Target Insurance Company Ltd (Managers Appointed Under Section 35(2)(B) of the Insurance Ordinance (Cap 41)) v. Ng Yu and Others

CACV 64/2023, [2025] HKCA 150

On Appeal From [2023] HKCFI 7

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 64 OF 2023

(ON APPEAL FROM HCA NO 305 OF 2022)

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BETWEEN

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J U D G M E N T

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Hon Au JA (giving the Judgment of the Court):

A. INTRODUCTION

1.This is the plaintiff’s appeal against the part of the order of Deputy High Court Judge Burns SC (“the Deputy Judge”)  dated 3 January 2023 that relates to the 1^st defendant (“the 1^st Defendant Order”).

2.Briefly, in this action, the plaintiff alleges that it is the victim of an elaborate and intricate scheme of “massive fraud” perpetuated by the 1^st to 6^th defendants utilizing various corporate entities including NBL (as defined below)  (as the first layer recipient), the 2^nd defendant (as the second layer recipient)  and the 3^rd, 4^th and 5^th defendants (as the third layer recipients), resulting in misappropriation of some USD154 million, representing (among others)  the insurance premium paid by its 10,000-odd taxi policyholders.

3.On 25 March 2022, ST Poon J granted (a)  an ex parte proprietary injunction against the 2^nd to 5^th defendants and (b)  a Mareva injunction against the 1^st and 6^th defendants to the extent of some USD154 million.  The injunctions were subsequently continued on an inter parte basis[1], pending the determination of the plaintiff’s summons[2] to continue the injunctions (“the Continuation Summons”)  and the 1^st, 3^rd and 4^th defendants’ summons[3] to discharge them (“the Discharge Summons”).

4.After hearing those two summonses (collectively “the Summonses”)  together in December 2022 and by way of his decision dated 3 January 2023 (“the Decision”)[4], the Deputy Judge:

(1)  continued the proprietary injunction against the 2^nd to 5^th  defendants and the Mareva injunction against the 6^th defendant[5]; but

(2)  discharged the Mareva injunction against the 1^st defendant, and ordered that the 1^st defendant’s costs of and occasioned by the Summonses be in the cause[6] (ie, the 1^st Defendant Order).

5.Thereafter, on the application of the plaintiff[7], B Chu J on 23 February 2023 granted leave to the plaintiff to appeal against the 1^st Defendant Order and stayed its execution pending the final determination of the appeal.  Chu J has explained in detail her reasons for making those orders in her written decision of the same date (“the Leave Decision”)[8].

6.At the end of the hearing of the appeal, we reserved our judgment to be handed down, which we now do.  For reasons which we shall explain below, we allow the appeal.

B.  BACKGROUND FACTS

7.The background facts of the present matter have been set out in detail in [5] - [23] of the Decision and [4] - [14] of the Leave Decision, which will not be repeated.  It is however necessary for us to set out the following to put the arguments raised in this appeal in proper context.

B1.    The Parties

8.The plaintiff was at all material times an authorized insurer in Hong Kong and a wholly owned subsidiary of Target Insurance (Holdings)  Ltd (“TIHL”), a company listed on the Main Board of the Hong Kong Stock Exchange (“HKSE”).  It was one of the largest players in the taxi insurance market in Hong Kong.[9]

9.The 1^st defendant has since 13 January 2020 been a substantial shareholder of TIHL, holding 22.19% of the issued shares.  The 1^st defendant held the position as the Chairman and the Executive Director of TIHL from 23 December 2020 until his resignation on 27 May 2022, and held the position as the plaintiff’s Executive Director from 17 July 2021 to 19 January 2022.[10]

10.According to the information provided by the 1^st defendant as the plaintiff’s proposed “controller” to the Insurance Authority (“the IA”)  in the Form A (“Form A”)[11], served pursuant to section 13B(2)(a)  of the Insurance Ordinance (Cap 41)  (“the IO”):[12]

(1)  The 2^nd defendant is a company incorporated in the Cayman Islands, the management shares of which are wholly owned by the 1^st defendant;

(2)  The 3^rd defendant is a company incorporated in the British Virgin Islands of which the 1^st defendant is the sole director and its 100% shareholder;

(3)  The 4^th defendant is a Singaporean company of which the 1^st defendant is a director and its 100% shareholder; and

(4)  The 5^th defendant is a Hong Kong company of which the 1^st defendant is a director and 100% shareholder.

11.In other words, the 2^nd to 5^th defendants are wholly owned by the 1^st defendant, and he is a director of the 3^rd to 5^th defendants.

12.Prior to becoming a substantial shareholder of TIHL, the 1^st defendant has also since 23 December 2019 been the Chairman and an Executive Director of another company listed on HKSE, namely, Amber Hill Financial Holdings Limited (“Amber Hill Financial”).  He is a 72.75% shareholder of Amber Hill Financial through the 3^rd defendant.[13]

13.At the material times, the 6^th defendant:[14]

(1)  was an employee[15] and later a director[16] of Nerico Brothers Limited (“NBL”), a brokerage firm in Hong Kong, with which the plaintiff maintained a managed account (“the Account”).

(2)  was the Chief Financial Officer and a licensed representative of the 5^th defendant (which is owned by the 1^st defendant)  between 3 October 2018 and 13 February 2020 for the sole purpose of facilitating the intended acquisition of NBL by the 1^st defendant.

