Robert Bowman Clarke v. Sun Hung Kai Investment Services Ltd and Another

CACV000196/1990

BETWEEN

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Coram: Hon Fuad, V-P, Clough and Penlington, JJ.A.

Date of hearing: 7 March 1991

Date of judgment handed down: 26 March 1991

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JUDGMENT

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Clough, JA:

1. This is an interlocutory appeal by the plaintiff arising out of a ruling given by Liu J. on the 12th December 1990 in the course of a part heard trial of the action between the plaintiff, an investor, and the first and second defendants who are respectively registered securities dealers and brokers, and an executive employee of the first defendant. At all material times the plaintiff held a share margin account with Sun Tai Cheung Credits Limited ("S.T.C." an associated company of the first defendant) which is not a party to the action.He operated the account through the stockbroking services provided by the first defendant. The second defendant managed the plaintiff's account on behalf of the first defendant.

2. In the action the plaintiff claims against both defendants the sum of $72,308 with interest representing the loss he claims to have sustained as a result of the failure of the defendants to comply with an automatic stop loss sell order (at the price of $13.50 per snare) given to them by him orally on or about the 11th August 1987 in relation to holdings of 10,000 snares in New world Developments Ltd. ("New World") and Windsor Industrial Ltd. ("windsor") which were purchased on that date (only 8,000 Windsor shares are pleaded to have been purchased but the claim relates to l0,000) for the plaintiff by the defendants. These shares were sold by the defendants on the 5th November 1987, the New World shares at $5.40 and the Windsor snares as to 8,000 shares at $6.10 and 2,000 shares at $6,20. The plaintiff also makes an alternative claim against the defendants for damages. He further claims an indemnity against them for claims (which he does not quantify in his pleading) made against him by S.T.C.

3. The ruling which is the subject of the plaintiff's appeal was made at the instigation of counsel for the defendants on the second day of the trial after counsel for the plaintiff had opened his case and argument had ensued regarding the scope of the plaintiff's pleaded case. The trial has been adjourned pending the determination of this. appeal. The ruling is now contained in a formal order expressed to confine the plaintiff's case on two crucial issues to contending:

No argument was advanced before this court in reliance on Kwok Man Chun v. Hang Tat Heating System Consultant Company Limited (Civil Appeal No. 164 of 1990) (Unreported) to the effect that this order was not appealable under section 13(2)(a) of the Supreme Court Ordinance (Cap. 4).

4. The sequence of pleadings and events which led up to the making of the order in question was as follows. On the 23rd February 1988 the plaintiff issued his writ indorsed with a Statement of Claim in which, after the pleading of preliminary matters including the plaintiff's instructions to the defendants for the purchase of the shares in question, paragraphs 5, 6 and 8 were in the following terms (emphasis supplied) :

5. In paragraph 10 the plaintiff pleaded particulars of his loss thus (emphasis supplied):

PARTICULARS OF LOSS

6. It is readily apparent that (1) this pleading does not expressly plead that the defendant's duty was (as the plaintiff subsequently contended) to sell the shares (when the price was $13.50) at the price of $13.50 or the best price obtainable without any lower limit, and (2) no date was pleaded for the breach of contract alleged in paragraph 8.

7. By their Defence filed on the 30th March 1988 the defendants initially denied the stop loss sell order. The Defence was clearly pleaded on the assumption that the plaintiff's case was that the breach of contract pleaded in paragraph 8 of the Statement of Claim had occurred on the 19th October 1987 (commonly known as "Black Monday"). The Defence was also pleaded on the understanding that the plaintiff's case pleaded in the statement of Claim was that the stop loss order had imposed a duty on the defendants to sell the shares when their price was $13.50 and to sell them at that price.

