Ubiquiti Networks International Ltd v. Chan Kim Chuen Formerly t/a San Chun Technology Co and Another

HCA 1606/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1606 OF 2016

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D E C I S I O N

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Introduction

1.This action concerns a large-scale international internet fraud whereby the Plaintiff (“P”) is said to be the victim. The defendants (respectively “D1” and “D2”, and collectively “Ds”) are son and father, and were recipients of two sums transferred by P.  It is P’s case in the present action that Ds, together with the imposters and other recipients, conspired to injure P by an unlawful fraudulent scheme.  

2.There were three summonses before this court issued by Ds:

(i) One issued on 31 August 2016 to strike out P’s claim based on it being an abuse of process, frivolous/vexatious or it discloses no reasonable cause of action (“Striking Out Summons”);

(ii) One issued on 30 December 2016 to expunge alleged without prejudice materials contained in an affidavit filed on behalf of P (“Expunction Summons”);

(iii) One issued on 3 February 2017 for amending the Striking Out Summons.

3.There was no opposition to the last summons and this court granted an order in terms of the same.  So far as the subject materials relevant to the Expunction Summons were concerned, both sides agreed to the court to consider them on de bene esse basis.

4.Mr Whitehead SC appeared with Mr Vincent Chen for Ds, and Mr Maurellet SC appeared with Mr James Man for P at the hearing.

Background

5.On 11 June 2015, P issued HCA 1279 of 2015 (“1^st Action”) against a company called Yin Chuan Trade Co Limited (“Yin Chuan”) as 1^st defendant and D1 as the 2^nd defendant therein. 

6.It was P’s case in the 1^st Action that it had fallen victim to an elaborate fraudulent scheme (“Fraudulent Scheme”) and suffered financial loss.  Essentially, P alleged that its Principal Financial Officer and Controller had authorized 14 wire transfers in May and June 2015 of a total of US$46,683,232 (“Transfers”) from P’s HSBC account to various different bank accounts in several jurisdictions, pursuant to instructions given by fraudster/s purporting to be P’s Chief Executive Officer and a solicitor of the London office of a US law firm.

7.P’s claims in the 1^st Action against Yin Chuan and D1 were for amounts totalling about USD 5.98m (“HK Fraudulent Transfers”), (a) as monies had and received for and to the use of P; and/or (b) unjust enrichment; and/or (c) conspiracy to defraud.

8.The HK Fraudulent Transfers were respectively –

(i) The 2^nd and 3^rd Transfers totaling HK$3,401,796 to an account held by Yin Chuan; and

(ii) The 5^th Transfer of an amount of HK$2,575,970 to an account held by D1 at HSBC (“1^st Sum”).

9.According to P, it was alerted by the FBI on 5 June 2015 of the large sums transferred from its bank account and P then discovered the Fraudulent Scheme.  P then reported the matter to law enforcement authorities in several jurisdictions, and the Hong Kong Police was alerted on 8 June 2015.

10.On 9 June 2015, D2 authorised the sum of USD2,182,226 transferred to D2’s bank account at HSBC under the 6^th Transfer by P (“2^nd Sum”), to be refunded by HSBC to P.  This was before the issue of the 1^st Action and the Mareva injunction mentioned below.

11.Prior to the issue of the 1^st Action, on 10 June 2015, P obtained an ex parte Mareva injunction against Yin Chuan and D1 and froze the relevant accounts at HSBC.  The ex parte Mareva injunction was continued at the inter partes hearing on 19 June 2015 (“Mareva Injunction”).  The ex parte application was supported by an affidavit of Mr Hartley Nisenbaum, the Secretary of P’s ultimate holding company (“N’s 1^st Affidavit”).

12.Suffice to say at this stage, P subsequently obtained default judgment against Yin Chuan and D1 in the 1^st Action on 23 July 2015 upon no notice of intention to defend having been given (“Default Judgment”):–

As against Yin Chuan-

(i) The sum of USD3,401,796 or HKD equivalent plus interest;

(ii) Damages to be assessed; and

(iii) Costs

As against D1-

(i) The sum of USD2,575,970 or HKD equivalent plus interest;

(ii) Damages to be assessed; and

(iii) Costs

13.Thereafter, on about 30 July 2015, P obtained various enforcement orders against D1, including a prohibition order, an examination order, a garnishee order nisi and a charging order nisi against D1’s property in Sha Tin (collectively “Enforcement Orders”).  On 21 August 2015, D1 paid P the sum of USD2,616,621.20 being the 1^st Sum plus interest payable by D1 under the Default Judgment.

14.About 10 months later, in June 2016, the present action was issued against Ds.  The cause of action is conspiracy to injure, and P’s claim in the present action is based on the same Fraudulent Scheme in the 1^st Action.

15.As mentioned earlier, the total amount of the Transfers were USD46,683,232, and less the amounts recovered by P, the balance not yet recovered is USD 30,348,742.09.  P now claims from Ds for, amongst other things, damages in this sum.

Without prejudice materials

16.After Ds issued the Striking Out Summons, Mr Nisenbaum filed an opposing affidavit on behalf of P (“N’s Opposing Affidavit”), in which he referred to two letters sent by D1’s former solicitors to P’s solicitors, namely a letter dated 29 June 2015 and a letter dated 3 July 2015, both marked “without prejudice” and were exhibited in N’s Opposing Affidavit.

