Xie Li Xin v. Law Ka Yan, Thompson and Others
Read the full judgment text of HCA 1476/2017 on BabelCite. This High Court CFI judgment was delivered on 30 May 2022.
1. This case involves a sophisticated fraudulent scheme allegedly perpetrated by the 1 st defendant (“ Law ”), the 2 nd defendant (“ Ngai ”), and the 3 rd defendant (“ Tong ”) (collectively the “ Individuals ”) against the plaintiff (“ Xie ”).
Cited by 7 cases · Cites 14 cases
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HCA 1476/2017 [2022] HKCFI 1591 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1476 OF 2017 ________________________
________________________ Before: Hon Wilson Chan J in Court Dates of Hearing: 4-6, and 19 May 2022 Date of Judgment: 30 May 2022 __________________ J U D G M E N T __________________ TABLE OF CONTENTS 1.This case involves a sophisticated fraudulent scheme allegedly perpetrated by the 1st defendant (“Law”), the 2nd defendant (“Ngai”), and the 3rd defendant (“Tong”) (collectively the “Individuals”) against the plaintiff (“Xie”). 2.In short, Xie’s case is that the Individuals created a purported money lender business (“Money Lender Business”) to induce Xie to invest substantial funds of money. In truth, the purported loans executed by the Money Lender Business were merely mechanisms whereby Xie’s investment would be remitted back to the Individuals or entities under their control (“Fraudulent Scheme”). The 4th to 20th defendants were accessories of, or vehicles used by, the Individuals to perpetrate the Fraudulent Scheme. 3.Of the defendants, only Law appeared at the trial. His defence was that Ngai was the mastermind of the Fraudulent Scheme. He trusted Ngai, and he also was a victim of his fraud. 4.Xie submits that the court should have no hesitation in rejecting Law’s defence. His defence is incredible, self-contradictory, and inconsistent with the contemporaneous and documentary evidence. Also, there were various important factual aspects that Law simply had no answer, and when confronted in cross-examination, claimed privilege against self-incrimination. As will be explained below, this means that the evidence against him in these important aspects remain wholly unanswered. 5.The 5th to 15th defendants were legally represented up to the stage of the pre-trial review but were absent from the trial. Ngai, Tong, the 4th and 16th to 20th defendants have never entered any appearance. There can be little doubt that judgment or default judgment should be entered against these entities. 6.The court’s approach to the credibility of witnesses is well established. In particular, the court assesses credibility by reference to the contemporaneous documentary evidence. 7.Only two witnesses were called at trial. Xie and Law both gave evidence in support of their own case. 8.Xie’s evidence was not crossed-examined by Law. His evidence must be considered as unchallenged. 9.Xie submits that Law’s evidence is a pack of lies and should be rejected. The specific incidences where his evidence was proven to be false at trial are discussed in further detail in Section C below. However, by way of overview, Xie points out that:
10.Two legal points were pointed out by Xie at the outset. First, the court can draw adverse inferences from Law’s failure to adduce contradictory evidence which he can be expected to provide: Hua Tyan Development Limited v Zurich Insurance Company Limited (2014) 17 HKCFAR 493, at §46. 11.In this regard, I agree Law’s failure to adduce his contemporaneous text communications with Ngai is extremely telling. In cross-examination Law said that he had lost those messages. He suggested that he had changed his phone and lost his messages. A day later, he said that the messages were lost because his phone was confiscated by the police. Law’s excuses are inconsistent and incredible. 12.In any event, Law was represented by counsel until pre-trial review. The importance of those messages would not have escaped him. Yet no explanation for the absence of these messages had ever been given in the written evidence. The clear inference is that Law intentionally suppressed his messages with Ngai, because those messages would show that he was acting in concert with Ngai to further the Fraudulent Scheme. 13.Second, some English authorities suggest the court can draw adverse inferences when a witness relies on the privilege against self-incrimination to remain silent. 14.Without delving into the question of whether an adverse inference can be drawn from the reliance on the privilege in this jurisdiction, the English cases make clear that the court is at the very least entitled to hold that whenever a defendant relies on the privilege to remain silent, he creates a vacuum of evidence on his part. Consequently, the plaintiff’s evidence goes unanswered, and the court may liberally draw conclusions and inferences from the plaintiff’s one-sided evidence (as opposed from the defendant’s reliance on the privilege): see V v C [2001] EWCA Civ 1509 per Waller LJ at §40. 15.During cross-examination, Law relied on the privilege against self-incrimination on a number of occasions, especially when it was put to him that he was closely connected with persons that are implicated in the Fraudulent Scheme (ie Yeung Ngai Yin and Mei Hua - see paragraphs 98 and 178 below). The court should at the very least have no difficulty in coming to the view that the evidence against him, showing persons associated with him played critical parts in the conspiracy that he claimed to have no part in, remains unanswered and should be accepted. 16.All in all, for the reasons further elaborated below, I accept the plaintiff’s invitation to reject Law’s evidence, and to find that he was a co-conspirator with Ngai in furtherance of the Fraudulent Scheme. C. THE FRAUDULENT SCHEME AND LAW’S INVOLVEMENT 17.The Fraudulent Scheme began in around January and February 2016, when the Individuals induced Xie to invest in the Money Lender Business; to August 2016, when the Individuals abruptly disappeared and the value in the business was transferred to unknown corporate entities. 18.By way of overview, the Fraudulent Scheme took place in stages:
19.As the evidence shows, Law was clearly part of the Fraudulent Scheme. He was not, as he claimed, an innocent victim of Ngai’s fraud. C1. Prologue - first attempt at fraud by Ngai 20.Prior to the matters in this Action, Ngai had in fact attempted to perpetrate fraud by trying to make a secret profit (食價) out of a confirmor sale in respect of Shop No C68 on 1/F, Commercial Development of Locwood Court, Kingswood Villas, No 1 Tin Wu Road, Tin Shui Wai, Hong Kong (“Tin Shui Wai Shop”). 21.This fraud was described in the Judgment of Law Ka Yan Thompson v Ho Kang Wing [2020] HKCFI 513 (“Ho Action”) and the Judgment of Coleman J in Take Point Investment Holdings Limited v Ngai Lok Kei [2020] HKCFI 1709 (“Take Point Action”). 22.Although Xie is not a party to these Judgments and hence cannot take advantage of any res judicata, Xie is entitled to rely on the fact that there were evidence and facts adduced in those other proceedings supporting his narrative: Capital Century Textile Co Ltd v Li Dianxiao [2018] HKCFI 729, §§28-29 (Lisa Wong J). 23.In any case, the germane facts described in these two earlier Judgments were put to Law in cross-examination, and he admitted that they were true. 24.In short:
25.Ngai’s attempt at fraud failed. Mr Ho and his wife discovered Ngai’s plan and refused to complete the purchase. Law admitted that he then intervened and brokered a settlement between Ngai and Mr and Mrs Ho in March 2015. 26.Law accepted in cross-examination that, by that time, he knew of Ngai’s attempt at fraud on family friends that Law introduced to Ngai, and that Ngai had even utilised Madam Poon, Law’s mistress, as part of the fraud. Law accepted that this led him to think that Ngai was of questionable integrity, but he did not think it was a problem. 27.Law claimed that at the time, he thought that Ngai was intelligent and had infinite energy. He did not see integrity as an important quality. In his own words his philosophy at the time was winner takes all, and ability was all that matters (成王敗寇，能者居之). This is utterly incredible, and in any case, even if this is accepted, this shows that Law is a person of highly questionable integrity himself. C2. Inducing Xie to join the Money Lender Business 28.Xie is a businessman carrying on businesses related to information technology, e-commerce and real estate investment. 29.Xie met Law on 30 August 2014 because their daughters (Law’s daughter was with his wife, not Madam Poon) were classmates at the same school. Since then, the two families developed a close relationship. 30.Xie got acquainted with Ngai and Tong through Law in 2015 during a holiday trip to South Korea. However, Xie had a much closer relationship with Law, and only met Ngai and Tong when Law was present. 31.Xie and the Individuals mainly communicated through a WeChat Group called “廣州飯聚集團” (“Wechat Group”). 32.As their personal relationship developed, the Individuals learned about Xie’s background and his successful businesses. 33.According to Xie’s unchallenged evidence, on a day between late 2015 and 8 February 2016, Xie and the Individuals had a dinner at Xie’s home at Shatin Lookout. During the dinner, the idea of the Money Lender Business was floated.
