First Asian Security Co v. Michael S.K. Ng

HCA001416/1974

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 1416 OF 1974

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Coram: Trainor, J. in Court.

Date of Judgment: 7th January, 1976.

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JUDGMENT

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1. The plaintiffs in these proceeds are a firm carrying on the business of stockbrokers. The defendant is, or at least was, a client of that firm.

2. The plaintiffs are now claiming for the sum of $381,853.90, being the balance of money payable by the defendant in respect of money paid and work done by the plaintiffs as stockbrokers for and on behalf of the defendant and at his request. They also claim interest.

3. It is the case of the plaintiffs that the defendant having done business with them on a cash basis for some time commenced to operate on margin. It was common case that when the defendant commenced to carry on business with the plaintiff in this way the arrangements were that on the purchase of shares the defendant would pay half the price thereof and that the balance would be provided by the stockbrokers by way of a loan. A Mr. Ha of the plaintiff firm said that his firm in turn borrowed from the bank a sum equivalent to that which was provided by his firm and charged the defendant interest on the outstanding balance at the same rate as his firm was charged by the bank. In other words, there was a fluctuating rate of interest and no profit was made by the plaintiffs by way of interest on any money lent by them to the defendant.

4. I think I might here and now deal with one point that was raised in the Defence: that this case ought be dismissed his because any transaction between the plaintiffs and the defendant involved a money lending transaction and was illegal by reason of the plaintiff carrying on business as unlicensed money lenders.

5. It is clear from what I have said that any money advanced to the defendant was to provide facilities for him to purchase shares, but not to produce profit for the plaintiffs. It did, of course, produce for them the profits they would make by carrying on business as a stockbrokers i.e. commissions on buying and selling of shares, but not otherwise. That being so, the plaintiff does not fall within the definition of a money lender as set out in s.6 of the Money Lenders Ordinance; paragraph (c) of that section would exclude the plaintiffs. Section 6 paragraph (c) is as follows:

"In this Ordinance, 'money-lender' ..... shall not include-

6. Having dealt with that I now proceed to deal with the issues in this case.

7. The plaintiffs as I said are claiming for the balance of money due by reason of the money advanced by them to the plaintiffs to enable him to buy shares on the margin and for their commissions and certain other allied relief. It is the contention of the defendant as set out in his Defence and Counterclaim that there is no money due to the plaintiffs at all because he gave certain instructions to them which, if carried out, would have avoided any money being due, that by reason of these instructions not being carried out the plaintiffs were in breach of contract. Further, the defendant said that had his instructions being carried out he, the defendant, would in fact have been in credit and there would have been a sum of money due by the plaintiffs to him.

8. The issue in the case is net and to resolve it one has to take into consideration not only the evidence of those witnesses who were heard here, but perhaps more important to examine the background to the whole business transactions between the parties.

9. As I said earlier the plaintiffs are stockbrokers, and it is their business to buy and sell shares and thereby make a profit. In this case the plaintiffs, and I believe in many other cases other stockbrokers do the same thing, assisted the defendant to buy shares. Now the only benefit that was to be derived from those transactions was the commissions that the plaintiffs would get from the purchasing of the shares. The other means of making a profit that the plaintiffs have is selling shares, in which event they are also entitled to charge a commission. So in a nutshell buying and selling shares is the way in which the plaintiffs make a profit. One would think that it is a corollary to that that the more shares the plaintiffs buy or sell the more their business prospers. That would appear to be commonsense; and it would appear to be commonsense that were the plaintiffs, or any stockbroker, to get instructions to deal on the market that they would do so at the earliest possible opportunity.

10. In early 1973 the defendant was indebted to the plaintiffs for a considerable amount of money. Demands were made from him by the plaintiffs to make deposits to reduce that indebtedness. The defendant had permission to deal on a margin of 50% and each time that the amount owing fell below 50% of the value of the shares held by the plaintiffs he was expected to deposit sums of money with the plaintiffs to restore the balance. He, in fact, made a number of such deposits.