17.This led Ds to issue the Expunction Summons to expunge the relevant paragraphs in the affidavit and the exhibits (“WP Materials”).

The Striking Out Summons

18.The Striking Out Summons was issued under Order 18 rule 9(a), (b) and (d) of RHC and inherent jurisdiction, and based on the following grounds:

(i) P’s claim against D1 is an abuse of process based on the doctrine of Henderson v Henderson (1843) 3 Hard 100 as the subject-matter/s sought to be litigated herein and the causes of action relied upon by P should have and could have been raised in the 1^st Action against D1;

(ii) P’s claim constitutes an abuse of process against D2 as D2 should have and could have been joined in the 1^st Action which, had it been done, would have determined all the issues between P and Ds;

(iii) In the premises, it is vexatious for the court to try P’s claim;

(iv) Alternatively, P’s claim discloses no reasonable cause of action and/or is frivolous or vexatious in that its claim of fraud lacks the particulars required and is obviously unsustainable.

Abuse of Process

The Henderson v Henderson principle

19.The principle laid down in Henderson v Henderson (1843) 3 Hare 100 is very well known as can be seen from what was held in English Court of Appeal case of Barrow v Bankside Agency Ltd [1996] 1 WLR 257 as follows:

“The rule in Henderson v Henderson 3 Hare 100 is very well known. It requires the parties, when a matter becomes the subject of litigation between them in a court of competent jurisdiction, to bring their whole case before the court so that all aspects of it may be finally decided (subject, of course, to any appeal) once and for all. In the absence of special circumstances, the parties cannot return to the court to advance arguments, claims or defences which they could have put forward for decision on the first occasion but failed to raise. The rule is not based on the doctrine of res judicata in a narrow sense, nor even on any strict doctrine of issue or cause of action estoppel. It is a rule of public policy based on the desirability, in the general interest as well as that of the parties themselves, that litigation should not drag on for ever and that a defendant should not be oppressed by successive suits when one would do. That is the abuse at which the rule is directed[1].”

20.The rule was further explained by Ma CJ in Ko Hon Yue v Chiu Pik Yuk & Others (2012) 15 HKCFAR 72:

“The abuse that is known as the Henderson v Henderson abuse (or res judicata in the wider sense – the nomenclature is not important) is derived from the case of that name. ... The essence of the doctrine is that a party ought generally not to be permitted to raise in subsequent proceedings matters which that party could and should have raised in earlier proceedings[2].”

21.Ma CJ had also set out various facets of the rule in Ko Hon Yue[3], which I do not intend to repeat in full here.

22.As seen in Yifung Developments Ltd v Liu Chi Keung Ricky HCA 3020/2015, 29 August 2016, the Henderson principle only applies where the earlier proceedings have come to an end[4].

23.It was however submitted by Mr Maurellet that the Henderson principle would not apply when the earlier judgment came to an end by entry of default judgment.

24.In this respect, Mr Maurellet referred to what was held by Hunter JA, who after referring to the Henderson principle in Gridway Knitters Ltd v Tak Lam Hong Ltd [1989] 1 HKLR 363, said as follows[5]:

“I have two considerable caveats to that hypothesis. The first is that as this Court reminded us in Lily Cheung v Standard Chartered Bank [1988] 1 HKLR 613, the basic application of issue estoppel is to final judgments and not to interlocutory judgments, and therefore it has to be applied to those judgments with very considerable care. Secondly, this judgment is, in my view, a default judgment because a judgment was entered on the defendant’s failure to bring money into court. If it is a default judgment, then there is powerful authority ending in the decision in Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993, a Privy Council appeal from Malaya, that issue estoppel really does not apply at all the default judgments and that the only available defence is one of res judicata in its strict sense which plainly cannot be asserted in this case.”

25.In Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993[6], Viscount Radcliffe had explained as follows[7]:

“In their view there is no doubt that by the law of England, which is the law applicable for this purpose, a default judgment is capable of giving rise to an estoppel per rem judicatam. The question is not whether there can be such an estoppel, but rather what the judgment prayed in aid should be treated as concluding and for what conclusion it is to stand. For, while from one point of view a default judgment can be looked upon as only another form of a judgment by consent (see In re South American & Mexican Co) and, as such, capable of giving rise to all the consequences of a judgment obtained in a contested action or with the consent or acquiescence of the parties, from another a judgment by default speaks for nothing but the fact that a defendant for unascertained reasons, negligence, ignorance or indifference, has suffered judgment to go against him in the particular suit in question. There is obvious and, indeed, grave danger in permitting such a judgment to preclude the parties from ever reopening before the court on another occasion, perhaps of very different significance, whatever issues can be discerned as having been involved in the judgment so obtained by default.

...

Their Lordships are satisfied that, where a judgment by default comes in question, it would be wrong to apply the full rigour of any principle as widely formulated as that of Henderson v Henderson. 　It may well be doubted whether the Vice-Chancellor had in mind at all the peculiar circumstances of a default judgment and whether such a judgment would not naturally fall into his reservation of ‘special cases’.  In any event it is clear from what has been said in other authorities more immediately directed to the point that a much more restricted operation must be given to any estoppel arising from a default judgment.”

26.Mr Whitehead however submitted that :

(i) Kok Hoong was a case which was different from the present case, as in that case, it was the plaintiff who was seeking to rely on the Henderson principle and the defendant was not being vexed twice.  Thus, what was said by Viscount Radcliff above had to be considered and understood in the context of that case;

(ii) What was said by Hunter JA in Gridway Knitters was based heavily on Kok Hoong, which was a different situation;

(iii) In a recent case Dickinson v UK Acorn Finance Ltd [2016] HLR, the UK Court of Appeal held that Kok Hoong was not an abuse of process case at all but a conventional application (or non-application) of the doctrine of res judicata and that in Kok Hoong no argument was put forward that the issue should have been but was not raised in the first action.

(iv) Both Gridway Knitters and Kok Hoong were before the House of Lord’s decision in Johnson v Gore Wood & Co (a firm) [2002] AC 1.

27.Mr Whitehead further relied on what was explained by Lord Millett in Johnson v Gore Wood, as to the Henderson principle, as follows:

“In Barrow v Bankside Members Agency Ltd [1996] 1 WLR 257, Sir Thomas Bingham MR explained that it is not based on the doctrine in a narrow sense, nor on the strict doctrines of issue or cause of action estoppel. As May LJ observed in Manson v Vooght [1999] BPIR 376, 387, it is not concerned with cases where a court has decided thematter, but rather cases where the court has not decided the matter. But these various defences are all designed to serve the same purpose: to bring finality to litigation and avoid the oppression of subjecting a defendant unnecessarily to successive actions. While the exact relationship between the principle expounded by Sir James Wigram V-C and the defences of res judicata and cause of action and issue estoppel may be obscure, I am inclined to regard it as primarily an ancillary and salutary principle necessary to protect the integrity of those defences and prevent them from being deliberately or inadvertently circumvented.

In one respect, however, the principle goes further than the strict doctrine of res judicata or the formulation adopted by Sir James Wigram V-C, for I agree that it is capable of applying even where the first action concluded in a settlement.  Here it is necessary to protect the integrity of the settlement and to prevent the defendant from being misled into believing that he was achieving a complete settlement of the matter in dispute when an unsuspected part remained outstanding[8].”

28.Mr Whitehead submitted that as Lord Millet was of the view that that the Henderson doctrine was capable of applying where the first action concluded in a settlement, then in principle the same approach would apply to the present case where D1 had paid the money to P pursuant to a default judgment where he had all along acknowledged to P that he wanted to repay the monies to P and had left the matter to go to a default judgment.

29.As said by Longmore LJ in Dickinson, the principle of abuse of process as it has developed since Henderson is quite different from the somewhat technical doctrines of cause of action estoppel and issue estoppel and require a broader approach[9].  Longmore LJ further went on to say later in his judgment, that the Henderson principle played no part in Kok Hoong no doubt because its application in cases where the earlier judgment was a default judgment is debatable and moreover the modern application of the Henderson principle only dates from the later Privy Council judgment of Yat Yung Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581[10]. 

30.As Longmore LJ had said, the Henderson principle that a litigant should in general bring forward all his claims in one proceeding rather than successively, otherwise a defendant will be doubly harassed by the litigation, is not an immutable principle[11].  The principle must be applied in accordance with the well-known dictum of Lord Bingham in Johnson v Gore Wood:

“There should be a broad merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before[12].”

31.The “broad merits-based assessment” in applying the Henderson principle was also emphasised in Ho Kin Man v Commissioner of Police [2014] 3 HKLRD 478.

32.Mr Maurellet had during the hearing clarified that he was only submitting that in circumstances when there was a default judgment, there could be no issue estoppel as no issue was decided and he accepted that the mere fact that one action ended in a default judgment would not mean that the Henderson doctrine as elaborated in Ko Hon Yu could not be raised.

33.To summarise, Hunter JA’s dicta was based on Kok Hoong which was concerned with a situation which was quite different from the present case, and in any event, Gridway Knitters was prior to Ko Hon Yue.As said by Ma CJ, when the court is dealing with the Henderson type of abuse it is not looking at an absolute bar to litigation such as issue estoppel or cause of action estoppel, and in considering this type of abuse, the court is required to assess a number of factors and balance competing interests.  I accept that there is no blanket inapplicability of the Henderson principle when the earlier action was concluded by a default judgment.  The Henderson principle is not an immutable principle, and should be applied based on a broad merits-based assessment. 

34.I now turn to the present application.

Events after Ds’ receipts of the 5^th and 6^th Transfers

35.The evidence indicated that the 5^th and 6^th Transfers were received by Ds on 29 May 2015, and that D2 was in fact first informed of Ds’ bank accounts being frozen by HSBC on 6 June 2015 which was a Saturday.  It was said by D1 that his father, namely D2 was the person who primarily operated Ds’ accounts, and therefore, on 8 June 2015, the following Monday, D2 went to HSBC on behalf of Ds to make enquiries and was informed, among other things, that Ds’ accounts were frozen because of some hacker activities.  D2 then reported the matter to the police. 

