OSK ASIA FUTURES LTD. v. LAM CHI BIN STANLEY AND ANOTHER

HCA 10335/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10335 OF 2000

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D E C I S I O N

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1. The Judgment Creditor was a member of the Hong Kong Futures Exchange Ltd. and the Judgment Debtor was one of its customers. The Judgment Debtor was sued by the Judgment Creditor for payment of a deficit of HK$9,147,400.00 arising from the Debtor's trading in 250 Hang Seng Index Futures October contracts. On 20th April 2001, Master M. Wong ordered that leave be given to the Debtor to defend the action on condition that he should make payment of HK$2.5 million into Court within 14 days failing which the Creditor was entitled to enter final judgment as per the claim. The Debtor appealed against the Master's order. He also applied for stay of execution of the Master's order pending appeal. This application was dismissed and he also appealed. On 7th June 2001, the Honourable Mr. Justice Chung allowed his appeal on the dismissal of his application for stay of execution pending appeal. The execution of the Master's order was stayed until the hearing of his appeal. The appeal was heard before the Honourable Mr. Justice Waung on 16th July, 2001. At the end of the hearing, the learned Judge gave summary judgment on the claim with interests and costs for all stages of the action against the Debtor.

2. On 27th September, 2001, Master Ho ordered that the Debtor be orally examined under Order 49B of the Rules of the High Court on 15th November, 2001 before Master B. Kwan. On 15th November, 2001, the examination was adjourned to 13th December, 2001. On 13th December, 2001, Master Au-Yeung further adjourned the examination to a date to be fixed. The learned Master also made an order in Chinese requiring the Debtor to produce to the Creditor at least 21 days before the adjourned hearing, among other documents:-

(a) all passbooks, statements and cheque counterfoils of all accounts and bank accounts opened in the 2 years before 13th December, 2001 with banks or deposit taking companies in Hong Kong or overseas (including but not limited to the Hong Kong Bank, Po Sang Bank, the Ka Wah Bank and the Bank of China) by the Debtor whether in his own name or jointly with others or in the name of any company or business operated by the Debtor of which the Debtor was the sole proprietor or a partner or a shareholder (regarding private company);

(b) all audited or unaudited books and accounts covering a period of 2 years prior to 13th December, 2001 for any company or business operated by the Debtor of which the Debtor was the sole proprietor or a partner or a shareholder (regarding private company) whether in Hong Kong or overseas;

(c) the tax demand note and tax return of any company or business operated by the Debtor in Hong Kong or overseas in the period of 2 years before 13th December, 2001 of which the Debtor was the sole proprietor or a partner or a shareholder (regarding private company) which included and not limited to that which the Debtor held an interest;

(e) all documents of title including deeds and land certificates for all properties owned in the name of the Debtor or beneficially owned by him alone or together with others or owned by any company or business of which the Debtor was the sole proprietor or a partner or a shareholder (regarding private company) regardless of their locations;

(k) the audited and unaudited accounts in relation to the following companies:-

(i) Silicon SMT Manufacturers Limited; and

(ii) Computer Home Distribution Limited.

3. The examination commenced on 1st March, 2002 and the Debtor appeared in person as before. It was not completed and was adjourned to 18th May, 2002. On that day, the Debtor was represented by Mr. Paul Kong on the instructions of Messrs. Quan & Co. The examination was not finished on that day and was further adjourned to 6th July, 2002. The Debtor's legal representation continued and on 6th July, 2002, the questioning of the Debtor was completed.

4. At the hearing on 1st March, 2002, the Creditor complained that the Debtor had failed to comply with the order of Master Au-Yeung. Prior to adjourned hearing on 18th May, 2002, the Debtor produced some more documents. However, the discovery was still insufficient. At the request of the Creditor, I made an order on 18th May, 2002 requiring further disclosure of documents. Subject to some criticisms that the Debtor's solicitors had failed to comply with all the time limits, there was no dispute that the Debtor had complied with my order. However, that does not mean that the Debtor had fully complied with the requirements of Order 49B or the order of Master Au-Yeung.

