RICHARDSON GREENSHIELDS OF CANADA (PACIFIC) LTD v. KEUNG CHAK KIU AND ANOTHER

BETWEEN

Coram: The Hon. Mr. Justice Sears in Court

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J U D G M E N T

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1. In this action, the Plaintiffs who are brokers sue the Defendant for something over half a million dollars, the balance of money owing on a trading account for the purchase and sale of Hang Seng Index Futures Contracts.

2. The Defendant has put forward several defences, one of which was that the transaction was unenforceable by virtue of the Gaming Acts. On November 17 of last year, I delivered judgment and rejected that defence which had been raised by him and many hundreds of other persons who had been speculating on the Hong Kong Futures Exchange.

3. The Defendant, apart from his defence, has served a third party notice against the Hong Kong Futures Exchange, saying that if he is held liable to the Plaintiffs for their claim, then the Futures Exchange should idemnify him, because it was due to their breach of the law, as he says, that has caused him this loss. The Defendant alleges in his third party claim that the Exchange owes a duty to all investors and traders in the market to operate and maintain the market in accordance with the Commodities Trading Ordinance and various rules and regulations; in particular, they owe a duty to keep the market open at all business hours and permit free trading and dealing; and instead they shut the market for five days and deprived the Defendant and many other hundreds of persons from closing their positions. That is the basis of the Defendant's claim. It raises an important matter, because it is common knowledge that after black Monday, as it has been called, both the Stock Exchange and Futures Exchange were shpt for five days, and this is a direct challenge to the legality of the Exchange's act at that time.

4. There are two preliminary matters. First of all, the summons, which has now been taken out by the third party, is to strike out the Defendant's claim on the basis that it discloses no reasonable cause of action known to the law. As far as my role in this summons is concerned, I should only strike out a claim which is wholly unsustainable. I am only permitted to look at the averments in the pleadings and I have to assume in favour of the Defendant various factual matters which are there set out.

5. Mr. Boyd, on behalf of the Exchange, submits that I must assume against him all the various factual matters which have put by the Defendant, even on that assumption, he says there is no reasonable cause of action. (I should point out that the Exchange disputes a number of those facts.) I am not permitted to look at any affidavit evidence, but I have examined the rules of the Futures Exchange which have been referred to in this claim.

6. The second matter is that the Defendant has until recently had the benefit of solicitors and leading and junior counsel. He now appears in person. He says he has not sufficient money to instruct new solicitors. I therefore have not had the benefit of counsel's, submissions in opposition to this application.

7. Nevertheless, Mr. Boyd in the usual high tradition of the English Bar has drawn to my attention arguments which might be in favour of the Defendant. Furthermore, although my task is to hold the balance fairly between the parties, I have been somewhat concerned that there are about a hundred and seventy other actions pending in my list where similar claims have been made against the Futures Exchange, and the sums of money involved amount to many million dollars. I have therefore given the greatest scrutiny not only to the claim as it has been pleaded, but as I have power to permit amendments to be made, I have also considered whether if this claim is unsustainable, any amendment can be made in order to cure that defect.

8. The Defendant's claim alleges that the third party owes a duty to him, this he says has been broken and he is therefore entitled to damages. He says that the third party is "required by law to provide and maintain a commodity market open to the public to trade in commodities"; that the market was shut on black Monday in October, 1987, and stayed shut for a further four days causing him financial loss. The Defendant does not identify in his claim what law this is, but the only possible legal obligation, a breach of which could give rise to an action in damages, is a breach of statutory duty. It is therefore necessary to analyse the provisions of the Commodities Trading Ordinance under which the Hong Kong Futures Exchange is established and operated.

9. Part II deals with the Trading Commission.

10. Section 13 of the Ordinance permits the Governor to issue a licence to establish and operate the commodity exchange, and this exchange has been so licensed.

11. The Governor must be satisfied that the company compiles with certain requirements; one of those under Section 13(3)(b) is that the company will (i) "maintain to the satisfaction of the Commission an adequate and properly equipped place of business"; and (ii) "provide and maintain commodity markets at places approved by the Commission".

12. Under Section 18, the Commission may revoke that licence, one of the grounds being that the Exchange Company has not complied with the requirements of Section 13(3).

13. Under Section 19, the Commission instead of revoking the licence is entitled to close the Exchange.

14. The Ordinance (Part VII) sets up a disciplinary committee to investigate allegations of misconduct, and where there has been misconduct, the Commission under Section 20 has power to close the Exchange for that reason.

15. Furthermore, under Section 21, the Governor has power to close the market himself for a period not exceeding five bank days, if he is of the opinion that the orderly transaction of trading is being or is likely to be prevented because "(a) an emergency or natural disaster has occurred in Hong Kong", or "(b) there exists an economic or financial crisis or any other circumstance whether in Hong Kong or elsewhere." So it can be seen from that Section that the Governor, because of the world stock market crash, himself could have directed that this Exchange be shut for a period not exceeding five bank days. I am told that the Governor did not and was not asked to invoke that provision - It was the Exchange itself which decided to shut pursuant to its own rules. Part IV of the Ordinance deals with the Registration of dealers and commodity trading advisors and representatives.

16. Sections 66 to 75 deal with the disciplinary committee; this is an important group of sections, because the disciplinary committee is appointed to enquire into allegations that either the exchange company, management committee or any member has been guilty of misconduct; misconduct is defined in Section 67(5); as meaning" (a) failure to comply with the requirements under this Ordinance"; "(c) any wilful contravention of the rules of the Exchange"; "(e) any act or omission relating to the operation of the Commodity Exchange or any commodity market which is likely to be prejudicial to the public interest". A person who is found guilty of misconduct may be disqualified, fined or reprimanded. It is clear therefore that the Hong Kong Futures Exchange, although it performs a service for the public, is essentially a private organisation. It is permitted to trade by, virtue of the licence which is granted, which may be revoked. It has no greater legal status than any other market which is franchised to carry on a particular business. The Ordinance gives the Exchange certain powers, but it is not under any statutory duty to operate a market at all, nor to keep it open all the time. There is a requirement to operate it in accordance with its own rules, but there is no legal obligation to keep it open. If for example, the Exchange was not kept open at regular times, then it may be that the Governor could take action and revoke the licence. When one looks at this Ordinance, there can be found no statutory duty as the Defendant alleges; that in itself would dispose of this case, but it is right that I should consider other legal matters assuming that there was some statutory duty or legal obligation as the third party claims.

17. I therefore now have to assume that there is some particular duty on the Exchange to operate it in the way the Defendant alleges in order to give rise to a civil action for damages for breach of duty. There are certain well-known principles which must be examined. Although the construction of each statute turns on its own words, certain general principles are normally involved in this examination.

18. First, the injury suffered must be within the ambit of the statute. This Defendant like many other people lost his money because he suffered trading losses on his trading account. The Commodities Trading ordinance was not passed to prevent that, but to prevent misconduct and to regulate those who operated within the market; it was also passed to criminalize certain practices.

19. Secondly, even were there some duty which this exchange owes to the Defendant, the duty must impose a liability to a civil action in damages. I have read various Sections of the Act which impose certain duties and they provide expressly for the consequences if they are broken. A failure to comply with the statutory "requirements" may lead to revocation of the licence : a specific remedy is provided for "misconduct". Nowhere can I find the provision of a civil remedy for these matters (see Cutler v. Wandsworth Stadium (1949) AC 398).

20. There are some duties which provide for criminal consequences for a breach; some breaches may be civil in nature, for example see Section 47(2). Some breaches are administrative which are found in section 18 onwards. If a statute is silent as regard a civil remedy for a breach, the judge must examine the scope and purpose of the statute. I have no doubt that on a fair reading of this Ordinance, no civil remedy lies for breaches of duty of the sort the Defendant alleges.

21. The third principle is that there must be non-fulfilment of the statutory duty. The main allegation of this Defendant and other Defendants is that the market was shut for four consecutive days contrary to Rule 601 and regulation 5025. These rules and regulations, which must be approved, do not have any statutory force. They are for the better regulation of the market and its members; all they do is to provide that if the power to operate the Exchange is exercised, then it shall be exercised in a particular way. It appears to me on a reading of the rules and regulations that the suspension of the market was in accordance with those rules. I therefore can find in this ordinance first no statutory duty as the defendant alleges, secondly no breach by the third party and thirdly note of the normal legal principles which could give rise to a civil action for damages

22. The defendant submits orally in front of me that he and others had been victimized by the closure of the market because they could not close their positions. Those who engage in financial speculation run the risk of losing their money. The October crash was one of those events unforeseen by the world markets and chaos was bound to occur unless the market themselves tried to regulate the position. This defendant may not realise that the whole operation of the Hang Seng Futures Contracts, which have proved to be so popular in Hong Kong, depends on the fixing of the index, so that the difference between the buying and selling prices will determine the loss or gain of the contract holder. Because the Hong Kong Stock Exchange was shut, there was no Hang Seng Index, and therefore the Futures Exchange could not operate in hang Sent Index Futures Contracts, as the price could not be fixed. Whilst I therefore sympathize with the defendant and others who lost money, they were not, in my judgment, the victims of the closure of the Futures Exchange, they were the victims of the world financial crash which affected among other markets the stock exchange. It is the closure of the stock exchange which effectively prevented the trading in Hang Seng Index Futures Contracts. The claim, however, by the Defendant is made against the Futures Exchange and nobody else. As I said earlier, I have considered whether there is any possibility of amending this claim. I can see none. Mr. Boyd has kindly provided me with some arguments as to whether or not a claim in negligence is capable of being made. Such a claim has never been formulated by the skilled lawyers who have been assisting the Defendant until recently. In my judgment there are a number of legal problems which would inhibit the formulation of such a claim.

23. First, a duty of care would have to be found. The third party had no direct dealing with the defendant. The Defendant was dealing at all times with his brokers who are Richardson Greenshields of Canada. The objects of the exchange company are to promote the interests of its members. No legal precedent can be found of any duty of care owed to investors, on the contrary, see the recent decision of the Privy Council in YUEN KUN-YEU v. Attorney General of ?Hong Kong (1988) 1AC 175.

24. Secondly, there would be compelling policy reasons against the existence of such a duty of care. For example, the regulation of a financial market at a time of economic pressure is difficult; a decision to suspend trading might have to be taken quickly and a fine judgment drawn between divergent interests. It would be quite wrong to inhibit the decision makers with the threat of legal suits. Some investors will say, as in this action, that the market should have stayed open; others might say, if a decision to remain open had been made, that the market should have closed.

25. Further, as the Ordinance has not imposed any statutory duty to investors when a decision to close is being considered and made, it would be strange that a common law duty would be superimposed upon the statutory framework (see Lord Keith in YUEN Kun-yuen at p. 195).

26. Thirdly, the Defendant's damage is as he says, the economic loss caused by a lost opportunity either to make a gain or to mitigate his loss. The essence of the defendant's case, as I understand it, is that because the market was shut he could not sell his contracts, so presumably he is saying that if he had sold, for example, on the Tuesday or the Wednesday, he might have made again as the market was plummetting, alternatively, he would be mitigating the loss that he had made. Whatever the position, that kind of damage has never been recognized by the courts as being legally recoverable. Such economic damage was not foreseeable to this particular Plaintiff - it must be foreseeable to an identified Plaintiff and not just to a member of an indeterminate class (see Clerk and Lindsell on Torts p. 385). I have only sketched the various insuperable problems in the formulation of a claim in negligence.

