Nh Investment & Securities Co Ltd v. Universe Income Builder Fund Series Iv Ll and Others

HCCL 2/2021

[2026] HKCFI 4549

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 2 OF 2021

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BETWEEN

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JUDGMENT

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INTRODUCTION

1.This is the trial of the Plaintiff’s claims against the 1^st to the 6^th Defendants (collectively, the “Defendants”) arising out of an elaborate investment fraud orchestrated by Jack P Chang, the 5^th Defendant (“Chang”) using his corporate vehicles (the 1^st to the 4^th Defendants) and his associate, Ho Dick Shun Eric (“Eric Ho”), the 6^th Defendant.

2.The claims against Legacy Trust Company Limited (“Legacy Trust”) and Wealth Management Group Limited (“WMG”) have been settled and discontinued by consent on 13 November 2023 and 20 January 2026 respectively.

3.Proper notices of these proceedings have been given to the Defendants. Given the nature of the proceedings, I have directed a trial to take place for the Plaintiff to prove its case and for the Defendants to contest the Plaintiff’s claims.  None of the Defendants turned up.

4.After hearing Mr Chow’s able submissions, I am satisfied that the Plaintiff has proved its case and accordingly I made an order in terms of the draft Order as submitted by the Plaintiff on 7 May 2026.  Now I give my reasons.

MATERIAL FACTS

5.The Plaintiff is a South Korean brokerage and investment firm.  In around January 2019, it was presented by Chang and his associates with an opportunity to invest in a fund to be operated using specialised LLCs. As pitched by Chang at the time, the fund would be “a private debt investment vehicle providing short term debt financing for gold trader based on the physical acquisition and sales of gold on the market”. The investment would be “principal protected” and “physically backed” by the acquisition of physical gold, with the investment mechanism being designed in such a way that the investor’s capital contributions would not be released unless all the relevant safeguards, including bank guarantees and pledges, were in place.  These mechanisms, if complied with, would ensure the preservation of at least the investor’s principal investment. Drawn by the low-risk nature of the fund, the Plaintiff invested in Series I to V of the fund.

6.Mr Chow for the Plaintiff submitted that predictably, the fund did not operate as pitched.  Instead, the funds invested by the Plaintiff in Series IV and V which are the subject matter of this action – over US$52 million – were misapplied for purposes which were demonstrably contrary to the purported investment objective.  Part of the funds were recycled by the Defendants to “repay” the Plaintiff’s investment in Series I to III, while the rest was paid to Chang, his associates and various other parties. 

7.Since discovering the fraud, the Plaintiff has taken active steps to mitigate its loss, including by negotiating repayment or settlement arrangements with counterparties.  Even after giving credit for the amounts received by the Plaintiff, of the total amount of US$52,401,000 initially invested by the Plaintiff as its capital contribution to Series IV and V, the bulk of those funds – around US$43.4 million – remains missing to date. 

8.The Defendants have not participated in these proceedings since around 2023 and they chose not to attend the trial.  Mr Chow for the Plaintiff has been very fair in presenting the Plaintiff’s case by identifying factual or legal issues that may be of benefit to the Defendants, as well as points which the Defendants had taken before they decided to play no further part in the action.

9.The Plaintiff is a publicly traded company formed under South Korean law and listed on the Korea Exchange.  Its business is to provide brokerage, underwriting and securities dealing services.  It is also a Class A interest holder (with no voting rights) and a member in the Series I to V LLCs of the Universe Income Builder Fund (“UIB Fund”, the agreed purpose of which will be referred to as the “Purported Investment Scheme”), which is the subject matter of this action.

10.The 1^st and 2^nd Defendants (i.e. Fund IV and Fund V) are both limited liability corporations incorporated under Cayman law.  Each constitutes a series to, and an investment vehicle of, the UIB Fund.  The investment vehicles of the whole series of the UIB Fund will be collectively referred to as the “UIB Fund LLCs”, with each being a “UIB Fund LLC”.

11.The 3^rd Defendant (i.e. UAM) is a Hong Kong private company. It is, and was at all material times, the fund advisor and an original “Class B” interest holder (with voting rights) of the UIB Fund Series IV and V LLCs.

12.The 4^th Defendant (i.e. KH UAM) is a Hong Kong private company allegedly established as a special purpose vehicle to facilitate the UIB Fund to finance gold transactions.

