Sun Hung Kai Forex & Other v. Yick Ming Kit Trading As Fook Tak Ho
Read the full judgment text of HCA 8589/1992 on BabelCite. This High Court CFI judgment was delivered on 1 August 1995.
1. This is an action which arises from dealings in foreign exchange. The Plaintiff is a limited company and the Defendant is an individual trading under the name Fook Tai Ho. Both are dealers in foreign exchange. The Plaintiff claims the sum of US$55,739.77 as a debt due from the Defendant.
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HCA008589/1992 1992 No. A8589 IN THE SUPREME COURT OF HONG KONG HIGH COURT ____________
____________ Coram: The Hon. Mr. Justice Leonard in Court Dates of hearing: 20 - 21 July 1995, 24 - 28 July 1995 Date of delivery of judgment: 1 August 1995 _______________ J U D G M E N T _______________ 1. This is an action which arises from dealings in foreign exchange. The Plaintiff is a limited company and the Defendant is an individual trading under the name Fook Tai Ho. Both are dealers in foreign exchange. The Plaintiff claims the sum of US$55,739.77 as a debt due from the Defendant. 2. For some years up to November 1989 a limited company named Foreground Commodities Limited had an account with the Plaintiff. That company was controlled by the Defendant who owned 99.5% of its shares. 3. On the 23rd November 1989, the Defendant opened a new account with the Plaintiff in his trade name, Fook Tai Ho. For that purpose he signed a "Customer's Agreement" with the Plaintiff. It was dated the 23rd November 1989. At that time, the net open position in the account of Foreground Commodities Limited was short DM 4 million. 4. On the 20th December 1989, the Defendant signed two letters to the Plaintiff. One was from Foreground Commodities Limited and the other from himself as Fook Tai Ho. They contained instructions to transfer the DM 4 million short position from the account of Foreground Commodities Limited to that of Fook Tai Ho. The transfer was duly made. 5. From the time the Fook Tai Ho account was opened, the Defendant made various buying and selling transactions in Deutschemark in that account. 6. By the 30th September 1992, the debit balance on the account together with the amount of margin required, if the Defendant were to maintain the positions then open, resulted in a margin requirement of US$43,000 odd. Accordingly, the Plaintiff told the Defendant on that day that he was required to pay about HK$310,000 to satisfy its margin requirement. 7. The Defendant did not have such a sum. He therefore caused a cheque to be drawn on the bank account of another of his companies, namely Foreground Finance Limited, in favour of the Plaintiff for the sum of HK$309,200. He knew that there were not funds in that account to meet the cheque but he said in evidence that he hoped that money would come in. The cheque was dishonoured for lack of funds. As a result, the Plaintiff liquidated the Fook Tai Ho account early on the morning of the 3rd October 1992. 8. At the time of the liquidation, the account showed an open position of DM 2.2 million short, so it was necessary for the Plaintiff to square that position. The result was that the accrued debit balance was US$55,739.77, the sum now claimed by the Plaintiff. 9. The Defendant contends that the sum claimed is incorrect. He makes various complaints with which I shall deal in turn. Overdebits 10. The Defendant says that there has been a wrongful overdebit in respect of discount to the tune of US$36,038.42. It is common ground that it is the usual practice for a dealer, in the absence of special instructions to set off a new long position against the earliest open short position and vice versa, on a "first opened first closed" basis so that at any one time there should not be co-existing long and short open positions in the same currency on the same account. They should, so far as possible, be netted off automatically. The Defendant complains that without any instructions from him the Plaintiff failed to follow the usual practice, but "locked" or "idled" his short Deutschemark position and failed to set off against it subsequent long Deutschemark positions, though there were some partial setoffs which did reduce the net open position to DM 2.2 million by the time of liquidation. As a result, according to the Defendant, he suffered a financial detriment in terms of discount, because the rate at which interest was earned on the long positions was less than the rate at which interest was payable on the short positions. 11. The Plaintiff agrees that the positions were idled, with some partial setoffs later but says that the idling was not done without authority. It would only have been done on the Defendant's instructions, as would the later partial unlocking. Was there authority to idle the Deutschemark short positions? 12. I heard evidence from Mr. David Tso, a Senior Vice-President of the Plaintiff. He was one of the team leaders in the Marketing Department, which received orders from customers and it was his team that served the Defendant. The normal procedure is that instructions are taken by telephone and the conversations are recorded on tape, the recordings being kept for three months. 13. Some customers do give instructions to idle a transaction because they do not want to realise a profit or a loss or they want to keep the transactions separated. Mr. Tso said he had idled transactions before on the Foreground account so the Defendant must have known of the practice. Statements of account were sent to customers at intervals and if in doubt, the customers could then call the Plaintiff. 