Lili Hu v. New Nordic Management International Ltd

DCCJ 332/2022

[2024] HKDC 9

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 332 OF 2022

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DECISION

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INTRODUCTION

1.Before me are three applications, two by the plaintiff (“Hu”), and one by the defendant (“NN Hong Kong”).  Those from Hu are:-

(1)  for continuation of the proprietary injunction order of HH Judge H. Au-Yeung dated 28 January 2022 (the “Order”) until conclusion of trial or further order of the court (the “Continuation Application”)[1]; and

(2)  variation of the Order as per the draft annexed to the Summons filed on 25 August 2022 (the “Variation Application”)[2].

2.By a Summons filed on 29 April 2022 (the “Jurisdiction Application”), the NN Hong Kong seeks the following:-

(1)  A declaration that the court has no jurisdiction over the NN Hong Kong in respect of the subject matter or the relief sought by Hu in these proceedings on the grounds that:

(a)  Hu has failed to show any serious issue to be tried;

(b)  she has failed to demonstrate that Hong Kong is clearly and distinctly the most appropriate forum for the trial of her claims; and

(c)  considering the best interests and convenience of the parties to these proceedings, the same should be conducted in the Kingdom of Thailand (“Thailand”).

(2)  Further or in the alternative, a declaration that in the circumstances of this case, the court should not exercise any jurisdiction it may have in respect of the subject matter of the claim or the relief sought by Hu in these proceedings on the grounds that:-

(a)  the underlying agreement entered into by Hu states that it shall be construed in accordance with the law of Thailand and the courts of Thailand will have jurisdiction over any disputes; and/or

(b)  the Thailand court is clearly and distinctly the most appropriate forum for the trial of Hu’s claims; and/or

(c)  considering the best interests and convenience of the parties to these proceedings and the witnesses in the proceedings, the same should be conducted in the Thailand court.

(3)  Further or in the alternative, an order that the specially indorsed Writ of Summons issued on 24 January 2022 (the “Writ”) be set aside and the action be dismissed.

(4)  Further or in the alternative, an order that the present proceedings against NN Hong Kong be stayed on the grounds as set out in §§2(1) and (2) above.

(5)  Further or in the alternative, the Order be discharged, with any property seized therein released on the grounds as set out in §§2(1) and (2) above.

3.The Continuation Application, Variation Application, and Jurisdiction Application (hereinafter collectively referred to as the “Applications” where appropriate) came before me on 21 and 22 November 2023 for arguments.  Hu was represented by counsel Ms Madeleine Booth (“Ms Booth”), and Mr Tom Ng of counsel (“Mr Ng”) represented NN Hong Kong.  At the end of the two-day hearing, I reserved my decision on the Applications.  This is my decision.

4.In the section below, I will first set out Hu’s claims and the bases of the same for better understanding of the parties’ arguments.

HU’S CLAIMS

The pleaded case

5.According to the Statement of Claim (“SOC”), Hu is a Chinese national who resides in Hong Kong.

6.NN Hong Kong is incorporated locally, and part of a group of companies owned and controlled by Mr Kurt Svendheim (“Kurt”).  The companies as a group is known as New Nordic Group (“NN Group”).  It is said that a Thailand incorporated company, VIP Developer Phuket Co., Ltd (“VIP”) is also amongst the NN Group.  Hu adds that Kurt is the sole director and shareholder of NN Hong Kong.

7.Hu’s narratives then brought us to the root of the disputes in this case.  On 16 July 2019, she entered into a Preliminary Purchase and Sales Agreement (“PPSA”) with VIP, under which she agreed to purchase from NN Hong Kong, and NN Hong Kong agreed to sell to Hu, a unit to be constructed by VIP, known as “Apartment N-BWC-C-312” (the “Unit”), of a real estate project called “New Nordic’s Bangtao Water World Condominium (the “Water World Condo”).

8.The PPSA contains the following terms:-

Clause 1a

(1)  The Unit will be sold in leasehold with a registration of 30 years, renewable twice with 30 years per renewal, for a total leasehold term of 90 years.

Clause 4

(2)  The purchase price of the Unit is THB5,527,200, or USD178,991.34 (the “Price”).  The Price should be deposited into NN Hong Kong’s account with Citibank NA[3] (“NN Hong Kong’s Account”), by the following instalments:-

(a)  USD1,500 (the “Deposit”) on or before 16 July 2021;

(b)  Balance of the Price, i.e., USD177,491.34 (the “Balance”) on or before 16 August 2021[4].

(3)  Notwithstanding the Price to be paid, as part of a special promotion, VIP would refund the Deposit to Hu by deducting it from the Balance[5].

