Tong Chun Chung and Others v. Onshine Securities Ltd

1991,No.A4343

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Hon Liu J. in Court

Dates of Hearing : 15-18,21-25, 28-30 April 1994, 6-8,11-15,18 & 26 May 1994

Date of Delivery of Judgment: 26 May 1994

Date of Handing Down Reasons for Judgment: 28 May 1994

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JUDGMENT

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1. These are the reasons for the judgment I delivered on 26 May 1994.

2. The plaintiffs were customers of the defendant, a broker firm in the Hong Kong Stock Market. The plaintiffs' share dealings with the defendant were through one Yeung Shu Hung who was one of its runners. I shall refer to him as "Yeung". Previously between 1982 to December 1989, Yeung was a runner of another broker firm called Hamburg. In 1985, Yeung also became a full-time authorised clerk in the trading hall for Kingsly's Securities Company Limited. He ceased to be such authorised clerk in February 1991. Yeung’s association with the defendant began in December 1989, and since then Yeung had served the defendant in two successive capacities. First, in December 1989 when Hamburg ceased business, its manager Sam Tsang took a group of runners over to the defendant. By arrangement, Sam Tsang formed a company called Sino Fair to which the commissions of the runners were paid and in turn Sino Fair distributed the commissions to the runners brought over from Hamburg, including Yeung. Then in May 1990, Hamburg recommenced business and its former manager Sam Tsang returned to Hamburg but the runners he had brought  over from Hamburg remained with the defendant. Therefore, as from May 1990, Yeung and the other runners became direct runners of the defendant.  Accordingly, Yeung served as a runner in the defendant firm under Sino Fair at the beginning but later as from May 1990 he became a runner of the defendant direct.

3. Throughout these two successive capacities in his time with the defendant, Yeung was also a full-time authorised clerk in the trading hall for Kingly Securities Company Limited. The stock market was then less than active and Yeung was from time to time able to return to the office of the defendant even during trading hours. Of course, he was there after trading hours. Yeung was the only runner without a basic salary which was in any case insubstantial. He was solely on commission basis. As in the case of the other runners, the defendant printed business card for Yeung. Yeung had no permanent sitting accommodation in the defendant office, but whenever it was convenient and practicable, another runner Mr Chu Moon Sun would allow Yeung to occupy his seat. Yeung was not given other company benefits such as provident fund, medical insurance, etc. His name did not appear in the defendant's records as an employee, but there were commission statements with reference to Yeung as a runner. Yeung had his own mobile phone, and he at times entertained customers, but he was not reimbursed these expenses. In my view, Yeung could not be said to be his own master. He was not to betray the defendant by sending his contacts to another broker， contrary to the usual loyalty as would be expected of a runner. Evidently, the duties of a runner were best left to be under-supervised within the general framework. Provided Yeung operated within the general framework of a runner in the defendant firm, he had a relatively free hand in serving his exclusive contacts as customers of the defendant in his own way, working his own hours. It is only good commercial  sense that he would have to constantly prove himself to be productive in his team of runners. Yeung was clearly obliged to conform with the company’s policy and administrative measures. Yeung served his personal contacts as customers of the defendant by providing information of market condition and price, accepting and executing orders through the defendant's floor trader, notifying the customers of completion or otherwise of the transactions, receiving  payments from customers for the defendant, handing in payments·to its Settlement Department, delivering receipts or Bought Notes to customers of completed purchase orders, advising customers of the readiness of scrips for collection and collecting scrips for customers·from the defendant's Settlement Department. Yeung served a selling customer in a similar manner.

4. The 3rd plaintiff patronised the defendant through Yeung on only one occasion with two orders. In their experience of placing various orders with the defendant through Yeung, the 1st and the 4th plaintiffs understood and accepted the personal assistance of Yeung as part of the services rendered by the defendant as a broker firm. The plaintiffs approached Yeung partly because of their belief in the defendant's dependability. These general and personal services I have described as provided by a runner were confirmed by Yeung, the other runner Mr Chu and the manager of the defendant Madam Li. It was also confirmed that the job description was the same for Yeung as it was for a dealer's representative. A dealer's representative is defined in s.2 of the Securities Ordinance as a person in the employment of a broker. The defendant had certainly power to direct and control the work of Yeung although a runner's performance would probably be more productive without very close supervision. A runner would guard his contacts jealously to protect his commission earning capacity. However, the defendant company could insist on revelation of such information from its runners， including Yeung, although more often than not it would refrain from doing so. The runners, including Yeung must conform with the basic guidelines in matters of form, procedure and policy. Yeung disclosed in his evidence that the defendant's observance of its own regulatory procedure was less than consistent or perfect. Madam Li herself also mentioned some irregularities and made references to similar shortfalls in the general practice of other broker firms. Yeung ran a private mobile phone and incurred entertainment expenses， but he was exposed to no real financial risk; nor could it be sensibly maintained that he was in fact running his own business or outfit independently of the defendant. The court was not told of any terms or conditions regarding Yeung’s position as a runner with the defendant, which were decidedly inconsistent with the status of an employee. In my view, without doubt, Yeung was an employee of the defendant.

