Koze Investments, Llc and Another v. Fantune International (HK) Co., Ltd and Another

HCA 419/2025

[2025] HKCFI 4786

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 419 OF 2025

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BETWEEN

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D E C I S I O N

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1.This was the application of Koze Investments, LLC (“P1”) and TER Enterprises Inc (“P2”) (collectively, the “Plaintiffs”) to vary a Mareva injunction (the “Mareva injunction”) obtained ex parte on 3 March 2025.

2.The Plaintiffs obtained the Mareva injunction against Fantune International (HK) Co., Limited (“D1”) and Leo International Group Company Limited (“D2), 1^st layer recipients of funds from the Plaintiffs’ bank accounts. D1 maintains an account with Industrial and Commercial Bank of China (Asia) Ltd (the “ICBC Account”) and D2 maintains an account with the Hong Kong and Shanghai Banking Corporation Limited (the “HSBC Account”).

3.The Plaintiffs claim that they were defrauded by fraudsters into making various transfers: (1) P1 transferred USD 7,573,650 from P1’s account into the ICBC Account; and (2) P2 transferred USD 2,921,000 from P2’s account to into the HSBC Account.

4.This is P1’s application to vary the Mareva injunction over the ICBC Account to a proprietary-cum-Mareva injunction.

Factual background

5.The Court granted the ex parte Mareva injunction on 3 March 2025 based on evidence[1] disclosing the following matters:

(i)  P1 is a California limited liability company engaged in the investment business. P2 is a California limited liability company engaged in the business of supplying and exporting raw materials and construction materials.

(ii)  In April 2024, P1’s director Elliot Zemel (“Mr Zemel”) was introduced to one Mr Ephraim Teitelbaum (“Mr T”) and one Mr Edward Sherwood (“Scammer”) said to be a high-ranking banker in Barclays plc in the UK. Mr T and the Scammer represented that

(a)  they had carried out a monetisation scheme of a standby letter of credit valued at €100 million;

(b)  as a result of the monetisation process, approximately €80 million was deposited into Mr T’s account at ICP Offshore Banking Corp (“ICPO”), which monies Mr T was attempting to wire to his corporate bank account in Barclays UK;

(c)  the wiring of funds would need to go through his correspondent banks and as Mr T was short of liquid funds, he could not put up the various fees/taxes/duties that were required to be paid;

(d)  they reassured Mr Zemel that the scheme was genuine.

(iii)  That resulted in a contract[2] on 1 May 2024 between P1 (via Mr Zemel) and Mr T whereby in return for P1 putting up fees of €1.2 million and €400,000 from ICPO, P1 would receive €2.5 million in return. Mr T requested Mr Zemel to send the money into the HSBC Account in USD[3].

(iv)  Accordingly, P1 made a number of transfers to the ICBC Account (D1’s account) and the HSBC Account (D2’s account) for the purported payable fees commencing 1 May 2024. By 5 June 2024, P1 had transferred USD 2.92 million to D2’s account.

(v)  An email dated 5 June 2024 from Mr T to the Scammer and copied to Mr Zemel stated that by that date Mr T had agreed with to pay Mr Zemel €7 million. Mr T requested the Scammer to send that amount to Mr Zemel’s account (with details attached to the email[4]) in case Mr T could not get to Barclays Bank.

(vi)  Meanwhile, P1 continued to receive assurances from Mr T and the Scammer with purported supporting documents. Given the amount P1 had invested in “releasing the Funds” for Mr T, P1 saw no reason to stop short of paying the further fees that were continually demanded through forged letters.  

(vi)  By July 2024, because of P1’s dwindling liquidity, P2 took over the role of making transfers and that continued until December 2024.

(vii)  In December, P1 hired a private investigator and discovered that the Scammer had been impersonating the real Mr Sherwood who, as well as Barclays UK and Wessex were unaware of Mr T and the entire transaction. Upon discovery of the fraud, on 6 February 2025, P1 reported the fraud to, inter alia, the Hong Kong Police.

(viii)  According to the Hong Kong Police, as of 24 February 2025, the balance in the ICBC Account is around HKD 3 million and the balance in the HSBC Account is zero.

6.The Plaintiffs obtained a disclosure order against ICBC on 7 March 2025. ICBC’s disclosure showed that dissipation had taken place. As at the date of the Mareva injunction, the remaining balance in D1’s account was USD 464,564.55 of which USD 464,449.06 are traceable from P2’s transfers.

7.Paragraph 6 of the Mareva injunction does not prohibit D1 and D2 from spending HKD 50,000 per week each on legal advice and representation.