13.Chang is a Hong Kong-based individual.  It is the Plaintiff’s case that he was at the material times:

13.1  the manager and a director of the UIB Fund Series IV and V LLCs;

13.2  a director, a manager and the majority shareholder (with 67% interest) of the 3^rd Defendant (i.e. UAM); and

13.3  a director and manager of KH UAM.

14.The 6^th Defendant (i.e. Eric Ho) is a Hong Kong-based individual and at the material times a director of the 3^rd and 4^th Defendants (i.e. UAM and KH UAM) respectively.

15.As for the 7^th and 8^th Defendants, against whom the claims have been settled and discontinued by consent:

15.1  The 7^th Defendant is a public company incorporated under Hong Kong law providing professional trustee and custodian services to institutions, advisors and high net-worth individuals.  At the material times, it was the fund administrator of the UIB Fund and the legal custodian of assets held by the UIB Fund Series IV and V LLCs and KH UAM.

15.2  The 8^th Defendant is an SFC-regulated asset management (Type 9) company and was at the material times the investment manager of the UIB Fund.

THE PLAINTIFF’S CASE

16.It is the Plaintiff’s case that during a visit to Hong Kong in around September 2018, the Plaintiff’s Mr Chu Wan Maeng (“Mr Maeng”) was introduced to Chang via Mr Josh Jung, a consultant working for UAM.

17.At the time, the Plaintiff was given to understand that Chang was the manager and director of the UIB Fund LLCs, and that he was generally in control of and responsible for the 1^st to 4^th Defendants in light of the numerous positions held by him within the 1^st to 4^th Defendants.  Hence, when Chang made representations to the Plaintiff, the Plaintiff’s team understood these to be representations made on behalf of the 1^st to 4^th Defendants as well.

18.By an email of 28.1.2019, Chang thanked Mr Maeng for the opportunity to introduce their “Gold Fund” to him during the visit, stating that it was “a very solid product as it delivers principal guarantee as well [sic] guaranteed return”.

19.The same email also attached presentation slides on the UIB Fund prepared by UAM (“UIB Fund Information Deck”).  Among other things, the UIB Fund Information Deck set out the anticipated investment structure (p.5), which was illustrated by financing and logistical flow charts (pp.6-7). 

20.The UIB Fund Information Deck also contained inter alia the following express statements:

20.1  The UIB Fund is “a private debt investment vehicle providing short term debt financing for gold trader based on the physical acquisition and sales of gold on the market” (p.2) (“Investment Objective”).

20.2  “The investment provides 13% yield yearly and with a short 6-months lock-up period” (p.2).

20.3  “The short term debt is backed by physically purchased gold which make this investment fully asset backed and principal protected” (p.2); “The short term debt is backed by physical gold with LTV ratio of 85%, and gold is highly liquid” (p.3).

20.4  “Investment is to provide short term bridge loan financing for gold trading, based on actual production” (p.3).

20.5  “Diversification: Principal protected and guaranteed income investment provide solid anchor to investors” (p.4).  More specifically:

(i)  As to principal protection, it was stated inter alia that: “Line of Credit: Using the loan from investor, the Gold SPV will provide a LC from a bank for the gold supplier.  However, the cash will only be released to the supplier when the gold is delivered, assayed by the supplier, and confirmed that quality is up to standard.  Otherwise the LC kept in bank can be used to pay back the principal.” (p.10)

(ii)  And if there were issues with the gold shipment: “Cash will not be released to the supplier and the principal will be return [sic] to the Investor from the Bank.  Principal is protected.” (p.12)

21.Around late January or early February 2019, the Plaintiff’s staff discussed the UIB Fund internally.  The responsible officer, Mr T Y Lee (“Mr Lee”), has given a witness statement where he states inter alia that he had considered the UIB Fund to be an attractive and safe investment based on the features set out in the UIB Fund Information Deck. 

22.By way of due diligence into the UIB Fund, the Plaintiff’s team contacted Mr Josh Jung (acting as Chang’s agent) and Chang to request further documents.

23.In response, the Plaintiff received emails on 5 March 2019 and 7 March 2019 with the former attaching (i) an updated version of the UIB Fund Information Deck dated March 2019, and (ii) a set of draft or sample transaction documents (collectively “UIB Fund Transaction Documents”).

