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Richardson Greenshields Of Canada (Pacific) Ltd. v Chou Tai Chuan, Cecilia

Judgment Cited authorities 9 Cited in Precedent Map Related
Vincent
Judgment Date07 June 1991
Year1991
Judgement NumberCACV130/1990
Subject MatterCivil Appeal
CourtCourt of Appeal (Hong Kong)
CACV000130/1990 RICHARDSON GREENSHIELDS OF CANADA (PACIFIC) LTD. v. CHOU TAI CHUAN, CECILIA

CACV000130/1990

Civil Appeal No. 130 of 1990

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HEADNOTE

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SECURITIES AND FUTURES TRADING ON MARGIN - CUSTOMER TRADING AGREEMENT UNDER WHICH BROKERS BOUND TO SUPPLY CUSTOMER WITH RISK DISCLOSURE STATEMENT - FAILURE TO SUPPLY SAME - ORDER FOR NEW TRIAL OF ISSUE WHETHER CUSTOMER WOULD HAVE TRADED IN FUTURES EVEN IF SHE HAD BEEN SUPPLIED WITH RISK DISCLOSURE STATEMENT BEFOREHAND - QUESTION OF WHETHER (DUTY UNDER CUSTOMER TRADING AGREEMENT TO SUPPLY SUCH STATEMENT APART) BROKERS WERE UNDER A GENERAL DUTY, OR HAD HERE ASSUMED A DUTY, TO WARN ALONG LINES OF SAME DISCUSSED - ON POSITION OF BROKERS LIQUIDATING UNDER-MARGIN ACCOUNT: HELD THAT THEY ARE FREE TO DECIDE IF AND WHEN TO SELL THE SECURITIES OR FUTURES HELD ON THAT ACCOUNT, AND THAT THEIR DUTY TO THE CUSTOMER IN REGARD TO SUCH LIQUIDATION IS LIMITED TO SELLING AT CURRENT MARKET PRICES AS AND WHEN THEY SELL IF THEY DECIDE TO SELL.

IN THE COURT OF APPEAL

 1990, NO. 130
(Civil)

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BETWEEN

RICHARDSON GREENSHIELDS OF CANADA (PACIFIC) LIMITED

Plaintiff
(Respondent)
AND

CHOU TAI CHUAN, CECILIA

2nd Defendant
(Appellant)

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Coram: Kempster JA and Mayo and Bokhary JJ

Dates of hearing: 13 - 17 May 1991

Date of handing down of judgment: 7 June 1991

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JUDGMENT

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Bokhary J (giving the first judgment at the invitation of Kempster JA) : -

INTRODUCTION

1. This is an appeal by a customer from a judgment delivered by Nazareth J on July 16, 1990, in yet another case between brokers and customer arising out of the global market crash which began on "Black Monday", October 19, 1987. As usual, the customer was on margin.

2. The defendant customer is the appellant. The plaintiff brokers are the respondents.

3. She became their customer on June 24, 1987. That happened under an agreement in their printed form headed "Customer Trading Agreement". I will refer to it as "the CTA". As one sees from the CTA, the number which they assigned to her account appears thereon.

4. At first she traded only in securities. Later on she traded also in Hang Seng Index futures. Upon that happening the CTA extended also to her dealings in futures - and her account became a securities and futures margin account.

5. It should perhaps be mentioned that the brokers had sued the customer's husband (whom they made the 1st defendant) as well as the lady herself (whom they made the 2nd defendant). The husband's first line of defence - which was quite simply that he was not a party to the account - succeeded; and he has dropped out of the picture accordingly.

6. The customer (as I shall refer to the wife who admitted and averred her status as a customer) defended and counterclaimed on the merits. The brokers' claim succeeded; and the customer's counterclaim was dismissed. The judgment in favour of the brokers is for $12,236,707.38 plus interest and costs.

7. This is how that sum was arrived at. The brokers contended - and the learned judge found - as follows. The account was liquidated because the margin thereon was not maintained. Such liquidation began on October 27, 1987 (the day after the day on which trading on the stock exchange and the futures exchange resumed following the closure over the four trading days following Black Monday). It was completed on November 10, 1987 : the securities were sold from October 27 to November 10, 1987, while the futures were sold on October 28 and 29, 1987. Upon such completion the account was $12,236,707.38 in debit.

8. The customer appeals against the award against her and the dismissal of her counterclaim. The brokers support the result below. They do so on the grounds on which the learned judge proceeded save in one respect. In that respect they have filed a respondent's notice challenging one of the learned judge's conclusions.