The Creditor's Application

5. At the end of the questioning of 6th July, 2002, the Creditor applied for an order that the Debtor be imprisoned under Order 49B rule 1B. The Creditor relied on Order 49B rules 1A(2) and 1B(1)(c) and said that there were 3 matters in respect of which the Debtor had failed to make full disclosure. The provisions of Order 49B rules 1A(2) and 1B(1)(c) are as follows:-

"1A. Examination of debtor (O. 49B, r.1A)

(2) The judgment debtor shall, at his examination, make a full disclosure of all his assets, liabilities, income and expenditure and of the disposal of any assets or income and shall, subject to the directions of the Court, answer all questions put to him.

1B. Power of the Court following examination (O. 49B, r.1B)

(1) Where the Court is satisfied, following the examination conducted under rule 1A or following an examination conducted under Order 48, that the judgment debtor-

(c) has willfully failed to make a full disclosure as required under rule 1A(2) or at the examination under Order 48 or to answer any question as provided under that rule or Order,

it may, in its discretion, order the imprisonment of the judgment debtor for a period not exceeding 3 months."

6. In making the application, the Creditor accepted that the burden of proof was on the Creditor and the standard of proof was beyond reasonable doubt (see Bank of India v. Murjani and Others Civil appeal No. 12 of 1991).

The First Complaint

7. The first matter relied on by the Creditor was the Debtor's failure to make discovery of the statements of an account he maintained with the Standard Chartered Bank. This was said to be contrary to paragraph 2(a) of the order of Master Au-Yeung of 13th December, 2001. This account was revealed for the first time on 4th July, 2001 when the Hong Kong Bank explained to the Creditor's solicitors about a withdrawal of HK$1,933,333.00 by the Debtor on 21st November, 2000 from its Hong Kong Bank account. The sum was transferred to the Debtor's account with the Standard Chartered Bank (see page D139).

8. On this charge of non-disclosure, the Debtor explained that the account with the Standard Chartered Bank had been closed in about November, 2000 and he though that the order of Master Au-Yeung on 13th December, 2001 only covered accounts which were still active and not accounts that had been closed. I find this explanation not entirely unreasonable bearing in mind that one of the primary purposes of the examination was to find out whether the Debtor at the time of the examination had assets available for satisfaction of the judgment. I therefore do not find beyond reasonable doubt that the Debtor had deliberately failed to disclose the statements of his account with the Standard Chartered Bank.

The Second Complaint

9. The second charge was that the Debtor had failed to disclose his income. The Creditor relied on the deposits of HK$200,000.00 on 27th October, 2000 (page D71), HK$138,888.00 on 24th March, 2001 (page D80), HK$15,000.00 on 25th May, 2001, HK$35,000.00 on 1st June, 2001, HK$20,000.00 on 6th August, 2001 and HK$38,000.00 on 4th September, 2001 (all on page D90). The Creditor also relied on the cash withdrawals of HK$190,000.00 on 27th October, 2000 (page D71) and HK$133,333.00 on 24th March, 2001 (page D80).

10. On this complaint, I note that the Debtor's trading in 250 Hang Seng Index Futures October contracts took place on 13th October, 2000 and the Debtor's account with the Creditor was liquidated on 16th October, 2000. For this reason, Mr. Chan for the Creditor abandoned his attempt to rely on deposits and withdrawals that took place before October, 2000.

11. For the deposits of HK$200,000.00 on 27th October, 2000 and HK$138,888.00 on 24th March, 2001, the Debtor did not give any concrete explanation as to these sums individually. His answer for these 2 sums and for some other substantial deposits was that he had some friends who would deposit signed blank cheques with him. In case of need, he would at the request of such a friend use a cheque to withdraw money from the friend's account with the Hong Kong Bank and then dispose of the same at the friend's directions. The injection of the friend's fund into the Debtor's account with the Hong Kong Bank was because funds transferred from one Hong Kong Bank account into another account with this bank can be utilized on the same day and without the need to go through the clearing house.

12. Such explanation, though seemed odd, cannot be ruled out as a reasonable possibility. The reason being that these funds came in and went out almost in total on the same dates. Very little remained after the withdrawals. This supports his explanation that the cheques were paid into Hong Kong Bank for the sake of immediate availability of funds. Similar deposit of cheques for immediate availability can be seen before the trading of the 250 contracts on 3rd April, 2000 for HK$1,000,000.00, on 11th August, 2000 for HK$100,000.00, on 24th August, 2000 for HK$1,018,888.00 and on 25th August, 2000 for HK$188,888.00. Furthermore, his explanation that such funds could have come from his friends was also supported by a transaction on 20th November, 2000 when he received a sum of HK$2,000,000.00 from one Mr. Ng Lai Yick (pages D73 and D138).