24.Based on the UIB Fund Information Deck and the draft UIB Fund Transaction Documents, the mechanism for the intended investments in the UIB Fund, as pitched by Chang and understood by the Plaintiff at the time, can be summed up as follows:

24.1  Individual investment vehicles (UIB LLCs) would be set up and hold the invested funds.

24.2  The monies invested would be paid into designated custodian accounts of the UIB LLCs kept and managed by Legacy Trust as the appointed Administrator of the Fund under an Administration Agreement.

24.3  KH UAM and the UIB LLCs would obtain bank guarantees from a leading bank, facilitated by Legacy Trust.

24.4  Each tranche of investment would be governed by a series of transaction documents (together “Transaction Documents”), including inter alia and relevantly the following:

(i)  A subscription agreement between P and the respective UIB Fund LLCs (each a “Subscription Agreement”);

(ii)  An LLC Agreement amongst UAM, WMG and P (each an “LLC Agreement”); and

(iii)  A confidential memorandum annexed to the LLC Agreement (“Offering Memo”).

24.5  The investment amounts would be advanced by the UIB LLCs to KH UAM by way of loans.  KH UAM would use the funds lent by the respective UIB LLCs to obtain letters of credit from banks for the purpose of purchasing physical gold from gold suppliers.  The cash however would only be released to the gold supplier when the gold was delivered physically, and its quality had been confirmed to be up to standard.  If there were issues with the gold delivery, the cash would not be released to the supplier.  Hence, the principal investment would be protected, and the cash would be returned to the investor, i.e. the Plaintiff.

25.Based on his understanding of the UIB Fund as characterised in the documents provided by Chang and his associates, Mr Lee told Mr Maeng that the proposed LLC structure of the UIB was agreeable.  Mr Maeng on the Plaintiff’s behalf then emailed Mr Chang and Mr Josh Jung to confirm the same. 

26.By an email dated 8 March 2019 Chang replied: “We will proceed with establishing the LLC structure”.

27.Between April and May 2019, the Plaintiff subscribed to Class A interests in the UIB Fund Series I to Series III as follows:

27.1  Series I: on 25.4.2019 P paid the investment amount of US$30,874,000 to Legacy Trust – the latter acting as custodian under the investment structure identified above – by a bank transfer, pursuant to a subscription agreement with the UIB Fund Series I LLC executed by the Plaintiff and countersigned by Chang on the same day.

27.2  Series II: on 30 May 2019, the Plaintiff paid the investment amount of US$40,078,890 to Legacy Trust pursuant to the subscription agreement executed on the same day.

27.3  Series III: on 30.7.2019, P paid the investment amount of US$33,372,780 to Legacy Trust pursuant to the subscription agreement with the UIB Fund Series III LLC executed on the same day.

28.On 29.7.2019, a Master Investment Management Agreement was executed amongst the 1^st Defendant, the 3^rd Defendant and WMG.  Preamble A reads: “The Client [i.e. the 1^st Defendant] is a closed-ended fund which provides for short term debt financing with regards to gold trades based on the physical acquisition and sale of gold on the open market as per its Investment Strategy”.  

29.Between November and December 2019, the Plaintiff subscribed to Class A interests in the UIB Fund Series IV and V.

30.In relation to Series IV, the subscription took place on 20 November 2019 when:

30.1  Chang renamed the 1^st Defendant from “Universal Income Builder Fund LLC” to “Universal Income Builder Fund Series IV LLC”. This change of name was not registered in accordance with Cayman law.

30.2  The Plaintiff paid the amount of US$30,273,000 to Legacy Trust pursuant to the subscription agreement executed by the Plaintiff and the 1^st Defendant on the same day.

31.As for Series V, the subscription took place on 23 December 2019 when:

31.1  Chang renamed the 2^nd Defendant from “Universal Income Builder Fund Series II LLC” to “Universal Income Builder Fund Series V LLC”.  Again, this change of name was not registered in accordance with Cayman law.

31.2  The Plaintiff paid the investment amount of US$22,128,000 to Legacy Trust pursuant to the subscription agreement executed by the Plaintiff and the 2^nd Defendant on the same day.

