Shenyin Wanguo Securities (H.K.) Ltd. and Another v. Cheung Hung
Read the full judgment text of HCA 12802/1998 on BabelCite. This High Court CFI judgment was delivered on 19 December 2000.
1. The 1st and 2nd Plaintiffs are wholly owned subsidiaries of Shenyin Wanguo (HK) Limited. The 1st Plaintiff carries on the business of, inter alia, stock broking. The 2nd Plaintiff carries on the business of, inter alia, money lending.
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HCA012802/1998 HCA 12802/98 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 12802 OF 1998 (Consolidated with HCA 14125 of 1998 pursuant to the Order of Master Ho of
Coram: Hon. Sakhrani J in Court Date of Hearing: 6-10 November, 30 November and 1 December 2000 Date of Judgment: 19 December 2000 ____________________ J U D G M E N T ____________________ Background 1. The 1st and 2nd Plaintiffs are wholly owned subsidiaries of Shenyin Wanguo (HK) Limited. The 1st Plaintiff carries on the business of, inter alia, stock broking. The 2nd Plaintiff carries on the business of, inter alia, money lending. 2. The Defendant was at all material times an employee of the 1st Plaintiff. He was an assistant manager of institutional sales from 3 February 1995 to 30 April 1996 and an associate director of institutional sales from 1 May 1996 to 31 December 1997. The Defendant was entitled to a basic salary plus commission. He was a successful account executive for the 1st Plaintiff and was a high income earner until the time he left his employment. Whilst employed by the 1st Plaintiff, the Defendant was the designated account executive of a number of trading accounts maintained by clients of the 1st Plaintiff. 3. The Defendant was obliged to observe and follow all the rules and regulations set out by the 1st Plaintiff. The Defendant was also registered with the Securities and Futures Commission ("SFC") as a dealer's representative of the 1st Plaintiff under the Securities Ordinance. He also had to follow the rules and regulations set out by the Stock Exchange and the SFC. He was also bound by the Code of Conduct for persons registered with the SFC ("the code") as well as the Professional Conduct Rules and Regulations of the Stock Exchange ("the trading rules") and the 1st Plaintiff's Compliance manual. 4. As an account executive of the 1st Plaintiff, the Defendant was also reminded from time to time of his obligations and his duties. One matter in respect of which he was reminded by the 1st Plaintiff was the obligation of sales staff and account executives to ensure that clients of the 1st Plaintiff were trading within their trading limits and that their trading should not exceed the approved trading limit. By a memorandum dated 9 April 1996, the account executives, including the Defendant, were reminded, inter alia, that they should not allow their clients to overtrade their limits and that any financial loss caused by overtrading would be borne by the sales staff or account executive concerned. Further, at a sales meeting of the 1st Plaintiff held on 14 August 1997, the sales staff of the 1st Plaintiff, including the Defendant, were again reminded of their obligation to ensure that their clients were trading within their trading limits and that any financial loss caused by overtrading would be borne by the sales staff concerned. The relevant minutes of this meeting was signed by the Defendant acknowledging that he understood its contents. The overtrades 5. There is no dispute between the parties that two of the Defendant's clients were permitted to trade in excess of their trading limits. The Defendant was the account executive of the two clients Tso Yeung Yeung ("Tso") and Lau King Chung ("Lau"). Tso and Lau knew each other and shared the same address in Hong Kong. Tso had a trading limit of $800,000 whilst Lau had a trading limit of $500,000. 6. On 25 August 1997, Tso was permitted to purchase 1,000,000 shares of China Development Corporation Ltd. ("China Development") to the total value of $3,333,844.40. This was well in excess of her trading limit. On the same day Lau was also permitted to place an order to purchase 500,000 China Development shares to the total value of $1,609,183.18. This was also well in excess of his trading limit. 7. At trial, it was admitted by the Defendant that under his employment contract with the 1st Plaintiff he was under a duty to adhere to the trading limit set for each client and should not overtrade, unless with the approval of the dealing director or managing director of the 1st Plaintiff. There is no suggestion that any such approval was sought in respect of the overtrading of the Tso and Lau accounts on 25 August 1997. The Defendant is, therefore, liable for any loss sustained by the 1st Plaintiff in respect of the overtrades in the Tso and Lau accounts. However, because of subsequent events, the Defendant says that he is not liable to the 1st Plaintiff. The 1st Plaintiff claims that he is. The Materhorn account 8. The Defendant, apart from being an account executive and the dealer's representative registered with the SFC, was also in a managerial position. He was in charge of a sales team ("the Ben team"). It is the Plaintiff's case that he was responsible for the Ben team and was responsible for allowing members of the Ben team to accept or failing to prevent them from accepting instructions from a person called Kok Kum Yue ("Kok") to place an order for the purchase of 500,000 shares in Leading Spirit Holdings Co. Ltd. ("Leading Spirit") at $479,993.26 for a client Materhorn Investments Ltd. ("Materhorn"). 9. There is no dispute that Kok was not authorised by Materhorn to conduct any trade on its behalf as the only authorised representative for the operation of the Materhorn account with the 1st Plaintiff was Francis K. Tung. This was known to the Defendant. He was the account executive of the Materhorn account and the relevant board resolution of Materhorn was sent to the Defendant when the account with Materhorn was opened with the 1st Plaintiff. Materhorn has refused to accept liability for the order placed by Kok. The 1st Plaintiff seeks to recover its loss from the Defendant. 10. The 2nd Plaintiff advanced loans to Tso and Lau in early November 1997. They have defaulted on their loans. The 2nd Plaintiff's claim is for the Defendant to indemnify it for the loss it has suffered by advancing the loans to Tso and Lau. The 2nd Plaintiff has recently on 3 November 2000 been repaid its loss by the 1st Plaintiff and no longer seeks any relief against the Defendant. But it is contended that the 2nd Plaintiff was entitled to sue the Defendant on an indemnity agreement dated 22 January 1998. 11. The Defendant denies that he is liable to the 1st or 2nd Plaintiffs. He counterclaims against the 1st Plaintiff for the balance of commission due to him. The Issues 12. I was provided with an agreed list of issues. The issues are :
The witnesses 13. The Plaintiffs called Paul Chung Chin Hung ("Paul Chung") who was, at all material times, the dealing director of the 1st Plaintiff and Derek An Loy Leung ("Derek Leung"), a senior manager of the 2nd Plaintiff. I also heard evidence from the Defendant. 14. I found both Paul Chung and Derek Leung to be credible witness. They both impressed me as honest and truthful witnesses who told me the truth about the relevant events. I have no hesitation in accepting their evidence as the truth. I cannot, however, say the same for the Defendant. He was an evasive witness who was not telling me the truth about the relevant events. Where the evidence of Paul Chung and Derek Leung is at variance with the Defendant's evidence, I have no hesitation in preferring the evidence of Paul Chung and Derek Leung, which I accept, to the evidence of the Defendant, which I reject. The Defendant's obligations and duties 15. It has been admitted that the Defendant was in effect in breach of his contractual duty not to allow the overtrades in the Tso and Lau accounts. 16. I am satisfied that under the general principles of the code, the Defendant, as the registered person, had, inter alia, the duty and obligation to act honestly, fairly and in the best interests of clients and the integrity of the market (Cl. 1); to have and to employ effectively the resources and procedures which were needed for the proper performance of its business activities (Cl. 3); to comply with all regulatory requirements applicable to the conduct of its business activities so as to promote the best interests of clients and the integrity of the market. 17. I am also satisfied that the trading rules were applicable to the Defendant. A member is defined in regulation 1 to include a sales representative which the Defendant was. He also had the obligation, inter alia, to ensure initially and on a continuing basis that he has adequate resources to monitor and enforce compliance by his employees and persons appointed by him to deal with clients with professional standards of integrity and fair dealing (regulation 9c); to ensure that he has, at all times, satisfactory internal control procedures which can be reasonably expected to protect his operations, his clients and other members from financial loss arising from professional misconduct or omissions (regulation 9d); at all times to be responsible for the acts or omissions of his employees and agents in respect to the conduct of his business (regulation 15e). 18. I am satisfied that the Defendant was under a duty to the 1st Plaintiff not to expose the 1st Plaintiff to risks of a financial losses without authority or beyond his authority. The Defendant also owed the 1st Plaintiff, as pleaded, a duty both in contract and a common duty of care to exercise reasonable skill and care in conducting the 1st Plaintiff's business, to act within the limit of his authority in conducting the 1st Plaintiff's business and not to expose the 1st Plaintiff to risks of financial losses without authority and/or beyond his authority. 19. I accept the evidence of Paul Chung that when the overtrading of the two accounts of Tso and Lau were discovered, he told the Defendant that he had breached the rules and warned him that he had to chase after Tso and Lau to provide further monies to settle their outstanding accounts immediately. At that time, the outstanding amounts in their accounts were well in excess of their trading limits because of the 25 August 1997 trades. The Defendant realised and accepted that he was in breach of the rules and agreed to chase Tso and Lau for the settlement of the outstanding accounts. Tso and Lau, however, failed to settle the outstanding balance in their accounts with the 1st Plaintiff. 20. The China Development shares that Tso and Lau had purchased could not be sold immediately by the 1st Plaintiff as the shares were suspended from trading in the afternoon of 25 August 1997. As soon as trading was resumed on 21 October 1997, the 1st Plaintiff sold the China Development shares in Tso and Lau's account which resulted in significant losses to the 1st Plaintiff as the shares had dropped sharply. 21. Paul Chung also gave evidence that as of 7 November 1997, the unpaid loss plus interest in respect of Tso's account was $1,399,780 and in respect of Lau's account was $468,356.25. The total amount outstanding by both Tso and Lau was in the amount of $1,868,136.25. 22. I am satisfied that the loss to the 1st Plaintiff was caused by the Defendant's breach of duty to the 1st Plaintiff and in failing to exercise skill, care and diligence in conducting the 1st Plaintiff's business and in operating the trading accounts maintained by the two clients, Tso and Lau with the 1st Plaintiff. By allowing Tso and Lau to overtrade their accounts on 25 August 1997, he breached his duty to the 1st Plaintiff. The Settlement Agreements 23. I also accept the evidence of Paul Chung that on or about 31 October 1997, the Defendant went to see him and told him that his two clients, Tso and Lau had real estate in the Mainland but that they were having cash flow problems and could not make payment of their outstanding amounts all at once. The Defendant had been pressing them for payment up to then but the outstanding amounts were not settled. He requested Paul Chung to obtain loans from the 2nd Plaintiff so that his clients could make payments by instalments. The Defendant obviously well knew that the 1st and the 2nd Plaintiffs shared the same offices and that the 2nd Plaintiff provided finance and was providing loans to clients of the 1st Plaintiff for margin trading. 24. I also accept Paul Chung's evidence that when the Defendant made the said request, Paul Chung made it clear to him that if the 2nd Plaintiff advanced the loans and if the clients were unable to make payments for the amounts obtained under the loans from the 2nd Plaintiff, the Defendant would still be liable to the 1st Plaintiff for the amounts outstanding. Paul Chung told the Defendant that he would have to promise him that if the clients, namely Tso and Lau, were not able to make payment to the 2nd Plaintiff, the Defendant would have to make payment to him because by then, the 2nd Plaintiff would press him for payment and he would in turn press the Defendant for payment. The Defendant told Paul Chung that there should not be any problem. Paul Chung also said, and I accept, that the Defendant did promise him that he would be responsible to him, that he would definitely be liable to him. 25. Paul Chung also said that when he spoke to the Defendant he did not have it in his mind that the 1st Plaintiff had to indemnify the 2nd Plaintiff if the loans were advanced to Tso and Lau by the 2nd Plaintiff. But from his evidence, which I accept, he did make it clear to the Defendant that in case the clients Tso and Lau could not make repayments to the 2nd Plaintiff, the Defendant would be liable to the 1st Plaintiff as the 2nd Plaintiff would press him and he would press the Defendant for repayment. 26. I have no hesitation in accepting Paul Chung's version of events. 27. I find that the Defendant knew full well when he made the request to Paul Chung that he was personally responsible for the outstanding amounts on the Tso and Lau accounts. He also knew that it was in his interest that Tso and Lau be given time to pay and that was probably why he made the said request to Paul Chung. 28. I also find that the Defendant did promise Paul Chung that he would be responsible to him and that he would definitely be liable to him, namely, to the 1st Plaintiff. I also bear in mind that by agreeing to arrange the loans for Tso and Lau with the 2nd Plaintiff, Paul Chung was in effect helping the Defendant. Instead of seeking payment from him immediately there and then, the 1st Plaintiff granted him time for payment of the loss suffered by the 1st Plaintiff because of his breach of duty to the 1st Plaintiff. That is not at all surprising as the Defendant was a high income earner for the 1st Plaintiff and Paul Chung had a good relationship with him. There was good consideration for the agreement reached. 29. I am satisfied and find that the 1st Plaintiff, through Paul Chung, reached an agreement with the Defendant on or about 31 October 1997 whereby at the request of the Defendant the 1st Plaintiff agreed to arrange with the 2nd Plaintiff for loans to be advanced to Tso and Lau. The Defendant on his part agreed with Paul Chung to be primarily responsible for and to pay to the 1st Plaintiff any loss suffered by the 2nd Plaintiff in the event of default in payment by Tso and Lau on the amount of the loans to be advanced to them. This agreement has been referred to as the Settlement Agreements I and II in paras. 18 and 20 of the re-amended Statement of Claim ("the Settlement Agreements") and on issue 1, I find that they did exist. 30. I also accept that after his conversation with the Defendant on or about 31 October 1997, Paul Chung telephoned Derek Leung to request the 2nd Plaintiff to grant loans to Tso and Lau. In the course of the telephone conversation, Derek Leung asked Paul Chung whether the Defendant had agreed to be liable for the amounts to be advanced and Paul Chung confirmed that the Defendant had agreed to it. He then left it to Derek Leung and the Defendant to make the arrangements for the loans to Tso and Lau. He understood that Derek Leung wanted to make sure if the Defendant had agreed to be liable for the amounts before he would go ahead with the arrangements for the loans. 31. I also accept the evidence of Derek Leung who confirmed the evidence of Paul Chung. Derek Leung also gave evidence, which I accept, that he had approached the Defendant to find out from him, inter alia, what terms his clients were willing to offer and to confirm whether any tangible security was available. He also said that he wanted to confirm for himself if the account executive namely, the Defendant, would be responsible for the loans although he had already been informed of this. The 2nd Plaintiff was in charge of the lending activities of the group and the 2nd Plaintiff also acted as the treasury of the group. It was, in my view, obviously a matter of concern to him as to whether the Defendant would be ultimately responsible if Tso and Lau should default. 32. I accept that Derek Leung contacted the Defendant and also told him that he had to be responsible for the loans to the two clients. As they shared the same offices, he did discuss the matter with the Defendant from time to time and he did provide details of the loans to be advanced, the interest rate, monthly payment amount and also what the client had agreed to come up with initially. I have no hesitation in accepting the evidence of Derek Leung that he did provide the relevant details to the Defendant. In evidence, the Defendant tried to distance himself from his knowledge of the details of the loans but I found him to be evasive and untruthful. I reject his evidence and prefer the evidence of Derek Leung. 33. I accept, as Derek Leung said, that there were instances when he did mention to the Defendant that he would be responsible for the amounts to be advanced to Tso and Lau. His understanding was that the Defendant understood that he would be responsible for the amounts if the clients defaulted. 34. By the loan agreements dated 31 October 1997 and 6 November 1997 respectively, the 2nd Plaintiff granted loans to Lau and Tso respectively, under the terms set out therein. Cl. 13 of the loan agreements provided that in respect of the guarantor of the loan, that term was not applicable. Derek Leung said, and I accept, that he told the Defendant that he would not put down the Defendant's name as guarantor in the loan documentation. He explained that this was for the Defendant's benefit as by naming a guarantor, this would provide the borrower with a good incentive to run away. 35. I accept Derek Leung's evidence that he did mention to the Defendant a few times that he would be ultimately responsible for the debts of Tso and Lau in the event that they defaulted in their payments to the 2nd Plaintiff and the Defendant never objected to this. I accept that on different occasions Derek Leung did mention to the Defendant that he had to shoulder the two debts. He did also mention to him that if there were a default, it would be deducted from his commission. 36. The Defendant said that he had no impression of Derek Leung having mentioned these maters to him but I do not believe him. I reject his evidence. I prefer the evidence of Derek Leung which I accept. I am satisfied that when Derek Leung spoke to the Defendant, the Defendant had already promised Paul Chung that he would be liable to the 1st Plaintiff. He knew full well that in case Tso and Lau could not make repayment to the 2nd Plaintiff, he would be liable to the 1st Plaintiff for the outstanding amounts. 37. I am also satisfied, as Derek Leung said, that he would not have advanced the loans to Tso and Lau but for the Defendant's promise to be responsible for the amounts outstanding if Tso and Lau should default in payments to the 2nd Plaintiff. On 7 November 1997, funds were transferred from the Tso and Lau accounts with the 2nd Plaintiff to the Tso and Lau accounts with the 1st Plaintiff by a transfer of entries. 38. In construing the Settlement Agreements between the 1st Plaintiff and the Defendant, I should have regard to the surrounding circumstances and the context of the transaction. In Amalgamated Investment & Property Co. Ltd. (In Liquidation) v. Texas Commerce International Bank Ltd. 1982 1 QB 84, Eveleigh L.J. at 124E to 125B construed the guarantee in that case in the context of the whole transaction. 39. I find that the 1st Plaintiff's primary case has been proved. This has been pleaded in paras. 18 and 20 of the re-amended Statement of Claim. I have already found that by the Settlement Agreements the Defendant agreed to be primarily responsible for and pay to the 1st Plaintiff any loss suffered by the 2nd Plaintiff in the event of default in payment by Lau and Tso on the amount of the loans to be advanced to them. That, in my judgment, is the proper construction of the Settlement Agreements having regard to the intention of the 1st Plaintiff and the Defendant to be derived from the agreement reached. It was never the intention that the Defendant would be released from his obligations and responsibilities to the 1st Plaintiff for loss caused by his breaches of duty. 40. I also reject the Defendant's contention that the Settlement Agreements were void for uncertainty. The Defendant knew that if Tso and Lau defaulted on the loans to be advanced by the 2nd Plaintiff to them, he would have to pay the 1st Plaintiff the amounts outstanding by them to the 2nd Plaintiff. There would be a default if Tso and Lau failed to pay the amounts when due. There was no uncertainty about the terms of the Settlement Agreements. 41. On issues 2 and 4, I find that the Defendant is liable to the 1st Plaintiff under the Settlement Agreements for the outstanding amount of the loans extended by the 2nd Plaintiff to Tso and Lau and that the original causes of action arising from the Defendant's breach of duties were still subsisting notwithstanding the Settlement Agreements. 42. As I have found that the 1st Plaintiff has proved its primary case, I need not consider the various alternative cases put forward on behalf of the 1st Plaintiff. The Materhorn account 43. I also find on the evidence of Paul Chung, which I accept, that around 7 January 1998 he discovered that the client Materhorn had bought shares in Leading Spirit but had failed to pay for this trade resulting in a debit balance of $479,956.13. When a demand by letter was made of Materhorn for the amount due, Materhorn disputed liability for the trade as the order was placed by Kok who was not an authorised signatory of the Materhorn account with the 1st Plaintiff. 44. It was discovered that on 9 December 1997, Clive Hui, one of the members of the Ben team had placed this order and had accepted instructions of Kok for 300,000 shares of Leading Spirit. Another member of Ben's team, Lam Yuen Ping, placed an order, also on the instructions of Kok, for 200,000 shares of Leading Spirit. The purchase note for the entire 500,000 shares was signed by Clive Hui and the trade was booked into Materhorn's account with the 1st Plaintiff. Although Kok himself had a personal account with the Plaintiff, this order was booked into Materhorn's account. 45. There is no dispute that Kok did not have the written authorisation of Materhorn to operate Materhorn's account. The Defendant accepted this in evidence. The Defendant denies, however, that he is responsible for the actions of Clive Hui and Lam Yuen Ping. However, I accept the evidence of Paul Chung and find that in the course of his employment with the 1st Plaintiff, there was a time when the Defendant proposed to Paul Chung that he be permitted to set up the Ben team so as to do more business. Paul Chung expected him to supervise the team and to be responsible for the deeds of his members. This is what he told the Defendant and the Defendant agreed. The Defendant denied this but I prefer the evidence of Paul Chung, which I accept, and reject the Defendant's evidence. The Defendant accepted that Clive Hui and Lam Yuen Ping were members of his team. Both of them were his good friends before he ever joined the 1st Plaintiff and he recruited them to work with the 1st Plaintiff after he set up his team. 46. There was in evidence a memorandum of understanding dated 14 October 1996 which set out the agreement between the 1st Plaintiff and the Defendant as regards the Ben team. However, I accept Paul Chung's evidence that this document only dealt with the remuneration details and how commission was to be paid and shared. It did not, as I accept, contain all the terms agreed between Paul Chung and the Defendant as to the Defendant being responsible for the deeds of his team members. 47. On the dispute of fact, I prefer the evidence of Paul Chung to that of the Defendant. I find that the Defendant as the team leader agreed with Paul Chung to be responsible for the acts of his team members when the Ben team was set up. Paul Chung also said, and I accept, that when the Defendant was on holiday, he still received commission in respect of deals concluded by his team. It is common ground that on 9 December 1997 the Defendant was on leave prior to leaving his employment on 31 December 1997. 48. On being confronted by Paul Chung, the Defendant acknowledged that there was a practice from 1996 and 1997 that whenever Kok telephoned the Defendant to place orders, all such orders were to be booked into Materhorn's account unless Kok specified that a particular order was to be booked into Kok's personal account with the 1st Plaintiff instead of Materhorn's account. The Defendant was the leader of the Ben team and he knew that such a practice had been going on. He acknowledged that he knew that by adopting the said practice he was exposing the 1st Plaintiff to a loss if Materhorn disputed liability for the shares booked into Materhorn's account in accordance with the said practice. He knew that Kok was not an authorised representative to operate the Materhorn account. He said that he knew that this would cause a loss if Materhorn disputed liability. He was the account executive of Materhorn and he decided to allow the practice to continue. He could have stopped his team members from carrying on with that practice but he did not. Clive Hui was a member of his team and was a person appointed by him to deal with the Materhorn account. 49. In the circumstances, I find that that Defendant was in breach of his obligations and duties to the 1st Plaintiff. The Defendant knew and acknowledged to Paul Chung that he was responsible for the loss to the 1st Plaintiff. Materhorn had disputed liability. The Defendant said that he would have it fixed up with Kok. Paul Chung allowed the trade to be re-booked into Kok's account. This was to allow the Defendant an opportunity to have it fixed up with Kok as he said that he would. However, on the evidence, Kok has not paid the outstanding amount. Issues 5 and 6 are resolved in the 1st Plaintiff's favour. The instruction to withhold 50. I also accept that Paul Chung asked the Defendant to go back and discuss the outstanding amounts owing by his clients. This he did on 19 January 1998. The Defendant's employment terminated on 31 December 1997. Paul Chung told the Defendant that he had to be liable for the three matters, namely the Lau, Tso and Kok matters. The Defendant told him that as for the Kok's order, he would get to Kok himself and have it fixed. Paul Chung also told the Defendant that if Kok were unable to pay, he would chase the Defendant and the Defendant accepted that he should be liable for the dealings placed by Kok in Materhorn's account. And as regards the Lau and Tso matters, the Defendant told Paul Chung that they simply delayed payment but that did not mean that they could not afford to make payment. 51. I accept Paul Chung's evidence. Although it was denied by the Defendant, I find that it was agreed between him and Paul Chung that as he had left the employment of the 1st Plaintiff, the 1st Plaintiff should have some security in its hands. It was suggested by Paul Chung that he leave behind a sum equivalent to the amounts owing by the three clients from the commission due to the Defendant as collateral. The Defendant was told that the money would be placed in a fixed deposit account and that interest thereon would be for his benefit. He was also told that if the clients made payment in future, then the amount of the deposit that exceeded the outstanding amounts would be returned to him and if the clients were unable to make payment, he would forfeit the deposit. I find that the Defendant agreed to this and that Paul Chung asked his assistant to prepare a document containing the instruction to withhold the sum of $1,874,300.37 from the total commission payable to the Defendant. This was done and it was under those circumstances that the Defendant agreed to the withholding of the said sum by the 1st Plaintiff and signed the instruction to withhold dated 19 January 1998 which was evidence of the oral agreement reached on 19 January 1998. By the said document, the Defendant gave the following instruction :
52. The Defendant denied the version of events given by Paul Chung. I prefer the evidence of Paul Chung and reject the Defendant's evidence. 53. The Defendant also said that he was under duress at the time he signed the instruction to withhold and that the same is therefore voidable. The Defendant also relied on his desire to make partial repayment on mortgages in respect of properties that he had purchased and suggested that his will was overborne when he signed the instruction to withhold. I do not believe the Defendant. I reject the defence of duress. 54. I find that the Defendant willingly agreed and authorised the 1st Plaintiff to withhold the payment of part of the commission due to him. He knew full well that he was liable to the 1st Plaintiff for the losses incurred in respect of Lau, Tso and Materhorn. He said that he would fix it up with Kok and the trade was re-booked to Kok but he knew that he was liable for it if Kok did not pay. I also find that the Defendant agreed to provide security to the 1st Plaintiff by allowing the 1st Plaintiff to keep the said amount of commission withheld in a fixed deposit as collateral until the debts of Lau, Tso and Kok were fully paid up and that if the amounts were not settled, then the Defendant was ultimately responsible for the same. Meanwhile, interest earned in the fixed deposit account would be for the Defendant's benefit. That is the effect and proper interpretation of the said agreement. That was the position right up until the time that the Defendant resiled from the agreement by making a complaint to the Labour Department in April 1998 against the 1st Plaintiff for withholding commission due to him. By letter dated 30 September 1998, the Defendant withdrew his instruction to withhold the said sum and demanded payment of the same with interest. I also find that there was consideration moving from the 1st Plaintiff as the 1st Plaintiff agreed to forbear suing the Defendant immediately for the loss on the Materhorn account and for the default of Lau which had already occurred at that time. 55. It is also of significance that the Defendant himself also acted on the agreement made on 19 January 1998 before he resiled from it. I accept that on 24 February 1998, because of some small repayment made by Tso, the fixed deposit amount exceeded the amounts outstanding. Because of this, the 1st Plaintiff issued a cheque to the Defendant for the sum of $30,553.07. I find that this cheque was accepted by the Defendant on the basis of the agreement that he had reached with Paul Chung on 19 January 1998. 56. On issue 7, I find that the agreement evidenced by the instruction to withhold was a variation of the Settlement Agreements. On issue 8, I find that the said agreement is not voidable because of economic duress. I have rejected the defence of duress. On issue 9, I find that the said agreement is neither void nor unenforceable for want of consideration flowing from the 1st Plaintiff. There was good consideration given by the 1st Plaintiff in forbearing to sue the Defendant immediately. As regards issue 10, I have already set out the effect and interpretation of the said agreement. The Employment Ordinance 57. It was contended on behalf of the Defendant that the agreement to withhold the commission was void as S. 70 of the Employment Ordinance (Cap. 57) provides that a term of a contract of employment which, inter alia, purports to reduce any right or benefit conferred on the employee by the Ordinance shall be void. It was submitted that the 1st Plaintiff was prohibited by S. 32 of the Ordinance from deducting the sum of $1,874,300.37 from the Defendant's commission. In my judgment, the short answer to that is that there has been no deduction of commission and no breach of S. 32. The amount withheld not been deducted. It was commission due and payable to the Defendant. The Defendant on 19 January 1998 agreed that the amount be withheld and kept as security in a fixed deposit account. I am satisfied that the agreement to withhold commission is not void. The indemnity agreement 58. On 22 January 1998 the Defendant went to the personnel department of the 1st Plaintiff to collect a cheque for the balance of the sums due to him. He was asked to and did sign the document dated 22 January 1998 ("the indemnity agreement"). The 2nd Plaintiff relies on this to found his cause of action against the Defendant. 59. By the indemnity agreement, the Defendant agreed, inter alia, to indemnify the 1st Plaintiff and its affiliates against all claims, demands, losses and/or damages whatsoever arising from his employment. Although the document was addressed to the 1st Plaintiff, it contained an agreement not only to indemnity the 1st Plaintiff but also its affiliates which included the 2nd Plaintiff. However, on the evidence, the Defendant was asked to sign this when he collected his cheque for sums which were already due to him. I do not see how it can be said that the indemnity agreement was supported by consideration moving either from the 1st or 2nd Plaintiff. In my judgment, the indemnity agreement was not supported by consideration and is unenforceable. Furthermore, there was also no privity of contract between the 2nd Plaintiff and the Defendant in respect of the indemnity agreement. Issues 11 and 12 are decided in favour of the Defendant. 