Li Mi Siu v. Company Registration Number 1800780 Ltd (Formerly Known As Standard Perpetual Bullion (International) Ltd and Others

HCA 547/2015

[2019] HKCFI 944

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 547 OF 2015

____________

BETWEEN

____________

Before: Mr Recorder Pow SC in Court

Dates of Hearing: 3 & 4 April 2019

Date of Judgment: 14 May 2019

_______________

JUDGMENT

_______________

1.This is the trial of an action brought by the plaintiff against four defendants arising out of a client’s agreement made with the 1^st defendant dated 13 August 2013 (“the 1^st Client’s Agreement”); another client’s agreement dated 30 January 2014 joining the 2^nd defendant as a holder of the account (“the 2^nd Client’s Agreement”); and an account credit agreement dated 10 February 2014 (“the Account Credit Agreement”).

2.The plaintiff was aged 65 as of the commencement of the action in 2015.  She retired in 2008 and was at the material time working as a part-time terminus supervisor for residents’ buses.

3.The 1^st defendant (“SPBIL”) was a Hong Kong incorporated company purportedly engaged in the business of leveraged precious metals trading.  At the time of incorporation and up to 16 April 2013, Mr Chew Chun Ming Anthony (“Chew”) and Mr Lee Kwok Tung were its two directors and each of them held 50% of the shareholding in SPBIL.  On 16 April 2013, both ceased to be directors of SPBIL and were replaced by two other gentlemen.

4.The 2^nd defendant was at all material times employed by the 1^st defendant as a senior business manager.  The 3^rd defendant was at all material times the Chief Executive Officer (總裁) of the 1^st defendant[1].  The plaintiff’s claim against the 4^th defendant had been discontinued by an Order of B Chu J dated 3 January 2019.

5.The plaintiff asserts that she was initially approached by the 2^nd defendant through cold-calls in July 2013 about investing in gold trading.  The plaintiff’s case is that she entered into the 1^st Client’s Agreement by reason of fraudulent misrepresentations made to her by the 2^nd defendant.  An account numbered BPJ0101H (“the Account”) was opened.  The plaintiff also appointed the 2^nd defendant to be her authorized agent in handling trading activities in the Account on her behalf.  For reasons detailed below, the alleged misrepresentations continued to operate on her when she entered into the 2^nd Client’s Agreement and the Account Credit Agreement.  The plaintiff asserts that the 3^rd defendant continued to make those misrepresentations by failing to correct her erroneous belief generated by the misrepresentations previously made by the 2^nd defendant.  Upon signing the 2^nd Client’s Agreement, the plaintiff appointed Chew to be the new authorized agent to operate the Account.  Similarly, the plaintiff’s case is that she entered into the Account Credit Agreement because the 3^rd defendant continued to make the misrepresentations by failing to correct her erroneous belief generated by the misrepresentations previously made by the 2^nd defendant.  The plaintiff’s claim against the 1^st defendant is not merely based on vicarious liabilities.  The plaintiff alleges that the 1^st defendant (together with the 2^nd and 3^rd defendants) practiced fraud on her and she relies on the tort of deceit as well.

6.The 1^st defendant SPBIL did not file any defence in this action.  The plaintiff applied for default judgment against SPBIL and by an Order of Master A Ho dated 22 March 2018, the application was adjourned to be dealt with at the trial.  SPBIL has not appeared in this trial.

7.The 2^nd defendant filed his defence on 1 December 2015.  The plaintiff administered interrogatories on the 2^nd defendant who failed to answer them.  By an Unless Order of Master Au Yeung dated 14 March 2018, it was ordered that unless the 2^nd defendant filed and served his answers by 4 pm on 11 April 2018, the defence of the 2^nd defendant be struck out and that the plaintiff would be entitled to judgment and costs.  The 2^nd defendant failed to comply with the Unless Order.  The plaintiff thus applied for judgment.  By an Order of Master K W Wong dated 1 June 2018, the matter was adjourned to be dealt with at this trial.  The 2^nd defendant had not appeared in a number of pre-trial hearings but suddenly turned up at the trial unrepresented.

8.The 3^rd defendant also appeared at the trial unrepresented.  He had not filed any witness statement.  By an Order of Master K T Wong dated 16 August 2017, it was ordered that unless the 2^nd and 3^rd defendants do file and exchange their respective witness statements within 14 days from the date of service of the Order, the 2^nd and 3^rd defendants shall not be permitted to call any witness or rely on any witness statement at the trial.  The 2^nd and 3^rd defendants failed to comply with the Order of Master K T Wong.  When the 2^nd and 3^rd defendants appeared at the trial, they had not even prepared any draft witness statement.  No application for extension of time for compliance with the Order of Master K T Wong had ever been made.  After explaining the situation to the 3^rd defendant, he appreciated that in the circumstances, he could only participate at the trial by two means: (1) to cross-examine the plaintiff with a view to testing the reliability of her evidence; and (2) to make submissions to this Court as to why the plaintiff’s claims should not be granted against him.  The 3^rd defendant agreed to participate in these manners.

9.As for the 2^nd defendant, strictly speaking, his defence had already been automatically struck out for failing to comply with the Unless Order of Master Au Yeung dated 14 March 2018.  However when the plaintiff applied to enter judgment by her summons dated 24 May 2018, Master KT Wong ordered (1 June 2018) that the plaintiff’s application be adjourned to be dealt with at trial.  Since the 2^nd defendant suddenly appeared in person at the trial, Mr Lee, counsel for the plaintiff, fairly stated that the plaintiff was prepared to allow the 2^nd defendant to participate in the same manners as the 3^rd defendant.  The plaintiff’s position however was that the 2^nd and 3^rd defendants should abide by the Order of Master K T Wong dated 16 August 2017 and should not be permitted to give evidence lest that the plaintiff would be ambushed and prejudiced by their failure to provide witness statements.  I agreed with the approach of Mr Lee.

The plaintiff’s case

10.In July 2013, the plaintiff was first approached by the 2^nd defendant through two cold-calls who persuaded the plaintiff to invest in leveraged precious metal trading through SPBIL.  The plaintiff was initially apprehensive and asked the 2^nd defendant how she could impose trust on him and SPBIL.  The 2^nd defendant then verbally represented to the plaintiff that she could trust “the Chinese Gold and Silver Exchange Society (“CGSE”) number 243, the member number of SPBIL”.

11.On 12 August 2013, the plaintiff met face-to-face with the 2^nd defendant at the office of SPBIL at 14/F, Overseas Trust Bank Building, 160 Gloucester Road, Wanchai, Hong Kong (“the OTB Office”).  During the meeting, the plaintiff repeated her concern.  The 2^nd defendant then provided her with his name card [2] bearing the Chinese name “盛豐貴金屬有限公司” (“SPPML”) on top and then with the Chinese name of SPBIL “盛豐貴金屬 (國際) 有限公司” immediately below.  The name card also referred to a website “www.perpetual243.com” (“the Website”) which was presented as that of “CGSE number 243”.  In Chinese, it was stated “金銀業貿易場行員243號”.  The email address of the 2^nd defendant shared the same domain name of “perpetual243.com”.  The name card also bore the address of the OTB Office.

12.The 2^nd defendant then showed to the plaintiff a pamphlet [3]bearing these prominent words: “盛豐貴金屬” and “金銀業貿易場行員243號”.  In the short description of “Standard Perpetual Precious Metals Limited盛豐貴金屬有限公司”, it was said to maintain a headquarter in the commercial district of Wanchai.  The reference to “金銀業貿易場行員243號” appeared twice in Chinese and once in English with much prominence on the covering page of this pamphlet.  On the second page, there were contents stressing that trading with them would be safe as they were supervised by CGSE.

13.The plaintiff was also shown a blank copy of a client’s agreement [4] which stated on its cover “盛豐貴金屬 Standard Perpetual  www.perpetual243.com”.  On page 1, it was stated:

“ [SPBIL] is an affiliate of [SPPML] (The Chinese Gold & Silver Exchange Society Membership No. 243) 盛豐貴金屬 (國際) 有限公司為盛豐貴金屬有限公司 (香港金銀業貿易場行員編號：243) 的關聯公司”.

At the bottom, the address of the OTB Office and the Website were also set out.  At the end page of the 1^st Client’s Agreement, SPBIL’s affiliation with SPPML and its status as a member of CGSE was again portrayed.  It will be seen in due course that SPPML genuinely exists and is a member of CGSE with membership number 243.  SPPML however has absolutely no relationship or connection with SPBIL.  SPPML has never been located in Wanchai nor has it ever maintained a branch office in Wanchai.

14.The 2^nd defendant then pointed to the CGSE member number “243” on the cover of the 1^st Client’s Agreement and verbally represented to the plaintiff: “Even if you don’t trust me, you have to trust CGSE.  This is our member number.”  He further said: “Affiliated companies were basically one company or part of the group that [SPBIL] belonged to and you should trust CGSE number 243.”

15.The plaintiff’s case is that apart from the aforesaid express representations, the 2^nd defendant thereby made implied representations that: (1) by engaging in gold investment through SPBIL as her agent, the plaintiff would be trading in gold commodities through the CGSE; and (2) the activities of SPBIL were regulated by CGSE.

16.The plaintiff relied on the aforesaid express and implied representations and entered into the 1^st Client’s Agreement with SPBIL.  She also signed a Notice of Appointment appointing the 2^nd defendant to be her authorized agent in handling trading activities on her behalf.  It is noteworthy that this Notice was purportedly addressed to SPPML.

17.Prior to executing the 1^st Client’s Agreement, it was the express instructions by the plaintiff to SPBIL through the 2^nd defendant that: (1) she did not wish to engage in high risk trading activities; (2) she did not wish to engage in margin trading; (3) the Account should not hold more than 100 units of products; and (4) loss must be cut when it reached 10% of her investment capital.  The 2^nd defendant assured the plaintiff that trading in her account would not involve high risk and that he would regularly keep her informed of the account balance.

