Seridom Servicios Integrados Idom S.A.U. v. Heng Wen Trade Co., Ltd and Others
Read the full judgment text of HCA 1631/2017 on BabelCite. This High Court CFI judgment was delivered on 21 January 2019.
1. The plaintiff (“ P ”) was a Spanish company incorporated on 3 October 1995 with headquarters in Bilbao, Spain. It had 40 offices around the world with over 3,000 employees, and projects in 125 countries that offered professional services in consulting, engineering and architecture. According to its 2016 audited accounts and audited consolidated accounts of the IDOM SAU group, P’s volume of activity was at €300,000,000.00 in the 2016 financial year.
Cited by 11 cases · Cites 8 cases
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HCA 1631/2017 [2019] HKCFI 85 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1631 OF 2017 ________________________
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________________ DECISION ________________ I. INTRODUCTION 1.The plaintiff (“P”) was a Spanish company incorporated on 3 October 1995 with headquarters in Bilbao, Spain. It had 40 offices around the world with over 3,000 employees, and projects in 125 countries that offered professional services in consulting, engineering and architecture. According to its 2016 audited accounts and audited consolidated accounts of the IDOM SAU group, P’s volume of activity was at €300,000,000.00 in the 2016 financial year. 2.The 1st defendant (“D1”) was a Hong Kong company incorporated on 2 June 2017 with registered address in Wanchai, Hong Kong. Its sole director/shareholder Li Guicang held a Chinese identity card and an address in Ningxia, Mainland China. 3.The 2nd and 3rd defendants (“D2” and “D3”) were Hong Kong companies incorporated on 15 September 2016 with same registered address in Mongkok, Kowloon. The sole director/shareholder of each of D2 and D3 was respectively Wang Xuemei and Ma Jingui who held Chinese identity cards and same address in Ningxia, Mainland China. 4.The 4th defendant (“D4”) was a Hong Kong company incorporated on 4 July 2016 with the same registered address as D2/D3. Its sole director/shareholder was Tian Fucheng who held a Chinese identity card and an address in Ningxia, Mainland China. 5.The 8th defendant (“D8”) was a Hong Kong company incorporated on 4 January 2010 with registered address in Tsimshatsui, Kowloon and with SBS Nominee Limited as its company secretary having an address in North Point, Hong Kong. D8 had a share capital of 500,000 ordinary shares of HK$1.00/share that were paid up or regarded as paid up. D8’s 2 directors/shareholders Zhong Yohua (450,000 shares) and Huang Wenli (50,000 shares) both held Chinese identity cards and addresses at Room 18C, Building No 5, Donjun Baishida Garden, Luohu Distrct, Shenzhen, Mainland China and Room 21B, Unit 3, Building No 2, Lehu Baisha Garden, Luohu District, Shenzhen, Mainland China respectively. 6.The 10th defendant (“D10”) was a Hong Kong company incorporated on 19 April 2010 with same registered address as D8 in Tsimshatsui, Kowloon. D10 had a share capital of 200,000 ordinary shares of HK$1.00/each. Its 2 directors/shareholders Zeng Jiankai (110,000 shares) and Chen Yixin (90,000 shares) held Chinese identity cards and different addresses in Shenzhen, Mainland China respectively. II. P’S CASE 7.On 21 January 2016, P entered into a contract with an Israeli company regarding the construction/operation of a natural gas and diesel oil fired cogeneration electricity production facility to be located in Hadera, Israel (“Project”). P was to design, engineer, procure, supply, construct, install, commission, start up, test and deliver the facility to its customer. P engaged a Korean company BHI Co, Ltd (“BHI”) to provide some services for the Project pursuant to a contract between them dated 18 March 2016 (“BHI Contract”) for which P would make payments to BHI in tranches. The key contact person at BHI whom P dealt with on the BHI Contract was Wooram Lee (BHI’s Acting Manager of the Global Marketing Group located in Korea, “Lee”), and Ander Rodriguez Gil (“Rodriguez”) was P’s representative located in Spain who liaised with Lee in relation to P’s payments to BHI pursuant to the BHI Contract. Lee/Rodriguez communications were mostly by email, but some were via telephone calls. 8.P claimed to be a victim of fraudulent misrepresentations and/or deceit which led it to pay US$2,404,218.05 (“Net Sum”) to a bank account in D2’s name with Hang Seng Bank Limited (“HSB”) in Hong Kong (“D2’s Account”):
9.As regards D1 and D2, P claimed (a) the contents/attachments of the 1st/2nd Emails were fraudulent misrepresentations and/or deceit made or committed by D1, D2 and/or the Fraudster who controlled D1 and D2 (in which case D1 and D2 were a sham) with intent that they would induce and be relied on by P to make the Primary Transfer, and (b) D1, D2 and/or the Fraudster knew such representations to be false or they were reckless as to whether the representations were false, so P suffered loss/damage in the amount of the Net Sum, and D1 and D2 were liable jointly and severally to P for the same. Further or alternatively, P claimed that, regardless of whether D1 and D2 were actual senders of the 1st/2nd Emails, they knowingly and dishonestly assisted the Fraudster in his/her misrepresentation/deceit, so they knew or ought to have known the Primary Transfer could not have been legitimately obtained from P for apparent reasons or because (a) D1 and D2 knew or ought to have known there was no contractual/lawful reason for P to have made the Primary Transfer, (b) the Primary Transfer was so substantial that D1 and D2 knew or ought to have known it had been fraudulently obtained and/or (c) D1 and D2 knew or ought to have known the Primary Transfer was procured by the Fraudster by way of fraudulent misrepresentation / deceit. 10.As regards D2, P also claimed:
In the premises, P claimed it was entitled to trace the monies comprising the Sum or part thereof to D2, and any profits, income, assets and/or interests derived by D2 from the Sum or any part thereof which had been paid over or transferred to it, so D2 was liable to deliver up to P such monies or assets. 11.P claimed that between 23 and 29 June 2017, D2 by 14 separate transactions transferred all of the Sum that belonged to P to the bank account in Hong Kong of each of the 3rd to 7th defendants (“D3, D4, D5, D6 and D7”) and D8 (“Secondary Transfers”) as particularised below (collectively, “Secondary Accounts”):
12.P claimed the funds being the subject of the Secondary Transfers were P’s property received by D3-D8 and held on constructive trust in P’s favour, so inter alia D3, D4 and D8 respectively held US$895,849.00, US$984,153.00 and US$251,570.00 on constructive trust in favour of P.[4] By reason of the above matters and the constructive trust pursuant to which the funds being the subject of the Secondary Transfers were held, P was entitled (a) to trace (i) the specified amounts received by inter alia each of D3, D4 and D8 via the Secondary Transfers and (ii) any profits, income, assets and/or interests derived by inter alia D3, D4 and D8 from the monies or any part thereof which had been wrongfully transferred to them as aforesaid so that they were liable to deliver up such monies or assets, and (b) further or alternatively, to claim for the respective sums specified above for unjust enrichment. 13.Between 23 June and 11 July 2017, D3, D4, D5 and D7 by 20 separate transactions further transferred the Sum belonging to P which each of them received from D2 via the Secondary Transfers to the bank account of each of D2, D5-D6, D8, the 9th defendant (“D9”), D10 and the 11th to 21st defendants (“D11, D12, D13, D14, D15, D16, D17, D18, D19, D20 and D21”) (“Tertiary Transfers”) as particularised below (“Tertiary Accounts”):
14.P claimed the funds which were the subject of the Tertiary Transfers were P’s property and were received by each of D2, D5-D6 and D8-D21 and held on constructive trust in P’s favour, so inter alia D2, D8 and D10 respectively held US$242,787.00, US$348,430.00 and US$200,000.00 in favour of P.[8] By reason of the above matters and the constructive trust pursuant to which the funds being the subject of the Secondary/Tertiary Transfers were held, P claimed it was entitled (a) to trace (i) the specified amounts received by each of inter alia D2, D8 and D10 via the Tertiary Transfers, and (ii) any profits, income, assets and/or interests derived by inter alia D2, D8 and D10 from the monies or any part thereof which have been wrongfully transferred to them as aforesaid, so they were liable to deliver up such monies or assets, and (b) further or alternatively, to claim for the respective sums specified above for unjust enrichment. 15.In summary, whilst D8 and D10 made no admission and claimed to have no knowledge of the aforesaid fraud on P, they agreed (a) P made the transfer of US$2,404,218.05 (ie the Net Sum) to D2’s Account on 21 June 2017, (b) D2 made the transfer of US$251,570.00 to D8’s Account on 23 June 2017, (c) D2 made certain transfers to inter alia D3’s and D4’s Accounts on 23-29 July 2017, (d) D3 and D4 made respective transfers of US$100,679.00 and US$247,751.00 to D8’s Account on 23 June 2017, and (e) D3 made the transfer of US$200,000.00 to D10’s Account on 26 June 2017. The transfers by D2, D3 and D4 to D8 in (b) and (d) above in the total sum of US$600,000.00, and the transfer by D3 to D10 in (e) above in the sum of US$200,000.00 are referred to below collectively as “Transfers”. P claimed the sums paid under the Transfers involved the Net Sum. It averred in its pleadings that there was no reason then to believe D8 and/or D10 (or indeed any of D3-D21) were involved in, or were aware of, the aforesaid fraud on P, but reserved the right to reconsider its position during the course of the present action and on-going investigation carried out by the Hong Kong police. III. PROCEDURAL HISTORY 16.On 10 July 2017, P applied ex parte for (a) an injunction order pursuant to Order 29 rule 1 of the Rules of the High Court (“RHC”) to restrain D1 and D2 from disposing of their assets in Hong Kong up to the value of the Net Sum including but not limited to monies held in D1’s and D2’s Accounts, and (b) for an order under section 21 of the Evidence Ordinance Cap 8 (“EO”) that P and/or its representatives be at liberty to inspect banker’s records in relation to such bank accounts. 17.Such application was supported by the unsworn 1st affidavit of P’s Managing Director Miguel Renobales Barbier (“Barbier”) (“Barbier 1st Aff”) that verified the matters in paragraphs 2, 3 (in relation to D2) and 7-9 above save and except that at that time:
18.The unsworn Barbier 1st Aff sought a Mareva injunction / proprietary injunction and disclosure orders on the grounds that there was a good arguable case / serious question to be tried, assets within the jurisdiction and real risk of dissipation, and that the balance of convenience was in favour of P for granting “the injunction and/or preservation order”. Barbier claimed the Net Sum belonged to P who was entitled to claim against D1 and D2 on the bases of fraudulent misrepresentation / deceit, money had and received / unjust enrichment, knowing assistance and/or knowing receipt for remedies including (a) payment of the Net Sum or alternatively damages to P, (b) a declaration that D1 and D2 held the Net Sum on trust and/or constructive trust on P’s behalf and were liable to account to P for the Net Sum, (c) an order for restitution as money had and received for the Net Sum or alternatively for equitable compensation, (d) all necessary accounts and enquiries against D1 and D2 to enable P to trace and recover the Net Sum, (e) a declaration that P was entitled to trace into the Net Sum and all assets acquired by or representing such monies, and (f) an order for delivery up of the Net Sum. 19.The unsworn Barbier 1st Aff also sought the following information from HSB to facilitate investigation by law enforcement agencies in and outside Hong Kong and for P to take steps to trace further recipients of the Net Sum and to freeze such funds: (a) the balance of D2’s Account, (b) whether the Net Sum P remitted to D2’s Account was still in such account, (c) if not, information as to the identity of the recipient(s) / bank account(s), and (d) identity of those with control over D2’s Account. 20.On 10 July 2017, Toh J granted an ex parte injunction order against D1 and D2 prohibiting them from removing, disposing of, dealing with and/or diminishing the value of their assets in Hong Kong up to the value of the Net Sum including monies in D1’s and D2’s Accounts, and a disclosure order against D1 and D2 to inform P’s solicitors forthwith in writing at once (and to be confirmed on affidavit served on P’s solicitors within 14 days after service of such order on D1 and D2) of “all of their assets of an individual value of HK$10,000 or more in Hong Kong, whether in their own names or not and whether solely or jointly owned, giving the value, location and details of all such assets” with exception for privilege against self-incrimination (“1st Injunction Order”), and also an order pursuant to section 21 of the EO against HSB for disclosure of documents in relation to D1’s and D2’s Accounts (“1st Disclosure Order”). 21.On 11 July 2017, P filed the Writ of Summons against D1 and D2, and an inter partes summons for continuation of the 1st Injunction and 1st Disclosure Orders. On 13July 2017, P filed the Barbier 1st Aff. On 14 July 2017, subject to slight variation of the terms of the undertakings in the 1st Injunction Order, DHCJ Kwan continued the 1st Injunction and 1st Disclosure Orders until determination of the present action or further order (“1st Continuation Order”). 22.Based on information provided by HSB pursuant to the 1st Disclosure Order on 13, 18, 25 and 31 July 2017, P claimed to have identified from the relevant bank statement of D2’s Account various secondary transfers out of the Net Sum from D2’s Account to the Secondary Accounts of D3-D8 and 2 bank accounts in India on 23-29 June 2017:
