Hantec Securities Co v. Tsui Chiu Man and Another

CACV000094/2003

CACV 94/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 94 OF 2003

(ON APPEAL FROM HCA NO. 8794 OF 1991)

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Coram: Hon Rogers VP, Le Pichon JA and Burrell J in Court

Date of Hearing: 4 November 2003

Date of Judgment: 4 November 2003

Date of Handing Down Reasons for Judgment: 14 November 2003

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.This was an appeal from a judgment of Sakhrani J given on 19 March 2003. At the conclusion of the hearing this court dismissed the appeal with costs of the appeal to the plaintiff and no order as to costs on the cross appeal. The reasons for the judgment were to be given in writing later, which we now do.

Background

2.The action concerned a claim by the plaintiff for damages amounting to HK$561,325.29 for malicious falsehood. The amount of the claim was not disputed. It was quantified on the basis of the loss caused to the plaintiff by reason of the plaintiff having to compensate 2 buyers in respect of a total of 28,000 shares in Bank of East Asia Limited. Those shares had been registered in the name of the 2nd defendant but deposited into an account with the plaintiff, in the name of the 1st defendant, which was operated as a margin trading account. That account was designated the M28 account.

3.The claim arose in this way. The 1st defendant was a market representative working for a stockbroker on the Stock Exchange. In about 1987 the 1st defendant began trading in shares on behalf of the 2nd defendant. At that time, the 2nd defendant was a receptionist at the Stock Exchange and for that reason did not want to open a trading account in her own name. At around that time the 1st and 2nd defendants carried on an extramarital love affair although they were both married. One of the matters that featured in the case was the 2nd defendant's assertion that at the time her husband had been unaware of this affair and she was at pains to make sure that he did not find out about it.

4.Towards the end of 1988 the 2nd defendant also became employed by a stockbroker. She had a seat on the exchange next to the 1st defendant. They apparently traded shares together. As part of the arrangement between them, the 1st defendant opened the M28 margin trading account with the plaintiff in about April 1989, albeit at that stage it was designated M528. It was the 1st defendant's evidence that the account, although opened in his name, was for the 2nd defendant's trading in shares. Hence, shares that belonged to the 2nd defendant were deposited into that account as security. It may be mentioned that the 2nd defendant denied that she knew about this account, but the judge rejected her evidence in this respect as, it might be observed, in most other respects.

5.On 29 August 1990 the plaintiff made a margin call in respect of the M28 account. The 1st defendant, in whose name the account was, was unable to meet the call and the 28,000 Bank of East Asia Limited shares were sold to cover the shortfall in the account. The 2nd defendant made a report to the police in which she alleged that the shares had been stolen from her and that the signatures in the instruments of transfer had been forged. The 1st defendant was arrested but released and never charged. However, not only did the 2nd defendant make a complaint to the police but she also made a complaint to the Stock Exchange and the share registrars of Bank of East Asia Limited. As a result of that, the transfers to the purchasers from the plaintiff could not take place. The plaintiff had to compensate the purchasers and the amount claimed by the plaintiff is calculated upon their costs of having to do so.

The action

6.The plaintiff commenced an action against both defendants. A default judgment was obtained against the 1st defendant but the 1st defendant has never satisfied any part of that judgment. The 1st defendant was, however, the major witness on behalf of the plaintiff at the trial of the action. The only remaining defendant at that stage was, of course, the 2nd defendant.

7.The major issue between the parties at the trial was whether the 28,000 Bank of East Asia Limited shares had been properly used as security for the M28 account with the 2nd defendant's consent or whether the 1st defendant had misused those shares. It was the 2nd defendant's case that she had signed a number of transfer forms in November 1988. She said that she had done that a few days before her admission to hospital for an operation involving the removal of part of her thyroid gland. The 2nd defendant said that the 1st defendant had suggested that she should sign some transfer forms for shares that had already been transferred to her name. He had said that if the price was good he could sell the shares for her whilst she was in hospital. The 2nd defendant said that she signed the transfer forms for unsold shares in advance of any sale of shares that might take place while she was hospitalised. The 2nd defendant went on to say that about two weeks after she was discharged from hospital, the 1st defendant told her that he would tear up the transfer forms because no shares had been sold whilst she had been in hospital. The 2nd defendant maintained that she knew nothing of the M28 account.

8.The judge disbelieved the 2nd defendant. He found that she was an evasive witness who, in his view, was quite prepared to say what she thought would suit her purposes. He found that she was an untruthful and dishonest witness who was quite prepared to lie about important matters. He said that wherever her evidence was at variance with the 1st defendant's evidence he had no hesitation in preferring the evidence of the 1st defendant. The judge's conclusion as to the truthfulness of the 2nd defendant was not based simply on his observation of her demeanour and the manner in which she gave evidence. That was, of course, a highly important matter and the judge had the clear and distinct advantage in that respect. But the matter goes further. There were sound reasons why the 2nd defendant's evidence should not have been believed.

