Michael L. Smith v. Tanrich Investment Consultant Ltd.

HCA008662/1993

1993, No.A8662

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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Coram: Hon Jerome Chan, J. in Court

Dates of hearing: 14, 15, 16, 19 September and 5 October 1994

Date of handing down judgment: 26 October 1994

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J U D G M E N T

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1. This is a claim by the plaintiff against his broker, the defendant, for loss and damage arising from alleged unauthorised transactions carried out by the said broker in his account purportedly on his behalf. The plaintiff deposited an initial sum of $50,000 soon after he opened the margin trading account with the defendant on 12 August 1993. On the instruction of the plaintiff, 5 contracts of sterling were opened on his behalf in the selling position on 19 August 1993 at the rate of US$1.5103 to the pound sterling. As the sterling strengthened, a further deposit of $20,000 was paid into the account by the plaintiff to cover a floating loss of $17,039.12 pursuant to a margin call on 23 August 1993. That set the scene for the crucial events that took place on the 23rd to 26th of August 1993.

2. It is not disputed that on 23 August, the plaintiff instructed one Kiu Chun Yu, Roger of the defendant that should the sterling fall to below 1.5000, the defendant should close the selling position and buy back 5 contracts of sterling. In that event, the defendant was to further open sterling contracts in the buying position. It is not disputed that no mention was made as to how many further contracts of sterling the defendant was supposed to open on the plaintiff's behalf. As the market did not move in the way anticipated, nothing was done on the plaintiff's behalf that day. In the morning of the following day (i.e. 24 August), the plaintiff received, as was the usual practice, a faxed chart of sterling traded during the previous 24 hours. As was the usual practice, the plaintiff had a telephone conversation with Kiu thereafter as to what instruction was to be given to the defendant in respect of his account.

3. It is the evidence of the plaintiff that he instructed Kiu to close the open position of the 5 contracts if sterling strengthens to 1.5050 so that he could still secure a small profit against a rising sterling (having sold sterling at 1.5103). The defendant agreed that the instruction was to close the position if sterling rose to 1.5050 so as to secure a small profit even if the market turned against the plaintiff. However, the plaintiff further alleged that he also told Kiu to hold on to the 5 open positions if the sterling drops below 1.5030, i.e. the market rate the sterling was trading at the time of the telephone conversation as quoted by Kiu then. Kiu denied such allegation and alleged that the plaintiff instructed him that the instruction as was given the previous day would apply in the event the sterling continued to fall. In other words, the defendant was to open an unspecified number of new buying positions of sterling if the rate fell below 1.5000.

4. Sterling fell drastically during the afternoon of the 24th. The defendant closed the 5 selling positions of the plaintiff at the rate of 1.4995 at about 5:47 p.m. bringing a net profit of $23,000 to the plaintiff's account. The sterling continued to fall thereafter, and Kiu opened a further 9 contracts of sterling in the buying position for the plaintiff at the rate of 1.4983 at 6:04 p.m. Nine contracts were the maximum number of contracts that could be opened in the plaintiff's account at that time after taking into account the $70,000 deposit and $23,000 profit (a minimum margin of $10,000 per contract being required for overnight trading). When Kiu faxed the chart to the plaintiff in the morning of 25th he had handwritten along the margin, inter alia, a report of the closing of the 5 contracts at the said rate and the resulting profit of $23,000. He had also written that he had opened buying contracts for the plaintiff at the said rate. No mention was, however, made in the faxed report of the number of contracts that were opened on behalf of the plaintiff.

5. It is the plaintiff's evidence that during the telephone conversation he had with Kiu around 1 p.m. in the afternoon of that day he was told for the first time that 9 buying positions were opened for him in his account. He said he raised immediate complaint with Kiu. He said he told Kiu that Kiu better knew what he was doing as he was not to accept responsibility for those contracts. Kiu denied receiving any complaint as alleged or at all. He said after he told the plaintiff about the 9 contracts, the transaction was acknowledged by the plaintiff without any objection or complaint. Miss Williams who was sitting a short distance away from the private office of the plaintiff said she was able to hear the telephone conversations between the plaintiff and Kiu on the 24th and 25th. She gave evidence supporting the plaintiff's case. She said she used to work for a bank involving in the forex trade and she was only working for the plaintiff between jobs of real interest. She said she was therefore interested in the plaintiff's investment activities and could hear his telephone conversation as the plaintiff never closes the door of his private office. She confirmed that the plaintiff repeated his said instructions to Kiu twice on 24th and was very angry making complaints against Kiu on 25th.

6. The plaintiff said he then tried without success to talk to Kiu's superiors during the rest of the afternoon. He said he subsequently drafted a letter of complaint before he left office that evening. Miss Williams said when she returned to the office the following morning, i.e. the 26th, she saw the draft on the desk and so she typed out the letter. She said when she saw the draft the plaintiff had not yet returned to the office. So she believed the plaintiff had prepared the draft before he left office the day before. She used to go off work before the plaintiff did. She said the plaintiff signed the letter upon his return and she faxed it to the defendant. The plaintiff said the second reference to 1.5050 in the first paragraph of the said letter was a mistake as he intended to refer to 1.5030. Miss Williams said it was probably her mistake in typing out the draft as the plaintiff seldom made mistakes.

7. During the evening of the 25th sterling experienced a dramatic crash of about 200 points within a short period of time. There were then 2 options opened to the defendant : to close the open buying positions of the plaintiff or to lock the open positions by hedging. Kiu decided to lock the 9 open buying positions of the plaintiff by hedging an identical number of selling positions at 1.4793 thereby locking the loss of the plaintiff at that rate. Kiu never bothered to attempt to contact the plaintiff before he transacted the 9 hedging contracts on his behalf. The defendant was not able to justify its said conduct by pointing to any authority, express or implied or out of necessity as prescribed by law. In the premises, the vague assertions in the defence that it was done "to avoid an over-loss situation" and that it was "the best Mr Kiu could do in the circumstances" were not pursued at the trial. In the premises, the trial proceeded on the basis that the 9 hedging contracts were unauthorised.

8. The complaint letter that the plaintiff alleged was drafted in the afternoon of the 25th before the crash of the sterling in the evening was dated 26th and faxed to the defendant shortly before 11 a.m. the same day. The defendant subsequently made a further margin call for $87,309.56 on the basis of the locked rate of 1.4793. A meeting was then set up for 30 August 1993. One of the directors of the defendant, one Cheung Nai Shun, and Kiu attended the meeting with the plaintiff. During the meeting the plaintiff presented his case to Cheung. But it is Cheung's evidence that his primary concern was to find out whether the plaintiff had done anything to ratify the situation after he was informed by Kiu on the 25th about the 9 contracts. He was not really concerned to ascertain if his staff, Kiu, had acted without authority in transacting the 9 contracts in the first place. As far as he was concerned, if the plaintiff had not done anything immediately to undo the 9 contracts after being informed of the same by Kiu, he would be responsible for it. No mutually acceptable solution was reached during the meeting. Cheung said as the plaintiff was not able to offer any explanation as to why he did not complain on 25th, he told the plaintiff the defendant would not compensate him in respect of the 9 contracts. The plaintiff said that never took place at all during the said meeting. The plaintiff said he was trying to resolve the dispute at the meeting and had indicated he would accept the unauthorised premature closing of the 5 open selling contracts and the profit of $23,000 as stated by the defendant. He said Cheung was not prepared to move from his position that the defendant had done nothing wrong to warrant a claim for compensation. The only thing resolved by the parties during the meeting was to close the hedging position first. The meeting ended by the plaintiff indicating he would take legal action against the defendant.

