Bogata Diamond Ltd v. New Japan Securities International (HK) Ltd

HCA003737/1981

1981 No. 3737

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Hon. Kempster, J.

Date of Hearing: 7th and 8th December 1983

Date of Delivery: 8th December 1983

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JUDGMENT

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1. The plaintiffs in this action are a Hong Kong corporation without, I am told, any connection with South America, which used to carry on business here in precious stones. Now that business is carried on by an associate corporation in the Unites States of America. The defendants are also a Hong Kong limited company and dealers within the meaning of The Securities Ordinance, Cap. 333.

2. The plaintiffs at all material times were represented by Mr. Stanley Yeung and the material time is really April 1980. Mr. Stanley Yeung was then a director. He has since retired. He was a stock broker and had had, some two or three years prior to the events in issue, dealings with the defendants involving the purchase and sale of Japanese securities. He now lives, as I understand it, in retirement in the United States of America. His son, Mr. William Yeung, has given evidence in this action and upon that evidence the plaintiffs must depend if they are to succeed. He is and was a director of the plaintiffs and a man of obvious business 'attainments and acumen.

3. The account Mr. William Yeung gives of the matter indicates that he personally was not accustomed to dealing in stocks and shares either on the Tokyo Exchanges or anywhere else. But some years prior to 1980 he had met a Mr. Sammy Chan who was and is a sales manager for the defendants and who was .their sole witness. Of Mr. Sammy Chan I should say that he is remunerated by salary but, as he candidly conceded, is interested in enhancing his standing with his employers and doubtless his salary by the introduction of new and good business.

4. Turning back to Mr. William Yeung's evidence, he said that on the 10th April, now in Hong Kong, there was a meeting in the plaintiffs' office at which Mr. Sammy Chan suggested that a Japanese Company called The Sumitomo Coal Mining Co. was a marvelous vehicle for investment. Mr. Chan said, according to Mr. William Yeung, that the price would rise by 10% within two Weeks. Mr. Stanley Yeung expressed no interest saying that he did not know anything about the Japanese stock market and that if he was going to try his hand at stocks and shares he would prefer to do so in Hong Kong which he understood. Mr. William Yeung said that a day or two later Mr. Sammy Chan visited the plaintiffs again and, these are Mr. William Yeung's exact words, insofar as I have been able accurately to record them:

"He said he would guarantee the 10% within two weeks. If this did not occur he would give us a full return plus 10% profit. Again my father said he was not interested but Sammy Chan was quite free to try and persuade me. Sammy Chan and I talked over the matter. I said I had no experience of trading in the stock market and would have to rely on him completely. Sammy Chan then said 'I have invested every bit of my spare cash in Sumitomo. I would not have done so had I not been confident'. On the faith of his guarantee of 10% to me, I said I would invest in Sumitomo". In cross-examination he explained that Sammy Chan said his company would guarantee the profit in these words: " 'This is such a sure win that my company will guarantee you 10% within two weeks'. Though we were speaking  in Cantonese he introduced the English expression 'sure win"'. And after further assurances from Mr. Sammy Chan that he would look after him as if it was his own money that was involved Mr. William Yeung asked how many shares he should buy to which, according to his evidence, Mr. Sammy Chan replied "Since this is your first transaction, let us buy two hundred thousand shares". "I said 'O.K. I will try to raise the money'. We left it that, I told him I might not be able to raise the price and would have to borrow from the bank at a very high rate of interest. He said 'Even at a very high rate of interest you need not worry. It is only a matter of two creeks and I guarantee 10% increase'. After a day or two he phoned me and said he had bought the two hundred thousand shares and would require me to put up half a million Hong Kong dollars. I told him I could not raise the money personally and would have to borrow from the plaintiffs." And then when the question arose as to the name in which the shares bought should be registered it was agreed that, as the plaintiffs were putting up the money, the shares should be put in their name to allow the plaintiff company to make the profit". Mr. William Yeung said he had the authority of a board resolution to commit the plaintiffs in this way. Well, not unnaturally, Mr. William Yeung said he and Mr. Sammy Chan kept in touch so that he could be told about the movement of the shares on the relevant Tokyo Stock Exchange. Basically the price remained steady for two weeks. After the expiry of that period, however, Mr. William Yeung and his company did not seek to redeem the defendants' alleged promise by calling for return of the money paid plus 10% but allowed the money to remain invested and continued to watch the fate of the Sumitomo shares. According to Mr. William Yeung, Mr. Sammy Chan went along with this and continued to give him bland assurances.

"Another week or so went by. The price started to move up. I then said to Sammy 'Let us sell at about ¥395 a share'. At that time the price reached ¥396. Sammy said 'Don't sell, wait until the price goes over ¥400'. He kept stressing this when I repeated my suggestion of selling". But Mr. Yeung insisted on selling a hundred thousand of the two hundred thousand shares at ¥395 a share. The defendants failed to find a buyer at that price then or subsequently albeit they were given a standing order, he says, to sell at ¥395 a share. Then the price, as sometimes happens in relation to well -tipped 4shares, started to decline and, according to Mr. William Yeung, further bland assurances were given by Mr. Sammy Chan and there were meetings. A critical one took place in March 1981. According to Mr. William Yeung Mr. Sammy Chan visited the plaintiffs' offices with his new boss, Mr. Aoki, and there met Mr. William Yeung and his father and "during that meeting Mr. Aoki asked us to put up an additional HK$120,000 on margin account. Then my father told Mr. Aoki the whole story in English mentioning the guarantee in front of Mr. Sammy Chan and invited Sammy to indicate anything with which he disagreed. Sammy said nothing. Mr. Aoki said now he fully understood the problem and would go back and try to think of a solution. So we consulted solicitors."

5. Solicitors wrote on the 1st of May 1981 in these terms:

In other words, the plaintiffs had been in a no possible loss situation where they stood to gain in any event.

6. The defendants went to solicitors who replied in these terms on the 8th May:

"We are instructed that your client's claim cannot be entertained. Our client's representative Mr. Sammy Chan did no more than what an enthusiastic salesman did in recommending his goods. In fact what Mr. Sammy Chan said to Mr. William Yeung (in Chinese) was that he could vouch for the Sumitomo Coal increasing its price by 10% in 2 weeks, otherwise he would not dare to persuade him to invest in Japanese securities again. Mr. Sammy Chan has made a market forecast which proved to be wrong. Mr. William Yeung must surely recognise this as sales-talk and not in any manner a legal guarantee, even if he is not familar with the Japanese stock market".

I take the expression "vouch" against the defendants in its strongest meaning which would be to go surety for the occurrence of the event predicted. The writ in the action was issued on the 5th June 1981.

7. Mr. Sammy Chan himself gave a rather different version of affairs though, not unnaturally, there were many matters in common. He has been employed by the defendants as business manager for 7 years. He confirmed meeting g Mr. Stanley y Young before for purposes of buying and selling securities on the Japanese stock market though he agreed with Mr. Faulkner, who appeared for the plaintiffs, that this activity probably stopped in about 1976 or 1977. He also confirmed having met Mr. William Yeung in Japan. He said "On the 17th April I saw Mr. Stanley and Mr. William Yeung at the plaintiffs' office." He had, he told the Court, been paying them a number of visits prior to that date during none'-of which had he mentioned Sumitomo shares:` I think it reasonable to infer that he was seeking to renew the interest of Mr. Stanley Yeung in investing on the Japanese stock-exchange in order to earn commission for his employers and enhance his own standing with them. He said "I wanted to recommend some Japanese shares to Mr. Stanley Yeung. I recommended Sumitomo because they were the most popular in the market". Mr. Stanley Young said they were quite popular. I said "I sincerely believe that within a short period these shares will go up by 10%. ' I did not guarantee such a rise within 14 days".

8. Having been taxed about the solicitors' letter written on behalf of the defendants which I have just read, he, very candidly I thought, said "If that letter says I told the solicitors that I had vouched for this increase my recollection, when I gave instructions, must have been accurate. And I must have done so."  " It is not common" he said "for brokers dealing in Japanese shares to give guarantees. I did not say I had invested all my spare cash in such shares. Mr. Stanley Yeung showed interest and said he would use the plaintiffs' name to buy a hundred thousand shares; obtaining money from the bank by overdraft. I returned to the defendants' premises and half an hour later Mr. Stanley Yeung rang me and said I was to make the purchase two hundred thousand shares in all while Mr. William Yeung would supervise this transaction. I had no previous dealings with him in relation to Japanese shares".