ISSUES

9. A large number of issues were canvassed before us. It would be convenient to deal with these under the following sub-headings.

(1) Was it proved that the account was liquidated leaving it $12,236,707.38 in debit?

10. Here the evidence was not as cogent as it might have been. But the documents adduced by way of hearsay notice were capable of supporting the learned judge's conclusion that it was more probable than not that the account had been liquidated leaving it $12,236,707.38 in debit. Before us the admissibility of those documents was not challenged on behalf of the customer. Rather it was submitted on her behalf that they are of little or no weight. I can understand that submission. But at the end of the day I am unable to accept it. It is true that there is no evidence identifying the person or persons who decided upon or carried out the liquidation. It is also true that Mr David Ka, the account executive for this account, was identified in the hearsay notice as the maker of some of the crucial documents but did not so identify himself when he was put in the witness-box on behalf of the brokers. But the documents show : what happened on the exchanges; what passed between those in the brokers' offices and their dealers on the trading floors; and what eventually went out from the brokers to the customer. Not all of them bear the customer's account number. But they all fit in terms of the dealings which they reflect. That is sufficient to prove on a balance of probabilities that those dealings resulting in that debit balance took place on that account.

(2) What would the position if that had not been proved?

11. As this issue does not arise on my view of how issue (1) ought to be decided, I propose to do no more than to note the customer's contention, namely, that the brokers' claim ought then to be dismissed. It is accepted on the customer's behalf that, as no cross-claim for the return of the securities is made, success on issue (1) alone would not entitle her to any relief on her counterclaim.

(3) Were the brokers instructed on October 19, 1987, to sell all the customer's securities and futures?

12. The customer and her husband gave evidence that he in her prsence gave Mr David Ka such. instructions on the telephone. Mr Ka said in the witness-box that he could not recall whether or not that happened. I can therefore readily understand the customer's deep disappointment at the learned judge's refusal to find that such instructions had been given. But he saw and heard Mr Ka, the customer and her husband. He regarded that response of Mr Ka's as one of many mindless incantations of inability to recall. Most importantly, he said in the clearest terms that he was not prepared to accept the evidence of the customer or her husband of such instructions unless the same was supported by other evidence. He did not view - and he was not bound to view - any of the evidence before him as affording such support. It would not matter therefore if what he regarded as powerful indications against such instructions having been given were in fact neutral. His conclusion would have been the same even if he had regarded them as neutral - although his confidence in the correctness of his conclusion may have been diminished. I do not think that we are entitled to interfere with the learned judge's conclusion on this issue.

(4) What would the position be if such instructions had been given?

13. The customer's contention is that the judgment against her ought to be reduced to $942,132.38 by reason of the result which a reasonably competent and conscientious broker could have achieved pursuant to such instructions. As this issue does not arise on my view of how issue (3) ought to be decided, I do not propose to do more than note that contention.

(5) Were the brokers instructed on October 21, 1987, to sell all the customer's securities and futures?

14. The customer gave evidence that such instructions were given. Mr David Ka said in the witness-box that he could not recall whether or not they were given. On the question whether instructions to sell were given on October 21, 1987, the learned judge's approach and conclusion were the same as his approach to and conclusion on the question whether instructions had been given on October 19, 1987. Once again - and on the sane basis - I do not think that we are entitled to interfere.

(6) What would the position be if such instructions had been given?

15. As before I do not propose to do more than note the customer's contention. It is that the judgment against her ought to be reduced to $3,499,822.38 by reason of the result which a reasonably competent and conscientious broker could have achieved pursuant to such instructions.

(7) Did the brokers have a duty under the CTA to supply the customer with a Risk Disclosure Statement?

16. The learned judge held that they did. They challenge that conclusion by way of a respondent's notice. The CTA - which is as I have said in the brokers' printed form - is worded so that one has the customer, made to refer to herself as "the undersigned", addressing the brokers. It opens thus : -

"In consideration of your agreeing, at my request, to open and maintain one or more accounts ('the Account(s)') in the name of the undersigned and to act as brokers for the undersigned in respect of transactions in securities, commodities, precious metals, foreign exchange and any other investment services provided by you, as principal or agent of Richardson Greenshields of. Canada Limited and/or its affiliates, as the case may be, whether on margin or otherwise ('hereinafter collectively referred to as 'the said transactions') the undersigned hereby agrees, represents and consents as follows : -"

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