32.Between November 2019 and January 2020, around 6 months after its initial investment in Series I to Series III, the Plaintiff received the following payments via Legacy Trust which were said to have been repayment of (and the amounts of which corresponded to) the principal investment sums plus a 6.5% return:

32.1  Series I: on 1.11.2019, US$32,880,810

32.2  Series II: on 2.12.2019, US$42,684,017.85

32.3  Series III: on 31.1.2020, US$35,542,010.70

33.It later transpired that the latter two supposed repayments were not the return on any substantive investment made by Series II and Series III, but instead derived at least in part from the cash invested by the Plaintiff in Series IV and Series V.  In other words, the funds invested by the Plaintiff in the later Series were simply recycled by Chang and his associates to repay the Plaintiff for its investment in the earlier Series.

34.In relation to the Plaintiff’s investment in Series IV and Series V, the principal amounts were supposed to be repaid together with the 6.5% preferred return after the lapse of 6 months, and the parties were in agreement that repayment should be made by 8 June 2020 and 16 July 2020 respectively.

35.That did not happen.  Instead, throughout June 2020, Chang on UAM’s behalf wrote 4 letters (together “June Letters”) indicating that repayment for Series IV would be delayed (first to 19 June 2020, then the week of 22 June 2020, then on or before 24 July 2020). 

36.As to the purported cause of the delay, the letter dated 5 June 2020 asserted, among other things and in gist, that:

36.1  Two gold trades had been conducted by Series IV via letters of credit in May 2020, but the second one could not be finalised due to the Covid-related social restrictions imposed by the Indonesian government in early April 2020, which prevented the gold supplier from delivering the gold to the premises.  Thus, the investment remained locked up in the bank based on the terms and conditions of the corresponding letter of credit, which provided that the bank can only release the money to the supplier upon successful delivery of the gold. 

36.2  Despite the delay, “your investment principal and interest is safekept in the bank under LC format”; “We will provide you with the related LC proof shortly”.

37.The so-called “LC proof” foreshadowed in the letter was later provided by Chang by email on 28 June 2020.  This email:

37.1  asserted that UAM and its trading partner MCR Indonesia had obtained two bank letters on 22 May 2020 and 22 June 2020; and

37.2  enclosed copies of the purported letters from Bank Danamon Indonesia (“Danamon Letters”).  

38.Subsequently, the Plaintiff’s Indonesian subsidiary made a direct inquiry with Danamon Bank.  By a letter dated 3 July 2020, Danamon Bank responded that it had never issued the Danamon Letters. This is serious.

39.In light of these developments, the Plaintiff was concerned that a default would occur on Series V as well.  It emailed UAM on 6 July 2020 to ask about the repayment situation for Series V but received no response.

40.To make inquiries into the delayed payments, the Plaintiff’s representatives attended a physical meeting in Jakarta with MCR’s CEO and CFO on 6 July 2020.  During this meeting, the Plaintiff’s representatives were told inter alia that:

40.1  MCR Indonesia is principally engaged in coal business, and gold-related business only accounts of 10% of its business;

40.2  MCR Indonesia had received payments from KH UAM worth around US$51 million and such payments were approved by Chang; and

40.3  The Danamon Letters provided by Chang were forged documents, and MCR Indonesia itself had also received an official letter from Danamon Bank to that effect.

41.On or around 8 July 2020, the Plaintiff’s representatives attended a conference call with representatives from UAM, WMG and MCR to discuss the repayment of P’s investment funds.  During this call, important admissions were made.

41.1  Chang stated that the money invested by the Plaintiff in Series IV and Series V had been paid to MCR; and

41.2  MCR’s CEO Mr Salim stated that the money had been used for coal transactions.

42.By a letter to Legacy Trust dated 9 July 2020, the Plaintiff put on record the contents of the meeting, including the confirmation that “the money is used for coal transaction which is out of scope of our Funds’ investment objective and out of scope of purpose of Loan Agreement”.

43.Thereafter, the Plaintiff continued to press the various counterparties for repayment on its Series IV and Series V investment; it also reached a settlement agreement with MCR pursuant to which the latter agreed to make certain repayments to the Plaintiff.

