Chung Nam Securities Ltd v. Wong Chi Ho Anthony

DCCJ 1699/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1699 OF 2005

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BETWEEN

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Coram: Deputy District Judge W.C. Li in Court

Dates of Trial : 12^th and 13^th October 2006 and 1^st November 2006

Date of Handing Down Judgment : 6^th November 2006

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JUDGMENT

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1.The plaintiff was a company trading in margin securities and the defendant had a margin securities trading account (“margin account”) dated 4^th June 1999 with the plaintiff and as on and since 16^th March 2005, the outstanding balance in the defendant margin account was HK$388,502.57 and this was the sum the plaintiff was claiming in this action against the defendant.

2.The defendant admitted signing the margin client agreement and other relevant documents relating to this account of the plaintiff. He said the date of the agreement was blank when he signed it. At first he averred that he was not in Hong Kong since May 1999, so he could not have signed the margin account on 4^th June 1999, and he did not maintain an address in Hong Kong. One of the documents he admitted signing was a standing instruction to the plaintiff to issue cheques only in his name for any proceeds on securities sold. The defendant was a 20-year old student at the time and in June 1999, he sat the TOEFL English test in Hong Kong. From his movement record that was obtained from the Immigration Department shortly before this trial, it showed that he had only left Hong Kong in August 1999. His Defence was then amended on the first day of trial to say that he was not an ordinary resident of Hong Kong since August 1999 (and not May 1999).

3.In the defendant’s witness statement dated 27^th January 2006, the defendant said he signed the margin client agreement of the plaintiff in June 2001 and it was an undated agreement.

4.To show proof of his address in Hong Kong when he opened the margin account with the plaintiff, the defendant produced a TOEFL test admission ticket to the plaintiff and a copy of this document was kept in the plaintiff record. The TOEFL test was scheduled on Friday at 9.30 a.m. on June 11^th 1999.

5.The address given by the defendant when he opened the margin account with the plaintiff was the same address he was residing at the time of trial, viz., Block D1, 3^rd. Floor, Villa Monte Rose, 41A Stubbs Road, Hong Kong. This was in fact the defendant’s home address in Hong Kong at all relevant times. He lived there with his father, Mr. Wong Siu Ban, who was an ex-director of the plaintiff, even at the time of trial.

6.The defendant’s father was a director and also an account executive of the plaintiff who dealt with the purchase and sale of securities in the plaintiff business from 1998 to 11^th March 2005.

7.Mr. Chan Kwok On, the Financial Controller of the plaintiff, testified that the defendant’s father was his boss and the defendant’s account was opened with the plaintiff through the defendant’s father who also was the account executive in charge of the defendant’s margin account. When the defendant’s margin account was in deficit, the defendant had to pay money into the account to top up or cover part of the deficit amount before he could continue trading. When the deficit in the defendant’s margin account was getting bigger, Mr. Chan had informed the defendant’s father that the defendant’s margin account needed topping up. From the plaintiff’s record, monies had been paid into the defendant’s margin account to cover the deficit and $135,00.00 was identified to have been paid by the defendant’s father. Other sums totaling just over $1million had also been paid into the defendant’s margin account to top up the losses and it could not be ascertained who paid those monies.

8.In this claim for payment of the outstanding HK$388,502.57 deficit in the defendant’s margin account, the plaintiff case is that the defendant instructed his father to place purchase/sale orders resulting in the transactions appearing in the monthly statements of account, or alternatively, the defendant authorized or empowered his father to exercise absolute discretion to trade for and on his behalf in his margin account.

9.Monthly statements, and when there were trading, daily statements, were sent to the defendant to the address he had supplied to the plaintiff. On the back of each of these statements, were important notices and Note 6 effectively stated that the defendant was contractually obliged to inform the plaintiff within 48 hours if any item in the statements was incorrect, otherwise, the statements would be considered to be correct.

10.The defendant denied liability and denied that he had ever used or traded in his margin account, nor did he authorize or give instruction to the plaintiff, its agents or employees, to carry out any trading in his margin account. He denied ever receiving any statement of his margin account and he did not know how the balance deficit of HK$388,502.57 came into existence.

11.According to Mr. Chan Kwok On’s evidence, the plaintiff moved its address from Wanchai to North Point in 1998, and the margin account agreement signed by the defendant was signed using the old form. The old form continued to be used after the plaintiff had moved to North Point until late 1999. After 1999, new forms were used for all margin accounts. The defendant had obviously changed his evidence on when he signed the margin account agreement. He first claimed not to be in Hong Kong in June 4^th 1999, i.e. the date on the agreement. Then in his witness statement made in January 2006, he said he signed the agreement in June 2001. Eventually he testified that he did not remember when he signed the margin agreement. His TOEFL English test was on 11^th June 1999 and the TOEFL admission ticket was used to verify his address when he opened the margin account. This would bring the date of the defendant signing the margin account to a date before 11^th June 1999.  On the evidence, it is reliable to accept the plaintiff evidence that the date on the margin agreement, viz. 4^th June 1999, was the true and correct date the defendant signed the margin agreement.

12.The defendant’s address in Hong Kong had been the same at all relevant times. That was his family address. His father lived there all along and after he returned from his studies in Canada (he studied to be an actuary), he continued to live there even up to the time the trial was heard. This was also the address he supplied and provided proof of address to the plaintiff. It was clearly a misleading statement when the defendant said he did not maintain an address in Hong Kong after he left for Canada. He was only trying to mislead the court into thinking that he had never received any of the monthly and daily statements sent to him by the plaintiff. The defendant had not informed the plaintiff at any time of any change of address. The defendant’s father would have noticed all these statements sent to his son to his home by his own company, and that was over a period of years. In any event, his son’s margin account was under his charge.

13.The defendant denied knowledge of all the transactions in his margin account. His defence was that he did not trade and someone in the plaintiff company without his authority had used his margin account to trade. This person/s could be his father or some one in the plaintiff company.

14.The defendant’s father was a director and an account executive in the plaintiff company. The defendant’s margin account was under his father’s supervision. Monthly statements were sent to the defendant’s home address. His father had paid $135,000.00 into the defendant’s margin account to cover some of the losses. Large sums of monies of just over HK$1m had also been paid into the defendant’s margin account by person/s unidentified to cover some of the losses.

15.The defendant’s saying that someone was using his account to trade heavily and without his knowledge was not believable. Firstly, his father must have knowledge of the state of his trading in his margin account. The monthly and daily statements were sent to his home. He was one of the bosses of the plaintiff. The defendant’s margin account was in his charge. He had been informed by the Financial Controller, Mr. Chan Kwok On, to make payment into the defendant’s margin account to pay off some of the deficits, and that he did. We can also safely exclude any other person in the plaintiff company using the defendant’s account to trade. At the highest, the defendant could only say his father had used his account without his knowledge and consent. His father was an employee of the plaintiff, therefore he should not be liable for the wrongdoing of the plaintiff’s employee. Secondly, the defendant had given standing instruction to the plaintiff that proceeds on securities sold must be paid by cheques in his name only. It does not make sense for any person including the defendant’s father, to want to use the defendant’s margin account to trade heavily when all proceeds on sale could only be paid out in the defendant’s name only. Common sense dictates that if the defendant’s father was using the defendant’s margin account to trade, he would only be doing so with the defendant’s knowledge and consent because there would be some arrangement for the monies paid on the proceeds of sale on the securities in the defendant’s name to be paid into some bank account which he could have access. Otherwise, it would be meaningless for the defendant’s father to invest huge sums of money in trading in securities without being able to put his hands on the monies on sale of the securities.

16.The defendant was cross-examined in the witness box by counsel for the plaintiff on whether he had asked his father if his father had manipulated his margin account. The defendant replied that he had not. He was asked if he had asked his father what had happened to his margin account. Again the defendant’s answer was “no”.  The defendant was further asked if he had seen fit to ask his father to come to court to testify on his behalf.  The defendant’s answer was again in the negative. It would be most strange for the defendant not to make queries of his father if he had not traded himself nor given consent to his father to use his margin account.  There could be only one explanation why the defendant did not ask his father about the state of his margin account and why he had incurred a deficit of HK$388,502.57. The inescapable conclusion was that he was trading or he was trading through his father in the plaintiff company.

17.Another interesting thing about the defendant’s evidence was that he did not explain why he opened a margin account with the plaintiff when he was due to leave Hong Kong shortly and as he claimed, he never did a single transaction in this margin account. He was then a 20 years old student going to Canada to do his actuarial studies. Plainly, his evidence was incredible and was a vain attempt to exonerate his own liability.

18.Lastly, no issue was taken on the bought and sold records. The defence was one of lack of consent and knowledge. The defendant did not contest the quantum of the claim. Understandably, if he disputes consent and knowledge, he would not be arguing on the quantum. The deficit amount was based on the bought tickets and the monthly and daily statements sent to the defendant. I have no doubt the defendant have knowledge that these statements were sent regularly to his home address. At no time did he take issue on the quantum. I therefore see no reason why the plaintiff should not have judgment on the amount as claimed.

19.The plaintiff has proved its case and the defendant is liable to pay to the plaintiff the outstanding balance of HK$388,502.57 in his margin account with the plaintiff. I therefore give judgment in favour of the plaintiff against the defendant for the amount of HK$388,502.57 together with interest at judgment rate from 16^th March 2005 to the date of judgment, and interest at judgment rate from date of judgment to the date of full payment of the judgment amounts. As cost normally follows the event, there is an order nisi that the defendant pays the plaintiff the costs of this action, to be taxed if not agreed. The order nisi shall be made absolute 14 days after handing down of this judgment.

The Plaintiff: represented by Mr. Lee Yee Hung and Ms. Angel Mak, both instructed by Messrs. Huen & Partners, Solicitors

The Defendant: represented by Mr. Lawrence Hui, instructed by Messrs. Ng & Shum, Solicitors