Heitkamp & Thumann Kg v. Living Profit Trading Develop Ltd and Others
Read the full judgment text of HCA 151/2017 on BabelCite. This High Court CFI judgment was delivered on 8 May 2018.
1. The plaintiff (“ P ”) was/is a company incorporated in Germany that carried on the business of manufacturing battery cans and inhaler cans/ actuators. P claimed it had no business dealings with any of the 1 st , 2 nd and 3 rd defendants (“ D1 ”, “ D2 ” and “ D3 ”, collectively “ Ds ”).
Cited by 1 case · Cites 10 cases
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HCA 151/2017 [2018] HKCFI [1006] IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE HIGH COURT ACTION NO 151 OF 2017 ________________________
________________________ Before: Deputy High Court Judge Marlene Ng in Chambers Date of Hearing: 23 January 2018 Date of Handing Down Decision: 8 May 2018 _________________ DECISION _________________ I. PLAINTIFF’S CLAIM 1.The plaintiff (“P”) was/is a company incorporated in Germany that carried on the business of manufacturing battery cans and inhaler cans/ actuators. P claimed it had no business dealings with any of the 1st, 2nd and 3rd defendants (“D1”, “D2” and “D3”, collectively “Ds”). 2.P claimed it was fraudulently deceived into believing money to be transferred to bank account no 5xxxxxxxxx8 of Hen Yue Trade Limited (“Hen Yue”)[1] held with Standard Chartered Bank (“SCB”) in Hong Kong (“Hen Yue Account”) was part of a highly confidential takeover (“Email Fraud”):
3.On 18 July 2016, P obtained an ex parte injunction order against Hen Yue in Intended Action No 86/2016 (later HCA1873/2016 commenced on the same day) restraining Hen Yue from dealing with, disposing of or removing from Hong Kong assets up to the value €3,760,900. Such ex parte injunction order was continued on inter partes basis on 22 July 2016. P obtained default judgment against Hen Yue on 23 August 2016. Pursuant to a garnishee order absolute dated 1 November 2016, P recovered HK$8,776.80 from the Hen Yue Account. 4.P claimed it was the beneficial owner of the Defrauded Sum and its traceable proceeds, which were held on constructive trust in its favour due to (a) the fraudulent transfer of the Defrauded Sum to the Hen Yue Account, (b) Hen Yue’s knowing, unconscious and dishonest receipt of such sum and/or (c) fraudulent and untrue misrepresentations that P was preparing to take over the majority of shares of a logistics company (which transaction had to be remain confidential) and that the transfer was required by Diemer. 5.On 28 July 2016, the Hong Kong police informed P’s solicitors the Defrauded Sum in the Hen Yue Account had been exchanged to approximately US$4,150,000, and had been transferred to the following recipients on 13 July 2016:
6.On 28 July 2016, the Hong Kong police further informed P’s solicitors that out of the Hen Yue Sum a total sum of US$2,900,903 (“Pengshunyi Sum”) was further transferred to the following recipients on 13-14 July 2016:
7.On 1 August 2016, P in HCA2006/2016 obtained an ex parte injunction order restraining the 8 companies in paragraphs 5(a)-(c) and 6(a)-(e) above (“8 HK Companies”) from dealing with, disposing of or removing from Hong Kong assets up to the sum of US$4,160,000. Such ex parte injunction order was continued on inter partes basis on 5 August 2016. 8.On 4 August 2016, the Hong Kong police informed P’s solicitors the 2 sums of US$500,000 each remitted to Oumeisi’s and Bentong’s accounts with HSB referred to in paragraph 5(a)-(b) above were further transferred to the accounts of 5 Hong Kong companies (“5 HK Companies”) on 13-14 July 2016. On 5 August 2016, P in HCA2006/2016 obtained an ex parte injunction order restraining the 5 HK Companies from dealing with, disposing of or removing from Hong Kong assets up to the sum of US$4,160,000. Such ex parte injunction order was continued on inter partes basis on 12 August 2016. 9.P believed the 8 and 5 HK Companies were all linked to the fraudulent activities of and/or were involved with Hen Yue, and they assisted in the dissipation of funds obtained via the Email Fraud. Of the 8 and 5 HK Companies, only 1 company responded to the proceedings in HCA2006/2016. On 22 September 2016, default judgment was entered against the other companies. Pursuant to a garnishee order absolute dated 18 November 2016 against the 8 HK Companies and 3 of the 5 HK Companies, P recovered a total sum of HK$7,826,673.72 from the garnishee banks (including HK$1,604,036.46 from the Haiyun Account and HK$1,455,887.89 from the Welly Smart Account). 10.According to paragraphs 51-53 of the affirmation of P’s executive or managing director Dietmar Schmitz (“Schmitz”) filed on 19 January 2017 (“Schmitz 1st Aff”), HSB and HSBC were required to disclose to P inter alia the source and destination of payments into and out of the bank accounts of the 8 and 5 HK Companies with them pursuant to disclosure orders in HCA2006/2016. When HSB made its first batch of disclosure (mainly bank statements for July/August 2016 and account opening mandates) pursuant to such disclosure order, P discovered there were various withdrawals from the HSB bank accounts of 2 of the 5 HK Companies to other companies. In HCA2698/2016, P obtained an ex parte injunction order against such 3rd layer recipients, which order was continued and further continued on 22 and 24 October 2016. On 28 November 2016, P obtained default judgment against such 3rd layer recipients. 11.On 29 August 2016, HSBC provided the 1st batch of disclosure (mainly statements for July/August 2016 and account opening mandates) pursuant to the disclosure order granted in HCA2006/2016. On 12 September 2016, P requested disclosure relating to specific transactions identified in the bank statements of various defendants in HCA2006/2016. The Schmitz 1st Aff claimed that due to HSBC’s delay P did not receive all requested documents until 5 December 2016. From the redacted bank statements and transaction documents disclosed by HSBC, P identified numerous withdrawals from the Haiyun, Welly Smart and Kailaite Accounts, including the following withdrawals made on 13 July 2016:
12.P claimed that upon the above chronology, it appeared:
13.P claimed the Hen Yue and Pengshunyi Sums formed part of and/or were traceable proceeds of the Defrauded Sum, and there was coordination between the depletion of the trust fund (ie the Defrauded Sum or its traceable proceeds) and the transfer of funds (subject of P’s tracing claim) such as to warrant attribution of the value of the transferred funds to misuse of the trust fund (ie the Defrauded Sum or its traceable proceeds) (and insofar as transfers of the Haiyun and Welly Smart Sums to the D2 Account were from funds received from Pengshunyi, P would (if necessary) rely on the doctrine of “backward tracing” to establish such coordination). On such basis, P claimed it was/is entitled to trace and claim the Defrauded Sum or any traceable proceeds (including the Haiyun and Welly Smart Sums) thereof from direct or indirect recipients. 14.Further or alternatively, P claimed it would be unconscionable for inter alia Hen Yue, Pengshunyi, Haiyun, Welly Smart and/or D2[7] to assert any direct beneficial interest in the Defrauded Sum or any proceeds thereof, and further claimed they held the Defrauded Sum or its traceable proceeds (ie the funds they received including the Haiyun and Welly Smart Sums) on trust for P. 15.P contended it might be inferred (a) D2 knew or turned a blind eye to the fact that transfer of the Haiyun and Welly Smart Sums belonging to P to the D2 Account had no legitimate commercial reason or justification, (b) D2 knowingly dealt with and/or received the Haiyun and Welly Smart Sums in a wholly unconscionable manner, and (c) at all material times D2 was a constructive trustee thereof, so D2 knew or turned a blind eye to the fact she was not entitled to any sum from P, and the Defrauded Sum was transferred in breach of trust. 16.P also alleged (a) D2 dishonestly assisted in the breach of trust by Hen Yue, Pengshunyi, Haiyun and Welly Smart, (b) P’s effort to trace the Defrauded Sum had been frustrated or made complicated by D2’s assistance/receipt of the Haiyun and Welly Smart Sums and by transfers of substantial sums from the D2 Account after receipt of the Haiyun and Welly Smart Sums, and (c) D2’s knowledge was such as to render her conduct contrary to normally acceptable standards of honest conduct. II. PROCEEDINGS 17.On 19 January 2017, P commenced the present action against Ds, and applied for an ex parte injunction order with the support of the Schmitz 1st Aff. Yau J granted an ex parte injunction order against Ds whereby inter alia D2 was restrained from dealing with or disposing of its assets representing any part of US$520,000 or HK$ equivalent transferred to the D2 Account,[8] or removing from Hong Kong or disposing of, dealing with or diminishing the value of any of its assets up to US$520,000 or HK$ equivalent[9] (“Ex Parte Order”). Yau J also granted a disclosure order against Ds (ie paragraphs (8)-(9) of the Ex Parte Order, “Disclosure Order”) and a disclosure order against HSBC (“HSBC Disclosure Order”). 