44.As of the date of the trial, the Plaintiff has received repayments (either from its counterparties or MCR) in the aggregate amounts tabulated in Annex A to the Plaintiff’s Opening Submissions. In summary, the payments received are:

44.1  Towards Series IV specifically: US$3,919,888.97.

44.2  Towards Series V specifically: US$3,482,860.25.

44.3  Aggregate amount of payments received from Legacy Trust under a settlement agreement: US$1,600,000.  This amount does not relate to either Series IV or V specifically under the settlement, but P is prepared to attribute it equally to Series IV and V – i.e. US$800,000 towards each Series – or alternatively in such proportion as the Court may consider appropriate in the circumstances.

45.Comparing those figures to the initial investments made by the Plaintiff, the amounts yet to be repaid to the Plaintiff are US$25,553,111.03 for Series IV and US$17,845,139.75 for Series V, adding up to US$43,398,250.78 (“Unrecovered Funds”).

46.After this action was commenced in 2021, Legacy Trust (i.e. the fund administrator) provided details of the fund movements in its custodian accounts for Series IV and V pursuant to a disclosure order.

47.That disclosure revealed that the funds invested by the Plaintiff in Series IV and V and deposited into their custodian accounts with Legacy Trust were, instead of being invested in gold trades pursuant to the Investment Objective, either:

47.1  recycled and repaid to the Plaintiff as purported returns on its investments in the earlier Series (“Recycled Payments”); or

47.2  paid out directly or indirectly to Chang, Eric Ho and others (collectively “Wrongful Third Party Payments”). 

48.The Wrongful Third Party Payments were tabulated in Amended Points of Claim at §32.  That table is replicated here for ease of reference:

49.The Defendants do not deny the existence of the Recycled Payments and no evidence has been adduced to contradict Legacy Trust’s evidence in this regard.  Further, the Defendants expressly admit that the Wrongful Third Party Payments were made.

50.Mr Chow for the Plaintiff, first, fairly drew to this Court’s attention that the Subscription Agreements for Series IV and V both contain jurisdiction and governing clauses in favour of the Cayman Islands.  However, I accept Mr Chow’s submission that those jurisdiction clauses do not prevent the Hong Kong Court from adjudicating this dispute for two reasons:

50.1  First, they only confer non-exclusive jurisdiction on the Cayman Court.  It does not prevent a party from litigating the dispute in another jurisdiction, and Hong Kong is plainly an appropriate forum for doing so – as evidenced by the fact that no jurisdictional objection was ever made by the Defendants (or Legacy Trust and WMG, for that matter). 

50.2  Secondly, the Defendants have filed a substantive defence without reserving the right to challenge jurisdiction, which amounts to a clear submission to the jurisdiction of the Hong Kong Court: Hong Kong Civil Procedure 2026 (“HKCP”) at §11/4/62. That is the end of analysis.

51.As to governing law, it is well established that the burden of proving foreign law lies on the party who bases his claim or defence on it, and if that party adduces no or insufficient evidence the Court will apply domestic law on the presumption that foreign and domestic law are identical: Wang Qian Wei v Guo Wenyu [2018] HKCFI 2253, §§35-37 (DHCJ William Wong SC).  I agree that as there is no plea or reliance on Cayman law and no evidence on Caymen law has been adduced in this trial, Hong Kong laws apply.

52.Mr Chow for the Plaintiff relied on a total of eight causes of action. I am not sure that the Plaintiff needs to rely on each and every one of them.  However, as they are run very professionally by Mr Chow, I deal with them one by one.

53.First, the Plaintiff brings a contractual claim against the 1^st and 2^nd Defendants for their breach of the Series IV and V Subscription Agreements in applying the Plaintiff’s funds in a manner inconsistent with the Investment Objective. The Subscription Agreements for Series IV and V, read in conjunction with the LLC Agreements and the Offering Memo, required the 1^st and 2^nd Defendants to comply with the Investment Objective (i.e. to apply the funds invested by the Plaintiff in gold trades and not for any other purpose).

54.The 1^st and 2^nd Defendants however failed to do so.  Instead, they misappropriated and misapplied the funds by making the Recycled Payments and the Wrongful Third Party Payments. These amounted to breaches of the Subscription Agreements.

55.The Plaintiff has suffered loss as a result of the breaches and claims against the 1^st and 2^nd Defendants for damages in the amounts pleaded in Amended Points of Claim at §43.  After giving credit for repayments subsequently received by the Plaintiff, the updated amounts are US$25,553,111.03 for Series IV (against the 1^st Defendant) and US$17,845,139.75 for Series V (against the 2^nd Defendant).