34.After Xie expressed his interest in the Money Lender Business. Law and Ngai suggested that:
35.Xie, Law, and Ngai subsequently had a meeting on 9 February 2016 at Xie’s Shatin Lookout residence to discuss the proposed Money Lender Business. On that occasion Ngai said:
36.Law’s evidence was that:
37.It can be immediately seen that Law’s account is highly unlikely:
38.More importantly, Law’s account given in this action is flatly contradicted by what he said in the Ho Action. In the Ho Action, Law said that after Ngai’s attempt to defraud Mr Ho had failed, Ngai was afraid that he would lose his estate agent license: Ho Action §53. He therefore begged Law to start a money lending business. In cross-examination, what Law had said in the Ho Action was put to him, and he accepted that this was the truth. 39.It was therefore Ngai who was desperate to start the Money Lender Business. It simply made no sense that Ngai would reject Xie’s offer because he would have to be Xie’s employee. The truth is that Law and Ngai together made the various representations to induce Xie to invest in the Money Lender Business. 40.As to the Alleged P’s Offer, it was put to Law in cross-examination that, as per what was said in Xie’s witness statement, Law and Xie initially agreed to contribute HK$15 million. Law said that he did not remember what happened. He was in no position to disagree with Xie’s evidence in this regard. C3. The Shareholders Agreement 41.On 12 February 2016, the Individuals and Xie met at Xie’s office. Ngai presented to Xie a draft shareholders agreement (“Shareholders Agreement”) to be entered between Xie and the Individuals for the Money Lender Business. Its salient terms provide that:
42.Prior to the disappearance of the Individuals in August 2016, the sole director of Superlative was Polly Wealth, and the sole director of Future Profit was Madam Chan Man Wai, being Tong’s wife (“Madam Chan”). 43.During the meeting on 12 February 2016:
44.Xie agreed to the draft Shareholders Agreement, which he executed on 14 February 2016. Afterwards, 3,500 shares of US$1.00 each in Polly Wealth were allotted to Xie (“Allotment”). 45.On the other hand, Law alleges that:
46.I agree that Law’s account should be rejected. 47.First, insofar as the Threshold Requirement is concerned:
48.Law’s answer in cross-examination was that Ngai would be responsible for the valuation exercise himself, and that he (Ngai) would have the authority to approve the loans too. Law also insisted that it was agreed that even shareholders can borrow from the Group. 49.This arrangement does not make commercial sense. If Ngai arranged for himself (or his nominees) to borrow money from the Group (which he did in respect of the Tin Shui Wai Mortgage Loans), and he had a free hand in valuing the security provided, there would be an obvious conflict of interest. Ngai could value the security as he wished so that he can borrow as much as he wanted from the Group. It is unbelievable that no one raised issues about such alleged arrangement. 50.Law’s answer in cross-examination was that he trusted Ngai, so he did not question this arrangement. This is unbelievable given that Law had already concluded in 2015 that Ngai was of questionable scruples. In any case, clearly Xie, as an experienced businessman, would not have stayed silent. 51.Moreover, when Ngai did execute two loans on behalf of the Group (ie the Sai Kung Mortgage Loan and the Tin Shui Wai Mortgage Loans), Xie expressed shock and surprise that Ngai did not seek shareholders’ approval before doing so. Despite that, no one (including Law and Ngai) sought to remind Xie that Ngai was authorised to make loans that satisfied the Threshold Requirement. The simple reason for that is that the Alleged 17 Feb Agreement never existed. 52.On 19 February 2016, Xie, the Individuals and Madam Chan (Tong’s wife) met at the Hoi Yuen Road Branch of Hang Seng Bank to set up the bank accounts for Polly Wealth, Superlative, and Future Profit. C4. The discussion of the Sai Kung Mortgage Loan 53.On 5 March 2016 at about 11am, at a meeting between Xie and the Individuals at Xie’s office, Ngai said that he had found potential customers for the Money Lender Business, who wished to obtain a mortgage loan of approximately HK$25,000,000 (“Sai Kung Mortgage Loan”). 54.Later documents show that the intended borrowers were Tam Chi Fai (“Tam”) and Target Way Property Development Limited (“Target Way”) (collectively the “Sai Kung Borrowers”). The properties which were proposed to serve as security for this loan were:
55.Later on the same day, Xie and the Individuals performed a site visit of the Sai Kung Properties. Although Xie felt that the properties were not quite decent, Ngai persisted that the Group should explore the business opportunity. 56.There is some dispute between Xie and Law as to whether the Sai Kung Borrowers were borrowing money to finance the purchase of the Sai Kung Properties, or whether they were mortgaging the Sai Kung Properties to fund their other projects. This is not material as Xie’s complaint is that the Sai Kung Mortgage Loan later transpired to be a self-dealing transaction, and the relevant mortgage was not even registered, as explained in Section C9 below. 57.In the evening of 5 March 2016, from about 9:57 pm to 10:02 pm, Ngai reported through voice messages in the Wechat Group that he had concluded negotiations with the Sai Kung Borrowers on the terms of the Sai Kung Mortgage Loan. Law also sent voice messages in the Wechat Group reassuring everyone in the group (including Xie) on the feasibility and the prospects of the Sai Kung Mortgage Loan. 58.Ngai visited Xie at about 10 pm on 5 March 2016. He proposed that a loan agreement be entered into by Future Profit with the Sai Kung Borrowers, and that Polly Wealth should raise a further sum of HK$25,000,000 to fund the proposed loan. In light of the Individuals’ earlier representations about the prospects of the Group, Xie believed that the Sai Kung Mortgage Loan would be a boost to the Money Lender Business and agreed in principle to the fundraising exercise. 59.Pausing here, it is worth noting that the Sai Kung Mortgage Loan was subject to extensive discussion before it was advanced. There was a site visit, and there was further discussion in the Wechat Group as to whether the Sai Kung Properties were adequate security. In fact, after all the discussion, Ngai specifically visited Xie to seek his approval to go ahead with the Sai Kung Mortgage Loan. This contradicts any suggestion that Ngai was authorised to execute loans without shareholders’ approval. This is also in marked contrast with how the Tin Shui Wai Mortgage Loans (a key part of the Fraudulent Scheme) were executed, as discussed in Section C7 below. 60.On 5 March 2016 at 10:34 pm, Ngai sent a Wechat message to the Wechat Group, proposing the following sums be raised to finance the Sai Kung Mortgage Loan (“Third Tranche Shareholders’ Loan”):
61.It is worth noting that this round of fund raising was not canvassed in the Shareholders Agreement. Further, the contributions under the Third Tranche Shareholders’ Loan were not proportional to the shareholding percentages of Xie and the Individuals in Polly Wealth. 62.Moreover, at this stage, there was no need for the Group to raise the Third Tranche Shareholders’ Loan. HK$40,000,000 was going to be raised under the capital injection and the First and Second Tranche Shareholders’ Loan, and that was ample to cover the HK$25,000,000 Sai Kung Mortgage Loan. Clearly, Ngai already harboured plans to advance money to undisclosed borrowers, namely the borrowers of the Tin Shui Wai Mortgage Loans (see Section C7 below). 63.On 8 March 2016, Xie made queries in the Wechat Group as to whether the Sai Kung Mortgage Loan had been executed. He noted that he had to carefully calculate his cashflow since he would have to pay the balance purchase price for his office in late June. He said that the sale of his company was taking longer than expected, and he was uncertain about his cashflow; the Third Tranche Shareholders’ Loan was not “part of his plan”. Xie also asked in the Wechat Group whether Law could contribute more - but Law did not reply. 64.It is Law’s case that Xie had agreed to invest the HK$19,000,000 pursuant to the Third Tranche Shareholders’ Loan, but failed to do so when the Group was in need of funds. That could not be true. Xie’s messages on 8 March 2016 clearly showed that he did not agree to the Third Tranche Shareholders’ Loan. Everyone was cognisant of that and no one objected. C5. The 19 March 2016 Meeting and the Purported Restructuring 65.On 19 March 2016, Xie and the Individuals had a meeting at Xie’s office. During the meeting:
66.The Purported Restructuring was carried out without Xie’s knowledge and approval. It was never tabled for consideration by the board of Polly Wealth. 67.There is disagreement as to when the Purported Restructuring took place. Xie says that by the time of the 19 March 2016 meeting, the Purported Restructuring had already been completed without his consent, and Ngai merely produced the diagram at the meeting to show the result. By contrast, Law says that the Purported Restructuring was discussed at the 19 March 2016 meeting, and Xie agreed for it to go ahead. 68.Law’s version of events is clearly incorrect. The corporate documents of Win Top and Central Impulse show that they had resolved to issue shares to Polly Wealth on 17 March 2016, 2 days before the 19 March 2016 meeting. 69.The Purported Restructuring is wholly inexplicable:
70.Quite plainly, the Purported Restructuring only served to complicate the corporate structure, so that it would be more difficult for Xie to recover his investment. In particular, Xie had no control of Central Impulse, the first chargee under the Asset Protection Charges. 71.Law further suggested in his witness statement that the Tin Shui Wai Mortgage Loans were specifically discussed. However, in cross-examination, when it was put to him that it is Xie’s case that the details of the Tin Shui Wai Mortgage Loans were not discussed at the meeting, Law simply said he did not remember what happened. Clearly, Xie’s unchallenged evidence in respect of the 19 March 2016 meeting should be accepted. C6. Xie’s first investment and the 26 March 2016 Messages 72.On 19 March 2016, after the aforementioned meeting, Ngai issued written instructions (as the CEO of Polly Wealth) to Xie and the Individuals requesting them to remit their respective share of capital contributions to Polly Wealth. Xie was instructed to pay:
Xie understood that the Second and Third Tranche Shareholders’ Loan were supposed to carry interest at 6% per annum. 73.On 21 March 2016, Xie transferred HK$27,300 and HK$3,472,700 to Polly Wealth's bank account. 74.Prior to committing the HK$25,000,000 under the Second Tranche Shareholders Loan, Xie was very concerned about the safety of his investment. 75.At 6:56 pm on 26 March 2016, Xie sent messages to the Wechat Group enquiring the details of the Second Tranche Shareholders’ Loan. Xie was particularly concerned with whether the Second Tranche Shareholders’ Loan would be secured by any asset. 76.In reply to Xie’s query, Ngai reassured Xie in the Wechat Group that his right as creditor would be adequately protected since Xie was a creditor with first priority (第一債權人). He said Xie was a director of the company and hence he was “double-protected”. He further said that the structure of the Group was set up as advised by lawyers so that Polly Wealth could capitalise its debts in the simplest and fastest way when it gets listed. 77.Later, Ngai also said in the Wechat Group that Polly Wealth would only need to raise another HK$30,000,000 to HK$40,000,000 before it could meet the listing requirement for the GEM board. 78.Pausing here, Ngai’s reassurance to Xie was clearly bogus. There is no such thing as “creditor with first priority” (第一債權人), and there is no reason (and none has ever been suggested) why complicating the corporate structure of the Group would somehow make the listing faster or easier, or somehow facilitate Polly Wealth in capitalising its debts. 79.Xie was not satisfied with Ngai’s reassurances. He privately messaged Law on Wechat to express his concerns over the Money Lender Business. 80.Law replied by reassuring Xie as to the feasibility and prospect of the Money Lender Business. In particular, Law stressed that Ngai was trustworthy, and they should believe in Ngai to carry out the Money Lender Business. 81.Law admitted in cross-examination that, as of 26 March 2016, he was already aware of the incident in the Ho Action, and how Ngai had tried to make a secret profit (食價) of almost HK$10 million by taking advantage of a confirmor sale in respect of the Tin Shui Wai Shop. Nevertheless, he asked Xie to repose trust and confidence in Ngai. 82.Law said in cross-examination that he never painted a rosy picture of the Money Lender Business. Instead, he repeatedly emphasised the importance of safety in the investment. But his assurance to Xie was simply they should both trust and rely on Ngai, someone he knew was of no integrity (yet Law never alerted Xie to this). 83.Law’s repeatedly emphasised that he did not care about integrity at the time. He thought that Ngai was intelligent and full of energy. He believed that some integrity problems are less severe than others, and Ngai’s fraud against Mr Ho was not serious, and was comparable to something minor such as running a red light. I agree that this borders on the absurd. Defrauding HK$10 million from family friends introduced by Law himself, using his mistress as the person behind the confirmor, is not comparable to running a red light. No sensible honest person would have done what Law did, and no sensible honest person would have thought as Law supposedly did. He was clearly part of the scheme. 84.The irresistible inference is that Law and Ngai were in it together, and that Law stood to benefit from the Fraudulent Scheme. 85.Shortly after his conversation with Law, Xie drew a HK$25,000,000 cheque in favour of Polly Wealth, which was cleared on 29 March 2016. It is plain that Xie relied on Law and it was because of Law’s assurances that he paid over the HK$25,000,000. That is also his unchallenged evidence. 86.On 31 March 2016, Xie messaged Ngai suggesting that he should give the shareholders the company incorporation and bank opening documents. Xie also suggested that his assistant, Ms Jane Kong (“Ms Kong”) can assist in the Money Lender Business. Ngai agreed to provide the documents and said he would involve Ms Kong if he needed assistance. He never did so. C7. The Tin Shui Wai Mortgage Loans 87.At around the same time in late March 2016, Ngai advanced loans on behalf of the Group to the 4th to 14th defendants (“Tin Shui Wai Borrowers”), to fund the purchase of sub-divided units of the Tin Shui Wai Shop (“Tin Shui Wai Properties”) from Profit Trillion Limited (“Profit Trillion”) (“Tin Shui Wai Mortgage Loans”). 88.The details of the Tin Shui Wai Mortgage Loans were unknown to Xie at the time. It was only after the Fraudulent Scheme was uncovered that Xie was able to piece together the true picture. 89.The Tin Shui Wai Mortgage Loans were advanced by Future Profit to the Tin Shui Wai Borrowers in the following circumstances:
90.As submitted by Xie, the Tin Shui Wai Mortgage Loans were clearly artificial and self-dealing transactions designed to benefit Ngai and Law. 91.First, I-Luck (ie the 17th defendant, dissolved on 14 May 2021), the entity which indirectly received HK$16,514,190.54 from the Tin Shui Wai Mortgage Loans proceeds, was controlled by Ngai and Law, as evidenced by the following:
92.Law’s case was that I-Luck was Ngai’s company. When questioned why he was a bank signatory of I-Luck, Law’s explanation was that Ngai opened a number of companies for business purposes just in case and just told him to join as bank signatories. I-Luck was one such company. 93.I agree that Law’s explanation is wholly incredible. Law was someone who had done business for over 20 years. It made no sense for him to agree to be a signatory of a company which had nothing to do with him. Nor is there any sense in Ngai having Law occupy such an important position unless Law was interested in I-Luck. 94.Second, the details of the 5th to 14th defendants - ie the corporate borrowers of the Tin Shui Wai Mortgage Loans - are highly illuminating.
95.Third, three individuals relating to the Tin Shui Wai Borrowers are of note, as they were closely connected with the Individuals. 96.The first is Pang Hoi Pan (“Pang”), sole director of the 8th defendant since 29 February 2016.
97.The second is Cheng Nga Man (“Cheng”), sole director of the 9th defendant since 29 February 2016.
98.The third and most important individual (insofar as the case against Law is concerned) is Yeung Ngai Yin (“Yeung”).
99.The connection between Yeung and Law is crucial. Law accepted at the outset of his cross-examination that the Tin Shui Wai Mortgage Loans were not genuine. But it turns out that Yeung, who worked for Law, was involved in this very transaction. The only reasonable inference is that Law was in it with Ngai in arranging the Tin Shui Wai Mortgage Loans to defraud Xie. Xie’s unanswered evidence of Yeung’s involvement enables the court to find that Law was indeed involved in the Tin Shui Wai Mortgage Loans. 100.Fourth, the Tin Shui Wai Mortgage Loans were wholly uncommercial and artificial, and bears striking resemblance to Ngai’s first attempt to profit from the Tin Shui Wai Shop by defrauding Mr Ho and his wife. Law must have known the uncommercial nature of the transaction.
101.By reason of the aforesaid, the truth is that Law was clearly lying when he said that he had nothing to do with the Tin Shui Wai Mortgage Loans. I find that both Ngai and himself arranged the Tin Shui Wai Mortgage Loans to make a secret profit out of the Tin Shui Wai Shop. 102.This also disposes of Law’s remonstrances that he also invested money in the Money Lender Business and had lost money to Ngai’s fraud. The money had found its way back to I-Luck for his benefit. Law suffered no loss at all. He was a co-conspirator. 103.Xie never knew that the Tin Shui Wai Mortgage Loans had been advanced. He only found out on 8 April 2016 that over HK$33 million of the HK$40 million raised pursuant to the capital injections and the First and Second Tranche Shareholders’ Loans had been lent, whereupon Xie and the Individuals had to scramble for funds for the Sai Kung Mortgage Loan (see Section C8 below). C8. The events in early April 2016 104.The Sai Kung Mortgage Loan was an opportunity that was introduced by Ngai on 5 March 2016. The loan was discussed at the 19 March 2016 meeting, but no documents were signed as of that date. 105.On 1 April 2016, Xie messaged Ngai saying that he had difficulty raising HK$19,000,000 for the Third Tranche Shareholders’ Loan. He proposed that he would inject HK$5,000,000 instead. 106.On 2 April 2016, a board meeting was held at Xie’s office. Only Xie, Law, and Ngai attended. During the meeting, Ngai sent a number of photographs to the Wechat Group which were screenshots of a “Loan Confirmation Letter” (貸款確認書) signed between Future Profit and the Sai Kung Borrowers. Ngai therefore pressed Xie to transfer to Polly Wealth the HK$19,000,000 for the Third Tranche Shareholders’ Loan. 107.This was the first time that Xie learnt that the Group had already entered into binding agreements with the Sai Kung Borrowers. It is his unchallenged evidence that he was “shocked” to be informed of that. 108.On 7 April 2016:
109.It is worth noting at this juncture that none of the Individuals objected to Xie contributing only HK$5,000,000, instead of HK$19,000,000, under the Third Tranche Shareholders’ Loan. 110.At 3:38 am on 8 April 2016, Xie sent a message to the Wechat Group suggesting that out of the HK$40,000,000 already raised for the Group (under the share capital injection, the First Tranche Shareholders’ Loan and the Second Tranche Shareholders’ Loan), HK$25,000,000 could be utilised on the Sai Kung Mortgage Loan to avoid the Group being in breach of contract. 111.Pausing here, Xie’s suggestion of utilising the earlier funds clearly shows that he genuinely believed that those funds were still available. 112.At 8:24 am on 8 April 2016, Law sent messages to the Wechat Group suggesting as follows (“Law’s Suggestion”):
113.It was the first time that Xie learnt that substantial amount of loans had already been extended by the Group to customers. He complained in the Wechat Group that the earlier funds had been applied too abruptly, and that even the shareholders had not had a chance to see the relevant contracts. As illustrated above, the earlier funds were actually purportedly applied towards the Tin Shui Wai Mortgage Loans, as part of the Fraudulent Scheme to benefit Law and Ngai. 114.This was also the first time that the shortfall of HK$8,000,000 was calculated and explained to Xie and the Individuals. This calculation was dependent on there being only HK$6,000,000 within the business, because around HK$30,000,000 had been lent (which as Law accepted was only revealed to Xie for the first time in the message at 8:24 am on 8 April 2016). This is a significant fact in relation to the personal loan between Xie and Law, as will be discussed in further detail in Section C10 below. 115.Between 8:31 am to 9:13 am on 8 April 2016, Ngai sent messages in the Wechat Group saying inter alia that:
116.Under Law’s Suggestion, Law would advance HK$13,000,000 (ie HK$5,000,000 + 8,000,000) to the Group. It is clear from the Wechat messages that Law’s Suggestion was voluntary and not under any compulsion or duress by Xie. There is no indication that he was merely advancing the sum on behalf of Xie, or that there was to be any implied obligation by Xie to pay him back. Again, I shall return to this point in respect of the personal loan between Law and Xie. 117.In response to Law’s Suggestion, at about 9:58 am on 8 April 2016, Ngai sent Wechat messages to the Wechat Group and suggested that funds could be directly transferred to Future Profit’s client account with HN, in order to save time. 118.Throughout that morning, Law gave the impression in the Wechat Group that he was arranging for funds to be transferred from his family company. For example, Law said that he had notified his company to remit the HK$13 million immediately (我通知左公司馬上轉數！...我這邊1300萬！). 119.However, in truth, the HK$14,000,000 which Law and Ngai advanced that day all came from I-Luck (the 17th defendant, a company controlled by Law and Ngai). The HK$14,000,000 of I-Luck, in turn, came from the proceeds of the Tin Shui Wai Mortgage Loans (in the sum of HK$16,514.190.54) that were transferred to I-Luck’s account 2 days ago on 6 April 2016. Law’s family companies never paid anything. 120.Law’s evidence at trial was that he had gone to the bank in Central with Ngai to arrange the transfer from his family companies. However, when he got to the bank he discovered that he did not bring the family company chop. At the time Ngai owed him or his family company around HK$10 million. Ngai agreed to advance HK$13 million on his behalf first. They would settle their debts later. 121.I find that Law’s account of events is wholly incredible:
122.During cross-examination, Law tried to blame the lack of evidence on his lawyers. He emphasised that he was acting in person. He says that right before the trial, he realised that there was no evidence substantiating his case as to why I-Luck paid his share from the proceeds harvested from the Tin Shui Wai Loan. He then contacted his previous solicitors, who told him that they had only just retrieved the documents from a barrister who had previously acted for Law in this Action. 123.Law even went as far as to say that his previous lawyers were negligent in failing to provide those documents. However, when asked to clarify what those missing documents showed, Law said that it showed the genuineness of Ngai’s indebtedness to him or his family.
124.The truth as I find it is that Law never asked his family companies for the HK$8,000,000. The funds were to come from I-Luck all along. That was why Law and Ngai went to Central to arrange the transfer from I-Luck (Law and Ngai both being its account signatories). Law lied to Xie because he wanted to give the impression that he had gone to great lengths to secure the HK$8,000,000 for the Money Lender Business, and that he would be in dire need of funds in 2 weeks. That was all done to take advantage of Xie’s sympathy so that he would advance further funds to the Group or Law, which he did so in the events detailed in Section C10 below. 125.On 8 April 2016, Xie advanced HK$5,000,000 as the Third Tranche Shareholders’ Loan (see: Law’s Suggestion at paragraph 112 above). C9. The Sai Kung Mortgage Loan 126.The agreement for the Sai Kung Mortgage Loan was executed by Madam Chan (Tong’s wife) on behalf of Future Profit on 8 April 2016. The Sai Kung Properties were supposedly executed as the security for the Sai Kung Mortgage Loan under the agreement (“Sai Kung Mortgage”). 127.The evidence shows that the Sai Kung Mortgage Loan was not a genuine commercial transaction, or at the very least was a self-dealing transaction whereby money was actually advanced to entities connected to or controlled by the Individuals. 128.First, the mortgage over the Sai Kung Mortgage (which Xie only obtained from the solicitors for the 5th to 15th defendants in the course of these proceedings) was undated. It had also never been registered according to land search results. A genuine mortgage would not have been undated and unregistered. 129.Second, only part of the HK$25,000,000 to be advanced under the Sai Kung Mortgage Loan was actually remitted to the Sai Kung Borrowers:
130.Subsequent Investigations also show that even the Sai Kung Borrowers were in fact connected with the Individuals:
C10. The Personal Loan Agreement 131.As of 8 April 2016, Law gave Xie the impression that he had just withdrawn HK$8,000,000 from his family companies to fund the Sai Kung Mortgage Loan. He also gave the impression that he needed the HK$8,000,000 back in 2 weeks otherwise he would be in trouble. 132.At 9:39 pm on 25 April 2016, Law messaged Xie via Wechat saying that he needed Xie’s help to solve his imminent problem, which Xie understood to be his need to repay the sum of HK$8,000,000 to his company. Xie replied that he would talk to other directors of his own company. In cross-examination Law accepted that the impression he gave was that his needs were due to his contributions to the Sai Kung Mortgage Loan. 133.On 26 April 2016 and 27 April 2016, Xie messaged Law via Wechat offering that he could borrow HK$8,000,000 from other directors of his own company at an interest rate of 6% per annum, and then lend that sum to Law. Xie did so as a gesture of goodwill, since Law’s cashflow problem was apparently caused by the need to fund the Sai Kung Mortgage Loan. 134.Law suggested that Xie could inject the funds into the Group instead, and the Group can repay Law. Xie refused, and said that he would execute a personal loan to Law instead. 135.On 28 April 2016, Ngai sent (via WeChat) Xie a screenshot of a draft copy of the proposed personal loan between Xie and Law. Ngai stated that it was Law who asked Ngai to help him prepare a draft loan agreement. 136.Law and Xie signed the personal loan agreement between them on 29 April 2016 (“Personal Loan Agreement”). Under the Personal Loan Agreement, Xie agreed to lend Law HK$8,000,000 repayable on 31 October 2017 with an interest rate of 6% per annum. On the same day, Xie remitted HK$8,000,000 to Law. 137.Law’s version of events regarding the Personal Loan Agreement in his witness statement was this: he had a phone call with Xie between 6:06 pm on 7 April 2016 and 8:24 am on 8 April 2016, in which Xie offered that if Law paid the HK$8,000,000 on his behalf for the Third Tranche Shareholders’ Loan, he would repay Law within weeks. Law said that he could get his family companies to make a temporary loan of HK$8,000,000 to Xie, provided that:
138.Law says it was on the above basis that he agreed to arrange HK$8,000,000 to fund the Sai Kung Mortgage Loan. As a result, a few weeks later, his family companies were in need of the HK$8,000,000 to fulfil capital verification requirements in China. 139.However, instead of repaying Law, Xie made an “implied and unlawful threat” that he would not repay HK$8,000,000 to Law, by offering to make a personal loan of HK$8,000,000 to Law instead; and Law entered into the Personal Loan Agreement under such “illegitimate pressure”: the 1st defendant’s Amended Defence §§20, 46. 140.This court has no hesitation in rejecting Law’s account in relation to the Personal Loan Agreement. 141.First, the alleged call between Law and Xie in the evening of 7 April 2016 could not have taken place:
142.Second, the purported need to comply with capital verification requirements was clearly false:
143.The truth is that Law’s family companies did not need the HK$8,000,000 for capital verification purposes, and they had never paid the HK$8,000,000 on 8 April 2016. I-Luck did. Law made up a need for money by his family companies so as to give Xie the impression that he was in desperate need of money because he had forked out his family’s money on 8 April 2016 (when he did not), in an attempt to induce Xie to invest more money into the Group. Law plainly lied to Xie to deceive Xie to lend HK$8,000,000 to him. 144.As to Law’s case that Xie forced him to sign the Personal Loan Agreement under duress, Law expressly acknowledged that those allegations were false in cross-examination. 145.When asked why he lied in his Defence and Amended Defence (for which he signed a statement of truth in 2017 and 2019), he said that some “evil voices” told him to do so. As to who those voices were, he said it was his sister Aries Law Ka Yee. After evidence was concluded, and after Law learnt that Xie was applying for a transcript of the trial for proceedings relating to his family (including his sister Aries Law Ka Yee), Law immediately asked to change his evidence, and said that the “evil voice” was in fact Ngai. That is another lie, for Law had accepted in cross-examination that he no longer contacted Ngai by mid-2017, well before he filed his Defence. The involvement of Law’s family will be further explored in Section C13 below. 146.Law’s lies and the fraud he perpetrated in relation to the Personal Loan Agreement are significant. Throughout the trial, Law had insisted that he was an innocent victim of Ngai’s fraud. But this Personal Loan Agreement (or the original plan to induce Xie to lend the HK$8 million to the Group - see paragraph 134 above) was machinated by Law. It dispels any doubt as to whether Law was one of the conspirators of the Fraudulent Scheme. C11. The meetings in May and June 2016 147.At Polly Wealth’s board meeting on 7 May 2016 at Xie’s office:
148.On 16 May 2016, Xie indicated in the Wechat Group that he had no means to fund the new business opportunity. 149.This was clearly yet another attempt of the Individuals to dupe Xie into investing even more in the Money Lender Business. 150.By then, Xie had become concerned about the various aspects of the Money Lender Business, including the incorporation of new companies as Polly Wealth’s subsidiaries and the extension of 20 loans to customers without his knowledge or approval. Xie indicated his concerns to Law, and gave some suggestions on the future operation of the Money Lender Business, via voice messages to Law on 10 June 2016. 151.On 11 June 2016:
152.In around July 2016, as Xie was increasingly concerned about his investment in the Money Lender Business, he requested the Individuals to provide him details of the business operations and the financial records of the Money Lender Business. Eventually, Ngai sent Xie a number of corporate documents, 20 mortgage loan agreements in relation to the Tin Shui Wai Mortgage Loans, and the mortgage loan agreement in relation to the Sai Kung Mortgage Loan. C12. The abrupt disappearance of the Individuals 153.On 3 August 2016, Xie suggested in the Wechat Group that the English Internal Loan Agreements and Asset Protection Charges were too complicated. Xie also suggested that the shareholders of Polly Wealth should enter into an agreement to jointly guarantee the shareholders’ loans advanced to Polly Wealth. 154.In response, Ngai said that the arrangement proposed by Xie could not secure the interests of the shareholders, and only the Asset Protection Charges would do so. At this point Law sought to mediate, and suggested that he understood Xie’s concerns. Xie and the Individuals agreed to arrange a meeting on 6 August 2016 to discuss the matter. 155.On 5 August 2016, Xie shared a news article with the Individuals in the Wechat Group about scams involving loan intermediaries, because he thought that the news article could be relevant to the Money Lenders Business. Then the behaviour of the Individuals underwent a fundamental change. The Individuals did not respond to Xie’s message. 156.On 6 August 2016, none of the Individuals came to Xie’s office despite Xie’s messages and follow-up phone calls. 157.In his witness statement, Law’s case was that what transpired on 3 August 2016 was the “breaking point” which led him to decide that he could no longer stay in the Money Lender Business. 158.It was pointed out to Law in cross-examination that the discussion on 3 August 2016 was nothing but cordial. In fact, Law said himself that he understood the concerns of Xie. Law agreed in cross-examination that there was nothing provocative in Xie’s messages that would have caused him to break off with Xie. Despite what he had said in the witness statement, he simply could not bring himself to say in court that what Xie said on 3 August 2016 could have been a turning point for his relationship with Xie. 159.Law then shifted his evidence by saying that it was Ngai who persuaded him to sell his interest in the Money Lender Business. When asked why he had made false accusations against Xie in his witness statement, Law said that he misremembered what happened at the material time. 160.The court has no hesitation in rejecting Law’s explanation, as yet another example of Law departing from his earlier evidence, when his position became untenable in light of the contemporaneous Wechat evidence. 161.The truth is, when Xie shared the news article in the Wechat Group on 5 August 2016 which mentioned money lending fraud, the Individuals thought that the game was up. That was why they began to contemplate their exit plan (as described below). That was also why none of the Individuals showed up on the 6 August 2016 meeting. 162.On 9 August 2016:
163.It was only after the threat to report the matter to the police that the Individuals started to respond to Xie’s Wechat messages again. It was agreed that a board meeting would be convened on 14 August 2016 at 5:30 pm. 164.None of the Individuals showed up at Xie’s office at the 14 August 2016 board meeting. Instead, two unidentified strangers, who purported to be a Mr Lam Tze Chun and a Mr Chan Ka Yu, showed up. They produced:
165.Xie never received notice of the matters set out in the board minutes, and certainly never approved them. 166.After the events unfolded on 14 August 2016, Xie tried to contact Law by sending 5 voice messages to him. Law never replied. The Wechat Group have gone totally silent since then.[5] 167.Law’s case was that, prior to the 14 August 2016 meeting, he was persuaded by Ngai to sell his interest in the Money Lender Business. The court has no hesitation in rejecting Law’s evidence:
168.Further on 4:30 pm on 14 August 2016, one hour before the meeting was supposed to take place, Xie messaged the Wechat Group saying that he had arrived. Law replied “sure” (好的), giving the impression that he was going to show up. However, Law accepted in cross-examination that he had already sold his shares by then. He was therefore lying when he gave the impression that he was going to show up in the 14 August 2016 meeting. 169.The truth is, after their no-show to the 6 August 2016 meeting, Law and Ngai gave the impression that they would go to the 14 August 2016 meeting to buy time for them to arrange for their withdrawal from and dissipation of assets of the Group. C13. Dissipation of the Group’s assets 170.Subsequent investigations revealed that Law and Ngai took various steps to dissipate the Group’s assets, and to put them beyond Xie’s reach. 171.First, on 8-13 August 2016, right before the scheduled 14 August 2016 meeting, Ngai made 16 cash withdrawals (for HK$50,000 each) from Future Profit’s bank account. 6 of these withdrawals were notified to Law. The remaining balance of HK$844,635.96 in Future Profit’s bank account was withdrawn by Ngai and Law in cash on 24 August 2016. The account was subsequently closed on 26 August 2016. 172.When asked why he made no objection to the 16 withdrawals made by Ngai between 8-13 August 2016, Law merely said that he did not remember. 173.As to Law’s evidence in respect of the 24 August 2016 withdrawal, Law’s evidence is wholly incredible and self-contradictory:
174.All this amply shows that Law does not have any honest explanation about the withdrawal. He knew that the withdrawal on 24 August 2016 were dishonestly made, and that he was acting in concert with Ngai to misappropriated funds from the Group. 175.Second, on 15 August 2016:
176.On Dragon later acquired the shares of the 5th to 15th defendants, the corporate borrowers of the Tin Shui Wai Mortgage Loans, on or around 1 March 2017: witness statement of Long Ziming §5. 177.On Dragon and Superhero were clearly entities controlled by the Individuals to siphon away the Group’s assets and avoid recovery by Xie:
178.More importantly, in this Action, an individual known as Mei Hua filed a witness statement on behalf of On Dragon. Mei Hua is somebody closely connected with Law, and his family:
179.When Law was confronted with questions about Mei Hua in cross-examination, he again relied on the privilege against self-incrimination. The aforesaid evidence against him therefore remains wholly unanswered. It is obvious that he played a major part in the Fraudulent Scheme. 180.The truth is that On Dragon, the company which received the interest in the Tin Shui Wai Mortgages and the Sai Kung Mortgage for no consideration, is a company that is closely connected to Law and his family. This puts paid to any suggestion that Law was merely a victim of Ngai’s fraud. 181.Notably, throughout the trial, Law had constantly stressed that he was on bad terms with his family. He complained that his sister - Aries Law Ka Yee - had always thought him as someone who never took things seriously. This is but another attempt to pull wool over the eyes of the court:
C14. Conclusion on the Fraudulent Scheme 182.Based on the foregoing, there can be no doubt that Law’s evidence cannot be relied upon at all. His denial that he was a co-conspirator must be rejected. The truth is that Law has abused the trust of Xie, a father of his daughter’s classmate. Law is plainly a co-conspirator in the Fraudulent Scheme. D. XIE’S PERSONAL AND PROPRIETARY CLAIMS D1. Fraudulent misrepresentation/tort of deceit 183.The elements for fraudulent misrepresentation, or the tort of deceit, are set out in Haifa International Finance Co Limited v Concord Strategic Investments Limited [2009] 4 HKLRD 29 at §15:
184.Representations are not limited to express words. As Toulson J (as he then was) explained in IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 (Comm) at §50:
185.Further, a representation as to belief or intention can also be a statement of fact: Edgington v Fitzmaurice (1885) 29 Ch D 459 at 483. If the representor did not in fact harbour such a belief or intention, that statement would be false. 186.The representations on which Xie relies are set out in the Amended Statement of Claim[7]. They are as follows:
187.What would a reasonable person in Xie’s position have inferred from the words and conduct of the Individuals throughout the course of the Fraudulent Scheme? At the very least, the Individuals were representing that the Money Lender Business was a genuine and honest business, and they intended to carry on such business through the Group. As noted above, Law admitted in cross-examination that he was giving Xie the impression that the Money Lender Business was genuine. 188.The aforesaid representations were false and made fraudulently. On the facts which the court has found pursuant to Section C above:
189.The fraudulent misrepresentations induced Xie to advance a total of HK$41,500,000 to the Money Lender Business or Law (the reason why Xie lent HK$8,000,000 to Law was because Xie was misled by Law to believe that Law drew HK8,000,000 from his family company for the business). In particular, on 26 March 2016, right before Xie was about to commit his funds in respect of the Second Tranche Shareholders’ Loan (in the sum of HK$25,000,000), it was Law who took pains to appease Xie’s concerns about the viability of the Money Lender Business, and to stress that Ngai was a trustworthy person. These beliefs could not be genuinely held as discussed above. 190.Indeed, Law does not dispute Xie’s reliance on the misrepresentations. His sole defence was that he was not part of the Fraudulent Scheme. It has now been shown that this defence is wholly unmerited: see Section C above. 191.The elements of an unlawful means conspiracy have been set out by DHCJ MK Liu in China Metal Recycling (Holdings) Limited [2021] HKCFI 378 at §93:
192.Requirements (1) to (3) and (5) are clearly satisfied. The Fraudulent Scheme is an archetypal arrangement whereby the Individuals took concerted action to induce Xie to invest substantial sums into the Money Lender Business, thereby causing substantial losses to Xie. In light of the matters highlighted above, Law was clearly part of the conspiracy. The 4th to 17th defendants were accessories of or vehicles used by the Individuals to perpetrate the Fraudulent Scheme, in that they assisted in dissipating the proceeds of the fraud and concealing the fraud. 193.As to requirement (4), it is well established that unlawful means could be a separate actionable tort: Clerk and Lindsell on Torts (23rd ed), at §23-108. It could also be criminal conduct: Her Majesty’s Revenue & Customs v Hanshu Dhalomal Shahdadpuri [2012] 1 HKLRD 223 at §31-33 (Tang VP (as he then was)). The unlawful means relied by Xie is the tort of deceit committed by the Individuals (see Section D1 above). 194.Xie is entitled to rescind the Allotment, and the First, Second and Third Tranches Shareholders’ Loan vis-à-vis Polly Wealth in reliance of the Individuals’ fraudulent misrepresentations. The total sum advanced under these advancements was HK$33,500,000.[8] The various corporate entities within the Group (to which the Individuals’ knowledge were attributed) which received the traceable or followable proceeds of this sum hold them on constructive trust for Xie by reason of the fraud, and Xie is entitled to follow and trace into the substitutes of said trust funds: Lewin on Trusts (20th edn), at §§8-029 to 8-030. 195.There is no bar to rescission in this case. None of the defendants that may be affected by rescission are innocent third parties: Snell’s Equity (34th edn), §15-015. 196.Following is the process of following the same asset as it moves from hand to hand. On the other hand, tracing is the process of identifying a new asset as the substitute for the old asset. Where one asset is exchanged for another, a claimant can elect whether to follow the original asset into the hands of the new owner or to trace its value into the new asset in the hands of the same owner: Foskett v McKeown [2001] 1 AC 102, at 127 (Lord Millett). The question is one of attribution: Foskett at 137. 197.Where the plaintiff’s funds are mixed with the funds of wrongdoers, he is entitled to elect, at the juncture of each transaction where funds are paid out from the mixed pot, whether to disown or adopt that transaction. In other words, the plaintiff is entitled to choose whether to treat that it was his money that was applied to the transaction, or whether it was the wrongdoer’s money: Snell (supra) at §30-057. 198.When Future Profit advanced its funds (HK$33,029,978) in respect of the Tin Shui Wai Mortgage Loans on 31 March 2016, there was around HK$40,000,000 in Future Profit’s account by reason of the contribution from Xie (HK$28,500,000) and the Individuals (who were wrongdoers). Following Xie’s rescissions, Xie is entitled to treat the sum of HK$28,500,000 as part of the sum of HK$33,029,978 advanced to the Tin Shui Wai Borrowers (to which the Individuals’ knowledge were attributed) as money beneficially owned by him. 199.Out of the sum of HK$33,029,978, HK$17,410,790 and HK$40,779.46 were paid to the Vendors for acquiring the Tin Shui Wai Properties. They can be traced into the Tin Shui Wai Properties. Further, HK$16,514,190.54 was paid to I-Luck, the entity owned by Ngai and Law. That more than sufficiently reimbursed the deposits in the sum of HK$1,897,000 paid by Profit Trillion (entity of Ngai/Law) to the Vendors. The monies of Xie paid to I-Luck which financed the deposits can also be traced into the Tin Shui Wai Properties too, as there was a close causal and transactional link between the incurring of the liability to pay the deposits and the use of Xie’s money to discharge it: Federal Republic of Brazil v Durant International Corp [2016] AC 297, at §§34-40 (Lord Toulson). 200.In short, Xie’s monies were, in substance, used by the Individuals to purchase the Tin Shui Wai Properties. Accordingly, the value of the funds is reflected in the unencumbered Tin Shui Wai Properties. 201.The Tin Shui Wai Mortgages were transferred to On Dragon on 15 August 2016 for no consideration, and in furtherance of the Fraudulent Scheme. Xie is therefore entitled to follow the Tin Shui Wai Mortgages into the hands of On Dragon. 202.In summary, Xie is entitled to assert a proprietary claim in the Tin Shui Wai Properties (against the 4th to 14th defendants), and a proprietary claim in the rights and interests in the Tin Shui Wai Mortgages (against On Dragon).[9] D4. Damages against the 1st to 16th defendants[10] 203.Damages for the tort of deceit or unlawful means conspiracy should put the innocent party back in the financial position he was in before he sustained the wrong: Clerk & Lindsell (supra), §27-07. 204.Xie would not have lent money to Polly Wealth and Law had he not been defrauded. Hence he would be entitled to claim the entirety of the sums lent as damages. 205.Meanwhile, out of the total sum lent, HK$18,970,000 was used to acquire the Tin Shui Wai Properties, an unauthorised transaction which Xie is entitled to adopt or falsify under the constructive trust. 206.Thus, if Xie elects to falsify the purchase of the Tin Shui Wai Properties with the value of his monies (ie not adopt them as his own), the 1st to 16th defendants are all liable to Xie for damages in the sum of (HK$41,500,000 - HK$970,000) = HK$40,530,000, which represented the total sum lent by Xie minus the interest payments he received. He is of course also entitled to interests on the monies due to him. 207.However, if Xie elects to adopt the purchase of the Tin Shui Wai Properties with the value of his monies, then HK$18,970,000 out of the sums he lent would have become the proprietary interests in the Tin Shui Wai Properties. The amount of damages due to Xie would be correspondingly reduced by HK$18,970,000, meaning that Xie would only be entitled to damages in the sum of (HK$40,530,000 - HK$18,970,000 = HK$21,560,000) (plus interests). 