18.On 20 January 2017, P filed an inter partes summons for continuation of the Ex Parte Order until further order with liberty for Ds to apply to discharge or vary the Ex Parte Order upon notice to P’s solicitors. 19.P served the Writ of Summons, Ex Parte Order, Schmitz 1st Aff, P’s skeleton submissions and list of authorities, and the aforesaid inter partes summons on D2 by leaving them c/o HSBC in Hong Kong. 20.On 27 January 2017, L Chan J amended the Ex Parte Order (“Amended Ex Parte Order”), and continued the same until judgment or further order with liberty for Ds to apply to discharge or vary the injunction order upon notice to P’s solicitors (“Inter Partes Order”). 21.On 27 February 2017, P entered default judgment against D1 and D3. On 20 March 2017, Master S Lo granted a garnishee order to show cause against HSBC as garnishee in respect of inter alia the judgment debt due to D1. Such application for garnishee order nisi was supported by Schmitz’s 2nd affirmation filed on 16 March 2017 (“Schmitz 2nd Aff”). On 18 April 2017, HSBC as garnishee filed its affirmation setting out the net balances in D1’s various accounts with HSBC. On 27 April 2017, I granted a garnishee order absolute to vary the Inter Partes Order so as to enable HSBC (garnishee) to pay P the debt due from HSBC to D1 or so much as might be sufficient to satisfy the judgment sum against D1 with costs. 22.Pursuant to the HSBC Disclosure Order, on 21 February 2017[10] HSBC provided the identity documents and bank statements of the D2 Account from July 2016 to January 2017 that gave an address in Beijing, Mainland China for D2. On 26 April 2017, the Writ of Summons was amended without leave to give the Chinese name of D2 and her address in Beijing, Mainland China. On 27 April 2017, P filed Schmitz’s 3rd affirmation (“Schmitz 3rd Aff”) in support of its application for leave to issue/serve a Concurrent Amended Writ of Summons, the Amended Ex Parte Order and Inter Partes Order on D2 outside jurisdiction. 23.On 22 May 2017, D2’s solicitors filed Notice to Act. On 16 August 2017, P filed the affirmation of its solicitor Frank Szeto (“Szeto”) in support of its application to re-amend the Amended Writ of Summons to give the correct address of D2 in Beijing, Mainland China and to serve the same on D2’s solicitors. On 24 August 2017, Master Hui granted leave for P to re-amend the Amended Writ of Summons. On 29 August 2017, P filed the Re-Amended Writ of Summons to clarify D2’s address in Beijing, Mainland China. 24.On 31 August 2017, D2 filed a summons to discharge the Ex Parte, Amended Ex parte and Inter Partes Orders (collectively, “Injunction Order”[11]) (“D2 1st Summons”) on the grounds that (a) P did not have any good arguable case and/or (b) there was no real risk of dissipation of assets, or to vary the Injunction Order by reducing the monetary limit of assets frozen thereunder to US$250,000. On the same day, D2 filed her affirmation (“D2 1st Aff”) and the affirmation of her husband Wang Zhe (“Wang”) (“Wang Aff”) in support of the D2 1st Summons. 25.On 11 September 2017, D2 filed acknowledgment of service to give notice of intention to defend. 26.On 19 September 2017, D2 filed a summons for deletion of or alternatively stay of the Disclosure Order (ie paragraphs (8)-(9) of the Amended Ex Parte Order that was continued by the Inter Partes Order) (“D2 2nd Summons”). On the same day, D2 filed the affirmation of her solicitor Ching King Tat (“Ching Aff”) in support of the D2 2nd Summons. The Ching Aff disclosed the then bank balance of the D2 Account was US$521,192.79 (which just exceeded the sum that was frozen by the Injunction Order). On 15 September 2017, Chow J stayed the Disclosure Order pending the determination of the D2 1st Summons. 27.In the Statement of Claim filed on 6 November 2017, P claimed D2 was liable to account for the Defrauded Sum, to pay equitable compensation/damages for P’s loss in the sum of €3,760,900 (but credit would be given for the sums P recovered from Hen Yue and other recipients) as a result of D2’s dishonest assistance, and further/alternatively for recovery of US$500,000 on the grounds of knowing receipt, money had and received (ie transfer of the Defrauded Sum due to mistakes of fact or alternatively total failure of consideration for such transfer), unjust enrichment or otherwise by way of restitution. 28.On 13 November 2017, P filed a summons asking for the following reliefs (“P Summons”):
29.On 14 November 2017, D2 filed a summons to seek inter alia the following reliefs (“D2 3rd Summons”):
30.On 16 November 2017, DHCJ Sherrington directed that the above reliefs in the D2 3rd Summons be adjourned to be heard together with the D2 1st and 2nd Summonses with costs reserved. On 21 November 2017, I adjourned the P Summons to be heard together with D 1st and 2nd Summonses. 31.On 1 December 2017, D2 filed her Defence denying liability. 32.On 8 December 2017, P filed Schmitz’s 4th affirmation (“Schmitz 4th Aff”) to support the P Summons and to oppose the D2 1st and 2nd Summonses. On 3 January 2018, D2 filed her 2nd affirmation (“D2 2nd Aff”) in reply. 33.The hearing of the P Summons and the D2 1st, 2nd and 3rd Summonses came before me on 23 January 2018 (“Hearing”). At the Hearing, I granted the following orders:
34.On 25 January 2018, P filed Szeto’s 3rd affirmation inter alia as follows:
35.At the Hearing, P abandoned the reliefs referred to in paragraph 28(b)-(c) above in respect of the P Summons. Thus, other than the question of costs, the remaining issues under the D2 1st and 3rd Summonses before the court were (a) whether the Injunction Order should be discharged or further varied to reduce the sum to be frozen to US$250,000, and (b) if the Injunction Order was to be discharged, what consequential directions should be made. On such remaining issues, Mr Lai, counsel for D2, submitted there were the following sub-issues: (i) whether P obtained the Ex Parte Order by “insufficient disclosure or misrepresentation” so that it should be set aside ex debito justitiae, (ii) whether it would have been obvious to P after the filing of the D2 1st Aff on 31 August 2017 that the Injunction Order could not be sustained and ought to be forthwith discharged, and (iii) whether as at the Hearing the Injunction Order should be discharged or varied. 36.At the Hearing, the Schmitz 1st Aff was placed before this court. Out of abundance of caution, Mr Ng, counsel for P, raised the issue of admissibility of such affirmation that exhibited documents obtained from HSB/HSBC pursuant to disclosure orders made by the courts in other actions (but related to the Email Fraud and Defrauded Sum). Mr Ng urged that such documents were admissible, and Mr Lai took no issue on admissibility, so it was agreed this court could refer to the Schmitz 1st Aff and its exhibits as part of the affirmation evidence before the court. III. D2’S DEFENCE AND AFFIRMATION EVIDENCE 37.First, D2 claimed that even on P’s case, there was prima facie probability and reasonable inference that P’s alleged loss was caused/ occasioned by conspiracy, dishonesty, negligence and/or other default of management by P’s own staff for which P was vicariously liable. D2 claimed these matters were within P’s exclusive knowledge, and she reserved her right to rely on any further fact that might be elicited from interrogatories and/or cross-examination of P’s witnesses at trial. On such basis, it was said P was not entitled to any equitable remedy against D2 as the innocent victim. 38.D2 next claimed the remittance of the alleged Defrauded Sum to Hen Yue was not a mistake as the relevant bank instruments for such transfer were duly executed by P’s staff and were valid instruments to the bank. It was said at the material time P intended title in the money under such remittance to pass and such title did pass to the beneficiary Hen Yue which would defeat any claim of tracing. Further, insofar as such remittance was induced by fraud or misrepresentation by Hen Yue and other conspirators, or alternatively there was failure of consideration, such remittance was voidable at the instance of P against Hen Yue only, so P’s remedy was confined to recovery of money from Hen Yue and the conspirators which would not concern D2. D2 claimed P did not come to court with clean hands, so it was not entitled to any equitable relief. 39.D2 agreed on 13 July 2016 Haiyun and Welly Smart respectively transferred the Haiyun Sum (US$270,000) and Welly Smart Sum (US$230,000) to the D2 Account, but she was a bona fide purchaser for value without notice as she provided genuine consideration for receipt of such sums, and at the time of receipt she was unaware of the alleged Email Fraud and/or such sums were originally P’s assets:
40.D2 claimed the total sum of US$1,000,000 remitted into the D2 Account was progressively utilised in due course for her/Wang’s “US business, immigration and contemplated property purchase purposes”:
