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由此
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CACV 251/2006
B B
IN THE HIGH COURT OF THE
C HONG KONG SPECIAL ADMINISTRATIVE REGION C
COURT OF APPEAL
D D
CIVIL APPEAL NO. 251 OF 2006
E (ON APPEAL FROM HCA 2206 OF 2000) E
F F
BETWEEN
G G
SILVER STONE DEVELOPMENT LIMITED 1st Plaintiff
H H
LUI YUE YUN, GARY 2nd Plaintiff
I
and I
LAU KWONG CHING, JAMES 1st Defendant
J KWOK WAI TAK, EDWARD 2nd Defendant J
CARRIER STOCK INVESTMENT COMPANY LIMITED 3rd Defendant
K HO PUN TSUN, PETER 4th Defendant K
th
SZETO JOSEPH 5 Defendant
L ASIA GLORY HOLDINGS LIMITED 6th Defendant L
and
M M
KWOK WAI TAK, EDWARD 1st Third Party
ASIA GLORY HOLDINGS LIMITED 2nd Third Party N
N
HO PUI TSUN, PETER 3rd Third Party
O SZETO JOSEPH 4th Third Party O
P P
Before : Hon Le Pichon, Cheung JJA and Yam J in Court
Q Dates of Hearing : 26 – 27 April 2007 Q
Date of Judgment : 27 April 2007
R R
Date of Reasons for Judgment : 8 May 2007
S S
T REASONS FOR JUDGMENT T
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C Hon Le Pichon JA : C
D 1. I agree with the reasons given by Cheung JA. D
E E
Hon Cheung JA :
F F
nd
2. The 2 defendant appealed against the judgment of
G G
Deputy High Court Judge Carlson in which he gave judgment in
H favour of the plaintiffs against, among other defendants, the 2 n d H
defendant for the sum of $15,438,000. At the conclusion of the
I I
hearing we dismissed the 2 n d defendant‟s appeal with costs to the
J plaintiff. These are my reasons. J
K Facts K
L L
3. The 2 n d plaintiff („Mr. Lui‟) wholly owned the first
M plaintiff („Silver Stone‟). On 11 March 1997, Mr. Lui through M
Silver Stone acquired 22,776,000 shares in a company called CIL
N N
Holdings Ltd. („CIL‟), a publicly listed company on the Hong
O Kong Stock Exchange. Mr. Lui acquired the shares through the O
introduction of the 4 t h defendant who was a senior executive in
P P
CIL. The shares were acquired by a private placement of new
Q shares issued by CIL. Under the terms of the placement Silver Q
Stone was not able to sell the shares before 11 September 1997.
R R
S 4. The 4 t h defendant told Mr. Lui that he should not view S
his shareholding in CIL as a long -term investment and that he
T T
should sell the shares at the expiration of the prohibition on sale.
U The 4 t h defendant offered to sell 20,000,000 shares on Mr. Lui‟s U
V V
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behalf. These 20,000,000 shares were split into two share
C certificates of 10,000,000 shares each. C
D D
5. On 1 August 1997 Mr. Lui signed a Power of Attorney
E that was sent to him by the 4 t h defendant. Under this Power of E
Attorney the 2 n d defendant was authorised to sell the shares. The
F F
2 n d defendant owned the 6 t h defendant. Mr. Lui gave the Power
G of Attorney and the share certificates to the 4 t h defendant who in G
turn gave them to the 2 n d defendant.
H H
I 6. The 2 n d defendant then arranged for these documents to I
rd
be delivered to Ms Ida Ho („Ms Ho‟) of the 3 defendant, a firm
J J
of stockbrokers. Ms Ho requested Silver Stone to open an
K account with the 3 r d defendant and endorse the share certificates at K
the back before she would carry out any transaction on the shares.
L L
Ms Ho did not personally deal with Mr. Lui or Silver Stone. Her
M request was made to the 2 n d defendant. M
N 7. As a result of the request the 2 n d defendant gave back N
to the 4 t h defendant the share certificates together with the 3 r d
O O
th
defendant‟s account opening forms which the 4 defendant asked
P P
Mr. Lui to execute. Mr. Lui duly executed the documents on
Q
behalf of Silver Stone together with other documents relating to Q
the sale of the shares by Silver Stone.
