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2010 MarsdenLR 3650
HIGH COURT MALAYA, KUALA LUMPUR
CHEW KAI KUM – Appellant
Versus
JUPITER SECURITIES SDN BHD – Respondent
[Civil Appeal No: R3(1)-12-481-2006]
A stockbroking company cannot impose a lien on fully paid shares unless expressly stated in the contract, underscoring the importance of clear contractual terms.
Headnote:(A) Contracts Act 1950 - Section 124 - Claim for recovery of contra losses by stockbroking company - The Defendant counterclaimed for a contra gain and the question arose whether the Plaintiff could impose a general lien over fully paid shares. The Plaintiff's claim for RM202,712.61 was dismissed, while the Defendant's counterclaim for RM400,554.00 was allowed. (Paras 1-3)
(B) Legal principles - A member company of the Kuala Lumpur Stock Exchange cannot impose a lien on fully paid shares unless expressly provided for in the contract. The court noted, ‘for such a general lien to be claimed, it must be expressly provided.’ (Paras 6-7)
(C) Issues - The core issue was whether the stockbroking company had a legal entitlement to a lien on paid shares as per the applicable Rules. The court found that the terms did not support such a claim. (Paras 4, 8)
(D) Ratio decidendi - The court emphasized that the contract terms should be applied as intended by the parties and reiterated that the court should not rewrite contracts. ‘It is not the function of the Court to rewrite a contract for the parties.’ (Paras 8) (E)
Result: Appeal allowed in part regarding counterclaim; principal claim dismissed.
GROUNDS OF DECISION
This was an appeal against the decision of the learned Sessions Court Judge where the subject matter of the suit was a claim by the stockbroking company, Jupiter Securities Sdn Bhd, for the recovery of contra losses incurred by the Defendant in respect of his share trading account. The Defendant counterclaimed allegedly for payment of a contra gain of RM9,637.00 and the sum of RM400,554.00, and interest thereon at the rate of 8% per annum. The Plaintiff's main claim, on the other hand, was for contra losses of RM202,712.61, interest thereon of RM11,446.04 as at 14.10.1997 and interest on the sum of RM198,416.26 at the rate of 13.5% per annum from 15.10.1997 until date of judgment, and interest on the sum of RM198,416.26 and the rate of 8% per annum from the date of judgment until full realisation.
I allowed the appeal in part in relation to the counterclaim, and ordered that the judgment of the learned Sessions Court Judge dated 11.8.2006 be varied to read: "ADALAH SELANJUTNYA DIHAKIMI bahawa tuntutan balas Defendan dibenarkan dan Plaintif hendaklah membayar RM400,554.00 sebagai jumlah bayaran yang dibuat oleh Defendan kepada Plaintiff untuk pembelian 200,000 saham Olympia Industries Berhad dan faedah ke atas jumlah ini atas kadar 8% setahun dari tarikh saman sehingga penyelesaian. "
I also ordered costs on the main appeal to be paid by the Appellant to the Respondent, to be taxed unless agreed. Costs on the counterclaim, here and below, was ordered to be paid by the Respondent to the Appellant, to be taxed unless agreed.
I was not satisfied the Appellant had merits on the main claim and thus dismissed it, but I was satisfied the Sessions Court had erred in law in relation to the counterclaim, which came down to the single issue whether under the Rules relating to Member Companies of KLSE then (more precisely Rule 12) the Respondent stockbroking company could impose a general lien on shares that had been fully paid for by the Defendant. This issue concerns the purchase of the 200,000 Olympia Industries Berhad shares which was transacted on 20.6.1997.
Brief Background Facts
The Respondent stockbroking company, and a member company of the Kuala Lumpur Stock Exchange (presently Bursa Malaysia), had at the material time as its majority shareholder, Olympia Industries Berhad. The majority shareholder of Olympia Industries Berhad was at that time Mycom Berhad At the invitation of two substantial shareholders of Mycom Berhad, the Appellant agreed to open a securities trading account with the Respondent. The Appellant was assigned a Remisier/Dealer for this purpose.
It is to be noted that the Remisier concerned was not called as a witness by the Plaintiff/Respondent.
The sequence of the share trading, all in Olympia Industries Berhad shares, is important and is the critical factor in this dispute. Very briefly, they were altogether four purchases. The first purchase was done on 25.2.1997 (on the very same day the Appellant opened the trading account), the second was 6.3.1997, the third on 29.4.1997 and fourth on 20.6.1997.
The first purchase was for 500,000 shares. 300,000 of these shares were sold on 26.2.1997 (a day after the purchase) with a contra gain of RM9637.00. The remainder (200,000 shares) was forced sold on 6.3.1997, with a loss of RM41,560.00. The net loss in respect of the 500,000 shares thus became RM 31,923.00.
On the same day as the forced selling of the 200,000 shares, another 200,000 shares were purchased under the Appellant's Trading Account, which were again forced sold on 29.4.1997 with a loss of RM22,547.43. Again, on the very same day another 200,000 shares were purchased, and again forced sold on 20.5.1997 with a loss of RM143,945.83. These trading losses became the subject matter of the Plaintiff's claim in the suit.
The fourth purchase, done on 20.6.1997, was also for 200,000 shares. These were fully paid for in the sum of RM400,554.00 on 10.8.1997. As indicated earlier, this particular purc