41.D2 claimed that on 18 August 2016 she/Wang entered into a New Home Construction Agreement with Grand Homes 2012, LP to buy a newly built home at 971 Holt Lane, Allen, Texas 75013 at the price of US$625,225, which funds came from the D2 Account. The house was completed and delivered in April 2017. 42.D2 further claimed she received US$500,000 from Hua on 18 January 2017 in a foreign exchange transaction handled by Wang in Beijing under similar circumstances. Such US$ funds were to cover education/living expenses of Wang’s cousin (daughter of an uncle) who would commence full-time undergraduate study at Cornell University in August 2017. 43.D2 next denied the Haiyun and Welly Smart Sums could be traced back to the Defrauded Sum. On P’s affirmation evidence, on 12 July 2016 P remitted €3,760,900 (Defrauded Sum) to Hen Yue, on 13 July 2016 Hen Yue remitted US$3,150,000 (Hen Yue Sum) to Pengshunyi, on 13-14 July 2016 Pengshunyi remitted US$790,000 and US$250,000 to Haiyun and Welly Smart respectively, and on 13 July 2016 Haiyun and Well Smart remitted US$270,000 (Haiyun Sum) and US$230,000 (Welly Smart Sum) to the D2 Account. But D2 claimed there was no proper paper trail to evidence the aforesaid transactions:
44.D2 further pointed out she only received US$230,000 from Welly Smart, but P recovered HK$1,455,887.89 or US$186,652 from Welly Smart, so P’s claim against D2 in respect of the Welly Smart Sum could not have exceeded US$43,348. 45.D2 noted it appeared P had abandoned its proprietary claim over the Haiyun and Welly Smart Sums as it had entered default judgment against Haiyun and Welly Smart for personal remedies without tracing of assets,[32] and had executed on such default judgment. D2’s solicitors wrote to P’s solicitors on 28 July 2017 for disclosure of the court documents in HCA2006/2016, but P failed to disclose the same. 46.D2 also complained that despite requests for disclosure of documents provided by HSBC pursuant to the HSBC Disclosure Order, P failed to do so. The D2 2nd Aff exhibited the bank statements of the D2 Account from April 2016 to September 2017. D2 claimed P should have the bank statements in January 2017 before its application for the Ex Parte Order, but they were still not disclosed. 47.D2 also complained that the Injunction Order locked up US$500,000 and D2’s other private monies in the D2 Account pending adjudication by the court. D2 denied any actual/pretended risk of dissipation of funds in the D2 Account. D2 suggested in fact the evidence of risk of dissipation was wholly against P. The bank statements of the D2 Account clearly indicated the disputed receipts in the total sum of US$500,000 on 13 July 2016 (ie the Haiyun and Welly Smart Sums) remained idle for half a year up to the time of the Writ of Summons in the present action (ie 19 January 2017) and for another half year until D2 discovered the Injunction Order. 48.D2 said the D2 Account was opened with HSBC on 24 April 2014 with her maiden home address at Unit 9A, Section 2, Block 1, Madian Guancheng North Garden, Haidian District, Beijing City, which was owned by her parents. It was her home until she married in 2009. In 2011, Wang and D2 bought their own residential property at Unit 702, Section 2, Block 5, Linsui East Road No 2 Mansion, Chaoyang District, Beijing, which had been their home since. In/about 2015, D2’s parents also left the maiden home address and moved to new accommodation. The old property was locked up and left uninhabited. D2 claimed this explained why she was unaware of the grant of the Injunction Order freezing her money in the D2 Account for half a year until she wanted to use her monies in May 2017. 49.D2 suggested this was conclusive evidence there was never any risk of dissipation of assets, which was in stark contrast to P’s other funds that were remitted into accounts of other parties who typically took flight within a matter of 1-2 days. D2 claimed the fact the disputed monies idled in the D2 Account for the first half year was known to P in January 2017 prior to its application for the Ex Parte Order, and the court was misled into wrongly granting the Ex Parte Order by P’s non-disclosure. D2 therefore claimed she was entitled to have the Injunction Order discharged ex debito justitiae. 50.On the other hand, P in its Statement of Claim denied D2’s defence that the funds received formed part of an alleged foreign exchange transaction with Hua, and claimed that (a) such alleged transaction was to circumvent the foreign exchange control in PRC, ie the rule that an individual could only exchange foreign currency to the value of US$50,000 annually, (b) D’s own case was that it was Hua and not Haiyun or Welly Smart who was obliged to transfer US$ to D2, and (c) D2’s own case was that she or Wang communicated with Hua by Weixin text, but they were unable to produce the text messages. 51.The Schmitz 4th Aff also raised concern over D2’s open admission of her disrespect of the Chinese foreign exchange control laws, and reserved the right to report such conduct to the relevant agencies/ authorities. Schmitz claimed it was for the relevant government authorities in, say, Mainland China to conduct necessary investigation and to implement measure(s) to prosecute any person(s) admittedly involved in activities that contravened the relevant laws and regulations. 52.But D2 denied any deliberate circumvention of any Chinese foreign exchange law. It was said that while PRC state licensed banks were required by law to limit foreign exchange transactions of individual account holders to not more than US$50,000/year, there was (to D2’s knowledge) no Chinese law that prohibited citizens from going to money brokers to satisfy their foreign exchange needs in excess of the service provided by banks. D2 claimed this practice was fairly open and common to all Chinese business communities in major cities, and even the Chinese government had knowledge of such open operation of money brokers for many years. D2 claimed she had personal knowledge that even senior government officials would go to money brokers to get needed foreign exchange, which was just routine commercial reality in Mainland China. 53.D2 claimed it lied ill in the mouth of Schmitz being a German national “to pass wanton observations (說三道四) on China’s economic activities which only goes to illustrate that [P’s] entire claim and the application for the Injunction Order against [D2] have absolutely no merit and no legal basis”. D2 claimed the alleged illegality was irrelevant to the issues defined in the pleadings and to any consideration as to whether or not the Injunction Order should have been granted or whether it should be varied or discharged. 54.But even assuming that buying foreign exchange from money brokers were illegal (which D2 denied), D2 claimed that under the law of illegal contracts in the jurisdiction of Hong Kong courts to which P expressly submitted, illegality only made the contracts unenforceable by the parties, but would not affect their respective property rights. So whilst the court would not assist any party to enforce illegal contract with outstanding obligation or breach remedy, illegality would not affect the passing of title of private property given in exchange by the parties in the transaction. Thus, D2 claimed the issue of illegality was irrelevant to any issue in this action. IV. LEGAL PRINCIPLES (a) Proprietary injunction 55.For an interim injunction to protect a claim for trust property, the Amercian Cyanamid principles apply, ie an applicant must show (a) there is a serious question to be tried on the merits of the claims, (b) the balance of convenience is in favour of granting an interlocutory injunction, and (c) it is just and convenient to grant the injunction “although irremediable damage need not necessarily be shown and the court will readily find that the balance of convenience favours the preservation of the fund pending trial. See eg Lewin (supra) at §38-14; A v C [1981] QB 956; CY Foundation Group v Cheng Chee Tock & Ors [2012] 1 HKLRD 532 at §§14, 37”.[33] 56.As to the substantive merits of the claim, “the court need only be satisfied that the claim “is not frivolous or vexatious, in other words, that there is a serious question to be tried.” (American Cyanamid (supra) at 407). If the opposing party seeks to show there is no serious issue to be tried, the threshold is high, as it would be necessary to demonstrate that the claim should be struck out. See eg Yifung Properties Ltd & Ors v Manchester Securities Corp and Ors (unreported) CACV258/2015, 9 September 2016, at §20.”[34] 57.In Zimmer Sweden AB v KPN Hong Kong Limited & anor,[35] DHCJ Kent Yee concurred with To J’s observations in Falcon Private Bank Ltd v Borry Bernard Edouard Charles Limited & anor[36] that the application does not have to show risk of dissipation of assets:[37]
58.In Samtani v Samtani, DHCJ Au-Yeung (as she then was) summarised what has to be shown for the grant of a preservation order:[38]