13. On the 2 withdrawals of cash of HK$190,000.00 on 27th October, 2000 (page D71) and HK$133,333.00 on 24th March, 2001 (page D80), I accept that there was a reasonable possibility that the Debtor was just helping a friend in the channeling of the friend's funds. These were the proceeds of cheques which were made immediately available through the Hong Kong Bank.

14. All in all, I do not think I can reject the Debtor's explanation on these funds as a reasonable possibility and I decline the Creditor's application on this ground of alleged non-disclosure.

15. In relation to the 4 credits of HK$15,000.00, HK$35,000.00, HK$20,000.00 and HK$38,000.00 credited between late May to early September, 2001 (all on page D90), they were withdrawn almost in total on the days following their deposits. The Debtor said that these sums were deposited by his mother for his own use. The Creditor criticized the Debtor for contradicting himself when he had earlier said that he only spent a few thousand dollars every month. The Debtor might have contradicted himself or he might have failed in being accurate when he was trying to generalize, but I do not find this a non-disclosure.

The Third Complaint

16. The third complaint is the Debtor's failure to disclose his assets in relation to his investment in a real property project in Shanghai called Kam Pik Garden (or Kimby Garden). The Debtor referred to this investment for the first time in his affirmation affirmed on 4th May, 2001 for use in his application to stay the execution pending appeal of the order giving him leave to defend the action on condition of his payment into court of HK$2.5 million. He said in paragraphs 5 to 19 of his affirmation (pages A71 and 72):-

"5. I am unable to meet the said Order without depriving myself of all my working capital and selling my investment in a property project in the People's Republic of China ("PRC") at an undervalue in consequence of which I would be financially ruined.

6. By an Agreement in Chinese dated 25th November, 2000 ("the Agreement") signed between Shanghai Lian Fa Real Estate Development Co. Ltd. ("Lian Fa") and Silicon SMT Manufacturers Limited ("Silicon"), in effect, Silicon has acquired the property known as Kam Pik Garden situate in Shanghai, PRC ("Shanghai Property") at the price of HK$7,200.00 per square metre. There is now produced and shown to me marked "LCBS-3" copy of the Agreement.

7. In accordance with Clause 3 of the Agreement Silicon has paid the total sum of HK$34,000,000.00 to Lian Fa.

8. I am the beneficial owner of the entire issued share capital of Silicon and I provided the funding of Silicon in the Shanghai Property. There is now produced and shown to me marked "LCBS-4" copy of Return of Allotments of Silicon. It can be noted that 9,998 shares were allotted to me. The 2 subscribers shares are held by me and Ko Kwok Sun respectively. In fact Ko Kwok Sun held one of the subscribers share on trust for me.

9. The payments of HK$34,000,000.00 by Silicon to Lian Fa under the Agreement were out of funding belonging to me.

10. Lian Fa is now utilizing the said HK$34,000,000.00 for completion of the construction and decoration of the Shanghai Property and the constructions is expected to complete in November, 2001.

11. There is now produced and shown to me marked "LCBS-5" copy of Certificate of Right of User of National Land of the Shanghai Property.

12. There is now produced and shown to me marked "LCBS-6" copy of Certificate of Approval of Construction Plan of the Shanghai Property.

13. There is now produced and shown to me marked "LCBS-7" copy of Pre-sale Permit of the Shanghai Property.

14. Notwithstanding Lian Fa has obtained the Pre-Sale Permit of the Shanghai Property, the general public in PRC will only purchase properties the constructions of which has been completed.

15. Therefore, sale of the Shanghai Property can only be commenced after completion of construction in November, 2001.

16. If I have to sell the Shanghai Property now I will have to sell the same at a grossly undervalue and this will result in myself being financially ruined.

