HANTEC SECURITIES CO v. TSUI CHIU MAN AND ANOTHER

HCA 8794/1991

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8794 OF 1991

________________________________

________________________________

________________________________

J U D G M E N T

________________________________

1. This is the trial of the action of the plaintiff's claims against the 2nd defendant ("D2"). As confirmed by Mr. Chan, counsel for the plaintiff, the plaintiff's primary claim against D2 is for damages in the sum of HK$561,325.29 for malicious falsehood. There is no dispute as to the amount claimed but D2 denies that she is liable to the plaintiff as alleged. There is an alternative claim based on constructive trust for a declaration that 28,000 shares in Bank of East Asia ("BEA") and the entitlements to dividends and shares now standing in the name of D2 have been held since 29 August 1990 by D2 upon trust for sale for the plaintiff and for an order that she do transfer the same to the plaintiff.

2. The background facts are that D2 first met the 1st Defendant ("D1") whilst she was working as a receptionist at the Stock Exchange. It matters not whether they met in 1985 (as D2 said ) or in 1986 (as D1 said.). D1 was then working for a stockbroker as a market representative at the trading hall of the Stock Exchange. In or about 1987 D1 began trading in shares for D2. Prior to that she had been trading in shares through another broker. D1 became her account executive. At that time he was working for China Point but had an account in the name of his mother in Kan Fung Securities ("Kan Fung"). He conducted D2's trades through this account. D2 did not open an account in her name as she was employed by the Stock Exchange and according to her, she was required to report her trading in shares. She did not do so.

3. D2's husband, mother-in-law and her father also opened accounts with Kan Fung and D1 also traded shares for them through D2.

4. There is no dispute that D1 and D2 became lovers sometime in 1987 and carried on an extra-marital affair when they were married to someone else. According to D2 her husband did not know of this affair at all material times. Around the end of 1987 D1 separated from his wife to be with D2. He divorced his wife in 1988. D2 was still married to her husband at the time.

5. At the end of 1988 D2 left her job with the Stock Exchange. D1 found her a job at Y.C. Chow & Co., a stockbroker, and she became a market representative at the trading hall with a seat next to D1 in or about March 1989. They traded in shares together. D1 also gave her a rebate of 0.1% out of the broker's commission of 0.25% which was charged on purchases and sales of shares.

6. The plaintiff is and was at all material times a stockbroking firm. D1 opened a margin trading account with the plaintiff in or about April 1989. He signed the customer agreement with the plaintiff. The margin account number was M528 which was later changed to M28 ("the M28 account"). Shares were deposited into this account as security. D1 said that this account, although opened in his name, was for D2's trading in shares and shares belonging to her were deposited into this account as security. D2 denied that she knew about this account or that this account was for her trading in shares. She denied that the deposit of her shares into this account was with her knowledge or consent.

7. On 29 August 1990 there was a margin call under the M28 account. D1 was unable to meet the call and 28,000 shares of Bank of East Asia ("BEA") pledged in the account were sold in the market by the plaintiff to cover the shortfall in the account. The shares were sold to two separate purchasers. D2 immediately made a report to the police alleging that the shares had been stolen from her and that her signatures in instruments of transfer had been forged. D1 was arrested on the same day but released later on bail.

8. D2 also made a complaint to the Stock Exchange and the share registry of BEA. She also made a statutory declaration dated 8 October 1990 in respect of her complaints. The share registry of BEA refused to proceed with the transfer of the 28,000 shares into the names of the two purchasers. This resulted in the plaintiff having to compensate them for purchasing the 28,000 BEA shares and for bonus shares and dividends that they should have received. As pleaded, the total amount compensated to the two purchasers was HK$561,325.29. This is fully supported by the evidence and there is no dispute as to this.

9. The police investigated the complaints of D2 made by her on 29 August 1990. However, after they completed their investigations it was decided that there would be no prosecution against D1.

10. The plaintiff obtained judgment in default against D1 for breach of the customer agreement in the sum of HK$561,325.29 together with interest and costs. D1 has not satisfied any part of the judgment.

