Merrill Lynch Pierce Fenner & Smith Inc v. Cheng Kwong Yick

HCA001314/1981

IN THE SUPREME COURT OF HONG KONG

HONG KONG

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BETWEEN

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Coram: The Hon. Mr. Justice Power

Date: 30 June 1982

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JUDGMENT

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1. In this matter the plaintiffs who are commodity brokers sue the defendant, who was one of their clients, for an amount of US$49,528.00. such sum being the deficit owing on the defendant's account with the plaintiffs when it was liquidated by them on the 10th December, 1980. This deficit arose when the defendant failed to meet calls made upon him for additional margins. The defendant counterclaims saying that the account was liquidated with his acquiescence, if not his direction, on the 8th December, 1980 and that the liquidation would have produced a credit balance in his favour in the sum of US$18,822.00.

2. No issue was made by either party as to the quantum of the other's claim.

3. There was no issue between the parties as to the contract that had been entered into by the defendant with the plaintiff nor as to the right of the plaintiff to liquidate the account if the defendant failed to meet calls made upon him for additional margin payments. There is further no conflict that calls were made and that the defendant did fail to meet them. The only area of conflict, as both counsel agreed was whether the plaintiffs after default by the lefendant and proper notice by them liquidated the account on the 10th December, 1980 or whether the plaintiffs confirmed to the defendant that, he having given his acquiescence, the account had been liquidated on 8th December, 1980.

4. It is to be noted that the defendant's claim as pleaded was not in accord with his evidence. His pleading suggested that the plaintiffs had actually liquidated his account on the 8th. This, as the evidence showed, was not really his case. His case was that he had acquiesced in a liquidation on the 8th and that the plaintiffs, were then under a duty to act upon that acquiescence and had failed to do so. He contends that this failure renders them liable for the loss which he suffered therefrom and that the credit balance at which his account would have stood had it been liquidated on the 8th represents this loss. His claim it seems to me should have been framed as a claim for damages for breach of contractual duty rather than as a claim for credit balance after a liquidation of the account. Given my decision it was not necessary to consider further amendments that should have been made by the defendant to bring his pleading into accord with the facts as suggested by him.

5. When considering the evidence it must be borne in mind when the evidence is being considered that hours of the New York Commodity Market are from 11.30 p.m. to 3.30 a.m. Hong Kong time.

6. The plaintiffs' principal witness was Mr. Mathew Chan who is an account executive with the plaintiff and who was handling the account of the defendant. I pass over the transactions which he carried out on behalf of the defendant prior to 4th December, 1980 about which there was no real dispute. He said that on the 4th December he received from his Margin Department a document dated 3rd December which stated itself to be a "Commodity Margin Call Reminder". Hereafter I will refer to such a document as a "Call Reminder". This document, an example of which was tendered as Exhibit 3, is in quadruplicate. It is exactly what it purports to be; a reminder to a client that a call in a certain amount is due and owing. One copy is kept in the company records, one copy goes to the broker who is handling the client and two copies go to the client himself; one for his records and one to be returned with his cheque. Mr. Chan said that the copy of the Call Reminder which he received on the 4th December showed that the defendant was required to pay US$30,000.00 to cover his margin. He said that he then, in accordance with the normal custom, telephoned the defendant to tell him that the amount was due. Mr. Chan said that a client is given 48 hours grace to pay such a call and he said that at the close of market on Saturday December 6th, which would have been at about 3.30 a.m. on that morning, he met the defendant in the street outside his home in Des Voeux Road and that the defendant handed him a cheque for HK$170,000 to cover the margin call of US$30,000. By the time this Call Reminder was paid on the morning of the 6th, a further Call Reminder had been issued dated the 5th December, demanding US$23,900.00. Mr. Chan said as the 6th was a Saturday and the 7th was a Sunday, he did not attempt to notify the defendant of this Call Reminder until Monday, the 8th December. He said that when he tried to ring the defendant to advise him of this, he was unable to get hold of him but that he left messages for him. He said that he was not able to speak to him until after the market had opened on that evening which would have been some time after 11.30 p.m. He said that he told him that the market looked bad and advised him to close out his positions. The defendant said that he would think about it and told him that his son Mr. Cheng Yun Chat would bring a cheque around to cover the further call. He said that the defendant also told him that his son would be bringing a Mr. Lee around to watch the trading but that neither Mr. Lee nor the son turned up on the night. He said that on 9th December the amount owed under the margin obligation had increased and that he again tried to contact the defendant but was unable to get hold of him. He said that he was able to speak to him only after the market had opened and that the defendant said that his son would come with Mr. Lee and would bring a cheque to cover the margin call. He said that later on the son and Mr. Lee did arrive but that the son had no cheque and that he told him that he had not yet been home and had not seen his father. He said that he again rang and spoke to the defendant and the defendant told him that he would instruct his son to bring the cheque round after he returned home. He then gave evidence, which I shall not detail, which indicated that no cheque was ever brought to him by the son. He told of further telephone conversations with the defendant in the early hours of the morning of the 10th, during which he advised the defendant to close out his position and the defendant said that he would think about it and advise him. He said that he told the defendant that if he couldn't pay before the opening of the next day then Merrill, Lynch would have no choice but to close out his positions. He said that the defendant said that he would advise him later in the day what he wished to do. He said that on that day, the 10th, he received a further Call Reminder increasing once again the indebtedness of the defendant on margin. By this time there were amounts owing under three Call Reminders outstanding. Mr. Chan said that by 7.30 a.m. on the morning of the 10th, he had calculated the full amount then owed by the defendant and that he rang his home but was told that he was out. He said that despite attempts made to contact the defendant by telephone throughout the day that he was unable to contact him and that on that afternoon he consulted his superior Mr. Christopher Milton-Hall and the decision was made that if the defendant did not pay up before the opening of the market on that night his position would be liquidated. Mr. Chan said that he went on celling the defendant's house and leaving messages but that he received no reply. He said that on the night of the 10th at about 8 p.m. he went to the defendant's home but was told that the defendant was out. He said that finally, at around 11 p.m. on that evening, he received a call from the defendant and that he told him that if he didn't receive a cheque from him he would have no choice but to liquidate his position. He said that the defendant told him he was not able to give him a cheque and that the last words the defendant said to him were : "If my position is liquidated you have to carry the full responsibility". He said that when the market opened the defendant's position was liquidated and that the amount then left owing on the account is the amount now being claimed.

7. He said that on the 11th he called the defendant's house and left a message as to the execution price and a request that the defendant contact him but that thereafter he never talked to the defendant again.

8. It was put to this witness, when he was cross-examined, that on the afternoon of the 8th, he had said to the defendant that he had no choice but to liquidate his account. He denied that this was so. It was further put to him that he had rung the defendant's home at about midnight on the 8th December and told the defendant's son that he had liquidated the defendant's outstanding contract. He also denied that this was so.

9. The second witness called for the plaintiff was a Mr. Hermen Lai who is the Commodity Margain Clerk of the plaintiff company. He gave evidence as to the Call Reminders which he said were prepared and sent to the defendant.

10. The defendant himself gave evidence in which he said that on the 5th December he paid an amount of $170,000 by cheque to cover a margin call. It is to be noted that this is contrary to the evidence of Mr. Chan who said that this payment was made to him at about 3.30 a.m. on the morning of the 6th December. He then said at the time he paid this call he was told that further amounts were outstanding and that he said he would do his best to raise an amount to cover them. He said that on the 6th Mr. Chan came to his home looking for him but that he was not in and that Mr. Chan was, thereafter, unable then to contact him. He said that Mr. Chan had been trying to contact him on Monday, the 8th, but was unable to do so until about 4 p.m. when he spoke to him on the telephone. He said that he was asked for a cheque to cover amounts owing on further margin calls and that he told him that he would try to raise the amount. Mr. Chan told him that he had to bring a cheque or his company would liquidate his position. He said that he finally said to Chan that he didn't want to drag him into trouble and that he would leave the matter in his hands. He said that on that night Chan telephoned and spoke to his son and told him that he had liquidated his position and gave his son the prices at which the interests had been sold. The witness referred to a diary in which he said his son had made entries regarding this telephone conversation. Mr. Lai who appeared for the defendant sought to tender the diary. I held that not to be admissible but that it could be used by the defendant's son, who had made the note, to refresh his memory when he came to give evidence. I feel should make it plain that even if the diary had been admitted as an exhibit, it would, in no way, have altered the conclusion to which I finally came.

11. Under cross-examination, the defendant admitted that each morning he obtained information as to the dealings on the commodity market which had taken place on the previous evening from Sun Hung Kai and from Lloyd's.

12. As regards the conflict between the evidence of the defendant and Mr. Chan as to the date when he handed over the cheque for $170,000 the defendant said that it was "absolutely impossible" that he had given the cheque to Mr. Chan on the 6th December. However, when he tried to explain why this would be "absolutely impossible", his explanation was far from convincing. When cross-examined about the vital conversation which he said he had had at about 4 p.m. on the 8th December with Mr. Chan, his recollection appeared to improve as the cross-examination proceeded. Under questioning he said that in that conversation he asked Mr. Chan to liquidate all his positions. It is to be noted that this was not included in the version which he gave of the conversation in his evidence in chief. Indeed when pressed under cross-examination he gave a further version of this conversation in which he said that he told Chan that if he failed to get a cheque to him he could go ahead and liquidate his positions, but that he should not do so if he had a cheque. I cannot help but remark that the defendant appeared to be tailoring his evidence so as to give, what must have seemed to him, a version of the conversation which would be more favourable to his case than that which he gave in evidence chief.

13. The witness was cross-examined with regard to his bank account with the Bangkok Bank (Exhibit 7) which showed that, as at 9th December, he was overdrawn to the extent of $65,000. He was asked why he had not gone to obtain the monies, which he said were owing to him by the plaintiff, so that he could pay them into the Bangkok Bank and liquidate his overdraft. He gave a number of explanations as to why he said he preferred to leave the monies with the plaintiff. These were not really satisfactory either singly or in their totality and when making them he gave the impression of a person clutching for straws. He was cross-examined about two envelopes which had been tendered by the plaintiff as Exhibit 1 and Exhibit 2. The first of these was stamped 'Registered' and bore the date stamp '31.12.80'. It also bore the name of the plaintiff company. It  was addressed to the defendant at what he conceded was his correct address. Overstamped on its face was a post office chop which indicated that it had been "Refused". The second envelope was one which bore the name "Deacons, Solicitors and Notaries", which was date stamped the 17th January, 1981 and which was also conceded to be correctly addressed. It was also overstamped with a post office chop which indicated that it had been refused. The defendant was unable to explain why the "Refused" overstamp would have been placed upon the envelopes by the Post Office as he said that he had not refused to accept any letters and had given no instructions to anyone else to do so on his behalf.

14. The defendant called his son, Mr. Chan Yun Chat who said that sometimes when his father had placed orders with Mr. Chan, Mr. Chan would ring and tell him the prices. The son said that on the night of the 8th December at about 12.15 p.m. Mr. Chan had telephoned and told him that he wanted to speak to his father. He said that, when he said that his father was out, Mr. Chan said that he wanted to tell him that all his contracts had been liquidated. He said that Mr. Chan then gave him the prices at which the liquidation had been carried out and that he noted them down in the diary. Under cross-examination he agreed that he had been in the office of the plaintiff on the night of 9th December, 1980 with Mr. Lee and that he had seen Mr. Chan at the office. He said, however, that Mr. Chan had said nothing to him on that night about the liquidation of his father's account. He was questioned by the bench about his evidence that he had "sometimes" been told by Mr. Chan about prices and he was asked whether he had recorded any of these other occasions in the diary. He said that he had not but had simply written amounts on slips of paper. He said that the reason he used the diary on this occasion was because he was about to go to bed and happened to have a pen and diary in front of him. This evidence did not seem to me to be in accord with the evidence of his father who had said, when speaking of the diary, "It is a daily I use it when I am at home and someone wants my son I jot down the message for him. On the other hand he will jot down messages for me."

15. I did not find either the defendant or his son to be impressive witnesses. On the other hand I found Mr. Mathew Chan to be a most impressive witness. His evidence was detailed and convincing and he was unshaken by cross-examination. In the outcome, having considered the matter as a whole, I had no hesitation in rejecting the evidence called by the defence and in accepting that of Mr. Mathew Chan. I am satisfied from that evidence that the defendant does owe the plaintiff the amount claimed and I therefore give judgment for the plaintiff in that sum. The defendant is to pay the plaintiff interest at the rate of 15% per annum from the 10th December, 1980 until the date of this judgment. The defendant is to pay the plaintiff's costs to be taxed.

Representation:

Lester Kwok (instructed by Deacons) for plaintiff.

Thomas Lai (instructed by Lau, Wong & Chan) for defendant.