Chandar Ghanshamdas v. Barloy Development & Investmeny Co Ltd and Others

HCCL000015/1980

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Coram: Barker, J.

Date of Judgment: 6th August, 1980.

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JUDGMENT

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1. In this action the Plaintiff claims as against the 1st Defendant $100,000 on a consideration which has wholly failed and further or in the alternative a like sum as damages for breach of warranty against the 2nd and 3rd Defendants.

2. The Plaintiff is an exporter by trade. In 1979 he bought 100 ounces of Comex gold, known as one lot or unit, from Ace Asia, a firm which deals in commodities, to be physically delivered to him. After a great deal of trouble such delivery was made. The relevance of this transaction is that at the material time the 2nd Defendant was employed by Ace Asia, and although he did not himself carry through the deal, he knew all about it, and admittedly knew that the Plaintiff had insisted on physical delivery of the gold. Thereafter the 2nd Defendant left Ace Asia, and according to him was later employed by the 1st Defendant as a salesman. The 3rd Defendant was employed by the 1st Defendant as sales manager.

3. Notwithstanding the 2nd Defendant's severance of his connection with Ace Asia, and an intervening period of employment with A. A. Continental Commodities Ltd., he kept in contact with the Plaintiff, and after a meeting in early January 1980 further meetings took place later on in that month. What occurred in those meetings, and indeed in subsequent telephone calls, is a matter of sharp conflict, and it is that conflict which I must now resolve.

4. The Plaintiff's version is as follows. Some time in January 1980 the 2nd and 3rd Defendants came to see him. He told them he was not a speculator, that if he did trade with them he would require physical delivery of any gold he might buy, and that he was interested in just one or two units. The 2nd and 3rd Defendants, for their part, made it quite clear to him that they were acting as agents for the 1st Defendant. Either at that meeting, or at later meetings, the 2nd and 3rd Defendants told him that neither they nor the 1st Defendant were dealers on the Comex exchange, but that they would be able to get gold on the local market and then the Plaintiff would be able to take physical delivery of it.

5. And so the meeting of the 24th January 1980 took place. Again, according to the Plaintiff, he said that he was not a speculator, and that he would only buy one or two units. The 2nd and 3rd Defendants had brought with them a Letter of Authorization, of the kind shown on page 53 of the agreed bundle but the Plaintiff refused to sign it, because it delegated the power of dealing completely to the 1st Defendant. He did however either on the 24th or the 25th January 1980 sign a customer's undertaking (pages 6 - 11 of the agreed bundle) and gave to the 3rd Defendant a cheque for HK$100,000, the receipt for which appears at page 5 of the bundle. He further said it was agreed that he would instruct the Defendants when to buy and that they were to act only on his orders. Thereafter, he kept monitoring the market, but decided that the time was not ripe to make any purchases. On or about the 4th February 1980 he received a balance sheet, which was undated, but which appears at page 12 of the agreed bundle, which showed his deposit as having been $10,000. Understandably he was annoyed, and telephoned the 2nd Defendant as a result of which an amended balance sheet, page 13 of the agreed bundle, was sent, dated the 5th February 1980, which showed the correct deposit.

At about this time he decided to go with his family for a short holiday to the Philippines, over the Chinese New Year. He began making arrangements on the 6th February 1980 and received the flight tickets on the 8th February 1980. He did not tell the Defendants of his trip, though he made no secret about it to the members of his own office staff, and prior to his departure on the 10th February 1980, he gave no instructions to the Defendants or any of them to buy gold. After his return to Hong Kong on the 17th February 1980, the next thing that happened was on the 20th February 1980, when he received the documents numbered 12 to 31 in the agreed bundle from which it appeared that the Defendants in his absence from the Colony, had indulged in speculative trading in gold on his behalf, with such lack of success that they had made a loss of $137,100. At once he rang the Defendants, could get no satisfaction on the telephone, and so he went round to the 1st Defendant's office. Then he met the 2nd Defendant, who called in the 3rd Defendant and asked what it was all about. The 2nd Defendant said that he had been sick and off work, and that the 3rd Defendant had been, as he put it, 'trading at the back of him'. The Plaintiff said he did not care who had done the trading. He wanted his account closed and his $100,000 returned, to be met with the reply 'trading has been done. We are very sorry'.