11. As I have stated, the plaintiff's primary claim is for damages for malicious falsehood. It is trite that an action will lie for written or oral falsehoods when they are maliciously published and where they produce actual damage (Ratcliffe v. Evans [1892] 2 QB 524). This is agreed.

12. Mr. Chan submitted that essentially the falsehood was that contained in the statutory declaration made by D2 which was given to the Stock Exchange and the share registry of BEA. By this statutory declaration D2 declared that:

“ All the shares of mine were given to a stock broker [D1] for conducting change of name procedures on my behalf and I have never signed on any share transfer form for unsold shares."

13. It is the plaintiff's case that this was a malicious falsehood made and published by D2 resulting in damage to the plaintiff.

14. The factual issues are agreed as follows:

(a) when and where the transfer forms were signed?

(i) were the forms signed prior to D2's hospitalization in November 1988?

(ii) Did D2 and D1 sitting side by side at the end of June 1990 sign the forms at the Stock Exchange?

(b) Did D2 make/publish a falsehood to the Stock Exchange and/or BEA and/or in the statutory declaration and/or the police?

(c) If D2 did make/publish a falsehood, was such falsehood malicious?

(d) Did D2's malicious falsehood cause the plaintiff to suffer damage?

15. D1 gave evidence for the plaintiff. The plaintiff also called Ng Kwong Yin ("Ng"), Mak Kwan Lung ("Mak") and Yeung Kwok Kwong ("Yeung"). D2 also gave evidence. There is no doubt that the outcome of the trial depends on the credibility of D1 and D2 and whose version of the events that I accept.

16. Having seen and heard the witnesses I have no hesitation in preferring the evidence of D1 to that of D2. I find that the evidence that D1 gave was truthful and that he was an honest witness. I appreciate that he has in his evidence contradicted parts of his two witness statements in certain respects but I accept his explanations for the discrepancies. I find that when giving evidence in Court he has been truthful. I also find him to be a reliable witness. I believe him.

17. D2 on the other hand was an evasive witness who in my view was quite prepared to say what she thought would suit her purposes. I find that she was an untruthful and dishonest witness who was quite prepared to lie about important matters. She was an unreliable witness. Where her evidence is at variance with the evidence of D1, I have no hesitation in preferring the evidence of D1 to that of D2.

18. According to D2 whenever D1 bought shares for her she would give him a cheque for settlement of the purchase and D1 would keep the share certificates and instruments of transfer for her. She did not ask him to hand them over to her after each purchase. The reason for this was that when she was working as a receptionist at the Stock Exchange she would have had to report her share dealings. As she did not want her colleagues and the Stock Exchange to know about her share dealings, the share certificates and instruments of transfer of the shares that she had purchased were kept by D1. These included shares purchased for her and her husband. Whenever shares were to be registered in her name for the purpose of collecting dividends and bonus shares she said that D1 would give her a pile of transfer forms to sign. After she signed the same she would return the transfer forms back to D1 who would collect the share certificates after registration and keep them with him. When she sold shares which were registered in her name D1 would give her some transfer forms to sign after which the sale would be effected and on settlement day he would hand over the certificates which he had kept with him. She maintained that she knew nothing of the M28 account and that D1 never showed her monthly statements of that account. She also said that D1 would receive the proceeds of the sale of the shares from Kan Fung and pay the same into her bank account with Hang Seng Bank and give her the pay-in slips. She did not receive nor did she ask for the bought and sold notes for the shares that she traded in.

19. D1 denied that he did not hand over the share certificates and instruments of transfer to D2 for shares that he had purchased for her. He said that he did do so on settlement day which was the trading day plus two days. When there was a need to register D2's name as holder of the shares for the purpose of collecting dividends and bonus shares it was D1's evidence that he would usually go with D2 to the share registry for registration of the shares in her name and he would also go with her to collect them back. At the time they were having an intimate affair and were dating. He denied that he had kept with him the share certificates and instruments of transfer for the shares that she had purchased. He also said that he did give her the bought and sold notes on settlement and said that she was aware that the account in Kan Fung was in the name of his mother. He denied that he paid the proceeds of the sale of shares into D2's bank account but said that he did give her the cheques that he received from Kan Fung on settlement. In those days the cheques that were usually issued by Kan Fung did not have the words "or bearer" crossed out so that she was able to deposit those cheques into her bank account.