8.On 18 June 2025, the Plaintiffs took out a summons (the “Variation Summons”) to vary the Mareva injunction to a proprietary-cum-Mareva injunction in respect of USD 464,449.06.

9.The Variation Summons together with the Plaintiffs’ application to continue the Mareva injunction (the “Continuation Summons”) came before DHCJ Jonathan Wong on 24 June 2025 who gave directions for the filing of evidence and adjourned the Variation Summons for argument which is before this Court.

10.Pursuant to directions for filing evidence for the Variation Summons given on 24 June 2025, D1’s solicitors exhibited a draft of the 2^nd affirmation of Fan Jun (“Fan 2^nd”), a director of D1 confirming that only HKD 379,871 i.e. USD 48,391.50 had been released from D1’s account as legal expenses as of July 2025.

11.On 6 August 2025, the Plaintiffs took out a summons to amend the Variation Summons (the “Amendment Summons”) to ensure that the proprietary component of the injunction covers USD 416,173.05, being P2’s traceable proceeds that still remain in D1’s account.

12.D1 contests paragraph 5 (c) of the Variation Summons which seeks to change paragraph 6 so that the exception does not apply to P2’ s traceable proceeds that still remain in the ICBC Account.

Legal principles

13.It is well-established that in considering a variation of a proprietary freezing order the proper approach is to address four questions.

14.In Kea Investments Limited v Eric John Watson [& Others] [2020] EWHC 472 (Ch) at §22, Nugee J explained the approach in these terms:

“22. In the case of proprietary injunctions ... the principles are as follows:

(1) Since the basis of the proprietary claim is that the particular asset in question is said to belong to the claimant, the question is not whether the defendant should be able to use his own assets, but whether he should be permitted to use assets which may turn out to be the claimant’s. There is therefore no presumption in favour of his being able to do so.

(2) There are four questions which fall to be answered: Independent Trustee Services Ltd v GP Noble Trustees Ltd [2009] EWHC 161 (Ch) (‘ITS’) at [6] per Lewison J[5]. The first is whether the claimant has an arguable proprietary claim to the money.

(3) The second is whether the defendant has arguable grounds for claiming the money himself; as Millett LJ said in The Ostrich Farming Corp Ltd v Ketchell (unrepd, 10 Dec 1997):

‘No man has a right to use somebody else’s money, for the purpose of defending himself against legal proceedings.’

(4) The third is whether the defendant has shown that he has no other funds available to him for this purpose.

(5) But even if the defendant gets over this hurdle then the Court has a discretion: Sundt Wrigley, where Sir Thomas Bingham referred to the Court having to make a:

‘careful and anxious judgment … as to whether the injustice of permitting the use of the funds held by the defendant is outweighed by the possible injustice to the defendant if he is denied the opportunity of advancing what may, in course, turn out to be a successful defence.’”

15.A summary of some of the relevant considerations when making a “careful and anxious judgment” as to injustice caused to the parties may be found in Skatteforvaltningen v Edo Barac [2020] EWHC 377 (Comm) at §24:

“24. If a defendant can establish that he has no assets unaffected by proprietary claims against him on which he can draw to meet his living and legal expenses, then the court should balance considerations of justice on both sides [The Third Stage]:

(1) The court must consider where the balance of justice lies as between, on the one hand, permitting the defendant to expend funds which might belong to the claimant and, on the other hand, refusing to allow the defendant to expend funds which might belong to it: see Marino at [23].

(2) It does not automatically follow that a defendant should be entitled to draw on proprietary funds if he can show that he has no other funds with which to defend the action; see Ostrich Farming at p. 7 (per Millett LJ).

(3) The court is required to come to a ‘careful and anxious judgment as to whether the injustice of permitting the use of the funds by the defendant is outweighed by the possible injustice to the defendant if he is denied the opportunity of advancing what may of course turn out to be a successful defence’: Marino at [19]. This balancing exercise should be carried out based on ‘all relevant circumstances’: see Ostrich Farming at p.10, per Roche LJ.

(4) There are less strong reasons to permit the payment of incurred legal fees rather than future legal expenses. The court is concerned with the interests of the parties and not the defendant's solicitors: see Angel Group Ltd v Davey (unrep, Ch D, 21 February 2018) (‘Angel Group Ltd’) at [46].

(5) The court will ‘act cautiously so as to ensure that the funds are not wasted’, which may be achieved by ‘limiting the amount ... even if that may cause a defendant to reassess how to pursue her case or to consider alternative funding models’: see Angel Group Ltd at [44] to [45].

(6) It is not conclusive that the defendant will have to act as litigant in person. The defendant may be able to receive a fair hearing through such representation; Marino at [31].

(7) A key factor in the granting of permission to use arguably proprietary funds is the court's interest in having parties professionally represented; see Fundo Soberano de Angola v Dos Santos [2018] EWHC 3624 (Comm), per Popplewell J as he then was, at [11] and [29] to [33].

(8) It will be relevant to consider what undertakings or offers are made by the defendant. For example a defendant may offer to replenish funds taken from proprietary assets with non-proprietary assets; see Marino at [19].”

D1

16.As earlier noted, D1 only contests paragraph 5 (c) of the Variation Summons. D1 accepts that the Plaintiffs have an arguable proprietary claim to the money.

17.D1 is a company incorporated on 7 November 2003. It has 2 directors, namely, Mr Fan and Ms Liying Yu. It is the contact point for 5 of its companies in Nigeria connecting Mainland and overseas suppliers. D1 was set up as the contact point for keeping and applying USD for its business activities.

18.Because of strict foreign exchange control in Nigeria, most small to medium-sized businesses use remittance intermediaries who match parties who need certain currencies within Nigeria with parties who need to transfer money out to be withdrawn outside Nigeria.

19.The funds in the ICBC Account were to meet payments for contracts with overseas suppliers of fertiliser/plastic products/machinery and others. They were obtained through the various remittance intermediaries whom D1 duly paid out of directors’ loans made to D1.

20.D1 exhibited a table listing particulars of 11 remittances made by the Plaintiffs into the HSBC and ICBC Accounts. Particulars were also given of outflows from the remittances to beneficiaries and the purpose of such outflows.

21.In respect of 2 of the transactions, D1 also exhibited supporting documents such as sales contract, shipping and customs documents.

22.The last transfer made into the ICBC Account was on 23 December 2024. When the Mareva injunction was granted on 3 March 2025, the balance in the ICBC Account was in excess of USD $460,000. This factor points to D1 having a trading business and thus an arguable claim to the ICBC Account.               

23.Had D1 been in cahoots with Mr T and the Scammer, by the date of the Mareva injunction (which was more than 2 months after the last transfer), one would not expect the balance to be more that nominal.

D1’s defence to the Plaintiffs’ applications

24.The Plaintiffs seek equitable relief. D1’s defence is that against the backdrop of P1’s business activities, they do not come with clean hands. Further, D1 states that it has no other available assets if the variation the Plaintiffs seek is granted.

‘No clean hands’ defence

25.P1 states that it is an investment holding company and makes all sorts of investments all over the world ranging from healthcare, commercial real estate, residential real estate, provides loans and financing to various types of companies and entities and venture capital investment[6].

26.Given that backdrop, Mr Hon, counsel for D1, submitted that there are a number of seemingly unusual, if not inexplicable, features that emerge from the evidence:

(i) prior to Mr Zemel being introduced to Mr T and the Scammer in April 2024, neither the Plaintiffs nor Mr Zemel had any dealings with either of them;

(ii) Mr T was connected with ICPO, allegedly a Panamanian bank but in fact no such entity by that name exists;

(iii) the domain “icpobnkcp.com” does not relate to any entity by the name of ICPO;

(iv) the Scammer provided Mr Zemel with various documents to confirm the monetisation scheme including proofs of the status of his directorships with Barclays UK and its wholly-owned subsidiary Wessex Investments Limited (“Wessex”);

(iii) in reliance on those representations, Mr Zemel (on behalf of P1) entered into a contract[7] on 1 May 2025 whereby for a total outlay of €1.2 million (approximately USD 1.29 million), P1 would be paid €2.5 million, a return in excess of 200%[8];

(iv) the letter dated 10 November 2021 allegedly from Barclays UK to Mr T was signed by Mr Ashok Vaswani as the CEO of Consumer Banking & Payments whereas at the time it should be Mr Vim Maru;

(v) that letter is problematic in that while it was addressed to Mr T no address was given for Mr T;

(vi) the letter dated 29 April 2024 is a letter from the Scammer to Mr Green but also without any address;

(vii) the letter of 29 April 2024 as well as the emails from the Scammer dated 5 and 16 June 2024[9] show his email address as “[email protected]” which is indisputably a fake address in that (a) UK domains bear the designation “.uk.co”; and (b) the email domain of Wessex is “wessexinvestment.co.uk”.

D1 has no other available assets

27.It is D1’s evidence that the ICBC Account is the sole and only source of funds for D1’s business operations and that it has no other means of paying the invoices of its solicitors.

28.D1 is a trading company with funds coming in and out of its ICBC Account. It has no other assets apart from the ICBC Account.

29.If the Variation Summons is granted, D1 will not have any legal representation, as it has no other source of funds.

Discussion

30.Ms Nicole Chui, counsel for the Plaintiffs, submitted that the no clean hands defence is not made out on the evidence. She sought to downplay D1’s complaints to its having spotted one ‘typographical’ error in the email address for the Scammer. I do not accept that the wrong email address could be properly characterised as a typographical error. It was anything but that.

31.In my view, what is singularly striking from the evidence is that despite its financial expertise and extensive experience in making investments, P1 appears not to have conducted any due diligence before entering into the contract on 1 May 2024 (which incidentally was never exhibited[10]). Had it carried out even the most cursory kind of due diligence, it could not but have spotted red flags.

32.A more troubling matter is this. The ostensible purpose of Mr T’s need for funds was to settle fees/taxes/duties that had to be paid to correspondent banks[11] so that the monetisation funds could be released from HSBC Düsseldorf. One would therefore expect the recipient of the payments to be either Mr T himself or some banking entity or official agency for the collection of taxes/duties. However, the banking coordinates given for the initial transfer named D2, a limited private company, as the designated beneficiary. There is no evidence of any question put to Mr T concerning D2 or his connection with  D2.

33.The first transfer into the ICBC Account took place on 24 June 2024. It is unclear who gave those instructions/banking coordinates and when that took place. The ostensible purpose is said to be “HKMA Clearance Application Fee[12]”. If so, why should the designated beneficiary be D1, a private company? Again, there is no evidence of any question being raised.

34.I have no hesitation in concluding that D1 has made out the no clean hands defence.

35.As regards D1’s lack of other assets, recognising that, given the Mareva injunction, it would be entirely unrealistic to expect D1 to obtain loans from 3^rd parties, the Plaintiffs submitted that the directors themselves could fund the litigation.

36.D1 submitted that it has no real presence in Hong Kong save and except the ICBC Account. One cannot expect D1 to act in person given the nature of this litigation and when the Plaintiffs have not even filed their Statement of Claim (“SOC”). If there is no funding for legal expenses, the claim against D1 will be undefended. In the circumstances, it is entirely unrealistic to expect anyone (including D1’s directors) to agree to fund the litigation.

37.In response to the Court’s comment as to the absence of any SOC, Ms Chui explained that as the Defendants failed to file any acknowledgement of service, the Plaintiffs’ former solicitors had made a default judgment application.

38.The Plaintiffs made their ex parte application on 4 March 2025. It is usual for the SOC to be filed shortly thereafter if not the following day and usually before the return date.

39.D1’s solicitors filed a notice to act on 7 March 2025. D1 was represented by counsel at the hearing before DHCJ Grace Chow on 7 March 2025 for, inter alia, continuation of the Mareva injunction.

40.On 18 March 2025, after D1 had attended 2 hearings[13], the Plaintiffs took out a summons for default judgment against D1 because of the absence of an acknowledgement of service. In those circumstances, why such an application was considered appropriate (when D1 actually appeared and had legal representation and time extensions had been granted to D1 to file evidence in opposition) is not explained.

41.Be that as it may, there is still no valid explanation for the absence of a SOC at this hearing, some 6 months later.

Disposition

42.The Court is required to come to a “careful and anxious judgment … as to whether the injustice of permitting the use of the funds held by the defendant is out-weighed by possible injustice to the defendant if he is denied the opportunity of advancing what may, in due course, turn out to be a successful defence[14].”

43.In the Edo Barac case[15], Bryan J cited the judgment of Popplewell J (as he then was) in Fundo Soberano de Angola v Dos Santos & Ors [2018] EWHC 3624 (Comm) at §§ 29-33 for the proposition that a key factor in the granting of permission to use arguably proprietary funds is the court’s interest in having the parties professionally represented.

44.I have no doubt that the Court would benefit from having D1 professionally represented in the present case having regard to the spectrum of issues involved which is clearly beyond the capabilities of an unrepresented party.

45.Accordingly, doing the best that I can, I consider that D1 should be entitled to have its legal expenses (incurred and billed) paid out of the ICBC Account up to and including the filing of its defence (to a yet to be filed SOC), subject to a ceiling of HKD 1.2 million, with liberty to apply. The matter should be restored for review at that stage.

46.Costs of the Variation Summons and Amendment Summons are reserved.

47.The Variation Summons and the Amendment Summons fall to be dismissed. The parties are directed to submit an agreed draft order for approval within 7 days of this Decision.

Ms Nicole Chui, instructed by Messrs. Bowers, for the 1^st and 2^nd Plaintiffs

Mr Kevin Hon, instructed by Messrs. Gloria Chan & Co., for the 1^st Defendant

The 2^nd Defendant was not represented and did not appear