LAU KING TING KATIE v. CHENG MIU HAR STELLA AND OTHERS

HCA 1049/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1049 OF 2007

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J U D G M E N T

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I.  INTRODUCTION

1.  Edmund Lau and Stella Cheng are solicitors.  They were husband and wife.  They were divorced by the Order of Deputy Judge Jenkins dated 8 May 2000.  Their firm (Lau & Co) (in which they shared profits equally) ceased practice on 31 May 2002.

2.   Judge Jenkins’ Order noted that, as part of a divorce settlement, Edmund Lau had transferred to Stella all his legal and beneficial interest in Lau and Company (Holdings) Ltd. (Holdings), Pak Miu Investment Co. Ltd. (Pak Miu), and Lau and Cheng Investment Ltd. (Lau & Cheng) (collectively, the 3 Companies).  At the time of the Order, the 3 Companies held some 11 properties which Edmund and Stella had acquired in the years preceding their divorce.

3.  Katie and Acorn Lau were the children of the marriage.  Katie was born in 1979, Acorn in 1993.  The result of Edmund’s transfer of the 3 Companies was that, save for 100 shares in Holdings (equal to a 1% interest) belonging to Katie, Stella directly or indirectly owned and controlled the 3 Companies.

4.  The main issue at trial was the authenticity of a Deed of Trust dated 8 March 2002 (the Share Deed).  The Share Deed purports to be a declaration by Stella that she holds her shares in the 3 Companies on trust for Katie and Acorn in equal shares.

5.  Edmund says that, following discussions between him and her, Stella executed the Share Deed and handed the same to him for safekeeping.  Stella says that she never discussed a trust of her shares in the 3 Companies with Edmund.  She denies ever having signed a document in terms of the Share Deed or ever handing any such document to Edmund.

6.  The 3 Companies are now in voluntary liquidation as a result of actions taken by Stella.  She claims to have taken such actions to prevent the properties held by the 3 Companies from being controlled by Edmund through his influence over Katie and Acorn. But, in so acting, she proceeded without regard to the interests of Katie or Acorn.

7.  Consequently, if the Share Deed is genuine, the liquidations of the 3 Companies should be set aside.  But, if the Shares Deed is a forgery, then subject to an issue whether Katie was properly notified of the shareholders’ meeting which resolved to liquidate Holdings, Stella should essentially be allowed to deal with the 3 Companies and their assets as she deems fit.

8.  Some subsidiary issues hinge on a determination of the genuineness or otherwise of the Share Deed.  Those minor issues are listed and considered at the end of this Judgment.  For convenience, in this Judgment I shall refer to Katie and Edmund collectively as “the Plaintiffs” and to Stella, Holdings, Pak Miu, Lau & Cheng and Fortune Concept collectively as “the Defendants”.

II.  BACKGROUND

A.  Genesis of Share Deed, Belcher’s Deed and Vesting Assignment

9.  Following their divorce, Edmund continued to manage the 3 Companies as he had done when he and Stella were married. 

10.  From July 2000 Edmund and Stella began to meet each other more regularly.  Those meetings culminated in the two becoming reconciled in early 2001.

11.  It was then that Stella decided to purchase a flat (the Belcher’s flat).  She paid the deposit for the Belcher’s flat out of her own resources.  But Stella was later reimbursed by Lau & Cheng.  The purchase was completed on 11 July 2001, with the balance of monies coming from Lau & Cheng and a bank mortgage.

12.  Stella and Acorn moved into the Belcher’s flat in mid-December 2001.  Katie moved in a little later.  There is some dispute among the parties as to when precisely Edmund moved into the Belcher’s flat.  He says that he moved in with Stella and Acorn in December 2001.  Stella says that he did not move in until the end of January 2002.  The reality is probably that Edmund was a frequent visitor (even overnight guest) at the Belcher’s flat from December 2001 onwards, even if he did not formally move in as an occupant until January 2002.

13.  According to Stella, shortly before completion, she executed a Deed of Trust dated 27 June 2001 (the Belcher’s Deed). Stella says that Edmund drafted the Belcher’s Deed and caused the same to be typed up by Amy Leung, a typist at Lau & Co.  Having signed the Belcher’s Deed, she returned the same to Edmund.

14.  The Belcher’s Deed acknowledged that, although the Belcher’s flat was being purchased in Stella’s name, the transaction was actually being funded by Lau & Cheng and Stella would hold the property as trustee for Lau & Cheng.  The suggestion that the property be purchased by Lau & Cheng (Stella says) came from Edmund.

15.  Edmund tells a somewhat different story. 

16.  According to him, after the purchase of the Belcher’s flat, he broached the idea of Stella assigning the Belcher’s Flat to Lau & Cheng.  He also suggested that Stella divide her shares in the 3 Companies into 3 parts, that she transfer 2 parts to Katie and Acorn respectively, and that she retain a part for herself.  But Stella was not inclined to transfer shares to the children immediately. She instead proposed making herself a trustee of all her shares in favour of the children as beneficiaries.

17.  Edmund claims that in late August 2001 Stella had prepared Deeds of Trust in relation to the Belcher’s flat and to her shares in the 3 Companies.  She had not prepared a Vesting Assignment for the Belcher’s flat because she claimed that she had been unable to obtain a copy of the Assignment of the Belcher’s flat from the vendor’s solicitors.  Edmund says that she did not pass either Deed of Trust to him.  Thus, according to Edmund, he neither saw nor read the 2 documents at the time.

18.  Edmund says that, after the whole family (including Katie and himself) had moved into the Belcher’s flat in mid-December 2001, he again floated the matter of vesting the Belcher’s property in Lau & Cheng and declaring a trust of Stella’s shares. In response, in late December 2001 Stella brought home a Vesting Assignment for the Belcher’s flat and a Deed of Trust (Share Deed Version I) relating to her shares.  Edmund claims that she signed both in his presence and handed both to him.

19.  Edmund further claims that, in January 2002, he realised that Share Deed Version I was in error.  The number of shares mentioned on the second page of that document had not taken account of Edmund’s shares in the 3 Companies which had been transferred to Stella in the course of their divorce settlement. Share Deed Version I only stated the shares which Stella held before the divorce proceedings.