Addendum III

(4)  On top of the Deposit refund, as Hu opted for the early bird payment of the Price (i.e., full payment of the Price before construction of the Unit was completed), she would receive cash back refund from VIP representing 9% per annum of the Price.  The cashback refund would be paid on a quarterly basis, namely within 10 days after 31 March, 30 June, 30 September and 31 December, of each year.  This arrangement would continue until completion of the construction (the “CBR”).

Clause 5

(5)  The construction shall commence in June 2019 and complete in November 2020, with an additional 6 months for furnishing and decoration. Hence, construction of the Unit should end in May 2021.  Nevertheless, the construction period could be extended for up to 12 months (i.e., May 2022), if the construction was suspended without any fault of VIP.

9.Hu paid the Deposit on 15 July 2019.  It is pleaded that she paid USD175,991.34 on 16 July 2019, and claimed that it was the total sum paid for the Unit.  Pausing here, one can see that this is clearly wrong.  As per the §§8(2) and (3) above, the total purchase price should be USD177,491.34 (the “Funds”).  This is evidenced by the remittance advice and receipts adduced by Hu.

10.Hu received CBR on 11 October 2019 (USD2,983.18), 10 January 2020 (USD4,474.77), and 9 April 2020 (USD3,430.66).  Hu says, only the payment on 10 January 2020 had the correct amount of CBR paid. Since the payment on 9 April 2020, she received no CBR from NN Hong Kong.

11.Except for a newsletter from the NN Group in July 2020, Hu received no further update on the construction of the Water World Condo.  In fact, up to the date of the SOC, the Water World Condo remained unconstructed.

12.For the above reasons, Hu alleges that NN Hong Kong obtained the Funds by fraud.  She asserts that the Unit was neither constructed, nor was there any genuine progress regarding the construction of the Unit after payment of the Funds.  She also points to the NN Group being reported to have defaulted in multiple development projects around the world, and had not returned monies to any of its investors.

13.Moreover, Hu says she has grounds to believe that Kurt, the NN Group, and by extension VIP, never had any genuine intention to construct the Water World Condo or the Unit.  In support, she points to:-

(1)  the Funds being collected in Hong Kong via NN Hong Kong’s Account, and not Thailand;

(2)  a victim association was established in France, where more than 300 members who fell victim to the Ponzi scheme of the NN Group joined (the “Association”);

(3)  details of frauds committed by the NN Group and Kurt had been reported in various news articles from different jurisdictions; and

(4)  Hu’s situation under the PPSA fell into the typical pattern of a Ponzi scheme.

14.On these bases, Hu says the PPSA is voidable ab initio by fraud, and the Funds in NN Hong Kong’s Account are held by NN Hong Kong on resulting or constructive trust for her benefit.

Affirmations of Foucault Guillaume Jean-Rene Andre

15.Mr Foucault Guillaume Jean-Rene Andre (the “Husband”), the husband of Hu, had filed his affirmations for the Applications:-

(1)  first affirmation filed on 24 January 2022 (“Husband’s 1^st Affirmation”) in support of Hu’s application for the Order;

(2)  second affirmation filed on 7 September 2022 in support of the Variation Application (“Husband’s 2^nd Affirmation”);

(3)  third affirmation filed on 7 September 2022 in opposition to the Jurisdiction Application (“Husband’s 3^rd Affirmation”); and

(4)  fourth affirmation filed on 7 March 2023 in reply to Kurt’s affidavit in opposition to the Variation Application (“Husband’s 4^th Affirmation”).

16.I will use the evidence provided in the Husband’s 1^st and 3^rd Affirmations to set out Hu’s case.

17.Husband’s 1^st Affirmation regurgitates the same facts pleaded in the SOC, with the following additional evidence:-

(1)  The NN Group was introduced to him and Hu by a friend in the Mainland China, as he was interested to invest in Thailand.

(2)  On 19 April 2019, Hu and the Husband visited the site of the Water World Condo, located at Phuket (the “Site”).  Although the Site was still empty, they had toured the showroom, and were impressed with it and the surrounding environment.  They thus decided to make the investment.

(3)  Between April 2019 and 29 May 2019, Mr Alexander Linné (“AL”), the Senior Property Investment Consultant of the NN Group, liaised with the Husband as to the possible venues in Thailand that he could invest in.

(4)  On 19 June 2019, AL represented to the Husband that the NN Group:-

(a)  had over 8,000 clients, and 4,000 of which were return clients; and

(b)  had never defaulted a single payment in over a decade.

(5)  After consideration, Hu and the Husband decided to purchase the Unit that had yet been built.

(6)  The PPSA specifically stated that the Price should be paid through the NN Hong Kong Office, in USD.

