Man Cheung International Traders Ltd and Another v. Clsa Ltd

DCCJ 6778/2002

IN THE DISTICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6778 OF 2002

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BETWEEN

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Before: Master Tracy Chan in Chambers

Date of Hearing:  7 June 2006

Date of handing down Decision:  13 June 2006

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D E C I S I O N

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1.This is an application made by the Defendant herein under Order 24 r.7 of the Rules of the District Court for Plaintiffs to file and serve on the Defendant an affidavit stating whether they have or have at any time had in their passion, custody or power any communications, including correspondence, attendance notes and memoranda, passing between them in relation to :

i. the opening and operating of the securities trading account with the defendant on behalf of the 1^st P and the 2^nd P,

ii. the trading of the shares listed with the Australian Stock Exchange and the Nasdaq Exchange by the Defendant on the instructions trading in the shares in Gemstar – TV guide Intl. Inc. Climax Mining, Woolworths Limited, Aeroflex Inc., Misonix Inc and Citrix Systems Inc. of the 2^nd P on behalf of the 1^st P, including but not limited to

Nature of the Claim

2.The two Plaintiffs claim against the Defendant for loss and damages caused by the Defendant’s negligence and/or breach of contractual duties in failing to exercise skill and due care when conducting securities transaction on the Plaintiffs’ behalf.

Defence as pleaded

3.In the Defence the Defendant denies:

1. any contractual relationship between the 1^st Plaintiff and the Defendant.  (paragraphs 4(3), 5, and 16 (1) of the Defence refer), and

2. negligence and/or breach of contractual duty to exercise due care.

Issues to be tried:

4.The issues defined at the hearing by parties are not the same.  Upon reading the pleadings, I am of the view that the two main issues for trial are:

i) whether there was contractual or otherwise relationship between the 1^st Plaintiff and the Defendant to render the Defendant liable to the 1^st Plaintiff’s for its loss if any;

ii) whether the Defendant was in breach of their contractual duties and/or negligent in performing their duties in relation to selling the shares in question.

Present Application:

5.Parties do not dispute that the tests to be applied in this application should be (i) whether the documents do exist; (ii) whether they are relevant to the issues to be tried; and (iii) whether they are in the possession of the plaintiffs.

The existence of the documents asked for under para 1(i) of  Summons and whether they are in the possession and custody of the Plaintiffs:

6.Mr. Powell for the Defendant submits that from the circumstantial evidence, they believe that the documents listed in paragraph 1(i) exist because both Plaintiffs are in the business of securities trading.  The 1^st Plaintiff is client of the 2^nd Plaintiff in a business context; it is therefore inherently probable that there are in existence documents recording instructions given by the 1^st Plaintiff.

7.I agree that given the nature of the business of the two Plaintiffs, there should, prima facie, be record or correspondence of some kind noting the instructions of the 1^st Plaintiff to the 2^nd Plaintiff, or that there should be records of deals done for and on behalf of the 1^st Plaintiff kept by the 2^nd Plaintiff.  I note that the Plaintiffs have produced and marked as exhibit “JDV- 2” in Mr. Levy’s Affirmation dated 13 May 2006 a document and that to some extent supports the assertion and belief of the Defendant that, prima facie, such kind of documents do exist and are in the possession of the Plaintiffs.

Relevance of documents asked for under para 1(i)

8.It is the Defendant’s contention that such documents would tend to prove the authority of the 2^nd Plaintiff to open an account with the 1^st Plaintiff and if the 2^nd Plaintiff has not been duly authorized, there would be no relationship between the 1^st Plaintiff and the Defendant. 

9.I note that the Defence has all along been that there was no contractual and/or customer relationship between Defendant and the 1^st Plaintiff.  Further, in Paragraph 5 (5) of the Defence, it is stated that as provided by the agreement between the Defendant and the 2^nd Plaintiff that any responsibility towards any person on whose behalf the 2^nd Plaintiff may act, unless a separate customer relationship had been established between the Defendant and that person and that person or the Defendant otherwise agreed in writing.  As seen from the pleadings, however, it does not seem that the Defendant has ever raised the issue on whether the 2^nd Plaintiff has authority from the 1^st Plaintiff to open and an account with the Defendant and operate the same to deal with the transaction in question or otherwise.  The line taken by the Defendant has been that there was no contract, in writing, or at all, between the Defendant and the 1^st Plaintiff. 

10.Paragraph 2 of the Defence is the only paragraph dealing with the Plaintiffs’ assertion that the 2nd Plaintiff was conducting share trading business for and on behalf of the 1st Plaintiff. It was dealt with by way of simple non-admission.  I have no intention to criticize the Defendant for adopting this style of pleading.  It is however unfortunate that in paragraph 5(2) of the Affirmation of Ms. Sin, she specifically says that “it is indisputable – and – it is not disputed – that the 1st Plaintiff instructed the 2nd Plaintiff to place orders of various kind with the Defendant,….”. From the plain language of this passage, one could take that there is no dispute on the authority of the 2^nd Plaintiff.

11.In these circumstances, I am not satisfied that, prima facie, the documents asked for are relevant to the issues as defined.

The existence of the documents asked for under para 1(ii) of  Summons and whether they are in the possession and custody of the Plaintiffs:

12.In paragraph 5 (2) of her 2^nd Affirmation, Ms. Sin says that such documents would tend to show whether the 2^nd Plaintiff had fully and properly discharged its duties by passing onto the 1^st Plaintiff information as to how the Defendant would and did execute an “or better” order such that the 1^st Plaintiff would understand the potential consequence of it instructing the 2^nd Plaintiff to place an “or better” order with the Defendant.

13.In my view, there might be documents in relation to the trading of shares in the two exchanges as those mentioned in paragraph 7 hereinabove.  I am however not satisfied that, prima facie, such documents would contain information indicating how the 2nd Plaintiff has explained the nature and consequence of different types of order to the 1^st Plaintiff or that the 2nd Plaintiff has failed to do so.

Relevance of documents asked for under para 1(ii)

14.As I could see from paragraphs 7-9 of the Statement of Claim, it is the Plaintiffs’ case that the order placed by the 2^nd Plaintiff with the Defendant was an “or better order”.  There was no dispute on this point. Further, from the Defence as pleaded, it is never the case of the Defendant that if there is any loss or damages caused by the transaction in question, it was the fault of the 2^nd Plaintiff.  In fact no notice has been issued under O16 r.8 or otherwise.  Whether the 2^nd Plaintiff has discharged their duties in relation to the 1^st Plaintiff is therefore not a matter to be tried to determine the claim.

15.For reasons given in the above, the application of the Defendant is refused and I make an order nisi that the Defendant should pay costs of this application to the Plaintiffs, to be taxed if not agreed.

Mr Jeremy Levy, of Messrs Robertsons, for the 1^st & 2^nd Plaintiffs

Mr Simon Powell, of Messrs Jones Day, for the Defendant