SINCERE SECURITIES LTD v. LI MOU TONG, VINCENT

HCA255/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.255 OF 2001

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Before : Hon Yam J in Court

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J U D G M E N T

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The action

1. This case commenced as an action for three dishonoured cheques totalling $2.65 million.  The plaintiff applied for and obtained summary judgment before the master.  The appeal by the defendant to the Court of First Instance was only successful to the extent of conditional leave to defend by payment into court of $300,000.  Eventually, the Court of Appeal set aside the condition and granted unconditional leave to the defendant to defend the action.

2. The main defence raised by the defendant there and then was that there was no consideration for the three cheques issued. 

Background

3. The defendant was employed by the plaintiff company as an Account Executive and in late December 2000, one of his clients had suffered a loss in the margin trading account to the extent of about $2.5 million.  It was the plaintiff’s case there and then that the defendant was employed under an agency agreement, being an employment agreement between the two parties, and in this agreement he had guaranteed and agreed to indemnify the plaintiff to the extent of his client’s loss.  The plaintiff exhibited an agency agreement purportedly dated 1 December 1999.

4. The defendant, however, pointed out that this agency agreement was on a letterhead of the plaintiff with three branches which had not come into existence until mid-2000 as previous stationary of the plaintiff in 1999 contained four branches.  Eventually, the plaintiff admitted such fact and the fact that the agency agreement was signed in or about late December 2000 or early January 2001 but only backdated to 1 December 1999. 

5. The case came to trial before me for 16 days.  At the end of the case, I have dismissed the plaintiff’s claims and accepted the evidence of the defendant.  I now set out hereinbelow my reasons for doing so. 

The defendant’s case

6. To recapitulate, the defendant was employed since about October 1997 by the plaintiff’s predecessor which was known as Tse’s Securities Limited as an Account Executive.  According to the defendant, at that time he had not signed any written employment contract with the plaintiff.  In fact, he said, since then he had never signed one.

7. In or about October 2000, he introduced one client called Best Group Limited (“BGL”) to open a margin trading account with the plaintiff.  The person-in-charge he contacted was one Mr Yip of BGL.  It was a BVI company.  Since then BGL had been trading in stock and securities in the stock market through the plaintiff.  In particular it had purchased shares of a company called Prosper eVision Limited, stock code “979”.

8. According to the defendant, he had already left the employment of the plaintiff by 15 December 2000.  However sometime after 10 a.m. on 28 December 2000, he was phoned by the plaintiff’s dealing director, one Mr Shum Chung Ying to return to the company to attend to this matter.  He could not contact Mr Yip that day. 

9. Incidentally on that very day the person in charge of the company, the shareholder and director of the plaintiff Mr Tse Tak Ching, was in Taiwan because his daughter was getting married that day.  One Mr Hubert Chan the CEO of the company was also with him.  Mr Tse was informed immediately of the loss of $2.5 million and some time in the afternoon Mr Hubert Chan and Mr Tse came back to Hong Kong to attend to the matter.  It was Mr Hubert Chan who came back first and Mr Tse later.  They had a meeting some time after 5 p.m. at Mr Tse’s office attended by the defendant.  Other persons attended were Mr Shum Chung Ying, Mr Lawrence Yau and Mr Daniel Yue.  They were all staff of the plaintiff.

10. Mr Tse told the defendant that since BGL had suffered a loss of $2.5 million, he should do something to remedy the situation.  The defendant replied that since he did not work for the plaintiff anymore he should not be responsible for the said sum.  Upon hearing that, Mr Tse became very angry and went mad.  He shouted loudly and fiercely at the defendant and said that he must be responsible for the said sum since BGL was introduced by him to the plaintiff.

11. Mr Tse further fiercely said that if the defendant did not make any payment, he would contact his new employer and cause him to be dismissed.  He would also contact his family members and cause harassment to his family members.  Mr Tse also said he would repeatedly come to the new office of his new employer and cause nuisance to the defendant as well.  The defendant felt very scared and Mr Tse continued to shout loudly and fiercely at him.  Eventually Mr Tse ordered Mr Daniel Yue to type out a note confirming his consent to be liable for the unpaid debt owed by BGL. 

12. The defendant said that there was a previous occasion where he witnessed Mr Tse physically assaulted a former staff of the plaintiff, one Mr Lau, in the plaintiff’s office.  Further he knew that Mr Lawrence Yau had some triad background and he was responsible for collecting debts and instructed debt collectors to demand repayment from some of the company’s debtors since Mr Tse also run a finance company in the same group.  The defendant was terrified because he had an 81-year-old mother and a 10-year-old son.  

13. Eventually he signed the letter of indemnity agreeing to repay all the debts of BGL (at D-84) and the aforesaid three cheques in the total sum of $2.65 million.

14. However before signing the cheques, Mr Shum, on behalf of the plaintiff, assured the defendant that steps would be taken to recover for the sum from BGL at the plaintiff’s sole costs.  The cheques would not be banked in unless and until BGL failed to pay and settle the debt to the plaintiff and in that event prior notice would be given to the defendant.

15. In or about early January 2001, the defendant received a phone call from his new employer, one Mr Dickson Ho, who told him that Mr Tse accompanied by another male, had come to the office at about 3 p.m. and he demanded to see the defendant in person.  His new employer told him to go to see Mr Tse after work.  

16. In order to avoid any further nuisance caused by Mr Tse to his new employer, he went to the plaintiff’s office at about 5.15 p.m. to meet Mr Tse.  At that time Mr Tse, Mr Laurence Yau, Mr Shum and the secretary of the plaintiff were in the plaintiff’s office.

17. Mr Tse started by scolding the defendant and alleged that he had stolen the original service/agency agreement made between the plaintiff and the defendant.  He demanded the defendant to sign a new service agreement.  Initially he refused to sign and replied that he had never stolen any service agreement and had never signed the same with the plaintiff during his previous employment with the plaintiff. 