9.The undisputed factual evidence was that at the end of April 1989 there were 13,750 Bank of East Asia shares in the M28 account and as at 30 June 1989 there were 60,000 Bank of East Asia shares in the account. Furthermore, 40,000 Bank of East Asia shares were registered in the 2nd defendant's name on 18 August 1989. In order to have those shares registered in the 2nd defendant's name the shares had to be taken out of the M28 account. The judge found that the 1st and 2nd defendants retrieved these 40,000 shares from the M28 account and took them to the share registry so that they could be registered in the 2nd defendant's name. When doing so, the receipt given by the share registrars was signed by the 2nd defendant and given to the plaintiff. The judge accepted the 1st defendant's evidence that that was equivalent to having the certificates lodged in the M28 account. The judge went on to hold that after the 40,000 shares had been registered in the 2nd defendant's name, the plaintiff received those share certificates and kept them in the M28 account as security.

10.The question then arose as to how the blank transfer forms for the Bank of East Asia shares came to be signed. Here, the judge accepted the 1st defendant's evidence that he was asked by one of the representatives from the plaintiff to have the transfer forms signed because there was to be an audit to be done by the Stock Exchange. The judge found that this event must have happened sometime between September and 30 November 1989 because that was the date on which Mr Tam, the representative from the plaintiff, left the plaintiff's employment.

11.Importantly for the purposes of this case, the judge accepted the 1st defendant's evidence that the 1st defendant gave the forms to the 2nd defendant at a time when she had a seat next to his in the trading hall of the Stock Exchange. The 2nd defendant commenced signing the transfer forms at about 11:15 am but after she had signed some of the forms she found it to be tiresome and asked the 1st defendant to assist by signing some of the remaining forms. The 1st defendant said that he agreed to do so and tried to imitate the 2nd defendant's signature but later on he just scribbled in the style of her signature.

12.In considering the conflicting evidence given by the 1st and 2nd defendants respectively, the judge observed that the 2nd defendant admitted that she never told the police about the alleged pre-hospitalisation incident. There was no mention in any of her three statements which were made to the police in August 1990 and April 1991. Her explanation was that at the time she did not remember it. Instead, in the third statement, the 2nd defendant said that she had sold 20,000 Bank of East Asia shares in early 1988. There was a suggestion by the 2nd defendant that the 1st defendant had told her that the signatures on some of the transfer forms were incorrect and that he had given her a pile of transfer forms to sign which she had done and returned them to him. As the judge found, however, according to the share movement record provided by the Bank of East Asia Limited, the 2nd defendant did not own 20,000 Bank of East Asia shares in her name in early 1988.

13.There were a number of other matters which caused the judge to consider that the 2nd defendant's evidence could not be believed. It is unnecessary to go into that because Mr Leung, who appeared on behalf of the 2nd defendant, did not challenge the judge's rejection of the 2nd defendant's evidence as not being reliable. In presenting the case on behalf of the 2nd defendant, Mr Leung did not seek, in any way, to reverse the judge's finding in this respect. Instead Mr Leung sought to argue that the judge should have rejected the 1st defendant's evidence in particular that as to the mode of the signing the transfer forms. In so arguing, counsel appreciated that he had an extremely difficult task in order to establish in this court that the judge's finding as to primary facts should be overturned.

This appeal

14.The case on behalf of the 2nd defendant was put on the basis that it was inconceivable that the 2nd defendant would have allowed her property to have been used as security in respect of trading accounts on behalf of other people. In my view, it is not in the least inconceivable that an arrangement such as the 1st defendant described could have been made. The 1st and 2nd defendants were secret lovers trading very closely together with the 1st defendant trading on the 2nd defendant's behalf. There is every reason to consider, that probably until the time when their relationship turned sour, the 2nd defendant must have trusted the 1st defendant.

15.The other major matter relied upon by Mr Leung was that it would have been unbelievable that the 1st defendant would have signed the forms on behalf of the 2nd defendant, and in doing so forging her signature, in the full sight of others in the trading hall. Here again, there is no reason why this should be unbelievable. The fact that the 1st defendant was signing transfer forms in the trading hall of the Stock Exchange would hardly be a remarkable matter. Other people in the trading hall would not have known what transfer forms were being signed by the 1st defendant. They would not, except in very exceptional circumstances, have had an opportunity to read those forms, let alone see that he was signing somebody else's name on the forms for the transfer of shares in to that other persons name.

16.In my view, Mr Leung did not even begin to show any grounds upon which this court could interfere with the facts found by the judge. I would go further. I have no doubt that the judge's conclusions were fair and correct.

Hon Le Pichon JA:

17.I agree.

Hon Burrell J:

18.I agree.

Representation:

Mr Pat Lun Chan, instructed by Messrs Horvath & Giles, for the Plaintiff/Respondent

Mr Richard Leung, instructed by Messrs Henry Fok & Co., for the 2nd Defendant/Appellant