20. D1 also maintained that although the M28 account was opened in his name in April 1989 it was operated by D2 and that the shares deposited in that account as security belonged to her. He said that she bought a total of 40,000 BEA shares through Kan Fung. She told him that she wanted to have a large amount of facilities for margin trading so they were to be put into the M28 account. He maintained that she knew about the M28 account and that he had shown her the monthly statements.

21. I much prefer the evidence of D1 to that of D2. I believe D1. I do not believe D2. I find that whenever D1 purchased shares for D2 he did give her the share certificates and instruments of transfer and that he received cheques from her for settlement. I find that she was given the bought and sold notes as well. I would observe also that in or about March 1989 D2 was sitting next to D1 at the trading hall when she became a market representative of another broker. She was then actively trading in shares for the customers of her employer. It is highly unlikely in my view that in respect of her own purchases through D1 she would not have asked for the share certificates with instruments of transfer as well as the relevant bought and sold notes.

22. In his evidence, Ng did say that D2 had nothing to do with the M28 account. In my view he was probably referring to the fact that the account was not in her name and that she was not the plaintiff's customer. I accept the evidence of D1 that the M28 account, although opened in his name, was operated by D2 for margin trading and that her shares were deposited as security as she well knew. I also find that D2 knew about the M28 account which was used by her for margin trading. She knew that her shares would be deposited as security in the account. I also find that D1 showed her the monthly statements of the M28 account.

23. The monthly statement in respect of the M28 account dated 28 April 1989 shows that there were, inter alia, a total of 13,750 shares of BEA kept in the account as of the statement date as security in the account. These shares belonged to D2.

24. The undisputed evidence is that on 18 August 1989 40,000 BEA shares were registered in the name of D2. These shares had been deposited into the M28 account but were in the names of others and were only registered in D2's name on 18 August 1989. As regards these 40,000 shares, D1 gave evidence that he took them out of the M28 account so that the shares could be registered in the name of D2 for the collection of dividends in her name. The monthly statements do not reflect the fact that the 40,000 BEA shares had been taken out of the account. However, D1 said, and I accept, that the said shares were taken out of the account and that he agreed with Tam Pak Chuen ("Tam") the market representative of the plaintiff at the trading hall at the material time that the receipt that he would receive from the share registry of BEA for the said share certificates would be returned to the plaintiff after D2 had signed the same. D1 said that after those shares were taken out of the M28 account he together with D2 took the share certificates and the instruments of transfer to the share registry so that the 40,000 shares could be registered in her name. The receipt given by the share registry was signed by D2 and this was given to the plaintiff. D1 said that it was equivalent to having the certificates lodged in the M28 account. D2 denied that she went to the share registry with D1 and signed the receipt to be given to the plaintiff. However, I accept the evidence of D1 and reject the evidence of D2. I find that she knew that the 40,000 BEA shares were withdrawn from the M28 account and that she accompanied D2 to the share registry of BEA for the purpose of registering her as the holder of those shares so that dividends could be collected by her. I find that she also signed the receipt issued by the share registry and agreed that the same be kept by the plaintiff for the purposes of the M28 account. After the registration of the 40,000 shares into D2's name, the plaintiff received the share certificates for the 40,000 shares and this was kept in the M28 account as security. There is no allegation of forgery of her signatures in the instruments of transfer for the 40,000 shares which were subsequently registered in her name.

25. The fundamental and central dispute between the parties is as to the circumstances surrounding the signing of the instruments of transfer for the 28,000 BEA shares which were sold by the plaintiff on 29 August 1990 and which led to the report by D2 to the police of criminal conduct against D1.

26. As the monthly statements in respect of the M28 account show, the shares that were held by the plaintiff as security as at 30 June 1989 included 60,000 BEA shares. A board lot consisted of 200 shares. To ensure easy marketability of the shares there should have been a total of 300 instruments of transfer accompanying these 60,000 shares deposited with the plaintiff. However, it is clear from the evidence that the plaintiff did not have 300 instruments of transfer.