20.  Edmund says that he returned Share Deed Version I to Stella, pointing out the mistake.  She took the document away for correction.  But it was not until 8 March 2002 that she brought home an amended version.  On handing the corrected document to Edmund, she explained that she had replaced the first, second and fourth pages of Share Deed Version I, but had simply re-used the execution page of Share Deed Version I.  The revised first page bore the new date of 8 March 2002.  The revised second page contained the corrected share numbers.  The revised fourth page (the back sheet) reflected the new date of 8 March 2002. 

21.  It is this composite document that has been put before this Court by Edmund as the Share Deed.  Edmund claims that he never saw the Belcher’s Deed (whether in original or copy form) until after the start of these proceedings.

22.  Stella’s account of the Vesting Assignment differs.  She suggests that in February 2002 Edmund prepared the Vesting Assignment for her to sign.  He left the unexecuted document in her room at Lau & Co for signature. 

23.  She understood that she was signing the document “in escrow”.  This was because she believed that it could not take effect (that is, it could not immediately vest legal title in Lau & Cheng) until after the mortgage on the Belcher’s flat had been paid off. After signing the document, she left it in Edmund’s room at Lau & Co.’s office. 

24.  Stella says that, when she signed the Vesting Assignment, it was undated and had not been stamped with a corporate seal.

B.  Breakdown of relations between Edmund and Stella

25.  The reconciliation between Edmund and Stella did not prove long-lasting. On 1 December 2006 Stella moved out of the Belcher’s flat, taking Acorn with her.  On 4 August 2007 Acorn returned to live with Edmund and Katie in the Belcher’s flat and has been living there since.

26.  Moreover, on 1 December 2006 Hampton Winter & Glynn (Stella’s then solicitors) wrote demanding that Edmund and Katie resign as director of the 3 Companies.  Hampton requested that Edmund deliver up all the books and records of the 3 Companies and vacate the Belcher’s flat.  Hampton further asked that Katie transfer her 100 shares in Holdings to Stella.

27.  Edmund wrote several letters on December 2006, refusing to leave the Belcher’s flat or resign his directorships in the 3 Companies.  Edmund argued that Stella was not entitled to demand vacant possession of the Belcher’s flat as she only held the property on trust for Lau & Cheng.  Edmund also pointed out that Katie was the beneficial owner of her 100 shares, so that there was no reason for her to transfer the same to Stella.

28.  Stella responded by taking out Court proceedings in her own name on 2 January 2007 for the vacant possession of the Belcher’s flat.  By way of answer, Edmund filed an affirmation exhibiting the Vesting Assignment, now dated 28 December 2001 in Edmund’s handwriting and marked as having been adjudicated for stamp duty on 17 January 2007.  Edmund pointed out that in fact Lau & Cheng beneficially owned the Belcher’s flat, so that Stella had no locus to bring proceedings in her own name.  The proceedings were discontinued. 

29.  Stella then requisitioned the 3 Companies on 20 March 2007 to convene an EGM to consider resolutions for the removal of Edmund and Katie as directors. 

30.  On the following day Edmund countered by giving notice of a directors meeting for each of the 3 Companies.  The purpose of those board meetings was to pass a resolution authorising Edmund to represent the 3 Companies.

31.  Edmund also wrote, alleging for the first time that Stella was holding her shares in the 3 companies on trust for Katie and Acorn.  Edmund’s letter enclosed a copy of the Share Deed.

32.  Hampton immediately responded, denying that Stella had signed the Share Deed or knew anything of the same.  Hampton asked to inspect the document.

33.  On 5 April 2007 (Ching Ming), Stella went to Lau & Co.’s Bangkok Bank Building office on her own.  From there, with the assistance of some Filipina domestic helpers who had gathered in the street below, she took away bags of accounting books, files and other documents and materials relating to the 3 Companies. 

34.  At Lau & Co.’s office on 5 April Stella found a brown envelope containing the Share Deed, the Vesting Assignment and 3 board minutes.  She took these with her.  She says that this was the first time that she saw the Share Deed.

35.  On 5 April Stella also engaged a locksmith to change the locks to Lau & Co.’s office.  She further had 6 bronze Chinese characters spelling out “Lau & Co’s” name removed from the entrance of the office.  She says that she did this because the firm had ceased to exist.

36.  In these proceedings, Edmund counterclaims for the conversion or detinue of property said to belong to him as sole proprietor of Lau & Co. and to have been wrongly removed by Stella on 5 April 2007.  I note that Edmund later changed the locks to Lau & Co.’s office so as to exclude Stella.

37.  On 6 April 2007 Stella went through the documents which she had collected from Lau & Co. at the offices of Mr. Philip Nicholls.  Mr. Nicholls, a solicitor, is Stella’s brother-in-law.

38.  The materials examined included Lau & Co.’s Property File (the Brown File) for the Belcher’s flat and Lau & Co’s Corporate File (the Green File) for Lau & Cheng.  Stella found a copy of the Belcher’s Deed in the Green File. 

39.  Stella instructed her solicitors to provide the original Share Deed, the original Vesting Assignment and the copy Belcher’s Deed to Dr. Sheilah Hamilton for forensic examination. In the remainder of this Judgment, I shall simply refer to the copy Belcher’s Deed as “the Belcher’s Deed”.

40.  On 10 April 2007 Stella changed the registered addresses, directors, and secretaries of the 3 Companies.  She also tried to have Edmund replaced as signatory of the 3 Companies’ bank accounts. Edmund and Katie challenged the validity of these changes.

41.  On 24 April 2007 Stella caused a notice to be sent to Katie of a Holdings EGM to be held on 27 April 2007.  The purpose of the EGM was to consider a resolution to put Holdings into voluntary liquidation, with Stella being appointed as liquidator.  The notice was sent to Katie’s old Hilton Tower address. This was despite Holdings (to Stella’s knowledge) having previously changed Katie’s registered address in its company records to the Belcher’s flat.

42.  Similar EGMs were convened on 27 April 2007 in respect of Pak Miu and Lau & Cheng for the purposes of putting those companies into voluntary liquidation with Stella as liquidator.