9. The defence, as appears in the pleadings, is one of express authority. An attempt was made after the defendant had completed the evidence-in-chief of its key witness, Kiu, to amend the pleadings to bring in the defence of authority (be it express, implied, usual or ostensible) arising from a course of conduct through reliance on one single previous transaction involving the opening of the 5 selling contracts on 19 August 1993. It was the intention of the defendant to argue that as the plaintiff only gave instruction to open selling contracts on that occasion without specifying the number of contracts to open and had subsequently raised no objection to the opening of 5 contracts, which was the maximum number of contracts that could be opened on the credit amount standing in his account at that time, the defendant would thereby be authorised to open the maximum number of contracts the account could transact whenever it receives instructions to open positions in his account without the exact number of contracts specified. In other words, there existed a general authority to transact the maximum number of contracts for the plaintiff unless the plaintiff expressly limit the quantum by express instruction. This was based, submitted by Mr Lin, on the strength of one single previous transaction where no objection was raised by the plaintiff to such conduct of the defendant. The application to introduce this completely new defence was strongly objected to by the plaintiff. I refused to grant leave to amend the defence to bring in this new plea for the first time for reasons given at the trial. Amongst the reasons given I have observed that not only would it prejudice the plaintiff, who would have to reopen his case against a totally different defence and to be recalled to deal with this new allegation; such a new defence was raised too late in the proceedings and only after the court sought clarification from Mr Lin as to the true nature of his defence in view of the rather inadequate state of the defendant's pleadings (Mr Lin having chosen not to make any opening speeches).

10. It is abundantly clear, though Mr Lin for reasons not apparent to me appeared to disagree, that despite the initial dissatisfaction of the plaintiff as regards the closing of the 5 selling positions allegedly executed without authority, he had since accepted the position and was contended to take the $23,000 as calculated by the defendant to be his profit under those contracts. The plaintiff's pleadings only seek payment of such a sum as his profit entitlement under the 5 contracts. Thus, there is no live issue to be resolved by the court in respect of the 5 contracts. Upon the defendant conceding the lack of authority in respect of the 9 hedging contracts, the only live issues left are : (i) the existence or absence of express authority to open the 9 buying positions on 24th, and (ii) the question of waiver/estoppel/acquiescence/affirmation of such contracts if there be a lack of express authority. In the event it is unsuccessful in the above issues, the defendant also relies on Clause 24 of the Customer's Agreement dated 12 August 1993 for exemption of liability for failures to execute customer's orders or instructions. Mr Lin further took a pleading point on the statement of claim submitting that the plaintiff's claim was for loss and damage in respect of unauthorised transactions and not a claim for money had and received or recovery of deposit and the profit earned in the plaintiff's account.

EXPRESS AUTHORITY

11. It is the contention of Kiu that the plaintiff had agreed during the telephone conversation between him and the plaintiff that if sterling should fall, Kiu should then act in accordance with the instructions given on the 23 rd, i.e. to close the 5 open selling positions when sterling fell below 1.5000 and to open new buying positions at that level. The plaintiff denied ever saying that. The plaintiff said he told Kiu twice to hang on to the 5 open selling positions if sterling should fall below 1.5030. Miss Williams confirmed that was what she overheard the plaintiff said. In his cross-examination the plaintiff became unsure as to when this conversation took place. He said at first that it was about 5 p.m. that this conversation occurred. But upon learning that the only time sterling was trading at around 1.5030 was in the morning, he became unsure and admitted that as he was told by Kiu during the conversation that the rate of sterling was then 1.5030, he would accept the probability that the conversation could have taken place in the morning instead of the afternoon. However, Miss Williams was adamant about the conversation being around 3 p.m.. Mr Lin submitted that Miss Williams was not a credible witness. Having assessed the totality of her evidence and the criticism of it by Mr Lin, I find her to be an entirely independent witness who has no interest to serve and was trying her best to tell the court the truth as she recalled it. She may be inaccurate at times, e.g. on the time when the telephone conversation took place on the 24th. But I find her evidence as to the contents of the telephone conversation to be reliable. She no longer works for the plaintiff and has no interest to serve at all in giving evidence. She is an entirely independent and truthful witness. I accept her evidence. The plaintiff's memory failed him at times but I find him to be an honest witness who was trying his best to recollect what had occurred. I am satisfied that the unfortunate reference to 1.5050 in the letter of complaint was, when viewed in context, a careless innocent mistake rather than an inconsistency indicative of untruthfulness. On the other hand, I find Kiu to be an unreliable witness. In particular I find his explanation as to why he did not keep any written record of the plaintiff's instructions unconvincing and evasive. His story lacks the ring of truth. I am also not impressed by the evidence of Cheung at all. When Cheung took over the complaint he was only really concerned with finding an excuse to escape liability rather than to investigate if his staff had committed any unauthorised act as the customer alleged. I have no hesitation in rejecting their evidence. I do not propose to deal here at length with other points raised by counsel in respect of the credibility of witnesses. I find as a fact that there was no express authority given by the plaintiff to Kiu on the 24th to open buying positions when sterling fell below 1.5000 as alleged by Kiu or at all.

