Hantec Securities Co Ltd v. Tam Siu Ki and Another

HCA 1179/2017

[2020] HKCFI 2960

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1179 OF 2017

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Before: Deputy High Court Judge Burns SC in Court

Date of Hearing : 27-29 October 2020

Date of Judgment : 27 November 2020

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JUDGMENT

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Introduction

1.By its writ of summons by which this action was commenced, the Plaintiff (“P”), a stockbroker, sues (a) the 1st Defendant (“Power Rise”) for moneys allegedly due pursuant to a margin securities trading agreement (“the Agreement”) and (b) the 2nd and 3rd Defendants (“D2” and “D3” respectively), pursuant to guarantees given by each of them to P in respect thereof. 

2.D2 was a former employee of P who introduced Power Rise to P, whilst D3 was at the material time a director and shareholder of China Gamma Group Limited, a Hong Kong listed company of which Power Rise was a subsidiary. It is not disputed that D3 did not at any material time hold any office nor was he involved in the management of Power Rise.

3.The action has been discontinued as against Power Rise and, after the action was commenced, D2 was adjudged bankrupt. No application was thereafter made for leave to proceed with the action against him. The trial of this action concerned P’s claim against D3 only.

4.At the trial the only witness called to give evidence on P’s behalf was Wong Kwok On (“Mr Wong”) and the only witness to give evidence for D3 was D3 himself.

P’S EVIDENCE

5.According to Mr Wong’s witness statement (which stood as his evidence in chief):

5.1  He is and was at the material time an account executive employed by P;

5.2  In or about mid August 2011, Power Rise was introduced to P by D2 and, pursuant thereto, some time in August 2011, Mr Wong met with Ms Tang Mun Swan (“Ms Tang”), a director and authorised signatory of Power Rise. Mr Wong was unable to recall precisely where or when in August 2011 this meeting took place;

5.3  during this meeting (which Mr Wong referred to as “the Preliminary Meeting”, albeit the only meeting to which Mr Wong referred in his witness statement):

5.3.1  Mr Wong showed Ms Tang a copy of a document entitled “Terms and Conditions of Margin Trading Agreement” (“the Terms and Conditions”) and, allegedly, explained the meaning and effect of “the relevant clauses” including but not limited to clause 4 (relating to the obligation to make payments of deposits or margins); clause 10 (concerning P’s rights on default in the payment of deposits or margins) and clause 20 (concerning the accrual and payment of interest), and

5.3.2  Ms Tang signed on “the signing page of the Agreement” and also signed account opening forms for and on behalf of Power Rise including, inter alia, an (a) approval form, (b) a client information form for corporate account, (c) a margin client’s authorisation letter, (d) a standing authority in respect of both client money and client securities, (e) an amendment to the terms and conditions of the cash client trading agreement and margin client trading agreement and (f) a form signifying Power Rise’s knowledge of structured/derivative products and (g) risk disclosure statement.

5.4  as part of P’s policy for opening a corporate client margin securities trading account, a personal guarantee was required guaranteeing the payment of all sums due and owing to P on Power Rise’s account.

5.5  envisaging that such a personal guarantee would be arranged by Power Rise “in due course”, P opened an account for Power Rise on 26 August 2011

5.6  On or about 29 August 2011, D2 signed a personal guarantee.

5.7  on or about the same day (29 August 2011), D3 also signed a personal guarantee on the same terms as that signed by D2.

6.Mr Wong’s statement that Ms Tang signed on “the signing page of the Agreement” is not borne out by the documents which were produced in court. There is no signature on the Terms and Conditions. As for the other documents to which Mr Wong referred:

6.1  The Approval Form is dated 29 August 2011 and refers to a commission rate of 0.25% and a credit line of HK$7 million (no reference to which is made in Mr Wong’s witness statement).

6.2  The Client Information Form is also dated 29 August 2011; it is only partially completed; it purports to be signed by Ms Tang on behalf of Power Rise and Ms Cheng’s purported signature is purportedly witnessed by 2 persons, Susanna Ho (described as a company secretarial assistant of China Gamma Group Limited, Power Rise’s majority shareholder) and Cheng Ming of P’s credit control department. Cheng Ming also signed a declaration, purportedly as licensed representative (which, it emerged during Mr Wong’s evidence, he was clearly not), stating that he had fully explained the contents of the risk disclosure statement to Power Rise.

6.3  documents (c), (d) and (e), referred to in paragraph 4.3.2 above are dated 26 August 2011 and appear to bear the chop of Power Rise and the signature of Ms Tang;

6.4  document (e), which also contains a risk disclosure statement, also contains a declaration, signed by Cheng Ming, dated 26 August 2011, declaring that, as licensed representative, he had fully explained the contends of the risk disclosure statement to Power Rise;

6.5  document (f) contains neither chop nor signature.