27. D1 gave evidence that one day, the exact date of which he could not recall, Tam of the plaintiff handed him transfer forms in respect of BEA shares and requested that these be signed. These were for BEA shares belonging to D2 in the M28 account. He was told by Tam that there was to be an audit to be done by the Stock Exchange. Apparently the plaintiff did not have sufficient transfer forms in its possession. It is not entirely clear from the evidence how many signed transfer forms they had. D1 said that there was either one or two transfer forms given to the plaintiff when the deposit of BEA shares was made into the M28 account in April 1989 after the account was opened. In my view the plaintiff probably received only 1 instrument of transfer for the whole lot of BEA shares at the time of the deposit of shares in April 1989. Ng was unable to say how many transfer forms were already in the plaintiff's possession but he knew that they had insufficient transfer forms for each board lot of 200 shares.

28. Although D1 could not remember the date he did remember that it was Tam who handed him the transfer forms and asked that they be signed. Although D1 did not give a specific date in his witness statement as to when this occurred the impression given there was that this event took place in 1990. This was also what was pleaded in para. 5A(c) of the re-re amended statement of claim before I gave leave to the plaintiff to make a further amendment by deleting the words "on a day at the end of June 1990". The evidence shows that Tam left the plaintiff's employment on 30 November 1989. Although Ng gave evidence that it was in the first half of 1990 that he gave instructions to Mak to take about 300 transfer forms to Tam to ask him to procure D2 to sign the same, I believe that he was mistaken as to when this took place. Mak also gave evidence that he could not recall the date when he was asked by Ng to take the transfer forms to Tam at the trading hall to give to D1 for signing. Although he mentioned that he was asked to take 250 transfer forms in his 2nd witness statement, in evidence he said that he could not remember the number of forms that he was asked to take and he did count them. He said that Ng took out a pile of forms from the shelf and gave it to him to take to Tam at the trading hall. I accept the evidence of Mak and Ng and find that they are truthful witnesses. Ng was, in my view, mistaken about the time when he asked Mak to take the transfer forms to Tam at the trading hall. It seems to me that it must have been between September and 30 November 1989, i.e. after the 40,000 shares were returned from the share registry of BEA and before Tam left the plaintiff's employment.

29. D1 said that when he was given the transfer forms by Tam he was told that the signatures of D2 were required urgently as the plaintiff was going to be audited by the Stock Exchange. D1 said that at the time D2's seat at the trading hall was next to his and he gave her forms for her to sign. He did not count them either. D2 began signing the instruments of transfer sometime between 11:15 a.m. and 11:30 a.m. at the trading hall. After she signed some forms she found it to be tiresome and asked D1 to assist by signing some of the forms. He agreed to do so and signed her name on some forms. At first he tried to imitate her signature but later on he just scribbled in the style of her signature. He knew that what he was doing was wrong but he nevertheless agreed to do as asked in view of his intimacy with her and he believed that the forms were merely for the sake of getting past the audit of the Stock Exchange.

30. D2 denied signing the transfer forms in the circumstances as stated by D1. She said that in 2002 when preparing her witness statement for the trial she recalled an incident that took place before she was hospitalized in November 1988 ("the pre-hospitalisation incident"). She said that a few days before her admission to hospital for an operation involving removal of part of her thyroid gland D1 suggested that she should sign some transfer forms for the shares that had already been transferred to her name. He told her that in case the price was good he could sell the shares for her whilst she was in hospital. She said that she signed transfer forms for unsold shares and in advance of any sale of shares that might take place whilst she was hospitalized. She could only remember that she signed transfer forms in relation to shares in BEA, HK Telecom and Kumagai. She signed them at D1's home at Kennedy Town where he lived after he had separated from his wife.

31. D2 also said that about 2 weeks after her discharge from hospital D1 told her that he would tear up the transfer forms as no shares had been sold during her hospitalization. She trusted him as they were lovers and she believed that he would tear up the forms. She thought nothing of this incident until 2002 when preparing her witness statement.