8. Thus it was pleaded in paragraph 4 of the Defence that the Hong Kong market had crashed on the 19th October 1987 and three reasons were pleaded why the shares had not been sold on that date notwithstanding that the price of the snares had dropped to $13.50 "at certain point of time on that day". One of the reasons, pleaded in paragraph 4(c), was that plaintiff had given no instructions to the second defendant on the 19th October to sell any of the shares "at any price whatsoever". In paragraph 5 it was pleaded that having regard to the market situation on the 19th October 1987:

9. The plaintiff twice requested further and better particulars inter alia of paragraph 5 of the Defence directed to ascertain if by paragraph 5 the defendants were alleging that they had attempted to sell the shares on the 19th October 1987. In reply to the plaintiff's second request the defendants gave further and better particulars of paragraph 5 on the 3rd October 1988 to the effect that the second defendant had attempted to sell the shares on the 19th October 1987 at the price of $13.50 but ho buyer could be found.

10. By paragraph 2 of his Reply filed on the 13th February 1989 the plaintiff pleaded that by reason of the automatic stop loss sell order "more fully pleaded in paragraph 5 of the Statement of Claim" it had been unnecessary for the plaintiff to give any instructions to the second defendant on the 19th October 1987 as alleged in paragraph 4(c) of the Defence. By paragraph 3(1) of the Reply the plaintiff denied that the reasons (a) or (b) pleaded in. paragraph 5 of the Defence:

By paragraph 3(2) of the Reply the plaintiff pleaded that:

11. On the 19th September 1988 the plaintiff evidently obtained an order from Master Jones requiring the defendants to furnish supplemental further and better particulars of the Defence, including paragraph 5 thereof. These were furnished on the 13th May 1989, but before that date, on the 4th May 1989 the defendants obtained an order from Master Woolley giving them leave to amend their Defence. Examination of the court file indicates that the Amended Defence has never been filed but this court was informed by counsel at the hearing of the appeal that at the trial the parties and the trial judge treated this pleading as if it had been filed.

12. Unlike the original Defence, the amended Defence bore the signature of counsel (Mr. Andrew Cheung who represented the defendants below and on appeal) and is an almost entirely new pleading, at any rate in respect of the matters relevant to this appeal. Paragraph 3(a) of the amended pleading admits the stop loss sell order at the price of $13.50 per share, but in paragraph (b), it is pleaded for the first time that:

13. Paragraphs 4 and 5 of the original Defence were deleted by the amended pleading and effectively replaced by paragraph 4 of the Amended Defence which pleaded:

14. Thus it is clear that the defendants were continuing to plead on the understanding that the plaintiff's pleaded case was that the defendants were under a duty to sell the shares when the price was $13.50 and for that price, out the defendants were pleading that they could not be in breach of the order if the share price rose or fell (after being $13.50) before they could, "with reasonable skill, care and endeavours" sell the shares at $13.50. It is also clear that the defendants were continuing to plead  their defence on the understanding that the plaintiff's case (albeit not pleaded in paragraph 8 of the Statement of Claim) was that the alleged breach or the stop loss sell order had occurred on the 19th October 1987.

15. Under the order of Master Woolley made on the 4th May 1989 the plaintiff was given leave to amend his Reply if so advised. No amended Reply has been filed. This is perhaps understandable in view of the fact that the Amended Defence has not yet been filed. The latter pleading is undated but it must have been served on the plaintiff before the plaintiff's expert produced his report (which was filed on the 22nd November 1990) because that report refers to paragraph 3(b) (i) of the Amended Defence and asserts that the form of order therein pleaded is not a stop loss order but a stop limit order of a very narrow range. According to the plaintiff's expert's view expressed in his report:

16. On the 1st December 1990, a matter of days before the trial which had been fixed to begin on the 11th December 1990, the plaintiff issued a summons applying for leave to amend the Statement of Claim in a manner which would have expressly reflected the views of the plaintiff's expert regarding the nature of a stop loss sell order. Thus it was proposed to amend paragraph 5 of the Statement of Claim by adding immediately after the pleading of the stop loss sell order at the price of $13.50 the worlds:

17. Appropriate amendments to like effect were sought to be made to paragraphs 6 and 8 of the Statement of Claim. It was not sought to plead any specified date for the alleged breach of the order in paragraph 8, nor was it sought to plead expressly what was the best price obtainable for the shares at the time of the alleged breach, but it was proposed to leave paragraph 10 unamended, and in the particulars of that paragraph it was asserted that $13.50 was the price "at which the shares should have been sold".