R R
8. The 3rd defendant obtained the duly executed
S S
documents and the endorsed share certificates on 11 September
T 1997. T
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The plaintiffs’ case
C C
9. It is the pleaded case of the plaintiffs that the 2 n d
D D
defendant by himself or together with the 6 t h defendant gave
E instructions to the 3 r d defendant to E
F F
(1) sell 8,804,000 shares;
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(2) pay the proceeds of sale to the 6 t h defendant;
H H
(3) transfer the remaining 11,196 ,000 shares to another
I I
registered securities dealer for the account of the 6 t h
J defendant. J
K 10. The 8,804,000 were sold on 11 September 1997. The K
proceeds of sale of the 8,804,000 shares were paid to the 6 t h
L L
defendant on 15 September 1997 and the transfer of shares took
M place on 3 October 1997. The plaintiff pleaded that the above M
acts constituted a conversion of the share certificates by the 2 n d
N N
th
defendant himself or together with the 6 defendant.
O O
The defence’s case
P P
Q
11. The pleaded defence of the 2 n d defendant was that he Q
th
was entitled to, through the 6 defendant, deal with the
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20,000,000 shares as part of an arrangement that he had entered
S
into with the 4 t h defendant. He admitted that he had instr ucted S
Ms Ho to deal with the 20,000,000 shares. He did not give
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evidence at the trial.
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The judgment
C C
12. The judge found for the plaintiff and Silver Stone
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against the 2 n d and 6 t h defendants. The damages assessed for
E conversion were based on the value of shares as of 11 September E
1997 at $0.9615 per share which amounted to $19,230,000.
F F
From this sum $3,792,000 was deducted which represented the
G amount paid by the 4 t h defendant in part settlement of the G
plaintiffs‟ claim leaving a balance of $15,438,000. Judgment
H H
was also given against other defendants in this case. I do not
I need to mention them as they are not relevant for the purpose of I
the appeal.
J J
K The appeal K
L 13. Mr. Chan Chi Hung S.C. who appeared at this appeal L
(but not below) together with Mr. Patrick Szeto as counsel for the
M M
nd
2 defendant, took the short point that there was no conversion at
N all. In respect of the 8,804,000 shares as embodied in the first N
share certificate of 10,000,000 shares, he submitted that the
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disposal was carried out with the consent and authority of the
P
plaintiffs. Further the plaintiffs ‟ cause of action should be P
Q
detinue of the proceeds of sale of the 8,804,000 shares which was Q
not relied upon by the plaintiffs.
R R
14. In respect of the second share certificate, it (together
S S
with the first share certificate) had been registered by the 3 r d
T defendant with the Hong Kong Securities Clearing Company T
Limited („CCASS‟), by so doing the shares became a chose in
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action in the form of a credit entry of 10,000,000 shares in favour
C of the plaintiffs in CCASS. The registration system enables C
shares to be transacted in Hong Kong in a scriptless form.
D D
Because the shares had become a chose in action, the cause of
E E
action of conversion was no longer available to the plaintiffs.
F F
The principles
G G
15. It is sufficient for the purpose of this appeal to state the
H H
following principles on conversion :
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1) Conversion is an act of deliberate dealing with a chattel
J in a manner inconsistent with another ‟s right whereby that other is J
deprived of the use and possession of it : Clerk & Linsell on Torts
K K
19 t h Ed, para 17─07 and approved in Kuwait Airways Corporation
L v. Iraqi Airways Co. (No. 4 & 5) [2002] 2 AC 883 at 999. L
M M
2) Conversion must be conversion of corporeal person al
N property; choses in action cannot be converted : China N
Everbright – IHD Pacific Ltd. v. Ch’ng Poh (2005) 5 HKCFAR
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630 per Lord Millett at page 661.
P P
Consent to deal with shares
Q Q
16. The judge was acutely aware that the subject matter of
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the conversion claim was the two share certificates.
S S
17. The judge found that the Power of Attorney was
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defective and in any event the 2 n d defendant had not invoked the
U Power of Attorney to clothe his action with authority. There was U
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no challenge to this finding. What was challenged was the
C judge‟s finding that Mr. Lui did not give consent to dispose of the C
shares. He accepted Mr. Lui‟s evidence that after he had signed
D D
rd
the account opening documents with the 3 defendant, he was the
E
only one who could give instructions to the 3 r d defendant to E
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transact the shares. F
G 18. I am not convinced that the finding can be faulted. In G
any event, even if Mr. Lui willingly agreed with the 4 t h defendant
H H
to let others such as a stockbroker deal with the shares it must be
I on the basis that these shares remained his and that he was entitled I
to and should not be deprived of the proceeds of sale.