18. However, Mr Tse continued to scold the defendant fiercely and demanded him to sign the service agreement.  In fear of antagonizing Mr Tse and under the influence of the threat of duress on the previous occasion, and in particular in fear of the harassment that would have caused to his family and nuisance caused to his new employer, the defendant had no alternative but was forced to sign the agreement which was backdated to 1 December 1999.  That was the agreement with three branches of the plaintiff company stated therein as mentioned earlier.

19. By reason of the aforesaid evidence of the defendant which I have accepted as truthful, there was no consideration at all for the three cheques.  In the first place, there was never any written employment contract signed between the plaintiff and the defendant stating that he should indemnify the plaintiff for the losses of clients introduced by him to the company.  In any event, the losses incurred by BGL was on 28 December 2000 by which time he had already left the employment of the plaintiff by 13 or, at the latest, 15 December.  By a letter dated 9 January 2001, Mr Shum actually certified that the defendant had left the company employment after 15 December 2000.  In any event, the backdated service agreement and the cheques were all signed under the duress of Mr Tse who had threatened him, the defendant, with physical violence and harassment to his family members and his new employment.

The plaintiff’s case and witnesses

20. The plaintiff called six witnesses and they are as follows :

(1) Shum Chun Ying, the dealing director;

(2) Ms Adky Chan Ka Wai, the assistant compliance manageress who is responsible to Shum and Tse;

(3) Hubert Chan Wing Yuen the CEO employed by the plaintiff;

(4) Daniel Yue Chung Sang, the financial analyst;

(5) Dickson Ho, the managing director of CEF Brokerage Limited;

(6) Tse Shiu Hoi, the shareholder and director of the plaintiff. 

There is one additional expert witness Wong Yun Kuen who, in my view, did not add anything to the plaintiff’s case.

21. I shall analyse hereinbelow as to why I consider all the plaintiff’s witnesses are not credible. 

22. To start with, all the witnesses present at the meeting in the late afternoon of 28 December 2000 said the meeting was quietly and gentlemanly conducted.  No one had raised his voice and no threat or duress had ever been applied on the defendant.  However, the plaintiff’s own witness Ms Adky Chan Ka Wai, the assistant compliance manageress, said that there were disputes and negotiations going on inside the room.  It was noisy and people had raised his voice in particular they were Mr Tse and Mr Li, the defendant and they had used foul language.  Ms Chan also said Mr Tse used to use foul language from time to time.  This, I am afraid, has given away the plaintiff’s case.  Ms Chan, who joined the plaintiff company in 1999, had already left the company when she gave evidence.

23. On the other hand Mr Shum eventually had to agree that he had signed on the letter dated 9 January 2001 and it was he himself who had certified that the defendant had worked in the plaintiff company until 15 December 2000.  During cross-examination he was trying to suggest that the date, 9 January 2001, was inserted after he had made his signature.  Eventually it turned out that that date was actually typed very parallel to the rest of the letter.  His colleague who was present in court had tried to suggest that the margin of the date and the rest of the letter were not in line.  Eventually on the strength of a ruler, the margin of the date and the rest of the letter actually were in line also.  There was nothing on the letter which would suggest that the date therein was inserted later on.  The certificate clearly said that the defendant had left the company by 15 December 2000.  Thus, whatever agency agreement the defendant might have signed, by 28 December 2000, the defendant had already left the company and would not be bound by any terms of employment.  

24. It was the plaintiff’s case that there were two previous agency agreements before the one now backdated to 1 December 1999, which was actually signed in January 2001.  Altogether there should be three agency agreements.  However, I do not find the plaintiff’s version credible at all.

25. In fact there was no document signed by the defendant apart from the backdated one which he was forced to sign in January 2001.  The suggestion that he had signed one when he joined Tse’s Securities Limited back in 1997 and one in 1999 when Tse’s Securities Limited became Sincere Securities Limited was never backed up by any documents.  In fact in the action of the plaintiff against BGL for a Mareva injunction in order to stop its assets from dissipation, the defendant had assisted the plaintiff company by making an affirmation.  In the same affirmation which was filed together with Mr Shum’s affirmation, the defendant also said that he had left the defendant company by 15 December 2000.  Such fact has never been corrected by Mr Shum.  

26. In respect of the plaintiff’s allegation that the defendant had stolen the agency agreement, he said that he had only asked Ms Chan for his personal file when he was checking his commencement of employment at the time he was about to tender his resignation in early December.  It was just a short encounter of a several minutes before Ms Chan.  Later when Mr Tse discovered there was no service agreement in the personnel file of the defendant, he was furious.  He charged Mr Hubert Chan, Mr Shum and Ms Chan for not doing their jobs properly and it was there and then that they had invented the story of a stolen service agreement by the defendant.  In fact, he had never signed one before. 

27. If Ms Chan’s version was correct that there were two occasions when the company had ensured that all the Account Executives had signed their service agreements or agency agreements, all of them must have signed their agreements before December 2000.  However there are three service agreements produced by the plaintiff itself which was backdated to 1 December 1999 on letterhead with three branches.  Thus, the plaintiff company has never explained why, in spite of the so-called two operations, still three Account Executives had escaped signing their service agreements and they were required to sign one by January 2001 and backdated to 1 December 1999.

28. The plaintiff alleged that there was a signed agreement in July 1998.  The document at D-25 shows that the defendant was first registered with the Stock Exchange on 10 July 1998.  Shum said that there was an agreement at that time but that was of course before Shum himself had commenced working in the plaintiff company.  Shum had never claimed to have seen such an agreement. 

29. Ms Chan said that it was her own deduction only that the defendant should have signed one with Tse’s Securities.  Mr Dickson Ho who was with the plaintiff company at that time was completely silent on this aspect of the evidence although he said he did sign some agency agreement but he was unclear about the dates.  From the documents of the plaintiff, there were two agency agreements (at D-242 and D-246) which bore Mr Ho’s signature and they were both dated 1 August 1998.  

