Read the full judgment text of CACV 000186/1991 on BabelCite. This Court of Appeal judgment was delivered on 7 May 1992 before Sir Derek Cons, V-P, Kempster, JA and Mayo, J.
Civil law – contract – agency – sub-agency – reimbursement and indemnity – appeal – costs – Civil law – contract – mistake – whether mistake as to price vitiates transaction. The defendant directed the bank to buy 200,000 shares in Keng Fong Sun Kee Construction and Investment Co Ltd 'at best' on 15 October 1987. The bank, not being a registered dealer in securities, used the brokers to execute the purchase. The defendant signed a stock purchase order form showing awareness that the brokers would execute the trade. Godfrey J held the defendant liable to reimburse and indemnify the plaintiffs, Sun Hung Kai Investment Services Ltd (the brokers) and International Bank of Asia Ltd (the bank), for the cost of the shares, but made no order as to costs. The shares were bought for $247,415.50 and later sold for $70,091.91, leaving the plaintiffs' claim at $177,322.59. On appeal, the Court of Appeal considered whether direct privity of contract arose between the defendant and the brokers such that the brokers were entitled to reimbursement and indemnity. Applying the principle in De Bussche v Alt (1878) 8 Ch D 286, approved by Viscount Cave LC in Tarn v Scanlan [1928] AC 34, the court held that where the exigencies of business require it, an agent is deemed to have authority to appoint a substitute giving rise to direct privity of contract with the principal. The brokers were therefore entitled to look to the defendant for reimbursement. The court further considered whether the broker's initial mistake as to the price vitiated the transaction and held that it was not so serious or fundamental as to deprive the broker of the right to reimbursement. On the cross-appeal, the court considered whether the trial judge's discretion not to award costs should be disturbed. The court allowed the cross-appeal, holding that the withdrawal of the plea of fraud only on the first day of trial was a factor the judge did not appear to have considered, and none of the matters in grounds (1) to (3) of the Notice of Appeal warranted a departure from the usual costs rule. The defendant's appeal was dismissed, the cross-appeal on costs was allowed, and the defendant was ordered to pay the costs of the action. The order drawn up on 19 November 1991 was directed to be amended pursuant to RSC O.20 r.11 to reflect the correct sum of $177,322.59.
Legal issues: Liability of principal to reimburse sub-agent appointed by agent for shares purchased · Whether the cross-appeal on costs should succeed · Whether the broker's mistake as to the price vitiated the transaction
Outcome: Defendant's appeal dismissed; plaintiffs' cross-appeal on costs allowed.