XCHRX SILVER STONE DEVELOPMENT LTD. AND ANOTHER v. LAU KWONG CHING, JAMES AND OTHERS

HCA 2206/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2206 OF 2000

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D E C I S I O N

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Background

1. This is an appeal by the 3rd Defendant against the refusal by the Master to strike out the 1st Plaintiff's claims against the 3rd Defendant. The 1st Plaintiff is a BVI company owned and acquired by the 2nd Plaintiff for the specific purpose of holding shares in CIL Holdings Limited (hereinafter called "CIL"). These CIL shares were obtained through private placement at the invitation or suggestion of the 4th Defendant.

2. In July 1997, the 4th Defendant proposed to the 2nd Plaintiff that he should authorise the 4th Defendant to sell the CIL shares on the basis that such sale would be effected by or through the 1st Defendant. The 2nd Plaintiff agreed and handed over two share certificates representing 20 million CIL shares to the 4th Defendant.

3. On or about the 1st August 1997, the 2nd Plaintiff executed a power of attorney on behalf of the 1st Plaintiff in favour of the 1st Defendant (hereinafter called "the 1st Power of Attorney"). This 1st Power of Attorney gave the 1st Defendant wide powers to dispose of and deal with the CIL shares and, in particular, authorised him to further delegate the power thereby. It was expressed to be irrevocable until 28th February 1998.

4. By a power of attorney dated 10th September 1997 (hereinafter called "the 2nd Power of Attorney") executed by the 1st Defendant, he delegated the powers given to him by the 1st Power of Attorney to Asia Glory Holdings Limited (hereinafter called "Asia Glory"). The authenticity of this 2nd Power of Attorney is in dispute.

5. On the same day, the 2nd Defendant, a director of Asia Glory, instructed the 3rd Defendant, a registered securities dealer, to sell part of the CIL shares on behalf of the 1st Plaintiff and for this purpose, delivered the two share certificates of CIL to the 3rd Defendant. A factual dispute here is that according to the 3rd Defendant, the transfer forms at the back of the share certificates were not yet signed and it was on this occasion that it advised the 2nd Defendant that in order to sell the shares it was necessary for the 1st Plaintiff to open an account with the 3rd Defendant and sign the transfer forms. According to the 2nd Plaintiff, he had signed the transfer form on the reverse side of the certificates before handing them over to the 4th Defendant.

6. On 11 September 1997, the 2nd Defendant acting on behalf of Asia Glory instructed the 3rd Defendant to open an account for the 1st Plaintiff and delivered the necessary account opening documents signed by the 2nd Plaintiff. Though the 2nd Plaintiff says that these documents were executed in August 1997, this could not be true because the Board Resolution authorizing the 2nd Plaintiff to sign the account opening document was dated 5 September 1997 while the certified copy of the 1st Plaintiff's certificate of incorporation, memorandum and articles of association were certified on 9 September 1997. It thus appears that the 3rd Defendant's account is more credible, but it is of little significance for the purpose of this application.

7. On 12 September 1997, in order to facilitate the sale of the CIL shares, the 3rd Defendant delivered the two share certificates of CIL to Hong Kong Securities Clearing Company Limited (hereinafter called "HKSCCL") for the shares to be transferred into the name of HKSCC Nominees Limited.

8. On or about the same day, the 2nd Defendant, acting on behalf of Asia Glory, told the 3rd Defendant that under the terms of the private placement pursuant to which the 1st Plaintiff acquired the shares, it may not re-sell the shares for a period of time from the date of placement and that the 1st Plaintiff did not have a bank account or did not have an operative bank account for the purpose of receiving the proceeds of sale. He instructed the 3rd Defendant to record the sale of the 8,804,000 shares as having been made by Asia Glory and to pay the proceeds of sale to Asia Glory.

9. On 3 October 1997, Asia Glory instructed the 3rd Defendant to transfer the remaining 11,196,000 CIL shares to KG Investment Asia Limited ("KG Investment"), another registered securities dealer, for the account of Asia Glory.

The Plaintiff's pleaded case against the 3rd Defendant

10. The Plaintiffs' pleaded case is that the 3rd Defendant converted the shares to its own use by (1) delivering the share certificates in respect of the CIL shares to HKSCCL for the transfer of the shares into the name of HKSCC Nominees Limited; (2) selling the 8,804,000 shares and paying the proceeds of sale to Asia Glory; and (3) transferring the remaining 11,196,000 shares to KG Investment for the account of Asia Glory.

