XCHRX Kwong Mun Fai Sanny v. Chan Koot Kum Hong

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 15418 OF 2000

------------------

J U D G M E N T

------------------

1. This is an application for summary judgment by the Plaintiff who was a customer of a securities company, Alpha Securities Company, of which a Chan Wai Dan, deceased, was the sole proprietor. He was assisted by his eldest son, Chan Kam Bor, in running the business, and the Plaintiff had known Mr Chan junior for over 30 years and was also well-acquainted with the Chan family. He purchased stock and shares through this stockbroking company between 1997 and 1998. According to the evidence, apparently his wife also purchased shares through this stockbroker and so did his mother.

2. The claim in question concerns several lots of shares particularised in the Amended Statement of Claim. They amounted to over $300,000 in value at the time of purchase between early 1997 and 29 April 1998. Apparently, the value of the shares has since dropped and according to the Amended Statement of Claim, their value as of November 2000 was only $288,750 in total, but nonetheless this was, and is, a substantial amount.

3. The Plaintiff's case is that the shares had been purchased and the purchases were evidenced by bought notes, by the cheques he issued in favour of the stockbroker, as well as the acknowledgements of receipt issued by the company in his favour. According to the Plaintiff's case, had a client been returned the share certificates of the shares he purchased, the acknowledgement of receipt would have been chopped with a "cancelled" chop to evidence the return of the shares to client or the return of the sale proceeds if the shares had been sold pursuant to client's instructions. His case is that the shares had been purchased, he never asked the shares to be sold and, therefore, he was entitled to their return, but they were not.

4. The deceased passed away in late 1998. He committed suicide. According to the evidence and in particular paragraph 19 of the second affirmation of the Plaintiff, on that day he was asked by Chan Kam Bor, the eldest son of the deceased, to conceal this fact, i.e. that the shares were due and owing to him and that despite requests made in as early as April that year they had not been returned to him, from Mr Chan junior's mother. He agreed.

5. The son also instructed him (a solicitor) to apply for a grant ad colligenda bona to take care of those shares held by the stockbroker for his clients. This was necessary because the deceased had passed away and the shares had to be preserved and returned to the customers of the firm. He agreed to do so.

6. Pursuant to these instructions, the Plaintiff, a solicitor, prepared an affirmation for the widow of the deceased, a housewife, to make for the application of the grant ad colligenda bona. According to the affirmation so made for the purpose of submission to the Estate Duty Commissioner, the company was holding various lots of shares on behalf of its customers. Amongst all these customers, according to the list exhibited to the affirmation, the Plaintiff was one and so was his mother, but what is surprising is that the subject shares were not amongst those shares said to be held by the company on trust for its customers. This, according to the Plaintiff, was done according to the request by his good friend and former classmate, Chan Kam Bor. That was in late 1998. According to the Plaintiff, he made repeated requests to Mr Chan Kam-bo for the return of the share certificates but Chan apparently was in difficulty in returning the shares and did not do so. And in late 2000, the Plaintiff made a demand on the estate for the return of the shares. He applied for summary judgment this morning before me.

7. So far as the Plaintiff's claim is concerned, at least for the purpose of this hearing, it is not in dispute that he did purchase those subject shares through the stockbroker, and he did pay for them. The question is what happened to those shares after they had been purchased.

8. The Defendant, understandably, relied heavily on the affirmation made by the widow for the purpose of applying for the grant ad colligenda bona in defence of the Plaintiff's claim. It was argued that the affirmation prepared by a solicitor, i.e. the Plaintiff, constituted by itself an admission on the part of the Plaintiff that the subject shares had by the time of the affirmation, i.e. November 1998, been one way or another settled between him and the stockbroker, so that by the time the affirmation was made, the subject shares were not listed as part of the shares due and owing by the company to its customers after the demise of its sole proprietor.

9. As I say, the Plaintiff tried to meet this by explaining the circumstances under which he agreed to the suggestion by his friend, the son of the deceased, to conceal these shares from the widow as well as the Commissioner for Estate Duty, and thus the contents of the affirmation. This, I am afraid, if correct, is a rather astonishing story coming from the mouth of a solicitor of the High Court of this jurisdiction.