(7)  Between June 2019 and January 2020, Hu and the Husband received newsletters from the NN Group, reporting on the progress of the construction at the Site.  They were therefore led to believe that the construction was in good progress, and the Unit should be completed in accordance with the schedule provided in Clause 5 of the PPSA.

(8)  Things started to change on 27 March 2020, when an email from NN Group revealed that they would suspend all interest payment indefinitely starting from 1 April 2020, due to COVID-19.  This was followed by another email received on 15 July 2020, where Kurt reported that the NN Group was discussing restructuring strategies with a plan to be disclosed in September 2020.  At this point, the Husband became concerned with VIP’s ability to complete construction of the Unit and the Water World Condo.

(9)  On 10 August 2020, the NN Group announced that all construction sites across the world had been temporarily put on hold. And, after a series of emails updating the restructuring of the NN Group with little substance, no meaningful updates were received by Hu and the Husband.

(10)  In March 2021, the Husband was convinced that there were something suspicious going on with the NN Group.  He started his investigation into the matter, and was then included in several social media groups consisting of other investors in the same boat.  The Husband found out that the NN Group had changed its contractors and builders, and AL had left the NN Group since the end of 2019.  The Husband queried whether the NN Group or the VIP could complete construction of the Unit, and opined that he and Hu were victims of a massive international fraud scheme.  The Husband also suspected that the Funds were never transferred from NN Hong Kong to the VIP for construction of the Unit.  He believed that everything ranging from the Unit, the Water World Condo, and the PPSA, were all part of a fraudulent scheme created by NN Group and Kurt.

(11)  On 20 March 2021, the Husband found out from a website that, New Nordic Development Company Limited (“NN Thailand”), a subsidiary of the NN Group, filed for business re-organization in Thailand on the ground that it had become insolvent or was unable to pay its debts.

(12)  (12) His belief that he and Hu were defrauded was fortified by news articles that he found on the internet, reporting on the NN Group and Kurt having committed fraud via their multi-million dollar Ponzi scheme.

(13)  On 17 April 2021, the Husband joined the Association.  Complaints were lodged by the president of the Association to the Department of Special Investigation (the “DSI”) and to the Minister of Justice in Thailand.

(14)  Report was made by the Husband to the Hong Kong Police on 17 June 2021 for the Ponzi scheme orchestrated by the NN Group and Kurt.

(15)  In September 2021, the Husband completed an online survey published by the police in Thailand, providing them with the particulars of his purchase of the Unit from VIP.  However, he had since heard nothing from them.

(16)  For the above reasons, Hu and the Husband believe that neither the NN Group nor the VIP had any genuine intention to construct the Unit and the Water World Condo.  They allege that it was all along the plan of the NN Group and/or the VIP to collect and abscond with the monies of property investors.  Hu and the Husband conclude that the PPSA is therefore voidable at law as an instrument of fraud.

18.The Husband’s 3^rd Affirmation was filed in reply to Kurt’s affidavits filed on 19 May 2022 (“Kurt’s 1^st Affidavit” and “Kurt’s 2^nd Affidavit”).  Kurt’s 1^st Affidavit supported the Jurisdiction Application, whereas Kurt’s 2^nd Affidavit was filed in opposition of the Continuation Application.  The contents of Kurt’s 1^st and 2^nd Affidavits are almost identical.

19.The Husband’s 3^rd Affirmation contains, in a nutshell, the following evidence:-

(1)  Hu was induced into entering into the PPSA.

(2)  He agrees with Kurt that NN Hong Kong is an administration company of the NN Group.  In fact, a project map of NN Group named NN Hong Kong as the headquarter.  The promotional materials of the NN Group also revealed that property transactions were handled in Hong Kong.

(3)  Kurt’s report on the progression of projects in various South East Asia countries was refuted.  The Husband points to the lack of particulars of the projects cited by Kurt.  He also cites complaints from victims that many of the projects under the NN Group had never begun constructions, and some of the resorts had never been granted the necessary building permits by the local authorities.

(4)  The Husband believes that, after receiving payments from buyers, NN Hong Kong would siphon the funds out of NN Hong Kong’s Account, so that there would never be sufficient funds to complete the projects that the buyers had invested.  This is supported by the fact that bank statements of the NN Hong Kong Account showed that there was practically no funds remaining in it.

(5)  He cites a newsletter from the NN Group that NN Thailand’s rehabilitation proceedings were dismissed, which meant that its liquidation was imminent.  The Husband asserts that this is an example of how the NN Group has been using shell subsidiaries in Thailand to induce property investors into paying monies into Hong Kong, and then avoiding liability altogether by a hopeless restructuring exercise.