7.During Mr Wong’s cross examination at the trial, Mr Wong gave confusing, inconsistent and conflicting evidence:

7.1  Mr Wong initially stated that, prior to the meeting with Ms Tang which he described in his witness statement (which, he said, occurred prior to 26 August 2011, when the account was opened) he did not know the sort of business or account in which Power Rise was interested and that, at the meeting, all he did was to try and get an idea of precisely what Power Rise wanted;

7.2  At first, Mr Wong said that at the meeting he explained the terms for opening a margin trading account to Ms Tang but later in his evidence, Mr Wong referred to a telephone conversation which he said he had with Ms Tang following the meeting, at which Ms Tang said that she had Power Rise’s authority to open a margin trading account. It was only thereafter that, according to this version of events, Mr Wong collected the relevant forms and documents together and then explained them to Ms Tang;

7.3  Mr Wong then referred to a 2nd meeting after 26 August when Ms Tang told him that Power Rise might want to “redeem” some shares (then held by another brokerage), for which purpose she would require a loan from P (the amount of which was not specified until some time later).

7.4  According to Mr Wong, at some stage (it was not clear from his evidence when), he informed Ms Tang of the need to procure a guarantor.

7.5  Next, Mr Wong asserted that Ms Tang signed the various documents relating to the opening of Power Rise’s account in his presence. That assertion was demonstrably incorrect as the signed documents show and, later in Mr Wong’s evidence, he accepted that he merely gave the set of documents (unsigned) to Ms Tang who took them away to peruse and that he was unaware of the circumstances in which they were completed, signed and returned to P (notwithstanding which he stated that the documents were sent to P by courier);

7.6  Much later in Mr Wong’s cross examination, Mr Wong said that, during a telephone conversation before 29 August 2011, he informed Ms Tang that Power Rise required a guarantee from a director of Power Rise or a person who was connected to or related to Power Rise.

7.7  Also much later in Mr Wong’s cross examination, Mr Wong revised his evidence and said that the meeting with Ms Tang to which he referred in his witness statement (at which he gave Ms Tang the forms and other documents for the opening of a margin trading account) occurred on 26 August; that an earlier (preliminary or initial) meeting took place 2 or 3 days earlier and that it was not until 27 or 28 August that Ms Tang broached the subject of the “redemption” of shares and the request for a loan of HK$7m for that purpose

7.8  Mr Wong accepted that the account was opened on 26 August 2011; that the loan was advanced on 29 August; that D2 provided his guarantee on 29 August 2011 and that, although D3’s guarantee bore the date of 29 August 2011, it was not provided to P until 5 September 2011. According to D3’s evidence, this was the date upon which he signed it.

8.According to D3’s evidence:

8.1  it was not until early September that he was approached by Ms Tang with a request that he should provide a guarantee;

8.2  he was told by Ms Tang that his guarantee was required in respect of a short term loan of HK$7 million; that that loan had already been advanced to Power Rise; that security for the loan, in the form of a pledge of shares, had already been provided and that after repayment of the loan, the guarantee would be discharged, and

8.3  he was also told by Ms Tang that he was being asked to give a guarantee as none of Power Rise’s directors were willing to do so.

THE GUARANTEES

9.On the balance of probabilities I find that Mr Wong did not make known to Ms Tang the requirement that the guarantee which had been requested should be provided by a director or other person connected with Power Rise until after P had received D2’s guarantee. This is consistent with D3’s evidence (which I accept) that he was not approached with the request that he should give a guarantee until early September 2011. If, before receipt of D2’s guarantee, Mr Wong had made known this requirement, there would have been no reason for Ms Tang to have procured a guarantee from D2 who was not at any time either a director of Power Rise or a person connected to that company.

10.I also find that, in providing the guarantee of D2, Power Rise satisfied all the requirements as to a guarantee which, prior thereto, had been specified by Mr Wong on behalf of P. i.e. the provision of “a” guarantor, without further specification or qualification.

11.It is common ground that D3 provided his guarantee after Power Rise’s margin trading account was opened and after the loan of HK$7 million was advanced.

CONSIDERATION FOR D3’S GUARANTEE

12.D3 contends that as, by the time he signed the guarantee, Power Rise’s margin trading account had already been opened and the loan had been advanced, there was no valid or effective consideration for the guarantee or that the consideration for it was past.