J J
K Evidence of Ms Ho K
L 19. Ms Ho confirmed that she received instructions only L
from the 2 n d defendant to transact the shares. It is clear when the
M M
nd rd
2 defendant instructed the 3 defendant to dispose of the first
N 10,000,000 shares, his intention was to deprive the plaintiffs the N
use and possession of these shares. This is amply demonstrated
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by the evidence of Ms Ho whose witness statement (adopted as her
P P
evidence in chief) stated, among other things, that,
Q „ 15. After I had verified Mr. Lui‟s signature, I Q
accepted Mr. Kwok‟s instructions given on behalf of
R Silver Stone. Mr. Kwok‟s instructions were to sell R
around 10,000,000 shares without disturbing the market
price significantl y.
S S
16. On 11 September 1997, 8,804,000 C IL shares
were sold as follows (the “sell transaction”) :-
T T
U U
V V
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B B
C C
Quantit y sold Unit price (HK$)
D D
1,052,000 0.99
E E
450,000 0.97
F 860,000 0.98 F
1,950,000 0.96
G G
3,600,000 0.95
H H
892,000 1.00
I 8,804,000 I
J J
17. A contract note recording the sell transaction
under the account of Silver Stone was issued to Silver
K Stone on 11th September 1997. K
18. On the morning of 12th September 1997, I
L received a telephone call from Mr. Kwok (i.e. the 2nd L
defendant). He told me the following :
M M
(i) Silver Stone realised that Silver Stone was
not supposed to sell C IL shares within a
N certain period from the date of placement; N
and
O (ii) the bank account of Silver Stone was not O
ready or operative at that time and
P consequentl y the proceeds of sale could P
not be paid into any bank account in Silver
Stone‟s name.
Q Q
19. Mr. Kwok said that Silver Stone ‟s instructions
were to book the sell transaction to the account of Asia
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Glory („i.e. the 6th defendant ‟). I requested an
authorisation letter from Silver Stone to Asia Glory to
S confirm such a change. S
……
T T
22. On the instructions of Silver Stone, as
communicated through Mr. Kwok and/or Asia Glory, I
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did the following to change the sell transaction from the
name of Silver Stone to Asia Glory :-
C C
(i) On 12th September 1997, I replaced the
D account name of Silver Stone by Asia D
Glory and amended the booking of the sell
transaction to the account of Asia Glory
E under the same client code (no. E
290079-029(U).
F F
(ii) A contract note dated 12 th September 1997
was issued to Asia Glory to record the sell
G transaction booked to the account of Asia G
Glory.
H (iii) The remaining stock of C IL shares in the H
quantit y of 11,196,000 shares was held
under the name of Asia Glory.
I I
…… ‟
J J
K 20. It should be noted although Ms Ho issued a contract K
note for Silver Stone, she did not send it to Silver Stone at all.
L L
On the following day she „switched‟ the transaction from the
M account of Silver Stone to that of the 6 t h defendant. The same M
account number was used but with a different client ‟s name.
N N
21. In view of the closely related events of the 11 and 12
O O
September 1997, it is extremely artificial to say that the plaintiffs ‟
P proper cause of action should be detinue of the proceeds of sale of P
the 8,804,000 shares which admittedly was not relied upon by the Q
Q
plaintiffs. In my view a case of conversion of the first share
R R
certificate which embodied the 8,804,000 shares was properly
S
established when the 2 n d defendant instructed Ms Ho to sell about S
10,000,000 shares which eventually was implemented. The
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diversion of the proceeds of sale merely confirmed that conversion
U had taken place. Mr. Chan very properly did not press the point. U
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由此
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Conversion of the second share certificate
C C
22. The remaining shares were transferred by the 3 r d
D D
defendant to another dealer for the account of the 6 t h defendant on
E 3 October 1997. On the face of it, by then these shares were no E
longer in the form of a chattel i.e. a share certificate but credit
F F
entries in CCASS in favour of the 3 r d defendant.