43.  Edmund wrote on 28 April 2007 to say that the liquidations of 3 Companies were invalid.

44.  To forestall attempts by Edmund to regain control of the 3 Companies, Stella as liquidator assigned the properties held by the 3 Companies to Fortune Concept.  Fortune Concept is Stella’s alter ego.  Fortune Concept was to hold such assigned properties on trust for the 3 Companies.  The assignments to Fortune Concept are challenged in these proceedings.

45.  On 17 May 2007 Katie (on Edmund’s advice) commenced the present proceedings.

46.  On 12 May 2007 Stella caused Fortune Concept to enter into an agreement to sell to Harvest Star one of its assigned properties (the Canton Road property) for $130 million. Harvest Star paid a $13 million deposit.  Edmund and Katie registered the writ in this action as a lis pendens against the Canton Road property.

47.  Completion of the sale was to have taken place on 18 June 2007.  But as a result of the registration of the lis pendens, completion did not take place until 12 May 2008 following an interim arrangement reached among Stella, Holdings, Katie and Edmund.  In these proceedings, the Defendants counterclaim for damages arising from the delay to completion.

III. DISCUSSION

A.  Main Issue: Genuineness of the Share Deed

48.  Is the Share Deed genuine?  In my judgment, it is not.  I set out my reasoning below.

A.1    Share Deed’s execution page

49.  The parties’ forensic experts (Dr. Albert Lyter for the Plaintiffs and Dr. Hamilton for the Defendants) agree that the execution page (p.3) of the Share Deed was typed with a different daisywheel or typewriter from that used to type all other pages (pp. 1, 2 and 4) of the Share Deed. 

50.  Dr. Hamilton adds (and I accept) that there is a significant difference in the margin settings of the execution page (1 2/16”) and pp. 1 and 2 (1 14/16”) of the Share Deed. 

51.  Plainly, the execution page was typed at a different time from the other pages of the Share Deed.

52.  The experts also agree that the execution page of the Share Deed must be the original of what is before this Court as a copy execution page (p.3) in the Belcher’s Deed.  This may be readily confirmed by superimposing one execution page over the other and holding both to the light.  The 2 execution pages will be seen to coincide.

53.  This circumstance is highly peculiar. 

A.2    Explanations for Share Deed’s execution page

54.  There are 2 possible explanations for this circumstance. 

55.  One is that the execution page of the Share Deed started life as the execution page of the original Belcher’s Deed.  Alternatively, whatever copy execution page it may initially have had, the Belcher’s Deed now has as its execution page a copy of the original execution page of the Share Deed.

56.  The second explanation seems implausible in light of the evidence before me.  It seems to me that the first possibility is by far the more likely.

57.  The second explanation posits that at some stage an unknown person (presumably Stella) copied the execution page of the Share Deed and then (using that copy) created the Belcher’s Deed.  But when precisely could Stella have done that?

58.  Before 5 April 2007 (when Stella took documents from Lau & Co.’s offices), the Share Deed was in Edmund’s custody.  Stella is unlikely to have had the opportunity surreptitiously to take the Share Deed and copy its execution page. 

59.  Mr. Edward Chan SC (appearing for the Plaintiffs) has suggested that Stella could have taken a copy of the copy Share Deed sent to Hampton by Edmund on 21 March 2007.  Stella could then (Mr. Chan submits) have forged a copy Belcher’s Deed with such a copy of the execution page of the Share Deed inserted as the forgery’s execution page.

60.  Mr. Chan’s submission came at the eleventh hour in the course of closing submission.  It was not pleaded.  It was not even squarely put to Stella in the course of her cross-examination (as it ought fairly to have been).  There was no real notice or opportunity given to Stella or her legal representatives to adduce evidence to rebut the late suggestion. 

61.  Consequently, in the absence of some concrete evidence (as opposed to mere speculation on Mr. Chan’s part) indicating that Stella may actually have carried out what it is said she “could” have done before 5 April 2007, I do not think that I can properly entertain this hypothesis.  Mr. Chan adduced no such concrete evidence at trial.

62.  After 5 April 2007 Stella would have had more time to copy the execution page of the Share Deed and create the present Belcher’s Deed.  Here Mr. Chan did faintly suggest in cross-examination that from 5 April 2007 onwards Stella could have put together a version of the Belcher’s Deed incorporating a copy of the Share Deed’s execution page.

63.  But Stella’s evidence in Court was that she only inspected the materials which she obtained from Lau & Co. on 6 April 2007 and that was done in Mr. Nicholls’ presence.  After that Mr. Nicholls had possession of all relevant documents until they were handed over to Dr. Hamilton for examination.  Since then the relevant documents have been in the custody either of Dr. Hamilton or S. K. Lam, Alfred Chan & Co. (Stella’s solicitors).

64.  Mr. Nicholls was tendered for cross-examination on these matters, but Mr. Chan declined to do so.  In the absence of cross-examination, I must assume that nothing untoward happened in Mr. Nicholls’ presence or when the documents were in his custody. 

65.  Mr. S. K. Lam was called as a witness.  But nothing was suggested to him by Mr. Chan about the possibility of tampering with the Belcher’s Deed while the same was in his custody.

66.  That leaves only the possibility that Stella had the period from the time when she acquired the Share Deed on 5 April to the time when she looked at the documents in Mr. Nicholls’ presence to put together the Belcher’s Deed.

67.  The difficulty is that it would not have been enough for her simply to create the Belcher’s Deed.

68.  Using Electrostatic Detection Apparatus (ESDA) techniques, Dr. Hamilton found that the Belcher’s Deed bore the impression of words written by hand on some other piece of paper (Paper X).  The words which Dr. Hamilton found were “Lau & Cheng Please put these into file (PPTY No”.  The imprint of those words appears on all pages of the Belcher’s Deed (including the execution page), albeit progressively fainter as one moves from the first to the fourth page.

69.  The impression of the words on the Belcher’s Deed is not visible to the naked eye.  It would not have been spotted but for ESDA. 

70.  The words must have been written on Paper X (which can no longer be found) at a time when the latter was resting on top of the Belcher’s Deed.  The words appear to be in Edmund’s handwriting, although he does not accept that he wrote such words on any Paper X.  On the contrary, he speculated in the course of cross-examination that the words were written on Paper X by Stella in an attempt to link him with the Belcher’s Deed, a document he denies having seen until very recently.

71.  Take Edmund’s denial of having written the words on Paper X at face value for the moment.  Then presumably Stella must have placed Paper X on top of the Belcher’s Deed at some stage and traced Edmund’s handwriting on Paper X to create an impression on the Belcher’s Deed.  How else would the impression of the words have found their way onto the Belcher’s Deed?  The hope might perhaps be that forensic investigation would lead to the discovery of the invisible impression implicating Edmund.

72.  It seems to me unrealistic that, in the short interval spanning 5 and 6 April 2007, Stella would have had time not just to plan but also to create the false Belcher’s Deed and the forged handwriting impression.

73.  A plan to forge the Belcher’s Deed, complete with fake impressions of writing apparently belonging to Edmund, in order to discredit the Share Deed would be an extremely subtle design. Such stratagem could not have been carried out at the spur of the moment, but would have required time for gestation, practice and execution.  The plan would require great care and attention to meticulous detail.

74.  Realistically, it is unlikely that Stella (or anyone else) could have conceived and forged the Belcher’s Deed, along with invisible handwriting impression, in a 24 hour or so interval between 5 and 6 April 2007. 

75.  Indeed, going back to Mr. Chan’s suggestion that Stella could have started preparing a forged Belcher’s Deed (complete with imprinted handwriting) between 21 March and 5 April 2007, I seriously doubt that there would have been sufficient time even then for Stella to plan and prepare everything which she would have to do. There would still be the problem of having to slip in the putative Belcher’s Deed into the Green File without being noticed by Mr. Nicholls or Mr. S. K. Lam.  The whole enterprise, while not impossible, would have required an extraordinary combination of prescience, ingenuity and nerves that few possess.

A.3    Typescript of Belcher’s Deed

76.  Dr. Lyter did not believe that an examination of the typescript of the Belcher’s Deed was helpful.  The Belcher’s Deed being a photocopy, there will be distortions in the digitised images generated by the reproduction process.  It would not then be possible (Dr. Lyter thought) to determine whether typescript patterns found in the Belcher’s Deed are the same or different from those found in the execution or other pages of the Share Deed. 

77.  Unfortunately, Dr. Lyter never examined the actual copy of the Belcher’s Deed found in the Green File.  Thus, he never ascertained whether the theoretical position that he posited in relation to typescript patterns in the Belcher’s Deed was in fact the case.

78.  On the other hand, Dr. Hamilton did examine the actual copy of the Belcher’s Deed found in the Green File. 

79.  She accepted that, due to distortions arising from photocopying, it was not possible to deduce anything from variations (which she noticed) in the margins of pp. 1, 2 and 3 of the Belcher’s Deed.

80.  She was more optimistic as far as typescript analysis was concerned.  She reasoned that “if the individual features [of typescript] are sufficiently clear in the photocopied version, it may be possible to obtain some useful information from a photocopy”.

81.  On this basis, upon examining the Belcher’s Deed, she discovered the following:-

“>>   the i’s on pages 1, 2 and 3 exhibited a crescent-shaped ‘dot’,

>> no ‘ghosting’ was present on the lower case ‘a’s and

>> the ‘8’s on pages 2 and 3 showed the same slight defect in the upper part that was present in the ‘8’s on page 3 of item 1 (there were no ‘8’ on pages 1 and 4).

Additionally, the lower-case ‘a’s appeared the same on all four pages of [the Belcher’s Deed] suggesting strongly that the original four typed pages, from which [the Belcher’s Deed] had been photocopied, had been typed on the same typewriter.”

82.  To my mind, the consistencies in the typescript of pages 1, 2 and 3 of the Belcher’s Deed noted by Dr. Hamilton support a conclusion that the execution page of the Share Deed started life as the actual execution page of the original Belcher’s Deed.  This would mean that Stella did not at any time photocopy the execution page of the Share Deed in order to manufacture what is now a copy execution page in the Belcher’s Deed.

A.4    Edmund’s credibility

83.  If (as I believe) the execution page of the Share Deed was actually the execution page of the original Belcher’s Deed, then Edmund’s account of the genesis of the Share Deed cannot be right.  But, independently of this line of inference, I am unable to accept Edmund’s account of the Share Deed.

84.  Before 21 March 2007, there were a number of occasions when one would have expected (and it would have been natural for) Edmund to refer to the Share Deed.  It is remarkable that Edmund did not so mention the Share Deed earlier.  The fact that he did not do so until 21 March 2007 indicates that it was not until around then that the Share Deed came into existence.

85.  Hampton wrote to Edmund from 1 December 2006 onwards in terms that made clear that Stella regarded herself as sole beneficial owner of her shares in the 3 Companies.  Edmund responded personally.  But nowhere in his correspondence does he remind Stella of the Share Deed. 

86.  It would have been the simplest thing in the world to produce the Share Deed at the earliest stage of the correspondence in order conclusively to refute Stella’s claim to sole beneficial ownership.  But Edmund did not do this.  One wonders why not.

87.  Edmund says that, the Share Deed was the furthest from his mind at this point.  He claims to have been attempting in frequent phone calls to persuade Stella to come back and so did not want to upset her by mentioning the Share Deed.

88.  However, I do not find Edmund’s explanation for his silence on the Share Deed credible.

89.  It would have been apparent to Stella from 1 December 2006 that Edmund was systematically and vigorously opposing every one of her attempts to gain actual control of the 3 Companies.  Edmund was even refusing to give up possession of the Belcher’s flat. 

90.  All that would have been more than upsetting to Stella.  It is hard to see how Stella could have become any more upset or how not mentioning the Share Deed could conceivably have been thought to make her more tractable.

91.  Even when he finally mentioned the Share Deed, Edmund’s initial account of how the document came to be was not the version now before the Court.

92.  For example, Edmund applied for an interlocutory injunction to restrain the Defendants in June 2007.  In his first affirmation in support dated 15 June 2007, he stated:-

“As a result of our discussions, the 1st Defendant agreed to execute a deed of trust to declare herself a trustee of the [shares of 3 Companies] for [Katie] and Acorn Lau absolutely in equal shares which she did in my presence on 8 March 2002.  There is now produced and shown to me marked ‘EL-6’, a true copy of the Deed of Trust [that is, the Share Deed] dated 8 March 2002 (‘the Deed’) and executed by [Stella].”

93.  Edmund’s story of how the Share Deed came into existence changed when confronted on 18 June 2007 with Dr. Hamilton’s preliminary report dated 3 May 2007 on the Share Deed.  That report pointed out that the execution page of the Share Deed had not been typed on the same machine as the other pages of the document.

94.  In a second affirmation filed on 4 July 2007, Edmund deposed as follows:-

“5. [Stella] has obtained a forensic report ... to suggest that the typewriter that was used to produce page 3 of the Deed was not the one used to produce pages 1, 2 and 4 thereof.  The Deed [that is, the Share Deed] was prepared by [Stella] and she should know better how the Deed was produced.  As a matter of fact, the Deed was initially signed by [Stella] at home in my presence at the same time when the Vesting Assignment was signed in December 2001. Then sometime in January, 2002 when I was going through some company documents in the office, it occurred to me that there was something wrong with the numbers of shares stated in the Deed.  As a result, I took the Deed out for checking.  I then realised that the numbers of shares were wrongly stated in the Deed in that ‘9,899’ was put down as the number of shares of [Holdings] held by Stella and ‘81’ was put down as the number of shares of [Pak Miu] held by her in the Deed, and we forgot to include the 1 share of [Holdings] and 19 shares of [Pak Miu] which were originally held by me but had been transferred by me to her after the divorce in 2000.

6.  I then took the Deed back to [Stella], pointed out to her the mistakes in the Deed and asked her to make the correction.  She agreed to do so and took the Deed away to correct the mistakes.  As there was no urgency in the matter, I did not hurry her into making the correction and she took her time doing so.  On 8 March 2002, she returned home with the Deed.  What she did was that she retained the signing page of the original Deed (namely, page 3) but replaced the other 3 pages with 3 new pages which stated the correct share numbers and the new date of the Deed.  I took a look at the new Deed, focused on the share numbers and confirmed that they were correct.  I did not see any need for her to re-execute the Deed physically and accepted the way she did it by using the signing page of the original Deed as the signing page of the new Deed and treating the new deed as being executed by her on that day in my presence.  I do not know whether the Deed in its present form was prepared with the use of more than 1 typewriter, but if it was, what I stated above may provide an explanation for it.  [Stella] is now using it in alleging falsely that the Deed is a forgery.  [Katie] is now in the course of locating a forensic expert to examine the Deed so as to prove that it is not a forgery.”

95.  This fresh explanation means that what had been affirmed in June 2007 was (as Edmund admitted in cross-examination) inaccurate.  Edmund had not witnessed the execution of the Share Deed by Stella.  At most, according to his revised account, he had only seen the signing of Share Deed Version I.  But then why had he previously affirmed that he had witnessed the execution of the Share Deed on 8 March 2002?

96.  Edmund’s explanation was that “in his trade” a solicitor normally takes the date of a deed as the date when a document has been executed.  Thus, the Share Deed being dated 8 March 2002, he had deposed to its having been signed in his presence on 8 March 2002.

97.  But I do not find the explanation credible. 

98.  I do not for one moment believe that there is such a practice among Chancery (or any other) practitioners when swearing an affidavit.  I do not think that Edmund as an experienced solicitor could really have believed that there was such a practice. 

99.  When a solicitor swears an affidavit, he is supposed to be accurate.  The solicitor cannot mislead.  There is no special dispensation to any solicitor to ignore the truth and to say that a deed was signed before him on date X just because the deed has been dated X.  Edmund would have known that, especially when plainly the issue before the Court was the bona fides of the Share Deed, in particular whether Stella had actually signed it on the date when it was ostensibly signed.

100.  Mr. Chan submits that, by 16 May 2007, as a result of a letter from Mr. Nicholls, Edmund would have known that it was Stella’s case that the execution page of the Share Deed originated from some other document.  Nonetheless, Mr. Chan observes that Edmund made his first affirmation.  If Edmund were a fraudster (Mr. Chan’s word), would he not (Mr. Chan asks rhetorically) already have tailored his first affirmation to what Mr. Nicholls had foreshadowed of Stella’s case?

101.  I am not persuaded by Mr Chan’s submission.  In his 16 May letter Mr. Nicholls did not identify the document from where the Share Deed’s execution page was supposed to have originated.  Not yet knowing the full extent of Dr. Hamilton’s findings, a fraudster may well have decided to brazen the matter out, sticking to one’s original version, as the safest interim course pending receipt of more information.  Further, the way out of the apparent difficulty may not have suggested itself immediately.  A fraudster would likely have needed time to come up with an alternative version to explain away the anomalies observed by Dr. Hamilton. 

102.  To my mind, taken together, the late mention of the Share Deed in correspondence and the change in Edmund’s account suggest that Edmund has not been telling the truth.  These circumstances point to the Share Deed having been recently fabricated by Edmund, using the execution page of the original Belcher’s Deed.

A.5    Edmund’s typing ability

103.  The experts agree that the pages of the Share Deed were typed using one or other of the Xerox typewriters in Lau & Co.’s office.  Edmund, however, claims not to know how to use Lau & Co.’s Xerox typewriters.  He accordingly says that he could not have typed up the Share Deed.

104.  There is evidence that whoever typed pages 1, 2 and 3 of the Share Deed was unfamiliar with the full range of functions of Lau & Co.’s Xerox typewriters. 

105.  Thus, for example, the Share Deed does not start off with a left hanging indent.  The Vesting Assignment and the Belcher’s Deed both have hanging indents in accordance with Lau & Co.’s more usual style.  This is presumably because the latter two documents were typed up by the experienced Amy Leung.

106.  Further, the text of the Share Deed is not right justified.  Right justification was a characteristic of documents typed by Amy Leung.  It is Amy Leung’s evidence that in order to obtain right justification on the Xerox typewriter one must make use of a special button.  It would appear that whoever typed up the Share Deed was not aware of this button.

107.  I am unable to take Edmund’s denial of being able to use a Xerox typewriter at face value.  I readily accept that Edmund was not as familiar with a Xerox typewriter’s functions as Amy Leung. But there is a rudimentary sameness as to how typewriters are basically operated.  There is evidence that Edmund would sometimes type instructions for his staff on a Brother typewriter.  That indicates to me that Edmund would at least be sufficiently familiar with how an electric typewriter works so as do basic typing on other machines (including a Xerox model).

A.6    Edmund’s access to the original Belcher’s Deed

108.  Whoever fabricated the Share Deed would have needed access to the original Belcher’s Deed.  Otherwise, the person could not have obtained the execution page of the original Belcher’s Deed to insert in the Share Deed.  The original Belcher’s Deed having disappeared, presumably that same person destroyed the original Belcher’s Deed after removing its execution page. 

109.  On this issue of access, Edmund insists that at all times the original Belcher’s Deed would have been in Stella’s custody. He says that he did not actually have a chance to see or read the document until he saw the Belcher’s Deed after the start of the present action.

110.  But this is all hard to believe. 

111.  Stella left the affairs of the 3 Companies, including the purchase of the Belcher’s flat, to be handled by Edmund.  This was largely through inertia on Stella’s part.  That was simply the way things had always been done.  Both before and after the couple’s divorce, Edmund managed the 3 Companies.

112.  Edmund downplays his role in the purchase of the Belcher’s flat. But the evidence of his active involvement is overwhelming.  For instance, he suggested that the flat be purchased with Lau & Cheng monies.  He helped Stella in mortgage negotiations.  He was a guarantor for the Belcher flat’s mortgage.  He opened Lau & Co.’s Brown File on the Belcher’s flat, which bears his handwriting on its cover.

113.  Given this background, it seems to me more likely that, having executed the Belcher’s Deed, Stella gave the document to Edmund for safekeeping as de facto manager of Lau & Cheng’s affairs.

114.  Further, there are 2 pieces of evidence pointing to Edmund’s knowledge and custody of the Belcher’s Deed.

115.  First, there is an undated draft Lau & Cheng minute referring to the execution of the Vesting Assignment by Stella as Assignor.  She is authorised by the draft minute to affix the corporate seal to the Vesting Assignment.  In addition, all her acts in relation to the preparation of the Vesting Assignment are ratified.

116.  At the bottom left-hand corner of the draft minute are the following dates in Edmund’s handwriting:-

“2-6-2001

11-7-2001

28-12-2001”

117.  It is unclear when Edmund wrote the dates.  But it must have been before 5 April 2007.  This is because the minute was among the documents which Stella took on that day from Lau & Co.’s office.

118.  It will be noted that 27 June 2001 (the first date written) is the date of the Belcher’s Deed, 11 July 2001 (the second date written) was the completion date for the Belcher’s flat, and 28 December 2001 (the third date written) is the date now borne by the Vesting Assignment.  How would Edmund know the date of the Belcher’s Deed if he had not yet seen it and had not read its contents?

119.  In cross-examination, Edmund alleged that 27 June 2001 was the date of a board resolution authorising Stella to proceed with the purchase of the Belcher’s flat on behalf of Lau & Cheng.  But no such resolution can be found.

120.  It seems to me too much of a coincidence that the date of this alleged resolution just happens to be the date of the Belcher’s Deed.  I doubt that the alleged resolution exists.  It is more likely that Edmund wrote the date of 27 June 2001 because (contrary to what he now maintains) he had access to and knew the terms of the original Belcher’s Deed.

121.  Second, there is the impression of what very much appears to be Edmund’s handwriting on the Belcher’s Deed.  As I have mentioned above, I am sceptical that Stella could have forged the imprint in the small window of opportunity available to her around 5 April 2007. 

122.  The writing is more probably an actual imprint of Edmund’s writing on some Paper X, instructing a person on Lau & Co.’s staff to file documents relating to the Belcher’s flat (including the Belcher’s Deed) in the Brown File.

A.7    Dating of typewriter’s carbon film and Lau & Co. chop imprint on Share Deed

123.  Dr. Lyter’s report dated 19 September 2008 suggested the following:-

(1) “The presence of excessive alteration of the carbon film structure [of random sample plugs taken from the typescript on the Share Deed] is inconsistent with preparation of the typing of the Share Deed during the most recent 2 years.”

(2) “The absence of measurable vehicle components from the stamped impression [of the Lau & Co. chop on p.4 of the Share Deed] is inconsistent with preparation of the impression during the most recent 2 years.”

124.  If both statements were right, there would be support for Edmund’s version of how the Share Deed came to be in 2001 and 2002.

125.  But I am unable to accept Dr. Lyter’s first statement.

126.  Dr. Lyter’s methodology was to take random sample plugs from the typing on the Share Deed.  He then compared the quantity of cracks and breaks visible at very high magnification in such plugs against the quantity of cracks and breaks in sample plugs taken from typing samples which he himself created in 2007. 

127.  In Dr. Lyter’s view, there were significantly more cracks and breaks in the Share Deed samples than in the 2007 samples.  From this he deduced as an “educated guess” that it would take at least 2 to 3 years for the carbon film in the 2007 sample to degenerate to the same cracked state as that discerned in the Share Deed sample.

128.  But, as Mr. Benjamin Yu SC (appearing for the Defendants) pointed out when cross-examining Dr. Lyter, it is unclear how, apart from “feel” alone, Dr. Lyter distinguished “cracks” and “breaks”.  For instance, Dr. Lyter did not give the measurements of the cracks and breaks which he says he saw.  Looking at the electron microscope images of the sample plugs, one is hard-pressed to distinguish cracks and breaks from mere dark spots or shadows.

129.  Further, Dr. Lyter acknowledged in cross-examination that cracking or breaking may be caused by a variety of factors (such as the environment, the chemical composition of paper, the amount of pressure exerted when typing).  It is not merely a question of the passage of time. 

130.  It is unclear how Dr. Lyter sorted out the effects of these various factors so as to come to his conclusion as to the time needed to produce cracks and breaks consistent with those he discerned in the Share Deed plugs.  An “educated guess” remains a “guess”.

131.  More fundamentally, I have not been directed to any peer-reviewed literature showing that Dr. Lyter’s methodology for dating carbon film polymer enjoys widespread support among forensic scientists. 

132.  For those reasons, I believe that Dr. Lyter’s dating of the typescript of the Share Deed is insufficiently rigorous for a Court to make any finding based on it.  I cannot accept his conclusion with any reasonable degree of confidence.

133.  Nor am I able to accept Dr. Lyter’s dating of the Lau & Co. stamp impression on the Share Deed.

134.  In fact Dr. Lyter modified his second statement in the course of cross-examination. 

135.  He accepted Mr. Yu’s suggestion that, the best one could say, given the present state of scientific knowledge in relation to stamp pad ink dating, was that the Lau & Co. chop impression on the Share Deed was consistent with the document having been produced more than 2 years ago.

136.  Such an opinion is, however, inconclusive in respect of the issues before me.  The chop is consistent with the document having been produced more than 2 years previously.  But it is also consistent with the document having been produced more recently.  At the end of the day then, Dr. Lyter’s view on the stamped impression does not take matters further one way or another.

137.  For those reasons, I do not think that Dr. Lyter’s evidence militates against a conclusion that the Share Deed is a recent fabrication.

138.  I note here Mr. Yu’s submission that, by a comparison of the presence and absence of characteristics in Lau & Co. chop imprints on various documents, it is possible to deduce that the Share Deed was fabricated after 2002. 

139.  I do not believe that a mere comparison of chop characteristics necessarily leads to such a conclusion.  For instance, Exhibit P3 Document 42 (also known as Item 10, Document 42) seems to have come into existence in November 2001.  But its chop imprint lacks the characteristics which (according to Mr. Yu) should be present in a document of that date.

140.  Thus, I do not regard analysis of chop imprint characteristics as being of much assistance here in dating the Share Deed.

A.8    Vesting Assignment

141.  Edmund says that Stella signed the Vesting Assignment and Share Deed Version I at the same time in his presence in December 2001.  But that is likely not right.

142.  That is because Stella’s signatures on the Vesting Assignment and the execution page of Share Deed (which according to Edmund was originally the execution page of Share Deed Version I) are in different inks.  Stella must have signed with 2 different pens (a black non-ball point pen for the Vesting Assignment and a blue ball-point for the Share Deed).  That is unlikely to have been the case if the documents were signed one right after the other.

143.  This is another circumstance casting doubt on Edmund’s account.  For this reason, I think that Stella’s account that the vesting Assignment was signed in February 2002 “in escrow” is to be preferred.  Edmund would then have antedated the Vesting Assignment to 28 December 2001.

144.  The Vesting Assignment bears the corporate seal of Gold Strong Investment Ltd. (Lau & Cheng’s former name).  The Gold Strong seal became obsolete when Lau & Cheng changed its name. 

145.  It is unclear what happened thereafter to the Gold Strong seal.  There is no doubt that, following the divorce, Stella had custody of the Lau & Cheng seal.  It may be that the Gold Strong seal was put on the Vesting Assignment because Edmund did not have the Lau & Cheng corporate seal but had kept the Gold Strong corporate seal.

A.9    Conclusion on Share Deed

146.  In light of the foregoing considerations, I do not think that there is any trust of Stella’s shares in favour of Katie and Acorn.

147.  In my view, Edmund forged the Share Deed.  To do so, he had to make use of the execution page of the original Belcher’s Deed.  He would then have destroyed the original Belcher’s Deed to cover the fact that the document’s execution page had been used. 

B.  Subsidiary Issues

148.  In light of my conclusion on the Share Deed, the following issues remain for consideration:-

(1) Whether the resolution for liquidation of Holdings should be set aside for inadequate notice to Katie.

(2) Whether Stella wrongly converted or detained property belonging to Edmund on 5 April 2007.

(3) Whether Stella is entitled to damages for delay in the completion of the Canton Road property.

(4) Whether Edmund should pay exemplary damages.

(5) Whether Edmund should vacate the Belcher’s flat and Lau & Co.’s Bangkok Bank office and whether mesne profits should be assessed in respect of wrongful occupation of those properties by Edmund.

B.1    Inadequate notice to Katie

149.  In my view, there was inadequate notice to Katie.  There are 2 reasons for this. 

150.  First, the notice should have been sent to Katie’s revised registered address, namely the Belcher’s flat.  Instead the notice was sent to Hilton Towers. 

151.  Second, the notice was inadequate.  A special resolution requires 21 days’ notice.  Here there was at best 3 days’ notice.

152.  Nonetheless, I agree with Mr. Yu that it is pointless to declare any relevant resolutions invalid.  Given (as I have found) that there is no trust of Stella’s shares in favour of Katie and Acorn, Stella is the overwhelming majority shareholder of Holdings, Pak Miu and Lau & Cheng. 

153.  In the event that adequate notice is now given and EGMs of those companies are convened to consider voluntary winding-up, Stella’s votes would easily bring about the state of affairs that currently exists.  Katie’s 100 votes would make no difference.

154.  In those circumstances, there seems to me little point in declaring the resolutions already passed to be invalid.  That would be pointless and a waste of time and money.  See Re Green Valley InvestmentLtd. [2003] 2 HKLRD 915, at para.52 (Yuen J).

155.  Consequently, as a matter of discretion, I decline to set aside any resolutions.

B.2    Conversion and detinue

156.  Edmund complains that Stella removed property belonging to Lau & Co. on 5 April 2007.  Such property includes a computer, computer discs, and the 6 bronze characters.  Edmund says that, as the sole proprietor of Lau & Co. since 1989 (when Stella became a consultant), such property must belong to him.

157.  I am not persuaded.

158.  The evidence is that, even though nominally a consultant, Stella shared 50% of the firm’s profits until its dissolution.  In fact, if not in name, the evidence suggests that Stella was actually Edmund’s partner up to the time when the firm ceased practice.  It follows that the firm’s property belonged to both Edmund and Stella.

159.  The claims in conversion and detinue consequently fail.  Stella could not have converted or detained property which belonged to her jointly with Edmund.

