HKCFI 1048]
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 2368 OF 2018
||FREEMAN SECURITIES LIMITED 民眾證券有限公司
(PREVIOUSLY KNOWN AS DYNASTY SECURITIES LIMITED 皇朝證券有限公司)
||IP PO KI 葉步奇
Before: Master Gary C C Lam in Chambers
Date of Hearing: 1 June 2020
Date of Decision: 1 June 2020
1. The Plaintiff, carrying on business to provide brokerage services, applies for a summary judgment against the Defendant, its customer, for the sum of HK$174,806,632.87 together with interest at contractual rate of HSBC prime rate plus 10% per annum compounded monthly from 26 October 2018 to the date of judgment and thereafter at judgment rate. The Plaintiff’s claim is a claim for repayment of loan advanced to the Defendant on margin facility.
2. On 19 July 2010, the Plaintiff and the Defendant entered into a Customer Agreement for the purpose of opening and maintaining a securities account for the Defendant. Clause 25 of the Customer Agreement provided that the Defendant shall be liable to pay the Plaintiff any amount due to the Plaintiff and any debit balance or deficiency outstanding in the account to the Plaintiff. On the same day, the Plaintiff and the Defendant also entered into a Margin Addendum to Customer Agreement (the “Addendum”) for margin facility in favour of the Defendant. A margin account (the “Margin Account”) was opened thereupon.
3. On 20 June 2017, the Defendant gave settlement instructions to the Plaintiff to receive 700,000,000 shares in Freeman FinTech Corp Ltd (“FFCL”) (HK Stock No 279) against payment of HK$250,000,000. In the same month, the shares were deposited into the Margin Account.
4. On 20 November 2017, the Plaintiff sent a notification by SMS to the Defendant that the margin call amount of HK$47,882,258.24 was outstanding in the Margin Account and suggested that further funds be deposited into the Margin Account. The next day, 21 November 2017, the Plaintiff sent a demand letter by post as well as by email to the Defendant stating that a total amount of HK$266,041,545.47 was outstanding as at close of 20 November 2017. Of that outstanding amount, HK$50,441,545.47 was the margin call amount. The Plaintiff demanded the Defendant to deposit funds or provide collateral by 3pm of the same day.
5. On 29 November 2017, the Plaintiff notified the Defendant by SMS that margin call amount of HK$46,417,326.61 was outstanding and that further funds should be deposited into the Margin Account. Having received no response from the Defendant, the Plaintiff, having informed the Defendant of its intention to forcibly liquidate, liquidated 8,000,000 of the shares between 30 November 2017 and 12 December 2017.
6. In February 2018, the Defendant deposited HK$70,000,000 into the Margin Account by way of cheque.
7. On 16 May 2018, a margin call notification by SMS and by email was sent to the Defendant staging an outstanding balance of HK$207,933,389.77 in the Margin Account, of which there was an outstanding margin call amount of HK$121,710,189.77. The Plaintiff demanded the Defendant to deposit further funds into the Margin Account by 330pm; otherwise it would liquidate the position in the Margin Account. Having received no response from the Defendant, the Plaintiff liquidated 20,000,000 shares on 16 May 2018.
8. On 17 May 2018, the Plaintiff issued a demand letter to the Defendant demanding the latter to settle the outstanding amount of HK$205,350,873.58 and threatening bankruptcy proceeding against the Defendant. Having received no response from the Defendant, the Plaintiff issued two demand letters respectively on 5 and 10 September 2018 demanding the Defendant to settle the outstanding amount of HK$214,932,580.85.
9. Having received no response from the Defendant, the Plaintiff liquidated all the position in the Margin Account. As at 25 October 2018, a total amount outstanding is HK$174,806,632.87. This is the principal amount being claimed by the Plaintiff here. The Plaintiff also claims contractual interest according to the aforesaid documents subsequently adjusted to be HSBC prime rate plus 10% per annum compounded monthly.
10. The Defendant’s defence is that in the first quarter of 2017, Zhang Yong Dong (“Zhang”), a non-executive director and the chairman of the board of directors of FFCL, a subsidiary of the Plaintiff, and one Wang Xiaodong (“Wang”) (an executive director and the CFO of FFCL as well as a director of the Plaintiff from 29 September 2016 to 18 May 2018) agreed orally with the Defendant in respect of the 700,000,000 shares in FFCL in the Margin Account that: -
(1) If the share price of FFCL appreciates, the Defendant could liquidate his 700,000,000 shares in FFCL; and
(2) If the share price of FFCL fell, the Plaintiff would not make any margin call of the Defendant and would not dispose of any of the 700,000,000 shares in FFCL, to be held by the Defendant indefinitely until the share price of FFCL would appreciate again.
11. The Defendant further contends that this oral agreement contained various implied terms, which in essence were that the Plaintiff should not sell the FFCL shares except with the Defendant’s consent.
12. The Defendant, in reliance on the oral agreement and the implied terms, argues that the Plaintiff could not make any margin call.
13. In respect of the HK$70,000,000 deposited into the Margin Account in February 2018, the Defendant says that it was a loan advanced by the Defendant to the Plaintiff at the request of Zhang and Wang on behalf of the Plaintiff. There is no documentation of such loan.
JURISDICTIONAL ISSUE – FRAUD EXCEPTION
14. Before I proceed to analyse whether the Defendant has failed to raise any bona fide arguable defence or triable issue, the Defendant raises a jurisdictional issue to urge me to dismiss the present application. In particular, the Defendant relies on the fraud exception in Order 14 rule 1(2), whereby the Plaintiff cannot apply for summary judgment because the Plaintiff, in its Reply, made certain allegation of fraud,...