(b) Mareva injunction 59.Generally, for the grant of a Mareva injunction, the plaintiff must give the cross-undertaking as to damages and comply with a strict duty of full and frank disclosure, and must show that (a) he has a good arguable case on the merits, (b) there are assets within the jurisdiction, (c) there is a real risk of dissipation of assets or removal of assets from the jurisdiction, and (d) the balance of convenience is in favour of the grant.[40] 60.“In applications for Mareva injunctions, the threshold is much higher [than the test of “a serious question to be tried”] and the claimant needs to show “a good arguable case” in the sense of a case which is more than barely capable of serious argument, and yet not necessarily one that the judge believes to have a better than 50% chance of success.”[41] In Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd & ors, DHCJ Douglas Lam SC said:
V. DISCUSSION (a) P’s causes of action 61.P’s pleaded causes of action included (a) a proprietary claim of traceable proceeds (US$500,000) of the Defrauded Sum by “backward tracing” such that D2 held such traceable proceeds on trust for P, (b) a claim in personam based on constructive trust and knowing or unconscionable dealing with or receipt of US$500,000 (Haiyun and Welly Smart Sums), (c) claim in personam based on dishonest assistance in breach of trust by Hen Yue, Pengshunyi, Haiyun and Welly Smart in respect of the sum of €3,760,000 (Defrauded Sum), and (d) claim in personam for money had and received and unjust enrichment of US$500,000. (b) D2’s miscellaneous defences 62.D2 raised the following defences in her Defence which could be dealt with shortly: (a) staff conspiracy or fault of P that affected its clean hands status (see paragraph 37 above), and (b) voidable payments due to fraud did not prevent valid payments to banks and innocent parties (see paragraph 38 above). 63.In respect of the alleged defence in paragraph 62(a) above, Mr Lai submitted P’s staff conspiracy, incompetence and/or negligence were obvious if not patent in the present case since even Diemer was critical of the conduct of Kayser who played a central role in the fraudulent transfer of the Defrauded Sum.[42] But as Mr Ng reminded, D2 in her Defence accepted she was not able to plead any particulars, so the pleaded averment of a prima facie probability and reasonable inference that P’s alleged loss was caused or occasioned by P’s own staff conspiracy, dishonesty, negligence and/or other default of management was nothing more than a bare assertion. Moreover, at the Hearing, Mr Lai conceded that if fraud was involved, the cause of action of the employer as victim against the fraudster would not be circumscribed by staff default/negligence in failing to notice signs/indicia of fraud. In my view, it is not uneasy to understand how an employer’s cause of action for fraud/conspiracy would be diminished by his employee’s involvement in such fraud/conspiracy. After all, when a fraudulent employee who (together with others) perpetrates a fraud/conspiracy against his employer, such employee could hardly be acting within his scope of employment duties vis-à-vis his own employer. Further, it is again not easy to understand the suggestion of vicarious liability on the part of the employer for staff misdemeanour, default and/or negligence when such act/default was not visited on some third party to whom the employer might owe a duty of care but on the employer himself. 64.In respect of the defence in paragraph 62(b) above, D2 claimed P’s payment to Hen Yue was not a mistake because the relevant bank instruments for transfer of the Defrauded Sum being duly executed by P’s staff were valid instructions to the bank. Mr Lai initially argued the signatures of Diemer and Langerbeins on the 1st Payment Instruction Form must have been genuine because otherwise P would have sued Commerzbank for payment under forged signatures, but there was simply no evidence of relevant German law and procedure before me. In any event, paragraph 12 of the Schmitz 1st Aff noted Diemer’s 1st affirmation filed on 20 July 2016 in HCA1873/2016 (“Diemer 1st Aff”) confirmed that Diemer “……. did not instruct [Kayser] to make any transfers and that the instructions provided to [Kayser] came from fraudsters”. Paragraphs 5-6 of the Diemer 1st Aff also made clear that after P discovered the Email Fraud, Diemer and Langerbeins read the email correspondence between Kayser and the Imposter as well as the 1st Payment Instruction Form, and Diemer adamantly confirmed it was a fraud perpetrated on P, and as Chief Executive Officer he would not be involved in all the technicalities of a payment. The whole tenor of the Diemer 1st Aff was that the Email Fraud was a scam, and neither he nor Langerbiens had approved any payment instruction. 65.Mr Lai then tried to argue Kayser believed the signatures on the 1st Payment Instruction Form were genuine and vouched for them by taking the form to Commerzbank. But the whole purpose of forged signatures was to deceive, and the fact that initially Kayser mistakenly thought they were genuine was neither here nor there. As Mr Ng submitted, P’s case was that the instructions to the bank were tainted by mistakes in the first place. As explained in Goff & Jones, The Law of Unjust Enrichment,[43] there can be mistake even if payment is made electronically or by machines, and “a person who uses an automated process is similarly placed to a person who uses a human agent”. Mr Lai eventually accepted at the Hearing that without cogent evidence to the effect that the signatures on the 1st Payment Instruction Form were genuine, the line of defence in paragraph 62(b) above could hardly be made out. (c) P’s proprietary claim and proprietary injunction 66.In respect of P’s causes of action referred to in paragraph 61 above, Mr Lai submitted that for the proprietary claim referred to in paragraph 61(a) above, tracing is not a claim or remedy but is “merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property. Tracing …… does not affect or establish his claim”,[44] and P still had to raise/prove some viable cause of action to make out its proprietary claim. But even if P’s proprietary claim were a viable cause of action as at 19 January 2017 (ie when the Ex Parte Order was granted) capable of supporting an interim proprietary injunction, Mr Lai submitted that with clarification of the fund movements in the Haiyun, Welly Smart and D2 Accounts in paragraph 43 above (which paper trail was not disputed by the time of the Hearing) that was clearly against P, a straightforward application of the first in first out principle under Clayton’s Rule[45] would reduce the traceable amount to US$250,000. But since P recouped about US$186,652 from Welly Smart (see paragraph 44 above), Mr Lai contended P’s ultimate traceable loss/damage was at best only US$43,348, and even then D2’s defence of bona fide purchaser for value without notice of the Email Fraud would put an end to P’s tracing claim. 67.Mr Ng fairly accepted that on the presently available bank statements and transaction records Haiyun transferred the Haiyun Sum to the D2 Account before it received all remittances from Pengshunyi, and Welly Smart transferred the Welly Smart Sum to the D2 Account before it received any remittance from Pengshunyi (see paragraph 43(b)-(c) above). Nevertheless, Mr Ng argued P had a good arguable proprietary claim against D2 as the Haiyun and Welly Smart Sums (US$500,000) were traceable proceeds of the Defrauded Sum. He suggested the law was more nuanced than suggested by the attractive simplicity of Mr Lai’s submissions referred to in the above paragraph. 68.In my view, tracing enables a beneficiary to recover trust property that has been misappropriated. Lord Millett in Foskett v McKeown & ors explained as follows:[46]
Thus, the alleged innocence of the recipient will go to the question of whether he is a bona fide purchaser for value and without notice. 69.Mr Ng referred to Guaranty Bank and Trust Company v ZZZIK Inc Limited[47] in which DHCJ Cooney summarised the legal principles for a proprietary constructive trust claim as follows:
70.Turning to P’s case that the Haiyun and Welly Smart Sums were traceable proceeds of the Defrauded Sum that went through a number of bank accounts, I note Mr Ng relied on the principle of “backward tracing”. Lewin on Trusts[49]explained that when there are evidential difficulties “…… the court may be prepared to draw the inference that a payment into one account is attributable to a previous payment out of another account and therefore traceable where the two payments are of a similar though not identical amount and the time gap between them is reasonably short.” (my emphasis) 71.In Relfo Limited (in liquidation) v Varsani,[50] the English Court of Appeal held that:
72.I rely on (but do not repeat here) my discussions in A Co v W Co & ors[51] in respect of Agip (Africa) Ltd v Jackson & ors (paragraphs 55-57) and Relfo Limited (in liquidation) (paragraphs 58-62). Although “backward tracing” was not applied on the facts of A Co, it would be useful to refer to the following passage in Snell’s Equity[52] cited in paragraph 53 of A Co as follows:
73.The principle of “backward tracing” was recently affirmed in Federal Republic of Brazil & anor v Durant International Corpn & anor.[53] In that case, the plaintiffs (a foreign state and a municipality of that state) sued the defendant companies which were under the practical control of a former mayor of the municipality and/or his son as constructive trustee of monies from bribes paid to the former mayor. The plaintiffs claimed that the US$10.5 million had been paid into an account under the control of the son in the name of C (C Account) between 9 January and 6 February 1998, that from 14 to 23 January 1998 6 payments totalling US$13.1 million were paid from C Account to an account held by the 1st defendant in Jersey, and that from 22 January to 23 February 1998 4 payments totalling US$13.5 million were paid from the 1st defendant’s account to an account held by the 2nd defendant in Jersey. The defendants claimed such deposits were legitimate brokerage commissions, and further claimed the total amount that could be properly traced to them was limited to US$7.5 million since (a) the last 3 payments into the C Account had come after the final payment from the C Account to the 1st defendant’s account and so could not be traced to the defendants because there was no doctrine of “backward tracing”, and (b) on 2 occasions payments had been made from the C Account to the 1st defendant’s account of sums which exceeded the maximum which could be said to have come from the earlier bribes and therefore had to come from other sources. 74.The Royal Court of Jersey concluded that if an account remained in credit during the relevant period and there was no suggestion of an intervening bona fide purchaser for value, a tracing claim could succeed if there was sufficient evidence to establish a clear link between credits and debits to an account, and gave judgment to the plaintiffs, observing that it was the defendants’ own pleaded case that the relevant payments into the 1st defendant’s account were linked with one another as well as with the payments into the C Account. The Privy Council at pp 312-313 said as follows:
75.Mr Lai agreed that the principle of “backward tracing” involved questions of mixed law and fact. Indeed, the Privy Council in Federal Republic of Brazil & anor reminded that quite often useful evidence from the defendant will be hard to come by, and often the plaintiff will have to rely on inference from proved facts. In respect of the co-ordination discussed by the Privy Council as applied in the context of the present case, Mr Ng drew attention to the fact that (a) after, shortly before or about the time Pengshunyi received the Defrauded Sum from Hen Yue it transferred significant sums to various parties on 13-14 July 2016, (b) shortly before or about the time Haiyun and Welly Smart received funds from Pengshunyi they transferred significant sums to D2 on 13 July 2016, and (c) after D2 received the Haiyun and Welly Smart Sums there was a series of withdrawals from the D2 Account. 76.For the Haiyun Sum, the transaction summary of the Haiyun Account showed many deposits and withdrawals on 13 July 2016 (covering 2½ pages of the transaction summary), but out of such many transactions the very transaction after Pengshunyi deposited US$250,000 into the Haiyun Account was the transfer of the Haiyun Sum of US$270,000 to the D2 Account (see paragraph 43(b) above), and after 7 more deposits and 2 withdrawals Pengshunyi deposited another sum of US$250,000 into the Haiyun Account. In my view, the temporal proximity of these transactions that all happened so shortly on the same day demonstrated a good arguable case (let alone a serious question to be tried) supportive of P’s case. 77.For the Welly Smart Sum, the transaction summary of the Welly Smart Account also showed many deposits and withdrawals on 13 July 2016 (almost 1 page of the transaction summary), but out of such many transactions the Welly Smart Sum ($230,000) was paid out of the Welly Smart Account to the D2 Account, and in the 4th and 6th deposits after such withdrawal Pengshunyi paid US$100,000 and US$150,000 into the Welly Smart Account (see paragraph 43(c) above). Mr Ng suggested the subsequent withdrawal of US$440,992.90 closely matched the deposit of US$444,598.06 just before withdrawal of the Welly Smart Sum, the withdrawals of US$127,000 and US$121,693 (totalling US$248,693) closely matched the deposit of US$248,693.45 into the Welly Smart Account after the Pengshunyi deposits, and the withdrawal of US$150,000 closely matched the 1st, 2nd and 3rd deposits after the withdrawal of the Welly Smart Sum (US$30,000, US$50,000 and US$70,000). Again, at this interlocutory stage of the proceedings, I find the temporal proximity of the withdrawal of the Welly Smart Sum and the Pengshunyi deposits in the context of other deposits/withdrawals made so near in time within the same day demonstrated a good arguable case (let alone a serious question to be tried) supportive of P’s case. 78.In my view, the close temporal proximity of the deposits by Pengshuiyi into the Haiyun and Welly Smart Accounts and the withdrawals of the Haiyun and Welly Smart Sums therefrom in similar manner, the multiple deposits and withdrawals in the Haiyun and Welly Smart Accounts on 13-14 July 2016, the failure of Pengshunyi, Haiyun and Welly Smart to defend P’s legal claims such that P secured default judgment against them all conspired to raise a good arguable case (let alone a serious question to be tried) as to whether there was co-ordination between Pengshunyi and Haiyun / Welly Smart and whether there was anticipation of reimbursement from Pengshunyi for withdrawals of the Haiyun and Welly Smart Sums such that the lack of strict chronological order did not matter. In my view, P had shown an arguable basis to suggest the chronological entries in the bank statements and transaction summaries were not necessarily conclusive. Further, in light of the inherent evidential weaknesses of the alleged defence of bona fide purchaser for value without notice discussed in paragraphs 80-84 below, which undermined the vitality of such alleged defence, there was arguably an evidential “black hole” designed to frustrate P’s claim against D2. 79.On such basis, there was likewise a good arguable case (let alone a serious question to be tried) as to whether D2 held the sum of US$500,000 (Haiyun and Welly Smart Sums) on constructive trust for P (who paid out the Defrauded Sum as a result of the Email Fraud) and/or whether it would unconscionable for D2 to retain such money (P claimed it had no prior dealing with D2 who had no legitimate reason to receive the Haiyun and Welly Smart Sums – this would further turn on the defence of bona fide purchaser for value without notice which I shall discuss in paragraphs 80-84 below). 80.Snell’s Equity states that:[54]
Mr Lai relied on the defence of bona fide purchaser for value without notice raised in the background context of D2’s family/business and her history of US and Hungary immigration activities since 2014 (ie long before the critical date of 12 July 2016) that, according to Mr Lai, was well-documented by contemporaneous and indisputable bank statements and foreign government public documents. Mr Lai reminded that D2 had used Hua’s foreign exchange brokerage services since those early days when she applied for Hungary investment immigration pending processing of her US immigration application, and there was nothing to suggest D2 knew the D2 Account had been frozen. Mr Lai submitted this was a strong and unanswerable defence. 81.In my view, the burden was on D2 to establish bona fide purchase,[55] and to show she lacked constructive notice of any impropriety in respect of the Haiyun and Welly Smart Sums.[56] As a matter of law, a defence of bona fide purchaser for value without notice can be defeated if (a) a reasonable person with the attributes of D2 should either have appreciated on facts already available to her that a proprietary right probably existed, or (b) she should have made inquiries or should have sought advice which would have revealed the probable existence of such a right (in which case D2 would have had constructive notice of the existence of the right), and in the latter situation D2 must make inquiries if there is a serious possibility of a third party having such right or, to put in another way, if the facts known to D2 would give a reasonable person with her attributes serious cause to question the proprietary of the transaction.[57] 82.Mr Ng frankly accepted that at this interlocutory stage D2’s state of mind was not entirely clear, and I agree it is inherently not easy for P to get information/evidence of the state of mind of a 4th layer recipient of the proceeds of the Defrauded Sum. So in determining whether the Injunction Order to be discharged, I bear in mind that direct evidence of D2’s knowledge might not be readily available at this early interlocutory stage. Indeed, in JS Microelectronics Ltd v Achhada,[58] DHCJ Woo Kwok Hing observed as follows:
83.Mr Ng submitted D2’s knowledge might be inferred from the fact Haiyun and Welly Smart transferred substantial funds to D2 shortly before or about the time they received funds from Pengshunyi. Even though D2 claimed the Haiyun and Welly Smart Sums she received formed part of a foreign exchange transaction with Hua, I am not persuaded on the available evidence before me that such defence was as conclusive as Mr Lai would have this court accept:
84.As explained in paragraph 56 above, to discharge the proprietary injunction D2 had to show P’s claim was liable to be struck out. I am not persuaded D2 could do so at this stage when the account given in the D2 1st Aff and Wang Aff did not sit well with the bank documents. Since no risk of dissipation had to be shown, and the balance of convenience necessarily fell in favour of P as victim of the Email Fraud, I see no basis to discharge the Injunction Order. 85.Mr Ng suggested that on such basis there was no need to go further to consider P’s in personam claim and the Mareva injunction. But in deference to counsel’s submissions, I shall go on to deal with the same. (d) In personam claim and Mareva injunction 86.As regards the in personam cause of action referred to in paragraph 61(b)-(d) above (knowing receipt, money had and received and unjust enrichment – US$500,000), the test was whether D2 had been unjustly enriched at P’s expense. For a claim based on knowing receipt, Snell’s Equity states that:[60]
As for a claim for money had and received, in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd,[61] Ribeiro PJ said “[the] common law cause of action asserted by the plaintiff for money had and received where consideration has totally failed is now generally regarded as a species of claim for restitution based upon principles of unjust enrichment”, and a useful framework for approach such claims involves asking 4 questions: (a) was the defendant enriched? (b) was the enrichment at the plaintiff’s expense? (c) was the enrichment unjust? (d) are any of the defences applicable? 87.As explained in Guaranty Bank and Trust Company at paragraph 27, regarding a claim based on unjust enrichment, money paid under a mistake of fact is prima facie recoverable provided that (a) the payer did not intend the payee to have the money in any event, (b) the money was not paid for good consideration and (c) the payee has not in good faith changed his position. I will turn to (b)-(c) below, but obviously on P’s pleaded case and affirmation evidence, P’s payment of the Defrauded Sum was caused by its mistake, ie such sum was paid pursuant to the purported secret takeover transaction which was untrue, and P did not intend D2 to have the Haiyun and Welly Smart Sums. 88.As to whether the transfers of the Haiyun and Welly Smart Sums were at P’s expense, there was no need to demonstrate a direct payment from P to D2 nor a proprietary link between them because the relevant question was whether there was “sufficient causal connection” in the sense of a sufficient nexus or link between the loss to P and the benefit received by D2.[62] In considering whether there was sufficient nexus or link, Lord Reed JSC in Investment Trust Companies v Revenue and Customs Commissioners[63] referred to 3 scenarios:
89.As to any defence of good consideration, D2 relied on the defence of bona fide purchaser for value without notice. But in my above discussions in relation to this defence and the reservations that I had expressed (see paragraphs 80-84 above), I am not persuaded D2’s contentions in this regard caused any dent to P’s good arguable case. 90.As for the defence of change of position, there was no such pleaded defence. But even if I were to consider this potential defence, such defence is obviously a fact-sensitive one in which a defendant has to show not only that his position has changed, and also his position has so changed that it will be inequitable in all the circumstances to require him to make restitution or to make restitution in full. Causation is required and reliance is usually required, and to apply the test in the present context was to ask whether D2 entered into a transaction that she would have not entered into but for her enrichment.[64] The mere fact D2 had spent the money, in whole or in part, did not of itself render it inequitable that she should be called upon to repay.[65] 91.In my view, there was good arguable case that D2 knew the Defrauded Sum was transferred because of mistake. Since D2’s only answer to the inference of a good arguable case that she had changed her position not in good faith and/or with knowledge of P’s entitlement to restitution was the defence of bona fide purchaser for value without notice, the inherent evidential weaknesses in D2’s contentions in this regard as discussed in paragraphs 80-84 above undermines the vitality of such defence. I am unconvinced D2 could rely on any defence of change of position to overcome the good arguability of P’s cause of action in support of the in personam injunction. 92.Further, as for the claim based on constructive trust and knowing or unconscionable receipt, the above discussions also showed the Haiyun and Welly Smart Sums (arguably imbued with equitable interest traceable from the Defrauded Sum pursuant to the doctrine of “backward tracing”) found their way to the D2 Account, so P had a good arguable case of demonstrating beneficial receipt on the part of D2. As for D2’s “fault” to support a claim based on constructive trust and knowing receipt, D2’s answer was the defence of bona fide purchaser for value without notice, but I refer to the discussions in paragraphs 81-84 above to say there was arguable basis to support such “fault”. 93.I now turn to P’s in personam cause of action referred to in paragraph 61(b) above based on dishonest assistance. Mr Lai submitted this was a non-starter as P did not in its pleadings or affirmation evidence plead or aver any material fact, particular or evidence of conduct/wrongdoing on the part of D2 to justify such cause of action (eg conduct on the part of D2 which was “assisting” and which was “dishonest” as being in aid of breach of trust) other than the paper trail of receipt of the Haiyun and Welly Smart Sums in the D2 Account on 13 July 2016 (which was not disputed). Mr Lai submitted such in personam claim was “complete nonsense” if not outright abuse of legal proceedings, and was liable to be struck out for want of essential particulars of assistance, dishonesty, knowledge and/or fiduciary duty under Order 18 rule 12 of the Rules of the High Court, which was not a mere technicality as it went directly to the question (a) whether P had any arguable claim apart from proprietary tracing and (b) whether there was any good arguable case. 94.Mr Ng accepted the position was not particularly clear-cut, but nevertheless contended P had a good arguable claim on dishonest assistance.[66] As to the element of “assistance”, Mr Ng pointed out that “those who assist in money laundering after the breach of trust has first occurred may be made liable for dishonest assistance. In money laundering cases, the assistance will normally take the form of receiving and then parting with money representing the trust property while it is in the course of being laundered. For the purpose of establishing assistance in this kind of case, it will be necessary to trace the money representing the trust property into the hands of the defendant, using the equitable tracing rules for the purpose”.[67] In Heinl & ors v Jyske Bank (Gibraltar) Ltd, Nourse LJ said “[in] regard to the case based on money laundering it is clear in principle that the concealment of misapplied trust moneys in that way can constitute assistance”.[68] In my view, especially in the context of the above analysis for “backward tracing” and the inherent evidential weaknesses of the alleged defence of bona fide purchaser for value without notice, there was arguable basis for Mr Ng’s contentions that D2 played an active role in dissipating the Defrauded Sum (ie D2 received the traceable monies from other recipients), and that P’s effort to trace the Defrauded Sum has been complicated and frustrated by D2’s intervention. 95.As to the element of “dishonesty”,[69] Mr Ng fairly accepted dishonesty cannot be proved if unconscionable knowledge cannot be shown,[70] and “[in] the context of commercial transaction, constructive knowledge would only suffice if on the facts actually known to the defendant, a reasonable person would either have appreciated that the transfer was probably (as distinct from possibly) in breach of trust or would have made inquiries or sought advice which would have revealed the probability of breach of trust”.[71] Mr Ng properly drew this court’s attention to DBS Bank (Hong Kong) Limited v Tian Wen Quan where it was said that the mere fact of receipt of funds from underground currency exchange by circumventing exchange control in Mainland China was not necessarily dishonest or amounted to sufficient knowledge to defeat a defence of bona fide purchaser for value without notice, and that mere receipt of such funds arguably would not amount of unconscionable knowledge for the purpose of knowing receipt (let alone dishonesty).[72] 96.No doubt, the burden is a high one, and Mr Ng frankly accepted the position was not entirely clear-cut at this stage, but he suggested that by reason of the matters discussed above in relation to “backward tracing” in the context as explained in paragraph 78 above, the apparent coordination between Hen Yue, Pengshunyi and Haiyun / Welly Smart with transfers effected within a short time of each other (see paragraphs 76-79 above), and the present unreliability of D2’s case of acquiring the Haiyun and Welly Smart Sums by alleged foreign exchange transaction with Hua (see paragraphs 80-84 above), I find there was enough, at this interlocutory stage, to demonstrate a good arguable case of drawing inference that D2 might be dishonest and might have knowledge of the fraud. I also bear in mind that a good arguable defence may co-exist with a good arguable case. 97.Since I accept there was a good arguable case in respect of this in personam cause of action, Mr Ng argued P would be entitled to claim for its full loss (ie the Defrauded Sum) being the proper measure for a dishonest assistant’s liability, and the court should focus on the breach by the fraudster (that resulted in loss of the Defrauded Sum) and not on the assistance of the assistant (US$500,000 that D2 received).[73] Lam J (as he then was) in High Fashion Garments Co Ltd v Ng Siu Tong & ors[74] cited with approval what the Court of Appeal said in Grupo Torras v Al-Sabah said as follows:[75]