(6)  He finds it unconvincing that the stoppage of constructions at various development projects were all due to COVID-19 as alleged by Kurt.  Conversely, the Husband points to the depletion of funds as the source of work stoppages.

(7)  The Husband adds that, on 1 September 2021, the Bangkok Post reported the DSI was investigating a fraud scheme orchestrated by NN Thailand, under which investors were induced to invest in a piece of land that largely belong to a national forest reserve.  The DSI was also inviting information from the public regarding NN Group’s investments at various provinces of Thailand.

(8)  There was still no progress in the construction of the Water World Condo, notwithstanding what Kurt alleged in his affidavits.  Photographs taken by the solicitors of Hu on around 25 March 2022 showed that the Site was as empty as before, and remained largely a piece of barren land.

(9)  He supplements that, prior to Hu entering into the PPSA, the NN Group represented that majority of the units in the Water World Condo were sold with full payments.  From this, one could infer that the VIP should have sufficient funds to complete the construction, regardless of the market suspension or the COVID-19 situation as alleged.

(10)  Come what may, Kurt has failed to provide any evidence to show that the construction of the Water World Condo was affected by COVID-19 pandemic or any lockdown due to it.  The Husband says, another developer in Thailand, Utopia Corporation, confirmed with him that their construction projects had never stopped during the pandemic.  This led to the Husband’s conclusion that the only reason why VIP could not proceed with the construction of the Water World Condo was due to the funds being siphoned out of the project.

(11)  Finally, the Husband clarifies that the PPSA was not signed in Thailand.  Hu was not in Thailand between 21 April 2019 and 21 September 2019.  She signed the PPSA in Hong Kong, then delivered it to VIP via email.

NN HONG KONG’S CASE

20.Understandably, NN Hong Kong has not filed a defence in this case.  Hence, its case is presented by Kurt via his affidavits.

21.In Kurt’s 1^st Affidavit, he first provides explanations concerning the operations of NN Hong Kong.  He says that NN Hong Kong has subsidiaries in various Southeast Asia countries (the “Title Holders”), that in turn own different operational companies and/or property development projects in their respective country.  These Title Holders would develop resorts, hotels and serviced apartments, and NN Hong Kong served as their administration company.  That being so, Kurt adds that NN Hong Kong hires neither staff nor does it have an office in Hong Kong.  All corporate documents were kept by its company secretary[6].

22.Apart from this, NN Hong Kong was used as an alternative payment hub, to receive payments from investors for the Title Holders.  Kurt adds that there were 3 payment options for investors.  For investments in Thailand, the first option was for the investors to make payments by instalments directly to the Title Holders in Thailand.  Second, they could pay the full price also directly to the Title Holders in Thailand.  Third, should they prefer not to pay in Thai baht (the currency to be used for the first and second payment options), the investors could make the full payment to NN Hong Kong.  In the present case, Kurt explains, Hu opted for the third payment option.

23.Kurt then stresses on the genuineness of VIP in constructing the Water World Condo.  He listed out the permit received from the Environment Impact Assessment and Building Permit as evidence of some of the works done by VIP.  In addition, by April 2020, a number of other works at the Site were completed.

24.Regarding the construction at Water World Condo, Kurt blames COVID-19 and the lockdown policy of the Thailand Government as the causes of its stoppage. He elaborates that the policy was so strict that workers from Cambodia and Myanmar were forced to return to their motherland since late March 2020.

25.Kurt says that, the COVID-19 outbreak and the lockdown policy adopted by the Thailand Government, constituted reasons for the Force Majeure clause under the PPSA to take effect. Hence, payment of the CBR was suspended, and the construction of the Water World Condo halted.  These measures were duly informed to the investors via the NN Group’s newsletters.

26.Although the lockdown policy was lifted after 2 years, it took time for the resumption of construction.

27.Kurt highlights the fact that NN Hong Kong was not a contractual party to PPSA.  The same was signed between Hu and VIP.  Moreover, he supplements that, in accordance with Clause 5 of the PPSA, the deadline for the completion of the construction had not expired at the time when Kurt’s 1^st Affidavit was filed, if one includes the grace period which would extend the deadline for completion from May 2021 to May 2022.

28.As aforementioned, Kurt’s 2^nd Affidavit contains basically the same evidence given in Kurt’s 1^st Affidavit.

29.Kurt filed his third affidavit on 11 January 2023 (“Kurt’s 3^rd Affidavit”) in reply to the Husband’s 3^rd Affirmation.  In it, Kurt exhibited documents in support of the alleged works done by VIP at the Site amid construction of the Water World Condo[7].  He relies on the same to refute the Husband’s allegation that the construction of the Water World Condo was not genuine.  He explains that, when Kurt’s 1^st Affidavit was made, he was not in Thailand, and the documents were kept at the administrative office building of NN Thailand, hence the delay in exhibiting the same.

30.Kurt admits that the court rejected the rehabilitation application for the NN Thailand, but such decision was under appeal.  In reply to the Husband’s assertion that the NN Hong Kong Account was emptied, Kurt shrugs it off as a normal business operation, as the funds would have to be transferred to the Title Holders for the construction projects.  He adds that the NN Hong Kong Account was rarely used after the start of COVID-19 pandemic.  Come what may, Kurt says, these are irrelevant to the question of whether the construction of the Water World Condo is a fraud perpetrated by NN Hong Kong.

OBSERVATIONS

31.I will first set out some observations that I have on Hu’s case.  As one will eventually see, they are vital to the outcomes of the Applications.

Parties to the PPSA and the SOC

32.Kurt is correct to say that the contractual parties to the PPSA are Hu and VIP[8]. The terms contained in the PPSA also clearly set out the duties and obligations of the VIP[9], not NN Hong Kong.  Obviously, Hu’s pleaded case[10], as reproduced in §7 of this Decision, is, at the very least, inaccurate.  Moreover, notwithstanding Hu’s claim that NN Hong Kong was the seller of the Unit, she then says NN Hong Kong was the receiving agent of VIP[11]. She adds that NN Hong Kong obtained the Funds by fraud, because Kurt, NN Group (which, according to the SOC, includes NN Hong Kong) and, by extension, VIP, had no genuine intention to construct the Unit, and the NN Group was found to have defaulted in various development projects.

33.In spite of the confusion as to the role played by NN Hong Kong, ultimately, Hu is claiming against NN Hong Kong for money had and received, and/or for the return of the Funds under constructive trust or resulting trust.  To achieve these purposes, it is a prerequisite for the court to, as pleaded in the SOC, rule that the PPSA with VIP is voidable (and voided) ab initio due to the alleged fraud.  At the hearing, I had raised my reservation as to how such ruling could be made by the court when VIP is not a party to this action.  In my view, this is an imperative step Hu should take, bearing in mind that this is not a commonly seen cyber-fraud case where the main culprit could not be located.  In answer to my question, Ms Booth suggested that I should lift the corporate veil and find that NN Hong Kong and VIP are the same.  Notwithstanding there are evidence to show that they are connected[12], I am not ready to conduct such an exercise, when there is no proper submissions on this from Hu’s side[13], and a chance for NN Hong Kong and Mr Ng to answer them.

34.In the circumstances, the present case remains one for Hu to establish a primary case of fraud against VIP, and it is for VIP to answer such allegation.  In order for her to do, she would have to either do so in Thailand, where VIP is incorporated and located and where the alleged fraud was committed[14], or in Hong Kong if she could successfully apply for leave to have a writ issued and served on VIP outside jurisdiction under O. 11 of the Rules of the District Court, Cap. 366H (“RDC”).

Other terms of the PPSA

35.Before moving on to my next observation, I wish to highlight the other terms in the PPSA apart from those reproduced in §8 of this Decision.  They are as follows:-

Clause 7b

(1)  Hu could terminate the PPSA if VIP is in breach of any provision of therein and fails to rectify such breach within 30 days of receipt of Hu’s written notice.  Upon termination, VIP must, return all money received from Hu with 5% per annum interest from the date VIP received the money until date of repayment in full.

Clause 10

(2)  Under this clause, neither party would be held liable nor be deemed to be in default or in breach of the PPSA for failure or delay to perform the party’s obligation (excluding payment obligations) if the failure results from flood, storm, or other natural disaster, war, civil war, rebellion, insurrection, military or usurped power or confiscation, terrorist activities or government sanctions.  The affected party must notify the other party of such force majeure circumstances as soon as reasonably practical, and must promptly undertake all reasonable efforts necessary to remove any such causes and resume performance under the PPSA (the “FM Clause”).

Clause 12

(3)  Clause 12 provides that the PPSA will be construed in accordance with the laws of Thailand, and the courts of Thailand will have jurisdiction over any dispute arising from it.

Breach of the PPSA

36.I wish to touch on this topic before turning to the other key observations that I have.

37.As aforestated, Kurt’s excuse for the stoppage of work at the Water World Condo is the COVID-19 pandemic and the Thailand Government’s policy to lockdown all activities within the country.  Putting aside the veracity of these allegations, it is his evidence that the lockdown policy was lifted after 2 years, i.e., in or around 2022.