30. On the other hand, Ms Chan said twice in her evidence that before she had joined the company, not all the agents had signed the agency agreements.  

31. In the end, I could not accept there was an agency agreement made between the defendant and the plaintiff’s predecessor in or about July 1998.

32. The second question is whether there was the second signed agency agreement when Tse’s Securities became Sincere Securities.

33. Here, Mr Shum was adamant that when he took over as the dealing director at the time when Tse’s Securities became Sincere Securities (which was on 6 October 1999) he had made sure that every Account Executive had signed an agreement.

34. He was actually silent in his own witness statements in this respect and he only referred to the defendant that he had signed the agency agreement in or around 1 December 1999.

35. In re-examination, he said it was Ms Chan’s predecessor, one Miss Cyna Chan, who had prepared the new agency agreement and they were all dated 1 December 1999. 

36. According to Ms Adky Chan, she seemed to be equating her part in an operation of this kind with the operation which Shum said he had initiated.  At first, she related this to the date of change of name in 1999 and Shum’s operation.  But at other times she placed it fairly and squarely towards the end of 2000 when Mr Hubert Chan was involved in such operation.  In the end, she appeared to indicate that she had only been involved in such an operation once and that was the time with Hubert Chan.  There was nothing in her witness statement concerning the operation with Shum.  She gave me an impression that she could only have a faint memory of things which happened some years ago and she was quite unsure in her memory about the whole operation. 

37. However, Shum produced three other agency agreements in addition to the one of the defendant’s and they all bore the date of 1 December 1999.  The other two produced by Ms Chan were those of Ma Kei (at D-254) and Lam Wai King (at D-332).  As with the previous three other agency agreements (of Chan Kam To, Fung To and Hui Tung Yuk at D-45, D-48 and D-51) they were all documents printed on stationary with three branches.  Thus, in the end, all of these documents suggested that they were made much later and was only backdated to 1 December 1999 as the agency agreement of the defendant.  These documents suggested the vice practice of substantial backdating of agreements and therefore no dates and, in particulars, those with the date of 1 December 1999, can be relied on.  

38. Mr Hubert Chan said in his latest supplemental witness statement that since he became the chairman of the Sincere Group in mid-August 2000, he had ordered to check and confirm that all Account Executives had signed the relevant agency agreement in early September 2000.  He had instructed Shum and Ms Adky Chan to review the system and check whether all of them had signed the agreements.  He said that the whole process was completed in four to five weeks by early October 2000.  That would be just shortly before the December 2000 incident.  

39. However, the documentary evidence did not support what he said.  The only document produced by the plaintiff supported that he became the director of a BVI company called J Stone’s Group Ltd on 14 August 2000 and it is part of the Sincere Group.  However there was nothing on the face of this document or any other document to connect it with the Sincere Group.  There was no contractual document to substantiate his employment by the Sincere Group for August 2000.  The contractual document between Hubert Chan and the Sincere Group when he was appointed as the chairman and CEO of the plaintiff bore the date of 23 September 2000. 

40. In other words, there was nothing to support that is his operation begin as early as September 2000.

41. Further, Shum did not say anything about Hubert’s so-called operation.  Hubert himself said he did not check all the files given to him by Ms Adky Chan against her check-list and Hubert only relied on Shum’s information that the operation had been completed and all the Account Executives had signed.

42. As I have said early, Ms Adky Chan seemed to be caught in the dilemma of the date of the Shum and Hubert’s operation and she was trying at first to relate the operation to Shum’s instruction and later to Hubert’s operation.  When Adky was asked whether the operation could have possibly been completed after the defendant had left the company, she answered in the affirmative.  In that event it would seem that the operation could have been completed as late as December 2000 or some time even in January 2001.  In any event, if Hubert’s operation had completed and all Account Executives had signed, why Shum found three Account Executives with no agency agreement even after 28 December 2000 since those three who signed the Account Executive agreement should be in January 2000 and backdated again to 1 December 1999.

43. Then the plaintiff produced the agency agreement of Chan Ka Kin dated 27 October 2000 and Tsui Chek Ming dated 3 November 2000 and Ho Fan Shan dated 1 August 2000.  However, Ho was a new recruit, Chan Ka Kin and Tsui Chek Ming were only rejoining the Sincere Group as it was supported by their statement at D-373 that they had no commissions in the in-between period. 

44. The significance of all these is that there was never or at least one operation to ensure that all Account Executives had signed an agency agreement.  The plaintiff has not provided any check-list to substantiate that claim.  All Account Executives were not treated with any routine care in this respect.  If Mr Hubert Chan had conducted his operation at all, he would have ensured that there should be a proper system installed in the plaintiff’s company.  There is no shred of evidence to confirm that initially all agency Account Executives have signed an agreement and later the same operation took place at the change of the company’s name and eventually  the Hubert Chan’s operation.  If Hubert Chan is right there would not have been at least about 10 agency agreements missing among about a hundred Account Executives.

45. In order to support the consideration, the plaintiff’s case is that there was a pre-existing agency agreement which the defendant had removed from the file.  In this respect, Shum, Ms Chan and Tse testified on the incident but have different version.  Ms Chan said that the defendant approached her and asked for his personal file.  After she had given him the file the defendant only returned the file to her after one or two days.  Then his senior (probably Mr Shum or Tse) discovered that the agency agreement was missing.  Tse banged the file onto her table and he was angry and asked Ms Chan why the defendant’s agency agreement was missing.  

46. However, Tse did not say anything in his witness statements.  Tse said in evidence that he found the defendant’s personal file on his desk and he could not see any 17 clauses document so he knew the agency agreement was missing.  He then went out to query Ms Chan.  It was not clear who put the file onto Tse’s table.