208.Xie is entitled to make election only at judgment (see Tang Man Sit v Capacious Investment Limited [1996] 1 HKLR 16 at 20C-D (Lord Nicholls)). He now elects to adopt the purchase of the Tin Shui Wai Properties with the value of his monies. 209.Detailed orders prepared on the basis of the foregoing are set out in Section F below. 210.I accept that the principle against reflective loss is inapplicable in respect of the aforesaid personal claims of Xie. Xie is not bringing his personal claims in the capacity of the shareholder of Polly Wealth. He is suing on the wrongs committed against him personally based on the law of tort. On the principles clarified by the English Supreme Court in Marex Financial Ltd v Sevilleja [2020] 3 WLR 255 at §§63, 79-89 (Lord Reid) and §§99-100 (Lord Hodge), the reflective loss principle has no application. 211.Ngai, Tong, the 4th defendant, and the 16th to 20th defendants did not file any notice of intention to defend in this Action. As the claims against them fall within Order 13, rule 6 of the Rules of the High Court, Xie proceeded with the Action as if they had given such notice. Then, pursuant to Order 19, Xie took out a Default Judgment Summons in respect of these parties on 19 November 2018 for their default in filing defence (“Default Judgment Summons”). 212.By the Order of Madam Recorder Yvonne Cheng SC (as she then was) dated 9 May 2019, the Default Judgment Summons was adjourned to be dealt with at this trial. 213.The court’s power to grant default judgment under Order 19, rule 7 is discretionary. The task is to examine the Statement of Claim to see if it appears that the plaintiff is entitled to judgment. In approaching such an application, it is not necessary that the court should be satisfied by evidence adduced by the plaintiff to prove his case: China Construction Realty Limited v Sino Business Services Proprietary Limited & Ors, HCA 1294/2005 (unrep, 24 March 2006) at §6 per Mr Recorder Edward Chan SC. 214.The basis upon which default judgment can be obtained, in circumstances where no Defence is filed, is that of implied admission, ie the court will assume that the Statement of Claim has been impliedly admitted. This explains why in an application for judgment in default of Defence, the court will only consider the Statement of Claim without admitting any evidence: Wu Ka v Wu Kuo Cheng [2003] 3 HKLRD 658 at §6 (DHCJ Wong SC). 215.Xie’s case is that the Individuals were the masterminds of the Fraudulent Scheme. The 4th to 20th defendants were accessories which furthered the fraud. Their involvement has been set out in Section C above. Based on Xie’s pleaded case, it is plain that default judgment should be entered against Ngai, Tong, the 4th defendant, Superhero, and the 18th to 20th defendants (no order is sought against I-Luck as it has dissolved and ceased to exist). 216.For the reasons stated above, I would allow Xie’s claims and grant the following reliefs:
217.In the Take Point Action, Coleman J considered that the defendants in that case, including Ngai, should pay costs on an indemnity basis. Coleman J noted that in the face of serious allegations relating to fraudulent activity, the defendants have met those allegations with poor, ambiguous and/or contradictory pleadings and evidence, and have failed to attend trial at all: Take Point at §137. Coleman J also noted that various defendants, which was controlled by Ngai, had ceased to participate in the proceedings: Take Point at §§138-139. 218.I agree that the same applies to the present case. The 1st defendant’s defence was poor, incredible, and contradictory. The 5th to 15th defendants (which are closely connected if not controlled by Law) filed pleadings and witness statements, but failed to attend trial. 219.As was the case in the Take Point Action, Law and the 5th to 15th defendants had conducted this Action in an unattractive way, raising various issues (hence the 15-day estimate for trial), but failed to meaningfully participate in the trial. This has wasted considerable time and costs. 220.In the circumstances, I order that the 1st to 20th defendants do pay the plaintiff’s costs of these proceedings (including all costs reserved, if any), such costs are to be taxed if not agreed on the indemnity basis (with a certificate for two counsel). 221.Further, I make an indemnity costs order in favour of the plaintiff in respect of the reserved costs in Xie’s three Norwich Pharmacal applications (including reserved costs in applying for gagging orders) taken out to investigate the Fraudulent Scheme in HCMP 289/2017, HCMP 891/2017, and HCMP 1088/2018 (“NP Costs”). Those costs orders are: HCMP 289/2017
HCMP 891/2017
HCMP 1088/2018
222.This court is entitled to order the 1st to 16th defendants to bear the plaintiff’s NP Costs which were properly incurred to investigate the Fraudulent Scheme for the purpose of this Action: see Sanctuary Systems Limited v Orient International Holdings Hong Kong Co, Limited, HCA 479/2010 (unrep, 16 June 2015) at §§13-20 (Au-Yeung J). 223.Finally, it is not uncommon, in civil cases involving serious fraud, for the court to suggest that the case may be referred to the Department of Justice for criminal investigations: see, for example, Pathak Ravi Dutt v Sanjeev Maheshwari, HCA 1935/2011 (unrep, 23 May 2014), at §66 (Mimmie Chan J). This court would make a similar recommendation in this case in light of the egregious fraud that was perpetrated by the Individuals on Xie (and their objectionable conduct thereafter). 224.Lastly, I express my gratitude to counsel for their very helpful assistance in this matter.
Mr Bernard Man, SC, leading Mr James Man, instructed by Messrs Gall, for the plaintiff The 1st defendant appeared in person The 2nd to 20th defendants were not represented and did not appear [1] Law was a director of Apex Vision from 6 February 2013 to 5 March 2014. Law was its registered shareholder until he transferred his 7 shares to a Mr Leung Kwok Ho sometime between 6 February 2014 and 6 February 2015. [2] Admitted in the 1st defendant’s Defence at §4(2B). [3] Pang’s HSBC account no 512-788027-833 received the HK$1,300,000 from HSBC account no 015-746308-833, which belongs to Man PY. [4] Ngai was the sole director of Apex Goodwill, which appointed Apex Vision as its company secretary. Ngai and his wife Madam Man Pak Yin were the authorised signatories of its bank account at the Bank of Communications. Law admitted in cross-examination that Apex Goodwill was Ngai’s company. [5] Save for a message which Xie sent to the Wechat Group on 1 September 2017, accusing the Individuals as fraudsters. There was no reply to that. [6] The relevant information of those proceedings is set out in Xie’s Affirmation to intervene in the charging order proceedings DCCJ 4644/2020. [7] At §§26, 27A, 36, 42, 44, 47, 52A. [8] ie HK$3,472,000 + HK$25,000,000 + HK$5,000,000. [9] Xie has not expressly asserted a proprietary claim on the Tin Shui Wai Mortgages in the Amended Statement of Claim. However, the court has jurisdiction to grant any further or other relief that it thinks appropriate on the facts as proved: HK Civil Procedure 2022, §18/15/5. [10] As I-Luck (the 17th defendant) has been dissolved, no judgment can be entered against it. [11] See section 25A of the High Court Ordinance (Cap 4). It is highly likely that the 4th to 15th defendants will neglect to comply with the judgment or cannot be found given their absence from the trial. The court can make such type of order when giving judgment: Chen Jinhui v Wong Kam San [2021] HKCFI 710 at §253. |
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