B.3    Damages for delay in completion

160.  The Defendants claim damages of $5,011,631.35 against Edmund.  The claim is for wrongly interfering with the contract between Fortune Concept and Harvest Star by causing Katie to register a lis pendens based on a Share Deed which Edmund would have known to be forged.  That claim is made up as follows:-

(1) Interest at a commercial rate of HK$ prime + 1% between 18 June 2007 (when completion ought to have taken place but for registration of the writ as a lis pendens) and 12 May 2008 (when completion finally took place): $8,111,465.64.

(2) LESS credit for rental received over the relevant period: $3,764,774.19.

(3) PLUS mortgage interest paid over the same period: $664,939.90.

161.  The Defendants did not particularise their claim for damages.  But there was evidence of rental received during the relevant period.  There was also evidence of mortgage interest paid.  In those circumstances, I do not think that it is unfair to consider the claim. 

162.  There is no evidence that Katie was aware that the Share Deed was a forgery.  It cannot be said that she maliciously caused the writ based on the Share Deed to be registered as a lis pendens in order to forestall the sale of the Canton Road property.  She would have genuinely thought (albeit wrongly) that she was entitled to stop the sale of the Canton Road property in light of an alleged trust in her favour.  There was evidence of discussion between her and Edmund in relation to the Share Deed, before she consented to the registration of a lis pendens.

163.  In the case of Edmund, he would have known that the Share Deed was a forgery.  It can only have been a malicious and wrongful act for him to procure Katie to register a writ based on the Share Deed as a lis pendens, so as to forestall the sale of the Canton Road property.  In those premises, I think that the liability under the Defendants’ claim is made out.

164.  In my view, the measure of damages is as the Defendants have submitted.  Mr. Chan has queried entitlement to interest at the commercial rate of prime + 1%.  But this seems to me to be a valid proxy measure of the time value of money (or the opportunity cost) foregone by the Defendants as a result of the late payment of the balance of the purchase price.

B.4    Exemplary damages

165.  Stella asks for exemplary damages against Edmund for bringing this action based on the Share Deed forged by him.

166.  There is doubt over the Court’s jurisdiction to award exemplary damages for deceit. 

167.  The starting point is Rookes v. Barnard [1964] AC 1129 where Lord Devlin suggested (at 1226) that exemplary damages should be confined to 2 types of cases.  One is where a government servant acts oppressively and arbitrarily.  The other is where a defendant’s conduct has been calculated to make a profit for himself which may exceed the compensation payable to a plaintiff.  The first case is not applicable here.  The question is whether the second case applies.

168.  It has been suggested that Lord Devlin was limiting his 2 criteria to torts for which exemplary damages had been awarded prior to Rookes.  The argument is that exemplary damages are an anomaly which should not be extended beyond the limited situations in which such damages had been awarded before Rookes.

169.  In Broome v. Cassell [1972] AC 1027 (at 1076), Lord Hailsham LC suggested that Lord Devlin did not intend his second criteria to allow claims for exemplary damages where there has been deceit.  This is because before Rookes exemplary damages had not been awarded for deceit.

170.  But in Kuddus v. Chief Constable of LeicestershireConstabulary [2002] 2 AC 122 (at §§63-7) Lord Nicholls has ventured that at times a defendant’s conduct is so outrageous that the law must be able to award exemplary damages to show displeasure.  Lord Nicholls did not believe that Lord Devlin’s criteria were appropriate limitations to an award of exemplary damages today.  He thought that there might well be situations where a malicious motive may attract exemplary damages, regardless of whether Lord Devlin’s criteria are met.

171.  I am not convinced that the bounds of exemplary damages should be extended beyond what they presently are.  Like Lord Scott in Kuddus (at §§107-122), I wonder if recent developments in judicial review and the law of restitution have not rendered awards of exemplary in civil proceedings unnecessary.

172.  In those circumstances, I decline to award exemplary damages.  I do not think Lord Devlin’s criteria as interpreted by Lord Hailsham in Broome are met here.

173.  My refusal to grant exemplary damages, however, should not be taken to mean that the Court condones fraud.  It does not.  On the contrary, it is appalled.  Even if one gives Edmund the benefit of the doubt and assumes that he acted out of love for his children, that would not excuse his conduct.

B.5    Vacant possession and mesne profits

174.  It is a corollary of the Share Deed being null and void, that Lau & Cheng and Pak Miu are entitled to demand that Edmund vacate the Belcher’s flat and the Bangkok Bank Building premises respectively.  Edmund would have no licence to remain against the wishes of Lau & Cheng or Pak Miu.

175.  No evidence of the damages suffered by Lau & Cheng or Pak Miu as the result of wrongful occupation by Edmund was adduced at trial.  I am thus unable to assess mesne profits.

IV. CONCLUSION

176.  Katie’s claim is dismissed. 

177.  Edmund’s claim against Stella in conversion and detinue is dismissed. 

178.  In respect of the Defendants’ counterclaim, there will be:-

(1) an Order that Edmund pay damages of $5,011,631.35 with interest to run on that sum at the judgment rate from the date of this Judgment until payment;

(2) a Declaration that the Share Deed is null and void and of no effect;

(3) a Declaration that the Vesting Assignment was not intended to take effect until after the mortgage on the Belcher’s flat had been discharged; and,

(4) an Order that Edmund vacate the Belcher’s flat and Bangkok Bank Building premises within 30 days from the date of this Judgment.

179.  There will be a Costs Order Nisi as follows:-

(1) Subject to (3) and (4) below, the Plaintiffs are to pay the Defendants’ costs, such costs to be taxed if not agreed.

(2) In the case of Edmund, in light of his reliance on a forged document, costs are to be payable by him to the Defendants on an indemnity basis.

(3) The Defendants are not to recover the cost of their application (later withdrawn) to adduce expert evidence to identify the handwriting imprint on the Belcher’s Deed and JSM receipt as Edmund’s handwriting.

(4) The Defendants are not to recover costs incurred in relation to their allegations that Edmund misappropriated funds belonging to the 3 Companies and habitually forged Stella’s signatures on a variety of documents other than the Share Deed.

180.  The reason for the direction in para. 179(5) is that, in my view, the allegations were irrelevant for the purposes of the present proceedings.  The direction is made without prejudice to the recovery of such costs in other ongoing proceedings where the allegations may be relevant.

181.  There will be liberty to apply.