38.On the literal reading of the FM Clause, one queries whether the obligation to pay the CBR during the pandemic and lockdown would be exempted by it.  On the assumptions that the COVID-19 pandemic fell with the definition of natural disaster, and the lockdown policy constituted government sanction, the parties’ obligation to pay should continue despite the force majeure circumstances, as it is expressly excluded from the FM Clause.  The indisputable fact that the CBR payment had stopped after 9 April 2020 could be a breach of the payment obligation on the part of VIP, unsalvageable by the FM Clause.  In any event, there is no reason given as to why payment of the CBR has not resumed after lifting of the lockdown measure in around 2022.

39.In addition, Clause 10 provides that construction period could be extended for up to 12 months (i.e., May 2022), if the construction was suspended without any fault of VIP.  Hence, when 31 May 2022 came and passed, regardless of the COVID-19 pandemic and the lockdown policy, VIP was already in breach of the PPSA when the construction of the Unit was not completed by the extended deadline.

40.Pursuant to clause 7b, Hu could, by written notice, and for the above reasons, terminate the PPSA, seek a return of the Funds, and claim interest on the same from VIP.  Understandably, such cause of action and the remedy that flows from it are not available at the time when the Writ was issued.

Governing law

41.Coming back to the salient points in our case, assuming I were wrong on the observations under §§32-34 above, and NN Hong Kong, the NN Group, and the VIP, should be regarded as the same entity (with or without the need to pierce the corporate veil), it means that the PPSA would be binding on NN Hong Kong.

42.Clause 12 of the PPSA provides that the governing law for the dispute arising from it is the laws of Thailand. Hence, issues between Hu and NN Hong Kong would be determined by applying the Thailand laws.  If this was the case, the legal arguments made by Ms Booth and Mr Ng in the Applications, for example: (1) PPSA being voidable ab initio; (2) constructive trust or resulting trust; (3) rescission of the PPSA; (4) counter-restitution; (4) the principles on separate legal entity amongst associated companies; and (5) the lifting of corporate veil; could all be futile. Any of these discussions is subject to the ultimate questions: What are the Thailand laws on these topics?  Are they even topics under the Thailand laws?  These are questions inevitable even if the action is tried by Hong Kong court (and experts’ evidence on Thailand laws would be required).

43.Ms Booth has not covered this in her written submissions.  At the hearing, she relied on the presumption of similarity, citing §11/1/106 of the Hong Kong Civil Procedure 2024[15](“HKCP 2024”), where it is said that “where a trial court is bound to decide on a hard issue of foreign law in order to dispose of a matter, in the absence of evidence it may have no practical choice but to assume the foreign law is the same as Hong Kong law, and that maybe the choice of the parties”.

44.However, in the same passage, it is further commented that: “But if a case clearly raises many complex issues of, say, Thai or mainland Chinese land, company and agency law, it is difficult to see why the court should not simply take judicial notice of the fact that the content of the foreign law is certain to be different from Hong Kong law and costly and difficult to try in Hong Kong”.

45.Neither Ms Booth nor Mr Ng was able to locate the origins of the commentary that I have quoted in the preceding paragraph.  The only case that I could find involving Thailand law being the governing law required no discussion on the presumption of similarity[16]. But, in the case of Ko Lai Kuen v Li Tak Ming & Ors[17], Suffiad J presumed that the Indonesian law (most probably not adopting the common law system) as to interpretation of a contractual clause is no different from Hong Kong law on the matter, in the absence of evidence of the Indonesian law relevant to this. In doing so, Suffiad J adopted the decision of Hartmann J in the case of Koninklijke Philips Electronics NV v Laser Media International Limited[18], where his Lordship said:-

“11. It is apparent from the face of clause 12.04 that in all respects the law of the Netherlands governs the contract. The applicable law in interpreting the clause is therefore the law of that country. But there has been no evidence of relevant Dutch law placed before me. The principle that foreign law is a matter of fact and must be proved is well established. Equally well established is the principle that the burden of proving foreign law lies on the party who seeks to base its claim or defence upon it. In short, in the present case, the burden has rested on Laser Media. But, as I have said, no evidence has been produced. In such circumstances the court must apply the law of its own jurisdiction: English courts apply English law, Hong Kong courts apply the law of Hong Kong. In this regard, for example, see the Parchim [1918] AC 157 at page 161:

“No doubt the municipal law with reference to which the parties enter into the particular transaction is material in considering their intention as to the passing of the property; and if it appears that they contracted with reference to a municipal law other than English, and it be further proved that that municipal law is different in any material respect from the English law, this will of course be taken into account in determining their intention.  But having regard to the presumption that unless the contrary be proved the general law of a foreign country is the same as the English law, the mere fact that the contract was entered into with reference to the law of another country will be immaterial.  Having regard to the history of English mercantile law, the presumption referred to is itself quite reasonable.”

12. The question, therefore, is one of identifying the true construction of Clause 12.04 employing the principles of Hong Kong law.” (emphasis added)

46.In our case, NN Hong Kong has not adduced evidence on Thailand law relevant to the legal principles as highlighted in §42 above.  Together with the unknown origins for the commentary in §11/1/106 of HKCP 2024, i.e., that the presumption of similarity may not be applicable to Thailand law, I shall adopt the conventional approach, and presume that Thailand law is no different from Hong Kong law on the matters discussed in §§32-34 above, and to be discussed below.

Proprietary claim

47.My observations in §§32-34 tie in with that under this head.  Taking her case to the highest, and assuming Hu could establish fraud was committed by VIP, Hu still has another hurdle to overcome, that is, whether she has a proprietary claim.

48.Mr Ng, in his submissions, placed great emphasis on the lack of it to oppose the Continuation Application.  I think this point goes beyond the Continuation Application; it is central to Hu’s claim as a whole.

49.Mr Ng’s criticism stemmed from Hu’s failure to plead in the SOC and to adduce evidence showing that she has informed VIP of her decision to rescind the voidable PPSA for fraudulent misrepresentation.  In fact, in Husband’s 1^st Affirmation, he has openly admitted that he did not follow up on the matter with the NN Group (presumably including VIP)[19]. The key question here is why Hu’s case is said to be a product of fraudulent misrepresentation instead of the seemingly simple fraud as pleaded[20]. On this point, Mr Ng referred to the case of China Cruise Line Ltd v Star Yield Corporation Ltd[21], where Mr Recorder Victor Dawes SC said:-

“36. My primary concern with this line of argument is that the mere existence of fraud does not always give rise to a constructive trust.…

37. The editors continue at §26-012 and §26-013 to draw a line between cases of “fraudulent taking” and those of “fraudulently induced transfers”:

“A distinction must be drawn between fraud consisting in the outright taking of a person’s property, wholly without his consent, and a transaction induced by a fraudulent misrepresentation…

In the second case, where the claimant is the victim of a fraudulent misrepresentation which induces him to transfer his property to his defendant, the transaction is valid until the claimant elects to resend it ... On rescission by the claimant, the defendant holds his legal interest in the property on resulting trust. Since the trust arises only at that stage, the defendant cannot be taken to have owed duties qua trustee before then. Nor can any misapplication of money by the defendant be treated as a breach of trust until after recission…” (Emphasis added)

38.  To my mind, the following principles are germane to the present discussion:

(1)  Even in equity, a contract obtained by a fraudulent misrepresentation is almost always voidable, not void: Lonrho plc v Fayed (No 2) [1992] 1 WLR 1 at 11H-12C.

…

(3)  As a basic principle, a “voidable” contract is regarded as having been validly formed unless and until one of the parties exercises the right of rescission.  Until then, the contract remains binding on the parties: Wong Man Kam Patrick v Ecosuccess Ltd [2021] HKCFI 1725 at §32(1).

(4)  An election to rescind must be “clear and unequivocal”: Wong Man Kam Patrick at §§32(2), 33-34.

…

(6)  Title to property passes at law and equity under a voidable transaction. Until rescission takes place, the owner has no proprietary interest in the original property; all that he has is a “mere equity” of his right to set aside the voidable contract.  Strictly speaking, a “mere equity” is neither an interest in the property, nor a chose in action, but a personal right to recover title upon rescission...

41.  Mr Leung nevertheless submitted that once Lau had acquired the Upfront Payment, the law imposed a constructive trust in response to the unconscionability of Lau’s continued retention of monies which he knew had been obtained by his own fraud: see Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 at 714C onwards per Lord Browne-Wilkinson.  However, commenting on these passages in Shalson v Russo, Rimer J (as he then was) said, at §111:

“…As to Lord Browne-Wilkinson’s more general proposition in the second paragraph that property obtained by fraud is automatically held by the recipient on a constructive trust for the person defrauded, I respectfully regard the authorities he cites as providing less than full support for it. At any rate, they do not in my view support the proposition that property transferred under a voidable contract induced by fraud will immediately (and prior to any rescission) be held on trust for the transferor.” (Emphasis added)

42.  I respectfully agree with these observations.  Ultimately, no trust arises in the present case because the impairing effect of a misrepresentation on the quality of a representee’s consent to enter into an agreement is insufficient to render that transaction void in the absence of an election to rescind.  It may have been open for the Plaintiffs to disaffirm the impugned transactions, but the Court simply has no power to make that election on the representee’s behalf.” (emphasis in bold added by me)

50.The principles set out by the learned Recorder accords with the established principles[22].

