Commercial Investment Co Ltd v. C H Loo

HCA002890/1973

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 2890 OF 1973

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Coram: Trainor, J. in Court.

Date of Judgment: 17th October, 1974.

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JUDGMENT

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1. These proceedings are brought by a company incorporated in Hong Kong which carries on the business of sharebrokers. Among its clients was the defendant who authorised the plaintiff from time to time to buy shares on his behalf. These shares were bought on margin, a margin that fluctuated from time to time usually within the limits of 30% to 40%. Should the price of the shares purchased drop to such an extent as to reduce the margin to 25% it was usual for the plaintiff to demand and receive from the defendant sums of money to bring the margin up to the agreed limit.

2. One must have very considerable sympathy with the defendant in this case who went through the experience most people throughout the world have had who have bought shares in the Stock Market, and that is to see a very considerable amount of their money passing down the drain. Nevertheless, the case must be viewed solely on the conditions and terms of the arrangement that existed between the parties. Like many another person Mr. Loo's shares began to lose their value and demands were made of him to make payment to his brokers. Those demands resulted in payments being made in June, July and August 1972 and again more payments had to be obtained from him in February and March of 1973.

3. The position was that the market continued declining and ultimately the defendant owed, on the margin, US$59,270.15. The plaintiff alleges that persistent demands for this payment were refused so the proceedings were instituted.

4. The real issue in this case is: did the defendant give the plaintiff instructions to sell all his holdings in June 1972, or indeed at any subsequent time, as a result of which his deficit to them would have been wiped out or considerably reduced.

5. On this aspect I have heard the evidence of a Mr. Paul Loo, nephew of the defendant, who is a broker with the plaintiff. He told me that any dealings that took place in the shares in which the defendant was interested was as a result of a consultation between himself and the defendant, and, I think, he conceded that all the transactions were concluded on his advice. There is no doubt about it from the evidence that I have heard from both sides, however, that the defendant took a very active part in considering and examining the Stock Market, and in coming to a conclusion as to what should be done with regard to buying or selling shares.

6. However, Mr. Paul Loo has told me that the market in shares was falling and that he advised that a portion of the shares be sold, If my memory serves me right, in June of 1972 he advised that two-thirds of the defendant's holding should be disposed of. This was done but as the market continued to fall there was an increasing deficit on margin on the remaining third. He told me of discussions with the defendant, and the point of interest in these discussions was that Mr. Loo maintained that he was never at any time instructed to sell the balance.

7. Mrs. Will, a director of the plaintiff firm also gave evidence. Although she didn't deal with the defendant, who I suppose I could put it, was the client of Mr. Paul Loo, nevertheless she was meeting him frequently and had frequent discussions over lunch and sometimes in the office. Her evidence on this point might be summed up in that she never received, nor heard of instructions from the defendant to sell. There were letters produced from Mrs. Will to the defendant written in May and June 1973 in which the defendant was asked to reduce or discharge the debit balance due to the plaintiffs.

8. The last time Mrs. Will saw the defendant was in March and she said, he told her that the deficit would be paid up: in fact, I think she said the defendant told her that he would pay when a cold store he was building was completed.

9. The evidence of the defendant was very far from positive on this. In my opinion it is the only issue in the case: were the instructions given. He said in his evidence that from time to time he wanted his nephew to sell the shares, but at no time in the whole of his evidence did he say positively, if I remember correctly; "I told him to sell." In fact, his evidence concluded by saying that he had intended to try to pay.

10. In the circumstances with all sympathy to the defendant in his very considerable loss of between $400,000 and $600,000 I must find for the plaintiff.

11. Before departing from the case I think perhaps I ought deal with a matter raised by Mr. Bokhary throughout the case and in his address and that is that the position between the defendant and the plaintiff was exceptional from the usual position of stockbrokers and clients and that a special reliance was placed by the defendant on his nephew. It is quite time that the defendant and Mr. Paul Loo are uncle and nephew but there has been no evidence presented to me that suggests that the operation of buying and selling in shares in this case differed in any way from what is the usual business pattern. I haven't seen any, but reference was made to Contract Notes and Buy and Sell Notes with endorsements on them. There have been references to the letters or invitations to the defendant to call to pay up sums of money to reduce margins, and I must say that I have seen nothing to suggest other than a normal business dealing. In the circumstances, as I have said, I find for the plaintiff.

12. The remaining question is to what is the plaintiff entitled. It has been suggested that the plaintiff might have sold the shares over which it had a lien and control and thereby mitigated its loss. This was a somewhat delicate position for the plaintiff but I think it is as Mr. Eddis said a stockbroker who has shares in his possession with the power to sell to meet money that is owing to him is indeed in a very difficult position. There is the great risk of selling too soon if the shares rise, and he is in the awkward position should he hold on to the shares and the price drops. However, I think that in this case as the defendant had promised Mrs. Will in March that he would pay up and as he was a client of very considerable standing she was justified in concluding that that is what he would do. Indeed, if he said this, and I accept he did, I think it would preclude Mrs. Will's from selling. The only time that I can see when the position was sufficiently clear-cut and well-defined at which Mrs. Will might well have decided to sell was, as Mr. Eddis said at the time of the issue of the writ.

13. In the circumstances, I award to the plaintiff the amount claimed in the writ, that is, the sum of $303,463.17 with interest thereon at the rate of 8%, ...(illegible) the rate of interest payable by the defendant to the plaintiff in the ordinary course of business on any deficit that existed at the end of each month and costs. Interest to run from the 1st of October, 1973 until date of payment.

Representation:

Mr. Eddis (Johnson, Stokes & Master) for Plaintiff.

Mr. Bokhary (Woo, Kwan, Lee & Lo) for Defendant.