It appeared from the above that the respective balance in D2’s Account the day before and just before the Primary Transfer was US$904.65 and US$140,065.53. The Primary Transfer brought the balance in D2’s Account up to US$2,424,209.26. Such balance together with the Other Deposits (see footnote 10 above) were in the total sum of US$2,948,496.26, but during 23-29 June 2017 a total sum of US$2,935,050.58 was withdrawn from D2’s Account by way of secondary transfers, so the bulk of the Primary Transfer and Other Deposits were disbursed leaving a balance of only US$3,402.53 in D2’s Account as at 29 June 2017. 23.On 26 July 2017, P’s solicitors reported the above information to the Hong Kong police, and requested the Hong Kong police to liaise with JIFU and to arrange to freeze the Secondary Accounts. 24.On 2 August 2017, P filed an ex parte summons and applied ex parte for (a) leave to amend the Writ of Summons pursuant to Order 20 rule 5 of the RHC in the manner marked in red as per the draft annexed to the ex parte summons (essentially to add D3-D8 as additional defendants in the present action), and (b) an injunction order pursuant to Order 29 rule 1 of the RHC restraining D3-D8 from disposing of their assets in Hong Kong up to value of the amount each of D3-D8 received into their respective Secondary Account, including but not limited to monies held in such Secondary Accounts. On 2 August 2017, P also applied ex parte for an order pursuant to section 21 of the EO that P and/or its representatives be at liberty to inspect banker’s records in relation to the Secondary Accounts. 25.Such ex parte applications were supported by the unsworn Barbier’s 2nd affidavit (“Barbier 2nd Aff”). Barbier confirmed that prior to the aforesaid fraud P never had any dealings with D3-D8, and verified the matters in paragraphs 3 (in relation to D3), 4-5 and 11 above save and except at that time:
26.The unsworn Barbier 2nd Aff sought a Mareva injunction / proprietary injunction and disclosure orders on the grounds that there was a good arguable case / serious question to be tried, assets within the jurisdiction and real risk of dissipation, and that the balance of convenience was in P’s favour for granting “the injunction and/or preservation order”. Barbier claimed the Net Sum belonged to P who was entitled to claim against D3-D8 in relation to the Secondary Transfers or subsequent transfers on/after 23 June 2017 (if any) of funds from D2’s Account to the Secondary Accounts for remedies including (a) a declaration that monies received by D3-D8 into the Secondary Accounts from D2’s Account on/after 23 June 2017 were received on constructive trust for P as the proceeds of unjust enrichment, money had and received, knowing assistance and/or knowing receipt, (b) all necessary accounts and enquiries against D3-D8 to enable P to trace and recover the Net Sum, (c) a declaration that P was entitled to trace into the Net Sum and all assets acquired by or representing such monies, and (d) an order for delivery up of such monies or assets. 27.The unsworn Barbier 2nd Aff also asked for the following information from HSB to facilitate investigation by law enforcement agencies in and outside Hong Kong and for P to take steps to trace further recipients of the Net Sum and to freeze such funds: (a) the balance of Secondary Accounts, (b) whether the funds D2 remitted to the Secondary Accounts were still in such accounts, (c) if not, information as to the identity of the recipient(s) / bank account(s), and (d) identity of those with control over the Secondary Accounts. 28.On 2 August 2017, DHCJ William Wong SC granted an ex parte injunction order against D3-D8 prohibiting them from removing, disposing of, dealing with and/or diminishing the value of their assets in Hong Kong with respective monetary caps at US$895,849.00, US$984,153.00, US$253,870.00, US$170,000.00, US$253,248.00 and US$251,570.00 (or HK$ equivalent), and ordered D3-D8 to inform P’s solicitors in writing at once (to be confirmed by affidavit served on P’s solicitors within 14 days after service of such order on D3-D8) of “all of their assets of an individual value of HK$10,000 or more in Hong Kong, whether in their own names or not and whether solely or jointly owned, giving the value, location and details of all such assets” with exception for privilege against self-incrimination (“2nd Injunction Order”), and also an order pursuant to section 21 of the EO against HSB and HSBC in relation to the Secondary Accounts (“2nd Disclosure Order”). 29.On 2 August 2017, P filed the Amended Writ of Summons and an inter partes summons for continuation of the 2nd Injunction and 2nd Disclosure Orders. On 7 August 2017, P filed the Barbier 2nd Aff. On 11 August 2017, DHCJ William Wong SC continued the 2nd Injunction and 2nd Disclosure Orders until determination of the present action or further order (“2nd Continuation Order”). 30.On 15 August 2017, D8 by its solicitors filed acknowledgment of service giving notice of intention to defend. On 11 September 2017, D8 filed the affirmation of Zhong Yohua out of time pursuant to the disclosure order under the 2nd Injunction Order (which delay was subsequently regularised on 10 October 2017 by time indulgence granted by consent). 31.On 11 August 2017, P’s solicitors wrote to HSB for bank statements/documents relating to the account activities of D3, D4 and D5. Based on information provided by HSB in September 2017, P claimed to have identified from the relevant bank statements of D3’s, D4’s and D5’s Accounts that the Secondary Transfers were almost immediately transferred to a number of recipients. 32.The balance of D3’s Account as at 22 June 2017 was US$1,775.77. As against the Secondary Transfers into D3’s Account on 23-27 June 2017 (see paragraph 11(a) above), D3 made Tertiary Transfers to inter alia D8 and D10 on 23 and 26 June 2017 in the respective sums of US$100,679.00 and US$200,000.00. 33.The balance of D4’s Account as at 22 June 2017 was US$27,290.03. As against the Secondary Transfers into D4’s Account on 23-28 June 2017 (see paragraph 11(b) above), D4 made Tertiary Transfers to inter alia D8 on 23 June 2017 in the sum of US$247,751.00. 34.By an ex parte summons dated 27 September 2017 but filed on the following day, P applied for (a) leave to re-amend the Amended Writ of Summons pursuant to Order 20 rule 5 of the RHC in the manner marked in green as per the draft annexed to the ex parte summons (essentially to add D9-D21 as additional defendants in the present action), (b) an injunction order pursuant to Order 29 rule 1 of the RHC restraining D9-D21 from disposing of their assets in Hong Kong up to the value of the amounts each of D9-D21 received into their respective Hong Kong Tertiary Account including but not limited to monies held in such Tertiary Accounts, and (c) an order pursuant to section 21 of the EO that P and/or its representatives be at liberty to inspect banker’s records in relation to the Tertiary Accounts. 35.Such application was supported by the unsworn Barbier’s 3rd affirmation (“Barbier 3rd Aff”) that verified the matters in paragraphs 6 and 13 above save and except inter alia that at the time:
36.The unsworn Barbier 3rd Aff sought a Mareva injunction / proprietary injunction and disclosure orders on the grounds that there was a good arguable case / serious question to be tried, assets within the jurisdiction and real risk of dissipation, and that the balance of convenience was in P’s favour of granting “the injunction and/or preservation order”. Barbier claimed the Net Sum belonged to P who was entitled to claim against D9-D21 in relation to the Tertiary Transfers for remedies including (a) a declaration that monies received by D9-D21 into the Tertiary Accounts via the Tertiary Transfers were received on constructive trust for P as the proceeds of unjust enrichment, money had and received, knowing assistance and/or knowing receipt, (b) all necessary accounts and enquiries against D9-D21 to enable P to trace and recover the Net Sum, (c) a declaration that P was entitled to trace into the Net Sum and all assets acquired by or representing such monies, and (d) an order for delivery up of such monies or assets. 37.The unsworn Barbier 3rd Aff also asked for the following information to be given by HSB, HSBC, DBS and OCBC to facilitate investigation by law enforcement agencies in and outside Hong Kong and for P to take steps to trace further recipients of the Net Sum and to freeze such funds: (a) the balance of the Tertiary Accounts, (b) whether the funds transferred by the Tertiary Transfers to the Tertiary Accounts were still in such accounts, (c) if not, information as to the identity of the recipient(s) / bank account(s), and (d) identity of those with control over the Tertiary Accounts. 38.On 27 September 2017, DHCJ Lee granted an ex parte injunction order against D9-D21 prohibiting them from removing, disposing of, dealing with and/or diminishing the value of their assets in Hong Kong with respective monetary caps at US$152,136.00, US$200,000.00, US$100,000.00, US$100,000.00, US$196,500.00, US$252,650.00, US$984,153.00, US$104,800.00, US$50,000.00, US$41,100.00, US$685,277.00, US199,992.96 and US$170,000.01 (or HK$ equivalent), and ordered D9-D21 to inform P’s solicitors in writing at once (to be confirmed by affidavit served on P’s solicitors within 14 days after service of such order on D9-D21) of “all of their assets of an individual value of HK$10,000 or more in Hong Kong, whether in their own names or not and whether solely or jointly owned, giving the value, location and details of all such assets” with exception for privilege against self-incrimination (“3rd Injunction Order”), and also an order pursuant to section 21 of the EO against HSB, DBS and OCBC in relation to the Tertiary Accounts (“3rd Disclosure Order”). 39.I note (and as confirmed by Mr Brown, counsel for P) the monetary cap in respect of D8 under the 2nd and 3rd Injunction Orders only covered the amount of the Secondary Transfer from D2 to D8 (US$251,570.00) and not the amounts of the Tertiary Transfers from D3 and D4 to D8 (US$100,679.00 and US$247,751.00). 40.On 27 September 2017, P filed the Re-Amended Writ of Summons. On 28 September 2017, P filed an inter partes summons for continuation of the 3rd Injunction and 3rd Disclosure Orders. On 29 September 2017, P filed the Barbier 3rd Aff. 41.On 10 October 2017, P filed its Statement of Claim (“SoC”) in which P claimed inter alia against D8 and D10 for:
At the Hearing (see paragraph 56 below), Mr Brown confirmed there was no substantive plea in the SoC of dishonest assistance and/or knowing receipt against D8 and D10. 42.On 13 October 2017, subject to certain variations concerning D15, Mimmie Chan J continued the 3rd Injunction and 3rd Disclosure Orders until determination of the present action or further order (“3rd Continuation Order”). 43.On 19 October 2017, D10 by its solicitors filed acknowledgment of service giving notice of intention to defend. On 24 October 2017, D10 filed the affirmation of Chen Yixin out of time pursuant to the disclosure order under the 3rd Injunction Order. 44.On 28 November 2017, P entered judgment in default against D1-D4, D7, D9, D11-D12, D14, D16-D18 and D20 inter alia as follows:
45.On 5 December 2017, D8 and D10 filed their respective Defence. 46.On 13 December 2017, D8 and D10 filed a summons to seek security for costs on the basis that P was ordinarily resident out of jurisdiction. On 13 December 2017 and 16 March 2018, D8 and D10 filed the 1st and 2nd affirmations of their solicitor Chan Ching Bun (“Chan”) in support. On 23 February 2018, P filed the affidavit of its solicitor Wong Yiu Pong in opposition. 47.On 3 May 2018, upon P’s solicitors undertaking to court that “the sum of US$261,717.68 and US$401,501.90 [collectively, “Funds”] will remain in the solicitors’ account until the final resolution of these proceedings, including the making of any final costs order in favour of [D8 and D10] and will be made available for the costs of the proceedings for [D8 and D10]” (“Undertaking”), Master Catrina Lam granted leave for D8 and D10 to withdraw their summons for security for costs. 48.On 20 December 2017, Master H Au-Yeung granted garnishee orders to show cause (a) against HSB in relation to the judgment debts by D1-D4, D9, D11-D12, D14 and D16-D18 due to P, (b) against HSBC in relation to the judgment debt by D7 due to P, and (c) against OCBC in relation to the judgment debt by D20 due to P. On 2 January 2018, such garnishee orders nisi were made absolute by DHCJ To. On 22 January 2018, DHCJ To discharged the 1st Injunction and 1st Continuation Orders against D1-D2, the 2nd Injunction and 2nd Continuation Orders against D3, D4 and D7, and the 3rd Injunction and 3rd Continuation Orders against D9, D11-D12, D14, D16-D18 and D20. 49.On 30 January 2018, P filed its Reply to the respective Defence of D8 and D10. 50.On 13 February 2018, D8 and D10 filed a summons for orders that (a) the 2nd Injunction and 2nd Continuation Orders against D8 and the 3rd Injunction and 3rd Continuation Orders against D10 be discharged, and (b) in the event of being unsuccessful in relation to (a) above, P do fortify its respective cross-undertaking as to damages under the 2nd Injunction and 2nd Continuation Orders with respect to D8 and under the 3rd Injunction and 3rd Continuation Orders with respect to D10 by paying HK$500,000.00 into court for each cross-undertaking (“Summons”). 51.On 13 February and 15 June 2018, D8 and D10 filed the affirmation of Zhong Xiaoxia (D8’s and D10’s financial controller, “Zhong”) (“Zhong Aff”) and Chan’s 3rd affirmation (“Chan 3rd Aff”) in support. On 17 May 2018, P filed the affirmation of its solicitor Richard Keady (“Keady”) (“Keady Aff”) in opposition. 52.On 8 March 2018, D8 and D10 filed their respective Amended Defence, and P filed its List of Documents. On 23 March 2017, D8 and D10 filed their List of Documents. 53.On 8 May 2018, this court granted leave for P to withdraw its claim against D15 and to discontinue its action against D15, and discharged the 3rd Injunction and 3rd Continuation Orders against D15. 54.On 13 June 2018, Chow J granted leave to amend the 2nd Injunction and 2nd Continuation Orders concerning D5. On 3 August 2018, this court granted leave for P to withdraw its claim against D5 and to discontinue its action against D5 conditional upon P not commencing another action on the same or substantially the same subject matter as the present action against D5, and discharged the amended 2nd Injunction and 2nd Continuation Orders against D5. 55.On 10 August 2018, this court granted leave for P to withdraw its claim against D21 and to discontinue its action against D21, and discharged the 3rd Injunction and 3rd Continuation Orders against D21. P’s remaining claims were against D6, D8, D10, D13 and D19. On 27 September 2018, P filed its Timetabling Questionnaire. On 4 October 2018, D8 and D10 filed their Timetabling Questionnaire. 56.The Summons came before me for hearing on 30 August 2018 (“Hearing”). After the Hearing, P’s and D8’s/D10’s solicitors jointly wrote to this court on 31 August 2018 to confirm that in the event this court required P to give fortification for the purpose of the cross-undertaking as to D8’s and D10’s damages (if any) under the Summons, the following terms of the proposed undertaking were agreed:
IV. D8’S AND D10’S DEFENCE 57.D8 and D10 put P to strict proof of the alleged fraud. 58.D8 admitted it received the Secondary Transfer of US$251,570.00 (before deduction of recipient bank charges) from D2’s Account on 23 June 2017, and the Tertiary Transfers of US$100,679.00 and US$247,751.00 (before deduction of recipient bank charges) from D3’s and D4’s Accounts on/about 23 June 2017 pursuant to the instructions of a 陳天成 (Chen Tianshing or Chen Tiancheng, “Chen”), which D8 claimed was remittance of its RMB funds in Mainland China in the total sum of US$600,000.00 to D8’s Account in Hong Kong through Chen on 23 June 2017:
59.Further or alternatively, D8 claimed it paid a total of RMB4,159,758.00 in return for the sums of US$251,570.00, US$247,751.00 and/or US$100,679.00 received, which sums were used to pay off its trade payables on/about 26 June 2017, which in turn constituted change of D8’s position. 60.D10 admitted it received US$200,000.00 (before deduction of recipient bank charges) from D3’s Account on/about 26 June 2017 pursuant to Chen’s instructions, which was remittance of D10’s RMB funds in Mainland China to D10’s Account in Hong Kong through Chen on 26 June 2017:
61.Further or alternatively, D10 claimed it paid a total of RMB1,386,000.00 in return for the sum of US$200,000.00 received, which sum was used to pay off its trade payables on/about 26 and 28 June 2017, and which in turn constituted change of D10’s position. V. P’S REPLY 62.P denied or did not admit D8’s and D10’s allegations. Insofar as D8’s and D10’s non-admission related to and/or was premised on lack of any knowledge of any particulars/matters pleaded in the SoC, P averred D8 and D10 being purportedly engaged in currency exchange transactions (which P did not admit) (a) knew or ought to have known or had constructive knowledge that the Transfers to D8 on 23 and 26 June 2017 were P’s property, or were or would be subject to a claim by P, or (b) had failed to investigate or had abstained from investigating these facts. 63.P denied the Tranfers were caused to be transferred by Chen and/or Nuo Hong into D8’s and D10’s Accounts in performance of the alleged remittance and currency exchange:
64.P averred D8 and D10 did have actual/constructive knowledge that the sums they received by the Transfers were not the property of Chen, and denied (a) D8 and/or D10 were bona fide purchaser(s) for value without notice and/or knowledge of the fraud perpetrated on P and/or (b) D8’s and/or D10’s position had changed. VI. LEGAL PRINCIPLES (a) Mareva injunction vs proprietary injunction 65.I adopt (but not repeat here) the relevant legal principles in relation to Mareva injunction[14] and proprietary injunction set out in paragraphs 55-60 of my Decision in Heitkamp & Thumann KG v Living Profit Trading Development Limited & ors.[15] 66.In paragraph 58 of Heitkamp & Thumann KG, I referred to Samtani v Samtani where DHCJ Queeny Au-Yeung (as she then was) explained that on the matter of balance of convenience under a preservation order, “[what] is involved is an exercise in salvage, pending and for the purpose of, the ultimate determination. It is, therefore, relevant to consider what will be involved in that determination, and how it relates to the property sought to be preserved, and what justice demands in the way of making an order for the preservation of the property so as to prevent a determination one way or the other proving abortive”. It is useful to also refer to the following observations by DHCJ Douglas Lam SC in Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd & ors:[16]
(b) Risk of dissipation – Mareva injunction 67.“The plaintiff must establish a real risk that the defendant might dissipate his assets or render them unavailable for judgment. Dissipation in this context includes both dissipation within the jurisdiction or removal from the jurisdiction …… The burden of proving a real risk of dissipation rests on the plaintiff …… who must lead “solid evidence” of dissipation ……”[17] 68.In Eastman Chemical Ltd v Heyro Chemical Co Ltd (No 2), DHCJ Winnie Tam SC summarised the relevant legal principles as follows:
69.Mr Chiu, counsel for D8 and D10, recognised that the legal principle summarised in (5) above is subject to the caveat that modern authorities state that the applicant does not need to show the defendant intends to deal with his assets with the purpose of ensuring that any judgment will not be met, but the conduct itself must be unjustifiable and go beyond merely impairing the judgment creditor’s ability to enforce a judgment.[18] This is made clear by Mimmie Chan J in Great Wall Pan Asia International Investment Company Limited v Cervera Holdings Limited & anor as follows:[19]
(c) Setting aside injunction 70.As explained in Hong Kong Civil Procedure 2019, “[an] injunction granted ex parte may on sufficiently cogent grounds be discharged or waived on an application made ex parte ……”, and it was only “[where] an interim order has been made by consent, or following full inter partes hearing, the person seeking to discharge or vary the order is not entitled to do so as of right or to re-argue it as if it were a re-hearing”, and “[the] court would generally only consider varying or discharging an interim injunction on good grounds or due to change in circumstances or facts coming to light that could not reasonable have been found out beforehand ……”[20] Here, P obtained the 2nd and 3rd Injunction Orders on ex parte basis, and D8 and D10 were absent when P obtained the 2nd and 3rd Continuation Orders. In light of the above, the Summons being an application to discharge the 2nd and 3rd Injunction Orders as continued by the 2nd and 3rd Continuation Orders was the first occasion D8 and D10 dealt with such ex parte injunction orders that had been continued in their absence. 71.But Mr Brown submitted the Summons was an application to “set aside” the continued 2nd and 3rd Injunction Orders which should be dealt with at trial save in exceptional cases “for the simple reason that the Court is unable on an interlocutory basis to resolve disputes of fact”. Ming Hsieh v Xu Zhe & ors that Mr Brown cited concerned an application by the defendants to set aside the ex parte injunction order purportedly granted in aid of legal proceedings in California, United States commenced by the plaintiff against the defendants (and pursuant to which proceedings the plaintiff obtained a temporary protective order and made an attachment application to continue the temporary protective order) on the ground of material non-disclosure, and to oppose continuation of the ex parte injunction order on the basis that the United States court had refused the plaintiff’s attachment application.[21] The plaintiff claimed he was induced by fraudulent misrepresentations made by the 1st and 2nd defendants to invest in a business in Mainland China, but the defendants claimed that at the time of the ex parte application the plaintiff failed to disclose to the court it had entered into various other agreements concerning the investment in Mainland China apart from the subscription agreement, such as the Further Agreement and Technology Transfer Agreement. But there were serious disputes of fact over the alleged non-disclosure, and Mimmie Chan J said as follows:
72.Likewise in Lau Wing Yan & ors v Chu Kong & ors,[23] the 1st defendant applied to discharge an ex parte injunction order and to cross- examine 2 of the deponents of affirmations filed by the plaintiffs which was said to be necessary to establish material non-disclosure. It was the 1st defendant’s case that the general manager of the 4th plaintiff doctored certain emails in support of the ex parte application, which alterations went to a material matter in dispute, and hence the ex parte injunction order was obtained by false evidence. DHCJ Kent Yee cited Sir Browne-Wilkinson VC’s observations in Dormeuil Freres SA and similar observations in Gee on Commercial Injunctions,[24] and decided to adjourn the summons to discharge the injunction order to be dealt with at the trial because the serious disputes of fact could only be resolved at trial. 73.But here, as seen from P’s case and D8’s/D10’s case, there did not appear to be flagrant disputes of fact as evident in Ming Hsieh and Lau Wing Yan & ors, and I am unable to see why I should stand over the Summons (at least in respect of the discharge of the 2nd and 3rd Injunction Orders as continued by the 2nd and 3rd Continuation Orders) to trial. Mr Brown drew my attention to the following observations in Pacific Rainbow International Inc:
But I am unable to draw assistance from this passage which dealt with application for grant and not for discharge of ex parte Mareva injunction. (d) Bona fide purchaser for value without notice 74.D8 and D10 relied on the defence of bona fide purchaser for value without notice to defeat P’s proprietary interest and to bar P from recovering the sums being subject of the Transfers received by them. It is said in Lewin on Trusts that:[25]
I also adopt but do not repeat here the legal principles set out in paragraphs 80-82 in Heitkamp & Thumann KG. (e) Change of position 75.In Lipkin Gorman (a firm) v Karpnale Ltd, Lord Goff held as follows:[26]
76.Goff & Jones, The Law of Unjust Enrichment, explains that “a defendant most obviously suffers relevant detriment “where there has been a reduction of assets”, but “Lord Goff did not … restrict the scope of the defence to [such] cases” and it may also be founded on other types of detriment. ……”[27] Further, the onus of pleading and proving the change of position defence is on the defendant who must put it forward “fairly and squarely” in his pleadings so that “its factual merits could be explored at the trial”; he must also adduce evidence and give disclosure in support of the defence. The defendant must prove, at least on a “but for” basis, that his change of position was casually linked with his enrichment. “…… [A] defendant who contends that he has foregone an earning opportunity must furnish “precise” evidence of this”.[28] But the change of position defence “…… is not open to one who has changed his position in bad faith as where the defendant has paid away money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that the defence should not be opening to a wrongdoer”.[29] VII. DISCUSSION ON DISCHARGE OF INJUNCTION ORDERS (a) Mareva injunction or Mareva and proprietary injunctions? 77.Mr Brown submitted that the 2nd and 3rd Injunction Orders were both Mareva and proprietary injunctions, which he said was made clear by (a) P’s skeleton submissions which specifically stated the applications were for Mareva and proprietary injunctions, and such skeleton submissions developed argument based on inter alia proprietary injunction(s), and (b) P was granted the 2nd and 3rd Disclosure Orders pursuant to section 21 of the EO which would rarely be granted in the absence of a proprietary claim (as noted in P’s skeleton submissions in support of the 2nd and 3rd Injunction Orders). 78.Mr Chiu disagreed, and submitted that plain reading of the 2nd and 3rd Injunction Orders showed they were Mareva and not proprietary injunctions since the form of such injunction orders followed the standard form for Mareva injunctions in Practice Direction 11.2, and the terms of such injunction orders were unlike the usual terms expected of proprietary injunction that was essentially a preservation order to secure assets:[30]
It was suggested that in the absence of an express prohibition restraining disposal of the monies being the subject of the Transfers from D2, D3 and D4 to D8 and D10 and other properties/assets that represented such monies, there could not have been been any proprietary injunction. 79.This dispute over the nature of the 2nd and 3rd Injunction Orders was pertinent to matters of burden of proof and risk of dissipation. But notwithstanding such dispute, neither party placed before this court any transcript of the proceedings in respect of the ex parte applications for the 2nd and 3rd Injunction Orders before DHCJ William Wong SC and DHCJ Lee on 2 August and 27 September 2017. 80.In my view, there was no doubt P sought both Mareva and proprietary injunctions under the ex parte applications for the 2nd and 3rd Injunction Orders. The then draft Amended Writ of Summons and draft Re-Amended Writ of Summons as well as the Barbier 2nd and 3rd Affs were premised on P’s proprietary claim for the Sum that was disbursed to D2 by the Primary Transfer and to inter alia D8 and D10 by the Secondary and Tertiary Transfers via D2, D3 and D4. The Barbier 2nd and 3rd Affs expressly referred to applications for Mareva and proprietary injunctions (see paragraphs 26 and 36 above). As Mr Brown explained in paragraph 77 above, P’s skeleton submissions also made clear the ex parte applications were for Mareva and proprietary injunctions. In my view, DHCJ William Wong SC and DHCJ Lee would have been left in no doubt that P was applying for both Mareva and proprietary injunctions. 81.In my view, DHCJ William Wong SC and DHCJ Lee granted the 2nd and 3rd Injunction Orders on the basis of Mareva and proprietary reliefs. I bear in mind P’s undertakings under such injunction orders required it to serve the Barbier 2nd and 3rd Affs and P’s skeleton submissions to inter alia D8 and D10 without caveat or qualification imposed by the court, which would have made clear to D8 and D10 that the ex parte injunction orders were made on both Mareva and proprietary basis. 82.I agree it would have been most desirable for the court to have expressly spelled out the Mareva and proprietary injunctions in two parts in the 2nd and 3rd Injunction Orders, which would have avoided this argument altogether, but it did not mean the 2nd and 3rd Injunction Orders were therefore Mareva and not proprietary injunctions. Whilst the standard form in Practice Direction 11.2 is helpful, neither the court nor the parties are constrained to follow the standard form, and tailoring to suit the relevant case is permitted. Here, DHCJ William Wong SC and DHCJ Lee understood the nature of the ex parte injunctions P sought, and they granted rolled-up injunctions that catered for both Mareva and proprietary aspects. This was borne out by the fact that (a) the terms of the injunction orders made specific reference to monies in D8’s and D10’s Accounts, (b) the undertakings in such injunction orders required service of the Barbier 2nd and 3rd Affs and P’s skeleton submissions that made clear the Secondary/Tertiary Transfers that originated from the Primary Transfer were remitted to D8’s and D10’s Accounts, and (c) the 2nd and 3rd Disclosure Orders required inter alia HSB and HSBC to disclose information about D8’s and D10’s Accounts to enable P to take steps to trace further recipients of the Net Sum and to freeze such funds (according to the Barbier 2nd and 3rd Affs – see paragraphs 27 and 37 above). Mr Chiu had no answer to (c) above. 83.From the above, it was clear there was no material non-disclosure on the part of P. The only question is whether the ex parte tribunals granted the 2nd and 3rd Injunction Orders as Mareva injunctions or as both Mareva and proprietary injunctions. I have found the latter to be the case. But even if I were wrong and the court merely granted Mareva injunctions, it was plain by now that P by its Re-Amended Writ of Summons and SoC asserted a proprietary claim in the monies being the subject matter of the Transfers, and the question would be whether the 2nd and 3rd Injunction Orders as continued by the 2nd and 3rd Continuation Orders could also be supported on a proprietary basis. In Zimmer Sweden AB v KPN Hong Kong Limited & anor, it was said as follows:[31]
Likewise, for reasons set out in greater detail below, I find the continued 2nd and 3rd Injunction Orders could be supported on proprietary basis. (b) P’s case 84.The Keady Aff explained P adduced relevant bank statements of D2’s, D3’s, D4’s, D8’s and D10’s Accounts and bank transfer records to show D8 received US$600,000.00 and D10 received US$200,000.00 being part of the Secondary/Tertiary Transfers traceable back to the Primary Transfer from P:
85.P’s claim against D8 and D10 was inter alia one of constructive trust and unjust enrichment on the basis that they were recipients of the Sum defrauded from P and paid to D2 by the Primary Transfer and thereafter to them by D2, D3 and D4 by the Secondary/Tertiary Transfers. Whilst D8 and D10 put P to strict proof of the aforesaid fraud, I do not understand from Mr Chiu that for the purpose of the Summons D8 and D10 would seek to argue P as victim of the aforesaid fraud did not have a serious question to be tried and/or a good arguable case based on (a) a proprietary claim against recipients of the Sum being sums in constructive trust but for the defences of bona fide purchaser for value without notice[32] and change of position in good faith, and (b) unjust enrichment, ie D8 and D10 were enriched at P’s expense and such enrichment was unjust.[33] (c) Bona fide purchaser for value without notice 86.D8 and D10 sought to discharge the 2nd and 3rd Injunction Orders as continued by the 2nd and 3rd Continuation Orders on the ground there was no serious issue to be tried between the parties or there was no good arguable case against D8 and D10. D8 and D10 maintained they were bona fide purchasers of US$ being subject of the Transfers received by them as a result of alleged contemporaneous RMB payments to various accounts in Mainland China at the directions of Chen representing Nuo Hong pursuant to legitimate business dealings, and they had no knowledge, whether actual or constructive, of the alleged fraud on P. 87.The burden was on D8 and D10 to make good the contentions to establish such operative defence, ie bona fide purchase and lack of constructive knowledge (see Heitkamp & Thumann KG at paragraph 81), and as opposing party to proprietary injunction seeking to show there is no serious issue to be tried, they had a high threshold to cross as it would be necessary to demonstrate P’s claim should be struck out (see Heitkamp & Thumann KG at paragraph 56). 88.On the matter of knowledge/notice, in Guaranty Bank & Trust Company v ZZZIK Inc Limited,[34]an email fraud in which the plaintiff rested its case on unjust enrichment (paragraph 27) and proprietary constructive trust (paragraph 28-31), DHCJ Cooney SC explained as follows:
89.Mr Chiu emphasised P accepted D8 and D10 were not involved in and had no knowledge and hence no notice of the alleged fraud on P. I agree with Mr Brown that this was not a fair observation of P’s stance. In fact, P made clear it had no reason (at the time of the Barbier 2nd and 3rd Affs and the SoC) to believe D8 and D10 were aware of or were involved in the fraud, but reserved its position on D8’s and D10’s role/knowledge pending the outcome of further investigations. Now that D8 and D10 had adduced affirmation evidence pursuant to the disclosure orders under the 2nd and 3rd Injunction Orders and in support of the Summons, such affirmation evidence must be considered in all the circumstances to see whether the 2nd and 3rd Injunction Orders ought to be discharged vis-à-vis D8 and D10. 90.D8’s and D10’s case was more particularly set out in the Zhong Aff. Zhong admitted the Transfers did occur, but claimed that (a) prior to the service of the court documents in the present action D8 and D10 had no knowledge of any alleged fraud on P, and (b) D8 and D10 paid good consideration for the Transfers and had changed their position subsequent to such transfers. 91.Zhong explained that D8 and D10 carried on trading business since their incorporation on 4 January and 19 April 2010 respectively with focus on peripheral and internal memory products for computer and mobile telephones such as random-access memory (RAM), flash drives, and solid-state drives (SSD). D8’s and D10’s customers ranged from Hong Kong companies to entities in Mainland China. Some of D8’s larger buyers included Unifortune (HK) Company Limited, Eternal International (HK) Limited and 深圳凱達中科電子有限公司, and some of D10’s larger buyers included HK Silk Road E-Commerce Supply Chain Co, Ltd and World Force Trading Limited. But D8 and D10 did not adduce any documentary support for such contentions, and D8’s and D10’s business registration certificates[35] only described their nature of business as “代理IT國際品牌貿易” and “電子”, which did not tell very much. 92.Next, Zhong claimed that since some customers of D8 and D10 were companies in Mainland China who preferred to pay in RMB, D8 and D10 often received RMB for goods sold to such customers, but D8 and D10 had to settle invoices for goods sourced from overseas vendors / local distributors in US$, so D8 and D10 sometimes had surplus of RMB in Mainland China but shortage of US$ in Hong Kong, which Zhong understood was a common situation faced by many small to medium-sized businesses in Hong Kong with cross-border operations. Zhong said a common practice to deal with such situation would be to effect set-off with another entity / person who was in the opposite situation of having surplus of US$ in Hong Kong but shortage of RMB in the Mainland China. 93.Zhong said at the material times D8’s and D10’s counterparty for such set-off transactions was Chen who was introduced to D8 and D10 through one of their clients as a businessman with trade business. Chen stated he was a representative of a trading company Nuo Hong. This was again a bare assertion without documentary support (eg name card etc). 94.Zhong explained that on 22 June 2017 D8 made a sale and purchase contract with Chuanglian Huatai (Hongkong) Limited (“Chuanglian”) for the purchase of memory products for a consideration of US$6,352,105.54 with latest shipment date on 29 June 2017 (“Chuanglian SPA”). Zhong claimed that prior to the transaction with Chen on 23 June 2017 explained below, D8 had already paid US$2,761,132.80 to Chuanglian. 95.Zhong claimed that on/about 23 June 2017 D8 had shortage of US$ in Hong Kong to settle payment under the Chuanglian SPA so he contacted Chen via WeChat to see if Chen had US$ available in Hong Kong. Upon Chen’s confirmation of availability of US$ for remittance to D8 in Hong Kong, Zhong and Chen discussed the amount D8 needed and the rate for D8’s reimbursement in RMB. In this instance, Chen would arrange transfer of US$600,000.00 to D8 in 3 batches and D8 would reimburse him in RMB at the 1st Rate in 3 batches. Zhong exhibited the relevant record of WeChat messages between him and Chen that he claimed would show D8 made RMB reimbursement payments (to bank accounts in Mainland China designated by Chen that were held by nominees who were employees of D8’s associated companies in Mainland China) corresponding to the transfer of US$600,000.00 to D8’s Account arranged by Chen as follows:
96.Zhong claimed that after receiving US$599,994.21 through Chen on 23 June 2017, D8 used such sum and also money received from other sources to make further payment of US$3,600,000.00 to Chuanglian to pay for the balance of the purchase price on 24 June 2017 with an extra amount of US$9,027.36 paid to Chuanglian for outstanding payables arising from previous dealings with Chuanglian. There was no documentary evidence at all to show D8 had received money from other sources at around that time and/or D8 had outstanding trade payables of US$9,027.36 due to Chuanglian. 97.Zhong further claimed that on 26 June 2017 D10 made a sale and purchase contract with Heng Win Electronic International Ltd (“Heng Win”) for purchase of memory products for consideration of US$100,000.00 (“Heng Win SPA”). But on/about 26 June 2017 D10 also had shortage of US$ in Hong Kong to settle payment due under the Heng Win SPA, so Zhong again contacted Chen via WeChat to see if he had US$ available in Hong Kong. Upon Chen’s confirmation of availability of US$ for remittance to D10 in Hong Kong, Zhong and Chen discussed the amount D10 needed and the rate for D10’s reimbursement in RMB. In this instance, Chen would arrange the transfer of US$200,000.00 to D10 and D10 would reimburse him in RMB at the 2nd Rate which terms were agreed by telephone at/about 11:40-11:50 am on 26 June 2017. Zhong exhibited the relevant record of WeChat messages between him and Chen that he claimed would show D10 made RMB reimbursement payments (to account in Mainland China designated by Chen that was held by a nominee who was an employee of D10’s associated companies in Mainland China) corresponding to the transfer of US$200,000.00 to D10’s Account arranged by Chen as follows:
98.Zhong said that after receiving US$199,998.07 through Chen, D10 on the same day paid US$100,000.00 to Heng Win to settle the purchase price under the Heng Win SPA. D10 had no immediate need for the remaining US$100,000.00, so when on 28 June 2017 D10’s client asked for D10’s help to make a payment of US$150,000.00, Zhong as a favour to such client arranged to transfer US$150,000.00 to account no 4xxxxxxxxxxxxxxxxxx4 held by Shantou Yingshuang Mon & Baby Supplies Limited Company to the order of D10’s client, and such client reimbursed D10 on the same day by transferring RMB1,042,750.00 to a nominee account of D10 in Mainland China. 99.Zhong said Chen did not inform him in advance he would arrange to transfer US$ to D8 and D10 from any account other than Nuo Hong’s, and Zhong only noted afterwards that the Transfers were transferred from D2’s, D3’s and D4’s Accounts. Zhong claimed it was quite normal for a paying party to use other accounts to make payments. 100.Zhong also claimed that as told by the client who introduced Chen to D8 and D10 and as Chen represented, Nuo Hong was a normal trading company, so at the time D8 and D10 believed it would be normal for Nuo Hong to accumulate surplus of US$ in Hong Kong in its ordinary course of business, and they had no reason to suspect otherwise in relation to the aforesaid transactions. 101.Zhong suggested that by reason of the above matters the 2nd and 3rd Injunction Orders as continued by the 2nd and 3rd Continuation Orders against D8 and D10 should be discharged. I disagree. 102.Zhong claimed there was no serious question to be tried or no good arguable case since D8 and D10 received the Transfers from D2, D3 and D4 in their normal course of business and had paid good consideration for them, and as such they were bona fide purchasers of such Transfers for value without notice which was a good defence to P’s claims against them. Further, it was said D8 and D10 paid equivalent amounts of RMB to accounts designated by Chen upon receiving US$ being subject of the Transfers from D2, D3 and D4, and they used such US$ so received from D2, D3 and D4 to pay off their trade payables, which constituted change of position of D8 and D10 being another good defence to P’s claims against them. On such basis, it was said P’s claim in the SoC against D8 and D10 was without merit, there was no serious question to be tried, and there was no good arguable case against D8 and D10. Alternatively, even if P’s claims against D8 and D10 were once good and arguable, its case was now watered down by the good defences of D8 and D10. 103.On the other hand, the Keady Aff claimed the timing and amounts of the Secondary/Tertiary Transfers to D8 and D10 were simply too much of a coincidence, especially as D2, D3 and D4 had never entered any appearance in the present action and P had obtained judgment against them. But the Chan 3rd Aff claimed Keady did not give any reason for such allegations, and did not say what implication such “coincidence” might have. Chan said the “coincidence” was in fact explained in D8’s and D10’s respective Amended Defence and the Zhong Aff, ie on 23 June 2017 D8 requested Chen to arrange remittance of US$600,000.00 to D8’s Account in Hong Kong, and on 26 June 2017 D10 requested Chen to arrange remittance of US$200,000.00 to D10’s Account in Hong Kong, so there was no coincidence as to the timing/amount of the Transfers except such transfers were apparently made pursuant to arrangements between D8/D10 and Chen. 104.In my view, although it appeared from the Zhong Aff and Chan 3rd Aff that D8 and D10 maintained they were engaged in legitimate trading business in the course of which they entered into 2 genuine transactions by which they obtained funds from D2, D3 and D4, D8 and D10 had not adduced documentary evidence to show they had ongoing and active “legitimate trading business” at the material times. D8 and D10 being Hong Kong companies could easily have adduced copies of its audited accounts, financial statements, business records, tax assessments, or at the very least management accounts / ledger entries and bank statements for the few months before and after June 2017, but D8 and D10 declined to do so (see Pacific Rainbow International Inc at paragraph 53(1)). The certificates of incorporation for 2010 and business registration certificates for the relevant year did not evidence actual trading business being carried out by D8 and D10 at the material times. Further, D8 and D10 did not adduce banking records other than those obtained by P pursuant to the 2nd and 3rd Disclosure Orders (see Pacific Rainbow International Inc at paragraph 53(2)). 105.As regards the credibility and cogency of D8’s and D10’s evidence, it is useful to refer to DHCJ Douglas Lam SC’s observations in Pacific Rainbow International Inc which were apposite to the present situation:
The sparsity of D8’s and D10’s supporting documentary evidence did not aid their assertions of having carried on “legitimate trading businesses”. 106.I now turn to the Chuanglian and Heng Win SPAs (collectively, “SPAs”). Whilst I have carefully reminded myself that commercial men are not lawyers and do not necessarily conduct their business affairs and prepare commercial documents in anticipation of future litigation, the SPAs raised more questions than answers. 107.First, the SPAs were in the same format. There was no suggestion that Chuanglian and Heng Win were related companies, but no explanation was forthcoming as to why they were in mirrored forms (save for reversal of the position of buyer and seller on the left and right sides of the SPAs). Even assuming that the commonality of the SPAs merely reflected they were D8’s and D10’s standard form contracts, there were still unexplained features. I note Clause 6 of both SPAs provided inter alia that “合同有效期: 經雙方簽字, 蓋章後生效”. Even though the company chops of D8 / D10 and Chuanglian / Heng Win appeared to have been affixed to the SPAs, none of the alleged contracting parties signed the SPAs. No explanation was given as to (a) why D8 / D10 did not sign the SPAs when they must have been well aware from Clause 6 therein that the contracts would become effective only when they were signed by the contracting parties, and/or (b) why coincidentally both Chuanglian and Heng Win did not sign such contracts when they were separate Hong Kong companies with offices in Central, Hong Kong and Tsimshatsui, Kowloon. 108.Mr Brown complained that the SPAs were simplistic when the amounts involved were quite substantial sums, especially for the Chuanglian SPA which was for US$6,352,105.54, which raised question as to the authenticity of the SPAs (see Pacific Rainbow International Inc at paragraph 55(3)). In my view, more questions arose from the express terms of the SPAs. The Chuanglian SPA provided that (a) the goods were to be packed in paper cartons with shipping mark “Hong Kong” to be delivered from Hong Kong for destination in Hong Kong, (b) the latest shipment date was 29 June 2017, and (c) terms of payment were “T/T”, ie telegraphic transfer. The Heng Win SPA provided that (i) the goods were to be packed in paper cartons with shipping mark “Hong Kong” to be delivered from Hong Kong for destination in Hong Kong, (ii) the latest shipment date was left blank, and (iii) terms of payment were “TT”, ie telegraphic transfer. 109.D10 did not explain why the latest shipment date in the Heng Win SPA was left blank. Even if it was for immediate delivery, it could have been so marked on the Heng Win SPA. More importantly, D8 and D10 did not explain why in light of paragraph 108(a) and (i) above, ie delivery of goods was from Hong Kong to Hong Kong, the sale of goods under the Chuanglian and Heng Win SPAs were expressed to be on “FOB” and “FCA” terms being “free on board” and “free carrier [named place]” Incoterms commonly used for export or international trade. D8 and D10 offered no explanation why the SPAs were subject to Icoterms which had no relevance to goods that emanated from and were to be delivered to Hong Kong. If D8 and D10 had been engaged in “legitimate trading business” since their incorporation, such unexplained commercial error by commercial men raised doubt as to the authenticity of the SPAs. Still more importantly, the goods under the Chuanglian SPA should have been delivered by 29 June 2017. As explained above, and since the invoice by Heng Win was dated 26 June 2017, the goods under the Heng Win SPA should have been for immediate delivery. In any event, those goods should have been delivered by the time of Zhong Aff. Yet D8 and D10 did not adduce any documentary support (eg transport documents, delivery notes, etc). The absence of documentary evidence as to delivery would lead one to wonder why invoices were issued by Chuanglian and Heng Win on the very same day of the SPAs and why full payment of the price had to be made within a few days of signing the SPAs, and D8 did not explain why US$2,761,132.80 was paid as a first tranche.[36] Further, there was no contract/invoice/delivery documents, to demonstrate sub-sales of such goods to D8’s and D10’s customers (see Pacific Rainbow International Inc paragraph 55(4)-(8)). In my view, the absence of these documents were telling. 110.D8 maintained the Secondary/Tertiary Transfers in the total sum of US$600,000.00 acquired from D2, D3 and D4 were for the purpose of paying the balance due to Chuanglian under the Chuanglian SPA dated 22 June 2017. D10 maintained the Tertiary Transfer in the sum of US$200,000.00 was for the purpose of paying US$100,000.00 due to Heng Win under the Heng Win SPA dated 26 June 2017. D10 did not explain why it exchanged twice the amount it needed for the Heng Wing SPA, eg whether there were pending payments to be made under other sale and purchase contracts, but it so happened that right after it acquired the additional US$100,000.00 an unnamed client asked for a favour to pay US$150,000.00 (ie US$50,000.00 more than the additional US$100,000.00) on its behalf to settle a debt. If D10 had US$50,000.00 to spare in additional to the extra US$100,000.00 from D3, D10 could have just acquired US$50,000.00 rather than US$200,000.00 to meet the Heng Win SPA. This clearly raised question why it had to acquire US$200,000.00 at all, and no answer was forthcoming. 111.Another essential element of D8’s and D10’s claim of having acquired US$ being subject of the Transfers in the ordinary course of “legitimate trading business” was that D8 and D10 made RMB reimbursements in return for the Transfers. Mr Chiu submitted that the temporal proximity of the US$ and RMB payments as evidenced by the contemporaneous WeChat messages lent weight to D8’s and D10’s case. 112.However, all that were shown by the available documents was that various RMB payments were made to 3 accounts in Mainland China allegedly designated by Chen (see paragraphs 95 and 97 above). There were simply no documents to show that the payees were nominees and/or employees of D8’s and D10’s associated companies in Mainland China. First, D8’s and D10’s associated companies in Mainland China were unnamed. No particulars were given at all. No explanation was given as to what “associated companies” meant, eg trading counterparties, subsidiaries, parent companies, etc. Secondly, even if D8 and D10 had “associated companies” in Mainland China and such associated companies also carried on legitimate trading business, surely they would have bank accounts in RMB in Mainland China. No explanation was given as to why nominee bank accounts had to be set up in the names of employees of D8’s D10’s “associated companies”, and/or why these “associated companies” could not make RMB payments as trade payables or inter-company account set-off with D8 and D10 from their own bank accounts and had to do so via nominee accounts in the names of their employees. Thirdly, there was no documentary evidence as to how D8 and D10 put these nominees in RMB funds from D8’s and D10’s own monies to make the RMB reimbursements as Chen directed, or how D8 and D10 repaid these nominees for the RMB reimbursements as Chen directed from their own monies. In short, what could be seen in the available documents were RMB payments by the alleged nominees, but there was no documentary evidence as to how D8 and D10 paid RMB to these alleged nominees to demonstrate the RMB payments to Chen’s designated accounts were sourced from D8 and D10. There was also no evidence that D8 and D10 had any presence or any bank account in Mainland China even though it was said their customers were mostly in Mainland China. Indeed, there was no evidence D8 and D10 had any presence in Mainland China and/or had business licences to carry on trading business in Mainland China and paid taxes to the tax authorities in Mainland China. All Mr Chiu could say was that the bank statements of D8’s Account were sent to Zhong Yohua’s address in Shenzhen, Mainland China, but this did not mean D8 had any business presence in Mainland China. As for D10, the address in Kowloon Bay, Hong Kong to where bank statements of D10’s Account were sent was different from its registered office, and no explanation was given about such address. 113.In my view, all of the above matters left a lot of unanswered questions, and it was plain D8’s and D10’s allegations could not be taken at face value. There was insufficient documentary evidence, which one would have expected to be available in the ordinary course of business and to be forthcoming so as give context and information as to the underlying business/transactions, and there was insufficient explanation as to the basis of the payments, which matters I find ought to be investigated at trial. I am not convinced the matter was as obvious as Mr Chiu would have this court accept. For the Mareva injunctions, I find P had a good arguable case on the merits that the underlying transactions were questionable and that D8 and D10 were not bona fide recipients of the Transfers. For the proprietary injunctions, I find D8 and D10 had not shown there was no serious question to be tried. 114.Consequentially, there is no need for me to go on to consider the issue of illegality, but I will do so briefly for the sake of completeness. The Keady Aff went on to contend that if the alleged US$/RMB remittance arrangements were true, then D8 and D10 had engaged in illegal underground currency exchange arrangements since RMB was a restricted currency. In support of such contentions, Keady claimed he had come across these types of illegal underground currency exchange arrangements in other e-mail or wire fraud cases that he had handled, and he also relied on the following:
So Keady contended that even if all factual evidence presented by D8 and D10 was accepted, it still remained that P had a strong prima facie case and there was a serious question to be tried as to whether D8 and D10 were able to establish/rely on the defences they had put forward, especially in light of the illegal nature of the remittance arrangements they participated in. 115.Mr Chiu submitted that P’s allegation that D8 and D10 engaged in illicit “underground money transfers” by marrying up apparently unrelated debtors and creditors inside and outside Mainland China to circumvent currency control regulations in Mainland China was nothing but a bare assertion without particulars and/or evidential support. The Chan 3rd Aff also claimed the alleged facts/matters in (a)-(e) in the above paragraph would not aid P in showing alleged illegality of such arrangements, and they had no relevance to the issue of whether such arrangements were legal or illegal, in particular:
The Chan 3rd Aff claimed P failed to put forward any evidence to show D8 and D10 participated in any illegal money transfer. 116.There was no dispute that the party alleging illegality of the contract bears the burden of proving such fact.[37] Here, there was no expert evidence as to what and how PRC law had been breached. In Johnston, The Conflict of Law, it was said as follows:[38]
However, even though decisions of the Hong Kong or English courts as to foreign law are not binding as precedents before a later Hong Kong court, “…… by statute [section 59 of the EO], a judgment of the High Courts of Hong Kong or England (or on appeal from those Courts) reported “in citable form” is admissible as evidence of any point of foreign law as to which a finding or decision is made in that judgment, provided that prompt notice is given of the intention to rely upon such judgment. The foreign law in question is presumed to be in accordance with that finding unless the contrary is proved ……”[39] 117.I am not prepared to rely on Keady’s assertion of illegality in the Keady Aff. Keady claimed he had come across these types of illegal underground currency exchange arrangements in other email or wire fraud cases he had handled, but he gave no particulars of his expertise and/or experience in relation to PRC law in this respect in the Keady Aff. I assume that the other email or wire fraud cases he handled were legal actions in this jurisdiction rather than in Mainland China. I am not satisfied on available affirmation evidence that Keady was a person suitably qualified on account of his knowledge or experience who was competent to give expert evidence as to PRC law. P had not sought to adduce expert opinion on PRC law to support this point. Mr Brown said this was at an early stage of the proceedings, but I am unable to accept such explanation. The Conflict of Laws at paragraph 2.064 at page 43 explained that evidence of foreign law in interlocutory matters “is most properly given by way of an affidavit of the expert” or perhaps by “an unsworn letter or opinion exhibited to an affidavit of the adducing party’s solicitor”. Although the burden was on D8 and D10 to raise and establish the defence of bona fide purchase for value without notice, it was for P to raise and establish illegality. 118.Mr Chiu submitted that mere receipt of funds remitted through an underground banking system or from an unconnected source is not sufficient in itself to find guilt, and it had to be proved that the recipient knew or had reason to believe that the money had an illicit source before the defence for bona fide purchaser for value without notice could be defeated (see Arrow ECS Norway AS v Xin Cheng Holdings (International) Limited & ors[40]). In Heitkamp & Thumann KG, I referred to DBS Bank (Hong Kong) Limited “where it was said that the mere 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)” (paragraph 95). 119.But in Grupo Arbulu SL v City Apex Holdings Limited,[41] the defendant alleged it had been using “PRC foreign exchange services to circumvent [emphasis added] the foreign exchange control and restrictions in the PRC for the purpose of settling …… payments …… on behalf of the Defendant” (paragraph 23). DHCJ Keith Yeung SC said as follows:
120.In my view, with the benefit of discussions in Grupo Arbulu SL which post-date Arrow ECS Norway AS and Heitkamp & Thumann KG, and which was a judgment of the High Court of Hong Kong in citable form, there was at the very least good arguable basis that the issue of illegality might render the Transfers illegal or tainted with illegality such that they were void or voidable. Mr Chiu complained that P failed to give early alert of reliance on such authority, but I note that illegality was raised in P’s Reply and the Keady Aff. Further, at this stage, the court was not concerned with a final adjudication, but whether there was a good arguable case or serious question to be tried. So even if D8 and D10 were given early alert and bespoke countervailing PRC legal opinion, this would still not be an appropriate stage to resolve such contested issue, which as DHCJ Keith Yeung SC said would have to be canvassed at trial. 121.Mr Brown spent some effort in his written submissions to discuss the impact of illegality including various authorities such as DBS Bank (Hong Kong) Limited. In that case, Anthony Chan J took the view that the court should look at the matter with common sense, and he saw no answer to the illegality point in respect of cross-border HK$/RMB exchange transaction, which would defeat the defence of bona fide purchase for value without notice (paragraph 37), but found the bank had no answer to the defence of change of position which was not affected by the illegality of the HK$/RMB exchange. The bank applied for leave to appeal, and leave was granted to appeal[42] on the question whether the defence of change of position was defeated by illegality based on Barros Mattos Junior & ors v MacDaniels Ltd & ors[43] and Lipkin Gorman. In light of my views on the defence of bona fide purchaser for value without notice, the issue of illegality would not be a material issue here, so I do not propose to canvass Mr Brown’s arguments which would in due course have the benefit of the wisdom of the Court of Appeal. (d) Knowing receipt and dishonest assistance 122.Mr Brown attempted to rely on the causes of action for knowing receipt and dishonest assistance. However, as he rightly conceded, P did not plead such causes of action against D8 and D10. The plaintiff in Zimmer Sweden AB suffered from the same problem, and drew attention to the observations by DHCJ Woo in JS Microelectronics Ltd v Achhada as follows:[44]
123.DHCJ Kent Yee in Zimmer Sweden AB considered it a red herring to examine the inadequacies of the pleading as the court was required to consider whether the plaintiff was entitled to interlocutory relief on the evidence, thus the court had to consider the totality of the evidence and not just the pleading to decide whether the plaintiff could meet the threshold (paragraph 86). If the pleaded matters differed materially from the factual evidence, “normally the reliability of the plaintiff’s evidence would be called into question”, but as in Zimmer Sweden AB, it was not the case here as P’s case and evidence rested almost entirely on documentary trail of the Primary, Secondary and Tertiary Transfers. In my view, in light of the aforesaid analysis, I am not persuaded the defence of bona fide purchaser for value without notice was as conclusive as Mr Chiu would have this court accept in face of the causes of action P relied on, including knowing and dishonest assistance that appeared available on the factual evidence if not by way of express pleading. (e) Change of position 124.It is unnecessary for me to deal with this in any detail. At the Hearing, Mr Chiu conceded D8 and D10 had to establish the defence of bona fide purchaser for value without notice to defeat P’s claim before they could run the defence of change of position. Since I am satisfied P had raised a good arguable case that could not be defeated by the defence of bona fide purchaser for value without notice at this interlocutory stage, the defence of change of position also fell away. 125.Further, D8 and D10 claimed they suffered a qualifying detriment by paying RMB reimbursement for the Transfers to accounts in Mainland China designated by Chen, and they would not have made such RMB payments but for receipt of US$ being subject of the Transfers. Mr Chiu submitted there was no suggestion of wrongdoing or bad faith that was made out on the evidence. But as discussed above, there were enough questions about D8’s and D10’s underlying business and transactions such that D’s case could not dent P’s good arguable case, and in particular there was sparsity of supporting evidence to demonstrate the RMB payments were sourced from D8 and D10, ie D8 and D10 reimbursed the nominee employees of their “associated companies” for the RMB payments. In the circumstances, I am not persuaded the alleged defence of change of position was so clear that the relevant injunction orders ought to be discharged. (f) Risk of dissipation and balance of convenience 126.D8 and D10 argued that even if P made out a good arguable case, P was still not entitled to the 2nd and 3rd Injunction Orders as continued by the 2nd and 3rd Continuation Orders because P failed to adduce any evidence let alone solid evidence to show risk of dissipation of assets on the part of D8 and D10. Mr Chiu submitted the standard of proof was “relatively high”, and the relevant injunction orders could “only be justified on appropriately clear and strong facts and risks”, and P’s bare assertions that D8, D10 and other defendants were part of a scheme by the Fraudster to dissipate the Sum and that they might take steps to dissipate the Sum and put it beyond the reach of P and law enforcement agencies were not good enough. 127.As explained above, to discharge the relevant proprietary injunctions D8 and D10 had to show P’s claim was liable to be struck out. I am not persuaded D8 and D10 could do so at this stage on the basis of the aforesaid discussion. No risk of dissipation had to be shown, and the balance of convenience necessarily fell in favour of P as victim of email fraud. I see no basis to discharge the proprietary injunctions. 128.As for the relevant Mareva injunctions, the available bank statements showed there had been withdrawals and transfers from the D8 and D10 Accounts. The amounts now remaining in the D8 and D10 Accounts were less than the relevant monetary caps in the 2nd and 3rd Injunction Orders.[45] The Zhong Aff explained the ease with which funds could be withdrawn and remitted from such bank accounts via electronic banking. This was evidenced, for example, by D10 lending US$150,000.00 of its funds in Hong Kong and being repaid in Mainland China. The bank statements of D8’s and D10’s Accounts also showed that monies deposited in such accounts were quickly withdrawn/transferred. This was also linked to the defence of bona fide purchaser for value without notice. The inherent problems with such defence when viewed against the available documents as discussed above also raised the questionability of the withdrawals from D8’s and D10’s Accounts. In my view, a risk of dissipation could be inferred in all the circumstances. 129.As for the balance of convenience, in view of the risk of dissipation, the balance was necessarily in P’s favour. Zhong suggested otherwise by saying (a) D8’s and D10’s trade business was cash intensive and relied heavily on the ability to pay/receive money without restriction, and (b) as D8’s and D10’s Accounts were frozen such that no withdrawals or deposits could be made, business opportunities would have gone to competitors and banks would lose confidence in D8 and D10 which in turn would impair their ability to obtain banking facilities. Zhong even suggested D8 and D10 suffered loss and would continue to suffer loss such that their business had almost been destroyed. Mr Chiu reminded that in respect of a Mareva injunctionthe plaintiff could not beforehand prevent the defendant from disposing of his assets merely because he feared there would be nothing against which to enforce his judgment nor could the plaintiff be given a secured position against other creditors.[46] 130.In my view, Zhong’s allegations were nothing more than bare assertions. I repeat my observations above in relation to the unanswered questions about D8’s and D10’s allegations that they carried on “legitimate trading business”. In the absence of any banking, financial and/or other documents, there was nothing to objectively show that D8 and D10 carried on substantial trading business or even any level of trading, that the trading relied on banking facilities, that the trading generated profits at all and if so the level of profits, that the trading business had declined, that banks had declined banking facilities, that they continuously suffered loss during the period when the injunction orders were in place, and trading business before and after the injunction orders showed comparative decline/loss. D8 and D10 did not even adduce documents to show they had sub-sold the goods bought under the SPAs and made profit from such sub-sales. When these matters were viewed against the strong prima facie case that P was a victim of email fraud, I find there was no cogent basis to discharge the Mareva injunctions. VIII. DISCUSSION ON FORTIFICATION FOR CROSS- UNDERTAKING AS TO DAMAGES 131.The apparent basis for D8 and D10 to seek fortification of P’s cross-undertaking as to damages under the 2nd and 3rd Injunction Orders as continued by the 2nd and 3rd Continuation Orders[47] was essentially that P was a foreign company with no assets in this jurisdiction to meet the loss suffered by D8 and D10 due to the disruption to their business caused by such injunction orders. The Zhong Aff claimed that by reason of such injunction orders D8 and D10 could not use the monies in D8’s and D10’s Accounts or operate such accounts by, say, depositing/withdrawing monies in/from them to carry on trading operations, which meant they were unable to perform any profit-generating activity through such bank accounts. The Zhong Aff claimed D8 and D10 suffered loss and would continue to suffer loss which P by its cross-undertakings as to damages would be required to compensate for no less than HK$500,000.00 each. Mr Chiu confirmed D8 and D10 were agreeable to accept the proposed undertaking in paragraph 56 above in lieu of fortification by payment of HK$1,000,000.00 into court. 132.But P opposed fortification of the cross-undertakings as to damages as a matter of principle. The Keady Aff also claimed P had sufficient assets within the jurisdiction being resultant collections or settlements with various defendants being the Funds (HKD261,717.78 and USD401,501.90) pursuant to the default judgment granted by DHCJ To (see paragraph 44 above) in the hands of P’s solicitors. After all, P’s solicitors by the Undertaking had agreed to hold the Funds in their trust account until final resolution of the present action. Keady noted the remaining live claims at the time of the Keady Aff were those against D8, D10, D5-D6, D13, D19 and D21, and the terms of the Undertaking showed the purpose of the Funds might include, without limitation, meeting D8’s and/or D10’s successful costs claims “and/or damages claim” against P. The Chan 3rd Aff disagreed, and claimed the Undertaking required the Funds to remain in P’s solicitors’ account until final resolution of the present action and to be made available for costs of the proceedings for D8 and D10, and the terms would not allow P to use part of the Funds to meet any damages claim. But Keady suggested D8’s and D10’s recoverable costs (should they obtain successful costs orders in the present action) would be far less than the Funds, and review of D8’s and D10’s schedule of estimated costs up until trial that was submitted in support of their summons for security for costs by law costs draftsman engaged by P’s solicitors suggested their reasonable costs should be HK$404,500.00 instead of HK$1,719,500.00, but even allowing D8’s and D10’s likely taxed costs up to trial on generous basis at HK$800,000.00, there would be surplus from the Funds to support the cross-undertakings as to damages if fortification was warranted. But P argued D8 and D10 were not entitled to fortification since (a) P was a multinational corporation based in Spain and a part of a larger group of companies under IDOM, SAU with over 3,000 employees and offices in 40 countries, and (b) P’s audited accounts showed it had total assets of €67,000,000.00 and the group was worth more than €289,000,000.00 as at 31 December 2016. 133.The principles for granting fortification are well established, and I refer to Mr Brown’s helpful summary drawn from Felix Tschudi v Million Miles Global Limited:[48]
134.As seen above, P has shown a strong prima facie case of email fraud which militates against fortification. More importantly, as explained above, other than bare assertions, D8 and D10 had not adduced any banking, financial, accounting or tax documents to show they suffered and they would continue to suffer loss if the 2nd and 3rd Injunction Orders as continued by the 2nd and 3rd Continuation Orders were not discharged. The questions that arose over D8’s and D10’s alleged trading business and US$/RMB exchange transactions for such business in turn raised question as to whether they would in fact be inconvenienced by such injunction orders as a matter of ordinary course of trading business. Still more importantly, there was no evidence at all to show losses of HK$500,000.00 for each of D8 and D10, and no explanation why these 2 companies would suffer similar losses. It must be remembered that any loss suffered would not be the value of turnover of lost opportunities but loss of potential profits from onsale of goods acquired, and quite simply there was nothing to show any profits or how profits were ascertained (and such information was not even available for the SPAs which were the only disclosed business dealings).[49] Apart from bare assertions, there was no evidence of opportunities lost as a result of the injunction orders. In any event, D8 and D10 admitted they collected significant sums of RMB in accounts in Mainland China which were not frozen and hence available for their use, and they were not adverse to use nominee accounts to engage in financial transactions. 135.Further, the only ground advanced for requiring fortification was that P was a foreign plaintiff with no assets in Hong Kong. But there was no suggestion that P was not a substantial and viable company. In light of all the circumstances, such fact alone did not justify an order for fortification (see Zimmer Sweden AB at paragraph 99). Consequently, it is unnecessary for me to deal with the debate as to whether the Funds subject to the Undertaking were to be held for the purpose of satisfying costs orders in favour of D8 and D10 if any, or whether the Funds could also be used to meet their damages claim. However, it would be fair to say the interpretation put forward by D8 and D10 appeared more reasonable as the Undertaking required the Funds were to be held until final resolution of the present action and to be made available for costs in favour of D8 and D10. As for the suggestion that the Funds significantly exceeded any possible taxed costs in favour of D8 and D10 so that part of the Funds would be freed up for fortification, it is too early to say whether or what part of the Funds would be so freed up, especially in the context of an undertaking to the court. But that said, for reasons explained above, I am not satisfied D8 and D10 had discharged their burden to show likelihood of significant loss or P would not honour the cross-undertakings in damages. IX. CONCLUSION 136.The Summons is therefore dismissed. There is no reason why costs should not follow event. I grant a costs order nisi that D8 and D10 shall pay costs of and occasioned by the Summons (including all costs reserved if any) to be taxed if not agreed. 137.D8 and D10 suggested costs should be P’s costs in the cause by referring the costs orders made in Pacific Rainbow International Inc and Grupo Arbulu SL. However, in Pacific Rainbow International Inc the court was concerned with the plaintiff’s application for continuation of the ex parte injunction which was opposed, and in Grupo Arbulu SL the court was concerned with the plaintiff’s application to continue the ex parte injunction and the defendant’s application to discharge the ex parte injunction. Here, the 2nd and 3rd Injunction Orders had already been continued by the 2nd and 3rd Continuation Orders. Both P and D8 / D10 had filed their respective pleadings. It was after close of pleadings that D8 and D10 (who by then well knew P’s case) chose to file the Summons to discharge the injunction orders. I have dismissed their application, and I see no reason why they should not bear costs in the usual way.
Mr Toby Brown, instructed by Bird & Bird, for the plaintiff Mr Byron Chiu, instructed by Tsui & Co, for the 8th and 10th defendants [1] on 23 June 2017 D2 by 2 separate transactions transferred US$99,247.00 and US$118,907.00 to D3’s Account, on 26 June 2017 D2 by 2 separate transactions transferred US$341.00 and US$498,904.00 to D3’s Account, and on 27 June 2017 D2 transferred US$178,450.00 to D3’s Account [2] on 23, 26, 27 and 28 June 2017, D2 transferred US$247,760.00, US$252,651.00, US$253,270.00 and US$230,472.00 respectively to D4’s Account [3] on 27 June 2017, D2 transferred US$160,000.00 and US$10,000.00 to D6’s bank account with HSB in Hong Kong [4] P claimed each of D3-D8 held the following amounts on constructive trust for P: D3 (US$895,849.00), D4 (US$984,153.00), D5 (US$253,870.00), D6 (US$170,000.00), D7 (US$253,248.00) and D8 (US$251,570.00) [5] on 23 June 2017 D3 transferred US$152,136.00 to D9’s bank account with HSB in Hong Kong and US$100,679.00 to D8’s Account, on 26 June 2017 D3 transferred US$200,000.00 to D10’s Account, on 27 June 2017 D3 transferred US$178,140.00 to D5’s bank account with HSB in Hong Kong, on 28 June 2017 D3 transferred US$189,787.00 to D2’s Account, on 29 June 2017 D3 transferred US$50,000.00 to D6’s bank account with HSB in Hong Kong, on 10 July 2017 D3 transferred US$100,000.00 to D11’s bank account with HSB in Hong Kong and US$100,000.00 to D12’s bank account with HSB in Hong Kong, and on 11 July 2017 D3 transferred US$196,500.00 to D13’s bank account with HSB in Hong Kong [6] on 23 June 2017 D4 transferred US$247,751.00 to D8’s Account, on 26 June 2017 D4 transferred US$252,650.00 to D14’s bank account with HSB in Hong Kong, on 27 June 2017 D4 transferred US$253,267.00 to D5’s bank account with HSB in Hong Kong, on 28 June 2017 D4 transferred US$2,260,000.00 to D15’s bank account with DBS Bank (Hong Kong) Limited in Hong Kong of which US$984,153.00 was part of the Sum belonging to P, on 29 June 2017 D4 transferred US$104,800.00 to D16’s bank account with HSB in Hong Kong, on 30 June 2017 D4 transferred US$53,000.00 to D2’s Account, on 7 July 2017 D4 transferred US$50,000.00 to D17’s bank account with HSB in Hong Kong, and on 7 July 2017 D4 transferred US$41,100.00 to D18’s bank account with HSB in Hong Kong [7] on 27 June 2017 D5 transferred US$999,993.41 to D19’s bank account with DBS in Hong Kong of which US$685,277.00 was a part of the Sum belonging to P, and on 28 June 2017 D5 transferred US$199,992.96 to D20’s bank account with OCBC in Hong Kong [8] P claimed that D2, D5, D6 and D8-D21 each held the following amounts on constructive trust for P: D2 (US$242,787.00), D5 (US$431,407.00), D6 (US$50,000.00), D8 (US$348,430.00), D9 (US$152,136.00), D10 (US$200,000.00), D11 (US$100,000.00), D12 (US$100,000.00), D13 (US$196,500.00), D14 (US$252,650.00), D15 (US$984,153.00), D16 (US$104,800.00), D17 (US$50,000.00), D18 (US$41,100.00), D19 (US$685,277.00), D20 (US$199,992.96) and D21 (US$170,000.01) [9] there were 3 third party deposits into D2’s Account on 26-28 June 2017 as italicised in this column (“Other Deposits”) in the total sum of US$524,287.00 [10] the withdrawals on 23-29 June 2017 italicised in this column were the Secondary Transfers to D3-D8 and 2 accounts in India (see the penultimate column) in the total sum of US$2,935,050.58 [11] ie the balance in D2’s Account just before the Primary Transfer [12] ie the Primary Transfer from P to D2’s Account [13] although not shown in D4’s company record itself, the registered address of HK HaoTuo was the same as that of D4 [14] see also Hong Kong Civil Procedure 2019 Vol 1 para 29/1/65 at p 760 [15] HCA151/2017, DHCJ Marlene Ng (unreported, 8 May 2018) [16] HCA3023/2016, DHCJ Douglas Lam SC (unreported, 2 May 2017) [17] see Hong Kong Civil Procedure 2019 Vol 1 para 29/1/70 at pp 762-763 [18] see Hong Kong Civil Procedure 2019 Vol 1 para 29/1/70 at p 763, which says that “evidence that the defendant intends to dispose of certain assets in the ordinary course of business without more would be insufficient to show a risk of dissipation ……” [19] HCCT13/2016, Mimmie Chan J (unreported, 1 June 2016) paras 18-21 [20] Vol 1 para 29/1/34 at p 747 [21] HCMP3072/2014, Mimmie Chan J (unreported, 10 April 2015) [22] see also DBS Bank (Hong Kong) Limited v Tian Wen Quan HCA3228/2016, Anthony Chan J (unreported, 12 October 2017) para 13 [23] HCA2562/2014, DHCJ Kent Yee (unreported, 30 May 2016) [24] 5th ed (2004) at para 9.027 [25] 19th ed para 41-117 at pp 2035-2036 [26] [1991] 2 AC 548, 579-580 [27] 9th ed para 27-07 at p 778 [28] see The Law of Unjust Enrichment 19th ed para 27-32 at pp 787-788 [29] see The Law of Unjust Enrichment 19th ed para 27-40 at p 791 citing Lipman Gorman (a firm) at p 580 [30] see Hong Kong Civil Procedure 2019 Vol 1 para 29/1/58 at pp 756-757 [31] HCA2264/2013, DHCJ Kent Yee (unreported, 2 May 2014) [32] see Zimmer Sweden AB at paras 71 and 89-94 and Arrow ECS Norway AS v M Yang Trading Limited & ors HCA239/2016, Au-Yeung J (unreported, 12 May 2016) para 13 [33] see Arrow ECS Norway AS at para 14-15 [34] HCA1139/2016, DHCJ Cooney SC (unreported, 18 July 2016) [35] D8’s business registration certificate was for the period from 4 January 2018 to 3 January 2019, and D10’s business registration certificate was for the period from 19 April 2017 to 18 April 2018 [36] Mr Brown also complained that the transfer of US$3,600,000.00 from D8 to Chuanglian was made on 24 June 2017 (as evident from the relevant transfer record) but the bank statement of D8’s Account showed the withdrawal was on 26 June 2017; however, 24 June 2017 was Saturday (non-banking day) which might explain why the withdrawal transaction was effected on 26 June 2017 (Monday) [37] see Chitty on Contracts 33rd ed para 16-246 at p 1387 [38] 3rd ed para 2.060 at p 42 [39] see The Conflict of Laws, para 2.074 at p 49 [40] HCA239/2016, Au-Yeung J (unreported, 12 May 2016) paras 29-35 citing HKSAR v Yan Suiling (2012) 15 HKCFAR 146 [41] HCA2390/2017, DHCJ Keith Yeung SC (unreported, 15 June 2018) [42] see DBS Bank (Hong Kong) Limited v Tian Wen Quan HCA3228/2016, Anthony Chan J (unreported, 7 December 2017) and CAMP79/2017 (unreported, 1 February 2018) [43] [2005] 1 WLR 247 [44] [2013] 1 HKLRD 334, 354 (see Heitkamp & Thumann KG at para 82) [45] see the affirmation of Zhong Yohua filed on 11 September 2017 that showed HK$207,838.63, US$155,258.45 and RMB5,982.64 were frozen in D8’s Account (see paragraph 30 above) and the affirmation of Chen Yixin filed on 19 October 2017 that showed HK$11,798.23 and US$6,065.87 were frozen in D10’s Account (see paragraph 43 above) [46] see DHCJ Winnie Tam SC’s summary of principles in Eastman Chemical Ltd in paragraph 68 above [47] ie should the court later find such injunction orders caused loss to inter alia D8 and D10 and decided D8 and D10 should be compensated for that loss, P would have to comply with any order the court might make [48] HCA318/2013, To J (unreported, 12 February 2014) [49] Mr Brown pointed out D8 had not shown the expected significant income from onsale of the goods acquired under the Chuanglian SPA for US$6,352,105.54 had been paid into D8’s Account and D8 had not otherwise accounted for the same, and similarly D10 had not shown the expected income from onsale of goods acquired under the Heng Win SPA for US$100,000.00 had been paid into D10’s Account and D10 had not otherwise accounted for the same, which suggested either or both of these transactions were shams or D8 and D10 had significant sources of funds not frozen by the injunction orders by which to continue their businesses | 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