27. It is clear, therefore in my judgment, that the defendant's claim as put forward cannot be bettered in any way. The case of the defendant is bound to fail. It falls, therefore, within that category of claim which I may strike out as disclosing no reasonable cause of action and I therefore strike it out. Further, in view of the findings which I have made, it is right that this claim by the defendant against third party should be dismissed and I dismiss it.

BETWEEN

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Coram: The Hon. Mr. Justice Sears in Court

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JUDGMENT

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1. The Stack Exchange crash which echoed round the world last October affected other financial markets. One of those was the Hong Kong Futures Exchange. Many hundreds of claims have been made by brokers against their clients for money due in respect of the purchase or sale of Hang Seng Index Futures Contracts. A variety of defences have been put forward to these claims, but in most of the actions the defendant questions the legality of the contracts and asserts that any claim in respect of money lost as a result of dealing in this contract is unenforceable.

2. This is essentially a question of law although certain basic facts have to be established in order to answer it. In view of this common feature, I ordered the trial of a preliminary issue, that facts be agreed and the questions of law be specified. The parties have so specified two questions. They are interlinked and raise a number of important issues. In view of the legal challenge, which has been made to dealing in Hang Seng Index Futures Contracts and the consequent propriety of the Hong Kong Futures Exchange in permitting alleged unlawful trading, I gave leave both to the Exchange and the Attorney General to appear and to address argument. Although it is only this defendant whose action has been heard by the court, such a challenge raises matters of considerable public importance particularly in a world financial centre where such contracts have been established under the authority of the Government. The questions as specified are unsatisfactory in that they do not adequately encompass the various legal points which have been raised, but I shall try and answer them within this wider context.

3. The basic question is this - Does the payment, through a cheque, of margin by a client to his broker in order to effect Hang Seng Index Futures Contracts, permit the client to avoid liability for money owing on his account for such contract, by virtue of Section 1 of the Gaming Act 1710 as amended? Although this is the issue here, there are a number of pending actions where the client is suing his broker for money due to him in respect of trading in these contracts and if the defence is good here, it would also avoid the broker's liability to his client.

FACTS

4. The facts are agreed and are set out in detail in a folder. I annex as part of the judgement those facts and I shall refer briefly to some of them. Might I say that I am grateful to the parties for having presented the documentation in such a clear manner, and counsel for their written submissions. Although the role of an advocate is important, considerable time is saved by a written case. I trust this practice will be expanded in Hong Kong.

5. Futures Contracts have been known commercially for many years.

6. The Hong Kong Commodities Exchange opened markets in cotton and sugar in 1977, soybeans in 1979 and gold in 1980. The cotton market did not succeed and ceased trading in 1981. Trading in the remaining markets was thin.

7. Trading in the Hang Seng Index Futures Contracts commenced in May 1986 and boomed. (An amendment was made to the Commodities Trading Ordinance). In 1986 the monthly average lots were 103,160 - by September 1987 this was 601,005; in 1986 the turnover in $million was 89,784, by 1987 it was 585,078.

8. It can be seen that these contracts were commercially very popular, because they could be used for a variety of purposes. The types of user I shall briefly identify and they are set out in paragraph 3 of the agreed statement of facts.

9. There are:

                    (ii) Speculators.

                  (iii) Arbitrageurs.

                  (iv) Portfolio insurers.

The utilization of this new commodity served various financial strategies. This aspect is, in my judgment, important and must be kept in mind when examining the challenge which has been made to the legality of trading in the Futures Contracts.

10. The commodity market at the Exchange is governed by the Commodities Trading Ordinance. Substantial amendments were made in 1985; part III deals with the commodity exchange which is licensed by the Governor-in-Council. Section 116 reads:- "The Gambling Ordinance shall not apply to any transaction to which this Ordinance applies." There are rules and regulations of the exchange which again are set out in a lengthy document; Regulation 440 says:- "A full or market member acting for a person who is not a member of the Clearing House may require as indemnity against liability from such person an initial deposit and subsequent deposits to the extent of any adverse fluctuation in the market price. "

11. It is against this background of a Government established and controlled financial market that I turn to the particular facts relating to this action.

12. The defendant is a vegetable wholesaler and said in October 1986 that he earned HK$180,000 a year, and that he could risk losing $100,000. At the end of October, he signed two agreements with the Plaintiffs, one was a customer trading agreement wherein the Plaintiffs acted as brokers in respect of financial transactions generally, and the other an Account Agreement for commodity futures trading.

He signed this acknowledgment:

"I understand because of the volatile nature of the commodities market, the purchase and sale of commodity futures Contracts involves a high degree of risk, and it is not suitable for many members of the public and that such transaction should be entered into only by persons who have read and understand (and I have read and do understand) the Risk Disclosure Statement for Commodity Futures and who understand the nature and extent their rights and obligations and are aware of the risks involved. I also understand that the person should not trade in commodity futures contracts unless he or she is able to sustain substantial financial losses. "

Clause 5 stated:

"That before entering into any futures contract, I must have in my account the minimum margin deposit in such amounts as you may specify from time to time.

Clause 6:

"I shall respond to all margin calls issued by you in connection with such business. "

13. The defendant was told that he had to pay $10,000 for each of these contracts which he bought or sold. In order to open an account, he paid $50,000 by cheque; this was subsequently encashed by the Plaintiffs and this sum was credited to his account. From October 1986 to October 1987 he traded on margin in Hang Seng Index Futures Contracts; he was a pure speculator. He put in $315,000 by cheques and is now being sued for over half a million dollars.

LAW

14. I now turn to the law. In order to answer the question I posed earlier, it is necessary to decide three main points.

15. As to the first point, that is, whether the 1710 Act, as amended, is in force in Hong Kong, both Mr. Thomas, on behalf of the Plaintiffs, and Mr. Boyd, on behalf of the Exchange, assume that Section 1 is still inforce in Hong Kong for the purposes of their submission, but they wish to argue, if necessary at a future date, that insofar as the trading in commodities is concerned, it has been inferentially repealed by the Commodities Trading Ordinance. However, I consider that I should decide this point; if Section 1 has been repealed, I should say so, because I know of no instance where an act can be repealed merely for some purpose and not for others; it is either the law of Hong Kong or it is not.

16. Section 4 of the Application of English Law Ordinance states that the acts which are specified in the schedule to the act are the law of Hong Kong; one of those acts as specified is "The Gaming Act of 1710 Section 1 as amended to 5th April 1843." Section 4(2) of the Act, says "Any such enactment as is mentioned shall in its application to Hong Kong he subject to such amendment as may have been or may herein after be made by (a) any Order in Council, (b) any Act which applied to Hong Kong or (c) any Ordinance." The Legislative Council, under S5, has power by resolution to delete any item in the schedule, amend any item or add to it. Many old Acts have been deleted over the years, but this Act has never been deleted.

17. In my judgment, if it is considered necessary to remove this old Act from the Hong Kong Legislation, it can be simply done. Further the wording of Section 4(2) indicates that if such an Act is to be amended then it should be done expressly. When the Commodities Ordinance was passed, it is clear that there was no intention which I can find from the structure or wording of the Ordinance that indicated that the 1710 Act no longer applies. The substantial amendments in 1965, in particular the new Section 116 also give no such indication.

18. I therefore am in no doubt that Section 1 of 1710 Act does apply to Hong Kong. No one disputes that the 1835 Act amended that Act. I therefore have to construe Section 1 of the 1710 Act as amended by the provisions of the 1835 Act.

19. The second question I posed was whether the transaction in which the Defendant was contractually involved with the Plaintiff amounted to gaming.

20. Before I examine the meaning to be given to Section l, it is important to recognize the Common Law position which prevailed when that act was passed and subsequently amended.

21. Gaming and betting were lawful and in Hong Kong they still are unless prohibited by Ordinance. Similarly, gambling which is a more modern word is at common law lawful, although in Hong Kong the Gambling ordinance now enacts that all gambling is unlawful and gambling is defined as including gaming, betting and bookmaking.

22. The object of the 1710 Act was to cure the ills which were then present. It was "an act for better preventing of excessive and deceitful gaming". The excessive element finds itself enacted in Section 1, the object and the only object of this Section was to prevent gaming on credit. It was intended to deter people from gaming beyond their cash means. It did not make gaming unlawful, but it had a deterent effect, as those who received securities could find them valueless and therefore gaming beyond the person's cash means would be discouraged.

23. The object of the 1835 Act was to relieve the hardship caused to those who had purchased such a security which had been given for gaming purposes and who had no notice that it had been given for that purpose. Instead of the security being void, it was "deemed to be illegal". For a lucid description of the historical background to those acts, see the judgment of Lord Justice Fletcher Moulton in Moulis v. Owen, 1907 1KB, 746 at 758.

24. Submissions have been made that the words of Section 1 "gaming or playing" are really synonymous and are referable only to those games enumerated in the Gaming Act 1664 or in Section 1 of the 1710 Act. Mr. Boyd has kindly provided me with a list of all the games, played all those years ago, many of which are now obsolete. The submission is that the words "gaming or playing" are referable only to those games. Judicial support for that is found in the case of Applegarth v. Colley 1842, 10 M & U723 at 729. In my judgment this construction fails to give any effect to the words "or any other games whatsoever." The object of this catch-all phrase is to encompass games devised in the future, otherwise the object to the act would be frustrated.

25. Chief Justice Tindal said in Oakley v. Rigby (1836) 32 ER 2822:

"With respect to the statute of Ann, it is urged that if we were to apply to it the construction we have applied to the statute now under discussion, we should be involved in a contradiction as to new games which have come into use since the statute. But it is to be observed that the statute contains the words "or any other games whatsoever" and therefore clearly extends to all games whether then in use or not"

26. In Smith v. Wyles (1959) 1QB 164, Ashworth J. placed a wide construction on the word gaming and said "Undoubtedly some games involve gaming, but it does not follow that gaming involves a game. "

27. In my judgment, the words "or other games whatsoever" are sufficiently wide to encompass a "game" which has come into being in the 20th century and could never have been played or contemplated in the 18th Century.

28. Technological advances now permit games to be played by electronics or the micro-chip. Although therefore the enumeration of games in the 1664 Act and the 1710 Act is not the limit on the type of game, nevertheless, this list does provide an appropriate method of deciding what is a "game". The word is used in Section 1 in distinction to the word "bet", which appears also in the Section. In my judgment, a game is something which is played between persons, or between a person and a machine where such activity is for sporting, recreational, leisure or pure amusement purposes. The game may involve skill or chance, but it must be essentially a game. The judgment of Mr. Justice Ashworth in Smith and Wyles recognized that, for example, lotteries may on their facts constitute gaming, because the lottery in question in that case was a form of leisure activity similar to roulette.

29. In order therefore to decide in 1988 whether an activity is or is not gaming, I must be able to identify certain characteristics which exemplify it as a game.

30. I have already described the method of acquisition of a Hang Seng Index Futures Contract. In no way can this be described as a game. I cannot identify any characteristic which permits it to be an activity of such an nature as is encompassed within Section 1. It is a commercial activity; the Hang Seng Index is a statistically devised index, dependant on the market supply and demand of certain shares. The striking of the bargain for the purchase and sale of the index on the floor of the Exchange is clearly not a game.