B2.    The 1^st defendant’s involvement in the plaintiff, NBL, Amber Hill Financial and TIHL, and the plaintiff’s investments with NBL

14.In or around June 2020, the plaintiff opened the Account with NBL for the trading of securities and spot foreign currency exchange.  It was provided under the Institutional Services Client Agreement (“ISCA”)  that NBL shall open, maintain and operate the Account in accordance with the plaintiff’s instructions. At all material times, the plaintiff’s main point of contact at NBL was the 6^th defendant.[17]

15.As summarized by B Chu J in [10] of the Leave Decision, the chronology of the 1^st defendant’s involvement in the plaintiff, NBL, Amber Hill Financial, TIHL and the plaintiff’s investments with NBL appears to be as follows:

(1)  Between 2017 and 2019, the 1^st defendant intended to acquire NBL, which eventually did not complete.

(2)  On 23 December 2019, the 1^st defendant became the Chairman and the Executive Director of Amber Hill Financial.

(3)  On 13 January 2020, the 1^st defendant became a substantial shareholder of TIHL through Smart Neo Holdings Limited (“Smart Neo”).

(4)  On around 15 April 2020, the plaintiff’s board (“the plaintiff’s Board”)  and TIHL approved the opening of the Account with NBL.

(5)  In June 2020, the plaintiff transferred about USD25.8 million to NBL.

(6)  On 17 July 2020, NBL acted as the sole placing agent of Amber Hill Financial.

(7)  Between 29 July 2020 and 3 August 2020, the plaintiff transferred about USD13.1 million to NBL.

(8)  On 20 August 2020, the plaintiff transferred USD15 million to NBL.

(9)  On 30 November 2020, the plaintiff transferred USD12.89 million to NBL.

(10)  On 7 December 2020, the plaintiff transferred USD10.3 million to NBL.

(11)  On 15 December 2020, the plaintiff’s Investment Committee resolved to further increase the plaintiff’s investments with NBL.

(12)  On 23 December 2020, the 1^st defendant became the Chairman and the Executive Director of TIHL.

(13)  On 7 January 2021, the plaintiff transferred USD6.5 million to NBL.

(14)  On 26 January 2021, Smart Neo subscribed for convertible bonds in aggregate amount of HK$400 million for new shares of TIHL.

(15)  On 26 May 2021, the plaintiff’s Board discussed and reviewed the above investments with NBL and Amber Hill Financial.

(16)  On 7 July 2021, the plaintiff’s Investment Committee recommended to the plaintiff’s Board to further invest HK$660 million by two phases in foreign currency trading through NBL.  On the same day, the plaintiff transferred USD42.6 million to NBL.

(17)  On 15 July 2021, the 1^st defendant became the plaintiff’s Executive Director.

(18)  On 13 August 2021, the plaintiff transferred USD25.44 million to NBL.

(19)  On 27 August 2021, it was resolved that (a)  HK$330 million from the proceeds of the convertible bonds issuance of TIHL be injected into the plaintiff as capital; and (b)  the 1^st  defendant be appointed as an additional member of the plaintiff’s Investment Committee.

(20)  On 24 September 2021, the plaintiff transferred USD2.5 million to NBL.

(21)  On 30 September 2021, NBL acted as the sole offer agent of Smart Neo in its pre-conditional mandatory unconditional cash offer to acquire all of TIHL’s issued shares.

(22)  By October 2021, the plaintiff had transferred a total of over HK$1.4 billion, representing approximately 90% of its cash, to NBL (“the Plaintiff’s Funds”).  As at 29 October 2021, the plaintiff’s investments in NBL were around USD186 million.

(23)  On 24 February 2022, Smart Neo granted a revolving facility up to USD750 million to TIHL.

B3.    Events leading to the IA’s Intervention of the plaintiff and the appointment of Provisional Liquidators over the plaintiff

16.As noted above, by October 2021, the plaintiff had transferred approximately 90% of its cash to NBL.  This caused concern to the IA, largely by reason of the apparent concentration of a large part of the plaintiff’s available cash on a single type of investment and within a single service provider.[18]

17.As a result, this led to repeated inquiries made by the IA into the plaintiff’s cash position held with NBL throughout late October 2021 and eventually the IA requested the plaintiff to call for the return of these funds (or a substantial part thereof)  to the plaintiff pending a full review.[19]

18.On 4 January 2022, the IA notified the plaintiff that the Securities and Futures Commission (“SFC”)  discovered that the Plaintiff’s Funds held with NBL were in fact transferred to and were held by Amber Hill ES Currency Arbitrage Fund SP (“Amber Hill ES Fund”), one of the segregated portfolios owned by the 2^nd defendant. This was denied by NBL.[20]

19.On 7 January 2022, the IA exercised its powers under the IO to appoint Mr Derek Lai and Mr Forrest Kam, both of Deloitte Touche Tohmatsu (“Deloitte”), as the joint and several managers of the plaintiff (“Managers”)  to carry out investigations into the plaintiff’s affairs including as to the whereabouts of the Plaintiff’s Funds.[21]

20.However, despite repeated requests made by the IA and later the Managers, apart from the return of certain sums between November 2021 and January 2022[22], there remains a total sum of USD154 million (“the Sum”)  out of the Plaintiff’s Funds which has not been returned by NBL to the plaintiff.[23]

21.Further, Deloitte’s investigations as contained in the “Progress Report of Joint and Several Managers on Investigation of Investment in [NBL]” dated 30 March 2022 (“the Managers Report”)  also reveal the following:[24]

(1)  The Sum was transferred from NBL to a DBS account of Amber Hill ES Fund;

(2)  The Sum was then transferred from the DBS account of Amber Hill ES Fund to an account of the 2^nd defendant at Malayan Banking Berhad, Singapore and subsequently to the accounts of the 3^rd, 4^th and 5^th defendants.

22.In other words, based on the then available documents obtained by the Managers, the investigations show that the Sum has been respectively transferred to and received by the 2^nd, 3^rd, 4^th and 5^th defendants, which companies as mentioned above are all wholly owned by the 1^st defendant.