47. Shum said in his witness statement that one of two days after 28 December 2000, he was told by Tse that the personal file of the defendant had been removed.  He later checked with Ms Chan and learned that the defendant had earlier borrowed his personal file and returned the same.  When he looked at the file he found the agency agreement missing.  However, when Shum gave evidence, he said he looked at the file on his own initiative and no one had suggested that he should.  This is contradictory to his witness statement.

48. The inconsistency of the plaintiff’s witnesses’ versions is also considered in light of the whole allegation that the defendant had stolen the agreement.  Why should the defendant remove the agency agreement by the time he had already signed three cheques and the note of liability at D-84.  If he were to remove the document from the folder it would not take him two days by keeping his personal file for two days.  It would only be a matter of minutes to take it from the file when he was given the same by Ms Chan.  According to the defendant he had only a quick look at his own personal file in early December in order to check his date of commencement of work when he was resigning by 15 December 2000.  I accept the defendant’s submission that the inconsistency revealed by the plaintiff’s evidence pointed to the inherent improbability of the allegation that the defendant had taken away the agency agreement.  That document simply did not exist.

49. That is why in early January Mr Tse visited the defendant’s new place of work at CEF where the person in charge was his previous employee, Mr Dickson Ho.  Both of them, i.e. Tse and Ho, testified that Tse was just having a causal visit and the intention was Tse would like to open an account at CEF.  However, eventually no account was opened by Mr Tse and Mr Ho asked the defendant to go back to the plaintiff company to see Mr Tse.  Mr Ho could not explain why he had asked the defendant to go back and see Mr Tse when he said Tse did not come to look for the defendant.  Mr Tse could not explain either why, after the visit, the defendant came to see him when Tse also said that he did not go there to look for the defendant.  I find both of them to be incredible.

50. I find the defendant’s version to be more credible.  That is Mr Tse went to CEF as part of his harassment which he told the defendant earlier on.  He was actually looking for the defendant and Ho promised to ask the defendant to go to see Tse afterwards.  That was the point when Mr Tse was furious with Shum and Hubert Chan that they had not made sure the defendant had signed an agency agreement before he left the company.

51. Lastly, from the very beginning of this case, from the plaintiff’s side, they should have known the agreement they produced with the signature of the defendant was just backdated.  Secondly, they would have known that an earlier agency agreement had gone missing.  By April 2001, the defendant was already saying that he had signed no such agreement in December 1999.  Thus, the plaintiff by August 2001 should have known that the defendant was saying that it was backdated and they knew it was backdated.  The plaintiff should then put forward previous agreements but they have not done so.  If there were any check-list as they claimed, they would have been more readily made available there and then or at least could have been preserved.  August 2001 was less than a year from Ms Chan’s allegation that the Hubert Chan’s operation lasted only between September and November 2000.  She did say later that it could have been finished by January 2001.  Thus by August 2001, they could have readily preserved any check-list if there was one in existence.

52. All in all the plaintiff has not proven that there had been a pre-existing agency agreement between the plaintiff and the defendant and thus could not rely on one in support of the consideration for the three cheques.

53. In respect of the deferral of the resignation of the defendant, Shum initially was trying to explain that BGL was over its 10% margin.  That was why the defendant had to stay until BGL’s excess margin was sorted out.  On the basis of only 10% margin allowance, on 12 December, BGL was nearly $3 million over the margin.  However, on a 30% margin, the excess would be only about $700,000.  Eventually Shum agreed that he had instructed the defendant to allow BGL a 30% margin.  This was in spite of the paper work calculation in the account that 10% was used as the basis.  Even according to the written agreement between the plaintiff and BGL (at D-60), it was agreed that 30% margin would be given to BGL.  Indeed Shum also referred to this 30% limit in his own witness statement.

54. Shum also accepted that he himself had personally purchased and recommended 979.  Thus he could not have been so worry about BGL’s position on 12 December 2000 as he initially said so in order to make out a case that he would not allow the defendant to leave because of BGL’s margin position.

55. Secondly, if the defendant was then subject to an agency agreement, Shum could not have made the question of sorting out BGL’s margin as a condition of allowing the defendant to leave the company.  Under clause 8 of such an agreement, an agent could resign by giving seven days’ prior notice whatever the state of his accounts.

56. Finally, the notice of resignation that Shum claimed to have returned to the defendant (at D-81) was actually discovered as an original document in the possession of the plaintiff.  No explanation was ever given by the plaintiff as to why they had retained the original of this document when Shum claimed that it had been given back to the defendant.  

57. In fact, the defendant’s claim that he had started the new job the next day on 13 December 2000 was supported by CEF’s document (at D-174) and by the evidence of Dickson Ho. 

58. Eventually the plaintiff produced the account concerning the defendant for the last part of his employment in December 2000 (at D-373-376).  This shows that the defendant still had a commission in the amount of $34,895.28.  In the affirmation of the defendant dated 26 March 2001 he deposed that he was still owed this amount of commission.  In evidence the defendant said he must have noticed this figure by seeing the document at D-374.

59. However, Shum in his affidavit in reply on 17 April 2001 said that the defendant had already been paid by the plaintiff all his commission during the period of his employment with the plaintiff.  He had no knowledge how the defendant came up with the sum of $34,895.28.  He even put the defendant to strict proof on the said sum.  This sum was actually from the own record of the plaintiff.  Shum gave evidence before this document produced.  It now appears that the plaintiff could hardly say the defendant was entitled to nothing for the month of December up to his time of resignation when the plaintiff’s own record shows that such an amount of commission was still held up by the plaintiff.  This supported the defendant’s contention that, whatever name appeared on the document from December onwards, his accounts were in fact house accounts. 