18.Between August 2013 and February 2014, the plaintiff deposited HK$4,600,000 into the Account.  This is not a matter in dispute as it had been admitted in both defences filed by the 2^nd and 3^rd defendants.

19.On 11 September 2013, during a meeting, the 2^nd defendant suggested that he would like to join the plaintiff in precious metal trading.  At that time, the Account balance was HK$470,881.  The 2^nd defendant suggested that she should increase her capital by HK$600,000 while the 2^nd defendant would deposit HK$535,040 into the Account.  In that case, the Account would have a total of around HK$1.6 million.  On that basis, they would share in the ratio of 2:1 (two parts for the plaintiff and one part for the 2^nd defendant).  The 2^nd defendant said that out of HK$1.6 million, HK$1.2 million would be used to purchase 30 units.  The remaining HK$400,000 would act as reserve capital.  The plaintiff agreed with his suggestion but gave the instructions that: (1) they should jointly invest in no more than 100 units in the Account; and (2) profits should be realized when available.  The plaintiff however was only able to put forward an additional HK$400,000 at the time which she remitted into the Account on 12 September 2013.

20.The plaintiff and the 2^nd defendant met on 23 October 2013.  At that time, the Account balance was around HK$1.8 million, ie HK$1.2 million belonging to the plaintiff and HK$600,000 belonging to the 2^nd defendant.  The 2^nd defendant again suggested to increase the total balance in the Account to around HK$3 million (ie an additional HK$800,000 from the plaintiff and HK$400,000 from the 2^nd defendant).  The plaintiff agreed and she remitted a total of HK$800,000 to the Account by two tranches on 5 November 2013 and 29 November 2013.

21.On 5 November 2013, the plaintiff discovered from the Account statement that two sums of HK$535,400 and HK$600,000 had been deposited into the Account in the name of Mr Chew (趙先生).  She thought that the first sum was attributable to the 2^nd defendant’s contribution as agreed on 11 September 2013.  She was however unclear about the HK$600,000.  When asked, the 2^nd defendant explained that Mr Chew was one of his bosses.  He said Mr Chew had paid HK$600,000 into the Account on her behalf.  Since the plaintiff had later remitted HK$400,000, all she needed to do was to remit a further HK$200,000 into the Account so that the sum of HK$600,000 could be repaid to Mr Chew/SPBIL.  The plaintiff reprimanded the 2^nd defendant for allowing someone to deposit money into the Account without her knowledge and consent.  However, given the circumstances, the plaintiff thought that she had no choice but to remit another HK$200,000 into the Account so that the sum of HK$600,000 could be repaid to Mr Chew/SPBIL and so that the Account could continue to operate.

22.On 4 December 2013, the 2^nd defendant proposed to the plaintiff that they should buy in another 40 units.  When asked about the current situation of the Account, the plaintiff was shocked to learn that the Account was by then holding 400 units.  That was clearly against the instruction hitherto given by her to the 2^nd defendant.  The plaintiff thus instructed the 2^nd defendant to immediately reduce the Account holding to 100 units.  The 2^nd defendant agreed.  On the next day, upon the plaintiff’s enquiry, the 2^nd defendant had allegedly reduced the Account holding to 300 units.  The plaintiff again insisted that the Account holding should be reduced to 100 units.

23.On 9 December 2013, the Account balance was around HK$4 million.  The 2^nd defendant said he had some market information and suggested to further increase the investment capital.  At the time, the plaintiff was entitled to roughly HK$2.6 million in the Account and roughly HK$1.3 million belonged to the 2^nd defendant.  The 2^nd defendant suggested that both would put up further HK$1 million each.  The plaintiff agreed and she remitted HK$1 million to the Account on 9 December 2013.

24.On or about 21 or 22 December 2013, the plaintiff informed the 2^nd defendant that she would like to withdraw her capital and profits by the end of December.  The 2^nd defendant agreed to settle all transactions in the Account to cater for the plaintiff’s withdrawal.  When asked about the Account status, the plaintiff was again shocked to learn from the 2^nd defendant that the Account was holding 400 units.  The plaintiff immediately insisted on the 2^nd defendant reducing the holding to 100 units.

25.On 23 December 2013, the 2^nd defendant suddenly informed the plaintiff that she could not withdraw her funds from the Account because it had been locked due to “security money (保證金)” not having been repaid.  The plaintiff was shocked to learn that the 2^nd defendant had traded on margin against her instruction.  The 2^nd defendant told her that each of them must pay in another HK$750,000 by 8 February 2014 so that the Account could be unlocked for the plaintiff to withdraw her funds.

26.On 31 December 2013, the 2^nd defendant told the plaintiff that by 8 February 2014, the plaintiff must put in HK$750,000 and that he must put in HK$1,280,000 to the Account as margin security.  The plaintiff was unwilling because trading on margin was against her instruction.  However, she was worried that if she did not provide the additional security money, she could not withdraw her funds.  The plaintiff thus remitted HK$80,000 and HK$670,000 respectively on 7 January 2013 and 8 January 2013.  The 2^nd defendant told her that the Account could be settled in one or two days’ time.

27.On 8 January 2014, the plaintiff instructed the 2^nd defendant to withdraw HK$1.6 million of her funds from the Account.  The 2^nd defendant agreed and said that he could soon achieve that by settling 20 more units.

28.On 9 January 2014, when asked about the status of the settlement, the 2^nd defendant told the plaintiff that he was unable to settle the Account because he could not put forward his HK$500,000 of security money.  He said he could only raise HK$100,000.  Since the plaintiff was anxious to settle the Account, she lent HK$400,000 to the 2^nd defendant so that his portion of the security money could be paid in.

29.On 14 January 2014, the plaintiff again telephoned the 2^nd defendant to enquire about the settlement status.  He said there were still some outstanding matters to be handled.  The plaintiff instructed him to immediately settle the Account which the 2^nd defendant agreed.  On 15 and 16 January 2014, when the plaintiff telephoned the 2^nd defendant for enquiry, he hung up and never replied to the plaintiff thereafter.  Then on 17 January 2014 when the plaintiff made enquiry with SPBIL, she was told that the 2^nd defendant had resigned four days ago.  The plaintiff thus demanded to meet the person-in-charge of SPBIL.

30.The plaintiff first met the 3^rd defendant on 17 January 2014 when she went to the OTB Office and made her complaint.  The 3^rd defendant introduced himself as the Chief Executive Office (行政總裁) of SPBIL.  At that meeting, the plaintiff signed a declaration in Chinese setting out a chronology of events [5]. The 3^rd defendant signed on this declaration as a witness stating himself as the Chief Executive Office (行政總裁) of SPBIL.  It can be seen from the declaration that it merely stated the 3^rd defendant as “總裁” of SPBIL.

31.On 20 January 2014, the plaintiff met the 2^nd and 3^rd defendants at the OTB Office.  The plaintiff and the 2^nd defendant signed another declaration confirming the events that had taken place between them.  The 3^rd defendant again signed as a witness and was described as “總裁” of SPBIL[6].  At that meeting, the plaintiff requested SPBIL to assist her by paying up the security money of HK$1.8 million.  According to her understanding, such was necessary to enable the continual operation of the Account so that she could have the chance of withdrawing her funds.  The 3^rd defendant told her that her request had been related to the top management who was at that time in Germany.

32.On 24 January 2014, the 3^rd defendant telephoned the plaintiff and informed her that the boss of SPBIL had agreed to lend the plaintiff HK$1.8 million for satisfying the security money.  The 3^rd defendant also engaged an experienced agent to handle the Account in place of the 2^nd defendant. Under that arrangement, the Account could continue operation but the plaintiff could not withdraw money until the HK$1.8 million was repaid.  The plaintiff and the 2^nd defendant then attended the OTB Office for discussion.  Both indicated that they could not raise HK$1.8 million.

33.On 27 January 2014, another meeting took place between the plaintiff and the 3^rd defendant at the OTB Office.  The 3^rd defendant confirmed that his boss could provide the HK$1.8 million security money and repayment date could be extended.  The 3^rd defendant also suggested that the plaintiff and the 2^nd defendant could shoulder up the HK$1.8 million in the ratio of their investments in the Account.  The plaintiff repeatedly told the 3^rd defendant that she had no ability to repay even if repayment could be postponed.

34.On 30 January 2014, another meeting took place at the OTB Office between the plaintiff, the 2^nd defendant, the 3^rd defendant and an analyst surnamed Chew (趙先生) who was assigned to handle the Account.  Mr Chew said that the Account was holding 605 units and that was too much.  He suggested that the Account holding should be reduced to 200 units and that he would make settlement at appropriate time.  He recommended that the plaintiff and the 2^nd defendant should become joint holders of the Account.  The plaintiff was under the belief that such would be necessary to enable the operation of the Account.  The plaintiff thus executed the 2^nd Client’s Agreement with SPBIL [7] with the 2^nd defendant and her as joint account holders.  The 2^nd Client’s Agreement was otherwise identical to the 1^st Client’s Agreement, containing the same misrepresentations about SPBIL’s affiliation with SPPML.  The plaintiff also signed a Notice of Appointment appointing Mr Chew to be the new authorized agent to operate the Account.

35.On 10 February 2014, believing that to be the only way of protecting the remaining balance in the Account, the plaintiff and the 2^nd defendant jointly executed the Account Credit Agreement [8]. Under this agreement, the plaintiff agreed to further inject HK$400,000 and the 2^nd defendant agreed to inject HK$1.1 million into the Account.  Then SPBIL agreed to lend HK$4.5 million so as to enable the Account to be operated.

36.On 17 February 2014, the plaintiff received an email from the 3^rd defendant regarding the Account balance and proposing further investments to the plaintiff [9].  It can be seen that the 3^rd defendant used an email address “[email protected]”.  The 3^rd defendant thus continually represented to the plaintiff that he, the 2^nd defendant, and SPBIL were all related to SPPML.  This was consistent with the misrepresentations that had been made to the plaintiff by SPBIL and the 2^nd defendant throughout.

37.Eventually, on 3 March 2014, the plaintiff sent a letter[10] to SPBIL, SPPML, and the 2^nd defendant terminating all trading activities in the Account.  The 3^rd defendant however refused to acknowledge receipt of the said letter.  On the same day, the plaintiff went to CGSE to lodge a complaint [11].  The plaintiff was informed by CGSE that SPBIL was not a member of CGSE at all.  The plaintiff was told that “member number 243” belonged to SPPML.  The plaintiff later discovered that SPBIL was wholly unrelated to SPPML.  The plaintiff eventually realized that she had been deceived and thus made a report to the police.

38.The plaintiff’s case is that the express representations that SPBIL was a member of CGSE and that it was an affiliated company of SPPML which was a member of CGSE were false.  In an announcement issued by CGSE on 8 May 2014 [12], CGSE stated that it had received a report from its member SPPML (member number 243) clarifying that its registered address was at Flat/Room A, 20/F, Grand Metro, No 123 Prince Edward Road West, Kowloon and that it had no other addresses.  Furthermore, SPPML stated that it had no branch office.  Its only official website was http://www.sp243.com.  It had no other website.

39.In another announcement of CGSE dated 13 May 2014 [13], CGSE announced that it had come to their attention that a company [SPBIL] claimed to be member 243 of CGSE and lured investors into investing in precious metal trading.  CGSE declared that [SPBIL] was not a member of CGSE.

40.The plaintiff avers that throughout her encounters and dealings with SPBIL, the 2^nd defendant, the 3^rd defendant and Mr Chew, none of them or any staff of SPBIL ever corrected the false impressions generated and continued by the misrepresentations made verbally by the 2^nd defendant; in the name card; in the pamphlet; in the 1^st Client Agreement; and in the 2^nd Client Agreement.  SPBIL adopted deceivingly similar Chinese and English names as those of SPPML which was truly a member of CGSE.   SPBIL devised a website using the name of SPPML and its member number 243 so as to create a false perception that SPBIL was part of or related to SPPML.  The pamphlet and the client’s agreements falsely described an affiliation between SPBIL and SPPML so as to falsely portray SPBIL as a reliable company under the supervision of CGSE.  Accordingly, the implied representations were also false.  The plaintiff’s case is that the entire set up was a fraud devised by the 1^st defendant and perpetrated by the 2^nd and 3^rd defendants.

41.It is interesting to note that in the website maintained by SPBIL[14], one can see a photograph of the 3^rd defendant being depicted as a key personnel of SPBIL and described as “Paul Yip”.  The website actually referred to the full name of SPPML at its top.  The plaintiff argues that regardless of whether the 3^rd defendant was the “Chief Executive Officer” or the “Head of Marketing”, he was no doubt a senior officer or employee of the SPBIL.  He must have close connection with the operations of SPBIL and its senior management. In any event, he was admittedly in charge of marketing and was responsible for the use of the website, pamphlets and client agreements.  The 3^rd defendant must thus have knowledge of the lack of relation or affiliation between SPBIL and SPPML.  He must have known that SPBIL could have no link or association with CGSE in whatever sense.  He must have known that the statement contained in the client’s agreement about “affiliation with SPPML, member 243 of CGSE” was clearly false.  Furthermore, the 3^rd defendant was clearly involved in the aftermath of the 2^nd defendant’s transgression and instrumental to the execution of the 2^nd Client’s Agreement and the Account Credit Agreement by the plaintiff.  It is thus the plaintiff case that the 3^rd defendant had all along been acting in concert with SPBIL and the 2^nd defendant in the practice of deceit on the plaintiff.

Defence of the 2^nd  defendant

42.The defence of the 2^nd defendant consists largely of non-admissions and putting the plaintiff to strict proof.  The following matters are directly challenged:

(1)  he denied making the representations;

(2)  whilst admitting that he did give his name card; the pamphlet; and a client’s agreement to the plaintiff, he denied having made the oral representation that the 1^st defendant could be trusted because it was affiliated to a member of CGSE;

(3)  he denied the falsity of the representations and put the plaintiff to strict proof; and

(4)  he put forward a simple denial of knowledge of falsity.  Yet he did not assert that he believed the representations to be true and did not put forward any reasonable ground for believing the representations to be true.

Defence of the 3^rd  defendant.

43.Similarly, the defence of the 3^rd defendant consists largely of non-admissions and putting the plaintiff to strict proof.  The following matters are however directly challenged:

(1)  The 3^rd defendant denies being, at all material time, the Chief Executive Officer of SPBIL.  He asserts that he was only the Head of Marketing.  He however admits that a meeting was held on 17 January 2014 between him and the plaintiff at the OTB office.  The plaintiff has however produced in evidence a declaration signed by her and the 3^rd defendant on 17 January 2014 [15] in which the 3^rd defendant was described as the “總裁” of SPBIL.

(2)  The 3^rd defendant asserts that the plaintiff expressed to the 2^nd defendant that she had many years of experience in investment prior to the execution of the 1^st Client’s Agreement.  On the other hand, he puts the plaintiff to strict proof on her case of misrepresentation and her instructions given to the 2^nd defendant on the basis that he has no knowledge of the dealings between the plaintiff and the 2^nd defendant.

(3)  The 3^rd defendant asserts that disputes arising out of the 1^st Client’s Agreement should be referred to arbitration pursuant to clauses 25 and 36 of the 1^st Client’s Agreement.  Yet, the 1^st defendant, being the contracting party, has filed no defence and has not taken that stance.  In any event, if the plaintiff’s case of fraudulent misrepresentation is made out, the 1^st Client’s Agreement would be rescinded and there could be no reliance on the arbitration clauses in that agreement.

(4)  The 3^rd defendant admits the execution of the 2^nd Client’s Agreement and the Account Credit Agreement but denies the continual making of misrepresentations.  However, it should be noted that the contents of the 2^nd Client’s Agreement were identical to those of the 1^st Client’s Agreement and contained the same misrepresentations about an affiliation between SPBIL and SPPML.

(5)  On the plaintiff’s case of the 3^rd defendant’s participations leading to the execution of the 2^nd Client’s Agreement and the Account Credit Agreement, the 3^rd defendant simply puts the plaintiff to strict proof.  Similarly, he asserts that disputes arising out of the 2^nd Client’s Agreement should be referred to arbitration pursuant to clauses 25 and 36 of the 2^nd Client’s Agreement.

(6)  The 3^rd defendant denies paragraph 49 of the Statement of Claim in which “Particulars of Knowledge” of the falsity of the representation on the part of the 3^rd defendant were set out as follows:

(i) the 3^rd defendant is and was at all material times the Chief Executive Officer of SPBIL;

(ii) at the top of the webpage of http://szperpetual243.us, the 3^rd defendant was depicted as “Paul Yip”;

(iii) SPBIL ceased business and/or vacated the OTB Office without notice to or knowledge by the plaintiff on or about 14 October 2014; and

(iv) the plaintiff is now unable to access the website http://szperpetual243.us.  The website of SPBIL at www.perpetual243.com had stopped operation or update since around the end of April 2014.

The trial

44.The plaintiff was the only witness who gave evidence at the trial and confirmed her case as set out above. She was cross-examined by the 2^nd and 3^rd defendants.  It was suggested by the 2^nd defendant that she was an experienced investor and had engaged in foreign exchange trading.  The plaintiff denied.  She however admitted having informed the 2^nd defendant that she would from time to time attend investment lectures/forums with friends and treated them as one of her pastimes.  It was suggested to the plaintiff that she was told that SPBIL was engaged in leverage trading and the terms of the 1^st Client’s Agreement were explained to her.  The plaintiff denied.  The 2^nd defendant suggested that he regularly reported trading activities to her and printed monthly statements for her.  The plaintiff admitted receiving statements from the 2^nd defendant but said that it was by that time too late as the 2^nd defendant had already entered into the transactions.  It was suggested that the plaintiff must have known that the Account was engaged in leverage trading because she knew that one unit of gold involved 100 ounces (approximately US$1,200 per ounce).  The plaintiff replied that she thought one unit of holding involved around HK$40,000 and she was so informed by the 2^nd defendant.  She also admitted that her witness statement was wrong in that the reference to a limit of holding 100 units was discussed only at a time when the 2^nd defendant joined into her investment.  She insisted that she gave instruction that she would not engage in margin trading.

45.The 2^nd defendant cross-examined the plaintiff on her allegation that he “knowingly” made the misrepresentations.  The 2^nd defendant suggested to the plaintiff that he did inform the plaintiff that the SPBIL was “licensed” but he himself was also under that mistaken belief since he was so informed by his company.  When the 2^nd defendant was asked to clarify what he meant, the 2^nd defendant said he did not know that the SPBIL was not a member of CGSE and he simply relayed what he was told and given by the 1^st defendant presenting his name card, the pamphlet and the client agreement to customers like the plaintiff.  The question was thus put in that way to the plaintiff. The plaintiff denied and asserted that the 2^nd defendant must have knowledge of the falsity of his representations.

46.The 2^nd defendant also cross-examined the plaintiff on matters relating to their meetings and dealings which are in my view peripheral to the real issue of this case, namely whether he had made the representations to the plaintiff and if so whether they were false.  It is clear that the 2^nd defendant now accepts that he had made the representations and that they were in fact false.

47.The 3^rd defendant also cross-examined the plaintiff with a view to demonstrating that she must have known that the Account was involved in leveraged trading.  The plaintiff maintained that she never agreed to trade on margin.  It was put to the plaintiff that the 3^rd defendant did not give his name card to the plaintiff.  The plaintiff initially agreed but later wished to go home to check.  On the next day of the trial, she confirmed that she could not locate the 3^rd defendant’s name card.  It was suggested to the plaintiff that he never put forward himself as the行政總裁 of SPBIL.  The plaintiff denied and referred to the declarations.  The 3^rd defendant suggested to the plaintiff that the declarations were written by him after the plaintiff told him about her dealings with the 2^nd defendant.  The plaintiff agreed.  It is therefore clear that the 3^rd defendant described himself as “總裁” of SPBIL.  He certainly did not describe himself as “銷售部門總裁” (Head of Marketing).  It was also suggested to the plaintiff that her memory was vague about the incidents.  The plaintiff maintained that her memory was fresh when she made the declarations and she had kept records.  She maintained that her memory was accurate on important events.

Discussions

48.I find the plaintiff to be an honest, unsophisticated and straight forward witness.  At times, errors or inaccuracies in certain paragraphs of her witness statement were pointed out and she readily admitted them.  She was actually not challenged in relation to her evidence about the making of the misrepresentations as contained in the name card, pamphlet and 1^st Client’s Agreement.  The 2^nd defendant suggested to her that he did not verbally make the 1^st Representation and the verbal part of the 2^nd Representation (as defined in paragraphs 7 and 8 of the Statement of Claim).  I have no difficulty in accepting the plaintiff’s evidence and find that the 2^nd defendant did verbally make those misrepresentations.  Those verbal misrepresentations were in substance similar to the written misrepresentations appearing on the name card, pamphlet and the 1^st Client’s Agreement which were all devised to generate a false sense of trust on the part of customers.  I find that it is inherently probable that the 2^nd defendant had verbally made those misrepresentations to the plaintiff to cultivate trust on her part as to the reliability of SPBIL on account of its affiliation to a member of the CGSE.  I also find that the effect of the 1^st Representation and the 2^nd Representation was to generate an impression on the plaintiff that the activities of SPBIL would be regulated by CGSE and that trading in the Account would be carried through CGSE.  I thus find that the making of the Implied Representation (as defined in paragraph 9 of the Statement of Claim) has also been established.

49.The plaintiff’s evidence of reliance on the 1^st Representation, 2^nd Representation and the Implied Representation had not been challenged in cross-examination.  I also accept the evidence of the plaintiff that she did rely on those representations in entering into the 1^st Client’s Agreement and the Notice of Appointment.  Furthermore, it is clear from the evidence presented by the plaintiff that those misrepresentations were in fact false. SPBIL was never affiliated to SPPML.  It was never affiliated to any member of CGSE.  Trading or dealings operated by SPBIL were never related to, conducted through, or supervised by CGSE.  There was no basis to suggest expressly or impliedly any link with, let alone supervision or scrutiny by CGSE.  I therefore find that the plaintiff is entitled to the declaration that the 1^st Client’s Agreement had been lawfully rescinded by her.

50.I also find that by the time the plaintiff entered into the 2^nd Client’s Agreement, the 2^nd Notice of Appointment and the Account Credit Agreement, she was still under the influence of the misrepresentations previously made to her through the 2^nd defendant.  In fact, the main misrepresentation that SPBIL was an affiliated company of SPPML (member 243 of CGSE) was repeated in the 2^nd Client’s Agreement.  The 2^nd Notice of Appointment was also purportedly addressed to SPPML.  The 2^nd Client’s Agreement and the 2^nd Notice of Appointment were presented by the 3^rd defendant to the plaintiff for execution.  I accordingly find that the plaintiff continued to rely on the 1^st Representation, the 2^nd Representation and the Implied Representation when she entered into the 2^nd Client’s Agreement and the Account Credit Agreement.  The plaintiff is thus equally entitled to the declaration that she had lawfully rescinded the 2^nd Client’s Agreement and the Account Credit Agreement.

51.I also accept the evidence of the plaintiff that but for her reliance on the aforesaid misrepresentations, she would not have remitted money into the Account and carried out the trading activities in the Account.  I therefore find that she suffered the loss of HK$4.6 million by reason of the misrepresentations made to her.

52.In respect of the 1^st defendant, I have no difficulties in inferring that it had acted fraudulently and deceitfully.  From the devise of the name of SPBIL; the establishment of websites and domains; and the printing of name cards, pamphlets and client’s agreements, it can clearly be inferred that the 1^st defendant deliberately sought to forge a fake association with SPPML.  The purpose was to deceive potential customers into believing that SPBIL was an affiliate of a reliable company which is a member of CGSE. Such fake affiliation was devised to lure potential customers into a false sense of security that SPBIL was a trustworthy company whose activities would be supervised or scrutinized by CGSE.  In my view the entire set up, including the marketing scheme and activities of the 1^st defendant, was fraudulent.  The 1^st defendant’s deceits were practiced through its employees such as the 2^nd and 3^rd defendants.  I find that the 1^st defendant had committed the tort of deceit towards the plaintiff.  This finding forms the basis of a declaratory relief based on constructive trust and of an order for account against the 1^st defendant.

53.In relation to the case of deceit against the 3^rd defendant, Mr Lee invited me to draw the inference that the 3^rd defendant must have knowledge of the fraud and deceit of the 1^st defendant and that he had jointly participated in the fraud and deceit.  Mr Lee accepted that whilst the burden of proof on the part of the plaintiff is still on balance of probabilities, it is trite law that the stronger an allegation, the more cogent the evidence is required for its establishment.  I have to consider whether the evidence is strong and cogent enough for this court to draw such a serious inference against the 3^rd defendant. In the end, weighing all the evidence, I conclude that I can draw that inference against the 3^rd defendant.  I accept that the interaction between the 3^rd defendant and the plaintiff only began on or about 17 January 2014. Yet, the 3^rd defendant was no doubt deeply involved in the set up and operation of SPBIL.  He was specifically named in SPBIL’s website as one of the several prime personnel of SPBIL.  He was admittedly the “Head of Marketing”, hence responsible at least for the marketing activities of SPBIL.  As I have previously observed, the entire set up including the marketing scheme and activities of SPBIL was a fraud in itself.  It is inherently improbable that given his position and supervisory role, the 3^rd defendant would have no knowledge of the falsities and deceits permeating through the entire scheme of marketing activities.  In fact, I find that the 3^rd defendant was probably more involved in the management of SPBIL than what he would be willing to admit.  He actually described himself as “總裁” of SPBIL, not just as a departmental head.  When the plaintiff made her complaint and asked to meet the person in charge of SPBIL, it was the 3^rd defendant who attended her.  I find that the 3^rd defendant was a party to the fraud and deceit of the 1^st defendant.  Although the plaintiff seeks no declaratory relief against the 3^rd defendant, he shall be liable towards the plaintiff for damages for deceit.

54.In relation to the case of the 2^nd defendant, I am however unable to draw such inference against him.  He was merely one of the “frontline” personnel of SPBIL.  His name card, the pamphlet and the clients’ agreements were obviously provided by the company for his use.  There is no basis to suspect that he was personally aware of the falsities contained in those documents.  In fact, it is inherently improbable that he would have known that the entire set up of SPBIL was a fraud, otherwise, he would not have personally joined hands with the plaintiff in investing through the Account.  Furthermore, he was later required to jointly enter into the 2^nd Client’s Agreement and the Account Credit Agreement with the plaintiff.  I therefore find that the 2^nd defendant did not make the various misrepresentations to the plaintiff fraudulently.

55.That however does not mean that the 2^nd defendant can escape civil liabilities.  Section 3(1) of the Misrepresentation Ordinance reads:

“ Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable grounds to believe and did believe up to the time the contract was made that the facts represented were true.” [emphasis added]

It must be noted that in the original defence filed by the 2^nd defendant, he never pleaded that he had reasonable grounds to believe and did believe up to the time of the contract was made that the representations he made to the plaintiff were true.  By reason of his failure to comply with the Order of Master K T Wong, he had not filed and exchanged a witness statement and he was not permitted to give evidence at the trial.  What he said during his closing submissions about his lack of knowledge of falsity in the misrepresentations cannot be treated in law as admissible evidence.  There is thus no evidential basis to find that “he had reasonable grounds to believe and did believe up to the time the contract was made that the facts represented were true”.  In the circumstances, the 2^nd defendant is equally liable to the plaintiff for the loss and damage caused by the misrepresentations.

Disposition

56.I therefore grant judgment in favour of the plaintiff and make the following orders:

(1)  a declaration that the plaintiff had lawfully rescinded the 1^st Client’s Agreement, the 2^nd Client’s Agreement and the Account Credit Agreement;

(2)  a declaration that the 1^st defendant held HK$4,600,000 on constructive trust in favour of the plaintiff;

(3)  an order that the 1^st defendant do account to the plaintiff the said sum of HK$4,600,000 together with all profits, benefits or gains derived from the use thereof;

(4)  an order that the 2^nd defendant do pay to the plaintiff a sum of HK$4,600,000 being damages for misrepresentation;

(5)  an order that the 3^rd defendant do pay to the plaintiff a sum of HK$4,600,000 being damages for deceit;

(6)  an order that the 1^st, 2^nd and 3^rd defendants do pay interest to the plaintiff from the date of the Writ to the date of Judgment at commercial rates and thereafter at Judgment rates until payment; and

(7)  an order that the 1^st, 2^nd and 3^rd defendants do pay to the plaintiff costs of the action, to be taxed if not agreed, on party-and-party basis.

Mr Ken T C Lee, instructed by Cheung & Choy, for the plaintiff

The 2^nd and 3^rd  defendants appeared in person

The 1^st  defendant was not represented and did not appear