17. According to the estimate before the signing of the Agreement, the sale of the Shanghai Property after completion of construction could bring in a profit in the region of HK$30,000,000.00

18. I am advised by my legal adviser and verily believe that I have good merits and my appeal shall be successful.

19. In the premises, I respectively pray that his Honourable Court may order the execution of the Order made by Master M. Wong on the 20th day of April 2001 be stayed pending the disposal of my appeal."

17. The Chinese Agreement dated 25th November, 2000 was produced at pages B142 to B143. Clause 3 of the agreement required Silicon to pay Lian Fa HK$5,000,000.00 on 25th November, 2000, HK$12,000,000.00 on or before 25th December, 2000, HK$17,000,000.00 on or before 23rd February, 2001 and the balance of HK$49,470,104.00 within 14 days from the issuance of the occupation permit. The HK$34,000,000.00 as referred to in his affirmation tallied with the total of the first to third payments in clause 3.

18. In addition to the agreement between Lian Fa and Silicon, a copy each of (i) a Certificate for Use of Land of the Nation dated sometime in November, 1992, (ii) a Certificate of Approval of Construction Plan and (iii) a Pre-sale Permit dated August, 1999 all issued to Lian Fa are at pages B147 to B153. Prior to the hearing on 18th May, 2002, the Debtor also produced a copy Chinese document which appeared to be a sales brochure for Kam Pik Garden. A copy of this is at pages C120 to C160.

19. Apart from the agreement, the Debtor or Silicon was not mentioned in any of the other documents in relation to Kam Pik Garden. There were also no accounting document in relation to the project or any document evidencing any payment by Silicon to Lian Fa. There is thus no information on where was the source of the HK$34,000,000.00. Nevertheless, on the basis of what he said on affirmation on 4th May, 2001, he has already paid HK$34,000,000.00 to Lian Fa pursuant to clause 3 of the agreement and he would have substantial interests in the 39 houses covered by the agreement with Lian Fa.

20. However, when he was questioned on 1st March, 2002 about this investment, he said at pages C11G to C15L that in fact no payment had been made by him to Lian Fa at all. He said that what he did was to provide labour and materials of a worth of HK$34,000,000.00 for the construction of 39 houses in Kam Pik Garden. The labour and materials to the tune of HK$34,000,000.00 were however not provided by him but by one Zhen Jiang Company, a business owned by the Government of Zhen Jiang City. Furthermore, Zhen Jiang Co. provided the labour and materials for him only on the basis of trust or his reputation and there was nothing on paper recording his agreement with Zhen Jiang. He was familiar with Zhen Jiang and had influence in it. Zhen Jiang would only get bank its outgoing upon the sale of the properties. He explained that there was no written agreement with Zhen Jiang as what Zhen Jiang did was illegal and the illegal transaction could not have been recorded in writing. He further referred to clause 5 of the agreement at page B143 and said that his obligation to provide the HK$34,000,000.00 under clause 3 was in fact to make available loans at HK$34,000,000.00 for the use of Lian Fa as provided in clause 5.

21. He was questioned on this investment again 18th May, 2002 at pages D23A to D24F and he maintained what he said on 1st March, 2002. He further said that Zhen Jiang Co. had been wound up and was taken over by a Tung Fang Asset Management Company. However, his enquiry to Tung Fang was met with no answer.

22. He was further questioned about Zhen Jiang and Tung Fang at page D28G to T. He said that he did not know the actual name of Zhen Jiang Co. or its address. He only knew that it was a company owned by the government of Zhen Jiang City.

23. I note that the price payable by Silicon under the agreement was HK$7,200.00 per square metre or a total of HK$83,081,304.00 for 11,539.07 square metres. This sum was broken down into 4 payments in clause 3 as referred to in paragraph 17 above. Clause 5 of the agreement refers to a loan of HK$34,000,000.00 to be arranged by Silicon for Lian Fa, but of that loan, HK$10,000,000.00 was to be repaid by Lian Fa upon payment by Silicon of Hk$49,470,104.00 under clause 3. The HK$34,000,000.00 mentioned in clause 5 is thus not the same HK$34,000,000.00 mentioned in the first to third payments in clause 3. The payments in clause 3 were not to be deducted or repaid upon Silicon paying the balance of HK$49,470,104.00.