60. Further, as mentioned hereinbefore, on 4 January 2001, the defendant made an affirmation in support of the action against BGL and he stated that his departure from the plaintiff’s company was on 15 December 2000.  He said that he was authorised by the plaintiff company to make that affirmation.  Shum said that he did not check that affirmation of the defendant but the defendant was not in the position to know if Shum would check the content of the defendant’s own affirmation or not.  A few days later Shum actually signed a document dated 9 January 2001 as previously mentioned.  It clearly stated that the defendant’s employment with the plaintiff’s company was for the period from 10 October 1997 to 15 December 2000.  Why should Shum sign such a document when he claimed that the defendant was still in the employment of the plaintiff?  In fact Shum claimed in evidence that he signed it on 15 December 2000 and there is no reason why he should have signed it if on that day the defendant was still in the employment of the plaintiff.

61. The evidence has overwhelmingly supported the defendant’s contention that by latest on 15 December 2000 he had already left the employment of the plaintiff company.  This was even confirmed by the plaintiff’s witness, Mr Dickson Ho, who said that the Account Executive would have to handover his outstanding account but he would have no entitlement to commission after he had left the company.

62. The aforesaid conclusion was also indicated by the fact that on 28 December 2000, the defendant was not at the plaintiff company early in the morning.  As a team leader, he usually gave his team a briefing before the market open but the defendant was not in the plaintiff’s office when 979 plummeted, almost an hour after the market opened.  Shum actually knew where the defendant was and he found him at Mr Ho’s firm. 

63. Accordingly, the plaintiff had failed to prove that there was any earlier agency agreement as alleged by them.  Therefore there was no consideration for either the cheques issued later that date, the note he signed at D-84 and the post-dated contract he signed at D-40.  In the end, the plaintiff’s claim failed without even considering the issue of duress.

Duress

64. I found all the plaintiff’s witnesses to be incredible, in particular all who attended the meeting inside Tse’s office on 28 December 2000 had definitely played down the tone of the meeting.  It was not a friendly meeting — voices were raised, people were swearing, and Mr Tse was angry.  All the plaintiff’s witnesses did not admit that.  However, Ms Chan who was sitting just outside the door said they had raised their voice and people were swearing and in particular Mr Tse. 

65. I found the defendant’s version much more believable.  Pressure was brought upon him by Mr Tse and the defendant was threatened with various things as he was forced to sign the three cheques and the note of liability.  I accepted the defendant’s submission that “as a witness, Tse was something of a loose cannon, exploding in virtually every direction but the one he expected.  Answering the question he wanted to answer and not the questions put.  … There are strong reasons to accept the defendant’s account as being more probably the correct one that there was a degree of pressure amounting to duress. ”

66. Further, there is no reason why the plaintiff should cash in the three cheques and Shum’s explanation of the phone call from the defendant when Shum was on the way to Lan Kwai Fong is incredible.  Why should the defendant suddenly deny liability when he was assisting the plaintiff in pursuing its claim against BGL.  Afterwards, the plaintiff recovered about $1.4 million from BGL and shared half of it with anther creditor.  There was no reason why the plaintiff should bank-in the cheques before they knew how much could be recovered from BGL.

Conclusion

67. In conclusion I found that :

(1)	The defendant had no previous written agency agreement with the plaintiff’s company.
(2)	In particular there was no agency agreement signed after the plaintiff’s company has changed its name from Tse’s Securities to Sincere Securities.
(3)	The agency agreement dated 1 December 1999 was backdated document signed in January 2001 by which time the defendant had already left the employment of the plaintiff.
(4)	The defendant’s employment ended by 15 December 2000 and as such by 28 December 2000 when BGL’s account suffered a substantial loss because of the fall of the share price in 979, the defendant had already left the plaintiff’s employment.
(5)	The defendant is not responsible for the loss of BGL under the contract of employment with the plaintiff, nor under any custom of the trade.
(6)	The three cheques and the note of liability signed by the defendant were not supported by any consideration.
(7)	In any event the cheques and note of liability and the backdated agency agreement were all signed under the duress exerted by the plaintiff.

68. For the aforesaid reasons, I have dismissed the plaintiff’s claim against the defendant, with costs to the defendant.

Please refer to CACV54/2005 for the relevant appeal(s) to the Court of Appeal.

HCA 255/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 255 OF 2001

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REASONS FOR JUDGMENT

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1. This is an appeal of the defendant against the order of Master Yuen made on the plaintiff's application for summary judgment. The plaintiff's claim is on three dishonoured cheques for the total sum of HK$2,650,000.00 drawn in its favour by the defendant.

2. The learned Master gave conditional leave to defend on 11 May 2001 and adjourned the hearing to another date to determine the defendant's liability to make payment into court. Prior to that adjourned hearing, the defendant lodged an appeal against the Master's decision. On 15 June 2001, the Master ordered that the defendant should pay into court the full amount claimed within seven days. However, in view of the fact that the defendant had lodged an appeal against the order granting conditional leave to defend, the Master ordered that there be a stay of execution on the payment into court in the sum of HK$2,550,000.00 until the day of the hearing of the appeal.

3. The effect of the Master's order is that the defendant was required to pay into court HK$100,000.00 by 22 June 2001. The defendant sought an extension of time to comply with that order and on 12 July 2001, he was given another fourteen days to make payment into court of HK$100,000.00. The defendant has not made any payment into court at all.

4. In this appeal, the defendant sought to argue that he should be given unconditional leave to defend and very little was said on the defendant's behalf regarding the condition imposed by the Master. After hearing submissions, I decided to maintain the Master's order of giving conditional leave to defend. However, I have reduced the amount that the defendant is required to pay into court from the full amount of the claim to HK$300,000.00, after assessing his financial ability to make payment. My reasons appear below.

Background

5. The defendant was employed by the plaintiff as an associate director from 10 October 1997 to 15 December 2000. His responsibility was to procure clients and trading orders in respect of securities for the plaintiff. One of the plaintiff's clients was a company known as Best Group Limited. This company was introduced to the plaintiff by the defendant and the defendant was responsible for handling its account at all times. Best Group Limited opened a margin trading account with the plaintiff in October 2000. The account was granted a 30% margin so that if the debit balance on the account should exceed 30% of the value of securities maintained on the account, Best Group Limited was required to deposit further sums or securities as additional security.