10. This is an Order 14 application. I am here to see whether the Defendant has put forward an arguable defence or whether there is any other good reason for granting a trial or letting the case go to trial. Given the existence of the affirmation for a limited grant and the circumstances outlined above, in my judgment, unless the Plaintiff's explanation is an overwhelming one and must constitute the only truthful explanation for the affirmation in question, there must be a doubt or an arguable defence as to whether the subject shares had been one way or another accounted for and settled as between the Plaintiff and the stockbroker prior to November 1998, something which the affirmation and the fact that it was prepared by the Plaintiff quite reasonably suggested.

11. I should by no means be taken as saying that I find the Plaintiff's story to be incredible or not capable of belief. It might be the truthful explanation. I say nothing about it. Suffice it to say, it is a possible explanation, and it may even be a plausible one as well given the relationship between the Plaintiff and the eldest son of the deceased. But can I say that it must on the evidence before me represent the only possible explanation for the affirmation? I do not think I can come to such a conclusion.

12. I also bear in mind the circumstances of this case. In particular, I bear in mind the pure coincidence, if the Plaintiff's story is right, that in April when he asked for the return of the subject shares, there being in the evidence other transactions involving other shares between himself and the stockbroker, he only asked for the return of those shares, i.e. the subject shares, no more and no less, and it so happened by a pure coincidence that those shares and no more and no less were missing and the stockbroker could not return those shares to the Plaintiff.

13. Mr Chow tried to argue that the other remaining shares were of smaller quantities and values and perhaps that explained why the Plaintiff only asked for the return of the subject shares. That may well have been the case but, again, I have to emphasise that this is only an Order 14 hearing and I am not conducting the trial of this action.

14. I also bear in mind the obviously close business dealings between the Plaintiff and the son. According to the evidence, the Plaintiff stood as a guarantor for a business run by the son. In as late as January 2000, he was prepared to stand guarantee for the son's company to the extent of $500,000, and by as late as July 2000, shortly before the Plaintiff, according to him, lost contact with the son, he was prepared to lend the son, i.e. his former classmate, a sum of $40,000, all against the alleged background that he had been chasing his good friend for the return of the share certificates, something which he had been doing since early April 1998. It would appear that there may well have been much more in terms of relationship and dealings between the two than that has been revealed by the papers before me; and those matters not revealed before me may well have explained for the subject shares and their failure to appear on the list exhibited to the affirmation filed with the Commissioner, and that may well have also explained the long delay in making the present claim which, as I have said, was not made against the estate or mentioned at all to the widow until late last year.

15. Against all these, I take into account the acknowledgements of receipt. As I said, the "cancelled" chop was not placed on those documents. That would suggest that the shares had not been returned or accounted for by the stockbroker to the Plaintiff. That argument is premised on the firm being run orderly, but if the firm was indeed run orderly, then one would expect the list of customers produced by the firm after the death of the deceased to be a reliable list as well and, as I said, the list did not include the subject shares as those shares due and owing by the stockbroker to the Plaintiff. So, this is a double-edged matter, a matter which should be better left to the trial stage for further deliberation.

16. I also have to bear in mind the argument or the obvious point that the Defendant, despite her claim of ignorance about the running of the company, had not apparently since the commencement of the proceedings contacted the former staff of the stockbroking firm and ask for assistance or help. The Defendant was simply saying that the eldest son who was responsible for the business of the company had gone missing. The Defendant had not explained why other former staff of this company could not be contacted to assist. There is some force in this argument. I would add that perhaps the whereabouts of the subject shares could be traced by enquiry with the Stock Exchange. That, apparently, had not been done by either party and I bear in mind that in this sort of application it is for the Defendant to put forward an arguable case.

17. Be that as it may, balancing all the matters mentioned by me above, I am of the view that there is an arguable issue as to what had happened to the shares after they were purchased and before November 1998 when the affirmation for the purpose of applying for the grant was prepared by the Plaintiff for the widow which, as I mentioned, tends to suggest that the shares had already by then been accounted for or settled as between the Plaintiff and the stockbroker.