6. Both the 2nd and 3rd Defendants gave evidence. The 2nd Defendant agreed that he knew that in the previous transaction with Ace Asia the Plaintiff had required physical delivery of the gold but according to the 2nd Defendant in about December 1979 the Plaintiff told him that he, the Plaintiff, had made money in the last transaction and was trying to put the profits into gold speculation. Then came the vital meetings, the first of which according to both Defendants was on the 23rd January 1980 at which time they left the customer's undertaking together with a green reference card, but did not ask him to sign a letter of authorisation. On the next day the 2nd Defendant picked up the signed customer's undertaking and on the 25th January the 3rd Defendant collected the Plaintiff's cheque for $100,000. At none of these meetings, say the Defendants, did the Plaintiff say anything about their buying only on his instructions or that he would require physical delivery of any gold bought on his behalf.

7. The next relevant thing that happened was that the 3rd Defendant received a telephone call from the Plaintiff on the 4th February 1980, where in the Plaintiff told him that he, the Plaintiff, would be leaving Hong Kong for a short period and instructed the 3rd Defendant to trade for him at the right moment, to indulge in day trading. The Plaintiff did not tell him when he was going away, or for how long, and gave him no instructions as to how large the trading was to be.

8. And trade the 3rd Defendant did, on the 12th and 13th February 1980, on the 12th buying and selling 1,000 taels or 10 units, on the 13th 2,000 taels or 20 units, with the aforementioned results. As to the meeting of the 20th February, the 3rd Defendant said he told the Plaintiff he had traded for him, and the Plaintiff's reaction was to say nothing except to ask for his money back.

9. Which of these two versions is correct? I have seen and heard the parties in the witness box, and have no hesitation in preferring the evidence of the Plaintiff, who gave his evidence with care and thought. His case is further supported by the evidence of Inspector Hudson, which I accept. He said, inter alia, that when he inspected the books and papers of the 1st Defendant, he found that in 75% of the cases there was an overloss - i.e. the loss was more than the margin deposit, and that in 99% of the cases there was a loss. In my judgment one or other or both of the 2nd and 3rd Defendants had been engaging in churning - a practice whereby sales representatives buy and sell to an abnormal amount on an account, not caring whether they obtain profits or a loss, being interested only on receiving the commission which the company charges.

10. I find that the Plaintiff gave no instructions to the Defendants or any of them to sell and that the transactions which were carried out were done without his authority express or implied and in defiance of his instructions. It follows that the claim against the 1st Defendant succeeds and the counterclaim fails.

11. It remains only to consider the liability of the 2nd and 3rd Defendants. Paragraph 8 of the Statement of Claim reads that they or either of them "represented to the Plaintiff and warranted that the 1st Defendant was and/or the 2nd and 3rd Defendants were dealers and/or were able to buy on the Comex gold exchange. Paragraph 10 reads 'The said representation was false and untrue as the Plaintiff has discovered that the Defendants are not registered to deal on the Comex exchange'. But the Plaintiff himself agreed that he was aware that the Defendants were not registered to deal on the Comex gold exchange and that they never represented to him that they were already dealers on that exchange. Accordingly, the allegation against the 2nd and 3rd Defendants fail.

12. There will be judgment for the Plaintiff against the 1st Defendant for $100,000 with costs and the counterclaim is dismissed with costs. There will be judgment for the 2nd and 3rd Defendants against the Plaintiff. No order as to costs as between the 2nd and 3rd Defendants and the Plaintiff.

Representation:

Allman-Brown (Hampton, Winter & Glynn) for Plaintiff.

Kumar Ramanathan (H.M. So & Co.) for 1st, 2nd & 3rd Defendants.