32. D2 admitted that she never told the police about the pre-hospitalisation incident in any of her three statements to the police made in August 1990 and April 1991. She said that she did not recall this at the time. D2 told the police in her 3rd statement that in early 1988 she sold 20,000 BEA shares through D1. After that he told her that the signatures on some of the transfer forms were incorrect and gave her a pile of transfer forms to sign. She signed them and returned the same to D1. However, according to the share movement record provided by BEA, D2 did not even own 20,000 BEA shares in her name in early 1988. She said that when she went to the police station she had not checked her stock position and thought that she had sold about 20,000 shares in early 1988. D1 denied that he asked her to sign additional transfer forms in early 1988 as suggested by her to the police in her 3rd statement to them. I believe him and prefer his evidence to that of D2. I do not believe her. It is also significant that her allegation that D1 had asked her to sign additional transfer forms in relation to the sale of 20,000 BEA shares in early 1988 was neither pleaded nor set out in her witness statement.

33. It is clear that when she made her 3rd statement to the police on 5 April 1991 she had been shown 50 instruments of transfer which the Government expert had concluded were in her handwriting. Having made a complaint to the police, the Stock Exchange and the share registry of BEA of theft and forgery she was then confronted by the police with the fact that 50 transfer forms analysed by the Government expert were signed by her. On being confronted with this fact she must have thought of the matter seriously. She agreed with counsel that in April 1991, which was 6 months after her original complaint, she would not have been nervous when making her statement to the police and that she was clear-minded. As a possible explanation for the fact that her signatures were on the 50 transfer forms D2 mentioned to the police the incident in early 1988 when, according to her, she had sold 20,000 BEA shares through D1. She told them that D1 had told her that the signatures on some of the transfer forms were incorrect and that he gave her another pile of forms to sign which she did. She returned the same to D1 after signing them. She failed to mention the pre-hospitalisation incident in her 3rd police statement made on 5 April 1991. The pre-hospitalisation incident would have been an event later in time, namely in November 1988, to the event that she did mention regarding the sale of 20,000 BEA shares which, according to her, took place in early 1988.

34. D2's evidence was that all that she had told the police in her 3 statements was true except the part where she told them (in her 2nd statement) that she did not have a sexual relationship with D1. She said that she was afraid of her husband finding out about the affair with D1 and that her shares had been pledged and sold. Her husband had provided her with the money to purchase the BEA shares.

35. I believe D1 and disbelieve D2. I am convinced that she is lying about these important matters. In my view it is wholly incredible that she should be able to remember the pre-hospitalisation incident only in 2002 but that it completely slipped her mind in April 1991 when the police confronted her with transfer forms containing her signatures. I do not believe her when she said that in 2002 her blood test triggered her recollection of the pre-hospitalisation incident.

36. I would also observe that in answer to a question from the Court D2 said that before she was admitted to hospital in November 1988 she had told D1 that if the price of BEA shares went up to over HK$20 then he could sell them for her whilst she was hospitalized. This was the first mention by her of the price at which D1 was to sell BEA shares whilst she was hospitalized. This was neither mentioned in her witness statement nor in her evidence either in chief, cross-examination or re-examination. This was also never put to D1 in cross-examination.

37. The handwriting experts' reports have been agreed. The transfer forms in relation to the 28,000 BEA shares were examined by the experts. It is common ground that they came to the same conclusion namely, that out of the 140 transfer forms 94 were signed by D2 and 46 by someone else. It is accepted that this was D1. D1 has consistently been saying since his 1st witness statement that he signed about 40 transfer forms and the experts' reports support him on this.

38. It has been pointed out to me that D2 was in possession of the experts' reports before preparation of her witness statement dated 17 July 2002. It was only at that time that the pre-hospitalisation incident was first mentioned by her. She said that her solicitors told her to think over the matter more seriously in the light of the experts' reports. In my view the pre-hospitalization incident is a false story which D2 made up in an attempt to explain her signatures on the 94 transfer forms. In my view she made up her story as she went along and she has told lies to the Court. As I have said, she was an untruthful witness who cannot be relied on to tell the truth about these important events.