5. The 1^st plaintiff acquired shares from the defendant through Yeung in his own name and in the names of his mother and brother. Both the 1^st and the 4^th plaintiffs had previously been purchasing and selling shares through the defendant, using Yeung as, so the defendant described, “the middle man”. In some of the early transactions, scrips were delivered to these plaintiffs. Except for the shares set out in the table below, all their other transactions had been satisfactorily accounted for. The 3^rd plaintiff acquired two lots of shares through the defendant with the aid of Yeung. The 3^rd plaintiff’s shares and those of the 1^st (using his and the names of his mother and brother) and the 4^th plaintiff’s as listed in the table below were all transferred into Yeung’s Margin Account and ultimately sold. The plaintiffs have elected to claim against the defendant the amounts they paid for these shares which were allegedly undelivered to the plaintiffs by the defendant.

Plaintiff	Quantity/ Name of shares	Date of Purchase	Date of transfer into Yeung’s Margin Account	Date of Disposition
1st and 2nd	78,000 out of 170,000 IHD (92,000 sold on 24/7/90)	27/6/90	1/8/90	20/11/90 & 26/11/90
	100,000 Dao Heng (guoco)	13/7/90	1/8/90	23/8/80
	100,000 Dao Heng (guoco)	20/7/90	1/8/90
	100,000 Thompson Pacific	26/7/90	30/7/90	2/1/91
3rd	84,000 Paul Y	26/7/90	30/7/90	2/10/90 & 8/10/90
	100,000 Chuang’s Consortium	26/7/90	10/8/90	2/1/91
4th	110,000 Paramount Dev	25/6/90	27/7/90	2/10/90 & 8/10/90
	60.000 Paramount Dev.	27/6/90	27/7/90
	50,000 Crocodile	9/7/90	27/7/90	5/10/90

6. On the only occasion when the 3^rd plaintiff bought two lots of shares, he was about to leave Hong Kong for a month. He asked Yeung to “conduct settlement on his behalf”. His instructions to Yeung were: “Onshine (the defendant) should keep the shares in the company”. He was given a receipt on 26 July 1990, the date he bought the two lots. He was away from Hong Kong for over a month. He asked Yeung to handle the settlement and “to keep (the shares) in the firm or the company before (he) returned”. He “trusted the matter in (Yeung’s) hands as a broker”. He instructed Yeung “to get the shares first and place them in the company”. Yeung was, as I have found, an employee of the defendant. To the 3^rd plaintiff the defendant was to deliver the shares through Yeung on his return as part of its services rendered through its runner. The shares were never delivered to the 3^rd plaintiff by the defendant through, to put it midly, some fault on the part of its runner. It would not lie in the mouth of the defendant to say that although it did not comply at all with a customer’s instructions, nevertheless it should not be held responsible for the shares concerned, which had forever left its possession in the course of that employee’s purported performance of those instructions with an ulterior motive. The instructions were to deliver the shares to the 3^rd plaintiff on his return. The shares were not so delivered to the 3^rd plaintiff by the defendant. Even if Yeung had actually managed to obtain the shares in settlement, the defendant could not have excused itself from fulfilling those instructions given to its employee/runner and delivering the shares to its customer (the 3^rd plaintiff) on his return to Hong Kong. Those instructions had clearly not been carried out. The 3^rd plaintiff never had his shares delivered to him as instructed or at all. It must not be overlooked that the instructions were given to Yeung on the understanding that it was part of the services rendered by the defendant and that the 3^rd plaintiff was himself still holding the receipt for the two lots in the belief that his shares would be safe in the arrangement made, involving merely an internal operation within the broker firm. He never suspected “ that the shares could be credited into any account (other than his own)”. In fact, when the instructions were given, Yeung had not even opened his Margin Account. Yeung’s Margin Account was opened th day after, on 27 July 1990. The 3^rd plaintiff could not understand “why (in) a big company like this, such kind of thing still happened” and the wanted “to know how (Yeung) could have put all shares in his own account”.

7. Against the 1^st plaintiff (for himself and his family) and the 4^th plaintiff, the defendant seeks to rely on previous dealing. The 1^st plaintiff was given Bought Notes as evidence of ownership. After the first few orders, he expressly instructed Yeung to keep the shares “at Onshine as they were too bulky”. These circumstances hardly lend support to Mr Mok’s submissions.

8. As for the 4^th plaintiff, only once he took delivery of scrips from the defendant through Yeung. On that occasion, he was waiting in the office of the defendant, sending Yeung with the documentation and payment to obtain his scrips for 20,000 Hong Kong Land shares from the Settlement Department. The defendant’s Settlement Department would, I find, part with the scrips of Yeung’s own customers to Yeung without any proof provided the shares had been paid. The company, though not necessarily through the staff of the Settlement Department, would expect Yeung to return soon afterwards the relevant receipt or the Bought Note. No one was called from the defendant’s Settlement Department. There was no evidence in what way the process of settlement and delivery on other occasions was completed in the Settlement Department with regard to Yeung except for his own testimony. Also no evidence was led as to how the shares in question had been processed in that department and what step, if any, had been taken. It would be absurd to suggest, so submitted Mr Cheung for the plaintiffs, that the misdoings of any employee of the defendant, who happened to come legitimately by the shares of the plaintiffs at any one stage would relief the defendant of all liability. I agreed.