24. I do not accept that there was a company known as Zhen Jiang which had provided labour and materials worth HK$34,000,000.00 in discharge of the payment obligations in clause 3. What the Debtor has said in his affirmation clearly does not support such a case. He produced the agreement in that affirmation and said that he had made the payment. There was no reason why he could not have gone on to say in the affirmation that the payment was by way of labour and materials provided by Zhen Jiang on his behalf and that Zhen Jiang did so purely because of trust or his reputation.

25. If the construction were indeed carried out by Zhen Jiang co. for and on behalf of Silicon or the Debtor, I also do not believe that Zhen Jiang would have done so without any written agreement with Silicon or the Debtor. There should be some documentation detailing the arrangement. If Zhen Jiang Co. should be a company owned by a local government, it would be beyond belief that there would be no written agreement to protect Zhen Jiang's interests. I cannot imagine how those responsible for the running of Zhen Jiang would have accounted to their supervisors on this project if there were no documentation at all. The sum of HK$34,000,000.00 is substantial by the standard of Hong Kong, it is a lot more substantial by the standard of the Mainland. The Debtor's story is wholly incredible.

26. The fact that the Debtor cannot even provide the correct name and address of Zhen Jiang Co. fortifies my belief that he has made up the story of Zhen Jiang Co. He also provided a shield against further investigation of Zhen Jiang by alleging that it had been wound up. His story about Tung Fang and the allegation that he could not find out a thing from Tung Fang is just as incredible as his story about Zhen Jiang. He made up these stories as excuses hoping to cover up his refusal to make full disclosure on his investment of HK$34,000,000.00 in Kam Pik Garden. I do not accept Mr. Kong's submissions that things in the Mainland can be done in the way as described by the Debtor.

Order

27. I refer to the Debtor's affirmation evidence as quoted above and find beyond reasonable doubt that the Debtor has failed to make a full disclosure of all his assets and investment in Kam Pik Garden. I therefore order that the Debtor be imprisoned for 1 month under Order 49B rule 1B1(c) of the Rules of the High Court. I also fix the allowance under rule 2 at HK$650.00 per day.

28. I also make an order nisi that the Debtor do pay the Creditor costs of the examination with certificate for counsel. I make a further order nisi that there be a certificate for counsel for the costs order made on 1st March, 2002.

Representation:

Mr. Wilson Chan instructed by Messrs. Baker & McKenzie for the Creditor.

The Debtor appeared in person on 1st March 2002. Mr. Paul Kong instructed by Messrs. Quan & Co. for the Debtor on 18th May, 2002 and on 6th and 13th July, 2002.

Remarks:
Appeal by 1st Defendant to Court of Appeal. Appeal dismissed. Please refer to Appeal judgment of CACV000294/2002.

HCA10335/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.10335 OF 2000

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J U D G M E N T

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1. This is an application by the 1st defendant for a stay of execution of the judgment granted by me in favour of the plaintiff on 16 July 2001 and the judgment was for a sum of some $9 million. The application now by the 1st defendant is for a stay of execution on the ground that there is a pending appeal, the date of which has not yet been fixed although I understand it has been set down.

2. The basis of the application is that the 1st defendant has a good prospect of success with the appeal and that he would be financially ruined if the execution is allowed to proceed. I am not persuaded that there is a good prospect of success but I need to say very little about this as the matter is pending appeal but nothing produced had changed my mind that the judgment that I had given in July was wrong.

3. The main emphasis, however, of the application is, on whether the exceptional grounds have been shown by the 1st defendant so that the rather unusual order should be given by the court granting a stay of execution. I think it is well-known that the court does not likely deprive a successful party from the fruit of the judgment, so the court does not easily grant a stay of execution in favour of an unsuccessful party. Exception can be made (certainly not a situation here), where the plaintiff, either a foreign resident or is in such poor financial state, that if execution is allowed to proceed that the plaintiff would not be able to return the money to the 1st defendant after a successful appeal. Everything, therefore, turns on the 1st defendant's contention that he would be financially ruined.

4. But financially ruined, by itself, is not a ground for a stay of execution. For someone who has got to pay a large sum on the judgment which may either exceed his assets or where it would eat substantially into his available assets, it could not be said someone would be financially ruined so that no execution should be ordered. By itself, this is not a ground.

5. What the 1st defendant seems to be saying is that the shares which are subject of a charge nisi if the plaintiff is allowed to proceed with execution, then the 1st defendant would be in such a prejudicial position that the properties in China, which is the main assets of the company, the shares of which is the subject of the charge, may not be available to the 1st defendant's company after a successful appeal. But that is a bold assertion made without any supporting material. I have read very carefully the latest affirmation of the 1st defendant at pages 194-195, and the key contention is the assertion that the original agreement would be considered invalid if execution is allowed to proceed. There is, certainly, no supporting material and it seems to go contrary to common sense.

6. I have, therefore, come to the conclusion that in all the circumstances, this is not the case where I can be satisfied that a stay of execution ought to be granted. In my belief, it would be doing a great injustice to the plaintiff if a stay of execution is granted in favour of the 1st defendant who is, I think, a skillful businessman and who is merely using the court process to prolong this struggle. The application of the 1st defendant for a stay of execution is therefore refused with costs.

Representation:

Mr Eugene Fung, instructed by Messrs Baker & Mckenzie, for the Plaintiff

1st Defendant appearing in person

HCA10335/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.10335 OF 2000

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J U D G M E N T

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1. This is an appeal by the 1st defendant from the order of the Master, whereby the Master granted to the 1st defendant conditional leave to defend by requiring the 1st defendant to pay into court $2.5 million in order to defend the claim brought by the plaintiff against the 1st defendant for a loss suffered by the plaintiff in the amount of something over $9 million in relation to the Futures Exchange Contract entered by the plaintiff on the instructions of the 1st defendant, pursuant to a written agreement entered into between the plaintiff and the 1st defendant.

2. What happened is this : the 1st defendant is a highly experienced professional trader, as he claimed that he was a big player in a big way with a long experience of trading.

3. The transaction in question between the plaintiff and the 1st defendant was the first in their relationship. As the 1st defendant previously had not done any business with the plaintiff, an account was required to be opened in order to transact any business. The 1st defendant was supposed to pay to the plaintiff and into the plaintiff's bank account a sum of $2.5 million as margin deposit. This was purportedly done by way of a cheque and the cheque was given by the 1st defendant not to the plaintiff, but was deposited by the 1st defendant into the plaintiff's bank account and it will seen subsequently that the 1st defendant countermanded that cheque.

4. On the representation of the 1st defendant that the money had been paid by the 1st defendant to the plaintiff's bank account, the plaintiff executed 250 Hang Seng Index Futures October contracts. The market moved that day quite quickly against the 1st defendant, so as to require the 1st defendant to top up the $2.5 million margin deposit that was supposed to have been already paid, by an additional $2.5 million referred to in the affidavit.

5. Instead of paying additional deposit or squaring the contracts, the 1st defendant wished to transfer the contracts to another broker, ASG Futures Limited ("ASG"), i.e. the 2nd defendant. Apparently, the 1st defendant had been a substantial customer of ASG. By a telephone conversation later that afternoon, it appeared that ASG had agreed to take up these contracts and agreed to a transfer. ASG apparently signed the appropriate forms by signature which, however, turned out to be not authorized signature in the eyes of the Hong Kong Futures Exchange Clearing Corporation Ltd ("HK Clearing House"). The HK Clearing House is the mechanism created under the ordinance whereby in relation to Exchange Contracts, the HK Clearing House, as the central exchange, would approve all purported transfers from one broker to another broker of outstanding contracts. The role of this central exchange is to ensure that at the end of every trading day, each broker has sufficient or adequate cover vis-à-vis the central exchange of its outstanding position and that is why it is crucial in relation to contracts that are outstanding at the end of a trading day that either a definite cover must be made to the central exchange or there had been an effective transfer from one broker to another broker in which case the transferee broker would have to ensure adequate cover with the central exchange.

6. At the end of the trading day on Friday, 13 October 2000, because there had not been any effective transfer of the outstanding contracts, something like $20 million additional cover by the plaintiff to the central exchange was required as stated in the documentation, the Daily Settlement Summary between the HK Clearing House and the plaintiff. This can be seen at page 139. That is to say, in the eyes of the central exchange, these contracts were still with the plaintiff and the plaintiff therefore had a liability to pay to the central exchange the sum of some $20 million because the market had been moved adversely in relation to the 1st defendant's contracts and the plaintiff, therefore, incurred such a liability to the central exchange. It also follows that so far as the HK Clearing House/the central exchange, was concerned, the 2nd defendant, ASG, did not have these contracts and did not, therefore, have the liability vis-à-vis adequate coverage with the HK Clearing House. There had been exchanges over the weekend amongst the parties as to these outstanding contracts and eventually on Monday morning, there was the flurry of activities resulting in by 9:45 a.m. when the market opened again, the contracts still being held, in the eyes of the central exchange, by the plaintiff. No effective transfer had been executed by the 2nd defendant to transfer these contracts from the plaintiff to the 2nd defendant. No effective approval of transfer of these contracts was made by the HK Clearing House/the central exchange. The 1st defendant did not put any money into the bank account of the plaintiff but in fact had countermanded the original $2.5 million cheque. The plaintiff had openly indicated to everyone, i.e. the 1st and 2nd defendants, that it was going to liquidate the position in order to protect itself. Throughout the rest of that day, the plaintiff liquidated the outstanding contracts with a result that a loss of something like $9 million odd was suffered.

7. The case of the plaintiff, therefore, against the 1st defendant is that pursuant to the terms of the Written Client Agreement dated 10 October 2000 as between the plaintiff and the 1st defendant as these outstanding contracts resulted in a loss of $9 million the 1st defendant should be responsible for such loss. The plaintiff's position is that the Master was wrong in granting conditional leave to defend. The plaintiff asked for summary judgment. The plaintiff also has claimed in the Statement of Claim the additional remedy against the 2nd defendant for breach of contract, in that the 2nd defendant had agreed to take up the outstanding contracts but then failed to do so effectively by signing the necessary documents.

8. The argument by Mr Stanley Lam, the 1st defendant who appeared in person today before me, really centres on one point and that is the 1st defendant is released from his liabilities to the plaintiff as soon as the second broker, i.e. ASG, has agreed with the first broker, i.e. the plaintiff, to a transfer. From that time onwards, the plaintiff no longer can look to the 1st defendant. I disagree. If you look at the overall mechanism of the way these futures contracts work, then it seems to me that unless and until there has been an effective transfer approved by the central exchange, the central exchange regards the contracts as those undertaken by the plaintiff broker and the plaintiff broker can therefore effectively look to its customer, i.e. the 1st defendant. The fact that there might had been an agreement, whether oral or written, between the two brokers gives only the additional right to the plaintiff broker to look to the second broker for its "additional remedies" not "alternative remedies". So, the primary case that had been argued before me by Mr Lam seems to be a wrong submission. What is suggested by Mr Lam will bring havoc to the whole exchange mechanism and the whole statutory scheme and there is therefore in my view no substance in the defence. It seems to me that Mr Lam has skillfully tried to exploit the existence of a second claim, i.e. the additional claim by the plaintiff against the 2nd defendant and tried to delay the evil day. There is, in my view, no reasons for the court to order conditional leave to defend. This is for me, simply, a case of no defence and so, in my judgment, the proper order under the summary judgment application should be judgment to the plaintiff in the amount as claimed by the plaintiff together with costs of the action, costs of the appeal and the cost of the summary judgment application before the Master.

Representation:

Mr Jat Sew Tong, instructed by Messrs Baker & Mckenzie, for the Plaintiff/Respondent

Mr Lam Chi Bin Stanley, 1st Defendant/Appellant appearing in person

Remarks:
Appeal by the 1st Defendant to the Court of Appeal. Appeal dismissed. Please refer to the Appeal Judgment CACV002690/2001.

HCA 10335/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10335 OF 2000

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D E C I S I O N

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1. This is D1's appeal against the Master's order dated 22 May 2001 whereby the learned Master dismissed D1's application for a stay of execution pending the determination of D1's appeal against the order of 20 April 2001 giving him conditional leave to defend this action.

2. The plaintiff brings this action against D1 and D2. According to the Statement of Claim dated 6 December 2000, the plaintiff is and was a member of the Hong Kong Futures Exchange Limited and has been carrying on the business of dealing in futures and options contracts. D1 was the plaintiff's former client who opened a futures/options trading account.

3. According to the plaintiff, on 13 October 2000, the plaintiff expressly told D1 he could only commence trading after sufficient margin deposits had been provided. As a result, on that day, D1 deposited a cheque in the sum of $2.5 million into the plaintiff's bank account.

4. Further, on the same day, D1 instructed the plaintiff to sell 250 Hang Seng Index Futures October contracts at open (14,460 points) which instruction was executed by the plaintiff accordingly. The market moved adversely against D1 subsequently. In the afternoon of 13 October 2000, D1 telephoned the plaintiff and informed the plaintiff that all the HSI contracts were to be transferred to D2, which was also a member of the Hong Kong Futures Exchange Limited carrying on the same business as the plaintiff.

5. It is the plaintiff's case that a binding agreement was reached between it and D2 that the plaintiff would give up and D2 would take up the HSI contracts.

6. This appeal is not concerned with the propriety of the order dated 20 April 2001 giving conditional leave to defend but only related to the dismissal of D1's stay of execution application.

7. Plaintiff's counsel has fairly accepted that the merits of the substantive appeal are usually not of crucial importance to an application of this kind. I do not consider that the facts of this appeal justify a departure from that general rule.

8. The plaintiff opposes this appeal on the following main grounds:

(1) there must be good reasons for depriving the plaintiff from obtaining the fruits of a judgment or order;

(2) D1 has not demonstrated that complying with the order of 20 April 2001 would cause him serious prejudice;

(3) accordingly, no good reasons have been shown by D1.

9. As a matter of principle, the plaintiff's point (1) above is correct. However, whether or not "good reasons" had been shown depends ultimately on the circumstances of each case.

10. In the present case, if the stay of execution is granted, the risk of prejudice to the plaintiff is that it will not be able to enter judgment against D1 (if D1 should fail to comply with the condition) between now and 16 July 2001 (the date fixed for hearing of the substantive appeal). On the other hand, depending on my determination on the adequacy of D1's evidence regarding the likely prejudice to him, the risk of prejudice to D1 may be that judgment in the sum of about $9 million will be entered against him (with the usual consequences regarding enforcement) if he defaults in paying $2.5 million into court.

11. D1 has argued that he will be financially ruined if he is required to comply with the said condition of payment into court. I do not understand how this can be so. However, since D1 is not legally represented, and may not be articulate in his language, I consider what he meant to say is that if there is no stay of execution, he will not be able to comply with the said condition. This in turn will result in judgment being entered against him and this will bring about financial ruin to him.

12. D1 has filed 2 affirmations respectively dated 4 May 2001 and 5 June 2001 in support of this appeal. In his 4 May 2001 affirmation, D1 deposed that he would not be able to comply with the order of 20 April 2001 without depriving himself of all working capital or selling his investment in the mainland at an undervalue. In 5 June 2001 affirmation, D1 deposed to the assets he owns, especially the amount of available cash in the bank accounts. A number of criticisms have been levied by the plaintiff against D1's affirmations. Despite these, I conclude that D1 has adduced sufficient evidence to show that if the order of 20 April 2001 was not stayed between now and 16 July 2001, he would suffer serious prejudice.

13. I have taken into account the following matters in reaching this conclusion:

(1) the time period between the order of 20 April 2001 giving conditional leave to defend and today is relatively short (a period of about 1 1/2 months). This would have an adverse effect on the quality of the evidence which D1 was able to adduce in support of this appeal;

(2) information regarding the most substantial piece of asset, namely, the $34 million worth of investment in the mainland, was volunteered by D1. With this in mind, I do not agree with counsel's submission that (a) D1 has been less than full and frank in the disclosure of his overall financial situation, (b) D1 has not been genuine in deposing that he had been unable to obtain finance to meet the condition of payment into court;

(3) it is often difficult to prove a negative. In the context of an application for a stay of execution, this means that it is often difficult to conclusively demonstrate that one does not have the means to comply with the condition imposed in an order (or other types of judgments).

14. For the above reasons, I will allow the appeal and order that there be a stay of execution of the order of 20 April 2001 relating to the payment of $2.5 million into court until 16 July 2001 or further order (whichever is the earlier).

Representation:

Mr Jat Sew Tong, instructed by Messrs Baker & McKenzie, for the Plaintiff

1st Defendant acts in person and present