The 3rd Defendant's ground for striking out

11. Mr Burns, on behalf of the 3rd Defendant, submits that the essence of conversion lies in the unlawful appropriation of another's chattel. To constitute conversion there must be a positive wrongful act of dealing with the chattel in a manner inconsistent with the owner's rights and an intention in so doing to deny the owner's right or to assert a right inconsistent with the owner's. He submits that for the purpose of this tort, an act is "wrongful" if it is done without the actual permission of the owner. I have no doubt that the above propositions are correct: see Clerk & Lindsell on Torts 918th edition) paragraphs 14-03, 14-09 and 14-10 and Halsbury's Laws of Hong Kong, Vol 23, paragraphs 380 and 404.

12. Mr Burns submits that the 3rd Defendant's dealing in the share was not wrongful as it had the consent of the Plaintiff. Under the 1st Power of Attorney, the 1st Plaintiff gave express authority to the 1st Defendant to sell the CIL shares and also express authority to delegate that power to another. That power, counsel submits, was validly and effectively delegated to Asia Glory.

13. Miss Liza Wong, for the Plaintiffs, disputes the authenticity of the 2nd Power of Attorney and submits that on this ground alone there is a triable issue for the case to proceed to trial. According to the affirmation of Miss Ida Ho of the 3rd Defendant, despite the 2nd Power of Attorney was on the face dated 10 September 1997, it was not given to the 3rd Defendant until 4 December 1999. When Miss Ho demanded the document at the time of the sale in September 1999, the 2nd Defendant promised her that he would give her the document when the authorised person from the 1st Plaintiff returned from Canada. She trusted him as she had known him for over 15 years. However, it was not until 4 December 1999, more than a year later, that the 2nd Defendant gave her the 2nd Power of Attorney. If the 2nd Power of Attorney was indeed signed on 10 September 1997 as what it purports to be, there is no reason why it took the 2nd Defendant more than a year to produce it to the 3rd Defendant.

14. Miss Wong also refers to the specimen signature of the 1st Defendant as the donee of the power as appearing in the 1st Power of Attorney and his purported signature as donor of the power in the 2nd Power of Attorney. The two signatures are apparently different. According to the witness statement of the 1st Defendant, he signed some documents including the power of attorney shortly after the meeting in which the arrangement for sale of shares was discussed. Apparently, the two powers of attorney were signed on the same occasion. There is no reason why the two signatures should differ. The signature as appearing in the 1st Defendant's witness statement also bears resemblance to his specimen signature in the 1st Power of Attorney but is different from what purports to be his signature on the 2nd Power of Attorney. There is in my view a serious issue to be tried as to whether the 2nd Power of Attorney relied upon by the 3rd Defendant is authentic. This casts doubts on the authority of Asia Glory and undermines the 3rd Defendant's defence of consent.

15. If the sale by Asia Glory of the 1st Plaintiff's shares was not properly authorised by the 1st Plaintiff, then the 3rd Defendant's intermeddling with the property of the 1st Plaintiff, however innocently, while acting as an agent of the Asia Glory who himself has no authority to dispose of the property, amounted to conversion: Clerk & Lindsell on Torts, 18th edition, paragraphs 14-78. Thus by handing the two CIL share certificates belonging to the 1st Plaintiff over to HKSCCL for the purpose of transferring the shares therein into the name of HKSCC Nominees Limited to facilitate the subsequent dealing in the shares represented by the two certificates without the proper authority of the 1st Plaintiff, the 3rd Defendant converted the property belonging to the 1st Plaintiff. For the above reason, there is a real issue to be tried.

16. Relying on Chong Kwok Tung v. Liu Chong Hing Bank Ltd 1992 No. A7285 (unreported) and MCC Proceeds Inc v. Lehman Bros International (Europe) [1998] 4 All ER 675, Mr Burns submits that although the share certificates are capable of being the subject matter of a claim for the tort of conversion, neither the shares themselves nor their proceeds of sale can be. He further ingeniously argues that the transfer of the shares to KG Investment for the account of Asia Glory on 3 October 1997 was by electronic transfer through the central clearance system in respect of shares held in the name of HKSCC Nominees Limited, and as such transfer did not involve appropriation of another's chattel, it could not constitute conversion. I do not have to consider these interesting argument if the transfer of the two share certificates to HKSCCL amounted in the first place to conversion.

Conclusion

17. Accordingly, as there is a real issue to be tried as to the authenticity of the 2nd Power of Attorney, the 1st Plaintiff's action cannot be regarded as scandalous, frivolous and vexatious or may prejudice, embarrass or delay the fair trial of the action or is an abuse of the process of the Court. The 3rd Defendant's application for striking out the 1st Plaintiff's claim was rightly refused by the Master. Therefore the 3rd Defendant's appeal must be dismissed with costs.