Kgi Futures (Hong Kong) Ltd v. Li Kar Huen Christine
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HCA 194/2010 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 194 OF 2010 ------------------------ BETWEEN
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------------------------- J U D G M E N T ------------------------- 1.The plaintiff is a company licensed by the Hong Kong Securities & Futures Commission to deal in futures contracts. On 5 February 2007 the defendant became one of its clients. She opened an account with them in order to trade in futures. 2.In this action the plaintiff claims that the defendant is indebted to it in the sum of $1,161,044.16. This arises because on 14 June 2007 the defendant through the electronic trading system (which permitted her to execute futures contracts via the internet) instructed the plaintiff, as her agent under the Standard Terms and Conditions, to open 41 Hang Seng China Enterprises Index Futures Contracts (“HHI Futures”) and close 128 HHI Futures. This remained the position at the end of the trading day and thus there were 87 HHI Futures in open short position but her account only had a balance of $208,661 which was insufficient to cover her margin requirements. The actual shortfall was approximately $4.1 million. 3.The next day Ms Gillian Wong of the plaintiff eventually (after several unsuccessful attempts by telephone) succeeded in contacting the defendant at about 11:00 am. Ms Wong informed her of the position, namely that there was a $4.1 million shortfall in the account, and told her she must either deposit sufficient cash to cover it or close out her open positions. The defendant did neither and therefore, pursuant to the Terms and Conditions of the plaintiff’s agency with the defendant, the plaintiff closed out the outstanding contracts resulting in a net loss to the plaintiff of the $1.161 million claimed. Defendant’s absence at trial 4.The trial proceeded in the defendant’s absence. She had been represented and had filed a defence and counterclaim dated 30 June 2010. At that time her address for service had been filed. Since then all relevant documents have been properly served on her at that address either by post or by hand or both. Additionally, on the court’s direction, in the week before trial attempts were made to contact both the defendant and her brother (who had filed a witness statement) but without success. Pursuant to RHC Order 35, rule 1(ii) I acceded to the application to hear the trial in the defendant’s absence. Terms and conditions of the defendant’s account 5.At trial the two witnesses called by the plaintiff, namely Mr Norris Lau Hung Chuen whose job description was a “Responsible Officer” of KGI Futures (HK) Ltd and Ms Gillian Wong Ka Lun, an Investment Representative of KGI, both gave detailed evidence of the nature of Futures contracts and how they are traded in Hong Kong together with the circumstances in which the defendant opened her account on 5 February 2007. In view of the defendant’s absence at trial the plaintiff’s witness statements were unchallenged. I found the entirety of their evidence to be reliable. 6.The nature of Futures contract is fully set out at paragraphs 7‑16 inclusive of Norris Lau’s statement which it is unnecessary to recite herein. I will however set out certain clauses in the documents which the defendant signed, having read and understood them, on 5 February. The Account Opening Form is a lengthy document which includes a Risk Disclosure statement which spells out all the risks involved with trading in futures and options. It commences with the following:
7.The opening forms also required the defendant to tick one of three boxes to indicate the level of risk she was prepared to undertake; low, medium or high. She ticked the “high” box. 8.Even lengthier is KGI’s Standard Terms and Conditions for Futures and Options Trading. The following clauses are some of those which are particularly relevant to these proceedings.
9.Having opened the account, the defendant embarked on a regular course of trading. All her trades were carried out electronically over the internet. She consulted no-one from the plaintiff firm in the course of her trading. Between 6 February and 13 June 2007 she executed 1,418 Futures contracts which required a total margin funding of over $32 million. Events of 14 and 15 June 2007 10.The defendant was plainly aware of the need to maintain sufficient margin funds when trading. She had traded regularly and there had been occasions when her orders had been rejected because of an insufficiency of funds. In particular, in the week prior to 14 June she had input a large volume of trades which had been consistently rejected. However she persisted on a daily basis, regardless of the lack of funding, and on 14 June 3 orders (3 amongst many) got through the system and were allowed to be processed. 2 of the 3 were those referred to in paragraph 2 supra. 11.The next day Ms Wong acted responsibly and properly by making repeated efforts to contact the defendant. It was also proper of her to give the defendant an opportunity to remedy the situation herself either by carrying out the sales herself as a matter of urgency or by funding her account to meet the deficit. Ms Wong also warned her what would happen if she did not. In the event neither happened and thus, pursuant to the Standard Terms and Conditions, it became necessary later in the day for the plaintiff to close out her unfunded position. The plaintiff was not under any duty to obtain the best price when selling. It understandably acted with reasonable speed. 12.After exercising its rights under Clauses 10.1, 10.2 and 10.3 of the Standard Terms and Conditions the amount due to the plaintiff was $1,161,044.16. That sum is made up as follows:
Defence 13.In her pleaded defence the defendant raised two issues. Firstly, she alleged that the plaintiff owed the defendant a duty of care, inter alia, to “act in the best interest of the client”. Secondly, she alleged that when she opened her account Ms Wong made certain representations to her which were false. By virtue of the defendant’s absence no evidence was adduced in support of either defence. The plaintiff’s evidence which contradicted these issues I found to be reliable. I find that the alleged representations were not made and the plaintiff’s conduct by its employees did not constitute any breach of duty. Costs 14.The plaintiff seeks costs on an indemnity basis pursuant to Clause 13.2 of the Standard Terms and Conditions which states:
15.Due to the defendant’s cavalier conduct both in her trading activity and her response to these proceedings I exercise my discretion to award the indemnity costs, to which she agreed in Clause 13.2, in favour of the plaintiff. Order 16.Judgment be entered that the defendant pays the plaintiff $1,161,044.16 plus interest at prime rate plus 1% from the date of the writ to the date of this judgment and thereafter at judgment rate until satisfaction. The defendant’s counterclaim shall be dismissed. There will be an order for costs in the plaintiff’s favour on an indemnity basis.
Mr Norman Nip, instructed by Wilkinson & Grist, for the Plaintiff Defendant in person, absent | ||||||||||||||||||||||||||||||