IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 1421 OF 2006
|| The Estate of WAN HUNG, deceased
as represented by its Administratrix
WAN TIN CHUNG
||WAN YAT NGAI
|| 2nd Plaintiff
KWAN YICK SECURITIES
Before: Deputy High Court Judge Muttrie in Chambers
Dates of Hearing: 19-20 March 2007
Date of Ruling: 18 April 2007
R U L I N G
1. By a summons dated 11 December 2006 the defendant seeks specific discovery of certain documents and further and better particulars of the Amended Statement of Claim in accordance with a request served on the plaintiffs on 18 October 2006.
2. There is also a time summons; the plaintiff having obtained leave to file a Re-re-Amended Writ and a Re-Amended Statement of Claim by order dated 10 January 2007, the defendant seeks leave to file its Amended Defence within 28 days after the hearing of the above summonses. Time will, of course, run from the date of handing down of this ruling, rather than from the date of its hearing.
3. Wan Hung (“WH”) died on 14 March 2001 aged 85. The 2nd plaintiff (“WYN”) and the 3rd plaintiffs are his daughters, and the 3rd plaintiff (who was originally a party to the action in her own right, as intending personal representative) is now the administratrix of WH’s estate. The 3rd plaintiff has no personal cause of action against the defendant (“Kwan Yick”).
4. Kwan Yick is a stockbroking company. WH and WYN had security accounts with it from September 1991 and August 1997 respectively. At the relevant times one Lam Yuen Ching (“Ms Lam”) was Kwan Yick’s account executive who handled the two accounts.
5. Ms Lam was a fraudster. It was discovered in 2002 that she had been responsible for irregular dealings with shares and funds belonging to, inter alia, WH and WYN. She was prosecuted and convicted for fraudulent misrepresentation, and she went to prison.
6. WYN in 2003 sued Kwan Yick for damages for conversion of shares and funds misappropriated by Ms Lam. The action was settled. Its subject matter was different from the subject matter of this action. The claim in this action was only intimated in 2006.
7. The plaintiffs’ claim in the present case is for an account in respect of certain receipts, and the accounts of WH and WYN, and for tracing of certain shares (“Claim Shares”) which may have been held by Kwan Yick on their behalf, and for delivery or payment, damages and ancillary orders.
8. Put simply, the plaintiffs’ case is as follows. In about February 2001, Ms Lam visited WH at his shop where, in the presence of WYN, WH handed over to her “certain share certificates of publicly traded stocks” and instructed Ms Lam to transfer the share holdings to WYN. Some days later, on two occasions, Ms Lam brought back a total of six receipts bearing to show receipt by Kwan Yick from WYN of a number of different shares. Later still another receipt was issued, in substitution for one of the earlier receipts but taking into account one of the undisputed transfers listed below.
9. The receipts are for 53,000 and 19,900 shares of the Hang Seng Bank; 150,000 and 35,000 shares of the Bank of East Asia; 20,000 shares of HSBC; and 35,000 shares of the Dao Heng Bank.
10. However the account shows the credit to WYN’s account from WH’s account of only 22,400 shares of the Hang Seng Bank, 81,440 shares of the bank of East Asia; 16,400 shares of the HSBC; and 20,000 shares of the Dao Heng Bank.
11. The plaintiffs accordingly say that Kwan Yick, having received the shares for which it issued receipts, must account to them for the shortfall of missing shares.
12. Kwan Yick, for its part, denies that it received the shares described in the receipts, which were fraudulently issued and of no provenance. In fact the signatory says that he just signed what Ms Lam asked him to sign, although one of the signatures might have been forged. Kwan Yick agrees that it credited to WYN’s account from WH’s account the shares listed in paragraph 10 above at the direction of WYN, but says that it will put her to strict proof of her authorisation for the transfers.
13. Kwan Yick says that the plaintiffs have failed to provide evidence that any of them had legal title to or beneficial interest in the shares listed in the receipts, or to provide to it any material evidential particulars of the shares. The applications before me follow on from this part of the pleaded Defence.
14. Kwan Yick seeks specific discovery of “documentary proof of the acquisition of and legal and/or beneficial ownership by the first plaintiff and/or second plaintiff” of the shares listed in the receipts. It also seeks documents prepared for the obtaining of the grant of letters of administration of WH’s estate, but I am advised that discovery of these has now been given to Kwan Yick’s satisfaction, so I need not deal with this part of the application.
15. The application is supported by the affidavit of the plaintiffs’ solicitor, Mr West. He refers to the fact that the defendant had investigated all its clients’ records stored in its internal clients’ stock accounts and transaction records as well as those it maintained with the Central Clearing System dating back to January 2001. This investigation allowed the defendant to confirm that none of the allegedly missing shares had ever been deposited with it or with any of its other client or securities account holders. At the same time, he said, some highly suspicious circumstances were found, including the second plaintiff’s failure to provide any evidence of her legal and beneficial ownership of the missing shares. There was also the purported execution by Wan Hung of a stock transfer form in favour of WYN on 28 March 2001, two weeks after his death.
16. It was for this reason that Kwan Yick’s solicitors had sought the original manuscripts for the missing shares together with evidence of WH his having purchased them. However, the plaintiffs had, through solicitors, failed or refused to produce the same.
17. Mr West says that based on the receipts and the plaintiffs’ case, the missing shares were purportedly registered in the name of WH who would have held the physical share manuscripts or copies thereof. There would be a record of the ownership of the shares maintained with the appropriate share registries. It would be possible for the administratrix to obtain the necessary evidence from the registries confirming the legal and beneficial title to the shares. Therefore, Mr West believes that the plaintiffs have or have had in their possession, custody or power documentary records of the ownership of the missing shares.
18. I also note that Mr West asks that the order for discovery be made “in order not to prejudice the defendant further in what could prove to be vexatious litigation, and in order to resolve this matter quickly and fairly, and for the benefit in terms of the costs of all the parties”.
19. This is answered by the 3rd plaintiff in an affirmation dated 10 January 2007. Much of the early part of this is solicitor-drafted argument and I am not going to reproduce that here. On the point of specific discovery, the 3rd plaintiff says that Mr West has not fully mentioned the various possible ways of ownership or holding of shares. It is possible for a person to hold shares and share certificates in “street names”. Merely checking with company registries would not conclusively prove anything and the most important checking would have to be done with the stockbroker who handled the transaction and who must keep proper records and documentation.
20. The 3rd plaintiff also says that all the particulars and material facts concerning the receipts and their delivery to WYN have been pleaded. The plaintiffs know that they must make discovery at the proper stage. (In fact their List of Documents was filed on 3 January 2007). They have always indicated that all material documents will be discovered when that stage is reached. The application for specific discovery is unnecessary.
21. The affirmation then returns to solicitor-drafted argument, and again I am not going to reproduce this. It would be more helpful if lay witnesses would condescend to facts and leave argument for the hearing.
22. In fact this affirmation makes the position less clear. I did not know, and nor did Mr Sheppard, counsel for Kwan Hing, what was meant by “street names”. Mr Chow, counsel for the plaintiffs, advised us that this meant that a person may hold shares and share certificates registered in the name of another, from whom he has bought them, without actually procuring the registration of his own name in the company’s registry. If that is right, then of course one might expect the holder of such shares to have procured signed bought and sold notes and an instrument of transfer from the seller.
23. The waters are further muddied by the answer to one of the plaintiffs’ requests for Further and Better Particulars. I will deal with it further below, but it says in effect that WYN saw a pile of documents handed over to Ms Lam consisting of deposit receipts and bought notes, but could no longer remember whether there was any actual share certificate among them (although what is pleaded is “share certificates”). She made a record on a piece of paper at the time, which is why, when Ms Lam produced four receipts, WYN knew that there should be more, and this in turn resulted in Ms Lam producing two more receipts. However this piece of paper has now been...