South China Securities Ltd v. Lam Kwen Yuen

HCA 5587/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 5587 OF 2000

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J U D G M E N T

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The Plaintiff’s claim

1.In this action, South China Securities Limited (“SCS”), a securities broker and money lender, claims against its former customer, Mr Lam Kwen Yuen (“Mr Lam”), $326,675.31 which was the amount outstanding under Mr Lam’s margin securities trading account No.32617 with SCS (“Account”) as at 30 November 2000.

2.SCS’s case was straightforward.  In claiming the principal outstanding under the Account with interest, SCS held Mr Lam to the agreement pursuant to which SCS furnished Mr Lam with margin finance (“Agreement”).  The following, signed by Mr Lam, were identified as the contractual documents containing the Agreement:

(1) the Memorandum of Securities Deposit dated 16 November 1999 (“Memorandum”);

(2) the Margin Client’s Agreement dated 16 November 1999 (“Margin Agreement”); and

(3) the Margin Loan Facility Letter dated 17 November 1999 (“Facility Letter”).

In view of the grounds of defence pursued on behalf of Mr Lam at the trial of this action, it is unnecessary for me to repeat in this Judgment the relevant terms, which were cited extensively in the Amended Statement of Claim dated 14 August 2008 and the Witness Statement of Mr Chiang Chi Ying, Digby (“Mr Chiang”) dated 14 March 2008.

Findings of fact

3.In addition to the documents disclosed and included by the parties in the Trial Bundles, the Court received evidence from 3 witnesses: Mr Chiang for SCS and Mr Lam and his daughter, Lam Yik Mang Jessie[1] (“Jessie”), for the defence.

4.Mr Chiang was a Credit and Compliance Officer[2] of SCS back in 1999 and 2000.  As his job title suggests, he was responsible for matters of compliance.  He also had oversight of the daily activities of SCS’s credit department.  His only role with respect to the Account prior to April 2000 was to sign on the Margin Agreement as witness to the signature for and on behalf of SCS by a Mr Yuen Kam Tim, Francis (“Mr Yuen”), SCS’s company secretary and director.  In fact, Mr Chiang did not witness Mr Yuen’s signature.  The document was passed to Mr Chiang as the final step in the processing of the account opening documents after Mr Yuen had already signed the same.  Due to Mr Chiang’s said limited involvement, he had no personal knowledge of the manner in which the Account was opened in mid November 1999 and thereafter operated from 16 November 1999 to 31 March 2000.  Leaving aside numerous parts that were argumentative in nature and should not have been included in a witness statement, Mr Chiang’s 3 witness statements spoke of how things were supposed to be done at SCS, and not how the Account was actually opened, maintained and operated.  I find Mr Chiang’s evidence to be largely irrelevant and unhelpful.

5.I agree with Mr Paul H M Leung, Counsel for Mr Lam, that the witness whose evidence would have been most pertinent to the dispute raised by the defence arising from the opening and operation of the Account would be Mr Tam Yui Man, Raymond (“Tam”), a Senior Vice President and a licensed securities dealer’s representative of SCS.  He was the account executive (bearing the number code “219”) assigned by SCS to the Account, at least as a matter of official records.  SCS did not explain why it did not, or could not, call Tam, save for a reference in passing to the fact that he was no longer in SCS’s employ.

6.Another piece of material evidence that SCS could have produced would be the audio tape recordings of the telephone calls to, from and within SCS’s office by which Mr Lam placed orders for the sale and purchase of securities, by which such orders were processed by SCS’s dealing staff and by which execution of the orders was reported to Mr Lam.  Mr Chiang confirmed the making of such recordings and the preservation thereof for 3 months by SCS in compliance with the Code of Conduct for Persons licensed by or registered with the Securities and Futures Commission (“SFC”).  The present dispute first emerged in early April 2000, by which time SCS should still have in its possession the tape recordings relating to the transactions in January, February and March 2000 (the relevance of which will become apparent very shortly).  By a letter dated 20 April 2000 to SCS for the attention of its Chairman, Mr Ng Hung Sang Robert, Mr Lam’s then solicitors expressly stated that they trusted that SCS must have gone through the relevant tapes to verify Mr Lam’s complaints.  The Writ of Summons by which this action was commenced was issued on 2 June 2000.  Mr Tam and his team’s conduct was investigated by both the police and the SFC round about the same time.  One would have expected any securities broker in the position of SCS to retrieve, go through and preserve the tape recordings until the final disposal of the dispute with the customer.  Instead, Mr Chiang simply claimed that SCS had tried, but failed, to find the tapes.

7.Given the state of SCS’s evidence, save for the police statement to be mentioned in paragraph 28 below to which I give no weight, there was no factual evidence to contradict the accounts by Mr Lam and Jessie (whose role will become apparent in a moment) as to the opening and operation of the Account.  I was reminded by Mr Leung, and I take note, of the principle that where a person without explanation fails to call as a witness a person who he might reasonably be expected to call, it is open to the Court to infer that that person’s evidence would not have helped that party’s case. See, e.g. Li Sau Keung v Maxcredit Engineering Ltd [2004] 1 HKC 434 at 443E-444C, per Le Pichon JA citing O’Donnell v Reichard [1975] VR 916 at 929, per Newton and Norris JJ.  The same principle would apply to a failure without proper explanation to produce a document or other real evidence that a party might reasonably be expected to disclose.

8.In any event, I find Mr Lam to be generally forthcoming and fair under cross-examination.  He readily gave answers that were against his own interest.  As for Jessie, I approach her evidence with caution. There were a number of instances where she contradicted her own witness statements and the answers she gave earlier in Court, without properly explaining the discrepancies.  However, despite the flaws in Jessie’s evidence, I consider the factual case in support of the defence to be oversall credible. Apart from the favourable impression that I have formed of Mr Lam’s testimony, more importantly, as set out in paragraphs 29 to 41 below, the defence’s factual case was, where it mattered, corroborated by other material from an independent source, which evidence was likewise not refuted or effectively refuted by SCS.

9.Unless otherwise stated, paragraphs 10 to 27below set out my findings of fact that are material to the determination of the grounds of defence pursued on behalf of Mr Lam at the trial of this action.

10.Jessie was educated up to the secondary Form 5 level.  She took 7 subjects in the Hong Kong Certificate of Education Examination in 1993 and passed none.  After working for a number of years for a telecommunication company as a customer services officer, in early October 1999, she took the qualifying examination for securities dealer’s representatives after attending a preparatory training course in August 1999.  Towards the end of October 1999, Jessie received notification that she had failed the examination. 

11.However, in the meantime, before the result was released, through the introduction of a friend who was working for SCS, Jessie attended a job interview with Tam.  Despite having no prior qualification or experience in stock trading, Jessie was offered employment with SCS commencing on 19 October 1999 as an “Assistant Officer” at a monthly salary of $1,000. 

12.Although the relevant letter of employment was not produced, Jessie was at the same time also employed by South China Commodities Limited (“SCC”), another company in the South China group carrying on business as a commodities broker.  Jessie further became registered as a dealer’s representative of SCC under the since repealed Commodities Trading Ordinance (Cap 250) (“CTO”) on 2 December 1999.  I was told that unlike a securities dealer’s representative, a commodities dealer’s representative was not required to take and pass any qualifying examination. 

13.Jessie worked under Tam’s direct instructions and supervision.

14.Although the letter of employment dated 20 October 1999 referred to the position of “Assistant Officer” (without mentioning what it entailed)[3], Jessie was given the title of “Account Officer” and business cards bearing such title[4] soon after she joined SCS beginning from about November 1999.

15.Soon afterwards, Jessie procured her relatives and friends to open securities trading accounts with SCS. 

16.In mid November 1999, Jessie took home the following standard form account opening documents of SCS for Mr Lam’s signature:

(1)  Signature Card;

(2)  Client Information Statement (“Information Statement”);

(3)  Personal Account Mandate (“Mandate”);

(4)  the Memorandum;

(5)  the Margin Agreement;

(6)  Authorisation Letter for use of securities;

(7)  Authorisation and Indemnity in respect of telephone, fax and telex instructions; and

(8)  a copy of the Facility Letter.

17.At the time when these documents were presented by Jessie to Mr Lam for his signature, they were undated with all fields left blank.  Jessie simply told Mr Lam to sign them at places marked with a cross, which Mr Lam did.  In addition, seeing that it was a form for his personal particulars, Mr Lam filled in some (but not all) of the blanks in the Information Statement.  He also wrote down his name and address in block letters on the Facility Letter in the wide space between the English and Chinese titles of the document and the first line of the contents.

18.Mr Lam completed signing the account opening documents in about 10 minutes without any interpretation or explanation thereof to him by Jessie or anyone else from SCS.  Nevertheless, Mr Lam fully understood that they were for the opening of a margin securities trading account with SCS and that such an account would entitle him to trade in securities on credit subject to a credit limit when there was insufficient funds in the account.

19.On 16 November 1999, Jessie took the signed account opening documents back to the office.  She then:

(1)  dated the documents (except the Signature Card which did not require dating, the Margin Agreement, the Authorisation Letter for use of securities and the Facility Letter) 16 November 1999;

(2)  filled in the blanks in the Signature Card (Mr Lam’s name in English and Chinese, address, telephone number and HKID Card number, the Account number and type (“M” for margin account)) and crossed out the spaces for other authorised signatures (if any);

(3)  filled in the Account number at the top right hand corner of the first page of the Information Statement;

(4)  filled in Mr Lam’s English name in block letters in the first line of the Mandate;

(5)  wrote out Mr Lam’s English name in block letters underneath his signatures on the Information Statement, the Memorandum, the Authorisation Letter for use of securities and the Authorisation and Indemnity in respect of telephone, fax and telex instructions.

20.These account opening documents were then processed by other SCS personnel.  Insofar as it is material:

(1)  The following fields in the Information Statement were filled in:

(a)  the word “RETIRED” was written against “Name of Employer”;

(b)  the “$500,000 - $3,000,000” box under “Approximate value of my assets” was ticked;

(c)  the “Capital Investment and Income” box under “Investment Objectives” was ticked;

(d)  the words “10 yr” and “1M” were written under “Years” and “Average Portfolio Value (HK$)” respectively against the “Stock, Shares, Debentures or other Securities” item under “Investment Experience”; and

(e)  the “No” box in answer to the question “Will the account by traded by other person(s) on my behalf?” was ticked.

(2)  The Margin Agreement was dated 16 November 1999.

(3)  The number of the Account was put down in, inter alia, the Margin Agreement.

(4)  Mr Lam’s personal particulars (name, HKID Card number, address and telephone numbers) were entered into the Schedule to the Margin Agreement.

(5)  Tam signed as witness to Mr Lam’s signature on, inter alia, the Margin Agreement.  He also signed this document a second time to certify that he had explained it to Mr Lam.  In fact, Tam was not present when Mr Lam signed any of the account opening documents.  The 2 men never spoke before 5 April 2000 or met before 6 April 2000.  The only person in SCS with whom Mr Lam dealt in opening the Account was Jessie.

(6)  An Account Executive’s Report dated 16 November 1999 was signed by Tam as the relevant account executive (A.E.), claiming to have known Mr Lam for 23 years and proposing a credit limit of $500,000.

(7)  A Client File Maintenance / Credit Approval Form dated 16 November 1999, approving margin facility up to $200,000 (“Facility”) at 4% per annum “+/- prime rate” was created.

(8)  Mr Yuen signed the Margin Agreement for and on behalf of SCS.  Mr Chiang also signed as witness to Mr Yuen’s signature.  I have already mentioned that Mr Chiang did not in fact see Yuen sign this document.

(9)  The signed copy Facility Letter was dated 17 November 1999 with the following terms typewritten between “DEAR SIR/MADAM” and the first line:

“MARGIN FACILITIES
ACCOUNT NO	:0032617-0219
AMOUNT	:HK$200,000.00
	(HONG KONG TWO HUNDRED THOUSAND DOLLARS ONLY)
INTEREST RATE	:HSBC PRIME PLUS 4.00%
VALIDITY PERIOD	:16 NOV 99 TO 15 NOV 00”

21.The Facility Letter requires special mention. What Mr Lam was presented with was a copy with the logo of the South China group in black print.  I have already mentioned the wide space between the document titles and the first line.  It was intended for insertion of the material terms of the facility (i.e. credit limit, interest rate and validity period).  According to Mr Chiang, it was SCS’s practice to ask its customers to sign on a copy of the standard form margin loan facility letter with this space left blank against a statement (in both English and Chinese) to the effect that the customer had fully read and understood, and agreed to accept, the terms and conditions of the loan facility offered before the application for facility was even submitted to and considered and approved by the credit department.  Once the credit department received the signed copy, it would take out an original (bearing the logo of the South China group in red print) and another copy.  The name, address and account number of the customer and the terms of the approved facility would then be typed onto the original as well as the copies respectively above and below “DEAR SIR/MADAM”.  The original and one of the copies (now showing the terms of the approved facility) would then be sent by post by the credit department to the customer, with the request that the customer should sign and return the original, which would be kept by SCS.  Had such practice been adhered to in the instant case, SCS would have been able to produce the original of the Facility Letter with the material terms of the Facility signed by Mr Lam.  However, the Court was told that no such document could be found in SCS’s records so that the Court could only have sight of the copy signed by Mr Lam but without the material terms of the Facility.  I accept Mr Lam’s evidence that he had not received back from SCS the completed original of the Facility Letter.

22.However, despite the facts that Mr Lam signed a copy of the Facility Letter before he knew the material terms of the Facility and that he had not subsequently been provided with either the original or any of the 2 copies of the Facility Letter after such terms were inserted, Mr Lam did at the time of signing the Facility Letter understand that he was applying for margin facility from SCS, that he would be given a credit limit if his application was approved and that he would have to pay interest if he utilised the facility.  Moreover, Mr Lam did, through reading the statements of the Account, subsequently become aware of the credit limit and the interest rate of the Facility before he first utilised the same.

23.The account opening documents were processed within the day.  The Account was opened and became operative on 16 November 1999.  As stated above, Tam was the assigned account executive of the Account.

24.Between 16 November 1999 and 27 March 2000, Mr Lam deposited altogether $1.7 million into the Account as follows:

Date	Amount
16.11.1999	$500,000
25.11.1999	$200,000
27.3.2000	$1,000,000

Mr Lam never made any withdrawals from the Account.

25.Between 16 November 1999 and March 2000, there were numerous transactions upon Mr Lam’s instructions through the Account, both sale and purchase.  Mr Lam first started to utilise the Facility on 24 November 1999.  Notwithstanding the $200,000 credit limit, there were many occasions on which Mr Lam was allowed to exceed that limit, with the highest amount outstanding being $2,019,068.67 on 22 March 2000.   

26.In the course of maintaining and operating the Account, Mr Lam received 2 kinds of statement from SCS.  First, a daily statement would be generated and posted to Mr Lam whenever he made a deposit into the Account and upon the successful execution of a transaction directed by Mr Lam.  The first daily statement was dated 16 November 1999.  A monthly statement would be posted to Mr Lam at the end of each month regardless of whether there had been any activities in the Account during the month.  Both types of statement included the following statement: “The statement is deemed to be correct if no discrepancies are reported within 7 days”.  Although Mr Lam had not been able to find all the statements of the Account, he did receive them.  And Mr Lam did read his statements.  Indeed, he recalled instances where he reported to SCS transactions that had been erroneously attributed to the Account.  The credit limit and interest rate of the Facility were clearly set out in both types of statement.  The interest rate, expressed as a percentage, was further qualified by the words “with effect from [date] subject to change” in brackets.  The monthly statements also showed the amount of interest incurred by Mr Lam for use of the Facility for the month.  Mr Lam knew, through reading the statements of the Account, that he had been granted margin facility up to $200,000; that he had to pay interest if he used the same; that such interest was to be calculated as a percentage above a rate that could fluctuate from time to time; and that he had been trading in securities on credit in excess of the $200,000 limit of the Facility.

27.Although Tam was the account executive assigned to the Account, Mr Lam neither spoke to nor met Tam until 5 and 6 April 2000 respectively.  Apart from handling the account opening procedure in respect of the Account as described above, Jessie was the only employee of SCS who took “buy” and “sell” orders from Mr Lam, reported to him the execution of his orders, followed up on settlement of his transactions and discussed with him matters such as what shares Mr Lam should buy and sell and the time and price at which he should buy and sell them.

28.In finding the above facts, I have not overlooked a police statement given by Tam on 29 June 2000 in which he:

(1)  claimed to have explained to Jessie, and she had indicated that she understood, that she could not perform any duties of a dealer’s representative, such as taking customers’ orders, reporting on share prices and confirming execution of orders; and

(2)  referred to the accounts opened by, inter alia, Mr Chiang Man Chung, Madam Cheng Man Hing and Mr Ho King Hang (who were mentioned by Jessie to him as being desirous of opening accounts with SCS) and claimed that these customers had attended his office where he personally attended to the signing of the account opening documents by them.

Quite apart from the fact that Tam was not called as a witness by SCS, in view of the body of contradictory evidence, not just from independent sources, but also from Tam himself subsequent to his said police statement, I attach no weight to Tam’s police statement.  As stated in paragraph 8 above, there was evidence from independent sources that lent credence to the material aspects of Mr Lam’s factual case. 

29.In this regard, the conduct of Tam and his team came under investigation by the police and the SFC since mid 2000.  Included in the Trial Bundles were:

(1)  a police statement dated 16 June 2001 by Mr Ho King Hang;

(2)  a police statement dated 17 June 2001 by Mr Chiang Man Chung; and

(3)  a police statement dated 21 June 2000 by Madam Cheng Man Hing.

Mr Ho opened a securities account with SCS in mid October 1999 at Jessie’s request and for the purpose of enabling Jessie to trade in securities herself using such account.[5]  He recalled that only Jessie attended him when he signed the account opening documents.  Madam Cheng (who is Mr Lam’s ex-wife and Jessie’s mother) and Mr Chiang had respectively opened a margin account and a cash account with SCS for their own trading.[6]  They both informed the police that Jessie was the only person in SCS with whom they had had any contacts in opening, and in buying and selling shares through, their accounts.

30.On 25 May 2001, Tam was charged by the SFC with 5 counts of aiding, abetting, counselling and procuring the following persons to act as a dealer’s representative of SCS without them being registered as such under the since repealed Securities Ordinance (Cap 333) (“SO”) contrary to s 89 of the Criminal Procedure Ordinance (Cap 221) and SO ss 50(1) and 50(2):

Summons Number	Person not registered, but acting, as SCS's dealer's representative	Period during which he/she so acted
WSS8364/2001	Jessie	19.10.1999 – 31.3.2000
WSS8365/2001	Wong Lai Ho	1.11.1999 – 1.4.2000
WSS8366/2001	Kwok Wai Leung	1.1.2000 – 31.5.2000
WSS8367/2001	Yu Chi Sing	1.9.1999 – 1.6.2000
WSS8368/2001	Lai Tik Kei	1.10.1999 – 31.5.2000

31.The material parts of SO ss 50(1) and (2) provided that:

“(1) No person shall-

(a) act as a dealer’s representative in Hong Kong unless he is registered as such under this Part; or

….

(1B)  A dealer’s representative … shall be registered as the representative of a registered dealer … specified in the register.”

(1C) A dealer’s representative … shall not act as a dealer’ representative … on behalf of any person other than the person specified in the register in accordance with subsection (1B).

(2)  Any person who knowingly acts in contravention of subsection (1) or (1C) shall be guilty of an offence and shall be liable on conviction to a fine of $10000 and, in the case of a continuing offence, to a further fine of $100 for each day during which the offence continues.”

32.Insofar as it is material to this case, a “dealer’s representative” was defined in s 2(1) as meaning:

“a person in the employment of, or acting for or by arrangement with, a dealer … who performs for that dealer any of the functions of a dealer (other than work ordinarily performed by an accountant clerk, or cashier) whether his remuneration is by way of salary, wages, commission, or otherwise …”

And a “dealer” was in turn defined in s 2(1) as meaning “a person who carries on a business of dealing in securities”.  “[D]ealing in securities” was defined in s 2(1) as meaning:

“in relation to any person (whether acting as principal or agent), subject to section 3(1), means making or offering to make an agreement with any other person, or including or attempting to induce any other person to enter into or offer to enter into any agreement –

(a) for or with a view to acquiring, disposing of, subscribing for or underwriting securities;

(b)  the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of securities”

33.On 5 October 2001, Tam pleaded guilty to, and was convicted, under the first 3 summonses.  Tam further admitted the facts set out in the Brief Facts in support of the 3 charges prepared by the SFC, which included the following:

(1)  Tam had instructed SCS’s other account executives to place the orders of his team members with the dealing room.

