Sunrise Investment Co (A Firm) v. Poon Chung-yuen

HCA002209/1974

IN THE SUPREME COURT OF HONG KONG

(ORIGINAL JURISDICTION)

ACTION NO. 2209 OF 1974

-----------------

-----------------

Coram: Li, J.

Date of Judgment: 10th July, 1975.

-----------------

JUDGMENT

-----------------

1. This is an Action to recover the sum of $102,668.47 representing the indebtedness by the Defendant to the Plaintiff. The Plaintiff is at all times a firm of stockbrokers trading in Hong Kong. The Defendant is one of the Plaintiff's customers operating a Margin Account from middle December 1972 to April and May 1974. It is alleged that on the 31st July, 1974 the Defendant's account with the Plaintiff showed a deficit of $102,668.47 and that despite repeated demands the Plaintiff failed to pay the said sum to the Plaintiff. Hence this Action.

2. The Defendant admits that he is the Plaintiff's customer and that he had a Margin Account with the Plaintiff Company which would allow him to overdraw from the said account up to $100,000 or 50 per cent of the current market value of the shares purchased and deposited with the Plaintiff Company as security but subject to the implied terms that either party should tender sufficient written notice to the other when the said Margin Account would be closed or stopped. He does not dispute the sum that is shown owing by him on the 31st July, 1974. However, he cites three incidents when his account was stopped from operation by the Plaintiff without prior notice, namely, on the 1st May, 1973, then on the 31st December, 1973 and lastly, March 1974. He alleges that on these three separate occasions the Plaintiff refused to buy any more shares on his instructions and also refused to sell any of the shares he deposited with the Plaintiff in settlement of the account. For this reason he put in a Counterclaim for damages to be assessed by this court, so as to set off the Plaintiff's claim for debt.

3. The Plaintiff in his Reply joins issue with the Defendant to the effect that while the credit facilities are on the terms as alleged in the Defence, it is denied that on these three separate occasions the Plaintiff ever refused to sell shares for the Defendant. It is further alleged in the Reply that on those occasions it was found that the Defendant's deposited securities were not sufficient to cover any further credit facilities on the Margin Account and it was for that reason the Plaintiff refused to purchase any further shares for the Defendant. The Plaintiff denies that he had ever refused to sell any shares for the Defendant deposited with the Plaintiff. The Plaintiff says that there is no course of action in the Counterclaim at all.

4. The evidence given by the Plaintiff is very simple and has not been seriously challenged. Two witnesses are called for the Plaintiff to produce all the accounts the Defendant had with the Plaintiff from the 19th December, 1972 down to the end of July 1974. These accounts show that on the 31st July, 1974 a debt of $102,668.47 was owing by the Defendant to the Plaintiff.

5. The witness, Mr. Wang, said that on the 31st May the state of account between the Plaintiff and the Defendant was such that there was no further room for any more credit facilities to be granted to the Defendant. He gave instructions that the Plaintiff should refuse to purchase any further shares on behalf of the Defendant. But he had at no time given any instructions for the Plaintiff to refuse to sell the Defendant's shares on his behalf.

6. On the 31st December, 1973 the amount owing by the Defendant was $103,884.27. The shares he had so far deposited at the time were 1,000 shares of Sun Hung Kai and 2,000 shares of Zung Fu Co. Ltd. to the total value of about $15,600. For this reason again he refused to take the Defendant's instructions to purchase new shares. However, he had never refused to sell shares for the Defendant.

7. In March 1974 the Defendant never instructed the Plaintiff to sell any shares for him. Eventually the 2,000 shares of Zung Fu were sold on the 24th April, 1974 at $3.95 per share and the 1,000 Sun Hung Kai shares were sold at $2 per share. Since then the Defendant had no security with the Plaintiff.

8. Perhaps I should add that the Plaintiff also tendered in evidence a written agreement signed on the 24th September by the Defendant and confirmed that from that time onwards the credit facilities afforded to the Defendant would be restricted to 50 per cent of the value of the shares deposited with the Plaintiff and no more.

9. The Defendant has not cross-examined the Plaintiff to any extent as to what shares he instructed the Plaintiff Company to buy for him on the 1st May or on 31st December, 1973 or in March. He merely puts to the Plaintiff that the Plaintiff refused to sell shares for him. Nor has he put to the Plaintiff what shares he asked the Plaintiff to sell for him. In the cross-examination of Wang he has not put to Wang that the oral agreement referred to in paragraphs 2 and 3 of the Defence was in any way valid until 24th September, 1973.

10. However, in his evidence-in-chief, out of the blue, he introduced something which is quite new and at variance with his Pleadings in that he said by virtue of the state of affairs shown in the account as it stood on the 31st December, 1972 he was allowed much greater credit facilities, namely, that he should be allowed credit to the amount of 4.86 times the credit balance he might have with the Plaintiff at any time. Not only that this has not been pleaded but is also contradictory to the terms of the oral agreement as pleaded by the Defendant in paragraph 3 of his Defence. The Defence, is that credit facilities would be given up to $100,000 only. As the state of account stood on the 31st December, 1972 the Defendant had a credit balance in his account to the sum of some $37,000 if he sold all his shares. He had deposited securities to the amount of about $188,489.45. At that time he owed the Plaintiff $151,076.15 giving him a balance of something just exceeding $37,000. On his own admission, in his evidence-in-chief, on the 1st May he had shares deposited with the Plaintiff to the value of $79,150 and at that time he owed the Plaintiff $112,333.23. Thus the amount he owed was grossly in excess of the value of shares he deposited with the Plaintiff. He has not challenged in any way that on the 31st December 1973 he owed the Plaintiff the sum of $103,000 approximately and all he had deposited with the Plaintiff were some 2,000 shares of Zung Fu and 1,000 shares of Sun Hung Kai. The value of such shares could not in any way cover the amount owed. Therefore, the Plaintiff was quite within his right to refuse further purchase for the Defendant. In any event, there are no particulars as to the number of shares he wanted the Plaintiff to purchase for him. There is no evidence as to the amount of money he would have made had the intended purchase been effected through the Plaintiff.

11. According to the Plaintiff, he merely gave instructions to his jobber or clerk in the trading hall of the Stock Exchange to refuse to buy for the Defendant and not refuse to sell. The clerk gave evidence to the effect that having received instructions from Mr. Wang, he would turn the Defendant over to the Head Office from the trading hall whenever some instructions were given to buy or to sell. In other words, whenever Mr. Poon, the Defendant, rang up the clerk at the trading hall, the clerk would refer him to the Plaintiff at the Head Office.

12. The Defendant confirmed this evidence and said that when he was referred to the Plaintiff he tried to ring the Head Office. But he could not get through to the Head Office and talk to the Plaintiff. As a result he could not sell his shares through the Plaintiff.

13. It is pertinent to observe on this aspect that although the Defendant could not get through to the Plaintiff he never called personally on the Plaintiff to settle the whole affair. He never wrote to the Plaintiff until some time in August or September and then, on 24th September, he voluntarily signed a document which would cut down his credit facilities. This is very strange in view of the fact that the Defendant was very dissatisfied with the conduct of the Plaintiff for stopping his credit facilities and refusing him the chance to settle the account by selling his shares.

14. Having considered the evidence as a whole I find that there is no reason why the Plaintiff should refuse to sell the shares on behalf of the Defendant. I accept the Plaintiff's evidence that the Plaintiff had refused to buy for the Defendant on those occasions but the Plaintiff never refused to sell his shares for the Defendant. Indeed, I come to the conclusion that no instructions had been given by the Defendant to sell his shares deposited with the Plaintiff in order to settle the debt.

15. In this connection I am not entirely unaware of the fact that back in late 1972 and early 1973 it was a rising market and for some people the Stock Exchange hall had been turned into a casino where a person could make a fortune or lose a fortune by the turn of a card.

16. That explains the situation that at one time the Plaintiff, despite the verbal agreement originally made between the Plaintiff and the Defendant, to limit the credit facilities to no more than $100,000 at any one time, was willing to permit the Defendant to speculate continuously up to a certain limit provided there were sufficient securities to cover the debt owed by the Defendant.

17. In his closing address the Defendant cited occasions on which he was allowed credit facilities up to, say, in the month of March 1973, $425,323.05. But the Pleadings never alleges such course of action. This has never been pleaded as a variation of the former verbal agreement. There might be a momentary lapse on the part of the Plaintiff in relaxing their rules but the agreement still stood between them that the Defendant must have sufficient securities to cover the debt and that the debt should not be more than $100,000 at any one time.

18. On the other hand, I have evidence that the debts on those days when the Plaintiff refused to take up the instructions to buy, the debt was grossly in excess of the security furnished by the Defendant. The Plaintiff was quite entitled to stop purchasing for the Defendant. I do not believe the Defendant gave instructions to sell or that the Plaintiff had any incentive to refuse to sell at the time when the market was falling. Between the middle of or after April or May 1973 down to 1974 the market was gradually sliding down. Although this is not part of the oral evidence in this case, it is to be found in the value of the various shares as disclosed in Exhibit 3 up to Exhibit 20 - the shares accounts.

19. In the circumstances, I find that the Plaintiff must be entitled to his judgment in the sum of $102,668.47 and the Counterclaim of the Defendant must be dismissed with costs.

Representation: