Wu Jun v. Captain Holdings Ltd (in Compulsory Liquidation) and Others

HCA 106/2022

[2024] HKCFI 2117

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 106 OF 2022

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J U D G M E N T

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Introduction

1.On 19 May 2023, the Plaintiff obtained an ex parte on notice an injunction from Wong J restraining the 2^nd Defendant and the 3^rd Defendant, the 4^th Defendant, the 8^th Defendant and the 9^th Defendant, the 10^th Defendant and the 11^th Defendant, and the 12^th Defendant and the 13^th Defendant[1] from removing from Hong Kong or disposing of his/her/its assets up to the value of HK$22,175,344 (“Injunction”) until the return day ie 25 May 2023. In accordance with normal practice, the Plaintiff issued a Summons dated 22 May 2023 (“Continuation Summons”) for continuation of the Injunction against those Defendants until final determination of the present Action.

2.On 25 May 2023, by Order of DHCJ K Wong,

a.  The ex parte Injunction against the 2^nd, 3^rd, 8^th and 9^th Defendants, who were absent at the hearing, was to continue until final determination of the Action.

b.  The Continuation Summons as against the 4^th, 12^th and 13^th Defendants was by consent adjourned for argument while the Injunction against them as varied was continued until the determination of the Continuation Summons or further Order.

c.  The Injunction against the 10^th and 11^th Defendants was by consent discharged upon their undertaking in lieu. Similarly, the Continuation Summons as against them was adjourned for argument.

3.This is the substantive hearing of

a.  The Continuation Summons as against the 4^th, 12^th and 13^th Defendants [2].

b.  The 12^th and 13^th Defendants’ Summons dated 10 May 2024 (“Discharge Summons”) for discharge of the Injunction; alternatively, fortification of the Plaintiff’s undertaking in damages.

4.In a nutshell, the Plaintiff claims he is the victim of an complex scam (“Scam”) involving multiple participants ie the Defendants disguised as a gold bar purchase and leaseback scheme (“Scheme”) in order to defraud him of HK$22,175,344 (“Sum”). The Sum represents the payment made by the Plaintiff purportedly for the purchase of 68 (9999) gold bars (“Gold Bars”).

5.According to Mr Yeung, his cause of action principally lies in unlawful means conspiracy, the unlawful means being fraudulent misrepresentation, deceit, breach of trust, breach of fiduciary duties, knowing receipt and dishonest assistance.

6.Evidentially, the Plaintiff’s case is supported by his 4^th affirmation (“Wu 4”) and 10^th affirmation (“Wu 10”). Since the Continuation Application and the Discharge Application are two sides of the same coin, the 2 Wu affirmations both support the Continuation Application and oppose the Discharge Application.

7.Importantly, details of the scam and the role of each of the Defendants, including themselves, are set out in the witness statements of the 5^th and 6^th Defendants dated 11 September 2022 which was filed in Court on 5 June 2023 and dated 31 January 2023 and filed in Court on 5 June 2023 respectively. They have indicated in their witness statements that they are prepared to testify in Court to verify their contents.

8.To start with, the fraudulent misrepresentation which induced the Plaintiff to purchase the Gold Bars on terms of the Scheme was pleaded at paras 3 and 4 of the Statement of Claim in these terms.

“3. The Plaintiff was introduced by a friend, Ms. Wong Lai Mei, to the 1^st Defendant at the end of March 2019. He was not particularly keen on investing in gold bars. The 5^th Defendant (acting for himself and on behalf of the other Defendants) made the following representations to the Plaintiff in order to induce the Plaintiff to make payments for purchase of gold bars:

3.1. There existed a scheme (the “Purchase and Lease-Back Scheme”) where the 1^st Defendant would provide ‘butler’ service to customers who purchased gold bars from it. The purchased gold bars would be subsequently leased back to the 1^st Defendant with a 12-month fixed term for the designated purpose of allowing the 1^st Defendant to (i) make further onward lease to the 7^th Defendant for its business use; and (ii) receive the rental fee for such use from the 7^th Defendant. On top of that, the 7^th Defendant, as the only end-user of the purchased gold bars, would provide guarantee to the 1^st Defendant to secure its obligations owing to the 1^st Defendant. According to the foregoing process, the customers would receive a fixed monthly rental fee from the 1^st Defendant (“Purchase and Lease-Back Scheme Representation”).

3.2. The 7^th Defendant was a listed company in Hong Kong which operated the widely-known brand “3DG Jewellery (金至尊)” in Hong Kong, Macau and Mainland.

3.3. The customers would also have a put option to sell the gold bars back to the 1^st Defendant at the end of the lease term at same price that the gold bars were purchased.

4. A document titled “金尊1號-實物黃金條租賃保值增值計劃” containing the Purchase and Lease-Back Scheme Representation (the “Proposal”) was shown and passed to the Plaintiff to support the above representation.” (emphasis added)

The Opposing Defendants

9.The 4^th Defendant was the Chief Executive Officer responsible for the 1^st Defendant’s business operation and management in Hong Kong. He was at all material times 1 of the 3 directing minds of the 1^st Defendant. The other 2 being the 2^nd and 3^rd Defendants who were residents of the PRC.

10.The 10^th Defendant is a Hong Kong Company with an office in Hong Kong. It was and is Member No. 160 of the Chinese Gold & Silver Exchange (“CGSE”). The CGSE is the sole exchange in Hong Kong which trades physical gold and silver. The named Executive Manager of Solid Gold on the CGSE is the 11^th Defendant.

11.The 11^th Defendant was at all material times its sole director and shareholder.

12.The 12^th Defendant is a Hong Kong company whose office is next door to the 10^th Defendant’s on the same floor of the same building. According to the 13^th Defendant’s affirmation (“Mak 2”) dated 8 August 2024 in opposition to the Continuation Summons and in support of the Discharge Summons, the 12^th Defendant did not have any membership with CGSE and did not carry on any bullion trading business, nor did it handle bullion, except for 1 transaction, which is the present case involving the Plaintiff.

13.The 13^th Defendant was at all material times the sole director and shareholder of the 12^th Defendant.

14.Also according to Mak 2, although the 10^th and 12^th Defendants were 2 separate legal entities, they were under the same group of companies and the 11^th Defendant was the ultimate owner of both. This is corroborated by the 5^th Defendant in his witness statement albeit denied by the 11^th Defendant.

15.The 13^th Defendant claims that between 2011 to April 2018, she was employed by the 10^th Defendant as an accounting manager. Since March 2018, upon the 11^th Defendant’s instructions, she was reassigned to the 12^th Defendant and became its sole director and shareholder. Nevertheless, she continued to provide her services to the 10^th Defendant as an accounting manager under the name of the 12^th Defendant.

The other Defendants

16.The 1^st Defendant was a Hong Kong company and purportedly engaged in gold supplies, sales and trading to customers, as well as provision of storage and lease services for gold owners. It was wound up upon the Plaintiff’s petition on 3 February 2021 in HCCW327 of 2020. The Plaintiff commenced the present Action against it after obtaining leave to do so.

17.The 2^nd Defendant was the ultimate controller and beneficial owner of the 1^st Defendant. According to the 6^th Defendant’s witness statement, he is an ordinary resident of the PRC.

18.The 3^rd Defendant was the 1^st Defendant’s sole director and shareholder. According to the annual return of the 1dt Defendant, he is also an ordinary resident of the PRC.

19.The 5^th Defendant was the technical director and the 6^th Defendant was the assistant Customer Service Manager of the 1^st Defendant. Both of them were in one way or another involved in the scam and are able and willing to give details of the scam and the role of the Defendants in their witness statements filed in Court.

20.The 7^th Defendant was a Hong Kong listed company principally engaged in retailing for gold and jewellery products under the brand “3DG Jewellery” in Hong Kong, Macau and the PRC.

21.The 8^th Defendant was at the material time a substantial shareholder and director of the 7^th Defendant and its actual controller.

22.The 9^th Defendant was at the material time an executive director of the 7^th Defendant and one of the principal assistants of the 8^th Defendant.

The Plaintiff’s overall case

23.The Plaintiff’s detailed case is set out at length in Mr Yeung’s skeleton. Based on the Statement of Claim and the affirmation evidence of all parties and in particular the witness statements of the 5^th and 6^th Defendants, it seems to this court the Plaintiff’s case can be simplified as follows, with a focus on the roles of the 4^th, 12^th and 13^th Defendants in the scam.

24.At the direction of the 1^st Defendant, on 29 March 2019, the Plaintiff attended the office of the 10^th Defendant. The 5^th, 6^th and 13^th Defendants were present. The Plaintiff agreed to invest in the Gold Bars and paid the Sum by credit card to the 10^th Defendant. The 13^th Defendant “processed” the payment of the Sum on behalf of the 10^th Defendant.

25.The Scheme in fact never existed:

a.  The 7^th Defendant in its Defence confirmed that on 5 June 2018, the 9^th Defendant had without authority from its Board, entered into a Strategic Cooperation Framework Agreement on Gold Leasing Business (“Framework Agreement”) with the 1^st Defendant and issued an announcement on the 7^th Defendant’s website about the Framework Agreement. The 7^th Defendant denied it had entered into any gold leasing agreement with the 1^st Defendant. Nor had it leased any gold bars from the 1^st Defendant. Further, it had never provided any guarantee in respect of the leasing gold bars by 1^st Defendant.

b.  The 5^th Defendant, in his witness statement, confirmed the Scheme was a scam devised by the 2^nd and 8^th Defendants. The 4^th Defendant was one of the principal assistants of 2^nd Defendant. He, among others, was well aware of the scam and had actively participated in it.

c.  There existed a WeChat group for the Scheme in as early as June 2018 (“WeChat Group”). The 2^nd, 3^rd, 4^th and 5^th Defendants were participants. From the WeChat Group, they all knew the involvement of the 8^th Defendant in the scam.

d.  In around October[3] 2018, the 3^rd Defendant conveyed in the WeChat Group that the 1^st Defendant would “borrow” gold bars from the 10^th Defendant for client inspection (‘亞Neil [D4]呢你就幫手誒同堅固 [D10]果邊呢同佢傾果個借金吖，借金吖，借金到時俾客戶可以驗金吖 ’).

e.  In his witness statement, the 5^th Defendant confirmed that when the 1^st Defendant had difficulty honoring its rental income payment or returning the gold bars to its other customers under the Scheme, in September 2019, the 4^th Defendant continued to persuade the 5^th Defendant to (i) carry on seeking subscriptions to the Scheme, and (ii) stop existing subscribers from redeeming, and instead to convince them to renew subscriptions.

f.  Under the Scheme and the Proposal, the Gold Bars were scheduled to be delivered to the Plaintiff on 4 April 2019 for leaseback to the 1^st Defendant for onward lease to the 7^th Defendant. As pleaded in paras 8 and 9 of the Statement of Claim:

“8. On around 4 April 2019, the Plaintiff was taken by the 5^th and 6^th Defendants to the office of the 10^th Defendant where he was shown gold bars which the 5^th, 6^th and 13^th Defendants (acting for themselves and on behalf of the other Defendants) represented to be the purportedly purchased Gold Bars for the lease arrangement under the Lease Agreement[4] (“Gold Bars Collection Representation”). The Plaintiff also received an invoice and a packing list both dated 4 April 2019 and issued by the 10^th Defendant reflecting purported sale of the Gold Bars to the Plaintiff.

9.  Induced by and in reliance of the Gold Bars Collection Representation, and acting on the faith and truth thereof, the Plaintiff on 4 April 2019 signed acknowledgment of receipt of the Gold Bars (in the quantity of 68) from the 10^th Defendant.” (emphasis added)

g.  But then the 1^st Defendant sold the Gold Bars to the 12^th Defendant on 2 April 2019. This is wholly inconsistent and incompatible with the Scheme.

26.The 2^nd and 8^th Defendants were masterminds behind the scam.

27.The 4^th Defendant would customarily act in accordance with 2^nd Defendant’s instructions. The 8^th Defendant was the substantial shareholder of the 7^th Defendant and has de facto control over it. The 9^th Defendant, the executive director and CEO of the 7^th Defendant and one of the 8^th Defendant’s representatives in the 7^th Defendant, would act in accordance with the 8^th Defendant’s instructions.

28.The Purchase and Lease-Back Scheme Representation and the Gold Bars Collection Representation were made by the 5^th, 6^th and 13^th Defendants, the 13 Defendant being a representative of the 10^th Defendant and the sole shareholder and director of the 12^th Defendant.

a.  They were the persons who attended to the Plaintiff when he (i) agreed to purchase and paid for the Gold Bars on 29 March 2019 and (ii) inspected and “collected” the Gold Bars on 4 April 2019. On both occasions, the above took place at the 10^th Defendant’s office.

b.  The 5^th Defendant knew the 1^st Defendant borrowed the Gold Bars from the 10^th Defendant for the Plaintiff’s inspection only, thus the falsity of the Scheme.

c.  The 6^th Defendant, in his witness statement, confirmed he realized shortly after he had joined the 1^st Defendant in August 2018 that gold bars purportedly purchased by customers from the 1^st Defendant under the Scheme would in fact be returned to the 13^th Defendant after presenting to customers for inspection, after which they would be purportedly sold by the 1^st Defendant to the 12^th Defendant or its affiliate, Well Sky International (HK) Limited (佳天國際（香港）有限公司) (“Well Sky”). Well Sky’s sole shareholder and director was also the 13^th Defendant^. The 10^th and 12^th Defendants would receive “service fee” as reward.

d.  The 13^th Defendant confirmed in her affirmation she knew the Plaintiff bought the Gold Bars, scheduled to be delivered on 4 April 2019, for leaseback to the 1^st Defendant. She was actually in the office of the 10^th Defendant on 4 April 2019 when the Plaintiff went there to inspect and “collect” the Gold Bars. Yet, she knew all along that the 1^st Defendant intended to sell the Gold Bars to the 12^th Defendant. She also knew the 12^th Defendant had placed a purchase order for the Gold Bars for the consideration of HK$21,358,859.26 and had paid for them. Out of that part of the purchase price ie HK$11,739,888, the 12^th Defendant paid HK$8,832,912 to the 1^st Defendant and HK$2,906,977 to the 3^rd Defendant on 2 and 3 April 2019 respectively. The balance of the purchase price was paid to the 1^st Defendant on 4 April 2019.

e.  The 13^th Defendant admitted in her affirmation that she provided accounting services to the 10^th Defendant under the name of the 12^th Defendant. As such, she would be in control or at least had access to the accounting records of the 10^th Defendant.

f.  The 13^th Defendant knew the Scheme to be non-existent. She nevertheless endorsed the presentation to the Plaintiff the Gold Bars for inspection and “delivery” on 4 April 2019.

g.  The 11^th Defendant (the sole director and shareholder of the 10^th Defendant) stated in his affirmation that (i) the Plaintiff was introduced to the 10^th Defendant by the 13^th Defendant for gold trading; (ii) the Plaintiff’s purchase of the Gold Bars was handled by the 13^th Defendant.

29.The 10^th Defendant and the 12^th Defendant rendered assistance in (i) facilitating to the Plaintiff the false picture of “delivery” of the Gold Bars to the 1^st Defendant; and (ii) conjuring up a transaction to conceal the wiring away of the Sum supposedly paid to the 10^th Defendant ie On 2 April 2019, the 1^st Defendant sold the Gold Bars to the 12^th Defendant for HK$21,358,859.26, of which HK$8,832,912 and HK$2,906,977 and were transferred on 2 and 3 April 2019 to the 1^st and 3^rd Defendants respectively, with the balance transferred to the 1^st Defendant on 4 April 2019 and by a credit note on 3 June 2019.

30.The 4^th Defendant was the person who signed the authorization letter dated 2 April 2019 to direct the 12^th Defendant to transfer part of the Sum ie HK$8,832,912 and HK$2,906,977 to the 1^st and 3^rd Defendants.

31.The Plaintiff’s case is that the purchase price paid by the 12^th Defendant to the 1^st Defendant came from the Sum and the transaction was to facilitate the dissipation of the Sum.

32.The 13^th Defendant must have been a part of the scam. She knew that the Plaintiff bought the Gold Bars from the 1^st Defendant for leaseback to the 1^st Defendant. On 2 April 2019, she also procured the purchase of the Gold Bars by the 12^th Defendant from the 1^st Defendant. She prayed in aid the Lease Agreement[5] in order to justify her claim that the purchase was bona fide, which means she had seen a copy of the Lease Agreement. When she saw the Plaintiff attended the 10^th Defendant’s office to inspect and accept “delivery” of the Gold Bars on 4 April 2019, she did not raise any enquiry with the Plaintiff. Instead, she procured the 10^th Defendant to issue a receipt to the Plaintiff acknowledging his “collection” of the Gold Bars.

33.The 13^th Defendant confirms in her affirmation that the sale of the Gold Bars from the 1^st Defendant to the 12^th Defendant was explained to and endorsed by the 11^th Defendant. The 11^th Defendant must have been a part of the scam.

34.The 1^st Defendant defaulted in the payment of the rental fees in breach of the Lease Agreement since October 2019, in respect of which the Plaintiff had obtained default judgment against the 1^st Defendant and ultimately led to its winding up in February 2021.

35.The Plaintiff progressively uncovered the scam and officially made a report to the police in April 2020.

36.The end result of the scam is that the Plaintiff has lost the Sum and the Gold Bars, the rental income since October 2019 and the profits he would have made had the Gold Bars been returned to him after the 12-month lease period.

Deliberation

37.The applicable legal principles are trite. A plaintiff seeking a domestic mareva injunction must satisfy the Court that:

a.  it has a good arguable case;

b.  there is a real risk of dissipation of assets, or removal of assets from the jurisdiction, which would render the plaintiff’s judgment of no effect;

c.  the balance of convenience is in favour of grant.

38.The threshold of “a good arguable case” is higher than “a serious issue to be tried”. But the applicant need not go so far as to persuade the Court that it is likely to win but it needs to show a case which is more than barely capable of serious argument, albeit not necessarily one that the judge believes to have a better than 50% chance of success.

39.Where a party opposes the continuation of the injunction at the interlocutory stage, the burden is on him to put up a defence and evidence of sufficient cogency so as to water down the merits of the applicant’s claim to an extent that it no longer amounts to a good arguable case: Toyota Boshoku Europe N. V. v Kingsville (HK) Enterprises Limited & Others [2023] HKCFI 1393 at [11] per DHCJ Le Pichon.

40.The court is not to resolve disputes of facts and difficult points of law on an interlocutory basis: Toyota Boshoku Europe N. V. at [12].

41.The existence of a “good arguable defence” does not necessarily negate a “good arguable case”. It is entirely possible to have, at the interlocutory stage, both the claim and the defence being more than barely capable of serious argument and not necessarily having a better than 50% chance of success. There is no requirement that the applicant of a mareva injunction must show that he has a “much better” case or argument than the opposing party: Toyota Boshoku Europe N. V. at [13] – [14].

Good arguable case vs the 4^th Defendant

42.As far as good arguable case is concerned, in Ms Law’s skeleton, she goes to great length to analyse all the pleaded causes of action in the Statement of Claim and submits that there is no good arguable case against the 4^th Defendant. This is an unnecessary exercise since in his executive summary, Mr Yeung has already described the role of the 4^th Defendant as knowingly assisted in the scam in that he endorsed the 1^st Defendant’s sale of the Gold Bars to the 12^th Defendant on 2 April 2019 and his instruction to the 12^th Defendant to transfer the purchase price to the 1^st and 3^rd Defendants.

43.Ms Law submits that any cause of action of conspiracy based on the alleged “unlawful means” of breach of duties, secret profits, knowing receipt and dishonest assistance are bound to fail. She then cites inter alia paras 22 and 29 of the Statement of Claim and submits that no trust or fiduciary duties can arise in so far as the Gold Bars are concerned.

44.For ease of reference, paras 22 and 29 read as follows.

“22. … on the basis of a true sale by the 1^st Defendant of the Gold Bars to the Plaintiff, then by being in possession and control of the Gold Bars for the purpose of executing the Lease Agreement for and on behalf of the Plaintiff, whether pursuant to the Authorisation Letter or otherwise, the 1^st Defendant was a trustee and/or fiduciary of the Plaintiff and assumes trust/ fiduciary duties to the Plaintiff insofar as the Gold Bars were concerned…

…

29. The 2^nd, 3^rd and 4^th Defendants knew the purported purchase of the Gold Bars by the Plaintiff and the non-existence and infeasibility of the Purchase and Lease-Back Scheme. Each of them however designed, executed and/or approved the 1^st Defendant’s purported sale and delivery of the Gold Bars to the 12^th Defendant and received the proceeds arising from such sale…Each of the 2^nd, 3^rd and 4^th Defendants knew that the 1^st Defendant was trustee/ fiduciary of the Plaintiff in terms of the Gold Bars, and therefore knew that the purported sale by the 1^st Defendant to the 12^th Defendant was conducted in breach of its trust/ fiduciary duties to the Plaintiff. In directing, executing and/or approving the purported sale or remaining silence and receiving the sale proceeds, each of the 2^nd, 3^rd and 4^th Defendants was dishonestly assisting the 1^st Defendant in its misappropriation of the Plaintiff’s assets in breach of its trust/ fiduciary duties set out in paragraph 22 above.”

45.Ms Law then submits that the “true sale” between the Plaintiff and the 1^st Defendant of the Gold Bars is a pure commercial relationship. Even on the assumption that the 1^st Defendant had been in possession and control of the Gold Bars for the purpose of executing the Lease Agreement for and on behalf of the Plaintiff, that of itself does not create a trust or fiduciary relationship between the two of them.

46.Assuming for the sake of argument Ms Law is right that the relationship between the Plaintiff and the 1^st Defendant does not involve a trust or fiduciary relationship in the traditional legal sense and any plea of breach of trust/fiduciary duties is untenable, the essence of the Plaintiff’s case is still the same – there is a scam and the 4^th Defendant had participated in it by dishonestly assisting the 1^st Defendant in executing the scam at the expense of the Plaintiff.

47.Ms Law further submits that the Plaintiff’s misconception is exemplified by the terms of the Lease Agreement. Under the 2^nd Clause 7.2 of the Lease Agreement[6], the 1^st Defendant was authorised to sell, lease and pledge the Gold Bars during the 12-month lease period.

48.The 1^st Defendant had prepared a Lease Agreement for the Plaintiff to sign and he did sign on 3 April 2019. The Lease Agreement had elaborately set out the terms of the Scheme, including the lease period, the amount of rental payable to the Plaintiff, the exclusive use of the Gold Bars for onward lease to the 7^th Defendant, the emphasis that the Plaintiff had ownership of the Gold Bars while the 1^st Defendant only had the right to use them. Then all of a sudden, the 1^st Defendant added a clause 7.2 which gave the 1^st Defendant the authority to sell the Gold Bars, which is wholly inconsistent with the Scheme as presented to the Plaintiff and all the other terms of the Lease Agreement. That clause reinforces rather than undermines the existence of a good and arguable case of a scam.

49.In fact, on the evidence, the 4^th Defendant’s role in the scam is much more than endorsing the 1^st Defendant’s sale of the Gold Bars to the 12^th Defendant on 2 April 2019 and his instruction to the 12^th Defendant to transfer the purchase price to the 1^st and 3^rd Defendants. He was the Chief Executive Officer responsible for the 1^st Defendant’s business operation and management in Hong Kong. Since the Scheme was one proffered to investors by the 1^st Defendant, it is reasonable to infer that he had a part, together with 2^nd and 3^rd Defendants, in the design or at least execution of the Scheme, despite his denial. The evidence of the 5^th Defendant is particularly damning. According to the 5^th Defendant, the 4^th Defendant was one of the principal assistants of 2^nd Defendant and he was well aware of the scam and had actively participated in it.

50.In the 4^th Defendant’s 2^nd affirmation (“Iu 2”), his defence in gist is that he was a mere sales agent of the Gold Bars purchase and leaseback scheme which was introduced to him by the 2^nd and 3^rd Defendants. His title of Chief Executive Officer was merely for convenience in dealing with external investors such that he could not be said to be a directing mind of the 1^st Defendant.

51.The 4^th Defendant said he understood the 金尊1號product ie the Scheme to be a project involving purchase by clients of physical gold bars followed by arrangement of renting of such gold bars to third parties for rental income in the clients’ favour. More particularly, he knew that, under the Scheme, clients would purchase physical gold bars from the 1^st Defendant sourced from the 10^th Defendant and would earn rental income by leasing them back to the 1^st Defendant for its onward lease to the 7^th Defendant. He was led to have confidence in the Scheme and had no reason to suspect any fraud. He therefore did not know that there was no intention on the part of the 1^st Defendant to put the Scheme into place or that the 7^th Defendant never intended to lease, or actually leased, Gold Bars from the 1^st Defendant.

52.In other words, his case is that which he was tasked to sell the Scheme to clients and he had no knowledge of the fraud. In this court’s view, this bare denial is hardly a defence and evidence of sufficient cogency so as to water down the merits of the Plaintiff’s claim to an extent that it no longer amounts to a good arguable case.

53.To conclude, this court is satisfied that there is a good and arguable case against the 4^th Defendant.

Good arguable case vs the 12^th and 13^th Defendants

54.The Plaintiff’s case against the 12^th and 13^th Defendants can be considered together since the 13^th Defendant was at the material time the sole director and shareholder of the 12^th Defendant.

55.On the Plaintiff’s evidence, the 13^th Defendant knew the Plaintiff bought the Gold Bars from the 1^st Defendant for leaseback to it. The role of the 13^th Defendant was, apart from being one of the persons who made the Purchase and Lease-Back Scheme Representation and the Gold Bars Collection Representation to the Plaintiff, that she directed the 12^th Defendant to purchase the Gold Bars from the 1^st Defendant on 2 April 2019, which was entirely inconsistent with the Scheme. If the sale was genuine, the inspection and “delivery” of the Gold Bars to the Plaintiff on 4 April 2019 was just a show. After the sale to the 12^th Defendant, there could not be a lease back of the Gold Bars to 1^st Defendant for further onward lease to the 7^th Defendant, unless of course the sale was bogus. She also gave the false impression of “delivery” of the Gold Bars to the Plaintiff when she saw him at the 10^th Defendant’s office on 4 April 2019 knowing full well about the sale of the Gold Bars by the 1^st Defendant to the 12^th Defendant.

56.In Mr Yeung’s executive summary, he is content to rely on the unlawful means of dishonest assistance against the 12^th and13^th Defendants and this court shall proceed on that basis.

57.On the other hand, in Mr Tam’s skeleton, he submits that the 12^th and 13^th Defendants are innocent parties caught up in the conspiracy to defraud the Plaintiff. In other words, his clients do not dispute the Scam. He submits that the Plaintiff cannot prove inter alia the 12^th and 13^th Defendants’ intention and knowledge in relation to the Scheme or its falsity.

58.In the 13^th Defendant’s affirmation (“Mak 2”) at paras 45 and 46 on half of the 12^th Defendant and no doubt on her own behalf, she summed up the relationship between the Plaintiff, the 1^st Defendant, the 12^th Defendant and herself as thus.

“45. Captain Holdings had sold the Gold Bars supplied by Solid Gold (Exhibit WJ-35) to Mr. Wu and Mr. Wu agreed to lease the Gold Bars back to Captain Holdings. Under the Lease Agreement (Exhibit WJ-36), Captain Holdings realised the Gold Bars into cash by selling the Gold Bars to HK Fortune. HK Fortune had purchased the Gold Bars from Captain Holdings as a bona fide purchaser for value without notice.

46. HK Fortune had agreed to be the named purchaser of the Gold Bars, as opposed to, for example, Solid Gold or another entity within the corporate group, for the simple reason that HK Fortune did not have a Bullion Trading Account at that time. From experience, it was not easy or straightforward to open a Bullion Trading Account. I thought this would be a good opportunity to provide a track record in bullion trading for HK Fortune, and to take this opportunity to open a Bullion Trading Account. As HK Fortune was part of the corporate group involved the bullion trading, having another Bullion Trading Account would be convenient. I explained this to Mr. Gaw and he agreed with my idea. As such, it was agreed that HK Fortune would be the named purchasing entity for the Gold Bars.” (emphasis added)

59.The fact that the 12^th and 13^th Defendants prays in aid the Lease Agreement to show they were bona fide is futile and actually backfires on them. As this court explains earlier, the Lease Agreement had elaborately set out the terms of the Scheme but then all of a sudden, included a clause which gave the 1^st Defendant the authority to sell the Gold Bars, which is wholly inconsistent with the Scheme as presented to the Plaintiff and all the other terms of the Lease Agreement. This clause reinforces rather than undermines the existence of a good and arguable case of a scam and the knowledge of the 12^th and 13^th Defendants of it.

60.At paras 58 to 62 of Mak 2, the 13^th Defendant further elaborated on the 12^th Defendant’s purchase of the Gold Bars as follows:

“58. On 4 April 2019, Mr. Wu attended the offices of Solid Gold again. The Gold Bars were in the conference room. I deny having made any representations to Mr. Wu as alleged in paragraph 21 of Wu 4^th … In any event, as set out above, the Gold Bars did belong to Mr. Wu, but Captain Holdings had already sold 36 Gold Bars on behalf of Mr. Wu to HK Fortune.

59. On 4 April 2019, Captain Holdings had “officially” sold and delivered the Gold Bars to HK Fortune. In this regard, Captain holdings issued an Invoice No. I90357 for the Gold Bars in the total consideration of HK$21,358,859.26 (cf Exhibit MWN-5) together with Delivery Note No. 300621[7]…

60. On the same day on 4 April 2019, HK Fortune issued a confirmation[8] to Captain Holdings in relation to the Gold Bars …

61. Also on 4 April 2019, HK Fortune paid to Captain Holdings HK$9,358,859.26 by way of a cheque. On 3 June 2019, HK Fortune paid to Captain Holdings the balance of the consideration in the sum of HK$260,111 by way of a credit note[9]…

62. As such, the transaction between D1 and D12 is genuine and supported by contemporaneous documents.” (emphasis added)

61.In Mr Tam’s skeleton, he recites the legal requirements for the imposition of liability for dishonest assistance in the traditional trust situation in that inter alia there must be a breach of trust or fiduciary duty by someone[10] other than the defendants ie his clients. However, the basis in which the 1^st Defendant stands as a fiduciary vis-à-vis the Plaintiff is unclear. But as this court explains earlier, even assuming for the sake of argument that the relationship between the Plaintiff and the 1^st Defendant does not involve a trust or fiduciary relationship in the legal sense, the essence of the Plaintiff’s case is still the same – there is a scam and the 12^th and 13^th Defendants knowingly participated in it by dishonestly assisting the 1^st Defendant in executing the scam at the expense of the Plaintiff.

62.The sale of the Gold Bars by the 1^st Defendant to the 12^th Defendant on 2 April 2019 may or may not be genuine. As this court observes, if it were genuine, that would be wholly inconsistent with the Scheme. Otherwise, it would be a bogus transaction, contrary to what the 13^th Defendant had said. The 13^th Defendant must but has failed to explain why she procured the 12^th Defendant to enter into a bogus transaction.

63.To conclude, for the above reasons, this court is satisfied that there is a good and arguable case against the 12^th and 13^th Defendants.

Real Risk of Dissipation

64.The approach on assessment of risk of dissipation in the context of an application for a mareva injunction was examined by the Court of Appeal in Convoy Collateral Limited v Cho Kwai Chee [2020] HKCA 537. At [35], Lam VP (giving judgment of the Court of Appeal) quoted with approval the judgment of Haddon-Cave LJ in Lakatamia Shipping Co Ltd v Toshiko Morimoto [2019] EWCA Civ 2203 at [34] where his Lordship adopted (with a slight modification) the principles set out by Popplewell J (as he then was) earlier in Fundo Soberano de Angola v dos Santos [2018] EWHC 2199 (Comm) as follows:

“(1) The claimant must show a real risk, judged objectively, that a future judgment would not be met because of an unjustified dissipation of assets. In this context dissipation means putting the assets out of reach of a judgment whether by concealment or transfer.

(2) The risk of dissipation must be established by solid evidence; mere inference or generalised assertion is not sufficient.

(3) The risk of dissipation must be established separately against each respondent.

(4) It is not enough to establish a sufficient risk of dissipation merely to establish a good arguable case that the defendant has been guilty of dishonesty; it is necessary to scrutinise the evidence to see whether the dishonesty in question points to the conclusion that assets may be dissipated. It is also necessary to take account of whether there appear at the interlocutory stage to be properly arguable answers to the allegations of dishonesty.

(5) The respondent's former use of offshore structures is relevant but does not itself equate to a risk of dissipation. Businesses and individuals often use offshore structures as part of the normal and legitimate way in which they deal with their assets. Such legitimate reasons may properly include tax planning, privacy and the use of limited liability structures.

(6) What must be threatened is unjustified dissipation. The purpose of a [World Freezing Order] is not to provide the claimant with security; it is to restrain a defendant from evading justice by disposing of, or concealing, assets otherwise than in the normal course of business in a way which will have the effect of making it judgment proof. A WFO is not intended to stop a corporate defendant from dealing with its assets in the normal course of its business. Similarly, it is not intended to constrain an individual defendant from conducting his personal affairs in the way he has always conducted them, providing of course that such conduct is legitimate. If the defendant is not threatening to change the existing way of handling their assets, it will not be sufficient to show that such continued conduct would prejudice the claimant's ability to enforce a judgment. That would be contrary to the purpose of the WFO jurisdiction because it would require defendants to change their legitimate behaviour in order to provide preferential security for the claim which the claimant would not otherwise enjoy.

(7) Each case is fact specific and relevant factors must be looked at cumulatively.”

65.Lam VP went on to state that subject to certain elaborations, the aforesaid principles are applicable in Hong Kong:

“37. On the onus borne by a party seeking such draconian relief, whilst there are no doubt respectable authorities referring to the need for a solid evidential basis to establish a real risk of dissipation …we prefer to describe the burden as solid basis for concluding that there is such a real risk.

…

40. Since the assessment is in respect of the risk of dissipation as opposed to the fact of actual dissipation, the exercise necessarily involves an evaluative and predictive judgment. Thus, the evidential burden can be satisfied by drawing proper inferences from a holistic consideration of all the circumstantial materials that are indicative of risk, including matters which point against such risk…

…

42. There are cases where a good arguable case on the underlying substantive claims could also be regarded as supporting a case of real risk of dissipation. As highlighted in proposition (4) in Popplewell J’s summary, the court needs to scrutinise with care whether the allegations in respect of the claims justify the inference of likelihood of dissipation.

43. Notwithstanding the broad statement of Godfrey J in Honsaico Trading Ltd v Hong Yiah Seng Co Ltd [1990] 1 HKLRD 235, Hong Kong judges have been vigilant in scrutinizing the allegations in a claim with care before drawing the inference of risk of dissipation. Chu J (as she then was) in Hornor Resources v Savvy Resources [2010] 4 HKC 50 cautioned that the court must examine with care allegations of dishonesty before inferring therefrom a real risk of dissipation.

…

47. Wrongdoing relevant to the issue of dissipation can be some dishonest or wrongful acts which were not themselves acts of dissipation. In VTB Capital v Nutritek International [2012] 2 CLC 431, the alleged wrong committed by the defendant was the procurement of a loan from CCL by fraudulent misrepresentation as to the value of the assets of the borrower and the disappearance of the proceeds in a complex web of corporate entities. Lloyd LJ said at [177]:

‘… However, where (as here) the dishonesty alleged is at the heart of the claim against the relevant defendant, the court may well find itself able to draw the inference that the making out, to the necessary standard, of that case against the defendant also establishes sufficiently the risk of dissipation of assets.’

…

49. Another illustration is the judgment of Saville LJ in Grupo Torras SA v Al-Sabah (21 March 1997) which was cited in the judgment of Flaux J in Madoff Securities International Ltd v Raven [2011] EWHC 3102 (Comm) . The defendant in that case was an investment adviser in Switzerland. The judge found there was a good arguable case that he was implicated in a scheme of fraud and the nature of the allegation was such that there was a strong fear of dissipation….” (emphasis added)

66.At [53], Lam VP summed up the position as follows:

“53. To sum up, the approach set out by Haddon-Cave LJ in Lakatamia Shipping Co Ltd v Toshiko Morimoto, supra at [51] provides good guidance. The ultimate question is whether CCL succeeds in showing objectively there is a solid basis for concluding that there is a real risk of unjustified dissipation of assets by a defendant. That question is to be answered by examining the evidence holistically. Evidence of dishonest and fraudulent conducts or other serious wrongdoings which form the basis of the claims, and which reflect adversely on the integrity of the defendant could point powerfully towards an inference of such risk.” (emphasis added)

67.At [54], Lam VP also pointed out that evidence of delay is relevant in the assessment of risk of dissipation.

“54.…Delay after a defendant gained knowledge of a plaintiff’s claim can militate against the risk of dissipation as such defendant would already have the opportunity to dispose of assets should he be inclined to do so.”

68.In Ms Law’s skeleton, her submission on no real risk of dissipation is, with respect, perfunctory. The relevant parts of her submission can be found in the following 3 paras.

“89. The only ground relied on by P against D4 to argue that there is a real risk of dissipation is the allegation that there is serious dishonest, questionable integrity and unacceptably low commercial morality on his part.

90. It is not disputed that the police concluded that there was insufficient evidence to lay any criminal charges against D4.

…

93. For the reasons analyzed above, D4 submits that he is not guilty of those allegations and consequentially there is no real risk of dissipation and the balance of convenience is well in favour of D4.”

69.All this court needs to say is that, given this court’s analysis on good arguable case, Ms Law’s submission on no real risk of dissipation must be rejected.

70.In Mr Tam’s skeleton, his submission that there is no real risk of dissipation boils down to (i) the Plaintiff’s case against the 12^th and 13^th Defendants is thin and he cannot rely on the strength of the underlying substantive claim in support of his case of real risk of dissipation, especially where he cannot identify any dishonest or other serious wrongdoings on the part of the 12^th and 13^th Defendants; (ii) the 12^th and 13^th Defendants were, if at all, at the “tail end” of the fraud with hardly any direct involvement with the Plaintiff, and (iii) even if there is a good arguable case against the 12^th and 13^th Defendants, the ground of “low commercial morality” cannot be relied upon in isolation. The Plaintiff cannot put his case any higher than “unsupported statements and expressions of fear”, which would only “carry very little, if any, weight”: Convoy Collateral Ltd at [41].

71.In this court’s view, the Plaintiff’s good arguable case against the 12^th and 13^th Defendants is not thin and Mr Tam has misunderstood the Plaintiff’s case as simply based on low commercial morality per se.

72.As Mr Yeung submits, the good and arguable case of the involvement of each of the 4^th, 12^th and 13^th Defendants in the scam to defraud the Plaintiff of the Sum or the Gold Bars and the “sale” of the Plaintiff’s Gold Bars to the 12^th Defendant is a strong indicator of the serious dishonesty and fraudulent conduct on their part individually. This constitutes powerful and solid basis for an inference of real risk of dissipation.

73.Mr Yeung further emphasis the implication from the 13^th Defendant’s disclosure of the 12^th Defendant’s assets pursuant to the Injunction. In Mak 2, at para 71, she suggested that the Gold Bars belonged beneficially to the 12^th Defendant and thus were in the possession of the 12^th Defendant at the material time. However, In Mak 1, she claimed the 12^th Defendant did not have any asset of value of more than HK$10,000. As stated in a letter from the Hong Kong Police to the Legal Aid Department dated 30 August 2023, the Police had not seized any of the Gold Bars. Since the 13^th Defendant claimed the 12^th Defendant had purchased and obtained delivery of the Gold Bars on 4 April 2019, either the 13^th Defendant was not truthful about the assets of the 12^th Defendant, or the 12^th Defendant’s purported purchase of the Gold Bars was bogus or the 12^th Defendant had either concealed or transferred away the Gold Bars. At the moment, there is no explanation from the 12^th or 13^th Defendant what had happened to them if the purchase was genuine given that they were at least in the 12^th Defendant’s possession at some point in time if the purchase was genuine. If the purchase was bogus, where are the Gold Bars now?

74.On the question of delay, it is true that while the present Action was commenced in January 2022, the application for the Injunction was only made in May 2023. The explanation has been set out in Wu 4 at paras 55 to 59 and further explained in Mr Yeung’s skeleton. In gist, Mr Yeung submits that (i) the Plaintiff all along considered that there existed a real risk of asset dissipation by the Defendants[11], (ii) with the real risk of asset dissipation in mind, the Plaintiff’s (mis)understanding was that his interest was adequately protected in the interim for so long as the police investigation continued, (iii) in May 2023, the Plaintiff learnt from the police that investigation of his complaint might conclude without any charges against the arrested persons, which would entail the end of the interim protection afforded by the police and which would leave the issue of real risk of asset dissipation unaddressed, (iv) as the police only referred to the freezing of the 10^th Defendant’s bank account during the exchanges with the Plaintiff’s legal advisers, the Plaintiff became uncertain as to whether the bank accounts of those Defendants other than the 10^th Defendant had in fact been frozen – the Plaintiff was unable to obtain further information from the police, and was advised to resort to the Court for interim protection.

75.This court accepts the Plaintiff’s explanation of the delay as inherently probable and would not count it against his case of real risk of dissipation.

76.To conclude, this court is satisfied that for the present purpose there is a real risk of dissipation in relation to the 4^th, 12^th and 13^th Defendants.

Balance of convenience

77.Given the disclosure of assets by the 4^th, 12^th and 13^th Defendants, if the disclosure is truthful, damages would not be an adequate remedy for the Plaintiff if he were to succeed at trial. If the disclosure of assets by them is untruthful, it simply means they are concealing their assets to render them out of reach of the Plaintiff. Either way, without the Injunction, the Plaintiff is likely to get an empty judgment if his case is proven at trial.

78.On the other hand, the 4^th Defendant had not put forward any evidence of prejudice to him as a result of the Injunction and he had not applied to set aside the Injunction shortly after it was continued on 25 May 2023 or at all.

79.As for the 12^th and 13^th Defendants, in Mak 2 at paras 72 and 74, she claimed that “Ever since the police arrested me in 2020, the accounts of HK Fortune, other corporate accounts under my name, and my personal bank accounts have all been frozen until April 2023…as HK Fortune’s bank accounts are frozen, HK Fortune cannot receive any remuneration for providing its services to Solid Gold. This in turn also is affecting my own ability to be paid my own salary as my own account is frozen. Moreover, the Injunction has caused and will continue to cause HK Fortune and myself embarrassment, inconvenience, and loss of business opportunities.” While in Mak 2, she had hinted at the very last paragraph that she would invite the Court to discharge the Injunction, their application to discharge the Injunction was only made on 10 May 2024, less than 2 weeks before the substantive hearing.