13.P counters this by contending that, in determining whether consideration is past, the courts are not bound to apply a strict chronological test and that as the consideration for the guarantee (i.e. the opening of the account) and the giving of the guarantee were substantially one transaction the exact order in which those events occurred is not decisive. In support of this proposition, P relied on a passage in Chitty on Contract, Thirty-Third edition, Vol 1, p. 423 at §4-027, viz:

“In determining whether consideration is past, the courts are not, it is submitted, bound to apply a strict chronological test. If the giving of the consideration and the making of the promise are substantially one transaction, the exact order in which these events occur is not decisive.”

14.That passage (as it appeared in paragraph 3-027 of the 30th edition of Chitty On Contracts) was cited with approval by Cooke J. in Classic Maritime Inc  v. Lion Diversified Holdings Berhad and another [2009] EWHC 1142 (Comm), [2010] 1 Lloyds Rep. 59, at [46].

15.Classic Maritime concerned a contract of affreightment, a term of which was that its performance by the charterer was to be guaranteed by an associate company. In the event the required guarantee was provided 15 days after the date of the contract, not by the associate company as contemplated in the contract but by the charterer’s parent company. It was argued by the guarantor that the consideration for the guarantee was past and the guarantee therefore unenforceable. Cooke J rejected this argument on the following grounds:

15.1   under the contract of affreightment, the charterer was under an enforceable obligation to procure a guarantee (from the associate company);

15.2   if no guarantee had been forthcoming from the associate company (or from a suitable alternative) the shipowner would have been under no duty to fulfill the contract. The guarantee was therefore an essential part of the contract;

15.3   when the shipowner accepted a substitute guarantee from the charterer’s parent company in place of the guarantee which the charterer was obliged to procure from the associate company, the ship owner gave up the right to sue the charterer in respect of the failure to provide a guarantee from the associate company. This was good consideration.

15.4   The reality was therefore that the guarantee given by the parent company was part and parcel of a single transaction since it was specifically required by the contract of affreightment.

16.The facts of the present case (as I have found them to be) are crucially different in that the requirement for the opening of the account, as communicated by Mr Wong to Ms Tang, was simply the provision of “a” guarantee”, without further specification or qualification. That requirement was satisfied by the provision of D2’s guarantee. As I have found, It was only subsequently that it was made known to Power Rise that, because D2 was neither a director nor a connected person, his guarantee was insufficient and that an additional guarantee was required from either a director or connected director.

17.The question which arises on these facts is whether, notwithstanding that P’s requirement of a single guarantee was satisfied by the provision of D2’s guarantee, the opening of D3’s margin trading account and the provision of D3’s guarantee should nevertheless properly be regarded as being substantially one transaction.

18.I have concluded that the opening of D3’s margin trading account and the provision of D3’s guarantee should not be regarded as being substantially one transaction in view of the fact that, as I have found, prior to the opening of the account the only requirement which Mr Wong communicated to Ms Tang was the provision of a single guarantee and that that requirement was satisfied by the provision of D2’s guarantee. The requirement for a 2nd guarantee was not therefore part of the original agreement. In this respect Classic Maritime is distinguishable.

19.It follows that, in my judgment, the consideration for D3’s guarantee was past and that D3’s guarantee is not therefore enforceable.

OTHER POINTS

20.In view of the conclusion I have reached to the effect that the consideration for D3’s guarantee was past and that, accordingly, the guarantee is unenforceable, it is not necessary for me to determine the other defences which D3 advanced in respect of P’s claim. However, in deference to Counsel’s arguments I will briefly address these below.

21.First, D3 maintained that, properly interpreted in the light of the background and context, D3’s guarantee was limited to a guarantee of the loan of HK$7 million. I am unable to accept this. The fact is that the agreement between P and Power Rise was for the opening of a margin trading account and although, in the event, it does not appear to have been operated as such, it was used for the purchase and sale of shares. I do not accept that, even initially, the only transaction contemplated by the agreement between P and Power Rise was the loan and redemption of shares. There is moreover no reference in the guarantee to the loan. On the contrary, the consideration stated in the guarantee was the opening of the account and the guarantee was given in respect of “all sums of money due and owing to [P] by [Power Rise] under the account and all interest which may be due and owing to [P] by [Power Rise] upon default by [Power Rise].”

22.Nor am I able to accept the argument that the amount guaranteed was limited to the amount due as at the date upon which the guarantee was given and that it did not encompass sums which might become due in the future. Although the future tense is not used, it is my view that the reference to the account was sufficient to indicate that moneys due from time to time on that account were intended to be the subject of the guarantee.