60. On the evidence, the 1st Plaintiff has repaid the 2nd Plaintiff the sums outstanding on the Tso and Lau accounts. The evidence shows that before the issue of the writ Tso and Lau had failed to pay the outstanding amounts to the 2nd Plaintiff and Kok had failed to pay the outstanding amount to the 1st Plaintiff. On 3 November 2000 the 1st Plaintiff paid the 2nd Plaintiff the amounts outstanding by Tso and Lau pursuant to a recent demand by the 2nd Plaintiff. 61. The Defendant is liable to the 1st Plaintiff on my findings but is not liable to the 2nd Plaintiff. Quantum 62. The quantum has been agreed between the parties. The 1st Plaintiff contends that the Defendant is liable for the amounts owing by Tso and Lau with interest at prime rate plus 5% up to payment. Counsel for the Defendant submitted that it should be the amounts owing with interest at prime rate plus 5% up to the date of the writ and thereafter at judgment rate. The reason is that the 1st Plaintiff must have realised by the time of the issue of the writ that the Defendant was repudiating his obligations under the Settlement Agreements and ought to have made the payments to the 2nd Plaintiff by the time of the issue of the writ to mitigate its loss and the Defendant should not have to shoulder the higher interest rate thereafter in respect of the Tso and Lau accounts. I accept this submission. On the agreed figures, the 1st Plaintiff is entitled to judgment in respect of the three accounts as follows :
63. As regards issue 15, it was submitted that the amounts in respect of Tso and Lau should be further reduced. The reason is that damages in respect of the overtrading by Tso and Lau should be assessed on the basis that Tso and Lau would have traded on 25 August 1997 up to their trading limits and not on the basis that they would not have traded at all. 64. On the evidence, the whole of the trading limits of the Tso and Lau accounts were not available to them on 25 August 1997. This is borne out by the statements of accounts in evidence. For instance, in the Tso account, the credit of $667,206.10 in respect of the sale of the Shanghai Petrochemical shares on 25 August 1997 was not available for the benefit of Tso until the settlement date of 27 August 1997, which was 2 days later. And in the Lau account, the credit of $348,540.50 in respect of the sale of the AMT Holdings shares on 25 August 1997 was not available for the benefit of Lau until the settlement date of 27 August 1997, which was 2 days later. It must also be remembered that Tso was allowed to overtrade her account by the purchase of a quantity of 1,000,000 shares of China Development shares on 25 August 1997 and Lau was allowed to overtrade his account by the purchase of a quantity of 500,000 shares of China Development shares also on the same day. I see no reason to infer that if they were kept to the trading limits in their accounts on 25 August 1997 Tso and Lau would nevertheless have purchased some China Development shares on that day right up to their trading limits. A person who wishes to buy a large quantity of shares may not necessarily wish to purchase a much smaller quantity. Quite apart from that, I have already found that the Defendant entered into the Settlement Agreements with the 1st Plaintiff. At that time, he knew what was outstanding in the Tso and Lau accounts and he accepted that he was liable for the same. I see no reason to reduce the damages to the 1st Plaintiff. 65. I give judgment to the 1st Plaintiff against the Defendant for damages in the sum of $2,449,640.64 with interest thereon at judgment rate from judgment until payment. I also grant the 1st Plaintiff a declaration that it is entitled to a lien over the sum of $1,874,300 together with interest accrued thereon in the fixed deposit account kept with the Standard Chartered Bank. I also grant the 1st Plaintiff a declaration that it is to be at liberty to apply the said sum $1,874,300 together with the interest accrued thereon in the said fixed deposit account towards the pro tanto discharge of the Defendant's liability to the 1st Plaintiff in the said sum of $2,449,640.64. 66. I dismiss the 2nd Plaintiff's claim against the Defendant. I also dismiss the Defendant's counterclaim against the 1st Plaintiff. 67. I also make an order nisi in respect of costs as follows :
Representation: Mr Raymond Leung inst'd by M/s Clyde & Co for Plaintiffs Mr Paul Shieh inst'd by M/s Or, Ng & Chan for Defendant |