RATIFICATION

12. The defendant's contention that there had been a waiver, acquiescence or affirmation of the unauthorised 9 contracts or that the plaintiff is to be estopped from denying the validity of the same is wholly based on its allegation that the plaintiff had failed to make any complaint against the lack of authority within a reasonable time after being informed of the opening of the 9 buying positions. For ease of reference I shall refer to this defence as one of ratification as the defendant was in fact an agent of the plaintiff in its capacity as his broker in the said transactions. Has there been a ratification of the said unauthorised act by acquiescence ? The plaintiff was first informed of the opening of buying positions at 1.4983 by fax in the morning of the 25th. He was, however, only informed that a total of 9 contracts were opened at that rate during a telephone conversation with Kiu at about 1 p.m. that afternoon. The plaintiff said he immediately complained about Kiu's unauthorised act during that telephone conversation. He said he was upset about what Kiu did and questioned him why did he not get in touch with him first before executing such transactions. He told Kiu he hope Kiu knew what he was doing as he would not accept any responsibility for such transactions. Miss Williams said she overheard this conversation as well. She said the plaintiff was very upset at that time and was actually shouting at Kiu over the phone. Kiu denied receiving any complaint from the plaintiff on that day at all. He said the plaintiff acknowledged the transactions after learning details of the same from him. He said the first time any complaint was received from the plaintiff was in the morning of 26th when he received the faxed letter dated the same date. He said that was after the crash of the sterling and the hedging done during the evening of 25th. The plaintiff said he drafted the said letter before he left office on the 25th Miss Williams said she left office before 5:45 p.m. on 25th when the plaintiff was still working. She came back to work in the early morning of the 26th before the plaintiff arrived. She found the draft in the out tray and typed it. Then she placed it before the plaintiff for signature after he return to work. She denied any suggestion that the letter was only drafted by the plaintiff after he received the market chart in the morning of the 26th. The plaintiff was cross-examined on the note he endorsed on the market chart he received on 25th. He was rather unclear as to when he actually did that. After he was referred to other evidence he concluded he might have done it within 2 weeks after the telephone conversation on 25th and not contemporaneously during such telephone call.

13. The defendant's submission is that the plaintiff ought to have immediately made a complaint there and then during the said telephone conversation. The failure to do so would relieve the defendant of any liability for the unauthorised 9 contracts. On the evidence before me I am satisfied that the plaintiff did make oral complaints against the unauthorised transactions when he was made aware of the full extent of such commitments by Kiu during the telephone conversation on 25th. I have no hesitation at all in rejecting also the allegation that during the meeting on the 30th the plaintiff was unable to explain his failure to make any timely complaint. That would effectively dispose of the defence of ratification. However, as Mr Lin has addressed me at length on the law in this respect, in particular his proposition that as a matter of law the complaint must be made there and then during the same telephone conversation, I shall deal with his submissions in this respect.

14. Though it may be possible in some rare circumstances that a reasonable time for complaining would be spontaneously over the phone at the time when one is informed of the full extent of the unauthorised act, I do not accept that this conclusion can be justified in the present case. Even given the fact that one is dealing with forex trading where the market can fluctuate at incredible rates within a very short period of time, this alone is no justification for holding that the innocent customer must there and then decide whether he should reject or accept the unauthorised transactions opened by the culpable broker purportedly on his behalf without his authority or knowledge. The customer is called upon to make a decision of a commercial nature and should be given a reasonable period of time to consider the same as in any business decisions. He would have to consider the market conditions to access the wisdom of the transactions. Even if it was an investment with good prospects he would have to consider his own circumstances, including his financial commitments and resources, to see whether he should or could afford to take on this additional financial risk or burden. It cannot be right or reasonable to require the innocent customer to rush into such a business decision spontaneously upon receiving the bad news of the unauthorised act. To hold otherwise will effectively force all such customers to reject the unauthorised act initially in all cases to preserve his legal position by lodging a formal complaint with the employer of the culpable agent, thereby jeopardising the job of such an employee as well as ruining all working relationship between himself and this agent in future. He would, in those circumstances, never be allowed any time at all to consider whether he should or could be kind or generous to the culprit by forgiving his wrongful act if he finds the unauthorised transactions an acceptable or even wise financial

commitment. I find any submission that places a duty on the innocent customer to decide spontaneously whether to accept or reject the unauthorised transaction wholly unsustainable.

15. Thus, what is a reasonable period of time before the innocent customer should be held to have waived his rights and has acquiesced and affirmed the unauthorised acts of his broker and could be said to be estopped from holding the latter liable any further for the wrong the latter had committed? The answer is to be found from a consideration of the surrounding circumstances. The nature of the wrongful act in question is a factor to be taken into account. It is accepted that in forex trading, time is usually of the essence in the ever changing and fluctuating market. The parties' own views and requirements as can be ascertained from their contract and conducts as to the urgency of the situation should also be taken into account. In the statements sent to customers by the defendant, the customers are informed to "check and examine the price and order items of this Statement and contact our Manager if there is any error within 48 hours, otherwise they will be deemed effect". It appears that in this provision, that was inserted by the defendant itself solely for the purpose of its own protection, the defendant regarded a period of 48 hours as an acceptable time for customers to consider the statement and to challenge any errors therein contained. The defendant clearly accepted 48 hours as a reasonable period of time for the making of complaints in respect of the statement. Cheung was unable to explain why the same period of 48 hours should not be reasonable for a complaint to be made in respect of oral transmission of details of the transactions instead of a written statement. He further agreed that a customer can make a complaint that the transaction recorded in a statement was carried out without any instruction within the said period of 48 hours. It is true that the defendant is not "bound" by the said provision as to 48 hours in respect of an oral transmission of information about transactions. However, I find such provision for 48 hours a good indicator as to what has been regarded and adopted by the defendant itself to be a reasonable and acceptable period of time to be given to customers to discover and to consider the question of ratifying any error.

16. Mr Lin submitted that the customer should not be given any opportunity to take advantage of the unauthorised act and to make any gain from a fluctuating market. In support of his submission, I was referred to the old case of Prince v. Clark (1823) 1 B & C 186. A consignee consigned goods to a captain with directions that the proceeds of sale should be invested in certain specified articles or in bills at the exchange of the day. Having sold the goods, the captain invested the proceeds in sugar which was not an authorised article. The consignee was informed of the said investment by letter. About 10 weeks later, the consignee notify a third party who had acted before as the insurance agent of the captain in England that he would not accept the investment and advised that third party to insure the sugar. The jury found in favour of the captain in a claim by the consignee to recover the proceeds of sale of the goods. On appeal, it was held that the jury was justified in finding that the consignee had assented to the purchase by the captain. Mr Lin relied heavily on a comment made by Bayley J., one of the three judges in the appeal, that :

"......they might perhaps have acted beneficially for their employer, but the purchase not being authorised by the principal, it was competent to the latter either to adopt or repudiate the act of the agents. The principal. however. has no right to pause and to wait the fluctuation of the market. in order to ascertain whether the purchase is likely to be beneficial or prejudicial; he is bound, if he dissents, to notify his determination within a reasonable time, provided he has an opportunity of doing so."

I am unable to read into this passage any hint that the learned judge was suggesting that the principal cannot be allowed any time at all to consider the market condition or the financial wisdom of the unauthorised act even if he does that within a reasonable time. The learned judge was simply making a reference to the requirement that the principal should notify the agent of his decision within a reasonable time rather than to delay the decision whilst waiting to see if he can benefit from the fluctuating market before he makes a determination. Mr Lin was not able to draw my attention to any subsequent case or any literature wherein this particular passage has been taken to support the proposition of law that Mr Lin has baldly put before me in this trial. Even if this passage can be taken to mean what Mr Lin said it should mean, the observation was not shared by any of the two other judges nor could one detect any assenting sentiment to such a view from them. Furthermore, the facts of the case are very different from the present one. A total of 10 weeks had lapsed before the consignee raised any objection. The ratio of the decision that the jury was entitled in the light of the 10 week delay to find that there had been ratification of the unauthorised act is unassailable. I am satisfied that the decision is no more than an authority for the well-established principle that any inactiveness beyond what would have been a reasonable period of time in the circumstances of the case may be taken as an assent or ratification by acquiescence on the part of the innocent principal

17. I am satisfied that the sort of spontaneous determination suggested by Mr Lin cannot be supported by any legal principle or the circumstances of the case at all. There being no evidence to justify any finding of knowledge of the crash by the plaintiff before he drafted the letter, I am satisfied that even if the plaintiff had not complained about the unauthorised transactions on 25th as I have found, the lodging of a complaint on the following morning would not be unreasonable or too late in the circumstances of this case. I was not addressed on and I leave open any possible argument that an agent may be able to rely on any equity to deprive an innocent principal of his legal rights arising from his unauthorised act after there had been a drastic change of events that makes it inequitable for the plaintiff to insist on his wrong anymore.

CLAUSE 24

18. Clause 24 of the Customers Agreement dated 12th August 1993 provided that :

"Customer acknowledges and confirms that customer has read and agreed to the terms of the Risk Disclosure Statement appended hereto and which shall form part of this agreement. The customer further acknowledges that customer accepts full responsibility of all orders executed by Tanrich for and on customers (sic) behalf for the purchase or sale of investment and that in no circumstances will the customer hold Tanrich liable for any loss or damage suffered or incurred thereby. Customer further confirms that in any event where Tanrich has failed to execute the customer's orders or instructions expeditiously or at all, customer will not hold Tanrich liable for any loss or damage resulting therefrom."

19. Mr Lin submits that this clause would exempt liability for unauthorised transactions carried out by the defendant without any knowledge or consent of the customers. I am unable to read into that clause any exemption of liability of such nature as suggested. This is the way his argument was presented. It is submitted that the court should find for the existence of a "general or implied instruction" from the plaintiff that the defendant is not entitled to deal with his account without his instructions. And the reference to "instructions" in the last sentence of Clause 24 includes such a "general or implied instruction". In the premises, the unauthorised transactions, which is a failure to execute such a "general or implied instruction", would be covered by Clause 24. I am unable to find any merits at all in such an argument. It is beyond doubt that the reference to orders and instructions in that part of the clause is a reference to specific orders and instructions relating to the execution of specific transactions in the account, and not to any "general or implied instruction" not to deal with his account without authority. The distinction between actual instructions relating to specific acts to be done or not to be done in respect of the execution of a particular transaction, and matters concerning the general scope of authority is clear. The clause clearly was never intended to deal with the latter. If Mr Lin's construction is the proper one then as a logical extension of that submission, Clause 24 will also cover liability for theft of money from the account because there would likewise be a general or implied instruction that the defendant should not steal from the plaintiff. Such a construction is wholly without merits.

PLEADINGS

20. The defendant further took the pleading point that the plaintiff's claim is one for loss and damage arising out of breach of contract and/or breach of duty of care and/or negligence on the part of the defendant. It is submitted by Mr Lin that there is no claim for money had and received or a recovery of money standing to the credit of the plaintiff in his account with the defendant. It is correct to say that one cannot find the term "money had and received" in the body of the statement of claim or the relief. The plaintiff's claim is based on the fact that the defendant had unilaterally deducted the loss arising from the unauthorised transactions from the credit balance in his account; resulting in not only the wiping out of the whole credit balance of $93,000 (i.e. $70,000 margin deposit plus the profit of $23,000 from the 5 contracts of sterling closed on the 24th) but leaving a debit balance in the same. The loss and damage that the plaintiff suffers from the unauthorised transactions is such a deduction in his account. It is entirely appropriate for the plaintiff to claim for loss and damage arising from this wrongful deduction instead of claiming for money had and received or recovery of money in his account. The fact that the plaintiff could have claimed for money had and received or for recovery of money in his account can be no bar to him to claim on a legitimate alternative basis. I am satisfied the present claim of the plaintiff is an entirely proper one and the loss and damage he suffered from the unauthorised transactions was the wrongful deduction of the sum of $93,000 from his account. Accordingly, there is judgment for the plaintiff against the defendant for the sum of $93,000 as claimed with interest at the rate of 1% above the prevailing prime rate from the date of writ to the date of judgment, and thereafter at the judgment rate until payment

21. Mr Lin submits that costs should be awarded on the High Court scale in the event of judgment for his client; but that it should be on the District Court scale if judgment is to be entered against his client. He was not able to advance any meritorious argument as to why the scale should vary in the way he suggested, depending on whether his client is successful or not. Both parties were happy to have the trial in the High Court. Though it was the plaintiff who initially decided on the venue of the proceedings by taking the writ out in the High Court; the defendant had assented to its remaining in the same venue not only by raising no objection but also by actively applying to transfer the action from the running list to the fixture list. When I drew the attention of counsel to the fact that the claim was for special damages in the sum of $93,000 only, Mr Lin not only raised no objection to continue the trial in the High Court, he actually informed me that he believed the plaintiff has an absolute right to choose the venue and that there is nothing he could do about it. It was only when his client's undoubted right to apply for a transfer to the District Court was drawn to his attention that he attempted to make such an application.

22. Both parties have contributed to placing this trial before me in the High Court instead of the District Court where it should be. It is submitted by Miss Rattigan that when both parties are equally culpable, the proper order the court should make is to award costs on the High Court level as it is the venue of voluntary choice of both parties. However, apart from a consideration of the relative culpability of the parties, the court should also give recognition to the legislative intent that such claims ought to be brought in the District Court. It would defeat the whole purpose of establishing the District Court if the High Court should be readily abused by litigants to deal with cases within the District Court jurisdiction. It was with that clear intent that s.43(2) of the District Court Ordinance, Cap.336 was enacted in its present form : to provide for costs in such cases to be on the District Court level unless they were brought in the High Court by leave or unless the High Court orders otherwise. It is impossible for the court to make an order that could adequately address the equity of the situation. Costs on the High Court scale would be an undue award and encouragement to culpable but successful litigants who would be able to get away with what they wanted without any undesirable consequence on the recovery of their costs. However, costs on the District Court scale would benefit the culpable and unsuccessful litigants by enabling them to abuse the system without bearing any increased liability for costs for their conduct. The court should not be seemed to be awarding any culpable litigant for his abuse of the system. However, regrettably there is no jurisdiction to make an order that can achieve absolute justice in cases of consensus abuse of the system by both parties in this manner.

23. I do not, however, agree that the culpability is absolutely well balanced in this case. The plaintiff who is the instigator of the abuse in initiating these proceedings in the High Court must at least be slightly more culpable than the defendant who merely went along with the wrong. Furthermore, the legislative intent should also be given due recognition. In the premises, no order as to the scale of costs is made and s.43(2) of the District Court Ordinance, Cap.336 will take its natural course and put the scale of costs at the District Court level.

Representation:

Miss Mairead Rattigan, inst'd. by M/s Richards Butler, for Plaintiff

Mr Kenny Lin, inst'd. by M/s Tang & So, for Defendant