51.Mr Ng added that, for Hu to rescind the PPSA, she would also need to make counter-restitution of the USD10,888.61 received as the CBR[23]. This is not done.

52.In reply, Ms Booth referred to Zimmer Sweden AB v KPN Hong Kong Limited & Anor[24] and Predicine Holdings Ltd v Bianchi (Hong Kong) Limited & Ors[25], where in both cases the learned judges adopted the principles in the Westdeutsche case and required no rescission of the transaction before imposing on the recipient a constructive trust.  Nevertheless, I see the 2 cases cited by her respectively concerned telephone fraud and email fraud, where the fraudsters pretended to be someone that they were not, in inducing payments from the plaintiffs.  They fall within the category of “fraudulent taking” as defined in §37 of the China Cruise Line case.  These are unlike in the present case where Hu and VIP had entered into the PPSA, allegedly upon the misrepresentation of AL[26].  On this point, I shall again refer to the summaries provided by Mr Recorder Dawes SC in §38 of the China Cruise Line case.

53.Ms Booth also tried to overcome this obstacle by relying on the cases of Shalson & Ors v Russo & Ors[27] and Leung Ping Shing Roger v Lee Kwok Kei[28], where the courts respectively accepted commencement of an action, and a complaint to the Thailand police of which the culprit was informed, as implied rescission of the contract.  I agree that these acts could constitute implied recession and termination of the contract.  However, the difference is that, in the present case, the action is not commenced against VIP.  Although the Husband had in September 2021 completed an online survey published by the police in Thailand, and provided them with the particulars of his purchase of the Unit from VIP, there is nothing to show that VIP was informed or made aware of such complaint.

54.In any event, Hu has not made any counter-restitution of the USD10,888.61 received as the CBR.

55.For these reasons, I agree with Mr Ng that Hu’s proprietary claim, founded solely on fraudulent misrepresentation, has not been made out.

56.With these observations in mind, I now turn to the Applications.

DISCUSSIONS ON THE APPLICATIONS

57.For the reasons given in §§32-34 and 47-55, Hu has yet to avail herself to a proprietary claim against VIP and/or NN Hong Kong.  As the PPSA has not been rescinded, it remains valid and binding on the parties.  The Funds transferred to NN Hong Kong under the voidable PPSA allegedly induced by fraud will not immediately (and prior to any rescission) be held on trust for Hu.

58.Without a properly constituted action against NN Hong Kong, discussion under the Jurisdiction Application on whether the court should have jurisdiction over it is not engaged.  In the same vein, further consideration of the Continuation and Variation Applications is redundant, as the Order is bound to be discharged; without a valid proprietary claim, no duty of trust would be imposed on NN Hong Kong.  I do not see there is any serious issue to be tried[29].

59.For these reasons, the extensive and forceful arguments from Ms Booth and Mr Ng on the other aspects of the Applications, and my discussions on them, would be purely academic.  Moreover, there is a chance that Hu may seek to rectify the inherent defects in her claim, or even issue a fresh action (with perhaps a new cause of action as I have mentioned in §§36-40 above) against VIP, NN Hong Kong, and/or NN Group.  If so, these arguments may be repeated before, and considered by, another judge.  I thus do not find it appropriate to express my views on them in this Decision.

60.In the circumstances, I will discharge the Order, and dismiss the Continuation and Variation Applications.  As to the Jurisdiction Application, strictly speaking, the orders sought under it are not suitable in light of my findings above[30]. That being so, the marginal note of the same does refer to section 48(5) of the District Court Ordinance, Cap. 366 (“DCO”), and O. 1B, r. 1(2)(e) of the RDC, that provide this court with the power to stay the action generally.  I shall exercise such power in the present case, perhaps giving Hu some leeway to rectify, if rectifiable, the problems in her claim as identified.

CONCLUSION

61.For the above reasons, I order that:-

(1)  the action be stayed generally pursuant to section 48(5) of the DCO and O. 1B, r. 1(2)(e) of the RDC;

(2)  the Order be discharged; and

(3)  the Continuation and Variation Applications be dismissed.

62.I find that, overall, NN Hong Kong is successful in its Jurisdiction Application, and in opposition of the Continuation and Variation Applications.  I therefore order on nisi basis that costs of the Applications should be paid by Hu to NN Hong Kong, to be taxed if not agreed, with certificate for counsel.  The costs order nisi shall become absolute unless any party applies to vary it within 14 days of this Decision.

63.I thank Ms Booth and Mr Ng for their assistance.

Ms Madeleine Booth, instructed by Oldham, Li & Nie, for the plaintiff

Mr Tom Ng, instructed by Tanner De Witt, for the defendant