80.Ultimately, at the interlocutory injunction stage, “the principal concern of the court is that it might make a wrong decision in the sense that after trial, the party to whom an interlocutory injunction has been granted may lose or the party who has been refused one, may win. The court will therefore take whichever course appears to carry the lower risk of injustice if it should turn out that it is wrong. This ‘fundamental’ principle is the source of the guidelines that have evolved for the determination of interlocutory injunctions”: Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR, 670, 680D-G (per Hoffmann J as he then was); Music Advance Ltd. v Incorporated Owners of Argyle Centre Phase I [2010] 2 HKLRD 1041 at [12 (d)] (per Ma J as he then was).

81.On the evidence before this court, it seems the course which appears to carry the lower risk of injustice if it should turn out that this court is wrong is to continue instead of discharge the Injunction and this court shall so rule.

Material non disclosure

82.The 4^th Defendant’s complaint is that the Plaintiff had failed to draw the Court’s attention to the Lease Agreement which was only hidden inside a thick pile of documents attached to the Plaintiff’s Statement to the Police. The Lease Agreement was said to contain important Clauses 3, 4, 6 and 7.

83.This court does not see how Clauses 3, 4 and 6 can assist the 4^th Defendant and be adverse to the Plaintiff. It is really the 2^nd Clause 7.2 which gave the 1^st Defendant full authority to sell the Plaintiff’s Gold Bars and was completely incompatible with the Scheme, which might be relevant for the present discussion. However, a plaintiff is only obliged to disclose matters which are or may be adverse to his case and the test of materiality is an objective one: Gee Commercial Injunction 7^th Ed. para 9-003. As explained above, this court’s view is that objectively, the existence of the 2^nd Clause 7.2 only strengthens the culpability of the 1^st Defendant and its sale of the Gold Bars to the 12^th Defendant. In other words, it is not and may not be adverse to the Plaintiff’s case.

84.The complaints of the 12^th and 13^th Defendants are that there was (i) no notice of the ex parte application for the Injunction, (ii) failure to disclose the Lease Agreement, similar to that complained by the 4^th Defendant, and (iii) failure to disclose the 2^nd Defendant’s deed of personal guarantee dated 13 March 2020 covering the Lease Agreement.

85.As far as notice is concerned, in Mr Yeung’s skeleton for the 19 May 2023 hearing at para 1, he only introduced the application as an “ex parte” application rather than “ex parte” on notice application. Again, at para 23 of his skeleton, Mr Yeung emphasised that it was an ex parte application, although he also mentioned that “notice of the present application is given[12] to D4, D8, D10 to D13.” Given that the Plaintiff’s good arguable case is that he is the victim of a complex scam, it is not unreasonable for the Plaintiff to make the application on an “ex parte” basis: Gee Commercial Injunction 7^th Ed. para 8-001. While it is true that at para 1 of Wu 4, he did refer to the application as an “ex parte” (on notice) application, on balance, this court is satisfied that Wong J, having seen Mr Yeung’s skeleton, would not have been misled by the opening para of Wu 4 and that para was merely an innocent mistake.

86.As far as the 2^nd Defendant’s deed of personal guarantee dated 13 March 2020 is concerned, the simple answer is that the Plaintiff was not aware of its existence: Wu 10 at para 21.3.1. Quite apart from Mr Tam’s failure to clearly explain its relevance in his skeleton, it is difficult to see how the Plaintiff could have disclosed something that he was not aware of at the time of the ex parte application – unless the 12^th and 13^th Defendants claim and can establish that the guarantee was something that the Plaintiff would have found out had he made all necessary inquiries. But that is not what the 12^th and 13^th Defendants claim or can establish.

87.This is not a case where the Plaintiff knew of the existence of the guarantee but claims he was unaware of its relevance. At para 74 of Mr Tam’s skeleton, he submits that “It is no answer for P to suggest that he was not aware of the existence of the Guarantee… The test as to materiality is an objective one, and ultimately a question for the court. Hence, it is no excuse for an applicant subsequently to say that he was generally unaware, or did not believe, that the facts were relevant or important: Han Jaejoon at [37(2)]. The legal proposition is of course correct but inapplicable to the present case. The point is a complete red herring.

88.The fact of the matter is that the 4^th Defendant did not apply to set aside the Injunction on the single ground of material non disclosure on the return day[13], and the 12^th and 13^th Defendants only applied for a discharge of the Injunction (as well as fortification of the Plaintiff’s undertaking in damages) in May 2024. These facts point to their lack of conviction of their material non disclosure grounds.

89.In any event, given the seriousness of the scam and the participation of the 4^th, 12^th and 13^th Defendants in it, this court is not minded to set aside the Injunction on this ground, and even assuming the Injunction is to be set aside, this court has no hesitation in re-granting the Injunction on the same terms.

90.Lastly, fortification of the Plaintiff’s undertaking in damages should have been a matter raised on the return day before the Summons Judge. There is no suggestion that 12^th and 13^th Defendants had sought it on the return day.

91.It is in any event not a ground to discharge the Injunction. Further, given the good arguable case that the Plaintiff is the victim of a scam, and the 12^th and 13^th Defendants have not indicated what damages they are likely to suffer, this court is not minded to order fortification of damages.

Disposition and costs order nisi

92.For all the above reasons, this court is prepared to and shall order that:

a.  The Injunction be continued against the 4^th, 12^th and 13^th Defendants until the final determination of the present Action or further Order.

b.  The 12^th and 13^th Defendants’ Discharge Summons dated 10 May 2024 be dismissed.

93.There shall be a cost Order nisi that costs of the Continuation Summons and the Discharge Summons be the Plaintiff’s costs in the cause, to be taxed if not agreed, with certificate for counsel. The 4^th Defendant’s own costs (with counsel certificate) is to be taxed in accordance with the Legal Aid Regulations.

Mr Mike Yeung, instructed by M/s Hugo Leung & Lawyers, for the Plaintiff

Ms Deanna Law, instructed by M/s Tony Kan & Co, assigned by Director of Legal Aid for the 4^th Defendant

Mr Keith Tam, instructed by M/s Chong & Yen, for the 12^th and 13^th Defendants