Since the commissions and securities transaction taxes are necessary costs for an investor’s trading of stocks, it is not appropriate to elect to conclude that there is a causal relationship between such costs and an illegal speculative act and to include such costs in the damages incurred by the investor (Taiwan)

Angela Wu

The Supreme Court rendered the 108-Tai-Shang-863 Decision of February 27, 2020 (hereinafter, the “Decision”), holding that since the commissions and securities transaction taxes are necessary costs for an investor’s trading of stocks, it is not appropriate to elect to conclude that there is a causal relationship between such costs and an illegal speculative act and to include such costs in the damages incurred by the investor.

According to the facts underlying this Decision, Appellants A, B and C and Individual D, Appellant C’s husband, who jointly served as speculators, and Chairman F and Director G of Company E, the Co-defendant in the original trial, (hereinafter collectively, the “Appellants”) jointly attempted to jack up the trading prices of Company E’s stock in the centralized market by creating the facade of the stock’s prosperous trading and spreading untrue positive information about Company E.  In addition, Appellant A used the stock accounts of individuals X, Y and Z, who were aware of this practice, to place orders and buy and sell Company E’s stock.  In this fashion, Appellant A illegally jacked up Company E’s stock prices.  Through continuous buy-in for high prices and trading orders, Appellant A created an impression of brisk trading of the stock and spread false information.  As a result, the share price of Company E went up from NT$30 per share and hit the daily price appreciation limit for 30 consecutive days in two months, and the facade of brisk trading of the stock was created in violation of Article 155, Paragraph 1, Subparagraphs 4, 5 and 6 of the Securities and Exchange Law.  The Appellee consulted information such as the revenues of Company E for reference and determined that Company E’s share price of NT$92.2 per share was too high and sold Company E’s stock for being bearish about its outlook.  However, as a result of the joint illegal speculation of Company E’s stock by the Appellants, the share price skyrocketed to NT$196, causing the Appellee’s damage for being unable to buy it back for a lower price.  Therefore, a decision was rendered to compel individuals such as A, B, F, C, D, G and X to assume their joint and several liabilities for damages in accordance with the first part and the last part of Paragraph 1 and Paragraph 2 of Article 184, Article 185 and Article 197 of the Civil Code and Article 155, Paragraph 3 of the Securities and Exchange Law.

According to the Decision, the standard for damages should be established by investigating the actual damage sustained by the victim in order to determine the amount.  In addition, there should be a certain causal relationship between the damages and the reasons and facts of the liability.  Since commissions and securities transaction taxes are necessary costs for the Appellee’s decision to assume the necessary costs for margin trading and short-selling of the stock, whether there is a significant causal relationship between the costs and the reasons and facts associated with the illegal speculation of the company’s share prices is worth exploring.

It was further stated in the Decision that the damages incurred by the Appellee as a result of his margin trading and short-selling of Company E’s stock should include the commissions and securities transaction taxes for the trading of the stock.  However, an observation of “historic records of the securities firm” produced by the Appellee indicates that the difference between the purchase and selling prices is NT$5,199,100.  In addition, according to Appellee’s statement, the connections between the amount of damage asserted by the Appellee, which was NT$5,272,532, and the commissions and securities transaction taxes are unclear and yet to be clarified.  Without detailed investigation, the original trial court was rash when jumping to the conclusion that there was a causal relationship between the commissions and securities transaction taxes as a result of the Appellee’s trading of Company E’s stock and the speculative acts of the Appellants and using the net difference between the amount received and the amount paid.  Therefore, it was concluded that the gist of the appeal was well-grounded.