(2)  The employees mentioned in the summonses were in Tam’s team.  Although they were not registered as SCS’s dealer representatives or (except Kwok Wai Leung) employed as such, they had opened accounts for customers, taken their orders to trade in securities, placed such orders with SCS’s dealing room, reverted to customers on execution of orders and followed up on settlement of transactions.

(3)  During the relevant period, in addition to his basic monthly salary[7], each of the employees concerned was also paid an allowance which was calculated and arranged by Tam.[8] Such bonus was based on the employee’s contribution to the work of Tam’s team.

I note that in addition to Tam’s admission, the above facts were stated to have been drawn by the SFC from interviews with various named witnesses including SCS’s head of administration and accounts, account executive, investment consultant, director as well as customers. 

34.Tam was fined $5,000 for each offence and ordered to pay the SFC’s costs in the sum of $14,997.

35.Following his said convictions, Tam’s registrations were suspended by the SFC for 2 months with effect from 14 March 2002 under SO s 56 and CTO s 36. 

36.Mr Wong Chao Wai Brian, Counsel for SCS, was quick to point out that Tam had not been convicted of the offence concerning Jessie.

37.However, first, it is clear from the relevant court transcript that the SFC had offered no evidence in relation to the remaining 2 summonses including the one concerning Jessie in return for Tam’s guilty pleas to the 3 summonses.  Paragraph 23 of the admitted Brief Facts made it clear that the 3 summonses pleaded to by Tam were representative summonses and that there were 2 other instances where Tam aided and abetted, counselled and procured employees of SCS to act as dealer’s representatives of SCS whilst unregistered.

38.Second, on 3 July 2001, Jessie had herself been convicted on her own guilty plea of the offence of acting as a dealer’s representative of SCS during the period between 19 October 1999 and 31 March 2000 whilst unregistered, contrary to SO ss 50(1)(a) and 50(2), for which she was fined $2,000 and ordered to pay the SFC’s costs in the amount of $7,649.  The Brief Facts drawn up by the SFC and admitted by Jessie disclosed that:

(1)  Mr Kwok Ko Man, Mr Li Chun Hong and Mr Chiang Man Chung had informed the SFC that they had, through Jessie, opened accounts to trade in securities with SCS and had placed orders to trade in securities with Jessie and Jessie had reverted to them on execution of their orders and followed up on settlement of their transactions.

(2)  Mr Pang Ping Leong and Mr Chan Kwok Leung, respectively an account executive and an investment consultant with SCS with responsibilities for taking orders from other SCS account executives and placing them with the dealing room, had told the SFC that they had both taken trading orders from Jessie and confirmed the execution of such orders with Jessie.

(3)  Mr Yuen had stated to the SFC that during the relevant period, in addition to her basic monthly salary ($1,000), Jessie was also paid monthly allowances totalling $105,800, which was calculated and arranged by Tam and authorised by SCS.

39.Third, the SFC also publicly reprimanded SCS on 22 November 2002 for failing to, inter alia, ensure that its staff complied with all legal and relevant regulatory requirements, especially with regard to the registration requirements.  In the relevant press release, the SFC specifically referred to the fact that Tam had recruited 5 trainees for SCS who performed the functions of a dealer’s representatives when they were not registered to do so.  The SFC’s dissatisfaction with SCS’s supervision and monitoring was expressly directed towards the unregistered activities of these trainees, which were described as extensive.  The 5 trainees were Jessie, Lai Tik Kei, Kwok Wai Leung, Yu Chi Sing and Wong Lai Ho.

40.SCS did not adduce any evidence to dispute any of the above-mentioned police statements, admitted brief facts, convictions or disciplinary action taken against it or Tam by the SFC, or the factual bases therefor.  In the absence of credible and objective direct evidence to the contrary, they establish that Jessie had acted as a dealer’s representative of SCS between 19 October 1999 and 31 March 2000 in relation to the accounts of Madam Cheng Man Hing, Mr Ho King Hang, Mr Chiang Man Chung, Mr Kwok Ko Man and Mr Li Chun Hong. To my mind, although neither Mr Lam nor the Account was specifically mentioned in such material, it is impossible to think that Jessie would have acted differently vis-à-vis Mr Lam (who is her father) in the opening and operation of the Account during the same period of time.  

41.Lastly, I have not gone into how the matter came to a head because it is unnecessary to do so.  It is sufficient to say that the accumulation of substantial outstanding balances in the accounts used by Jessie for her own trading by early April 2000 led to the first telephone conversation and face-to-face meeting between Mr Lam and Tam on 5 and 6 April 2000 respectively. According to Mr Lam, at the meeting on 6 April 2000, he was shown what appeared to be a one-page computer printout with the heading “CLIENTS POSITION LIST BY A/E” and bearing the date and time “2000/4/6 AM 10:45:36”.  Underneath the said heading was “A/E: JL”.  “A/E” was the abbreviation for “account executive” and “JL” was Jessie’s initials.  The accounts listed included the Account and the accounts of Madam Cheng Man Hing, Mr Ho King Hang, Mr Chiang Man Chung, Mr Kwok Ko Man and Mr Li Chun Hong.  Mr Chiang had personal knowledge of this, or this type of, document.  I accept Mr Lam’s evidence that he obtained this document from Tam on 6 April 2000.  It showed that Jessie was treated by SCS as an account executive in relation to, inter alia, the Account.   

The grounds of defence pursued at the trial

42.At the trial, Mr Lam disputed liability to pay SCS the claimed or any sum on 3 grounds:

(1)  unauthorised alterations to the account opening documents by SCS after they had been signed by Mr Lam, which Mr Lam said were material.  Three documents were identified for this purpose in paragraph 25A of the Re-re-re-amended Defence and Counterclaim dated 15 October 2010: the Information Statement, the Margin Agreement and the Facility Letter;

(2)  contravention of SO s 50 by Jessie in that she had performed the functions of a dealer’s representative of SCS in relation to the Account; and

(3)  non-compliance by SCS with s 18(1) and (2) of the Money Lenders Ordinance (Cap 163) (“MLO”).

43.Jessie’s contravention of SO s 50 was further prayed in support of a counterclaim for the restitution of the moneys that Mr Lam had deposited into, not just the Account, but also the margin account held by one Mrs Iu Kwok Siu Keong (“Mrs Iu”) with SCS. 

44.With regard to the latter account, in order to expand Jessie’s clientele, Mr Lam also enlisted Mrs Iu, his friend, to open a securities trading account with SCS.  The evidence available showed that Mrs Iu initially opened a cash account with SCS (numbered 934021) on 21 December 1999, that Mrs Iu later opened a margin account (numbered 34021) on 24 January 2000 and that all the stock and cash balances in the cash account were transferred to the margin account on 1 February 2000.  Mr Lam identified only Mrs Iu’s margin account (“Mrs Iu’s Account”) by its number in his pleading. 

45.I am prepared to accept Mr Lam’s evidence that Mrs Iu’s Account was operated by him and that as in the case of his own account, the only person from SCS with whom Mrs Iu and Mr Lam dealt with in the opening and operation of such account was Jessie. 