98.On the matter of risk of dissipation, Mr Lai submitted there was never any such risk, and P had known since 5 December 2016 prior to the application for the Ex Parte Order on 19 January 2017 that US$500,000 was sitting idle in the D2 Account for half year since 17 July 2016 (see paragraphs 46 and 49 above). It was said if this fact was drawn to the attention of the ex parte judge, the Ex Parte Order might never have been granted (see paragraph 49 above). In this respect, Mr Lai drew attention to the bank statement of the D2 Account dated 23 July 2016 that showed 9 deposits into the D2 Account (including the Haiyun and Welly Smart Sums) on 13 July 2016 which brought the net balance to US$1,431,920.92. Although there were various withdrawals in the next few days, there was still US$1,137,248.98 by 23 July 2016. The amount of US$ in the D2 Account as at 23 November and 23 December 2016 was the same at US$837,140.84. 99.Mr Ng submitted (and I agree) there was no factual evidential basis for D2 to say P had knowledge by 5 December 2016 that US$500,000 had been idling in the D2 Account for half a year. In respect of his contentions set out in the above paragraph, Mr Lai referred to paragraphs 51-53 of the Schmitz 1st Aff which stated that pursuant the injunction orders obtained in HCA2006/2016 against the 8 and 5 HK Companies (ie the 2nd layer action), HSBC was required to disclose to P inter alia the source and destination of payments into and out of the bank accounts of the 13 defendants in the 2nd layer action. HSBC provided the first batch of disclosure on 29 August 2016 which contained mainly bank statements for July/August 2016 and the account opening mandates (see paragraph 11 above). On 12 September 2016, P requested disclosure of documents relating to “specific transactions identified in the bank statements of the various defendants. However, due to delay on the part of HSBC, [P] did not receive all of the requested documents until 5th December 2016. From the redacted bank statements and transaction documents disclosed by HSBC, [P] identified numerous withdrawals made from the account of Haiyun, Welly Smart and Kailaite” (see paragraph 11 above). D2 was not one of the “thirteen defendants” in HCA2006/2016, and there was no evidence P received any bank statement of the D2 Account by 5 December 2016. In fact, it was from such disclosure by HSBC that P discovered the remittances of the Haiyun and Welly Smart Sums out of the Haiyun and Welly Smart Accounts to the D2 Account. 100.Indeed, the Schmitz 1st Aff was made prior to the grant of the Ex Parte Order. It was only upon grant of the Ex Parte Order that P obtained the HSBC Disclosure Order for disclosure documents in respect of the D2 Account (see paragraph 17 above). In fact, it was on 21 February 2017 (ie after the grant of the Ex parte, Amended Ex Parte and Inter Partes Orders) that P’s solicitors received the bank statements of the D2 Account from HSBC.[76] There was no factual basis to support Mr Lai’s allegation of material non-disclosure, and there is no merit to this suggestion. 101.Mr Lai then submitted that the lack of risk of dissipation was strengthened by the fact that despite the grant of the Ex Parte Order, the money continued to sit idle in the D2 Account for another half year when D2 was unaware of the Injunction Order. Mr Lai submitted this was “overwhelming evidence of the conduct of an honest, respectable, ordinary Beijing citizen who is not a fly-by-night member of a conspiracy team”. In my view, whether D2 was aware of the Injunction Order or not was beside the point since the Injunction Order protected the frozen funds in the D2 Account from being removed, and it was irrelevant whether D2 did or did not do anything. 102.The bank statements of the D2 Account showed there were subsequent withdrawals/transfers from such account. The amount now remaining in the D2 Account was only slightly more than the cap of US$500,000 under the Injunction Order. In the Wang Aff, Wang explained the ease with which funds could be withdrawn and remitted from bank accounts by internet banking from a coffee shop in Beijing without physical attendance at HSBC in Hong Kong. This was also linked to the defence of bona fide purchaser for value without notice. The inherent factual weaknesses of such defence when viewed against the bank documents (see paragraphs 80-83 above) also raised the questionability of withdrawals from the D2 Account. In my view, a risk of dissipation could be inferred in all the circumstances. As for the balance of convenience, in view of the risk of dissipation, the balance was in P’s favour. In my view, there is no basis to discharge the Injunction Order. (e) Injunction limit 103.The next question was whether the cap of US$500,000 should be reduced to US$250,000 or less by virtue of P’s default judgment and recoveries against Haiyun and Welly Smart. I do not agree to any reduction of the cap as P proposed:
VI. CONCLUSION 104.In the circumstances, D2’s 1st and 3rd Summonses are dismissed. I grant a costs order nisi that D2 shall pay P costs of and occasioned by such summonses, including all costs reserved if any, to be taxed forthwith if not agreed. 105.As regards the D2 2nd Summons, once HSBC disclosed the bank statements of the D2 Account pursuant to the HSBC Disclosure Order in February 2017, P should have realised the available balance in D2 Account exceeded US$500,000 (or even US$520,000), so there was no point in pursuing the Disclosure Order in aid of the Injunction Order. Steps could have been taken then (or at least when D2 served the D2 1st Summons) to abandon or withdraw the Disclosure Order. The fact P did not do so until just before or at the Hearing meant P should pay D2’s costs of the D2 2nd Summons. I therefore grant a costs order nisi that P shall pay D2’s costs of and occasioned by such summons, including all costs reserved if any, to be taxed forthwith if not agreed. 106.As for the P Summons, the relief sought in paragraph 28(a) above asked for continuation of Injunction Order, which was unnecessary given the Inter Partes Order. The relief sought in paragraph 28(d) above asking for dismissal of the D 1st and 2nd Summonses was unnecessary since the determination of such summonses would have resolved the matter. As for the abandoned reliefs in paragraph 28(b)-(c) above and the consequential relief in paragraph 28(e) above, on 28 July 2017 D2’s solicitors proposed payment of US$520,000 into court.[79] When P’s solicitors wrote to D2’s solicitors on 7 November 2017 to confirm P’s agreement to such proposal with slight variation that HSBC shall be directed to pay US$500,000 (or HK$ equivalent) (instead of US$520,000) out of the D2 Account into court as security for P’s claim with costs reserved to enable the Injunction Order to be discontinued and the Hearing to be vacated, D2’s solicitors replied on 13 November 2017 to say such belated response did not reflect any sincerity on P’s part, and in any event the offer was “water under the bridge”. By then D2 was not willing to make payment into court as she believed the Injunction Order would not have survived the Hearing, and she asked P to consent to immediate discharge of the Injunction Order with costs to her. As the outcome of the D 1st and 3rd Summonses demonstrated, D2’s stance was inappropriate. But then the P Summons was also unnecessary. Since payment into court was no better or different for P than the Injunction Order (with the amount to be frozen reduced to US$500,000), and as D2 unwilling to make payment into court, there was no sensible reason for P to complicate matters by the proposal in the P Summons, especially when instead of asking HSBC to pay US$500,000 out of the D2 Account into court P proposed an even more convoluted route by having D2 utilise the funds in the D2 Account to buy a cashier order to give to P’s solicitors for payment into court. In my view, the proper order (which I now make) is no order on the P Summons with costs order nisi that there be no order as to costs of such summons.