31. Mr. Kaplan, whilst recognizing that it is difficult to describe the acquisition of these contracts as a game, nevertheless submits that the activity is gambling i.e. betting or wagering. The word 'gambling'; as I have said, was not in use in the year 1710, but came into use at a later time and it is now the most common word used to describe a variety of activities. With regard to this submission, first of all, Section 1 only uses the word "bet" in the context of betting on the sides or hands of those who are gaming. On the agreed facts of this matter I cannot see anyone making such a bet, even if there was gaming occurring.

32. Secondly, the word 'gambling' must be construed with common sense. Gambling in law is either gaming or betting, although the word has other meanings in the English language, e.g. reckless expenditure. In colloquial terms, a person might say "I am having a gamble on the stock exchange" or "I am having a gamble on the Hang Seng Index going up", but all this means in simple English is that the person is staking money where there is a risk of it being lost.

33. The element of risk, in my judgment, does not convert a financial transaction into gambling. Similarly, uninformed persons might describe the activity of the exchange as a 'casino' because there is a risk of losing as well as an opportunity of winning, but that does not mean what is actually occurring in the Exchange is gambling.

34. Thirdly, a bet or wager has, like gaming, certain characteristics. Two parties make the bet. One wins, one loses. In Carlill v Carbolic Smoke Ball Company (1892) 2 QB484, Hawkins J. sets out at pages 490 and 491 the prerequisites of wagering and I cannot better his words.

35. Although it is clear on the agreed facts that the Defendant was a pure speculator, and in that sense he was risking his money, or gambling as Mr. Kaplan would put it, this matter involves a genuine commercial transaction. I underline the word 'genuine', because the acquisition of Hang Seng Index Futures Contracts is an open type of commercial transaction, conducted in a publicly controlled exchange, where what is being purchased is known to all persons, with no hint of it being disguised as something else. There is a line of authority cited by Mr. Kaplan, starting with Grizewood v. Blane (1851) 138 ER 578 where it was held that "A colourable contract for the sale and purchase of railway shares where neither party intends to deliver or to accept the shares but merely to pay "differences" according to the rise and fall of the market is Gaming...". In Re Gieve (1899) 1QB 794 Lindley M.R. said at p. 798 "Now is this a contract by way of Gaming or Wagering" within that section .... if the real effect of this contract is to stipulate for the payment of differences it is plainly a gambling transaction that has been settled by a series of decisions. "

36. In those cases, most of which concerned colourable transactions, the Court looked at the real effect of the contract. Although dealing in commodities may involve the delivery of the commodity because it is of a type where property may pass, e.g. soy beans, the Hang Seng Index commodity, authorized by the legislature, specifically envisages that no property passes. The legal obligation is to make a money payment. Even if these transactions can be called "differences" which I doubt, they are bona fide commercial transactions and as such are not gambling. The mere fact that the legislature has provided in Section 116 that the Gambling Ordinance does not apply to Hang Seng Index Futures Contracts, or other commodities in no way indicates that those transactions can be stigmatized as gambling. The answer therefore to the second question I posed is No. Transactions in the Hang Seng Index Futures do not amount to gaming within the meaning of Section l, whether the word 'gaming' is limited to a game or to gambling, i.e. betting. Although it is unnecessary in view of that conclusion to deal with any other points, the parties have asked my views on the third question I posed, which is the second question of the agreed issue. Does the giving of the cheque by the client to his broker for the initial or subsequent margin calls render either (a) the cheque unenforceable if sued on, or (b) invalidate the underlying contract between the parties? Mr. Boyd, on behalf of the Exchange, asked that the court should express its view on this point, because the payment of margin is virtually always done by cheque, and secondly, it is proposed in Hong Kong to extend the financial markets. There is to be apparently market trading in currencies and market trading in rates of interest. It is, therefore, of importance he submits, that if the Court finds that the method of payment of margin questionable in law, it should so state.