18. For that reason alone, I should allow this case to go on but Mr Chan for the Defendant also referred me to the principle in this sort of application that a court may give leave to defend if there are other reasons because of which the case ought to go to trial and I have been referred to the relevant passages in the White Book and the case Miles v Bull [1969] 1 QB 258. I shall not lengthen this judgment by making extensive reference to those passages but I do take into account the passage in Hong Kong Civil Procedure 2001, paragraph 14/4/10 and the cases referred to therein, as well as Miles v Bull [1969] 1 QB 258, 265 between F and G to 267C. Bearing those passages in mind, I also conclude that given the very peculiar factual circumstances of this case and the rather astonishing explanation proffered by the Plaintiff regarding the circumstances under which he came to prepare the, putting it mildly, not so correct or complete affirmation of the widow for applying for the limited grant, for this reason alone, the matter should also go to trial.

19. In conclusion, in my judgment the case should go to trial. Mr Chow said that if I was minded to allow the Defendant leave to defend, I should impose a condition. That would only be appropriate if I found the Defendant's defence to be shadowy. I do not so find the case of the Defendant before me and therefore there is no question of imposing any condition.

20. On the question of what sort of order I should make, having come to the conclusion that the matter should go to trial, I have two alternatives. One is to give unconditional leave to defend. The other is to dismiss the summons. I note that this present application was made on 26 April this year after the filing of the Amended Defence on 9 April 2001 and I think the application was taken out even after the filing of an affirmation by the widow on 6 March 2001 in relation to another application not concerning me where the widow set out the gist of her case which was subsequently amplified by further evidence filed by her before me for the purpose of this application.

21. For all those reasons, it would appear to me that the case really falls within the situation where the Plaintiff knew that there was an arguable defence or there was some good reason why there ought to be a trial before he took out the application for Order 14 relief. In those circumstances, in my judgment I ought to dismiss the present application instead of simply giving the Defendant unconditional leave to defend.

22. So, in short:

Summons filed by Plaintiff on 26 April 2001 be dismissed.

Costs of this failed application be costs to the Defendant in any event.

(Submissions re order)

23. Having heard further argument as to the type of order I should make, i.e. whether I should dismiss the application or simply give leave to defend, I remain of the same view that the summons should be dismissed. The line of defence which eventually succeeded before me today was quite clearly apparent from the Amended Defence and the first affirmation of the widow, both filed and served before the taking out of the present application.

24. As to the costs, I note that the White Book on page 171 says the court has power to order the payment of costs either in any event or forthwith. In the exercise of my discretion, I order that the costs of this application be paid by the Plaintiff to the Defendant in any event. In doing so, I take into account the practical logistics of the whole thing, i.e. that given the condition of the court list in this court, the trial should not be too long away from today if both parties proceed with their claim and defence with due diligence and so, therefore, there is no good reason for having a side show, i.e. a taxation exercise in relation to the costs of this particular application. In other words, I do not think if the case is prosecuted diligently, the Defendant would be out of pocket for too long and if the case was not prosecuted diligently, as to which I have no reason to believe should be the case, there are means for the Defendant to redress the situation.

25. So, costs of this failed application be paid by the Plaintiff to the Defendant in any event.

26. Despite the time, I still have one outstanding summons. I note that an affidavit has been filed in support of that but the other side has not put in any evidence in reply.

(Discussion re outstanding summons)

27. The summons of the Defendant dated 10 July 2001 be adjourned to a date to be fixed in consultation with counsel's diaries if necessary, to be heard by a judge unless otherwise ordered. So that would give maximum flexibility.

(Discussion re time)

28. Leave to the Plaintiff to file evidence in opposition to Defendant's summons within 14 days from the date hereof. Leave to Defendant to file and serve evidence in reply within 14 days. Thereafter, no further evidence be filed without leave of court.

29. Costs of summons of 10 July 2001 be reserved.

30. Certificate for counsel in respect of the Order 14 summons.

31. Liberty to apply for further directions for conduct of this action.

32. For the benefit of all I repeat:

1) Summons filed by the Plaintiff on 26 April 2001 be dismissed.

2) Costs of this failed application be paid by the Plaintiff to the Defendant in any event. Certificate for counsel.

3) Summons of the Defendant dated 10 July 2001 be adjourned to a date to be fixed in consultation with counsel's diaries, if necessary, to be heard by a judge unless otherwise ordered. Estimated time, one hour.

4) Leave to the Plaintiff to file and serve evidence in opposition to the Defendant's summons within 14 days from the date hereof.

5) Leave to the Defendant to file and serve evidence in reply within 14 days thereafter. No further evidence be filed without leave of court. Costs of the summons of 10 July 2001 be reserved.

6) Liberty to apply for further directions for the conduct of this action.