18. When the plaintiff's application came to be heard by the trial judge, Liu J., on the 5th December 1990 it was made as a purported tidying up operation but opposed by the defendants on the grounds of lateness and prejudice. In this connection the defendant's expert report dated the 19th November indicated that an opinion had been sought from him (in line with the defendant's understanding of the plaintiff's unamended pleaded case):

19. The judge ruled that the proposed amendments to the Statement of Claim raised a new case and that the defendants should have time to meet it. He was not, he said, prepared to grant the application except on the basis that the plaintiff agreed the terms sought by the defendant's counsel as to costs and adjournment and as to the defendants' expert evidence. After a snort adjournment to consider, at the judge's invitation, whether to pursue his application on this basis, Mr. Fox, the plaintiff's counsel sounded out the judge as to whether he considered his ruling on the effect of the unamended Statement of Claim would bar the plaintiff from relying on his expert evidence concerning the nature of a stop loss sell order. The judge said that his ruling might have that implication but refrained from committing himself on the point. Mr. Fok took further instructions during a second short adjournment. There followed an interchange between Mr. Fok and the judge in which Mr. Fok maintained that he was entitled to call the evidence in question on his original pleadings and that if he withdrew his application it meant there had been no ruling at all. The judge's note indicates that the matter concluded thus:

20. The judge then recorded that the summons was withdrawn with leave and awarded costs to the defendants in any event. A formal order to this effect was drawn up.

21. At first blush the course taken by the plaintiff's counsel, albeit after taking the wise precaution of taking instructions, seemed to us to be a bold one in the light of the judge's ruling on the effect of his unamended pleading. However it seems that counsel for the plaintiff was confident of success even if the trial judge were in the resumed trial to confine the plaintiff to his construction of the plaintiff's pleaded case regarding the terms of the stop loss sell order at $13.50, because at the trial the plaintiff's case was going to be that the breach of the order occurred, not only on the 19th October 1987 in the case of both holdings of shares (as the defendants had misapprenended but also previously on the 20th, 24th, 25th and 26th August 1987 in the case or the New world shares and on the 16th October 1987 in the case of  the Windsor shares. The case for the plaintiff (as reflected in paragraph 10 of the statement of Claim) was that $13.50 could have been obtained for all of the shares on the dates to be relied upon, albeit those dates were not pleaded in paragraph 8 of` the statement of Claim.

22. After the hearing before Liu J. on the 5th December there was a conversation between counsel in the presence of their instructing solicitors. ` In the course of this discussion Mr. Fok informed Fir. Cheung that the price of the shares in question had fallen below $13.50 prior to the 19th October 1990. This must at last have alerted the defendants to the importance of the fact that paragraph 8 of the Statement of Claim had not specified any date for any of the alleged breaches of the order by the defendants. The sequel to the events of the 5th December was that two important letters bearing that date were sent by the defendant's solicitors to the plaintiff's solicitors by fax and by hand.

23. In the first of the letters the defendants' solicitors referred to Mr. Fok's indication to Liu J. that he might contend at the trial that the plaintiff's un-amended pleaded case permitted him to argue and to call expert evidence to establish that the effect of the stop loss sell order in this case was that the defendants were under a duty to sell the shares at the best available price when the "trigger" price of $13.50 was reached. By their letter the defendants' solicitors put the plaintiff's solicitors on notice that if the plaintiff were to take such a course at the trial the defendants would oppose it vigorously and, in event, seek an adjournment if the court were minded to permit the plaintiff to take the course envisaged.

24. The second letter ref referred to the conversation which had taken place between counsel for the parties after the nearing before Liu J. when Mr. Fok had given the above mentioned indication regarding the dates when the share prices reached the "trigger price" of $13.50. Surprise was expressed and further and better particulars of paragraph 8 of the Statement of Claim were sought in the following passage of this letter:

These particulars were sought by the close of business on the 6th December as the trial was due to begin on Tuesday the 11th December.

25. The plaintiff's solicitors replied on the same day, reasserting the plaintiff's stance regarding the effect of the stop loss sell order and refusing to furnish the particulars of the dates of alleged breach requested by the defendant's solicitors. The reply was in the following terms:

Inconclusive letters in unwaivering terms subsequently passed between the solicitors.

26. It was in this most unsatisfactory situation that the action came on for trial before Liu J. on the 11th December. As foreshadowed by the correspondence Mr. Fok opened the plaintiff's case on the basis that inter alia (1) the stop loss sell order obliged the defendants to sell the shares "at stop loss price - $13.50" and to sell "at best price", and (2) the stop joss order price of $13.50 for both holdings of shares was reached before the 19th October 1987, on the dates already mentioned above in this judgment. Predictably Mr. Cheung opposed reliance by the plaintiff on (1) and (2) in the then state of the pleadings and having regard to the previous conduct of the plaintiff's case. The matter appears to have been argued for one and a half days. The judge ruled, in terms set out at the beginning of this judgment, in favour of the defendants, having applied the test of "... how the allegations as pleaded may be reasonably understood in the context and against the known scenario. It is the reasonable objective comprenension of the parties that matters."

27. In his grounds and argument in support of the plaintiff's appeal Mr. Fok contends that the judge failed to put the burden of the issues on the defendants and that he adopted the wrong approach in construing the plaintiff's pleadings. We say at once that this is not, in our opinion, a matter where any question of onus can be material.

28. On the issue as to price Mr. Fok argued that on a proper objective reading of the plaintiff's pleading, without regard to extrinsic matters or to any subjective misapprehensions of the defendants, the plaintiff's expert's evidence as to the true meaning of the stop loss sell order was admissible. He further argued that the meaning of the order had been put in issue by paragraph 3(b) of the Amended Defence.

29. On the issue as to the time of breach Mr. Fok stressed that paragraph 8 of the Statement of Claim contained no specific allegation of any date of any breach of the order. He further criticised the judge's reliance on paragraph 4 (2) of the Reply (which pleaded merely to an alleged waiver by the plaintiff on the 19th October 1987 asserted in paragraph 6 of the Defence) as apparently scaling down the wide pleading of paragraph 8 of the Statement of Claim, as the judge put it, ".... to the period commencing from Black Monday, the 19th October if not to the Black Monday itself." Mr. Fox also submitted that the judge had failed to take into account that there was before him, in the bundle of agreed documents for use at the trial, all the data (disclosed on discovery by the plaintiff) required to establish that, even on the defendants' own case as to the effect of the stop loss sell order, the shares could have been sold for $13.50 per share on the dates relied upon by the plaintiff.

30. Finally in relation to both issues as to price and time, but particularly on the issue as to time Mr. Fok contended that, insofar as the plaintiff's pleadings were held by the judge not to have specifically put the defendants on notice as to the meaning of the stop loss sell order or the relevance (as to breach) of any period prior to the 19th October 1987, the judge ought to have held that it had been open to the defendants to request further and better particulars of the Statement of Claim in respect of these matters and that, having chosen to make no such request, the defendants must be deemed to have waived their right to such particulars.

The issue as to the price at which the shares were required to be sold by the defendants

31. We have had no difficulty in concluding (in agreement with the judge) that, on objective consideration, the Statement of Claim is reasonably to be interpreted as pleading that the stop loss sell order relied upon by the plaintiff required the defendants to sell the shares at such time as the price reached $13.50 and to sell them at that price. It may well be that the plaintiff's expert's exposition of the duties imposed by such an order is correct because it seems commercially sensible. But the question the judge had to consider was whether the terms actually pleaded were the same as described by the plaintiff's expert.

32. The style of pleading in paragraph 6 of the Statement of Claim was to allege that it was an express term of the contract that the shares should be sold by the defendants "when" the price "was $13.50". The breach of contract pleaded in paragraph 8(1) was failure to sell the shares "at" the stop loss price of $13.50. The further breach alleged in paragraph 8(1) was the unauthorised sale of the shares "below" $13.50. When these allegations, which are at the very least equivocal, are followed, in the particulars in paragraph 10, by the allegation that the price at which the shares "should have been sold" was $13.50, we consider that the pleadings as a whole can reasonably and objectively be understood to have the meaning attributed to them by the defendants and the judge. We venture to doubt whether the pleader or those professionally instructing him fully understood the true nature of a stop loss sell order prior to reading the report of their expert. Otherwise there would have been no reason for not pleading the contract in the manner indicated in the subsequent proposed amendments to the Statement of Claim.

33. We are unable go accept the argument that this issue can be resolved by reference to the matters pleaded in paragraph 3(b) of the Amended Defence. In our opinion that paragraph is properly to be understood to add a gloss to the pleaded case of the plaintiff by impliedly accepting that the defendants were under a duty to sell "at" $13.50 "for" $13.50 but with the qualification that (subject to what is pleaded in paragraph 3(b)(ii)) the duty to sell ceased whenever the price went above or below $13.50.

34. During the hearing of the appeal Mr. Fok very fairly pointed out that this issue as to price has no practical significance now because the pleading undoubtedly alleges a breach of duty to sell for $13.50 (as paragraph 10 and the prayer plead) and the plaintiff's case now is that the breaches occurred on dates prior go the 19th October 1987 when it is apprehended that, on the evidence, that price was obtainable. However the issue had loomed large in the circumstances outlined above and Mr. Fok had stood firm on both issues on the 12th December 1990.

The issue as to the time of the alleged breaches of contractual duty by the defendants

35. This has become the crucial practical issue in this appeal, because the plaintiff's indication that he relies on breaches of contract prior to the 19th October 1987 appears to render all (except possibly waiver) of the defendants' currently pleaded defences ineffective and gives rise to what Mr. Cheung described as a "killer" point.

36. The fact that the defendants had agreed all the evidence which would have been likely to be their undoing at the trial if the plaintiff had been permitted to establish breaches of contract prior to the 19th October 1987 is in our opinion ninil ad rem in relation to the issue raised before the judge which was essentially a pleading issue. In this connection we accept Mr. Fok's argument that the judge was, with respect, not entitled to rely on matters pleaded in paragraph 4(2) the plaintiff's Reply in answer to the defendants' allegations of waiver made in paragraph 6 of the Defence.

37. The issue has to be resolved in accordance with basic principles of pleading applicable to paragraph 8 of the Statement of Claim. Mr. Fok frankly acknowledged that this paragraph had originally been pleaded without specifying any date for the alleged breaches of contract because at the time those advising the plaintiff did not have the relevant information to determine whether there had been any breach prior to the 19th October 1987 by reference to which date the plaintiff had originally made his claim in his letter to the defendants dated the 4th December 1987. However they wished to keep the position open in case, as transpired, such information became available. It was not  until some time after the filing of the Reply on the 13th February 1989 that those advising the plaintiff had discovered evidence to indicate that the date of the alleged breaches was other than the 19th October 1989.

38. Be that as it may; Mr. Fok accepted that the plaintiff was under a duty to plead a specific date for the alleged breaches. In our view this is clearly right. Under Order 18 rule 7 the plaintiff was obliged to plead "only'..."in a summary form"... the "material facts" on which he relied "but not the evidence by which those facts are to be proved". Whether a particular fact is a material fact for the purposes of rule 7 depends on the circumstances of the particular case (see the Supreme Court Practice Vol. 1 p.280, para 18/7/4) and, as Brett L.J. observed in Philipps v. Philipps (1878)4 QBD 127 at p.132:

39. In the present case there can, in our opinion, be no doubt, as Mr. Fok conceded, that the date of the "trigger price" which sets the time of the alleged breaches of contract, was a material fact for the purposes of rule 7. Failure to plead that date rendered paragraph 8 of the Statement of Claim embarrassing for the purposes of a strike out application under Order 18 rule 19(1)(c). The defendants did not apply to strike out because they assumed (it would seem correctly until some time after the filing of the Reply) that the plaintiff (as implied in his letter dated the 4th December 1987) was relying only on a breach of contract on the 19th October 1987.

40. An alternative course of action available to the defendants would have been to apply under Order 18 rule 12 for further and better particulars of the date of breach of contract alleged in paragraph 8 of the Statement of Claim. This course was not adopted for the same reason as no application was made to strike out. One of the purposes of particulars is to prevent surprise: see the Annuli Practice, Vol. 1, P.299 para 18/12/2 at (2). In this connection Mr. Fox relies on the fact that the agreed bundle of documents contained all the evidence relevant to the dates of breaches relied upon by the plaintiff. There is therefore considerable force in his contention that the defendants cannot be heard to say that this is a case in which vigilant defendants have been taken by surprise by new and wholly unexpected evidence.

41. However, another purpose of particulars under Order 18 rule 12 is to tie the hands of the party so that he cannot without leave go into any matters not includes in his pleading: see the Annual Practice, Vol. 1, p.299; para 18/12/2 at (6) citing Brett L.J. in Phillipps v. Phillipps at p.133 where he observed in relation to the duty to plead all material facts relied upon:

42. Mr. Fox, relying on Dean of Chester v. Smelting Corporation [1902] WN5 and Hewson V. Cleeve [1904]2 Ir. R536, submitted that as the defendants had failed to apply for particulars of paragraph 8 of the Statement of Claim they must be deemed to have deliberately waived their rights so that the way was open for the plaintiff to rely on the evidence of the earlier dates of breaches relied upon by him. But this argument seemed to us to ignore the events of the 5th December. As soon as they learned on that date of the plaintiff's intention to rely on the alleged breaches prior to the 19th October 1987, the defendants had requested. particulars of the dates and times of the alleged breaches to which they were clearly entitled.

43. This request was wrongly refused and, in our opinion, it followed that the plaintiff was strictly not entitled to adduce evidence of breaches of contract on dates not expressly or impliedly pleaded. Of course in practice the matter could soon have been put right by an application to amend, albeit on terms. But by the time this matter came before the judge at the trial on the 11th and 12th December 1990 the plaintiff was adopting an entrenched position on the pleading issues which had arisen and the judge was being asked for his ruling on them on the footing that the plaintiff was at that stage not asking for any indulgence from the court but the defendant might well have to do so. Thus the judge's note of the proceedings on the 12th December 1990 records the following opening submissions of Mr. Fok:

44. It seems to us that the plaintiff's refusal to particularise paragraph 8 of the Statement of Claim in response to the defendants' application, combined with its insistence on being entitled to adduce evidence to prove material facts which remained unpleaded was wholly unjustified. The defendants' application for particulars was late, but not too late and no question of waiver arose under the circumstances. In the absence of any application by the plainitff to amend the Statement of Claim we therefore consider that the judge's decision on this issue was right, albeit for the reasons indicated above which do not coincide with those of the judge. Strictly speaking a respondents' notice was required to permit Mr. Cheung to rely on the plaintiff's refusal to furnish particulars of paragraph 8 of the Statement of Claim (which was not relied upon by the judge) but this matter was argued without objection and we therefore dispense with the requirement of a respondents' notice.

45. We have not found it necessary to prolong this regrettably long judgment by dealing with Mr. Cheung's arguments based on estoppel and res judicata in support of the defendants' respondents' notice. We did hot encourage him to develop them or invite Mr. Fok to deal with them and we emphasise that we do not intend to be taken to have formed any view upon them one way or the other.

46. Accordingly we dismiss the plaintiff's appeal and make an order nisi awarding the costs of the appeal to the defendants. We add that it seems to us that the regrettable burden of costs that has already been incurred in the interlocutory stages of this case, which is concerned with relatively modest sums of money, would have been avoided if those advising the parties had borne in mind the basic purposes of pleadings which were succinctly encapsulated by Lord Goff of Chievely in the following passage at p.v in his recent foreword to Jacob and Goldrein on Pleadings Principles and Practice:

Representation:

Mr. Joseph Fok (M/S Clyde & Co.) for Appellant/Plaintiff

Mr. Andrew Cheung (M/S Woo, Kwan, Lee & Lo) for Respondents/Defendants