9. The Margin Account of Yeung was opened and maintained without the knowledge of the plaintiffs. It was opened shortly after the acquisition of the shares in question. Yeung did not go to the Settlement Department for the delivery of any of these shares. He went to one Wong Hon Kit, alias Kit Chai with the request that certain shares were to be transferred via the computer to his Margin Account. Yeung told the court that there was no and no physical delivery of the scrips and that the transfers were all done on the computer by Kit Chai who had been provided by him with particulars of shares. Mr Mok, counsel for the defendant, submitted that in order for the shares to be transferred to Yeung’s Margin Account, the procedure of settlement and delivery must have earlier been put through and that the shares in street names in the cash scrips deposit would in any case have to be taken out and re-deposited into the Margin Scrips Deposit Pool. The bought shares would initially be put in the cash scrips deposit. Any cash scrips deposit withdrawal would be checked by Madam Li and noted by the deletion of the same scrips recorded in her own notebook. Madam Li concluded that “settlement was done, alright”. I do not attach any real significance to the sequence of entries of the serial numbers of the scrips in different register books of the defendant. However, Mr Mok’s deduction of delivery, even if correct, would not necessarily involve any instant re-counting or re-registration in the Settlement Department, nor the usual process of settlement and delivery for completing a purchase. In the case of the 84,000 Paul Y shares of the 3^rd plaintiff, the same quantity of shares for the transfer into Yeung’s Margin Account were in fact made up of only 34,000 out of his 84,000 Paul Y shares together with some other 40,000 shares from the Margin Pool and the remaining 10,000 coming from presumably another customer of Yeung, Mr Chan Pui Kuen. 50,000 out of these 84,000 Paul Y shares of the 3^rd plaintiff in the cash scrips deposit were not so transferred by the computer. That clearly suggested that there was no settlement and delivery in the usual sense, otherwise at least in counting the precise number of shares of the 3^rd plaintiff for the alleged delivery, those 50,000 Paul Y shares could not have been overlooked in the process.

10. None of the defendant’s contentions is therefore maintainable, namely that Yeung had authority, express and/or ostensible, to take personal delivery in settlement, that the plaintiffs consented to or acquiesce in Yeung keeping their respective shares, that somehow settlement and delivery must have been made to Yeung, that subsequent to and independent of such alleged delivery, Yeung had actual and/or ostensible authority to deal with the shares in any way he wished, that the defendant had consequently delivered the shares to the plaintiffs in settlement as their broker, and that hence the defendant was unconcerned with the subsequent transfer of these shares into Yeung’s Margin Account.

11. The overall scenario does not suggest anything inconsistent with the conclusions I have reached, but Mr Mok, counsel for the defendant, drew my attention to the past practices of Yeung such as borrowing shares from his customers, e.g. from Madam Chan Suk Wah, acquiring shares of his relatives and acquaintances in his own name rather than those of the actual purchasers, e.g. in the case of Chan King Lai, his godfather, and retaining shares of some friends in his Margin Account as security for the gambling credit facilities he had procured for them. Yeung had even bought and sold shares for some customers in his own name through his Margin Account with the knowledge and consent of those customers, like in the case of Mr Wilson Doo. As a close friend and gambling companion, enjoying the credit facilities procured by Yeung, so it was submitted, the 4^th plaintiff must have agreed to or acquiesced in the placing of his shares in this action in Yeung’s Margin Account for one purpose or another or at least the 4^th plaintiff must have given Yeung a completely free hand with respect to his shares, including those in this action. There lay, so ran counsel’s argument, the reasons why the 4^th plaintiff paid various sums in odd dollars and odd cents into the Margin Account of Yeung and why the 4^th plaintiff had not made an earlier complaint to the defendant until April/May 1991 whilst he had been pressing Yeung for the shares from as early as June/July 1990.

12. Moreover, on 5 March 1991, when the 4^th plaintiff made a statement to the Securities and Futures Commission (SFC), he lied about his knowledge of Yeung’s fraudulent activities since the end of September 1990. In evidence, the 4^th plaintiff claimed that his solicitors became suspicious in April 1991 and that he was himself told by Yeung of his fraudulent activities only in June/July 1993. In his statement to the Securities and Futures Commission, the 4^th plaintiff was recorded as saying: “On 26^th July 1990 I bought 50,000 shares of (122) and 200,000 shares of (282) .... At the end of September 1990 I knew from the mouth of (Yeung) that he lost 800,000 plus International Tak Cheung at Onshine [the defendant], the sahres that I had bought were deposited in his account (they) were sold by Onshine, (and) the proceeds of sale were set off by Onshine.” The statement was interspersed with inaccuracies. It was on 9 July 1990, not 26 July 1990 that 50,000 Crocodile shares (122) were bought. The 4^th plaintiff did not buy 200,000 Paramount Development (282) but only 170,000, and he bought them not on 26 July 1990 but on 25 July 1990 and 27 July 1990. At the end of September 1990, the 4^th plaintiff could not have been told by Yeung that his said shares, 170,000 Paramount Development (282) and 50,000 Crocodile (122), had been liquidated by the defendant to set off Yeung’s indebtedness in his Margin Account. The 4^th plaintiff’s shares were in fact sold later on 2 October, 5 October and 8 October all in 1990. I accept, in conjunction with the overall circumstances in this case, that he did purposedly mislead SFC as to his knowledge of frauds since end of September 1990, which allegedly resulted in all his shares having been liquidated by the defendant in Yeung’s Margin Account. Yeung explained that it was he who disposed of these shares. These references to time and quantity in the statement were inconsistent with the known facts, and I prefer to look at it, so the 4^th plaintiff explained, as a deliberate mis-statement made to influence the FSC. I accept the 4^th plaintiff’s evidence that he was told by Yeung of the frauds only in June/July 1993, thus confirming his solicitors’ earlier suspicion in April 1991.

13. The amounts in odd dollars and odd cents involved three sums, namely, $11,456.09, $67,341.50 and $126,825.30. The incident concerning the first two sums arose as the result of purchasing some other 50,000 Crocodile shares (not the 50,000 in the name of the 4^th plaintiff in this action) in the name of Yeung. For the first 15,000 out of these 50,000 Crocodile shares (not the 50,000 Crocodile shares in this action), Yeung paid for them with two cheques one from a colleague of the 4^th plaintiff, Mr Leung Chung Chiu who testified that this was either a payment for mahjong loss to Yeung or the 4^th plaintiff, the other cheque of $11,456.09 was the cheque of the 4^th plaintiff. The 4^th plaintiff explained that there was a running account kept with Yeung for gamblings in various forms and that repayments in odd dollars and odd cents were at times particularly requested by Yeung to pay for Yeung’s own specific Bought Notes, wholly or in part. According to Yeung, it would be a less embarrassing for him to seek instant repayment by a friend if he showed him a Bought Note to evidence his imminent need for cash and that the request made in this way for an urgent need would unlikely be met with lame excuses. The other 35,000 Crocodile share (not part of the 50,000 Crocodile shares in this case) were paid for by a cheque of the 4^th plaintiff in the sum of $67,341.50. The court was given the same explanation by Yeung and the 4^th plaintiff. Another sum, $126,825.30 was paid by the 4^th plaintiff to Yeung. According to the 4^th plaintiff, it was part of his settlement for gambling debts of himself and others. These three cheques from the 4^th plaintiff were dated 29 August 1990, 26 September 1990 and 6 November 1990 respectively. It was urged upon me by Mr Mok, counsel for the defendant, that having failed to obtain delivery of shares from Yeung since June/July 1990, there would have been no good reason why these three sums totalling $205,622.89 ($11,456.09 + $67,431.50 + $126,825.30) were so readily paid over by the 4^th plaintiff to Yeung unless the 4^th plaintiff had really no outstanding claims against Yeung because the shares in question had been freely entrusted to Yeung or the transfer to and use of these shares in the Margin Account had in fact been known and agreed to by the 4^th plaintiff.

14. I accept the explanations of Yeung and the 4^th plaintiff. The inferences sought to be drawn by counsel for the defendant would seem to be much less coherent with the general scenario in this case. I have pondered hard and long over the matter, and I have finally come to the conclusions I have reached. Afterall, there were several separate financial involvements between the 4^th plaintiff and Yeung, involving others, so much so that even in January 1991, Yeung repaid the 4^th plaintiff $80,000 out of the then outstanding $100,000 gambling debts. Mr Mok also drew my attention to the sale of Yeung’s 50,000 Crocodile shares at the same time with the 4^th plaintiff’s 50,000 Crocodile shares, both on 5 October 1990. I have given that also my cautions consideration, particularly on a broad front, as I have taken into account the other peripheral discrepancies which would or could affect credibility, such as the 4^th plaintiff’s denial of obtaining advice from Yeung, the alleged more than one physical delivery of shares, his claimed lack of knowledge of Yeung’s full time employment with Kingsly, his failure to recall tradings with Yeung in Hamburg, his complacency with Yeung’s responses to his demand for delivery of shares, and his other on-going activities with Yeung subsequent to June/July 1990.