11. A point was raised in the Defence which suggested that when the margin fell below 50% there was an obligation on the defendant to sell shares to restore the balance. May I say now that nowhere has anything been adduced before me that indicated an obligation on the plaintiffs to sell in such circumstances. It was common case that they were entitled to sell, but so far as an obligation is concerned there is nothing to suggest that such existed.

12. At the time when the defendant's indebtedness was considerable the market was falling and demands were made on him to restore the margin. The defendant said that having made certain payments he instructed the plaintiffs to sell all his shares. He said that these instructions were first given early in the month of April 1973 and were repeated on the 13th of April, 1973 and again on the 11th of May of that year. It is true that on the 10th of April shares in two companies were sold, and on the 11th of April in two other companies. The defendant maintained that these sales were all part of his general instructions to sell all his shares. On the 13th of that month a sum of $120,000 was paid by the defendant to the plaintiffs. This, it was alleged by the defendant, was as a result of requests for him to reduce the amount outstanding; or in other words to restore the margin.

13. From that time onwards, there were various deposits made and various shares sold. The last shares sold were a thousand shares of Lane Crawford which were sold on the 18th of July, 1973. According to the plaintiffs the shares were sold as a result of specific instructions received from the defendant. The defendant on the other hand contends that he had already given instructions away back in April to sell all the shares.

14. Now the issue as I see it is very clear. If the defendant had given instructions that all his shares were to be sold by the plaintiffs to liquidate his indebtedness to them, and that they were to be sold irrespective of price then indeed the defendant would have a very good claim against the plaintiffs if they neglected to do so. But is that the position? Perhaps the most interesting piece of evidence on this comes from the defendant himself.

15. The defendant in cross-examination was asked could he give any explanation as to why the shares should not have been sold by the plaintiffs, instructions having been given to them to sell. He said that the plaintiffs said that the asking price was too high. In answer to a question by me "Who fixed the asking price?" The defendant said that he did. I think the whole case turns on that answer. If the defendant did give instructions to sell but qualified them by saying that the shares were to be sold at a price, and the price stipulated by the defendant could not be reached then there was no failure on the part of the plaintiffs in fulfilling their obligation. The defendant further supported my view on this when he said that on a number of occasions the plaintiffs explained that they had not sold the shares because they were unable to do so. When one visualises the position in that way it is quite clear that whatever view or wish the defendant expressed he never gave imperative instructions to sell; indeed, to quote his own words, what he did was "he urged" the plaintiffs to sell.

16. When one looks at this case from practical and commonsense point of view it is quite obvious that it was as important, if not more so, to the plaintiffs that these shares should be sold and the amount due to them liquidated. The reason I say that is this, that for every pound that was owed to the plaintiffs by the defendant there was an equal amount owed by the plaintiffs to the bank. It was obviously very greatly to their benefit that the shares should be sold and the indebtedness to them, and in turn their indebtedness to the bank, liquidated. Commonsense suggests that a person who carries on the business of a stockbroker would be only too pleased to sell shares when instructed so to do and thereby gain the commission he would be entitled to; but much more so to sell them if by that sale he was thereby relieving himself of a very onerous obligation. For these reasons I am satisfied that the plaintiffs incurred on behalf of the defendant the indebtedness which they claim in these proceedings; I am satisfied that the defendant never at any time categorically told them to sell the shares irrespective of price; in other words gave them, categorically, instructions to sell and thereby liquidate the amount due. I believe the evidence of Mr. Ha, the first witness for the plaintiffs, that the defendant told him that he did not want all the shares sold as he was hoping against hope that the market would rise; and I equally believe that the defendant gave instructions that the shares in Chuangs Cutlery were not to be sold because they were the property of a friend of his, the gentleman who worked in the South China Morning Post.

17. Accordingly I find for the plaintiffs on their claim and I dismiss the counterclaim with costs on the claim and counterclaim.

Representation:

Mr. P. Fung (Yung, Yu, Yuen & Co.) for plaintiff.

Mr. A. Liao (Kwong, Lau & Chan) for defendant.