6. At the end of November 2000, the debit balance in the margin account of Best Group Limited exceeded the 30% margin. The defendant requested Best Group Limited to put up sufficient margin in the sum of HK$1,000,000.00 or sell stock in its account of an equivalent value to reduce the debit balance.

7. On 6 December 2000, the debit balance was reduced to around HK$4,000,000.00 after Best Group Limited had sold some of its shares. However, this was still above the margin limit. The defendant's repeated requests to this company to settle the outstanding margin were to no avail and there was no further transaction on the account since 6 December 2000.

8. On 12 December 2000, the defendant tendered his written resignation to the plaintiff. He claimed that the last day of his employment with the plaintiff was 15 December 2000. This is disputed by the plaintiff. What is not in dispute is that after 15 December 2000, the defendant had continued to help the plaintiff on the handling of the account of Best Group Limited, notwithstanding he had by then joined another securities firm as an associate director.

9. One of the shares bought by Best Group Limited through the plaintiff was the shares of a company called Prosper e Vision Limited ("Prosper e Vision"). On 18 December 2000, trading in the shares of Prosper e Vision was suspended. When trading in the shares resumed on 28 December 2000, its price had dropped by about 80%. On that day, the defendant contacted the director of Best Group Limited and renewed his request that the company should settle the debit balance or put up sufficient security to cover the debit balance in the margin account, otherwise the plaintiff would have to close the account and start liquidating the shares in the account. As there was no or no satisfactory response from Best Group Limited when it was able to settle the debit balance, the plaintiff closed the margin account and sold the shares on 28 December 2000. The debit balance of Best Group Limited was reduced from over HK$4,000,000.00 to around HK$2,570,000.00. The defendant demanded immediate payment of that sum when he notified the director of Best Group Limited of the debit balance on 28 December 2000 after the shares were sold.

10. Also on 28 December 2000, the defendant signed a note to the plaintiff stating that he was personally liable for all outstanding sums in the account of Best Group Limited with the plaintiff, and that he was willing to pay the entire outstanding sum immediately. On the same occasion, the defendant issued three cheques dated 28 December 2000 in favour of the plaintiff for the total sum of HK$2,650,000.00. These are the cheques being the subject of this action. The total amount of the cheques was higher than the debit balance of about HK$2,570,000.00 because it was to include interest and all related charges, according to the plaintiff. The circumstances under which the defendant had signed the note and issued the three cheques are in dispute.

11. In about late December 2000 or early January 2001, the defendant signed a service agreement with the plaintiff which was back-dated to 1 December 1999 ("the Service Agreement"). It is not in dispute that this Service Agreement was executed by the defendant after he had served written notice to the plaintiff to terminate his service. Again, the circumstances in which the Service Agreement was signed by the defendant are in dispute.

12. The plaintiff was unable to recover any money from Best Group Limited in late December 2000 and early January 2001 notwithstanding the defendant's attempts to contact its director. On 4 January 2001, the defendant made an affirmation on behalf of the plaintiff in support of the plaintiff's application against Best Group Limited for a Mareva injunction. An ex parte injunction was obtained on 4 January 2001, this was continued on the inter partes application on 4 January 2001. Final judgment was obtained by the plaintiff against Best Group Limited on 23 January 2001 in the sum of HK$2,571,769.90. The plaintiff was able to recover part of the judgment debt by obtaining a garnishee order, a charging order over the shares held by Best Group Limited and an order for sale of such shares. In June 2001, HK$701,143.22 was recovered by the plaintiff from Best Group Limited.

The grounds of defence

13. In the Defence filed by the defendant on 9 February 2001, the only lines of defence pleaded are that there was either no consideration or only past consideration which was not sufficient in law to support the contract on the cheques. In the defendant's affirmations, he raised other lines of defence. The grounds of defence relied on by the defendant may be stated as follows:

(1) total failure of consideration;

(2) conditional delivery of the cheques;

(3) misrepresentation;

(4) duress; and

(5) that it is inequitable to permit the plaintiff to rely on the cheques.

14. I shall consider the various lines of defence in the order set out above.

Total failure of consideration

15. The Service Agreement signed by the defendant contained, inter alia, the following provisions:

"10. INDEMNITY

The Agent [i.e. the defendant] shall indemnify the Company [i.e. the plaintiff] and hold the Company harmless against all claims, costs, expenses and losses whatsoever which may be brought against or incurred or suffered by the Company by reason of or arising out of any transaction entered into by the Company or liability incurred by the Company in relation to business introduced or dealt with by the Agent... during the period of his/her appointment with the Company. Without prejudice to the generality of the other terms herein, the Agent shall be strictly liable for all overloss or bad debts of the Company incurred by any client(s) introduced or handled by the Agent... and the Agent shall be liable to make reparation in full and shall indemnify the Company against all costs and expenses that may be incurred by it in claiming against the relevant client(s) and/or the Agent.

11. GUARANTEE OF CLIENTS' ACCOUNT

In consideration of the Company agreeing at the Agent's request to open and to continue to maintain the trading accounts of the clients which are introduced or handled by the Agent, the Agent irrecoverably and unconditionally guarantees to the Company the due and punctual payment of all monies and settlement of all liabilities and obligations which may at any time be owing or incurred or due to the Company by client(s) introduced or handled by the Agent or in relation to business or transaction introduced or dealt with by the Agent and undertakes to make such payment on behalf of the relevant client(s) on demand by the Company."

16. The plaintiff's case is that the defendant was liable to indemnify the plaintiff in respect of the loss suffered by the plaintiff due to the failure of Best Group Limited to settle its indebtedness in respect of the debit balance in the margin account. The cheques issued by the defendant were supported by good consideration.

17. The defendant's argument that there was total failure of consideration was put on these bases. Firstly, there was no debt owing to the plaintiff by Best Group Limited when the cheques were issued on 28 December 2000. Secondly, even if there were such a debt, the defendant was under no liability to indemnify the plaintiff because he had not signed any service agreement with the plaintiff containing the above provisions on 28 December 2000.

18. The argument on the first basis was as follows. It was contended by Mr Yeung, who appeared for the defendant before the Master and in this appeal, that no debt was due and owing from Best Group Limited unless and until the plaintiff had closed the margin account and sold the shares being the security held by the plaintiff for the account. I reject this submission. As pointed out by Mr Coleman, who appeared for the plaintiff, there was a debit balance in the margin account which Best Group Limited was liable to pay to the plaintiff being the overdue balance with interest thereon. It is clear from the summary of background facts given above that in November and the early part of December 2000, the defendant had made demands to Best Group Limited for a further deposit in the margin account to reduce the debit balance. Best Group Limited did not make any further transaction of its own on the account since 6 December 2000. The plaintiff's losses were incurred within the meaning of clause 10 of the Service Agreement before the cheques were issued by the defendant on 28 December 2000. I do not think it material that the losses were reduced on that day to about HK$2,500,000.00 when the plaintiff closed the margin account and liquidated the security it held.

19. As for the second basis relied on by the defendant that he did not sign any service agreement before he issued the cheques, I propose to consider this in connection with the defence of duress.

Conditional delivery of the cheques

20. The defendant relied on Section 21(2)(b) of the Bills of Exchange Ordinance, Cap. 19 to say that the delivery of the cheques was "conditional or for a special purpose only, and not for the purpose of transferring the property in the bill". The defendant has alleged that when he was asked by Mr Shum and Mr Tse of the plaintiff to issue the cheques, he was assured by one or both of them that the cheques would not be cashed unless and until Best Group Limited should fail to pay the plaintiff. Leaving aside the question if such oral evidence is admissible and assuming that it is, the alleged condition would appear to me to have been satisfied. In the defendant's affirmation made on behalf of the plaintiff to obtain a Mareva injunction, the defendant described at some length the attempts he had made to chase for payment and he concluded that it was obvious to him that Best Group Limited was "trying to evade liability". When the plaintiff presented the cheques on 10 January 2001, the alleged condition would appear to have been satisfied. I do not think there is any substance in this line of defence.

Misrepresentation

21. The alleged misrepresentation was that when the defendant was asked to issue the cheques, he was assured by Mr Shum and Mr Tse that before the plaintiff was to bank in the cheques, he would be given prior notice. I understand from Mr Yeung that this representation was alleged to be false in that the plaintiff did not give prior notice to the defendant before the cheques were presented. It was not, however, alleged in any of the defendant's four affirmations that he did not receive such prior notice. This does not appear to me to be a valid ground of defence. Even if such a representation were made, I fail to see how it was material in the sense that the defendant would have been influenced by it in deciding whether or not to issue the cheques. There is no suggestion that he could have arranged for payment of the cheques if he were given prior notice that any of them would be presented.

Duress

22. The allegations of duress were twofold. Firstly, the defendant said he was in fear of physical assault by Mr Tse who had said to him in a fierce manner that the defendant would be held responsible for the account of Best Group Limited. It was because of such fear that he had issued the cheques and signed the note acknowledging his liability on 28 December 2000. Secondly, the defendant has alleged that in January 2001, he was demanded by Mr Tse and/or Mr Shum to sign the Service Agreement which was back-dated and if he should fail to do so, Mr Tse would continue to visit the defendant at the office of the defendant's new employer until he had signed the Service Agreement. The defendant claimed that he was forced into signing the Service Agreement because of this.

23. Mr Shum and Mr Tse have filed affirmations denying that Mr Tse had spoken to the defendant in a fierce manner as alleged or that there was any previous incident in which Mr Tse had physically assaulted someone in the office as alleged. As for the signing of the Service Agreement in late December 2000 or early January 2001, Mr Shum stated that the defendant had entered into a service agreement with the plaintiff on 10 July 1998, the terms of which were identical to the Service Agreement. On 1 December 1999, the plaintiff had changed its name to its present name and all the account executives were requested to sign another service agreement, the terms of which were again identical to the Service Agreement. Mr Shum alleged that the defendant had signed such an agreement on 1 December 1999. However, both the service agreements signed by the defendant on 10 July 1998 and on 1 December 1999 were lost. As a result, he asked the defendant to sign the Service Agreement which was back-dated and this was done in late December 2000 or early January 2001. Mr Shum denied that the defendant had been forced to sign the Service Agreement.

24. There is a conflict on the evidence whether the defendant had signed the note, the cheques, and the Service Agreement under duress. Mr Coleman submitted that the defendant's evidence on affirmation should be rejected as incredible. He pointed out that there was something suspicious as to the way in which this line of defence was raised. Duress has not been pleaded in the Defence. In the first affirmation filed by the defendant in opposition of the plaintiff's summons, he has only alleged duress as regards the signing of the note and the issuing of the cheques on 28 December 2000. As for the Service Agreement, what is stated in his first affirmation was that no such agreement was ever executed "on or about 1 December 1999", that no indemnity was given by him to the plaintiff "at all material times", and that he intended to challenge the authenticity of the Service Agreement produced by the plaintiff. What the defendant did not say in his first affirmation is that he had in fact signed the Service Agreement that was exhibited by the plaintiff but it was far later than 1 December 1999 and that he did so under duress. The allegation that he had signed the Service Agreement under duress was not made until he filed his latest affirmation four days before the hearing of the appeal. Mr Coleman also pointed out that in the defendant's affirmation filed on behalf of the plaintiff for a Mareva injunction, he had stated that he was giving assistance to the plaintiff voluntarily.

25. I am not prepared to reject the defendant's evidence on affirmation as wholly incredible. I note that these documents were signed after the defendant's employment with the plaintiff was terminated. It is possible that the defendant might want to assist the plaintiff to recover from Best Group Limited. What I do find a little strange was the apparent readiness of the defendant in issuing the three cheques and signing a note stating that he would agree to make immediate payment of all outstanding debts of this company before he had even made further attempts to chase Best Group Limited for payment. I do, however, agree with Mr Coleman that there was something suspicious as regards the way in which the allegations of duress were presented. I am left with a real doubt about the defendant's good faith. I think the Master has reached the right conclusion that the defence is shadowy and that this is an appropriate case to give conditional leave to defend by requiring the defendant to pay into court the full amount of the claim, subject to my consideration on the financial circumstances of the defendant.

Inequitable to permit the plaintiff to rely on the cheques

26. I propose to deal with this shortly. It was argued by Mr Yeung that it is inequitable in view of the verbal assurance given by Mr Shum and Mr Tse to the defendant (i.e. that steps would be taken to recover money from Best Group Limited and the cheques would not be cashed unless and until this company should fail to pay the plaintiff) to permit the plaintiff to sue on the cheques. I fail to see how this is an appropriate case for the intervention of equity and no case has been cited to me in which equity has intervened in this sort of situation.

Conditional leave

27. I understand that the Master made an order on 15 June 2001 requiring the defendant to make a payment into court of HK$100,000.00 within seven days and staying the payment in as to the balance until after the disposal of the appeal on the basis of what she was told by the defendant's solicitor that the defendant was able to meet a payment of HK$100,000.00. I have received no or no adequate explanation why the defendant has failed to make such payment when he had given instructions to his solicitor to inform the court that he could come up with that amount. Indeed, in the latest affirmation filed by the defendant on 6 August 2001, he did not say in his affirmation how much he could pay into court. In my enquiry with Mr Yeung as to how much the defendant could come up with, he told me on instructions that the defendant would be able to pay HK$20,000.00 within fourteen days. It is to be noted that the balance of the plaintiff's claim, after giving credit to the amount it had recovered from Best Group Limited, is about HK$1,900,000.00.

28. I have been taken by Mr Coleman in some detail to the defendant's affirmations in which he has deposed to his means. I am satisfied that he has not made a full and frank disclosure. The only complete bank statement he has disclosed was the statement for the month ended 23 January 2001. He disclosed a bank statement for the month ended 24 February 2001 which was incomplete. Other than these documents, he exhibited two computer print-outs issued by his bank giving a ledger balance in his account as on 23 May 2001 and 21 June 2001. These print-outs do not show the movements in his account and are of little assistance to the court.

29. The one and only complete bank statement he has disclosed showed considerable movements in his savings and current accounts. From 3 January 2001 to 23 January 2001, there were deposits into his savings account of over HK$230,000.00 by cash deposit and by automatic teller-machine transfer. The defendant has chosen not to explain the source of these deposits. Further, when a withdrawal of HK$15,000.00 was made on 3 January 2001 from his savings account, it was put into a savings/time deposit, which the defendant has not disclosed to the court.

30. The defendant lives in an address in Kotewall Road, which is owned by his brother and his sister. His mother and his son live in that property with him, and his son is supported by him.

31. When the defendant left the plaintiff's employment in December 2000, he was employed as an associate director by another securities firm at a basic salary of HK$50,000.00 plus commission. He left his new employer on 17 January 2001 and was paid about half the basic salary. He claimed that he had not engaged himself in employment when he made his affirmations in May and June 2001. In his affirmation in May, he claimed that he supported himself and his son "with loans from the bank or loans from friends and/or family", he has not stated what were the amount of the loans or who had lent money to him. In his affirmation in June 2001, he stated that he is unable to borrow "any money as much as HK$80,000.00 from his relatives/friends as they all do not think [he] will be able to repay them". He also stated in that affirmation that he was left with only not more than HK$20,000.000 to maintain himself and his family's living expenses.

32. The last affirmation was also suspicious in that the defendant had allegedly repaid a loan from a friend in the sum of HK$20,000.00 on 20 June 2001, just the day before he made his affirmation. No document was exhibited evidencing the loan or the terms requiring him to repay.

33. On the available information, and I emphasize that it is incumbent on the defendant to make a full and frank disclosure to the court of his means, I reject his allegation that he can only afford to pay into court a sum of HK$20,000.00. However, I am unable to say I am satisfied that the defendant can come up with the payment into court of the full amount of HK$1,900,000.00 being the balance of the plaintiff's claim.

34. For these reasons, the order made by the Master regarding the amount that the defendant was required to pay into court must be set aside. Doing the best I can, on the information before me, the amount I would order the defendant to bring into court as a condition for giving him leave to defend is HK$300,000.00. I am satisfied that this is an amount within the financial capability of the defendant, having regard to his earning capacity and the substantial sums deposited into his savings account within a short period in January 2001.

The orders

35. The orders I have made are as follows:

(1) unless the defendant is to pay HK$300,000.00 into court by 7 September 2000 4.00 p.m., the plaintiff may enter final judgment against the defendant in the sum of HK$2,650,000.00 with interest thereon at the prime rate plus 1% from 10 January 2001 until judgment and thereafter at judgment rate until payment and costs to be taxed if not agreed;

(2) if the condition in paragraph 1 is complied with, leave be given to the defendant to defend this action;

(3) in respect of the amount for which the plaintiff may enter judgment, the plaintiff is to give credit to the defendant for the sum of HK$701,143.22 being the money recovered from Best Group Limited;

(4) the order in respect of costs of the application before the Master should stand;

(5) the costs of the appeal are to the plaintiff in any event.

Representation:

Mr Russell Coleman, instructed by Messrs Deacons, for the plaintiff

Mr Dominic Yeung, instructed by Messrs George Tung, Jimmy Ng & Valent Tse, for the defendant

Remarks:
Appeal by the Plaintiff to the Court of Appeal. Appeal allowed. Please refer to the Appeal Judgment CACV002177/2001.