15. On all probabilities, the 4^th plaintiff would hardly have allowed Yeung to keep his shares worth some $220,000 for gambling facilities up to the limit of $100,000 per time. According to the 4^th plaintiff, he continued trading in shares through Yeung with the defendant between July and September 1990, and yet there existed no record in Yeung’s commission statements of such subsequent dealings. This is also another facet which troubled me, but these transactions were not thoroughly investigated in the course of the proceedings. Suspicion was at one time aroused, but in the end taking a bird’s-eye view, I prefer the version of Yeung and the 4^th plaintiff. This less than fully canvassed aspect and others do not have the effect of eroding the impact of all the other evidence in favour of the 4^th plaintiff. After all, in a series of incidents involving different figures, partly reconstructed, it would not be difficult to isolate segments which might have no or even defy logical explanation.

16. The 4^th plaintiff belonged to a group of friends comprising the 1^st plaintiff, the 3^rd plaintiff and Yeung. For the relationship, the plaintiffs’ scanty knowledge of the internal modus operandi in Onshine and their understandable indecisiveness, singly or together, it would not be surprising that they only decided to take formal action through their solicitors in April/May 1991.

17. As for the 1^st Plaintiff, Mr Mok, counsel for the defendant, sought to make much of the payment for the rights issue of the Magnificent (Wah Tai) shares. The 1^st plaintiff had then 100,000 Paul Y shares (not any shares concerned in this action) and at the end of July he instructed Yeung to sell these shares to pay for the rights issue of Magnificent. Payment was made on the 1 August 1990 for these rights issue in the sum of $183,750. The net proceeds of sale of these 100,000 Paul Y shares of the 1^st plaintiff would be more than enough to pay for the rights issue. According to Yeung, he misled the 1^st plaintiff into believing that he had sold the Paul Y shares but in fact he had not. Yeung was hoping the market would rise. Yeung drew a cheque of $183,750 from his Margin Account to pay for the 1^st plaintiff’s rights issue from Magnificent. On the same day, he deposited these 100,000 Paul Y shares into his Margin Account. At the same time, Yeung took upon himself to bolster up his Margin Account securities by fraudulently transferring the 1^st and 2^nd plaintiffs’ 78,000 IHD shares and 200,000 Dao Heng (guoco) shares into his Margin Account. The 200,000 Dao Heng shares were in the name of the brother of the 1^st plaintiff. These transfers were unknown to the 1^st plaintiff who even paid further cash to the defendant through Yeung for the purchase of some 100,000 Thompson Pacific on 26 July 1990.

18. It was suggested by counsel for the defendant that the 1^st plaintiff had in fact left the 100,000 Paul Y shares (not any shares in this action) in the hands of Yeung to be handled at his absolute discretion. Under cross-examination, Yeung did mention loosely the use of these 100,000 Paul Y shares as security for the amount paid to take up the rights issue of Magnificent until the Paul Y shares were sold, but I accept his overall evidence that he was well aware of the need to sell these shares but that he kept these shares against the 1^st plaintiff’s instructions and without his knowledge or consent. Counsel for the defendant also sought to make capital of the late payment to the 1^st plaintiff of the balance of the sale of these 100,000 Paul Y shares only on 23 November 1990. The 1^st plaintiff and Yeung had running accounts involving third parties. The late payment in the later part  of November 1990 of the balance of the proceeds of sale of the 100,000 Paul Y shares (said to have been under instructions for sale since July) in a comparatively modest sum of $18,000 odd could not be a matter of any real importance. The shares of the 1^st and 2^nd plaintiffs had a high market value and there was no good reason why the 1^st plaintiff would need to allow Yeung to keep his shares as security for his small gambling debts. Moreover, the shares were not just being held as safe security but placed in the Margin Account of Yeung, which would be subject to speculation and other risks. The 1^st plaintiff had his own Margin Account with Hamburg. If he had wished to borrow money to pay for the rights issue of Magnificent, he could have had his own Margin Account opened on the security of his 100,000 Paul Y shares concerned in these proceedings. There would have been little sense to pay even more cash later for the 100,000 Thompson Pacific shares. I cannot draw the adverse inferences as I am invited to on the force of counsel’s postulations unfavourable to the 1^st plaintiff and for that matter, the 2^nd plaintiff.

19. As for the 3^rd plaintiff, he was concerned only with one occasion with respect to two lots of bought shares. I have set out what I have found to be the true instructions left with Yeung before the 3^rd plaintiff left Hong Kong. The 3^rd plaintiff did not instruct Yeung in the manner as Mr Mok suggested, nor had he allowed Yeung a free hand to deal with his shares, including transferring the same into Yeung’s Margin Account. As for his late report to the management, for the reasons I have given it would not appear to be unusual in the circumstances.

20. I do not propose to deal with each and every issue raised by Mr Mok, counsel for the defendant. I have taken full advantage of the time before resumption of submissions to read all the written submission and the detailed contentions therein several times. I have doubly satisfied myself that the conclusions I have reached on the overall evidence are the right ones.