14. When the Defendant gave evidence he spoke of this practice of idling transactions but at one stage in his cross-examination, he denied all knowledge of the practice before it came to his attention following the liquidation. As a dealer he must have known of it. According to Mr. Tso, if he received instructions to idle at the same time as he received instructions to make a transaction he would mark the deal slip with "I" in a circle. The slip would go to the Operations Department and a procedure would be followed which resulted in the computer being instructed to idle the transaction. Where instructions came in to idle a transaction which had been made earlier he would pass them on verbally to the Operations Department. Mr. Tso pointed to slips made out by the Operations Department, bearing the "I" mark indicating an idled position and said that he could not conceive of such a marking being put on without instructions having been received from the client. 15. Having been taken through the relevant internal documents of the Plaintiff, I am satisfied that the idlings and the partial unlockings of the short positions were done deliberately and not, for example, as a result of a computer operator's error. Mr. Tso said that without specific instructions from a client he would not cause a position to be idled or cause an idled position to be unlocked. I found him to be an honest and reliable witness and I believed him. His evidence as to the procedure was supported by Mr. Chu To, an account executive of the Plaintiff. I found Mr. Chu also to be a straightforward, honest and reliable witness. Mr. Chu was able to give evidence about some partial unlockings which he initiated. He said that there was no reason to do it if he had not had instructions from the Defendant. 16. It is not at all surprising that neither Mr. Tso nor Mr. Chu could recall receiving the relevant instructions from the Defendant, but their evidence taken together with the contemporary documents lent powerful support to the proposition that the Defendant had given to the Plaintiff the necessary instructions in the first place to idle the relevant short Deutschemark positions and then to effect the setoffs which resulted in the final net DM 2.2 million short open position which had to be squared on liquidation. The Statements 17. The Plaintiff places reliance upon the statements which were sent from time to time to the Defendant and contends that if the Defendant, himself a foreign exchange dealer, had looked at them, he must have realised that the positions had been idled, especially because the price at which the relevant sales had been made was from his point of view less favourable than the prices at which subsequent similar deals on the account were struck. 18. There is no doubt in my mind that if the Defendant had looked at the statements he would at once have known that his short Deutschemark positions had been idled. The statements are clear and readily comprehensible and the Defendant as a dealer did not have the audacity to deny that, had he read them, he would have known what the situation was. His immediate reaction must then have been to complain to the Plaintiff, if the idling had been effected without his instructions. It is common ground that he did not complain until some time after the liquidation. His explanation is that neither he nor his staff ever read the statements. 19. I find the Defendant's story incredible. He said in evidence that the deals he did with the Plaintiff matched deals done by his clients with him. Simple statements were sent by him to his clients showing the state of their account with him. The natural course would be to compare those statements against the statements sent to him by the Plaintiff. 20. From time to time margin calls were made on him and he accepted them. In cross-examination, he was quite unable to explain how he could work out as he had first said he could, the current unrealised profits or losses on his account with the Plaintiff without knowing the rates of exchange at which open positions had been taken. 21. Finally when challenged to work it out with the aid of statements and a calculator, he said that he did not know how to check the margin figure of $309,200 which he agreed to pay, though he had earlier said that he had worked it out and agreed it. He resorted to saying that his fokis did that sort of work for him and when they did it he could understand it. It is noteworthy that the statements sent by the Plaintiff did not remain sealed in their envelopes after arriving at the Defendant's office. Mr. Leung, the Defendant's witness, testified that when he first came to look at them, allegedly some time after the liquidation, they were clipped in order in a box file and receipts for margin payments were stapled to them. 22. I find the Defendant to be a dishonest witness. He was evasive and cunning and made responses calculated to mislead the court. He contradicted himself and appeared in cross-examination to be making up his story as he went along. I find him to be wholly without credibility and I was satisfied on the evidence that he had read the statements, knew perfectly well what the position was and made no attempt to raise any question with the Plaintiff about the idled positions. I find that he must have given instructions for the idling and the partial unlocking. There were in fact no wrongful overdebits and his first line of defence fails completely. The timing of the liquidation 23. Clause 11 of the Customer's Agreement contains the following words:
24. The Defendant conceded in the witness box that once he had failed to meet the margin call, liquidation was inevitable and he had no right to tell the Plaintiff when to liquidate. He complained, however, that upon being asked to liquidate the account he gave to Mr. Tso instructions to do it between 8:30 p.m. and 9 p.m. Hong Kong time on 2nd November, that being about the time of opening of the Chicago International Money Market. It is common ground, with the benefit of hindsight, that had the liquidation been carried out during that period, the Defendant would have been better off because the price of Deutschemark then was far better from his point of view than the price at which the liquidation was effected at about the close of the market in Chicago on the following morning. I find the Defendant's story to be untrue. 25. Dealing in foreign currency goes on throughout the 24 hours of the day. Prices quoted in Chicago are futures prices and they are used by the Plaintiff's dealing room as a basis for the calculation of spot prices at which it is prepared to deal. At any time during the day even when the Chicago market is closed, there is a spot price for Deutschemarks. The Defendant said in evidence that he told Mr. Tso to liquidate when the Chicago market opened because he expected the opening price to be roughly the same as the previous day's closing price which he knew, but he could have asked there and then what the spot price was to see if he wanted to liquidate then. When asked in cross-examination why he did not ask Mr. Tso what the current spot price was he had no satisfactory answer. I am satisfied that the Defendant's story is pure invention and that the version of events given by Mr. Tso and Mr. Chu is correct. 26. Mr. Tso's version was that on the afternoon of 2nd October 1992 between 4 p.m. and 5 p.m. he spoke to the Defendant after he had learned that the cheque had been dishonoured. He made it clear that the account would have to be liquidated. I believed him when he said in evidence that in such circumstances, he tries to get the client to agree at a certain time and price to liquidate so as to avoid the sort of complaint raised in the present case. 27. In default of such agreement, he liquidates at about 3 a.m. Hong Kong time, being close of business of the Chicago exchange, that being taken as the end of the trading day. In response to Mr. Tso, the Defendant said that he would liquidate later, adding "Wait and see. Nobody knows what will happen later". The Defendant said he would liquidate before the close of the market and would call Mr. Tso later. Mr. Tso told him that if he did not call Mr. Tso would liquidate at the close of market, that is to say 3 a.m. next morning. 28. Before leaving the office, Mr. Tso asked Mr. Chu to contact the Defendant and remind him that if he was not going to liquidate, Tso would do so at close of market. 29. Mr. Chu's evidence, which I believe, is that he did speak to the Defendant between 6 p.m. and 7 p.m. and the Defendant said he would liquidate later that night, the Defendant promised to call back but failed to do so. Tso and Chu repeatedly tried to call the Defendant during the night without success and the account was finally liquidated at 2:29 a.m. on the 3rd October. The Defendant's evidence was that he was not taking calls that night because he was very busy trying to sort out his affairs, for he had been suspended from the stock exchange and had been required to produce audited accounts of his various companies. 30. I accept the evidence of Tso and Chu that neither of them received an instruction from the Defendant to liquidate at any time. 31. Mr. Liu, counsel for the Defendant, raised the argument that if the Plaintiff did accept instructions to liquidate at a certain time, it is estopped from claiming that it was nevertheless entitled to liquidate when it chose. Since I find as a fact that no such instructions were ever given, the question does not arise. The Defendant's second line of defence has fallen. The meeting on the 19th November 1992 32. There was a lunchtime meeting on the 19th November 1992 at which Messrs. Tso and Chu met the Defendant and his employee Mr. Leung. There are conflicting versions of what was said. 33. The Defendant's case is, in summary, that there was an oral agreement between the Defendant and Mr. Tso as agent for the Plaintiff to the effect that in consideration of the Defendant agreeing not to pursue complaints made by him in a letter dated 8th October 1992 to the Plaintiff, the Plaintiff would
34. I will now refer to the complaint made by the Defendant in that letter of the 8th October 1992:
35. There is no complaint in that letter that the Defendant had given instructions to liquidate at a particular time. Such a complaint would surely have been made if it had had any basis in fact. The answer to the complaint that was actually made is simple, i.e. that the Plaintiff had a right to liquidate when it did. The complaint in the letter of the 8th October was misconceived. It does appear, however, that at the November meeting the question of wrongful overdebits was mentioned and I take that to be the first occasion when the issue was raised. And I have treated it as the Defendant's case at the trial. I do not regard the absence of a written reply to the letter as significant. It is clear that there were telephone conversations after the receipt of the letter, which refers to the tape recording of the conversation described in it as having taken place on the 6th October 1992, but there is no suggestion in the letter that on that day the Defendant was complaining about wrongful overdebits. The tape is no longer available but I find nothing sinister in that fact. It is a pity that the tape of the conversation with Mr. Tso on the 2nd October is not available apparently having been wiped after 3 months, but again I do not consider that that is indicative of any bad faith on the part of the Plaintiff. 36. Complaint has been made that the result of the liquidation was only communicated to the Defendant by fax on the 6th October. That made no practical difference to the Defendant's financial position. The explanation given by Mr. Tso namely that the 6th was the first working day after liquidation appears to be reasonable. The Defendant has tried to suggest that the late communication is a suspicious matter and he voices doubt as to whether the liquidation took place at the time alleged. But the dealing slip bears an automatic date and time stamp showing when the deal was done. Fraud is not pleaded. I fully accept the evidence of Mr. Tso as to the time of the transaction. 37. Returning to the events of the November meeting, I find, accepting the evidence of the Plaintiff's witnesses and rejecting that of the Defendant and Mr. Leung where there is a conflict, that the Defendant complained about the time of liquidation but made no allegation about failure to comply with an instruction. 38. The Defendant complained about the interest accrued and Mr. Tso said he was receiving monthly statements and should have known that he had to pay interest. Mr. Tso said that if the Defendant did not know the DM 4 million short position was locked, why had he given instructions to unlock part of it. According to Mr. Tso the Defendant gave no direct reply but went on to ask for the discounts accruing on the short position to be waived. Mr. Tso said that interest could not be waived for the 2 previous years but that he would ask his company if the interest for the current year could be waived. Mr. Tso wanted to give the Defendant a sweetener to persuade him to pay up. It appears that an offer to waive interest in the current year, amounting to some US$8,000 was made but it was rejected. In the end there was no waiver of interest. 39. I accept the emphatic evidence of Mr. Tso and Mr. Chu that Mr. Tso had no authority to compromise the Plaintiff's claim and made that clear to the Defendant at the meeting. 40. I am satisfied that there was no oral compromise of the Plaintiff's claim at that meeting or at all. Is Clause 9 of the Customer's Agreement a valid conclusive evidence clause 41. During the course of argument, the Plaintiff sought to rely upon Clause 9 of the Customer's Agreement signed by the Defendant as being a "conclusive evidence clause". That clause is in the following terms:
42. Reference has been made to the decision of the Privy Council in Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd. & others [1987] HKLR 1041. 43. There certain clauses were held not to be conclusive evidence clauses in relation to bank accounts. They were in terms different from the clause now under consideration. It is clear that the court recognised that it might be possible to draw a conclusive evidence clause, but Lord Scarman said of the clauses then under consideration:
44. Applying that test to Clause 9 which specifically uses the word "conclusive", I find that the test is satisfied and it is not open to the Defendant to challenge the evidence of the statements as to the state of account between himself and the Plaintiff. Mr. Liu's submission that if there were two contradictory statements the clause would produce an absurd result was sufficiently answered by Miss Lau's submission that the latest statement would show the current position. 45. I heard de bene esse the evidence of the witnesses as to whether the statements did show the true position, and if I am wrong as to the conclusive effect of Clause 9, I am fully satisfied on the evidence that the statements show the true state of account. 46. With regard to the evidence of Mr. Leung, my impression was that he is a decent man finding himself, as a witness for his dishonest employer, in an uncomfortable situation. His job was to work the nightshift all alone in his employer's office, doing deals according to the Defendant's instructions. He knew nothing of what went on during the daytime. 47. It was not part of his job to look at the statements and he was clearly not in a position to say what instructions, if any, the Defendant had given to the Plaintiff. He himself had not given any instructions to idle or unlock any position. Margin calls came in the daytime and he had never been asked to check their accuracy. It was not his job to keep check of unrealised profits or losses. I know, however, that it was Mr. Leung who analysed the statements after the liquidation and came up with the estimate of overdebit. 48. Mr. Leung said in evidence that Mr. Tso said in the November meeting that Mr. Tso would pay the interest on the balance due after liquidation if his company declined to waive it. In this he was supporting his employer's evidence, which I find unbelievable and in any case quite inconsistent with the defence contention that Tso was holding himself out as having the authority to bind his employer to an oral compromise. 49. To the extent that Mr. Leung supported the Defendant's version of events at the meeting, I feel unable to rely upon his evidence for he clearly had an interest of his own to serve in supporting the defence and he is contradicted by two witnesses whom I judge to be truthful and reliable, namely Messrs Tso and Chu. 50. There will accordingly be judgment for the Plaintiff for the sum claimed, namely US$55,739.77. In accordance with the provisions of Clause 4B of the Customer's Agreement, there will be interest on the judgment sum payable at the rate of 2% per month from the 2nd November 1992 as the sum claimed appears in a statement of that date. 51. There will be an order that the Plaintiff's costs of the action be taxed, if not agreed, and paid by the Defendant.
Representation: Miss Selina Lau, instructed by M/s. Woo, Kwan, Lee & Lo for the Plaintiff. Mr. Michael Liu, instructed by M/s. Cheng, Yeung & Co. for the Defendant. |
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