G G
23. However, while the pleaded case of the plaintiffs relied
H H
on the transfer of 3 October 1997 , the evidence showed that
I conversion had taken place much earlier on 12 September 2007. I
The plaintiffs had in the Respondent ‟s Notice of Additional
J J
Grounds sought to affirm the judgment by relying on the evidence
K in support of the conversion by the 2 n d defendant. K
L 24. Based on Ms Ho‟s evidence, the 2 n d defendant‟s L
instructions to her on 12 September 1997 which was implemented
M M
by her clearly established a case of conversion of the second share
N certificate as well on that date. The 3 r d defendant issued a N
statement of account to the 6 t h defendant. It showed a deposit of
O O
th
20,000,000 shares in the 6 defendant‟s account on 12 September
P
1997. This was clearly part and partial of the „switching‟ of the P
Q
transaction by Ms Ho from Silver Stone‟s account to the 6 t h Q
defendant‟s account. The „switching‟ carried out on the
R R
instructions of the 2 n d defendant clearly demonstrated that the 2 n d
S defendant clearly intended to deprive the plaintiffs of the use and S
nd
possession of the 2 share certificate. Otherwis e why should the
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shares not remain in Silver Stone ‟s account? In my view
U conversion had taken place on 12 September 1997. U
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25. Mr. Chan referred to the „Deposit Form‟ issued by
C CCASS which showed that the 20,000,000 shares were deposited C
on 12 September 1997 at 11.23 hours. He argued that there was
D D
no evidence showing that the transfer of the 20,000,000 shares in
E
favour of the 6 t h defendant took place before or after the E
F
registration. If it was done afterwards then the principle that F
there is no conversion of a chose of action will apply because by
G G
then the shares had become a chose of action in the form of a
H credit entry. H
I 26. No issue was taken on the timing at the trial. I
Specifically there was no evidence that 11.23 hours was the
J J
moment when the shares became a scriptless form of rights. In
K any event, this argument is too fine. The registration and K
transfer took place all within the same day. It is purely
L L
fortuitous if one of the events took place before the other. In the
M absence of specific evidence that the shares had already been M
changed into a scriptless form, one can safely proceed on the basis
N N
that there was conversion of the second share certificate on 12
O O
September 2007.
P P
27. The conversion on 12 September 200 7 was not
Q specifically found by the judge but he did find that there was „one Q
continuous transaction, a course of conduct, which amounts to a
R R
classic case of conversion‟. In any event, I do not see any
S prejudice to the 2 n d defendant if the evidence supported a S
conversion which had taken place on 12 September 2007. The
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2 n d defendant was fully aware that the plaintiffs were relying on
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the conversion of both share certificates. He was also aware of
C the witness statement of Ms Ho. Despite all these, he chose not C
to give evidence. In civil cases it is rare to find a defendant not
D D
giving evidence and mounting a defence solely on the case as
E E
presented by the plaintiff. He must have taken a deliberate
F
decision not to appear at the trial. In my view it is most F
nd
unconvincing for the 2 defendant to say in this appeal that he
G G
chose not to give evidence because of the way the plaintiffs
H presented their case. H
I Theft I
J J
28. As the evidence is sufficient to establish a common law
K action of conversion, it is n ot necessary to discuss the issue of K
„stealing‟ of the shares mentioned by the judge which in my view
L L
was only an emphatic use of language by him.
M M
Other matters
N N
29. Mr. Chan had out of an abundance of caution sought
O O
leave to amend the notice of appeal and Mr. Barlow, counsel for
P the plaintiffs, had sought leave to serve the Respondent‟s Notice. P
This Court had considered them on a provisional basis in the
Q Q
appeal and would in any event grant leave to the parties as
R requested. The costs of the pl aintiffs‟ application be to the 2 n d R
defendant while that of the 2 n d defendant be to the plaintiffs.
S S
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C Hon Yam J : C
D 30. I also agree. D
E E
F F
G G
H (Doreen Le Pichon) (Peter Cheung) (D. Yam) H
Justice of Appeal Justice of Appeal Judge of the Court
I of First Instance I
J J
Mr. Barrie Barlow, instructed by Messrs Jesse H. Y. Kwok & Co.,
K K
for the Plaintiffs
L L
Mr. Chan Chi Hung, S.C. and Mr. Patrick Szeto, instructed by
Messrs Liu, Chan & Lam, for the 2 n d Defendant
M M
N N
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P P
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S S
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