21. The plaintiffs’ claims against the defendant are founded on the defendant’s failure to deliver shares. The defendant was initially sued in contract or alternatively for monies had and received. Under the contract between broker and customer, unless otherwise agreed, the defendant was to deliver the bought shares in settlement after the buying order had been executed. The court was invited to examine, in isolation, the taking of delivery of the bought shares. Throughout these proceedings, settlement was referred to as settlement by the respective plaintiff with the defendant’s Settlement Department, tied in with the settlement between the buying broker and the selling broker as regulated by Rules 552 to 563B of Rules of the Stock Exchange. However, the plaintiffs’ settlement with the defendant’s Settlement Department did not coincide with the settlement between the brokers in the deal. Mr Yeung explained that settlement with customers would be subsequent to the brokers’ mutual settlement but that delay in settlement by a customer was not to be encouraged as it would entail a penalty on the runner for covering the extra interest payable on the amount laid out by the buying broker. Delivery by the broker to his own customer need be made only within a reasonable time after the scrips are available for collection. In my view, the provisions of the Securities Ordinance and Rules of Stock Exchange had therefore no direct bearing on the question of delivery here.

22. The plaintiffs have elected to put their claims solely on the basis of monies had and received. It is alleged that the shares in question had not been delivered, hence consideration had wholly failed. The defendant’s contention is: When Yeung was given authority, express and/or implied, to take delivery of shares in settlement, the means by which delivery was to be taken was left unspecified. Therefore, Yeung could take deliver by any means, and when Yeung did eventually obtain possession of these shares, an earlier “settlement and delivery” must have occurred to feed his possession of these shares in his Margin Account. Since Yeung could take delivery by whatever means, the defendant must have relied on such of Yeung’s authority to take delivery in relinquishing its possession of these shares in favour of Yeung. Put in another way: Yeung must have gained possession of these shares on, inter alia, his authority to take delivery. So long as possession had been obtained, the means by which the assumed delivery of these shares was procured was immaterial. This was Mr Mok’s rationale which isolated delivery for analysis.

23. Was Yeung given possession of the shares? On that, counsel for the defendant argued:

(1) Possession of the shares must have been passed to Yeung at some stage before the shares were marshalled for the transfer into his Margin Account:

(2) Inference of passing of these shares is fortified by Yeung’s possession of the shares finally in his Margin Account;

(3) “Possession and delivery” must have been given before the transfer into Yeung ‘s Margin Account also because of the physical switch of scrips from the cash scrips deposit to the Margin Pool;

(4) Madam Li herself concluded that by giving possession of the shares to Yeung in this way, “settlement was done”. Entries of these shares were deleted from her notebook.

24. Broady speaking, counsel’s argument may be met by the following:

(1) The Margin Account of yeung was unknown to the plaintiffs;

(2) The Margin Account of Yeung had not even been opened when instruction to buy these shares were given;

(3) The opening of Yeung’s Margin Account was also too close in time to the plaintiffs’ shares association with him to give credence to the proposition that any general authority for taking delivery, wide enough to permit a transfer into such a newly opened Margin Account, could be inferred from these instructions, particularly when the alleged general authority was not given in explicit and clear language;

(4) The authority to take delivery in settlement, even if given and given in the manner as alleged, was strictly confined to the usual “settlement and delivery” in completion as envisaged by the plaintiffs and Yeung;

(5) Each time Yeung was instructed to take delivery, except for the 3^rd plaintiff’s imminent departure from Hong Kong, the customer was waiting in the office of the defendant;

(6) In the transfer into Yeung’s Margin Account, the 3^rd plaintiff’s 84,000 shares of Paul Y were made up of only 34,000 out of his original 84,000 bought shares in street names together with 40,000 shares already in the Margin Pool and 10,000 shares from another customer, Mr Chan Pui Kuen; thus 50,000 out of the original 84,000 bought shares in street names were not or could not have been involved in the process of or for the transfer, and these 50,000 shares could not therefore have been taken delivery of by Yeung, this episode would illustrate that the usual” settlement and delivery” had not taken place in the computer transfer effected by Kit Chai;

(7) Instructions for taking delivery of shares in settlement, even if given and in the manner as alleged, could not have been anticipated by any of the plaintiffs as authority for allowing Yeung to gain possession of the shares at any stage and for whatever purpose; in fact both the plaintiffs and Yeung testified that Yeung had no authority so to transfer these shares into his Margin Account;

(8) The act authorised (i.e. obtaining possession) was to be done at a particular time (i.e. in the usual process of taking delivery) and for a specified purpose (i.e. settlement of the purchase transaction). These three components in the authorisation i.e. taking of possession at a certain time and for a specified purpose, must not be separately considered;

(9) Taking possession in settlement was definitely not taking possession under a wholly different procedure (allegedly implying settlement and delivery) for a computer transfer into Yeung’s Margin Account;

(10) Yeung testified that he did not take delivery of these shares;

(11) What would appear to be an internal transfer into Yeung’s Margin Account has not been shown to have to be inevitably preceded by any or the usual settlement and/or delivery;

(12) What Mrs Li thought of the effect of the transfer into Yeung’s Margin Account would not alter the position; entries in her notebook was primarily for routine quantity check;

(13) Moreover, obtaining possession by taking delivery in settlement would require the return of the Bought Notes or Receipt, but the plaintiffs still retained those in this case;

(14) Kit Chai’s computerised transfer has not been shown to be accompanied by any Bought Note or Receipt;

(15) In fact Yeung merely gave Kit Chai instructions to effect a computer transfer of shares written on a piece of paper, and Kit Chai needed simply to activate the relevant code;

(16) No evidence came from the defendant’s Settlement Department as to whether there was settlement / delivery, at what time the alleged settlement / delivery was made and how settlement / delivery, if any, was related to the transfer into Yeung’s Margin Account.

