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Silver Stone Development Ltd And Another v Lau Kwong Ching, James And Other

Judgment Cited authorities 12 Cited in Precedent Map Related
Vincent
Judgment Date01 June 2006
Year2006
Citation[2006] 4 HKLRD 308
Judgement NumberHCA2206/2000
Subject MatterCivil Action
CourtHigh Court (Hong Kong)
HCA002206C/2000 SILVER STONE DEVELOPMENT LTD AND ANOTHER v. LAU KWONG CHING, JAMES AND OTHER

HCA 2206/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2206 OF 2000

____________

BETWEEN

　 SILVER STONE DEVELOPMENT LIMIGED 1st Plaintiff
　 LUI YUE YUN, GARY 2nd Plaintiff
　 and 　
　 LAU KWONG CHING, JAMES 1st Defendant
　 KWOK WAI TAK, EDWARD 2nd Defendant
　 CARRIER STOCK INVESTMENT COMPANY LIMITED 3rd Defendant
HO PUN TSUN, PETER 4th Defendant
SZETO JOSEPH 5th Defendant
ASIA GLORY HOLDINGS LIMITED 6th Defendant
and
KWOK WAI TAK, EDWARD 1st Third Party
ASIA GLORY HOLDINGS LIMITED 2nd Third Party
HO PUI TSUN, PETER 3rd Third Party
SZETO JOSEPH 4th Third Party

____________

Before: Deputy High Court Judge Carlson in Court

Dates of Hearing: 13, 16-17, 20-22 and 27-28 March 2006

Date of Judgment (Handed Down): 1 June 2006

_______________

J U D G M E N T

_______________

The parties and the individuals concerned in the action

1. In order to understand the factual background and the allegations that are being made by the Plaintiffs’ against the various Defendants, it is helpful to start by providing a Who’s Who of the parties and other individuals whose evidence must play a decisive part in the outcome of this action.

2. The 1st Plaintiff (“Silver Stone”) is a BVI company that is wholly-owned by the 2nd Plaintiff, Mr Lui, who is also its sole director.

3. It is perhaps more helpful to take the Defendants’ out of numerical order and in the order of their appearance in the account of the evidence that I will need to provide. The 4th Defendant, Mr Ho, who has not appeared and is not represented, was an old and trusted friend of the 2nd Plaintiff. They had been friends since their undergraduate days at university in Toronto. Both have an engineering background. The 2nd Defendant, Mr Kwok, is represented by counsel and solicitors but he has decided to absent himself from the trial and has therefore not given evidence, although he has filed a witness statement which I must therefore ignore. The 1st Defendant was, until the first day of the trial, represented by the same counsel and solicitors as the 2nd Defendant and the 2nd Defendant’s company, the 6th Defendant. His witness statement has been prepared by those solicitors. On the first day of the trial, he dispensed with their services and has conducted the case in person and adopted that witness statement as part of his evidence in the trial. The 5th Defendant who had previously been represented by solicitors dispensed with their services sometime before the trial started and he too has conducted his defence in person and has also decided not to give evidence. Finally, there is the 3rd Defendant which is a stockbroker, its dealing director being Miss Ida Ho. It is represented by counsel and solicitors.

The connections between the parties

4. The case is concerned with an allegation of the unlawful practice of “stock borrowing”. The 4th and 5th Defendants were senior executives of CIL Holdings Limited (“CIL”), a publicly-listed company on the Hong Kong Stock Exchange. It is a property investment and development company. The 1st Defendant had for many years served in the Hong Kong Police, as had the 5th Defendant. He knew both the 4th and 5th Defendants and they invited him to become an executive director of CIL given his good reputation as a man of integrity. He is a putonghua speaker and has some connections on the Mainland and was therefore considered by the other two as a good man to have with them who they could make use of as and when required. The 2nd Defendant is obviously an experienced businessman with Mainland connections which, as will become clear presently, he wished to put to good use and expand his investments with Mainland companies. The 6th Defendant is a BVI “shell” company owned by the 2nd Defendant which he was to use to acquire shares on his behalf, more of which presently. The 3rd Defendant and Miss Ida Ho in particular was well-known to the 2nd Defendant. He had employed the 3rd Defendant as a stockbroker in the past. Miss Ho was on friendly terms with the 2nd Defendant and prepared to trust him. She was also on good terms with the 2nd Defendant’s sister Ingrid, although she has played no part in the events that give rise to the action. I mention her merely to underline, Miss Ho’s personal connection with the 2nd Defendant and the fact that they had a good and long standing relationship.

The events that give rise to the action

5. The 2nd Plaintiff’s main commercial activity is operating Pacific Marble and Granite (HK) Limited a company of which he is principal shareholder and director which, as its name suggests, supplies and installs high quality marble and granite for good grade residential and commercial buildings on the Mainland and in Hong Kong. Through the 4th Defendant he met the 5th Defendant who was then general manager of the well-known Japanese building contractor Kumagai Gumi. In about 1996, the 4th and 5th Defendants acquired control of CIL whose principal activity was in interior contracting relating to substantial building projects. Through his connection with the 4th and 5th Defendants, the 2nd Plaintiff was to obtain contracts for the supply of marble on building projects in Shanghai and in Hong Kong. The 2nd Plaintiff and the 4th Defendant also invested together and would socialise with each other. Given all of this, the 2nd Plaintiff says that he came to trust the 4th Defendant implicitly as a man of good judgment and integrity.

6. In late 1996, CIL wished to raise more capital which it decided to do by issuing new shares. This was done by a private placement of new shares and the 4th Defendant invited his friend, the 2nd Plaintiff to apply for a 5% shareholding by purchasing 22,776,000 shares at $0.58 per share. He acquired these shares on 11 March 1997 at a cost of $13,210,080 which he paid for out of his own funds. The shares were taken up by Silver Stone [the 1st Plaintiff] which he had purchased off the shelf shortly beforehand. Under the terms of the placement, Silver Stone was prohibited from selling the shares for an initial period of six months, that is to say not before 11 September 1997. This in itself would amount to an unlawful market manipulation as the only purpose for such a prohibition would be to maintain the share price of CIL by keeping off the market a substantial quantity of its shares which might otherwise result in a downward selling pressure and consequently reduce the share price.

7. Almost certainly connected to the issue of new shares in CIL was the introduction by the 2nd Defendant, to the 4th and 5th Defendants of a Mainland property development company which I shall refer to by the acronym CRED into which CIL was to invest, such investment being partly funded by the injection of its shares into the Mainland company.

8. Whilst these discussions were going on, the 4th Defendant approached the 2nd Plaintiff and advised him that he should not view his shareholding in CIL as a long-term investment and that he should sell his shares as soon as he was able to on the expiry of the prohibition on sale. He offered to arrange the sale on his behalf, to which the 2nd Plaintiff, who had complete confidence in the 4th Defendant, agreed.

9. On 1 August 1997 whilst he was attending to the affairs of Pacific Granite and Marble Company in Shanghai, his secretary telephoned him to say that the 4th Defendant had sent, by fax, to the Hong Kong office a document which he wanted the 2nd Plaintiff to sign and return to him. He asked her to fax it to him at Shanghai. This document, which has received considerable attention in the course of trial, was in Deed form a Power of Attorney purporting to authorise the 1st Defendant to, amongst other things, sell Silver Stone’s CIL shares at the best price reasonably obtainable. The Power of Attorney was delegable and would subsist until 28 February 1998. Two matters in particular call for attention arising out of this document. Firstly whether, for a variety of reasons, it was a valid appointment of the 1st Defendant either as a Deed, which is what it purported to be or, more informally, as an appointment in writing. Secondly, and perhaps more fundamentally for the 1st Defendant, whether it was actually put to use in the eventual sale of Silver Stone’s shares in CIL. At this stage, it is sufficient to observe that neither the 2nd Plaintiff, who signed for Silver Stone nor the 1st Defendant, as the donee of the Power of Attorney, read it with any degree of care. [See Core Bundle, pages 7 and 8]. Both say that they trusted the 4th Defendant implicitly in this matter.

10. The next significant matter was that on a date just before 20 August 1997, the 4th Defendant asked the 2nd Plaintiff to provide a letter to the stockbrokers [the 3rd Defendant] instructing them to split the shares of CIL in one of the two share certificates which evidenced Silver Stone’s shareholding into two lots, one of 7.5 million and the other of 2.5 million. The letter dated 20 August is at Core Bundle, page 15.

11. By now the hand of the 2nd Defendant began to show in a more overt way. The share certificates and the letter of 20 August were passed to the 2nd Defendant who at no time was a director of CIL, by almost certainly, the 4th Defendant. The 2nd Defendant then arranged for these to be delivered to Miss Ida Ho of the 3rd Defendant. Unsurprisingly, given the way that a stock broking account needs to be operated, Miss Ho told the 2nd Defendant that her firm could not effect any transaction on behalf of Silver Stone unless the company opened an account with the 3rd Defendant and endorsed the share...

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