36.On the same day, D2 signed two authorisations to HSBC on 8 June 2015[13] consenting and requesting HSBC to remit respectively the amount of the 5^th Transfer of USD 2,575,970 / the 1^st Sum and the amount of the 6^th Transfer of USD 2,186,226 / the 2^nd Sum back to the transferor.  The transfer of the 2^nd Sum was effected the next day on 9 June 2015 back to P.  All this took place prior to the ex parte Mareva Injunction and prior to the 1^st Action being commenced.

37.It was D1’s evidence in his 1^st affirmation filed in support of Ds’ present applications that Ds did not receive the ex parte Mareva Injunction as they were no longer residing at the address upon which the Mareva Injunction was served, and that they only came to be aware of the Mareva Injunction much later, after the return day of the Mareva Injunction on 19 June 2015, and that was why D1 did not turn up at the inter partes hearing[14].

38.The Mareva Injunction contained a disclosure order, that D1 must inform P in writing at once of all his assets of an individual value of HK$50,000 or more in Hong Kong, and that the information must be confirmed in an affidavit by D1 to be served on P’s solicitors within 7 days after the Mareva Injunction was served on D1 (“Disclosure Order”).

39.Anyway, D1 said after he came to be aware of the Mareva Injunction, he instructed solicitors.  D1 had exhibited copies of two letters in his 1^st Affirmation, which were said to be sent by his former solicitors Eddie Lee & Co to P’s solicitors.  The first letter was one marked “DRAFT” and dated 26 June 2015.  P’s solicitors said they did not receive that letter or any letter on 26 June 2015, but on 29 June 2015 they received a letter bearing the date of 26 June 2015 from D1’s former solicitors (“26.06.15 Letter”).  Anyway, the 26.06.15 Letter was almost identical to the draft of the 26.06.15 Letter, except in so far I can see, the date of refund of the amount of the 2^nd Sum from D2’s account.

40.The 2^nd letter exhibited by D1 was one dated 3 July 2015 and also marked “DRAFT”.  There was no dispute that P’s solicitors received a letter from D1’s former solicitors on 3 July 2015 identical to the draft (“03.07.15 Letter”).

41.Neither the 26.06.15 Letter nor the 03.07.15 Letter were marked without prejudice and they were not part of the WP Materials.

42.In the 26.06.15 Letter, D1 was said to be in the logistics business for about 30 years, and that D1 was notified, by a telephone conversation with HSBC and then by the Mareva Injunction, that two amounts in USD were mistakenly deposited into his business accounts maintained with HSBC, namely the account in name of D1 and the account in name of D2.

43.Further, it was stated in the 26.06.15 Letter that D1 was in the course of arranging for the transfer of the amount of the 1^st Sum back to the transferor.  However, it went on to state that when D1 telephoned HSBC to find out whether he could transfer money from the account held by D2 into the account of D1 to repay P, he was informed by HSBC that the account of D2 was frozen by the police, and D1 was in the process of contacting the police to arrange for unfreezing D2’s account.  D1 had also exhibited a copy of his former solicitors’ letter to the Hong Kong Police Force dated 29 June 2015 requesting the Police to unfreeze the account of D2 so that he could transfer money from D2’s account to D1’s account to repay P[15].

44.Thereafter in the 03.07.15 Letter, D1 indicated that he was willing to return the 1^st Sum to P and proposed the following:

(i) D1 to issue a cheque from “his other account” for USD1,858,986.23 in favour of P’s solicitors;

(ii) P to deduct a sum of USD49,458.79 from D1’s account after the account is operative;

(iii) P to deduct a sum of USD595,501.69 from D2’s account once the account is unblocked by the police;

(iv) The accounts of D2 had a balance of HK$552,449.89 while D1 had HK$6,450.86 and those two sums could be used to offset the remaining balance owing to P;

(v) D1 could comply with item (i) above on 7 July 2015, and for items (ii) to (iv) upon P’s solicitors undertaking to dismiss the claim in the 1^st Action and to discharge the Mareva Injunction forthwith and to confirm that no other outstanding obligations or indebtedness were due from D1 to P.

45.D1’s former solicitors had in the 03.07.15 Letter asked P whether the above proposals were acceptable.  If one were to exclude all the WP Materials, then there was no open reply from P to the 03.07.15 Letter.  What was clear was that there was no agreement between P and D1, as the evidence indicated that P did not receive a cheque for USD 18,858,986.23 on or before 7 July 2015, and on 23 July 2015, P entered the Default Judgment.

46.What was also not disputed was that there had been no compliance on the part of D1 of the Disclosure Order.

47.Thereafter, as mentioned earlier, P obtained the Enforcement Orders against D1 including an order that D1 was to attend oral examination on 31 August 2015[16].

48.On 21 August 2015, D1 paid a total sum of about USD 2.6m to P in satisfaction of the Default Judgment.  The prohibition order was then discharged by consent on 28 August 2015 and the Mareva Injunction discharged by consent on 2 September 2015.  As mentioned earlier, the present action was then commenced in June 2016.

49.Although both Ds were under investigation by the Hong Kong Police after the Transfers and were on police bail, according to D1, they were released unconditionally from police bail on 28 June 2016.

D1’S POSITION

50.In N’s Opposing Affidavit, Mr Nisenbaum had explained that:

(i) When P issued the 1^st Action, P had very limited information regarding the Fraudulent Scheme and the parties who participated in it, and that P’s primary goal at the time was to obtain an urgent injunction over the funds to protect their interest and to recover the funds transferred to the recipients as much and as quickly as possible;

(ii) At that time, P did now know the actual amount of losses suffered by it as a result of the entire Fraudulent Scheme;

(iii) As time passed and the recovery actions taken by P in most of the jurisdiction have come to an end, P has now gathered more information in relation to the Fraudulent Scheme, and the amount of losses suffered by the Plaintiff as a result of the Fraudulent Scheme has also been crystallised.  Thus, P was of the view that they should commence a fresh action against D1 and D2 based on the tort of unlawful means conspiracy.

51.As said earlier, the Transfers were discovered by P on 5 June 2015 and since then, the evidence was P had been working closely with FBI, and P’s lawyers in the United States and Hong Kong had coordinated with their offices with all relevant jurisdictions and had reported the matter to the police / law enforcement agencies in all jurisdictions where the funds were transferred.

52.Mr Whitehead submitted that there had been no new information gathered by P since the conclusion of the 1^st Action and the institution of the present action, and that the allegations in N’s 1^st Affidavit were almost identical with the allegations in the statement of claim in the present action.  Mr Whitehead further submitted that the two actions involved the same parties and the same cause of action and arose out of the same set of facts, and although conspiracy to defraud was, conspiracy to injure was not raised in the 1^st Action.  This could have and should have been raised then and dealt with in the 1^st Action, and D1 should not be vexed twice.

53.Although the allegations of the Fraudulent Scheme were almost identical as set out in N’s 1^st Affidavit and the statement of claim, and the aggregate amount of the Transfers was known at the time of the issue of the 1^st Action and the time when P applied for the Mareva Injunction, the exact amount to be recovered by P, in other words the total amount of its losses, was not known at the time.  The Default Judgment entered against D1 on 23 July 2015 was only for the amount of the 5^th Transfer plus interest, damages to be assessed and costs.

54.Mr Maurellet submitted whether the cause of action was “conspiracy to defraud” or “conspiracy to injure”, the endorsement of claim in the 1^st Action indicated that the claim in the 1^st Action was limited to only two sums, namely the 2^nd and 3^rd Transfers to Yin Chuan, and the 5^th Transfer to D1 herein, and the alleged conspiracy was between Yin Chuan and D1, and it was not suggested in the 1^st Action that D1 was part of a wider conspiracy.  Mr Maurellet accepted that there might have been a valid basis to plead wider conspiracy against Ds by the time of the Default Judgment, it was natural for P to see whether further evidence could be gathered as a result of the various recovery actions in various jurisdiction to fortify its case before commencing the present action.

55.So far as the total amount of Transfers was concerned, the partial recovery of the 7^th Transfers of two sums totaling some US$5.6m only took place respectively in October 2015 and in December 2015 under recovery action in Hungary.  Thus, as Mr Nisenbaum had said, the total amount of losses suffered by P as a result of the Fraudulent Scheme was not yet crystallised at the time of the Default Judgment, or upon the discharge of the Mareva Injunction on 2 September 2015[17].

56.Mr Nisenbaum had said that D1 only paid back the amount of the 5^th Transfer on 21 August 2015 knowing that he could not resist enforcement.  However, D1 said he indicated his willingness to repay as early as in the 16.06.15 Letter and in the 03.07.15 Letter he had proposed a schedule for the payments, and the reason why he was unable to effect the transfer earlier than 21 August 2015 was because his accounts were frozen.

57.D1 had also said that as he was going to pay any way, he had allowed the 1^st Action to proceed on default.  Notwithstanding that D1 said he indicated his willingness to pay earlier, the reason he gave for not doing so, namely because Ds’ accounts were frozen, had to be seen in the light of the 03.07.15 Letter when he had proposed to pay a sum of USD1,858,986.23 on or before 7 July 2015 from “his other account”.  He thus seemed to have other unfrozen accounts or other funds which he never disclosed under the Disclosure Order.  The fact remained that D1 only paid up after the Enforcement Orders were obtained by P, and about 10 days before the oral examination hearing.

58.In Dexter Limited (in Administrative Receivership) and Vlieland-Boddy [2003] EWCA Civ 14, Lord Justice Clarke had summarized the principles in Johnson v Gore Wood, as follows[18]:

“(i) Where A has brought an action against B, a later action against B or C may be struck out where the second action is an abuse of process.

(ii) A later action against B is much more likely to be held to be a abuse of process than a lter action against C.

(iii) The burden of establishing abuse of process is on B or C or as the case may be.

(iv) It is wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive.

(v) The question in every case is whether, applying a broad merits based approach, A’s conduct is in all the circumstances an abuse of process.

(vi) The court will rarely find that the later action is an abuse of process unless the later action involves unjust harassment of oppression of B or C.”

59.Apart from asserting that he would be vexed twice, there was no sufficient evidence that D1 was otherwise vexed or oppressed or unjustly harassed.  So far as his assertion that he would be vexed twice, the evidence so far only showed that he had incurred legal costs in instructing his former solicitors to send out letters in connection with the 1^st Action.  As the 1^st Action resulted in the Default Judgment, D1’s legal costs were unlikely to be of any significant amount.

60.D1 had also said having satisfied the Default Judgment and discharging the enforcement orders against him by consent, he was led to believe that all the proceedings against him arising out of the Transfers had come to an end until he was served with the writ in the present action[19].

61.In this respect, Mr Whitehead had referred the court to what was said by Lord Millett in Johnson v Gore Wood, namely that the abuse of process could happen where a defendant was being misled into believing he was achieving a complete settlement of the matter in dispute when an unsuspected part remained outstanding[20] .

62.There was however no settlement in the 1^st Action and the Enforcement Orders and the Mareva Injunction were withdrawn and/or discharged by consent only because the amount stipulated in those orders or the liquidated sum under the Default Judgment had been paid by D1.  

63.On the other hand, P is the victim of a large scale Fraudulent Scheme and a sum of USD 46m was transferred to different persons in several jurisdictions, and Ds were direct recipients or the beneficiaries of the 5^th and 6^th Transfers. At the moment, an amount of USD30,348.742 of the USD46m still has not been recovered.

64.There was no defence filed by D1 in the 1^st Action, and no defence has been filed by Ds in the present action. From the relevant HSBC bank statement of D1’s account, prior to the receipt of the 5^th Transfer, there was an overdrawn amount of USD246,447.31, and after the receipt or the 5^th Transfer, various amounts of round figures were transferred out every day by “BIB”[21].  By 5 June 2015, the balance in the account was only USD49,457.69.  Thus, an amount of USD2,280,065 was transferred out in rapid successions.

65.D1’s former solicitors had said in the 26.06.15 Letter that the 5^th Transfer was an amount “mistakenly deposited” into D1’s account.  D1 must have known of the “mistaken deposit” on 29 May 2015 due to the successive transfers out.

66.One of the facets mentioned by Ma CJ in Ko Hon Yue[22]was :-

“(5) In examining aspects such as abuse, the court is concerned with balancing interests: not just those of the litigants before it, but also taking into account the other interests involved in the administration of justice. It is important therefore here to emphasize that when the court is dealing with the Henderson v Henderson type of abuse, it is not looking at an absolute bar to litigation such as issue estoppel or cause of action estoppel. On the contrary, in considering this type of abuse, the court is required to assess a number of factors and balance competing interests. See here, Bradford and Bingley Building Society, 1490F-H. It is also worth making the following observations at this juncture:

(a) There is conceptually an important distinction between absolute bars such as issue estoppel and the type of abuse with which we are concerned. In the former situation, the party who seeks to relitigate an issue or cause of action has already had his day in court, whereas in the latter situation, that party has not: cf Johnson v Gore Wood, 59D (‘It is one thing to refuse to allow a party to re-litigate a question which already has been decided; it is quite another to deny him the opportunity of litigating for the first time a question which is not previously being adjudicated upon’ (Lord Millet)).

(b) The assessment of different factors and balancing competing interests can be said to be an exercise of a discretion...”

67.The burden of establishing abuse is on D1. Having assessed and all the factors, and balancing competing interests, and on a broad-merits based assessment, I am of the view that the commencement of the present action against D1 is not an abuse of process.

D2’s position

68.D2 was not a party to the 1^st Action.  There was no evidence that the present action involved unjust harassment or oppression of D2.

69.Mr Whitehead had referred this court to Barrell v Universal Island Records Ltd & Ors [2006] EWHC 1009 and submitted that the Henderson principle underlying abuse of process is open to be applied where a plaintiff fails to join a defendant who should have been joined in earlier proceedings, and the decision in Barrell was followed in Hong Kong in Lee Ming Mang Sharon v Ng Siew Seng Richard, unreported, HCA 1536/2006, 30 April 2009.

70.It was submitted that D2 had refunded the mistaken payment to P on 9 June 2015 prior to the commencement of the 1^st Action, and being left out of the 1^st Action where he could have and should have been joined a s a defendant, D2 was “lured into a false sense of security” that there would not be any proceedings against him arising out of the same set of facts which were being litigated in the 1^st Action, and that he was legitimately led to believe that all claims against him ended with his repayment of the mistaken sum back to P.

71.Mr Whitehead submitted that the present case is distinguishable from Dexter where the subsequent proceedings were allowed to be brought because the earlier proceedings had resulted in an unsatisfied judgment.

72.There was no evidence for D2 to believe that there would not be any proceedings against him by him being left out of the 1^st Action.  Further, as mentioned earlier, there was no settlement of the 1^st Action which was only concluded by the Default Judgment.  It was also not clear that even if D2 was lured into a false sense of security, how this could amount to oppression or unjust harassment. 

73.D2, who was said to be the person who primarily operated the two frozen HSBC accounts, informed HSBC on 8 June 2015 that the sums deposited into those two accounts under the 5^th and 6^th Transfers were not sums from D2’s customers and requested and authorized HSBC to refund the sums to the transferor being P and further made a report to the police.  However, all this had to be seen in the light that D2 was already informed on 6 June 2015 by HSBC that Ds’ accounts were frozen.  FBI was already alerted.  There was in any event failure on Ds’ part to substantiate the alleged mistaken deposits.

74.Mr Maurellet submitted that in light of the above, it should not be unforeseeable that P would take further actions against them to pursue the unrecovered amounts under the Fraudulent Scheme.

75.Having considered the above, I find that on a broad-merits based assessment, the commencement of the present action against D2 is not an abuse of process. The burden is on D2 to show that the present action is an abuse of process in that it involves unjust harassment or oppression of D2.  He has not been able to discharge that burden.

Whether the claim discloses a reasonable cause of action or is frivolous or vexatious

76.Ds complained that P’s conspiracy claim lacks the particulars required and hence discloses no reasonable cause of action.

77.Mr Whitehead referred the court to ADC v Wheelock Marden & Co Ltd [1994] 2 HKC 264 where Bohkary JA held that:

“When it comes to a claim in the tort of conspiracy, what the pleader has to do in regard to pleading an overt act or overt acts is this. He has to plead at least one overt act which is the act of all the alleged conspirators or, failing that, a number of overt acts which include at least one act on the part of each conspirator. And the overt act or overt acts pleaded must be such as to show: (i) that the conspiratorial agreement alleged against the defendants had been entered into by each and every one of them; (ii) that the agreement, and not merely the intention of one person alone, was implemented; and (iii) that such implementation caused the damage complained of.

If the pleader fails to do that, then, depending on whether the failure is in respect of all the defendants or only some or one of them, then either the plea is liable to be struck out altogether or it is liable to be struck out as against some or one of the defendants.”

78.Mr Whitehead also referred to Bullen & Leake & Jacob’s Precedents of Pleadings, 18 Ed where it is stated:

“An allegation of conspiracy must be properly particularised. It is essential that the facts on which reliance is to be placed in support of the existence of a conspiracy are clearly identified and that the logical connection between those facts and the substantive allegations in the pleadings is made clear. This means that the claimant must both plead the primary facts on which he relies and set out clearly how they give rise to the inference that the defendants were parties to a conspiracy[23].”

79.It was Mr Whitehead’s submission that P has not properly particularized its claims as to how Ds are alleged to have become parties to the alleged conspiracy, and that the one overt act alleged against Ds, namely the receipt of monies must be considered in the context that D1 attempted to give the money back but was prevented to do so because of the Mareva Injunction, and D2 was not a party to the 1^st Action but alleged to be a co-conspirator in the present case, returned the money shortly after it had been transferred into his bank account.  Thus even though the overt act of “receipt of money” has been pleaded, P has failed to say how that gives rise to the inference that Ds were parties to the said conspiracy, and thus the plea of conspiracy is fundamentally flawed.

80.Mr Maurellet had however referred this court to Yong Weng Chye v Ho Yu Kuen, HCA 1303 of 2009, 17 March 2010 where Master Marlene Ng (as she then was) had remarked that[24]:

“Conspiracies by their nature are often concealed, and hence the conspiratorial combination or agreement can be inferred from overt acts if it is proved that the conspirators knew what was going on. So in most cases where conspiracy is averred, it will be necessary to look at the overt acts as pleaded to see what inferences can be drawn as to the existence or otherwise of the alleged conspiratorial combination or agreement.”

81.She then went on later to say that[25]:

“It is trite that fraud and/or conspiracy must be distinctly pleaded with utmost particularity and distinctly proved, and it is not allowable to leave such pleas to be inferred from the facts (see Davy v Garratt [1877] 7 Ch D 473, 489). But one must also consider the practical reality of modern commercial life. As submitted by Mr Lam, fraud and/or conspiracy by their very nature are clandestine and difficult to uncover, so quite often proof is not readily obtained. Hence, the averments of fraud and/or conspiracy cannot be too precise. In an application to strike out a fraud and/or conspiracy claim, the court will look upon such application with care to the above considerations, but at the same time will bear in mind that loose allegations that are not properly particularised will be oppressive as regards the defendants when the action goes to trial. The broad question for the court is whether from the facts as pleaded it can be argued that Ds sufficiently know P’s case on the conspiratorial combination(s) or agreement(s) that they have to meet.”

82.Here in the present case, paragraph 16 of the statement of claim has particularized the unlawful Fraudulent Scheme including the acts carried out by the purported Mr Pera, the purported Mr Evans and the various different recipients in various jurisdiction.  Ds were the direct recipients of the 5^th and 6^th Transfers.

83.I am of the view that from the facts as pleaded Ds would sufficiently know P’s case on the conspirational combinations(s) or agreement(s) that they have to meet.

84.In any event, apart from a bare denial of their involvement in the Fraudulent Scheme, no defence was put forward in D1’s affirmations and the only point made by them is that the act of receipt of the 5^th and 6^th Transfers is insufficient to give rise to the inference that Ds were parties to the conspiracy, and that D1 had attempted to give the money back but was prevented to do so because of the Mareva Injunction.

85.However, as seen earlier, D1 had referred to “his other account” which was unfrozen and from which he was able to draw a cheque for some USD1.86m.

86.Further, as I have said, there was no compliance by D1 of the Disclosure Order. There had been no explanation by Ds as to why the 1^st Sum and the 2^nd Sum were deposited into their accounts other than the sums were mistakenly deposited and there was no supporting evidence to substantiate their claim of mistaken deposits.  There was also no explanation as to why Ds would require such large sums of USD for their logistics business.

87.Having considered the above, I am not satisfied that the claim discloses no reasonable cause of action or is frivolous or vexatious.

Conclusion

88.In the above circumstances, I am not prepared to strike out P’s claim and I dismiss the Striking Out Summons.  As seen above, I have reached my conclusion without having to consider the alleged WP Materials which I do not find helpful to P’s case, or Ds’ case.

Expunction Summons 

89.There was no real dispute on general principles. The question was whether the alleged WP Materials were negotiations aimed at settlement.

90.Altogether, there was a total of 6 relevant letters.

91.After the Mareva Injunction came to the notice of D1, there were two letters sent by his then former solicitors to P’s solicitors, one was the 26.06.15 Letter referred to earlier, and the other one was a letter dated 29 June 2015 but marked without prejudice (“WP 29.06.15 Letter”). 

92.Although the 26.06.15 Letter bore the date of 26 June 2015, it was in fact only received by P’s solicitors on 29 June 2015 on the same day at the same time as the WP 29.06.15 Letter, namely both were received by P’s solicitors on 29 June 2015 at 12:39[26].  It was therefore not the situation that there was no reply from P’s solicitors to the 26.06.15 Letter, and thereafter the WP 29.06.15 Letter was then sent out[27].

93.What was said in the 26.06.15 Letter had been set out earlier.  The relevant bank transaction statements were enclosed in that letter.  The gist was that the two sums were “mistakenly deposited” into Ds’ business accounts with HSBC and that D1 was in the course of arranging for the transfer of the sum of the 1^st Sum back to P, and that D1 was contacting the police to arrange for unfreezing the account to make the payment back.  There were no settlement proposals in the 26.06.15 Letter nor was the letter sent in the course of any settlement negoations.

94.In the WP 29.06.15 Letter, D1, among other things, (i) gave information as to the circumstances under which the 1^st Sum and the 2^nd Sum were “mistakenly deposited” into his accounts; (ii) D1 had maintained the accounts for at least 4 years for business purposes; (iii) D1 was informed by HSBC that the deposits were possibly arranged by hackers and the matter was reported to police: (iv) as D1 was required to return the sums to P and D1 did not know P or Yin Chuan at all, the sums could be said to be deposited into his accounts mistakenly; and (iv) D1’s loss was around RMB24m odd and that he was a victim of the crime.

95.What D1 appeared to be doing in the WP 29.06.15 Letter was voluntarily trying to explain as to how the sums were deposited into his accounts mistakenly and that he was prepared to repay.  There were no settlement proposals contained in the WP 29.06.15 Letter either, nor was it made in the context of settlement negotiations.

96.P’s solicitors then replied to both letters in an open letter on 30 June 2015 (“30.06.15 Letter”), stressing that the most important thing was for the 1^st Sum to be paid back and, leaving aside the balances in the frozen HSBC accounts, P asked how D1 was going to pay back the difference of about USD 1,922,557.  P’s solicitors then raised a list of queries on those explanations proffered by D1 in the WP 29.06.15 Letter. D1 was further reminded of his obligation under the Disclosure Order and demanded immediate compliance.

97.D1’s former solicitors sent two letters in reply, both dated 3 July 2015, one open letter which was the 03.07.15 Letter referred to earlier setting out D1’s proposals for repayment to P and one marked without prejudice.  In this letter, D1’s solicitors basically said D1 was not in a position nor was he obliged to disclose any further detail as requested by P’s solicitors and further stated that D1 had not “waived the privilege” of those statements made in the WP 29.06.15 Letter (“WP 03.07.15 Letter”). 

98.However, it was the open 03.07.15 Letter which contained settlement, or rather payment proposals.  The WP 03.07.15 Letter did not contain any settlement proposals, nor was it made in the context of any settlement negotiations. 

99.On 7 July 2015, P’s solicitors then replied in a letter marked “without prejudice subject to contract”, stating that P did wish to resolve the issue amiably and setting out the proposed schedule for repayments, and the matters which they sought answers on (“WP 07.07.15 Letter”).

100.What was clear was that in the WP 07.07.5 Letter, P indicated that it was agreeable to the scheduled payments as set out in D1’s open 03.07.15 Letter on the basis that certain information were to be provided to P, and that if D1 was to accept, the terms would form part of a final settlement agreement to be signed by all parties.

101.There was no reply to the WP 07.07.15 Letter. 

102.Having considered the 6 letters, as I have said, there was no settlement proposal made in the WP 29.06.15 Letter or in the WP 03.07.15 Letter.  Any settlement discussions only commenced with D1’s open 03.07.15 Letter, to which P responded by their WP 07.07.15 Letter.

103.In the above circumstances, there was no reason to expunge the WP Materials, and I am not prepared to allow Ds’ application.

Conclusion

104.I dismiss Ds’ two summonses.

Costs 

105.As I have dismissed both the Striking Out Summons and the Expunction Summons, I see no reason why costs should not follow the event, to be summarily assessed and paid within 7 days after summary assessment.  P is to lodge its statement as to costs within 21 days, and Ds to submit their list of objections within 14 days thereafter.  This is a costs order nisi which shall be final after 21 days.

Mr Jose Maurellet SC and Mr James Man, instructed by DLA Piper Hong Kong, for the plaintiff

Mr Robert Whitehead SC and Mr Vincent Chen, instructed by Cheung Chan & Chung, for the 1^st and 2^nd defendants