23.It is common ground that the loan of HK$7 million together with interest thereon was repaid by Power Rise and that the pledged shares were returned to Power Rise on 27 October 2011. On this basis, D3 argued that, had the guarantee been effective and enforceable, then in that case, it would or should then have been discharged. This contention of course goes hand in hand with the argument that the guarantee was limited in scope to the loan of HK$7 million, which, as I have said, I am unable to accept. Accordingly, had I concluded that the guarantee was effective and enforceable when it was executed, I would not have acceded to the argument that it had been discharged consequent on the repayment of the loan.

24.D3’s evidence was that Ms Tang told him that she had been informed by P that D3’s guarantee had been discharged following the repayment of the loan and the return of the pledged shares. On this basis, and on the basis of an alleged common assumption that the guarantee had been discharged, it was argued on D3’s behalf that P was estopped from denying the contrary. Ms Tang was not called to give evidence and there was no evidence or admissable evidence to show that P shared the view that the guarantee had been discharged, let alone communicated that view to Ms Tang. In these circumstances, I do not see how a defence of estoppel could have succeeded.

25.Lastly, I should observe that it is P’s case that the principal amount due from Power Rise on its margin trading account as at 31 March 2017 was HK$33,396,251.70.  Interest is claimed on that sum at the rate of 0.022% per day (i.e. from 1 April 2017, purportedly pursuant to clause 20 of the Terms and Conditions which provides as follows:-

“The Client [i.e.D1] hereby agrees to pay interest on all outstanding margin loan balances owing by him to the Broker [i.e.P] (after as well as before any judgment), at such rate(s), not exceeding The Hong Kong and Shanghai Banking corporation Limited quoted price rate +__ % or at such rates and on such other terms as notified by the Broker from time to time. The Client further agrees that the interest shall be calculated and payable on the last day of each calendar month or upon any demand being made by the Broker.”

26.it is significant that the blank space in clause 20 of the Terms and Conditions (relating to the applicable percentage above HSBC’s prime rate on margin loan balances) was not filled in. This suggests to me (and I so find) that, contrary to Mr Wong’s evidence to the effect that he explained the meaning and effect of this clause to Ms Tang, he did not in fact do so.

27.In my view, bearing in mind that clause 20 of the Terms and Conditions purported to allow P, in effect to charge interest on margin loans at whatever rate and on such terms as P unilaterally decided without limit or qualification, the clause constitutes an onerous or unusual term which if it was to be effective and enforceable should have been specifically drawn to Power Rise’s attention: see, in this respect, Chitty on Contract, Thirty-Third edition, Vol 1, p. 1021 at §13-015 and Interfoto Picture Library Limited v. Stiletto Visual Programmes Ltd [1987] 1 Q.B. 433. I do not accept Mr Wong’s evidence that this clause was drawn to Power Rise’s attention at any material time. Moreover, although the monthly statements of Power Rise’s account contained a footnote specifying an interest rate of 0.0986% per day, I do not regard this as sufficient to have imposed an obligation on Power Rise to pay interest at this rate. 

28.However, notwithstanding the views I have expressed in paragraph 27 above and the fact that clause 20 of the Terms and Conditions was pleaded and reproduced in full in the Statement of Claim, D3 simply makes no admissions concerning this in his Defence and there is no challenge to the effectiveness or enforceability or otherwise of the clause.

29.Further, in the Statement of Claim it is alleged that as at 6 April 2017 the sum due and owing by Power Rise to P was HK$33,432,987.60, comprising the principal sum allegedly due of HK$33,396,251.70 and interest of $36,735.90 from 1 April 2017 to 5 April 2017 (calculated as the rate of 0.022% per day). Notwithstanding that it is clear from P’s statements of account that as the alleged principal sum of HK$33,396,251.70 includes capitalised compound interest, calculated, for at least part of the period from the opening of Power Rise’s account to 31 March 2017 at 0.0986% per day (equivalent to 36% per annum), D3’s Defence simply made no admission as to the amount specified in the Statement of Claim as allegedly due.

30.In these circumstances, although as it seems to me there might have been grounds available to D3 to take issue with the effectiveness or enforceability of Clause 20 of the Terms and Conditions on the basis of the principles explained in Interfoto Picture Library, it is in my view doubtful that it would have been open to him to do so at the trial without first seeking and obtaining leave to amend his Defence.

CONCLUSION

31.Having concluded, as I have, that the consideration for D3’s guarantee was past and that D3’s guarantee is not therefore enforceable, I dismiss P’s claims against D3 in this action. I make an order nisi that the costs of the action as against D3 be paid by P to D3, to be taxed if not agreed.

Mr Martin W H Wong, instructed by Kenneth C.C. Man & Co., for the Plaintiff

Mr Patrick Chong and Mr Kevin Lau, instructed by Baker & McKenzie, for the 3rd Defendant