46.However, Mr Lam went further and suggested in his pleading that Mrs Iu’s Account was opened for his use so that he could operate 2 accounts to sell and purchase stocks and that the sums of $100,000 and $400,000 deposited into Mrs Iu’s Account on 14 and 27 March 2003 came from him.  On this basis, Mr Lam included in his pleading a counterclaim for the restitution to him of the moneys that he claimed to have paid into Mrs Iu’s Account and for damages for loss of the profits that would have been credited to Mrs Iu’s Account had Tam not “stopped” the execution of his orders to sell certain shares in Mrs Iu’s Account (see paragraph 50 below).  

47.While Mr Leung did not address the damages claim in his closing submissions, he referred to Mr Lam’s unchallenged evidence that he had placed $500,000 into Mrs Iu’s Account and suggested that the SO

s 50 “illegality” defence, if accepted by the Court, would render all the transactions under Mrs Iu’s Account unenforceable so that Mr Lam should be repaid $500,000.

48.In view of my ruling below on the SO s 50 “illegality” defence, this question about Mrs Iu’s Account would not arise.  Nevertheless, I should point out that Mr Lam appeared to have backtracked from his pleaded position concerning Mrs Iu’s Account in his witness statement dated 14 March 2008 in that he stated that Mrs Iu herself had also paid money into the account, that he gave instructions to Jessie for the sale and purchase of stocks “on behalf of Mrs Iu” and that Mrs Iu had confidence in his investment decisions because he let her know that Jessie’s boss gave them very good market information.  Such evidence, in the absence of clarification, is inconsistent with the suggestion that Mr Lam was the beneficial owner of Mrs Iu’s Account.  Moreover, had the point arisen for my determination, I would have been concerned that Mrs Iu was neither joined as a party to, nor called to give evidence on, Mr Lam’s counterclaim insofar as it affected Mrs Iu’s Account.  Given that SCS was not privy to the arrangement between Mr Lam and Mrs Iu, if any, I do not believe I could have attached much weight to the lack of challenge by SCS to this part of Mr Lam’s case.

49.For the sake of completeness, the Re-re-re-amended Defence and Counterclaim pleaded a number of other points. One matter deserves special mention. 

50.Mr Lam also asserted and gave evidence that Tam had, through Jessie, held himself out to be a market manipulator capable of influencing share prices and, on occasions, given Mr Lam what purported to be sensitive market information.  Mr Lam pinpointed 2 particular shares in his pleading: Tak Sing Alliance Holdings Limited (stock code 126) and Fourseas.Com Limited (stock code 755).  According to Mr Lam, he was told by Tam through Jessie to acquire shares in these 2 companies in March 2000, which he did, using both the Account and Mrs Iu’s Account.  Mr Lam’s complaint was that Tam had “stopped” Jessie from executing his orders to sell these shares at prices which would have given him profits.  The reason that Tam gave Jessie was that he and his associates were then manipulating the prices of the shares in these 2 companies and the disposal by Mr Lam of such shares at that point would upset the upward trend.  He assured Mr Lam through Jessie that the prices would continue to rise.  As it turned out, Tak Sing and Fourseas shares subsequently dropped and the holdings in both the Account and Mrs Iu’s Account were eventually liquidated by SCS at much lower prices.  Mr Lam counterclaimed against SCS for damages for loss of the profits that he would have made if his “sell” orders had not been “stopped” by Tam.

51.Mr Leung did not, rightly in my view, pursue this counterclaim in his opening or closing submissions.  Mr Lam frankly admitted under cross-examination that he did not blindly follow Tam’s advice as relayed to him by Jessie, he did exercise his own independent judgment and that he did not insist on selling the Tak Sing and Fourseas portfolios because he decided to follow Tam’s advice.

Unilateral alterations of contractual documents

52.I refer to paragraphs 20(1), (4) and (9) above which set out the changes (all in the nature of additions) to the Information Statement, the Margin Agreement and the Facility Letter relied upon by Mr Lam.

53.The principle that any material alteration of a contractual document, undertaken after its execution and without the approval of all the parties thereto, renders the document void can be traced back to Pigot’s Case (1614) 11 Co Rep 26b at 27a. 

54.The question raised is whether the said additions by SCS to each of the Information Statement, the Margin Agreement and the Facility Letter without Mr Lam’s prior consent were material, thereby invalidating such document.

55.Two kinds of unilateral alteration are material for the purpose of the rule in Pigot’s Case:

(1)  first, an alteration which affects the very nature and character of the document; and

(2)  second, an alteration which is “potentially prejudicial” to the obligor’s legal rights or obligations.

See Raiffeisen Zentrabank Osterreich AG v Crossseas Shipping Limited [2000] 1 WLR 1135, paragraphs 23-28, per Potter LJ (with whom Thorpe and Henry LJJ agreed).  See also Governor and Company of the Bank of Scotland v Henry Butcher & Co [2003] EWCA Civ 67, paragraphs 69-74, per Munby J.

56.Further, whether or not the obligor might or might not have assented to the alteration prior to affixing his signature, had he been requested to do so, is not a matter for investigation by the Court when applying the rule in Pigot’s Case: Raiffeisen Zentrabank Osterreich AG v Crossseas Shipping Limited, paragraph 33.

57.It is plain that none of the alterations in question fall into the first category.

58.Focusing on the second category, Potter LJ further said at paragraph 27:

“to take advantage of the rule, the would-be avoider should be able to demonstrate that the alteration is one which, assuming the parties act in accordance with the other terms of the contract, is one which is potentially prejudicial to his legal rights or obligations under the instrument.  I say “potentially prejudicial” because I do not think it necessary to show prejudice has in fact occurred.”

59.I am inclined to think that the unilateral (and according to Mr Lam, untrue) additions to the Information Statement, set out in paragraph 20(1) above, were “potentially prejudicial” to Mr Lam.  However, the Information Statement was only a document by which Mr Lam provided information about himself to SCS and assured SCS of the accuracy of such information.  The obligation to repay SCS the principal amount drawn by him under the Facility together with interest was not imposed on Mr Lam by the Information Statement. Therefore, the invalidation of this document does not assist Mr Lam.  In fact, the Information Statement was not mentioned again in Mr Leung’s closing submissions.

60.I do not see, and Mr Leung did not address in his closing submissions, how any of the additions to the Margin Agreement mentioned in paragraph 20(4) above could be potentially prejudicial to Mr Lam’s rights and obligations under the Margin Agreement.

61.The Facility Letter was the only document dealt with by Mr Leung in his closing submissions under this issue.  While I agree with Mr Leung that the limit of, and the rate at which SCS charged interest on, the Facility were important terms, I do not think that the insertion of such terms by SCS into the Facility Letter after Mr Lam had signed the same was potentially prejudicial to Mr Lam, having regard to the other contents of the letter:

(1)  First, regardless of the size of the facility, paragraph (f) spelt out Mr Lam’s obligation to make repayment on demand or at the end of the validity period whichever should first occur.

(2)  Second, insofar as the interest rate is concerned, paragraph (h) in any event allowed SCS to charge the percentage rate per annum specified above, or such other rate as may be determined from time to time by SCS, above (a) the prime lending rate from time to time quoted by The Hongkong and Shanghai Banking Corporation Limited and (b) SCS’s reasonable costs of funds, whichever was the higher.

62.More importantly, as in the case of the Information Statement, the Facility Letter did not itself contain the agreement for the grant of facility for margin trading by SCS to Mr Lam.  Rather, it appeared to have been intended by SCS to serve as the written note or memorandum with Mr Lam’s signature in compliance with s 18(1) and (2) of the MLO.  Paragraphs (a) to (i) corresponded to s 18(2)(a), (b), (d) to (j)[9].  A copy in both English and Chinese of, inter alia, the provisions of Part III and Part IV of the MLO were supposed to be enclosed, as required by s 18(1)(b).  

63.In short, the avoidance of the Facility Letter would not have provided Mr Lam with a defence to SCS’s claim.  It would have been sufficient for SCS to rely on Clauses 4, 5, 6 and 37 of the Memorandum and Clauses 7, 9 and 14 of the Margin Agreement, which had not been altered in a material way. 

64.I reject the first ground of defence.

Jessie’s contravention of SO s 50

65.I have already set out s 50 of the SO and the definitions material to its proper understanding in paragraphs 31 and 32 above. In view of my findings in paragraphs 16, 19 and 27 above, Jessie clearly acted as the dealer’s representative of SCS vis-à-vis Mr Lam in relation to the Account while unregistered as such, contrary to s 50(1)(a) and (2) of the SO. 

66.However, s 50 provided for criminal sanctions only.  The arguments before the Court were centred upon whether breach of s 50 rendered all the transactions through the Account unenforceable in a civil court, on which question I was referred to a number of authorities.

67.Mr Leung started with Cope v Rowlands (1836) 2 M & W 149 which was concerned with the statute 6 Anne c 16 under which all brokers within the City of London were required to be admitted by the Court of Mayor and Aldermen of the city “under such restrictions and limitations for their honest and good behaviour as that Court shall think fit and reasonable” and were on admission required to pay a fee and a yearly fee thereafter.  Any broker who so acted without being admitted committed an offence and was liable to pay a penalty.  Parke B held that impliedly prohibited and rendered illegal and void a brokerage contract entered into by an unadmitted person.  He said at 157:

“And it may be safely laid down, notwithstanding some dicta apparently to the contrary, that if the contract be rendered illegal, it can make no difference, in point of law, whether the statute which makes it so has in view the protection of the revenue, or any other object. The sole question is, whether the statute means to prohibit the contract? … the question for us now to determine is, whether the enactment of the statute 6 Ann c 16 … is meant merely to secure a revenue to the city, and for that purpose to render the person acting as a broker liable to a penalty if he does not pay it? Or whether one of its objects be the protection of the public, and the prevention of improper persons acting as brokers? On the former supposition, the contract with a broker for his brokerage is not prohibited by the statute; on the latter it is: for it cannot be permitted to a person to recover a compensation for an act which the law interdicts him from doing.”

And at 159:

“The clause, therefore, which imposes a penalty, must be taken … to imply a prohibition of all unadmitted persons to act as brokers, and consequently to prohibit, by necessary inference, all contracts which such persons make for compensation to themselves for so acting…”

68.Mr Leung also placed reliance on Victorian Daylesford Syndicate Ltd v Dott [1905] 2 Ch 624, a case revolving around the statutory requirements imposed by the Money-lenders Act 1900 on money-lenders to be registered and to trade in their registered names.  Buckley J, after referring to Cope v Rowlands, stated at 630 that:

“If I arrive at the conclusion that one of the objects is the protection of the public, then the act is impliedly prohibited by statute, and is illegal.”

Mr Leung directed my attention to the preamble of the SO[10] and stressed that the scheme of registration of dealers and dealer’s representatives prescribed by Part VI of the SO was intended to protect the investing public of which Mr Lam was a member.

69.Cope v Rowlands and Victorian Daylesford Syndicate Ltd v Dott were applied in Chan Ting-lai v Same Fair Co Ltd, DCCJ 5210/1984, 20 June 1984.  The context was the statutory requirement under the CTO for the registration of dealers’ agents and employees engaged in commodities trading.  CTO s 26(2) prohibited trading as a dealer unless every director or employee accredited to the dealer company was registered and s 28 required registration as such before a dealer’s representative could deal for a dealer.  In issue was whether the contravention of ss 26(2) and 28 rendered the contract between the parties illegal.  District Judge Eric Li adopted the “test of protection of the public” expounded by Buckley J in Victorian Daylesford Syndicate Ltd v Dott and held that the combined contravention of ss 26(2) and 28 rendered the contract between the parties illegal because the object of ss 26(2) and 28 was clearly to protect that class of the public who resorted to dealers and their representatives for trading in commodities by regulating the conduct of commodities dealing.

70.The question of the civil consequences (if any) of contravention of s 50(1)(a) of the SO arose directly for decision in Richardson Greenshields of Canada (Pacific) Ltd v Chow Paul [1989] 1 HKC 261.  Bokhary J (as he then was) noted at 268E-G that the object of the contract underlying the transactions in issue, which was dealing in securities, was not itself illegal.  What happened was that in the carrying out of that object, including the signing of a standard form agreement to govern the rights and obligations of broker and customer, unregistered persons functioned in capacities in which it was laid down by statute that unregistered persons should not function and in which it was, by statute, made punishable for such persons to function.  The question in such a case was whether or not the statute, on its true construction, rendered rights acquired and obligations incurred pursuant to the contract unenforceable. 

71.While taking a serious view of the case before him, his Lordship came to the conclusion that the legislature did not intend that any agreement entered into via someone not registered as a securities dealer’s representative would be unenforceable for the following reasons:

(1)  At 269C-H: It was not lightly to be inferred that the legislature intended sanctions beyond the penalties it laid down.  Within the range of punishment laid down, a sentencing court could tailor its sentence to the circumstances of each case.  A construction which rendered contracts unenforceable amounted to a very blunt instrument and could on occasions have consequences of unwarranted seriousness.

(2)  At 269H-270C: The SO itself provided expressly for the civil consequences of breach of some of its provisions: ss 72(4), 73(4), 76(4) and 143(5).  The fact that a statute expressly provided for civil consequences in regard to some breaches would tend to suggest that the legislature did not intend civil consequences in regard to breaches for which no such consequences were expressly provided. 

72.Bokhary J considered his conclusion fortified by a comparison with the CTO.  CTO s 26(2) provided that no corporation that was a dealer should carry on business as a dealer unless every director or employee who was accredited to the corporation was registered as a dealer under the Ordinance.  Subs (5) laid down criminal penalties for contravention.  Subs (6) provided that any futures contract made by any person, whether as principal or agent, who was required to be registered under subs (1) and who was not registered as so required, may be rescinded by any other party to the contract who, upon so doing, should be entitled to recovery of any money or other thing he may have paid or delivered under the contract.  His Lordship agreed with Counsel for the plaintiff that breaches of s 26(2) of the CTO and breaches of the SO were so alike that the legislature was unlikely to have viewed the automatic result of breach on enforcement as different in each case and that the provision of the remedy contained in s 26(6) was inconsistent with automatic unenforceability upon breach of s 26(2) since the latter would render the former unnecessary.  See 271F-272C.

73.Mr Leung contended that Richardson Greenshields of Canada (Pacific) Ltd v Chow Paul was decided per incuriam as the Court did not seem to have considered a number of relevant cases namely, Cope v Rowlands, Victorian Daylesford Syndicate Ltd and Chan Ting-lai.

74.Richardson Greenshields of Canada (Pacific) Ltd v Chow Paul was cited with approval, albeit obiter[11], both at first instance by Mr Recorder Robert Kotewall SC and on appeal by Mayo JA (as he then was) in Chung Fai Holdings Limited v D H International Limited, HCA 3351/1998, unreported, 22 July 1999, pages 15-17 and CVCA 229/1999, unreported, 3 February 2000, page 11.

75.Bokhary J’s reasoning that the express provisions for civil consequences in regard to some breaches of the SO suggested that the legislature did not intend civil consequences in regard to breaches for which no such consequences were expressly provided was also approved and applied, again obiter[12], by the Court of Appeal in Tullett & Tokyo International Securities Ltd v APC Securities Co Ltd [2001] 2 HKLRD 356 at 375J-376G, per Le Pichon JA.   

76.Richardson Greenshields of Canada (Pacific) Ltd v Chow Paul was recently followed by Deputy High Court Judge Mimmie Chan (as she then was) in A A Chen (Asia) Pacific Consultants Limited v Khoo EE Liam, HCA 4354/2003, unreported, 25 September 2012, in which the plaintiff claimed for consultancy fees under a mandate agreement.  It was found that in offering its services and the services of its director, the plaintiff and such director were acting as investment advisers and they ought to have been registered under ss 49 and 50(1)(b) of the SO.  See paragraph 36.  Although her Ladyship distinguished Richardson Greenshields of Canada (Pacific) Ltd v Chow Paul on the facts (paragraph 39) and was attracted by the defendant’s submission that if the law did not allow an unregistered investment advisor to give investment advice the law should not permit the unregistered adviser to sue for his fees (paragraph 40), she also concluded, albeit with some reluctance, that the fact that a statute expressly provided for civil consequences in regard to some breaches tended to suggest that the legislature did not intend civil consequences in regard to breaches for which no such consequences were expressly provided.  See paragraph 41.

77.To complete the survey of authorities, in urging me to depart from Richardson Greenshields of Canada (Pacific) Ltd v Chow Paul, Mr Leung also drew my attention to the decision of the High Court of Singapore in Tan Chor Thing v Tokyo Investment Pte Ltd [1991] 1 SLR(R) 321 at first instance and the decision of the Court of Appeal of Singapore in Tokyo Investment Pte Ltd v Tan Chor Thing [1993] 2 SLR(R) 467 on appeal.  The defendant pleaded guilty to offences under s 11(1)(a)[13] of the Futures Trading Act for carrying on the business of trading in futures without a licence and admitted to having acted as a futures broker representative of the second defendant.  In issue was the recoverability by the plaintiff of certain shares pledged as security for his trading account with the second defendant.

78.Chan Sek Keong J held that the contracts the defendants had put through for the plaintiff were illegal so that all moneys due thereunder were irrecoverable; that the plaintiff was not in pari delicto as one of the objects of the Act was to protect that class of the public who traded in futures and could recover the shares which were provided in return for the lawful, and not unlawful, carrying out of the plaintiff’s buying and selling orders.  See paragraphs 21-27. 

79.This was upheld by the Court of Appeal, which noted the object of the Act in regulating trading on futures contracts and the clear prohibition against any unlicensed person trading as a futures broker (paragraph 21).  It dismissed the argument put forward by the defendants that the inclusion of s 22(2)[14] would suggest that a transaction by an unlicensed broker should not be treated as illegal and unenforceable.  To the contrary, the presence of s22 (2) confirmed that Parliament intended that a transaction entered into by a person who was unlicensed (as opposed to one who was licensed but who had his licence revoked or suspended) should not be saved and should be treated as illegal and unenforceable.  See paragraphs 22-23.  Lastly, the plaintiff was again held to be not in pari delicto as one of the objects of the Act was to protect that class of the public who traded in futures (paragraph 31).

80.The parallels between the SO and the Singaporean Futures Trading Act are not lost on me.  However, I do not feel able to depart from Richardson Greenshields of Canada (Pacific) Ltd v Chow Paul and the cases following and approving it for the following reasons.

81.The question is ultimately one of construction of the particular statute:

“… Primarily, then, it is a matter of construing the statute and in construing the statute the court will have regard not only to its language, which may or may not touch upon the question, but also to the scope and purpose of the statute from which inferences may be drawn as to the legislative intention regarding the extent and the effect of the prohibition which the statute contains.”

See Mason Jin Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 423, cited by Le Pichon JA in Tullett & Tokyo International Securities Ltd v APC Securities Co Ltd at 375H-I.

82.The question whether the statute is passed for the protection of the public is one test of whether it is intended to vitiate a contract made in breach of its provisions but it is not the only test.  As Gibbs ACJ said in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd at 414:

“It would be contrary to reason and principle to allow one circumstance to override all other considerations in the interpretation of a statute.  As Devlin J. said in St. John Shipping Corporation v. Joseph Rank Ltd., at p. 287: “The fundamental question is whether the statute means to prohibit the contract. The statute is to be construed in the ordinary way: one must have regard to all relevant considerations and no single consideration, however, important, is conclusive.”

83.It is not uncommon for the legislature, where it considers appropriate and intends so to do, to vitiate transactions entered into in breach of a statute by express provisions to such effect.  There are many such express provisions in our statute law.

84.Indeed, there were some such express provisions in the SO itself.  In my view, the inference that, by expressly providing for civil consequences in regard to some breaches of a statute, the legislature does not intend civil consequences in regard to other breaches of the same statute for which no such consequences are expressly provided is logically compelling.

85.I am also mindful of the fact that s 50(1)(a) could be breached in many different ways of varying degrees of seriousness.  One could even imagine a breach that was not otherwise wrongful save for the fact of non-registration of the person through which the transaction was effected. Indeed, a transaction entered into through an unregistered dealer’s representative could even be profitable for the customer.  A construction that renders all transactions put through by a person acting in breach of s 50(1)(a) unenforceable could have consequences of unwarranted seriousness, even for the customers who the SO sought to protect.

86.The second ground of defence also fails.

SCS’s non-compliance with MLO s 18

87.Section 18 of the MLO reads:

“(1) No agreement for the repayment of money lent by a money lender or for the payment of interest on money so lent, and no security given to any money lender in respect of any such agreement or loan, shall be enforceable unless-

(a) within 7 days after the making of the agreement, a note or memorandum in writing of the agreement is made in accordance with subsection (2) and signed personally by the borrower, and a copy of such note or memorandum is given to the borrower at the time of signing; and

(b) there is included in or attached to such copy a summary, in such form as may be prescribed, of such provisions of this Part and Part IV as may be prescribed,

and no such agreement or security shall be enforceable if it is proved that the note or memorandum was not signed by the borrower before the money was lent or the security was given.

(2) The note or memorandum shall contain all the terms of the agreement and in particular shall set out-

(a) the name and address of the money lender;

(b) the name and address of the borrower;

(c) the name and address of the surety, if any;

(d) the amount of the principal of the loan in words and figures;

(e) the date of the making of the agreement;

(f) the date of the making of the loan;

(g) the terms of repayment of the loan;

(h) the form of security for the loan, if any;

(i) the rate of interest charged on the loan expressed as a rate per cent per annum, or the rate per cent per annum represented by the interest charged as calculated in accordance with Schedule 2; and

(j) a declaration as to the place of negotiation and completion of the agreement for the loan.

(3) Notwithstanding subsection (1), if the court before which the enforceability of any agreement or security comes in question is satisfied that in all the circumstances it would be inequitable that any such agreement or security which does not comply with this section should be held not to be enforceable, the court may order that such agreement or security is enforceable to such extent, and subject to such modifications or exceptions, as the court considers equitable.”

88.SCS did not dispute that it breached s 18(1) and (2):

(1)  First, while SCS had made a memorandum containing the salient terms of the Agreement in the form of the Facility Letter, as explained in paragraphs 16(8), 20(9) and 21 above,

(a)  the copy Facility Letter bearing Mr Lam’s signature was signed by him when the 2 terms required to be included by s 18(2)(d) and (i) [i.e. the amount of the principal of the loan in words and figures and the rate of interest charged on the loan expressed at a rate per cent per annum] were yet to be agreed upon;

(b)  Mr Lam was never asked to sign the Facility Letter with all the necessary terms incorporated; and

(c)  it follows that Mr Lam was not given a copy of the Facility Letter containing all the necessary terms and signed by him whether within 7 days after the making of the Agreement or at all.

(2)  Second, s 18(2)(i) does not accommodate the use of a floating interest rate such as “HSBC PRIME PLUS 4%”.

(3)  Third, as mentioned in paragraph 25 above, there were many occasions on which Mr Lam borrowed in excess of $200,000.  SCS failed to prepare, provide or obtain Mr Lam’s signature on a memorandum in respect of the advances exceeding the Facility (which was capped at $200,000).

For the second and third-mentioned points, see Emperor Finance Limited v La Belle Fashions Ltd (2003) 6 HKCFAR 402, paragraphs 90-103, per Ribeiro PJ.

88.  The only issue was whether the Court should exercise its discretion under s 18(3) in favour of SCS, that is, whether the Court is “satisfied that in all the circumstances it would be inequitable that [the Agreement] ... which does not comply with [s 18(1) and (2)] should be held not to be enforceable”.

89.The leading authorities are the Court of Final Appeal’s decisions in Emperor Finance Limited v La Belle Fashions Ltd, paragraphs 116-119, per Ribeiro PJ and Strong Offer Investment Ltd v Nyeu Ting Chuang (2007) 10 HKCFAR 529, paragraphs 29 and 33, per Chan PJ.  In exercising the discretion under s 18(3), the Court should examine the breach or breaches in question, their consequences for the parties to the transaction any other circumstances which make it inequitable to hold the agreement unenforceable.  The Court has to conduct a balancing exercise having regard to the equities in the case.  As analysed by Mr Recorder Patrick Fung SC in Treasure Spot Finance Co Ltd v Li Chik Ming, HCA 5387/2001, unreported, 3 December 2007, paragraph 28, there is no single circumstance or set of circumstances which is decisive as to how the Court should exercise its discretion in a particular case.  Each case must be decided on its own facts.

90.I am satisfied that, having regard to the following circumstances, it would be inequitable to hold the Agreement unenforceable and I exercise my discretion under s 18(3) in favour of SCS so that its claim herein against Mr Lam is enforceable in full:

(1)  SCS did attempt to comply with s 18(1) and (2) with the use of the Facility Letter.  It would have been compliant with regard to the $200,000 Facility (save for the floating interest rate) had the procedure set out in paragraph 21 above been followed in this case.  I do not feel able to infer from the deviation in this case that there was a systematic deliberate disregard of s 18 by SCS.

(2)  As found in paragraphs 18, 22 and 26 above, Mr Lam did not at any material time operate under any misapprehension as to the nature of the Agreement and his obligations to SCS thereunder.

(3)  The additional credit was extended by SCS on the same terms as applied to the $200,000 Facility.

(4)  Through the daily and monthly statements of the Account, Mr Lam was constantly kept informed as to the precise status of the Account and his exposure to SCS both in terms of principal and interest.  Mr Lam could read and understand those statements.  He could, at any time, have cut back on his purchases to halt the build-up of indebtedness on the Account but chose not to do so.

(5)  Notwithstanding the use of a floating rate, the actual rate by which interest was charged at any given time and the date from which such rate applied were clearly stated in the daily statements.  And the amount of interest charged was calculated and stated in the monthly statements received by Mr Lam.

(6)  The statutory policy is now to permit corporations licensed to carry on a business in securities margin financing under Part V of the Securities and Futures Ordinance (Cap 571) to be exempt from the requirements of the MLO, which may be interpreted as recognition that there is room for easing some of the constraints posed by the legislation on the provision of finance for properly regulated margin trading activities.

91.I dismiss the third ground of defence.

No “HSBC Prime” rate?

92.Mr Lam also took issue that HSBC did not in fact quote a “prime rate”, as opposed to what is called the best lending rate, for Hong Kong dollars.  I am afraid I see nothing in the point.  The Facility Letter, from which the reference to “HSBC Prime” was drawn, dealt with interest in greater detail in the pre-printed paragraph (h).  There was a repeated reference to the “prime lending rate” for Hong Kong dollars as quoted by HSBC. Those words were translated into Chinese as “最優惠利率”, which clarified the matter if there be any ambiguity in the first place.  Mr Lam did sign the Facility Letter, albeit before the insertion of the specific interest rate.  It is clear to me from his evidence that he was not misled as to the interest rate charged by SCS.

Conclusions

93.For the above reasons, I give judgment for SCS in the sum of $326,675.31 with simple interest at the rate of 4% above the best lending rate quoted for Hong Kong dollars by HSBC from 30 November 2000 until judgment as well as after judgment.  SCS is entitled to post-judgment interest at the contractual rate by virtue of Clause 4 of the Memorandum and Clause 7 of the Margin Agreement.

94.I also make an order nisi that Mr Lam should pay SCS the costs of this action, including the costs of and occasioned to SCS by the adjournment of the trial which was scheduled to commence on 18 October 2010, caused by the late amendments made to Re-amended Defence and Counterclaim on 12 and 18 October 2010, to be taxed if not agreed.

95.In case either party wishes to vary this costs order, written submissions for such purpose should be filed and served within 14 days of the date when this Judgment is handed down and the other party should file and serve its/his written submissions in reply within 14 days thereafter.

Mr Wong Chao Wai Brian, instructed by Messrs Hampton, Winter and Glynn for the Plaintiff

Mr Paul H M Leung, instructed by Messrs Cheng Wong Lam & Partners for the Defendant