39. There is no dispute that the police returned to D2 the share certificates for 32,000 BEA shares with instruments of transfer which were remaining in the M28 account after the sale of the 28,000 BEA shares. As the M28 account was in credit after the sale of the 28,000 BEA shares there could be no objection on the part of the plaintiff to the release of the 32,000 shares. Although D2 at one stage said that this occurred on 30 August 1990, she later said that she could not recall the date when this took place. The return of the 32,000 shares would have been on or about April 1991 as is apparent from the statements to the police given by D1 and Yeung.

40. What is important, however, is the fact that the instruments of transfer for the 32,000 shares were also returned to her by the police. There would have been 160 transfer forms returned to her. D2 said that she dumped the transfer forms after she got out of the police station as she did not dare bring them home. She was afraid that her husband would find out. She said that she did not look through all the transfer forms in relation to the 32,000 shares. She only flipped through some of them and had a look. The signatures there did not look like her signatures although they resembled her style. I do not believe her. If it were true that the signatures on the 160 transfer forms or some of them were forgeries, she would, in my view, have pointed this out to the police. She did not strike me as a timid or nervous person. She was also being advised by solicitors as they advised her to make the initial report to the police on 29 August 1990. It is inconceivable that if what she was saying were true she would not have kept those forms and handed them over to her solicitors. Her explanation for dumping the transfer forms was unconvincing. It is highly unlikely in my view that the police would have returned to her the transfer forms for the 32,000 shares if the signatures thereon were forged. At the time the police were still investigating her complaint of theft and forgery. It was not until about 30 April 1991 that the decision was taken not to prosecute D1. It seems to me that it is highly likely that the transfer forms accompanying the share certificates for the 32,000 shares of BEA which were returned to D2 by the police were in fact signed by D2. I find that D2 was lying about these matters.

41. D2 admitted that she knowingly and deliberately lied to the police about her sexual relationship with D1 when asked about the same on 30 August 1990. By that time D1 had been arrested and must have mentioned that to the police. She must have realized that D1 had told the police about their extra-marital affair yet she was prepared to lie to the police knowing full well that if she wilfully said anything which she knew to be false she might be liable to be prosecuted. Her explanation for doing so was that she was afraid of her husband finding out.

42. D2 said that her relationship with D1 went sour sometime in July 1990 because of an incident involving HK Land shares when she became suspicious about D1. D1, however, said that his relationship with D2 started to deteriorate sometime between February and April 1990. It is clear, however, that the relationship had not completely broken down until later on as even after April 1990 D1 was still paying D2's bills on the American Express supplementary credit card which he had previously obtained for her and for which he was responsible to pay. This continued until about the time D2 made the report to the police against D1.

43. D2 said that she first became suspicious about D1 in early July 1990. She said that at that time she had sold 20,000 HK Land shares through D1. On settlement day when she was supposed to get the bank payment slip from D1 in respect of the proceeds of sale which were to be paid into her bank account he didn't give her the same. These were shares in her name and D1 had given her transfer forms to sign which she did. He made the excuse that he had left the certificates at home and settlement had not been done. She said that thereafter on one afternoon Mak of the plaintiff handed a pile of HK Land share certificates together with a receipt to D1 at the trading hall who acknowledged receipt of the same. This occurred about 10 days after she had sold the HK Land shares and she became a little suspicious that the certificates handed by Mak to D1 were her shares. She asked Mak subsequently about it and was told that D1's account had "burst" and something had to be sold. She then asked Mak to find out whether there were other stocks in that account and to check who the holder was. The following morning Mak told her that the shares in the account belonged to her and her husband. He told her that there were 70,000 BEA shares and also 10,000 Wing On shares, 9,200 HK Telecom shares, 10,000 HK Bank shares and 5,000 Kumagai.

44. On learning that D1 had pledged her shares in the account D2 consulted a colleague in the trading hall, a Mr. Hui Chun Luk, who advised her to approach the management of the plaintiff. Through Mak she arranged a dinner at Yung Kee restaurant. Ng, Mak and Hui attended that dinner hosted by D2. According to D2 she told Ng that D1 had pledged her stocks in his margin account without her permission. Ng told her that he would not like to escalate matters and would give her back the shares by instalments. She said that subsequently she received back some of her shares. She received all of them except 60,000 BEA shares. The statement of the M28 account dated 29 August 1990 shows that 9,200 HK Telecom, 10,000 HK Bank, and 10,000 Wing On shares were withdrawn from the account on 20 August 1990.

45. D1 denied that he had sold HK Land shares for her in July 1990. I believe him. If the HK Land shares incident did make her suspicious of D1 it is surprising that she failed to mention this incident to the police. In my view she would have mentioned this incident to the police if this was what aroused her suspicion. I do not believe D2 on these matters.

46. Ng and Mak accept that they attended a dinner at Yung Kee restaurant hosted by D2 but were unable to recollect much of what was discussed. Ng, however, said, and I accept, that no promise was made to D2 to return shares to her. I prefer his evidence to that of D2.

47. It is not disputed that the shares withdrawn were returned to D1 and that he returned them to D2. According to the monthly statement dated 29 August 1990 9,200 HK Telecom, 10,000 HK Bank and 10,000 Wing On shares were deposited to the M28 account on 15 August 1990. D1 said that at that time he settled another margin account and got these shares back for D2 to place into the M28 account. At the time they were close to breaking up so he settled the other margin account and returned the said shares back to her. The shares were withdrawn on 20 August 1990 and returned to D2. I believe him.

48. D2 said that she did not receive anything further after the last lot so in the morning of 29 August 1990 she went to the plaintiff's office and asked about the 60,000 BEA shares. Ng threw out a pile of transfer forms and said that she knew about the shares in the account and refused to return the shares to her. So in the morning of 29 August 1990 at the trading hall when she learnt that the 28,000 shares had been sold she immediately made a report to the police after consulting solicitors.

49. Ng who gave evidence agreed that he had dinner with D2 at Yung Kee restaurant which was just a friendly meal. He was unable to recall what was discussed although he said it was possible that she said her shares had been pledged without her consent but he treated it as a story. He said he was not representing the plaintiff at the dinner and that he never promised to return stocks to D2. He was merely an employee and it was not up to him to decide that in any event.

50. I accept that certain shares were returned to D2 after her meeting at Yung Kee restaurant through D1 but I do not believe D2 that there was anything like an agreement or a promise on the part of the plaintiff to return to D2 shares in her name. I find that the shares that were returned to D2 prior to 29 August 1990 were not returned pursuant to any promise or agreement with the plaintiff. It is also significant that the promise or agreement allegedly made at the Yung Kee restaurant and the allegation that shares were returned to D2 pursuant thereto has not been pleaded by D2. Not only has it not been pleaded it was never even mentioned to the police in any of the police statements made by her in August 1990 and April 1991. If it were true she would in my view have mentioned it. After all, she wanted her shares back and if there was an agreement or promise by the plaintiff to return her shares to her she would have told the police about this. It is clear that D2 made no complaint at all about the conduct of the plaintiff. If she were an innocent victim whose shares had been pledged with the plaintiff without her knowledge or consent it is strange that she made no complaint of impropriety against the plaintiff to the police. She has also not brought any proceedings against the plaintiff. I do not believe D2.

51. I would also observe that there were other sales of shares in the M28 account according to the monthly statement dated 29 August 1990. D1 said that the shares as shown in the two columns at the top of this statement belonged to D2. These included shares in Novel, Pokfulam Development, Tse Sui Luen, Thomson Pacific, Paramount and Yuen Sang. These were sold between 9 August 1990 and 17 August 1990. I believe D1 when he said that these shares belonged to D2. D1 was never challenged on this in cross-examination. D2 was evasive when asked about those shares and I do not believe her when she said that those shares were not hers. I believe D1 and find that the shares in the two columns at the top of the statement dated 29 August 1990 belonged to D2. Quite clearly she has never complained about the sale of those shares. If she knew nothing about the M28 account and did not consent to her shares being pledged I find it inconceivable that she would not have complained about the sale of those shares. She did not complain about this to the police nor has she sought to bring proceedings in respect of the same against the plaintiff.

52. I also accept, as D1 said, that in about June 1990 he decided to leave D2 but she threatened him that if he left her she would not be responsible for the deficit in the M28 account. The account was not in her name and D1 would have to be responsible to the plaintiff as the account was in his name and he was its customer. I accept D1's evidence. It seems to me, and I so find, that the relationship between D1 and D2 was deteriorating and in July 1990 D2 was concerned with getting back her shares from the plaintiff. She knew that they had been pledged and had agreed to them being pledged in the M28 account. That was the reason why she had the dinner at Yung Kee restaurant to try and get back her shares and also went up to the plaintiff's offices on 29 August 1990. She made up a story to the police that D1 had stolen her shares and forged her signatures on instruments of transfer.

53. As I have said where the evidence of D1 and D2 are at variance, I have no hesitation in preferring the evidence of D1 to that of D2. I believe D1 and disbelieve D2. Her evidence cannot be relied on. She has been untruthful on the important events.

54. I find that of the 140 instruments of transfer accompanying the 28,000 BEA shares, 94 were signed by D2 and 46 were signed by D1 according to her style as requested by D2. They were signed at the trading hall in the circumstances as described by D1 sometime between September and 30 November 1989. I find that D2 asked D1 to assist her by signing some of the forms for her which regrettably he did despite realizing that it was wrong to do so. I find that D2 did not sign any instruments of transfer for any of her shares a few days before her hospitalization in November 1988. It is also pertinent to note that in November 1988 D2 only had about 10,000 BEA shares in her name according to BEA's share movement record in evidence. This would mean that there would only have been a need to have about 50 transfer forms signed for the eventual sale of the shares of BEA which she had at the time. To suggest that D1 in November 1988 asked her to sign the 94 forms, which have been shown by the experts to have been signed by D2, is in my judgment absurd and fanciful. I reject D2's version of the events.

55. The statutory declaration made by D2 dated 8 October 1990 was made according to the Oaths and Declarations Ordinance. Although at some stage in her evidence D2 said that the statutory declaration was not false, she accepted in cross-examination that it was not true that she had never signed "on any share transfer form for unsold shares". The pre-hospitalisation incident had slipped her mind at the time. In my judgment D2 made the false declaration knowing the same to be false. She has never retracted the statutory declaration nor her complaint to the Stock Exchange and the share registry of BEA. She admitted that her complaint was as stated in her statutory declaration.

56. The plaintiff must establish that there was malice to succeed in its claim on the tort of malicious falsehood. I find that there was no honest belief on the part of D2 at the time she made the statutory declaration that she had never signed on any share transfer for unsold shares. I find that she knew that it was false at the time she made it.

57. It was submitted that even if it was a falsehood there was no malice as D2 was merely trying to protect her own property. I am satisfied that there was malice in this case even if D2 was trying to protect her property. As is stated in para. 23-14 Clerk & Lindsell on Torts 18th edn.:

“ If a man says something he knows to be untrue, it is malicious ipso facto, because he has said something that is false and something that he knows to be false. There is no need to show additionally that the defendant intended to harm the claimant. It would appear that recklessness as to falsity of the allegations is sufficient, on a par with the tort of deceit."

58. I find that D2 published a malicious falsehood by making the complaint as stated in her statutory declaration to the Stock Exchange. The complaint was also made to the share registry of BEA and the transfer of the 28,000 shares to the two purchasers could not proceed. Damage has been caused to the plaintiff. The plaintiff is entitled to damages for malicious falsehood in the sum of HK$516,325.29. The plaintiff is also entitled to interest on the said sum from issue of the amended writ against D2 on 9 July 1993 until judgment at 1% above prime rate and thereafter at judgment rate until payment. I give judgment to the plaintiff for damages in the said sum and interest as aforesaid.

59. As the plaintiff has succeeded in its primary claim for damages, there is no need to deal with the alternative claim based on constructive trust.

60. I also make an order nisi for costs of the action to be costs to the plaintiff and to be paid by D2.

Remarks: