parties’ closing submissions also mentioned various other points.  These have not been expressly set out or dealt with in the above headings and sub-headings.  This is so only because of the need to balance between the length of the judgment and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

59. Finally, I disallowed the plaintiff from relying on parts of its written opening submissions (“plaintiff’s opening”) at the beginning of the trial of this action.  There were two rulings.  The reasons for those rulings appear below.

(a)  Reasons for ruling: Code of Conduct

60. At para 45 to 54 and 93 to 97, plaintiff’s opening, the plaintiff sought to rely on several provisions in the “Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission” (May 2006) published by the Securities and Futures Commission (“the Code of Conduct”).  The plaintiff contended:

“… regulatory duties such as the Code of Conduct are incorporated as contractual duties of the Defendant by implication … ” (para 47, plaintiff’s opening).

61. The contention was disputed by the defendant principally on the ground that the Code of Conduct was not part of the plaintiff’s pleaded case.  In response, the plaintiff referred to para 3(4), 3(5), 20(3) and 20(4), amended statement of claim and argued that the Code of Conduct was already pleaded; alternatively, its pleaded case of the defendant’s (i) failure to properly supervise Wang and/or (ii) failure to act with reasonable skill, care and diligence, is sufficient for it to also rely on the Code of Conduct.

62. A quick glance of the said paragraphs of the amended statement of claim showed that they do not aver that the Code of Conduct was part of (or was incorporated into) the contract between the plaintiff and the defendant:

(1)   para 3(4) thereof is a plea that the defendant has been a “registered institution” undertaking certain “regulated activities” within the meaning of (among other things) the Code of Conduct;

(2)   para 3(5) thereof is a similar plea;

(3)   para 20(3) and 20(4) thereof are premised on an alleged breach of what the amended statement of claim called the “Banking Contract” and the defendant’s duty of care;

(4)   the “Banking Contract” has not been expressly defined.  But judging from the averments in para 10 to 13 thereof, the Code of Conduct has not been pleaded as part of it; neither has the Code of Conduct been pleaded as part of the defendant’s duties at para 14 thereof.

63. As regards the plaintiff’s alternative argument (para 61 above), a general plea of failure to supervise or to act with skill, care and diligence is too casual and vague to enable a case resting on the Code of Conduct to be advanced.

64. For the above reasons, I agree with the defendant that the plaintiff should not be permitted to rely on the Code of Conduct.

(b)  Reasons for ruling: the defendant’s Compliance Manual

65. The defendant also objected to the reliance in the plaintiff’s opening on the defendant’s “Global Wealth Management and Business Banking Hong Kong Compliance Manual” (an internal manual of the defendant for use by its staff) (“the Compliance Manual”) as part of the case against the defendant (para 101 and 102 thereof).

66. Because the Compliance Manual was unknown to the plaintiff prior to the commencement of this action, it cannot properly be part of the contract between it and the defendant.

67. The plaintiff relied on para 14(3), 14(4), 16, 20(3) and 20(4), amended statement of claim and argued that these averments enabled it to rely on the Compliance Manual.  I also consider these to be insufficient to support the argument:

(a)   para 14(3) and 13(4) thereof are pleaded as the defendant’s duties “implied by law and/or by way of business efficacy and/or so as to reflect the obvious common intention”;

(b)   para 16 thereof is pleaded as the defendant’s duty in tort (with no particulars of duty of care or particulars of breach of any such duty);

(c)   para 20(3) and 20(4) thereof are pleaded as instances of the defendant’s breach of the Banking Contract (which, as stated above, is to be understood in the light of para 10 to 13 thereof) and/or breach of its duties.

68. Further to para 67(c) above, a fair reading of para 20 thereof shows that the essence of its averments is that the defendant has, without the plaintiff’s knowledge, consent or authority:

(1)   invested part of the said $260 million;

(2)   used part of the same by way of the defendant’s commission, stamp duty, levy charges, and transaction and trading fees.

69. Such averment is to be understood in the context of the plaintiff’s case that the said $260 million was pure cash deposit; any other use of the same would be wrongful.

70. On the other hand, the plaintiff indicated that it wanted to adduce the Compliance Manual to establish that:

(a)   “A [CA] must not exercise investment discretion over a client’s account … ”;

(b)   “Discretionary accounts must be established by way of prescribed documentation and be managed by designated portfolio managers”,

in support of its case that the verbal authorization was in breach of (among other things) the Compliance Manual.

71. Besides not having been pleaded, this approach would unnecessarily complicate the main issue in this action; that is, whether the stock trades in the plaintiff’s account were (i) authorized trades, or (ii) were in breach of a bank mandate to keep the said $260 million as pure bank deposit.  It would also prolong the trial time.

72. By reason of the above matters, the plaintiff should not be permitted to pursue such a case.

COSTS ORDER

73. The parties agree that costs should follow the event.  There will accordingly be a costs order that the costs of this action (including any reserved costs) be paid by the plaintiff to the defendant.

74. The defendant asks that it be at liberty to further address the court (without the need for a further hearing) on the basis of taxation.  There may also be a need to consider certificate for two counsel.  For these purposes:

(1)   the defendant be at liberty to lodge with court and serve its written submissions regarding the above within 14 days;

(2)   the plaintiff be at liberty to lodge with court and serve its written submissions regarding the above within 14 days thereafter.