It is difficult to appreciate how delivery in one phase (purchase settlement) could have taken place or could have been intended to take place in the course of another phase (transfer into Yeung’s Margin Account), particularly when the latter phase was put into motion without authority or knowledge of the true owner. In the circumstances, how could it be seriously suggested that Yeung could not have gained possession of the relevant shares in these proceedings but for his alleged given authority to take delivery in settlement? Settlement was not physically or formally effected. It is claimed to have necessarily been a concomitant or a forerunner of the process of transferring into Yeung’s Margin Account. That has not been established to my satisfaction. I take the firm view that authority to take delivery in settlement, even if given and in the manner as alleged, was no authority for taking or inferentially taking delivery in some other unauthorised form via another transaction, at a different time and for a different purpose Of course, I do not accept that instructions given were for taking delivery in settlement by any means.

25. As for the contended mitigation by the plaintiff, having elected to claim on the basis of money had and received, that was irrelevant. Further, the plaintiffs’ duty was to mitigate their own claimed loss not the defendant’s unrelated loss. Even if the loss to the defendant had been material to the plaintiffs’ loss after the plaintiffs’ election, the loss to the defendant was not clearly identified in these proceedings. Apparently only shares in the Margin Pool were sold and I know not by what percentage the Margin Pool value or equity had been diminished and therefore the true extent of the defendant’s loss. No evidence was called from the Margin Account staff or the staff of the Pool. Even if mitigation had been relevant, the plaintiffs could not have foreseen that instant notification to the defendant could provide the defendant with better protection. How would the plaintiffs have known that any of shares was still retrievable? None of the plaintiffs knew what had happened to the shares. The plaintiffs could not have known that the shares had not already been fully pledged as securities or otherwise disposed of. None of the plaintiffs could have known that an earlier notification to the management could serve any useful purpose. Furthermore, the defendant should have itself realised or detected these deceitful actions. How would it be logical to suggest, if mitigation were relevant, that the plaintiffs should somehow be responsible for not stopping the defendant from continuing to be negligent or neglectful in its administration or supervision over its own staff.

26. I come finally to the debate on “monies had and received”. In the course of his submission, for the plaintiffs Mr Cheung elected to claim exclusively on the basis of monies had and received. For the defendant, Mr Mok resisted the election on three grounds. First, in his capacity of the plaintiffs’ agent for buying shares in the stock market from selling brokers, the defendant would not be susceptible to any claim made on monies had and received. Secondly, the contract between the plaintiffs and the defendant for the purchase and delivery of the respective shares in question had been irrevocably affirmed prior to the institution of these proceedings. On giving such an eternal and unconditional affirmation, the contract had been irreversibly entrenched, thus barring the plaintiffs from subsequently electing to terminate it for suing on the basis of monies had and received. Thirdly, the court was invited to exercise its discretion in equity to refuse the plaintiff’s claim on election or presumably to allow it only on terms.

27. Mr Mok, counsel for the defendant relied on Whitehead v Howard  2 BROD & B. 372; S.C. 5 Moore, 105 for the proposition that as the defendant was expected to pass over the purchase price immediately to the selling broker, no action for money had and received would lie against the defendant, Onshine. Of the acquisition expenses for the shares in question, such as stamp duties, stock exchange transaction levies and the runner’s shares of the broker’s commission included in the purchase price billed for payment by the respective plaintiff, it was said that the defendant was left only with a portion of the commission. Save for this portion of the commission, the defendant was therefore merely a conduit pipe for almost the whole of the purchase price. It was contended that in effect the defendant never had the money at all and that therefore it could not be sued for money had and received. However, the situation in this case was decidedly dissimilar. The defendant, as buying broker on behalf of a respective plaintiff would first settle with the selling broker for his shares in this action before that plaintiff was called upon to settle the transaction with its Settlement Department when the shares scrips were finally ready for collection. In sequence and time, the settlement of each of the plaintiffs with the defendant’s Settlement Department would be a few days after the settlement between the defendant, as the buying broker, with the selling broker. In each case, the defendant was first to pay the selling broker the purchase price with all the dues and charges before the respective plaintiff was correspondingly billed together with its broker’s commission. When the respective plaintiff settled with the defendant, payment made to the defendant would be used by the defendant for its own purchases, for instance for future trading or company expenditure or reduction of its own banking facilities, etc. The plaintiffs’ payments were not received by the defendant for immediate payment over to the respective selling brokers who had already settled with the defendant. The defendant was certainly not a conduit pipe for these payments. In my view, the defendant is liable to be sued for monies had and received.