37. As far as (a) is concerned, I hesitate to answer it shortly, as I have no wish to appear discourteous to the forensic skills of counsel who dealt with this point 'in extenso'. This action is to recover monies due from the Defendant on his account pursuant to the legal obligations each party accepted when entering into the agreements I have earlier set out. One of these obligations was for the Defendant to indemnify the Plaintiffs against liability incurred by them in executing the Defendant's orders. The payments made by the Defendant for margin in no way can be described as a "security given for money won by gaming, or for repayment of money lent for gaming" and, of course, that assumes that what had been occurring was gaming. At any rate the Plaintiffs here are not sueing on the cheque and the Defendant is not seeking to recover the proceeds of the cheque as money paid for an illegal consideration.

38. In my judgment, the initial and subsequent cheques paid by a client to his broker for margin do not fall within Section 1 as amended by the 1835 Act so as to be deemed to be illegal.

39. As far as the last point (b) is concerned - even if this was 'gaming' and even if the cheque was of a type of security deemed to be illegal, does this avoid the underlying contract between the parties, so that the Plaintiffs cannot sue on the account? The answer to this point is highly academic. It has caused considerable judicial discussion and contention over the years, and in England because of the changes in the gaming legislation, the point has now no practical importance. There has been a chorus of judicial voices raised over the years, both one way and the other. I am asked to add my small voice, to say that I am not bound by any of the previous decisions and to make a pronouncement which presumably has some benefit for someone. I am loathe to embark on an academic point which is more the subject of a legal journal, but as counsel ask me to make this decision, I shall attempt so to do.

40. There are two divergent lines of authorities. In Applegarth v Colley (1842) 151 ER 663 is found one point of view; Baron Rolfe said of the 1835 Act -

"That Act while it repeals so much of the statute of Anne as make the securities void, expressly enacts that they shall be deemed to have been given on an illegal consideration; and it is impossible to impute to the Legislature an intention so absurd as that the consideration should be good and capable of being enforced until some security is given for the amount and then that by the giving of the security the consideration should be bad.

 

         We therefore assume, with the Defendant, that the 1710 Act in connection with the 1835 Act must be taken to avoid all contracts for the payment of money won at play. "

41. The principle so stated was approved by dicta in Moulis v Owen 1907 1KB 746, and also in Carlton Hall Club v Laurence (1929) 2KB 153.

42. However since Quarrier v Colston (1842) 10 M & W 722 a different view was held by some judges that the underlying contract was not affected even though a security had been given. A powerful judgment of Buckley L.J. in Saxby v Fulton (1909) 2KB 208 at p.229 sets out the opposing arguments.

43. It must be remembered that the 1710 Act only applies where a security is given and in my judgment the reasoning behind the decision in Applegarth v Colley is to be preferred. At the end of the day, the question is one of construction. Although the words in the 1835 Act are "deemed to be illegal" and not illegal, I can see no reason to impute to the draftsman 150 years ago a decision to distinguish precisely between something which was illegal and deemed to be illegal.

44. Although both points of view may bring about anomalous situations, a construction should be given which is both contextually apposite and accords with common sense. I therefore prefer on this point the submissions of Mr. Kaplan to that of Mr. Thomas and Mr. Boyd. I would stress however, that it is the contract underlying the provision of the security which is avoided, and I agree with Mr. Thomas who submits that the Plaintiffs here make no claim in respect of such a transaction.

CONCLUSIONS

45. The conclusions therefore I reach are as follows:

46. I would only add this - the provision of regulated financial markets is of fundamental importance in a community such as Hong Kong. This particular market has been conducted in an open and well publicised manner. It is very popular and it is only when losses have occurred, such as arose last October, in the stock market crash, that persons have looked for some way to avoid their legal liabilities. Whether this market requires any additional or altered controls is not a matter for the Court, but for those in Government and its financial advisers. This legal defence, therefore, does not avail the defendant, nor the many other hundreds of persons who have raised the same defence. I imposed a stay on all similar actions, so that this matter could be fully argued. It has now been fully argued. In view of my findings, I now remove the stay. All actions can therefore proceed to trial.