9. Mr. Chan continued "The shares were bought on the 18th April for the plaintiffs" and that is evidenced. by the documents. "The price was ¥356 per share on average". On the 23rd April he was provided with a five hundred thousand Hong Kong dollar cheque in part payment and he secured the signatures of one or other of Mr. Stanley or Mr. William Yeung and possibly someone else to an application for a new  account to be opened in the name of the plaintiffs. Some question arose as to whether he actually saw one or more of the two Yeungs sign or whether they did but that issue did not appear to me to go even to credit having regard to Mr. Sammy Chan's reserve as to whether he could commit himself about the signatures.

10. After the shares had been purchased the price went up. "On the 2nd May 1980 I spoke with Mr. William Yeung by phone to say that the price had jumped to ¥393 a share and it was for him whether or not to sell. He ordered me to sell a hundred thousand of the shares at ¥395 per share and hold the balance", well that is common ground, "I did not try to persuade him to the contrary or to wait until the price had reached ¥400". So there is an issue there between the parties. Apparently had the price reached   ¥396 the 10% would have been achieved.. Then the price dropped a bit. There were visits. No one mentioned the guarantee and according to Mr. Sammy Chan the only further reference to his vouching for the Sumitomo shares occurred in early March of 1981 when there was another meeting at the plaintiffs' offices. He was there with Mr. Aoki and Mr. Stanley Yeung and they were asking for more money for the shares. "Mr. Stanley Yeung said there was no money and Mr. Stanley Yeung said that he had consulted his lawyer and found that they could sue us. They said had guaranteed the 10% increase. I told Mr. Aoki, in their presence, this was untrue". And then the meeting, as was to be expected, broke up. These proceedings followed.

11. Well, it is ,of course, for the plaintiffs to satisfy me on the balance of probabilities that Mr. Sammy Chan in March or April 1980 made a promise to them in the terms pleaded and that they understood that promise to be one to be relied on in law and to be made by and on behalf of the defendants. For my part, I regard such a promise in the context of the stock exchange and stock brokers as truely remarkable. I am far from finding that ho such promise could be made but it does not immediately strike me as probable; even if made by a man keen to enhance his standing with his employers. I find it even more improbable that persons of the experience and standing of Mr. Stanley and Mr. William Yeung would understand anything of this nature said by Mr. Sammy Chan as constituting a promise binding his employers in law. And , further, I would have 'expected that anyone dealing with a stock broker who received such a wonderful guarantee immediately to go to the typewriter or to the desk and type or write a letter of confirmation. No one concluding such a wonderful bargain and being experienced in business or the ways of the world would, in my view, leave it in the realm of oral promise. And, further, no more would I expect anyone having received such a wonderful promise, once the two weeks had elapsed and while interest was running against them, as is shown by the statements rendered by the defendants to them over the ensuring year, to allow the matter to rest and wait hopefully for the material shares to rise in value. Any businessman would again have jumped in with a demand for the return of the money paid on account and a payment of the sum promised by way of 10% increase. Further I have to consider the demeanour of the respective witnesses in the witness box . I do not wish to be too harsh in relation to the evidence of Mr. William Yeung but I formed the opinion, and it is part of a Judge's function to form opinions about witnesses, that he was evasive. I thought probably he fully appreciated the extraordinary nature of the bargain for which he was contending. By way of contrast I found Mr. Sammy Chan a careful and credible witness. Perhaps I should add, and I hope he will forgive me for this, that I had rather expected a salesman of stocks and shares to display the same sort of braggadocio in the witness-box as a horse-toper or motor-trader and I was agreeably surprised by his demeanour. I think I have said enough for it to follow that in all the circumstances the plaintiffs have failed to discharge the burden or proof resting on them. There will be judgment accordingly for the defendants oh the claim. In relation to the counterclaim, by consent of the parties, this is adjourned sine die for further discovery in relation to which I have already given certain directions. Unless anyone addresses me to the contrary I shall give the defendants the costs on the claim and in relation to the counterclaim the costs of and occasioned by the adjournment are to be reserved to the Judge trying the counterclaim or until further order.

Representation:

Raymond Faulkner (Fairbairn & Kwok) for plaintiffs

Robert Tang (P.C. Woo & Co.) for defendants