Mr Tom Ng, instructed by Robertsons, for the plaintiff Mr Thomas Lai, instructed by Hui & Lam LLP, for the 2nd defendant [1] Hen Yue was a Hong Kong company incorporated on 5 May 2015 with issued capital of HK$10,000, and according to the company search records its sole shareholder and sole director had addresses in Mainland China [2] Pengshunyi was incorporated on 6 January 2016 with issued capital of HK$10,000, and the company search records showed its sole director/shareholder had address in Mainland China [3] Haiyun was incorporated on 28 March 2014 with issued capital of HK$10,000, and the company search records showed its sole director/shareholder had address in Mainland China [4] Welly Smart was incorporated on 5 July 2015 with issued capital of HK$10,000, and the company search records showed its sole director had address in Mainland China [5] Kailaite was incorporated on 14 October 2015 with issued capital of HK$10,000, and the company search records showed its sole director/shareholder had address in Mainland China [6] Living Profit was incorporated on 15 June 2015 with issued capital of HK$1, and the company search records showed its sole shareholder/director had address in Mainland China (and its registered office was the same as that of inter alia Hen Yue, Bentong and Pengshunyi) [7] P claimed it had no prior dealings with any of these companies [8] ie interlocutory proprietary injunction [9] ie interlocutory Mareva injunction [10] see letter from P’s solicitors to HSBC dated 29 September 2017 exhibited as “DS4-1” to Schmitz’s 4th affirmation filed on 8 December 2017 (see paragraph 32 below) [11] including the injunction order as varied by my order at the hearing on 23 January 2018 (see paragraph 33(b) below) [12] D2 claimed the minimum investment requirement was an upfront payment of €300,000 to an approved Hungary immigration scheme [13] D2/Wang claimed the then market exchange rate for RMB into Euro was 7.3424 (see Industrial and Commercial Bank of China (“ICBC”) webpage record on 26 May 2016) [14] ie €30,000, €100,000, €67,000, €41,350 and €84,450 [15] see bank statement of the D2 Account dated 26 May 2016 [16] by 13 remittances (ie RMB226,200, RMB754,000, RMB505,180, RMB500,000, and 9 remittances of RMB50,000 each) [17] see transaction summary for the Ng Account for May 2016 [18] D2 claimed the market exchange rate at the time was 7.3567 (see ICBC’s webpage record on 1 June 2016) [19] see the 5th transaction in the transaction summary for the Ng Account for June 2016 (D2 said the 1st 4 transactions in such transaction summary were foreign exchange transactions from RMB to US$ that were made with Hua on behalf of D2’s other relatives) [20] D2 produced copies of her/Wang’s “匈牙利綠卡”, 2 receipts dated 6 June and 5 July 2016 for purchase of the Hungary Fund, and her certificate for the Hungary Fund [21] D2 claimed the market exchange rate for RMB into US$ at the time was 6.5780 (see ICBC’s webpage record on 23 June 2016) [22] ie US$100,000, US$100,000, US$22,000, US$40,000, US$50,000, US$29,999.93, US$34,000 and US$55,000 [23] see bank statement of the D2 Account of 23 June 2016 [24]ie RMB668,000, RMB668,000, RMB668,000, RMB80,160, RMB200,400, RMB227,120 and RMB367,950 [25] see transaction summary of D2’s account with ICBC for June 2016 [26] the market exchange rate for RMB into US$ at the time was 6.6950 (see ICBC’s webpage record of 13 July 2016) [27] ie US$50,000, US$50,000, US$50,000, US$39,500, US$100,000, US$70,500, US$110,000, US$230,000, US$30,000 and US$270,000 [28] see bank statement of D2 Account dated 23 July 2016 [29] ie RMB1,000,000 and RMB833,300 [30] see transaction summary of Wang’s account of July 2016 and that of 汪巍先生’s account of July 2016 [31] see bank remittance report dated 13 July 2016 being exhibit “DS1-38” of the Schmitz 1st Aff [32] similar to the default judgment P obtained against D1 and D3 on 27 February 2017 in the present action for personal remedies even though the Writ of Summons also contained a proprietary claim [33] see Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd & ors HCA3023/2016, DHCJ Douglas Lam SC (unreported, 2 May 2017) para 37 [34] see Pacific Rainbow International Inc at para 39(1) [35] HCA2264/2013, DHCJ Kent Yee (unreported, 2 May 2014) para 77 [36] HCA1934/2011, To J (unreported, 9 July 2012) [37] see also Samtani v Samtani [2012] 4 HKLRD 872, 892 [38] [2012] 4 HKLRD 872, 891-892 [39] citing Johnson v Tobacco Leaf Marketing Board [1967] VR 427, 430 [40] see Hong Kong Civil Procedure 2018 Vol 1 para 29/1/65 at p 731 [41] see Hong Kong Civil Procedure 2018 Vol 1 para 29/1/66 at p 731 and Pacific Rainbow International Inc at para 39(2) [42] Mr Lai drew attention to paragraphs 7, 23-30 and 34 in the Diemer 1st Aff (referred to in paragraph 64 below) being exhibit “DS1-6” of the Schmitz 1st Aff [43] 9th ed para 9-57 at pp 329-330 [44] see Foskett v McKeown & ors [2001] 1 AC 102, 128 [45] see Snell’s Equity 33rd ed para 30-059 at p 790 [46] [2001] 1 AC 102, 127 [47] HCA1139/2016, DHCJ Cooney, SC (unreported, 18 July 2016) [48] see also Zimmer Sweden AB at paras 94-95 [49] 19th ed (2015) para 41-024 at p 1982 [50] [2014] EWCA Civ 360 (28 March 2014) [51] HCA477/2015, DHCJ Marlene Ng (unreported, 25 June 2015) [52] 33rd ed para 30-061 at pp 790-791 [53] [2016] AC 297 [54] 33rd ed para 30-065 at p 792 [55] see Chan Chun Chung & anor v PBM (Hong Kong) Ltd (2004) 7 HKCFAR 178, 183-184 [56] see Papadimitriou v Crédit Agricole Corpn and Investment Bank [2015] 1 WLR 4265, 4277 [57] see Papadimitriou at pp 4274-4277 [58] [2013] 1 HKLRD 334, 354 [59] see transaction documents produced by HSBC exhibited as exhibit “DS4-1” of the Schmitz 4th Aff [60] 33rd ed paras 30-071 – 30-072 at pp 795-796 [61] (2004) 7 HKCFAR 79, 104 [62] see Menelaou v Bank of Cyprus UK Ltd [2016] AC 176, 189, 205-206 (see Lee Yuk Shing v Dianoor International Ltd CACV185/2015 (unreported, 23 May 2016) paras 110-111) [63] [2017] 2 WLR 1200, 1215 [64] see Globenet Droid Ltd v Hong Kong Hang Lung Electronic Co [2016] 3 HKLRD 863, 885-886 [65] see Liu Ke Mian Lorraine v De Xin Da Trading Co Ltd HCMP1481/2016 (unreported, 30 September 2016) para 20, and Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548, 580 [66] see Snell’s Equity 33rd ed paras 30-077 – 30-078 at pp 798-799 [67] see Lewin on Trusts 19th ed (2015) para 40-034 at pp 1944-1945 [68] [1999] 1 Lloyd’s Rep Banking 511, 523 [69] see Snell’s Equity 33rd ed para 30-079 at pp 799-780 [70] see DBS Bank (Hong Kong) Ltd v Tian Wen Quan HCA3228/2016, Anthony Chan J (unreported, 12 October 2017) para 21 where the learned judge said “[for] both knowing receipt and dishonest assistance, a mental element has to be established, respectively, unconscionable knowledge and dishonesty” and “[there] can be no argument that there is a higher burden in satisfying the latter” [71] see DBS Bank (Hong Kong) Limited at para 22 [72] HCA3228/2016, Anthony Chan J (unreported, 12 October 2017) paras 25-27 [73] see Snell’s Equity 33rd ed para 30-081 at p 800 [74] [2005] 4 HKC 8, 27 (see also Lewin on Trusts 19th ed para 40-053 at p 1957) [75] [2001] Lloyd’s Rep PN 117 at para 119 [76] see letter from P’s solicitors to HSBC dated 29 September 2007 exhibited as “DS4-1” to the Schmitz 4th Aff (see paragraph 32 above) [77] see Snell’s Equity 33rd ed para 30-071 at p 795 [78] [2009] QB 376, 390-391 (see also Personal Representatives of Tang Man Sit v Capacious Investments Ltd [1996] 1 AC 514, 522) [79] see the letter dated 28 July 2017 from D2’s solicitors to P’s solicitors proposing that instructions be given to HSBC to pay US$520,000 or HK$ equivalent out from the D2 Account “as security for [P’s] claim, and the Injunction Order shall cease to have effect on [D2]” |
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