23.In the meantime, on 7 and 10 January 2022, TIHL and Amber Hill Financial respectively issued announcements stating:[25]

(1)  The funds placed by the plaintiff with NBL had been “maintained in cash form solely for conducting spot foreign currency trading”; and

(2)  As purportedly confirmed by NBL, none of such funds had been deposited into Amber Hill ES Fund.

These announcements, which suggested that the funds had not been transferred to Amber Hill ES Funds and the other defendants, were also confirmed to be accurate by the 1^st defendant, in the capacity of the Chairman and the Executive Director of TIHL.

24.In February 2022, the Managers procured the plaintiff to present a petition for the winding up of NBL and applied for the appointment of provisional liquidators over NBL.  The application was resisted with an affirmation from the 6^th defendant.  In short, the 6^th defendant deposed that:[26]

(1)  The Sum was used to purchase liquidity provider units (“LP Units”)  in a Cayman fund named Four Dimensions Global Strategy Fund (“Four Dimensions”)  from Amber Hill ES Fund;

(2)  NBL was unable to withdraw the Sum from Four Dimensions because of Cayman regulatory requirements; and

(3)  The Sum has all along been with Four Dimensions.

25.Six “Share Unit Transfer Forms” were also exhibited to the 6^th defendant’s affirmation purportedly to show that Amber Hill ES Fund had transferred certain LP Units in Four Dimensions to NBL.  Deloitte however found certain subscription agreements and forms which on their face recorded that NBL had subscribed for LP Units in the 2^nd defendant, and not in Four Dimensions (“Subscription Agreements”).[27]

26.On the other hand, Deloitte’s investigations indicate that the 6^th defendant’s allegation that the Sum was used to purchase the LP Units from Amber Hill ES Fund is doubtful and could be false as[28]:

(1)  A forensic examination of some of the documents produced by the 6^th defendant shows that they were created long after the purported dates of the transactions to which they relate.

(2)  A PowerPoint presentation purportedly given by “Hermann” of Four Dimensions to introduce Four Dimensions to NBL was in fact authored by the 6^th  defendant himself;

(3)  Emails purporting to be from the 6^th defendant, “Maria” (supposedly the introducer of Four Dimensions to the 6^th  defendant)  and “Hermann” contain similar grammatical mistakes, suggesting that they were all authored by the same person;

(4)  According to the former fund administrator of Four Dimensions, NBL was never on its investor list;

(5)  The document provided by the 6^th defendant purporting to be Four Dimensions’ Private Placement Memorandum makes no mention of LP Units or forex trading investments.  On the contrary, it expressly stipulates that Four Dimensions should not invest in foreign exchange;

(6)  Legal advice concerning the regulatory regime in Cayman Islands has shown that the protestation that Cayman regulations are responsible for the hold up of any transfer of funds from Four Dimensions is likely to be false; and

(7)  The responses from Four Dimensions to Deloitte’s enquiries and questions raised have been evasive.

27.On 17 February 2022, DHCJ Bernard Man SC heard the plaintiff’s application for the appointment of provisional liquidators over NBL.  At the hearing, counsel for NBL informed the court that units in Four Dimensions had been subscribed for by NBL for the purpose of hedging its own risk of carrying out forex transactions for the plaintiff. DHCJ Bernard Man SC found the evidence of the 6^th defendant to be unbelievable and held that it was appropriate to appoint the Managers as provisional liquidators over NBL.  NBL was later ordered to be wound up by Linda Chan J on 19 May 2022.[29]

B4.    The injunctions

28.On 25 March 2022, upon the plaintiff’s ex parte application, ST Poon J granted, among others:

(1)  A proprietary injunction against the 2^nd to 5^th defendants to preserve assets over which the plaintiff has asserted a proprietary claim;

(2)  A Mareva injunction against the 1^st  defendant and the 6^th  defendant from disposing of their assets to the extent of the Sum.

29.These injunctions were continued by DHCJ Paul Lam SC pending the determination of the Summonses, which eventually were heard by the Deputy Judge[30].

B5.    The Decision

30.As set out by the Deputy Judge in the Decision, the contentions raised respectively by the plaintiff and the 1^st, 3^rd and 4^th defendants relevant to this appeal are in gist as follows.

31.The plaintiff’s case is that it is the victim of an elaborate and intricate scheme of “massive fraud” perpetuated by the 1^st to 6^th defendants utilizing various corporate entities including NBL (as the first layer recipient), the 2^nd defendant (as the second layer recipient)  and the 3^rd, 4^th and 5^th defendants (as the third layer recipients), resulting in misappropriation of the Sum.

32.The plaintiff contended before the Deputy Judge that it had a good arguable case and/or there was a serious issue to be tried against the respective defendants that they had so practised the fraud against the plaintiff to misappropriate the Sum, as the available evidence (as summarized above and in the Decision[31])  showed that it was at least arguable and/or triable that:

(1)  The plaintiff never authorized NBL to invest any part of its funds in Amber Hill ES Fund and had never authorized subscriptions in the LP Units.

(2)  All the corporate entities involved in the fraud (ie the 2^nd to 5^th  defendants and NBL)  are either vehicles of, and/or controlled and/or related to the 1^st defendant in that:

(a)  The 2^nd to 5^th defendants are all wholly owned by the 1^st defendant, and he is a director of the 3^rd to 5^th defendants;

(b)  The 1^st defendant had “relations” with NBL as indicated by an announcement by Amber Hill Financial to the effect that the 1^st defendant intended to “acquire” NBL sometime between 2017 and 2019, although it did not lead to completion;

(c)  The Form A signed by the 1^st defendant suggests that the 1^st defendant is the sole director and 100% shareholder of a company by the name of “AH Holdings International Limited (formerly known as Nerico Brother)”; and

(d)  NBL previously acted for entities controlled by the 1^st  defendant.

(3)  In trying to obstruct the plaintiff’s recovery of the Sum and to conceal its true whereabouts, the 6^th defendant put forward a false and/or inconsistent story (which was endorsed by the 1^st  defendant)  to the effect that the Sum had been deposited with Four Dimensions (see [24] - [27] above).

33.On the other hand, the main defences advanced on behalf of the 1^st, 3^rd and 4^th defendants at the hearing of the Summonses may be summarized as follows:[32]

(1)  The plaintiff has no proprietary interest in the Sum and/or its “traceable proceeds”.  Hence, there could not have been any misappropriation by the 1^st defendant of the same.  In any case, the Managers have elected not to rescind the contracts for the purchase of LP Units.  In particular, in the application for the appointment of provisional liquidators and in the appeal before the Insurance Appeals Tribunal (“IAT”)  brought by TIHL to remove the Managers, the Managers have characterized the Sum as being NBL’s asset, which is inconsistent with the case advanced on the present application.  The plaintiff cannot therefore assert any proprietary claim over the Sum.

(2)  The 1^st defendant’s alleged involvement in the alleged fraud is at best speculative and no proper inference can be drawn against him that he was involved in the alleged scheme by reason of the following matters:

(a)  The 1^st defendant has been open about his connections with the 2^nd to 5^th defendants (ie, by the filing of Form  A).  It is therefore inconceivable that he would have used entities which are easily traceable to himself to perpetrate any fraud.

(b)  There is no evidence that the 1^st defendant ever had any control or influence over NBL’s investment decisions or was ever in a position to give directions to NBL as to the disbursement of the Sum.

(c)  The first two Subscription Agreements (dated 7 January 2021 and 7 July 2021)  were entered into before the 1^st  defendant became a director of the plaintiff at a time when Dr Haywood Cheung was the Chairman and the Executive Director of the plaintiff.

(d)  There are no grounds to contradict the 1^st defendant’s statement that he was not entitled to and did not exercise any influence over the operations of either the 2^nd or 3^rd defendants and no grounds to infer that he did.

(e)  The 1^st defendant made consistent and responsible efforts to facilitate the recovery of the Sum from NBL.

(f)  The notion that the 1^st defendant misappropriated the Plaintiff’s Funds is improbable as he injected HK$400 million into the plaintiff in early 2021 and Smart Neo, one of the 1^st defendant’s wholly owned companies, and granted a revolving facility of USD750 million to TIHL on 24 February 2022.

(3)  The funds transferred by the 2^nd defendant to the 3^rd and 4^th defendants were legitimate transactions and consequently the 3^rd to 4^th defendants are bona fide purchasers for value without notice:

(a)  The transfers to the 3^rd defendant on 10 August and 15  October 2020 were attributable to the redemption of “Amber Hill ES Currency Arbitrage Fund SP – Class of Shares – Series 10”.

(b)  The transfers to the 4^th defendant on 12 January, 21  January, 21 July and 15 September 2021 were attributable to deposits allegedly made by the 2^nd  defendant which were subsequently withdrawn by the 2^nd defendant.

34.In deciding to continue the injunctions granted against respectively the 2^nd to 5^th and 6 defendants, the Deputy Judge after assessing the evidence held in summary that:

(1)  There is a serious issue to be tried that the 2^nd to 5^th defendants had received the Sum pursuant to a fraudulent scheme.[33]

(2)  The 6^th defendant was either the “architect” of the fraudulent scheme or had dishonestly assisted in it, or he was part of a conspiracy to misappropriate the Sum.[34]

(3)  Given the fraud involved, there was a risk of dissipation of assets on the part of the 2^nd to 5^th defendants and damages would not be an adequate remedy, as there is a risk that their assets may well be depleted or dissipated away and the consequent risk of the plaintiff ending up with an empty judgment.[35]

35.On the other hand, in discharging the Mareva injunction against the 1^st defendant, the Deputy Judge held that the plaintiff had failed to show a good arguable case against the 1^st defendant on the evidence because:[36]

(1)  The court was unable to draw the inference that the 1^st  defendant was involved in the fraudulent scheme, as there was little, if anything of substance, to link the 1^st defendant with either NBL or the 6^th defendant.  In particular, he held that there was an absence of evidence to show that (a) NBL was in any way controlled by the 1^st defendant or (b)  the 1^st  defendant had any influence on decisions or acts of NBL; and

(2)  There is nothing to contradict the 1^st defendant’s evidence that he was not involved in the management of the Amber Hill entities and he was not himself aware of how the Sum was disbursed by NBL.

(3)  On any basis, the Deputy Judge was not satisfied that, without a Mareva injunction, there would be a real risk that the 1^st  defendant might dissipate his assets in light of the matters as submitted by the 1^st defendant summarized at [41] of the Decision.

C.  THIS APPEAL

C1.  Grounds of appeal and Respondent’s Notice

36.The plaintiff raises essentially the following grounds of appeal[37]:

(1)  The Deputy Judge erred in finding that the plaintiff has not shown a good arguable case against the 1^st defendant as this is illogical and inconsistent with the incontrovertible and undisputed facts in the present case[38], and the Deputy Judge’s own correct findings that there was a good arguable case/serious issue to be tried that the 2^nd to 6^th defendants perpetuated a massive scheme of fraud on the plaintiff in relation to the Sum.  (“Appeal Ground 1”)

(2)  The Deputy Judge further erred in holding that there was no risk of dissipation insofar as the plaintiff’s case against the 1^st  defendant was concerned.  Once it should be correctly held that there is a good arguable case against the 1^st defendant that he put in place an elaborate fraudulent scheme on the plaintiff through the 2^nd to 6^th defendants to pocket the Sum, the Deputy Judge ought to have further held that there was plainly a risk of dissipation as this is self-evident and flows naturally from the fraud itself[39]. (“Appeal Ground 2”)

37.In opposing the appeal, the 1^st defendant has also lodged a Respondent’s Notice[40] (“RN”)  contending that the Decision should be affirmed on additional or alternative grounds.  We would deal with these alternative grounds in greater detail later in this judgment.

C2.  Discussion

38.A decision in respect of a refusal to grant an injunction involves the exercise of discretion on the part of a judge.  This court will not interfere with such exercise of discretion unless the appellant can show that the judge erred in law or misapplied the law by failing to take account of relevant considerations or taking account of irrelevant considerations or the decision is plainly wrong, viz the exercise is outside the generous ambit within which reasonable disagreement is possible.  See: Convoy Collateral Ltd v Cho Kwai Chee & Ors [2020] 6 HKC 81 at [33] per Lam VP.

39.Bearing this principle in mind, we now turn to consider the various grounds of appeal.

C2.1  Appeal Ground 1 – Whether there is a good arguable case against the 1^st Defendant

40.This ground concerns the Deputy Judge’s holding that the plaintiff has not shown a good arguable case against the 1^st defendant.

41.In this respect, the Deputy Judge explained his conclusion at [64] - [67] of the Decision as follows:

“64. I am not prepared to draw the inferences P has invited me to draw as to the alleged involvement of D1 in the alleged fraudulent scheme. In the first place, there is little, if anything of substance to link D1 with either NBL or with D6:

a. P relies on ‘relations’ between D1 and NBL going back to 2019 which are unparticularized save as to a proposed acquisition by D1 of NBL which did not come to fruition;

b. P also relies on D1’s Form ‘A’, signed by D1, which suggests that D1 is sole director and 100% shareholder of a company by the name of AH Holdings International Limited (‘AH Holdings’)  which, according to Form ‘A’ was formerly known as Nerico Brother. However, there must be some doubt as to whether AH Holdings was ever formerly known by any such name (it was submitted on behalf of D1 that it never was and that the suggestion in Form ‘A; that it was an error). In this respect, there were produced at the hearing (a)  copies of certificates of change of name, showing that Nerico Brothers Limited was formerly named Glory Sky Global Markets and that Glory Sky Global Markets was, previous to that, named Glory Sky Futures Limited and (b)  a certificate of incorporation showing the incorporation of Glory Sky Futures limited on 4 September 2000, and

c. Lastly P relies on the fact that in July 2020 NBL acted as sole placing agent of Amber Hill Financial in its placing of new shares and the fact that in September 2021 it acted as sole offer agent of Smart Neo (a company controlled by D1)  in its offer to acquire all the issued shares in TIHL (which, in the event, did not proceed).

65. The absence of any evidence of a firm link between D1 on the one hand and either NBL or D6 on the other, let alone evidence that NBL is in any way controlled by D1 or that D1 has any influence on decisions or acts of NBL is in my view a crucial missing link in P’s case that D1 was the mastermind in the alleged fraudulent scheme.

66. Furthermore, (a)  although the announcements made by Amber Hill Financial Holdings in January 2022 (see paragraph 17 above)  were, at best, misleading, and (b)  in his evidence to the Insurance Appeal Tribunal (see paragraph 23 above], he referred to the Four Dimensions story advanced by D6 without demur, there is nothing to contradict D1’s evidence that he was not involved in the management of the Amber Hill entities; was not himself aware of how the Sum was disbursed by NBL or thereafter by D2 and had no knowledge of the acquisition of LP Units.

67.  In all the circumstances I am not satisfied that P has shown there to be a good arguable case against D1.”

42.In substance, the Deputy Judge held that there was lack of evidence of a firm link between the 1^st defendant on the one hand and either NBL or the 6^th defendant on the other, as the matters relied on by the plaintiff as identified at [64] of the Decision were not sufficient to draw any inferences of the 1^st defendant’s involvement in them.

43.The Deputy Judge then further observed at [66] of the Decision that there is nothing to contradict the 1^st defendant’s evidence that he was not involved in the management of the Amber Hill entities and was not aware of how the Sum was disbursed by NBL or thereafter the 2^nd defendant, and had no knowledge of the acquisition of LP Units.

44.In our view, when concluding that there was no good arguable case against the 1^st defendant for the reasons set out above, the Deputy Judge had singularly failed to take into account the undisputed evidence that (a)  the 1^st defendant is the sole beneficial shareholder of the 2^nd to 5^th defendants, and also a director of the 3^rd to 5^th defendants[41], and (b)  the 1^st defendant and 6^th defendant were acquainted and the latter had previously worked for the 1^st defendant in his attempt to acquire NBL through the 5^th defendant[42].

45.These matters are highly relevant to the question of whether the plaintiff has shown a good arguable case against the 1^st defendant.  As rightly observed by B Chu J in [28] of the Leave Decision, “it seems against commercial and common sense that for whoever in control of [the 2^nd to 5^th defendants] to have acted on a frolic of their own without involving [the 1^st defendant], who is the one who ultimately stands to benefit from the whole scheme”.

46.In failing to take these relevant matters into account, the Deputy Judge therefore erred in finding that the absence of a firm link between the 1^st defendant on one hand and NBL/the 6^th defendant on the other is a “crucial missing link” in the plaintiff’s case that the 1^st defendant was the mastermind in the alleged fraudulent scheme.  As submitted by Mr Chang for the plaintiff, the crucial question which the Deputy Judge had overlooked is why the 2^nd to 5^th  defendants (which received the Sum)  and the 6^th  defendant (being the “architect” of the fraud)  had committed the fraudulent acts to induce the transfer of the Sum to the 2^nd to 5^th defendants and put forward an arguably false story to cover up the true whereabouts of the Sum[43], if not for the benefit of and on the instructions on the 1^st defendant, the individual who ultimately stood to benefit from the fraudulent scheme.

47.In these circumstances, it is open to this court to interfere with the Deputy Judge’s exercise of discretion, and re-exercise it afresh.

48.In this respect, we are of the clear view that the plaintiff has shown a good arguable case against the 1^st defendant that he was a party to the alleged fraud, when these additional matters relating to the link between the 1^st defendant and the other defendants are considered together with the Deputy Judge’s findings that:

(1)  There is a serious issue to be tried that the Sum was transferred to the 2^nd to 5^th defendants pursuant to a fraudulent scheme (Decision, [46]);

(2)  There is a real doubt as to whether the LP Units purportedly subscribed on behalf of the plaintiff with the Sum indeed exist, or whether the Sum was in fact used to purchase any such unit (Decision, [46]);

(3)  The explanations given by the 1^st defendant as to the circumstances in which the 2^nd to 5^th defendants received the funds in question and the rationale for the receipt will need to be tested at trial (Decision, [45]);

(4)  The public announcements made in January 2022 by TIHL and Amber Hill Financial (both of which the 1^st  defendant had confirmed to be accurate)  as to the whereabouts of the Sum were “at best misleading” (Decision, [17], [66]).

49.In coming to this conclusion, we have not lost sight of Mr Whitehead SC’s submissions (for the 1^st defendant)  that there are the following material countervailing factors militating against the 1^st defendant being part of the fraud:

(1)  The 1^st defendant’s antecedents: The 1^st defendant is a respected member of the business community, a long-term resident of Hong Kong, a supporter of various charitable ventures and an Adjunct Associate Professor and Advisor to the Dean of the Hong Kong Polytechnic University.  Furthermore, the 1^st defendant had filed the Form A, where he clearly identified his interests in the 2^nd to 5^th defendants.  It would be doubtful as to why the 1^st defendant would openly declare his connections with the 2^nd to 5^th defendants which were easily traceable to the 1^st defendant if they were then in the course of being used as his vehicles to perpetrate a massive fraud.

(2)  The plaintiff’s investments with NBL: The plaintiff at the material times was a major insurance company regulated by the IA.  It had a top board, led by Dr Haywood Cheung against whom the plaintiff has made no complaint.  It was this board which followed the recommendation of the plaintiff’s Investment Committee which approved the opening of an investment account with NBL on 15 April 2020.  Critically, the 1^st defendant did not join the plaintiff’s Board until 15 July 2021.  The plaintiff’s Board’s decision to appoint NBL is unimpeachable.  Thereafter, the first two of the five impugned transactions were made on 7 January 2021 and 7 July 2021, ie, at a time when the 1^st defendant was not a member of the plaintiff’s Board.  In these circumstances, the 1^st defendant played no part in the appointment of NBL by the plaintiff and in some of the impugned transactions.

(3)  NBL being a licensed corporation regulated by the SFC: At the time of the plaintiff’s appointment, NBL was a brokerage firm regulated by the SFC with a 20-year track record in Hong Kong.  The 1^st defendant had no stake or position in NBL.  There are no facts to suggest that the 1^st defendant had the ability to direct or had in fact directed NBL to transfer the Sum out of NBL at the material times (ie, January to August 2021).

(4)  The 1^st defendant’s own investments in TIHL: The 1^st  defendant caused his own company Smart Neo to inject HK$400 million into TIHL, the plaintiff’s holding company, for the issuance of convertible bonds on 26 January 2021. Furthermore, the 1^st defendant arranged for Smart Neo to grant a revolving facility of up to USD750 million on 24  February 2022 to TIHL. These are at odds with the allegation that the 1^st defendant was at the same time defrauding the only operating subsidiary of TIHL, ie, the plaintiff.

(5)  The 1^st defendant’s efforts in recovering the Sum: The 1^st  defendant made the following attempts to assist in recovering the Sum:

(a)  On 28 October 2021, the 1^st defendant attended a board meeting in which the plaintiff’s Board resolved to authorize the management “to instruct NBL to remit all money to the Company’s bank account in Hong Kong as soon as practicable”.

(b)  On 17 November 2021, the 1^st defendant chaired a board meeting where the plaintiff’s Board, inter alia, resolved to instruct Mayer Brown to advise and assist the matter.

(c)  At all material times, the IA exercised oversight with regard to the Sum invested by the plaintiff and the 1^st  defendant met with and cooperated with the IA.

(6)  The 1^st defendant’s cooperation with the IA: On 26 November 2021, the 1^st defendant had a personal meeting with representatives of the IA where the Sum deposited with NBL was fully discussed.

50.There is some force in Mr Whitehead’s above submissions. However, it has to be borne in mind that, at this stage, the court only has to be satisfied that there is a good arguable case in the sense of a case which is “more than barely capable of serious argument.  And yet not necessarily one which the judge believes to have a better than 50% chance of success”[44].  There is also no requirement that the plaintiff has to show that s/he has a “much better” case or argument than the defendant[45]. In other words, the presence of even a good arguable defence does not necessarily negate a good arguable case.

51.In our view, the matters identified by Mr Whitehead are not of such weight that would overwhelmingly negate the matters we have considered above in support of the plaintiff’s case against the 1^st defendant to render it not even a good arguable case at this interlocutory stage.  This is particularly so, as the issue as to whether the 1^st defendant (being the ultimate sole owner of the 2^nd to 5^th defendants)  is the mastermind behind the triable fraudulent scheme involving the 2^nd to 6^th defendants is plainly triable in light of the following evidence:

(1)  The 6^th defendant has put forward “discredited evidence” as to where the Sum ended up (Decision [59]).

(2)  The 1^st defendant’s defence that the Sum was used as consideration for subscription in the LP Units in the 2^nd  defendant on behalf of the plaintiff (Decision, [35]-[37])  contradicted his own evidence before the IAT that:

(a)  The LP Units allegedly subscribed by NBL were issued by Four Dimensions (being a Cayman fund);

(b)  The 2^nd defendant does not offer LP units for public subscription; and

(c)  The subscription forms for NBL’s subscription for LP units in the 2^nd defendant were inaccurate on their face and only served as instructions for the 2^nd defendant’s administrator to accept incoming monies from NBL.

52.The plaintiff therefore succeeds under grounds 1 to 3.

C3.   Ground 4 – Risk of Dissipation

53.The proper approach that the court should adopt in the assessment of risk of dissipation where the defendant is accused of fraud or other serious wrongdoings has been set out by the Court of Appeal in Convoy Collateral Ltd, supra,at [53] per Lam VP:

“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)

54.Adopting such an approach, we accept there is a risk of dissipation in the present case.

(1)  As noted above, there is a good arguable case that the 1^st  defendant had put in place an elaborate scheme of fraud which resulted in his corporate entities having pocketed the Sum, in excess of USD154 million.

(2)  Given this and the nature of the fraud itself, we consider that there was also clearly a risk of dissipation of assets by the 1^st  defendant, notwithstanding the countervailing considerations mentioned by the Deputy Judge in [41] of the Decision (as summarized at [51] above), which are effectively the same matters relied on by him in finding that there was no good arguable case against the 1^st defendant.

55.For these reasons, the Deputy Judge has also erred in finding that there is no risk of dissipation of assets by the 1^st defendant, and, given the risk, the balance of convenience plainly lies in favour of continuing the Mareva injunction. The plaintiff therefore also succeeds under ground 4.

C4.   The RN

56.The 1^st defendant by way of the RN seeks to affirm the 1^st Defendant Order on various additional or alternative grounds.  As further explained in the written submissions[46], these grounds are effectively these:

(1)  It is the plaintiff’s own evidence (by way of the Managers Report)  that NBL subscribed the Amber Hill Units in return for the said unit, the Sum would have been paid to the 2^nd defendant as consideration and, as such, the plaintiff would no longer retain any proprietary interest in the Sum which cannot therefore be “misappropriated”.  The Deputy Judge failed to give effect to this by analysing the 1^st  defendant’s position and erred in effectively treating the 1^st defendant on the same footing as the 3^rd and 4^th defendants.  This is particularly so given the Deputy Judge’s correct holding that there is nothing to show NBL is controlled by or linked with the 1^st defendant (see paragraphs 1 - 2 of the RN).

(2)  In further support of this contention, the Deputy Judge has also erred in his findings at [45] - [52] of the Decision that there is a serious issue to be tried on the plaintiff’s proprietary claim against the 2^nd to 5^th defendants and that a proprietary injunction should be granted against them (see paragraphs 3 - 7 of the RN).

57.With respect, there is nothing in the RN.

58.First, as submitted by Mr Chang:

(1)  The plaintiff is not advancing a proprietary claim against the 1^st defendant[47] and therefore such a contention is irrelevant in ascertaining whether the plaintiff has established a good arguable case against the 1^st defendant for breach of fiduciary duty and/or unlawful means conspiracy.  So long as the plaintiff can demonstrate that there is a good arguable case that the 1^st defendant had been part of a fraudulent scheme in procuring the Sum to be transferred out of the reach of the plaintiff, it logically follows that there is a good arguable case that the 1^st defendant would be liable in damages (or equitable compensation)  to the plaintiff to the extent of the Sum.

(2)  There is no cross-appeal lodged by the 3^rd to 4^th defendants (which were represented by the 1^st  defendant’s same legal team below)  against the proprietary injunction granted by the Deputy Judge, which entailed a finding that the Sum was traceable to the plaintiff.

59.Second, the alternative grounds are premised principally on the following two underlying propositions to say why there could not even be an arguable case or any triable issues against the 1^st defendant:

(1)  The Deputy Judge’s holding that there is nothing to show that NBL is controlled by the 1^st defendant or that the 1^st defendant has any influence on decisions or acts of NBL.[48]

(2)  It is the plaintiff’s own evidence and case that NBL’s books and records “conclusively” indicate that NBL had used the Sum to subscribe for LP Units in Amber Hill ES Fund, such that only NBL (and not the plaintiff)  has a right to recover the same, and only from Amber Hill ES Fund[49].

60.However, neither of these propositions is correct.

61.In relation to the first proposition, for the reasons we have explained above, the Deputy Judge had erred in this holding, and we are of the view that there is a good arguable case that that the 1^st defendant was involved in the fraudulent scheme.

62.In relation to the second proposition, for the following reasons, it is similarly incorrect.

63.First, the plaintiff’s evidence referred to by the 1^st defendant in this contention is the views expressed in the Managers Report.  However, this is an “Progress Report” of the Managers on investigation of investments in NBL, based on only those documents that had been discovered or obtained by Deloitte so far, and is “subject to change in light of subsequent information or explanation that become available to the Managers”[50].  The investigation is an ongoing one, and by its own nature, it does not per se represent a conclusive finding.

64.Second, as also rightly pointed out by Mr Chang, there exists other evidence at this stage which shows that it is simply unclear where the Sum has gone or what it was used for:

(1)  The 1^st defendant himself in the two announcements issued by TIHL and Amber Hill Financial in January 2022 (in the capacity of the Chairman and the Executive Director of such companies)  accepted that none of the Plaintiff’s Funds had been deposited into Amber Hill ES Fund;

(2)  It was the 1^st defendant’s own evidence before the IAT that the Sum had not been used by NBL to subscribe for LP Units in Amber Hill ES Fund.  In his 4^th statement dated 18 March 2022, the 1^st  defendant unequivocally represented to the IAT that:

(a)    The 1^st defendant had no knowledge of the acquisition by the plaintiff of the LP Units and referred to the 6^th  defendant’s explanation that NBL had bought from Amber Hill ES Fund the LP Units offered by Four Dimensions (ie, not offered by Amber Hill ES Fund)  and that Amber Hill ES Fund never issued its own LP units; and

(b)     The Subscription Agreements were “not accurate on their face because, as confirmed by [the 6^th defendant], the actual liquidity provider units are from Four Dimension (sic)  and not Amber Hill [ES Fund]” and that having made enquiries with one “Maria” (a director of Amber Hill ES Fund), the 1^st defendant understood that “those forms served as instructions for the Amber Hill [ES] Fund’s administrator to accept incoming monies from NBL”.

(3)  The plaintiff does not accept that the Subscription Agreements are genuine, or that the purported subscription of LP Units in Amber Hill ES Fund in fact did take place[51]. As Deloitte noted, the plaintiff has always been NBL’s largest customer, taking up 93.58% of the total investments of all customers in NBL’s securities / managed accounts as at 23 March 2022.  This would mean that it was not possible for NBL to subscribe from both Amber Hill ES Fund and Four Dimensions at the same time, using other customers’ funds[52].

65.In the state of such conflicting evidence, as the Deputy Judge rightly noted at [47] of the Decision, “[a]t this stage of the proceedings therefore it would not be right to come to any firm conclusion as to whether the Sum was in fact paid for LP Units or whether LP units were in fact acquired, whether pursuant to the Subscription Agreements or otherwise”. It is thus wrong to proceed on the basis that the subscription of LP Units in Amber Hill ES Fund pursuant to the Subscription Agreements did take place, such that the plaintiff’s recourse lies only against NBL for breaching its mandate.

66.Finally, the contentions raised at paragraphs 3 - 7 of the RN are effectively repetitions of the contentions raised by Mr Whitehead on behalf of the 3^rd and 4^th defendants before the Deputy Judge against the continuation of the proprietary injunction[53]. The Deputy Judge after assessing the respective evidence filed by the plaintiff and those defendants rejected them and found that there is a serious issue to be tried under this claim for the reasons set out in [45] - [56] of the Decision.  In particular, he explained at [45] - [48] as follows:

“45. I am satisfied that, even if the initial transfer of funds from P to NBL is unimpeachable, the issue as to whether the transactions whereby the Sum was transferred into the account of Amber Hill ES Fund and then into the accounts of D3, D4 & D5 was pursuant to a fraudulent scheme is a serious issue to be tried. Certainly, in my view the surrounding circumstances which I have summarized above (in particular the discredited evidence of D6)  suggest that the transfer of the Sum to those defendants was as a result of a dishonest or fraudulent scheme. The documentation relied on by the defendants purportedly to justify the transactions in question will obviously have to be scrutinized and tested by cross examination at the trial of this action.

46. Moreover, notwithstanding passages in the 1^st affirmation of Mr Lai which could be interpreted as an acknowledgment that the LP units exist, the fact is that, despite investigations conducted by Deloitte, they have not been identified or found and there must be real doubt as to whether they do indeed exist or whether the Sum was in fact used to purchase any such units. The question as to whether the purchase of LP Units fell within NBL’s mandate as per the agreement between P and NBL governing P’s managed account and in particular whether LP Units fall within the description ‘leveraged forex transactions’ is in my view another serious issue to be tried.

47. At this stage of the proceedings therefore it would not be right to come to any firm conclusion as to whether the Sum was in fact paid for LP Units or whether LP units were in fact acquired, whether pursuant to the Subscription Agreements or otherwise. Even if the genuineness of the Subscription Agreements were to be accepted, I do not accept the argument that P has lost any proprietary claim over the Sum by not rescinding those agreements. Quite apart from anything else, P was not, on the face of those agreements, a party thereto. Further, I do not accept the argument that the proprietary claim now advanced by P is inconsistent with the characterization for the purposes of the application for the appointment of provisional liquidators of the Sum being an NBL asset - it is perfectly possible for the legal title in the Sum being vested in NBL whilst the beneficial ownership of it rested with P. After all, the agreement between P and NBL in respect of P’s managed account referred to NBL as being P’s trustee.

48.  It is well established that where property is obtained by fraud, equity imposes a constructive trust on that property.”

67.In our view, based on the available evidence (as he has set out in detail in the Decision), this is a conclusion which is fully and reasonably opened to the Deputy Judge to draw and Mr Whitehead has simply failed to show that the Deputy Judge is plainly wrong, or has failed to take into account relevant matters or has taken into account irrelevant matters.  Quite to the contrary, we fully agree with the Deputy Judge’s reasons in rejecting Mr Whitehead’s contentions.

68.The 1^st defendant therefore fails under the RN.

D.  DISPOSITION

69.For all the reasons above, we dismiss the RN, allow the appeal and make the following orders:

(1)  The 1^st Defendant Order be set aside; and

(2)  The Mareva injunction as against the 1^st defendant be continued until trial or further order of the court.

70.As for costs, we see no reason why costs should not follow the event.  We accordingly make the following costs orders nisi:

(1)  Costs of the hearing below as between the plaintiff and the 1^st  defendant be the plaintiff’s costs in the cause, with certificate for two counsel;

(2)  Costs of the appeal (including costs of the RN)  be paid by the 1^st defendant to the plaintiff, to be taxed if not agreed, with certificate for two counsel.

71.Unless there is an application to vary it, this nisi order will become absolute 14 days from the date of this judgment.

Mr Jonathan Chang SC and Mr Martin Ho, instructed by DLA Piper Hong Kong, for the plaintiff

Mr Robert Whitehead SC and Mr Jeff Yau, instructed by Lawrence Chan & Co, for 1^st defendant