28. Mr Mok, counsel for the defendant correctly interpreted the decision in Johnson v Agnew [1980] AC 367. Lord Wilberforce reminded us that a prayer for specific performance was not a terminal election, disabling the court from exercising its power to terminate the contract at the invitation of a party. The Law Lord explained:

“A party, who has chosen to seek specific performance, may quite well thereafter, if specific performance fails to be realised, say, ‘Very well, then the contract should be regarded as terminated.’ It is quite consistent with the decision provisionally to keep alive, to say, ‘Well, this is no use – let us now end the contract’s life.’ A vendor who seeks (and gets) specific performance is merely electing for a course which may or may not lead to implementation of the contract – what he elects for is not eternal and unconditional affirmation, but the continuance of the contract under control of the court which control involves the power, in certain events to terminate it.” See p398 F-G. (Emphasis added)

A claim for specific performance or even an order obtained thereunder cannot be regarded as an irrevocable election and the party so elects to specifically perform the contract cannot be said to have eternally and unconditionally affirmed it. In Kwei Tek Chao v British Traders and Shippers Limited [1954] 2 QB 459, the buyers were held to have irrevocably affirmed the contract by conduct when they had retained the alleged defective goods for some 15 months A party to a contract may terminally affirm a contract without possession of the contracted goods or articles. Possession may constitute an irrevocable affirmation by conduct, but other forms of eternal and unconditional affirmation may be given to the contract. The question for my consideration is whether the plaintiffs had, by their solicitors’ letters and their personal demands made of the shares, so irrevocably affirmed their respective contracts for purchase and delivery of the shares in question.

29. For the defendant, Mr Mok relied on a letter dated 15^th April 1991 from solicitors for the plaintiffs (except for the 4^th plaintiff) to the defendant. That was in the usual terms of a solicitors’ formal demand for shares. Even the defendant itself would have been surprised if it had then been told that the plaintiffs had irrevocably affirmed the respective share purchase contracts by such a usual solicitors’ demand. The next letter is one from the solicitors of all plaintiffs to the defendant’s solicitors, in which the share certificates numbers were sought. Lastly, Mr Mok referred the court to a letter dated 15^th May 1991 between the same solicitors. The communication was sent on behalf of the plaintiffs with a notification:

“We have advised our clients that our clients are entitled to look to your client for the shares in question which have not been received by our clients.”

The plaintiffs’ personal demands, made in the circumstances, also did not permanently affirm the respective contracts. In my view, the plaintiffs had not irrevocably affirmed their respective contracts. They were entitled to elect to proceed against the defendant on the basis of monies had and received in the course of these proceedings, as in the case of Tilcon Ltd. v Lan and Real Investments Ltd. [1987] 1 WLR 46 at p 53B.

30. Mr Mok, counsel for the defendant, submitted that this court sitting in equity would have a discretion to refused the claim for monies had and received, or presumably a discretion to allow the same on conditions. Counsel was correct that once specific performance was claimed, it would be tantamount to placing the matter in the hands fo the court so that its power to terminate the contract might be exercised. In allowing a plaintiff to elect to proceed on the basis of money had and received by termination the contract when he decides not to proceed with specific performance, the court would be exercising its power in equity on equitable principles. See Johnson v Agnew, supra. P 398 G/H and p 399 F. In the circumstances I have explained, in the painful predicament thrust upon the plaintiffs involving a friend, there was no real delay in making their respective formal demands in April / May 1991. For the reasons I have given, the respective plaintiffs could not be justly criticised for not appreciating the need, if any, for making an instant complaint to the defendant Mr Mok also submitted that repayment of the acquisition expenses and part of the broker’s commission paid out to the runner would constitute an inequity. However, the purchase price and the acquisition expenses including broker’s commissions were all transformed into the ultimate available share scrips which would, but for the unforeseen circumstances in this case, have been delivered to the respective plaintiffs or still in the hands of the defendant. It was agreed on all hands that the prices of some shares had escalated and some dropped by the time the election was made, but evidence is insufficient for assessing any unfair gain or loss arising from the plaintiffs’ chosen remedy in monies had and received. There are no or no compelling reasons for this court, in the exercise of its equitable jurisdiction in terminating the respective contracts, to refuse or impose terms on the claims for monies had and received.

31. In conclusion, I find the plaintiffs’ claims proved. There should be judgment for $489,387.01 for the 1^st plaintiff, $94,035.83 for the 2^nd plaintiff, $226,052.26 for the 3^rd plaintiff and $224,173.19 for the 4^th plaintiff with interests at the rate of 8% per annum from the date of writ to the date of judgment. Interests at judgment rate will accrue as a matter of course. I make and order nisi that the plaintiffs are to have costs against the defendant.

Mr Andrew Cheung, inst’d by Woo, Kwan, lee & Lo, for the Plaintiff

Mr Johnny Mok, inst’d by Fung & Liu, for the Defendant