56.In relation to their use of the funds invested by the Plaintiff, the Defendants’ case is that:

56.1  The Plaintiff’s Mr Maeng had by an email dated 31 July 2019 (“31 July 2019 Email”) agreed to a revised business model involving the interposition of a “DLC provider” (“Revised Business Model”);

56.2  Following the approval of the Revised Business Model, Chang requested approval for trades with MCR Singapore involving sums of US$250,000 and US$60,000,000 respectively, and Mr Maeng approved the same by emails dated 12 August 2019 and 23 September 2019.

57.In relation to the Recycled Payments, the Defendants plead that:

57.1  Some funds repaid to KH UAM by MCR Indonesia were used to pay out redemption payments for Series I to III: Points of Defence at §§26(5).

57.2  Where a UIB Fund reached its maturity date, and the same investor had invested in a further UIB Fund, KH UAM and/or the Funds were entitled to use available loan funds to repay earlier loan funds and interest.  Such a transaction was in the nature of a roll-over of the investment for a further term, akin to an ordinary commercial lending loan rollover: Points of Defence at §28(4).

57.3  Such roll-over was not in breach of the Investment Objectives or the UIB Fund Transaction Documents: Points of Defence at §28(5).

58.In relation to the Wrongful Third Party Payments, the Defendants at §31 of their Points of Defence pleads that under the UIB Fund Transaction Documents, the funds invested by the Plaintiff in Series IV and V “could be utilised for” the following items:

58.1  payment of management fees to Mr Chang, which fell within Operational Expenses;

58.2  payment of consulting fees to Eric Ho for work done in respect of the funds.  Allegedly, Eric Ho was initially employed under an oral agreement concluded with Chang in relation to Series I in or around May 2019; on or around 30 May 2020, Eric Ho and Series VI entered into an employment contract in respect of Series VI with monthly consulting fees of HK$25,000 or equivalent;

58.3  payment of fees to Legacy Trust pursuant to the Offering Memos and the administration agreements; and

58.4  payment of fees to WMG pursuant to the relevant Master Investment Management Agreement of the UIB Fund between WMG, UAM and each of the UIB Fund LLCs.

59.In reply to the case on the Revised Business Model, the Plaintiff pleads that any amendments to the UIB Fund Transaction Documents can only be made in writing and duly executed by the parties.  As this was not done, the Defendants were not permitted to invest in a manner contrary to the Investment Objective.

60.Mr Chow for the Plaintiff submits that the following issues arise for determination under this head of claim:

60.1  Have the UIB Fund Transaction Documents been validly varied so as to permit the Plaintiff’s funds to be used under the Revised Business Model, contrary to the Investment Objective?

60.2  Have the 1^st and 2^nd Defendants acted in breach of the Subscription Agreements by applying the Plaintiff’s funds in a manner inconsistent with the Investment Objective? 

60.3  If so, what loss has the Plaintiff suffered and what amount is the Plaintiff entitled to recover from the 1^st and 2^nd Defendants as damages?

61.Mr Chow for the Plaintiff directs this Court to the following contractual provisions. The Subscription Agreements provide (on p.1) that the Plaintiff has subscribed for an interest in the relevant UIB Fund LLC “in accordance with the terms of the LLC Agreement and Subscription Agreement…”.

62.The LLC Agreements contain, relevantly, the following clauses (with emphasis added in underline):

62.1  Clause 1.2: “This Agreement shall be read in conjunction with the Memorandum detailed in Annex A herein [i.e. the Offering Memo].  In the event that there is any inconsistency or ambiguity between the Memorandum and this Agreement, the Memorandum shall prevail.”

62.2  Clause 4.2: “With effect from the date of the signing of this Agreement, the Company [i.e. the relevant UIB Fund LLC] shall only conduct the business as set out and detailed in the Memorandum.”  (Emphasis added.)

62.3  Clause 9.4: “Capital Contributions may be applied in payment of Company Expenses [1] and shall, to the extent not required for the payment of Management Fees and other Company Expenses or otherwise necessary for the conduct of the Company's business (as determined by the Manager in its sole discretion), be invested in such Investments in accordance with the investment objective and any investment restrictions set out in the Memorandum.”

62.4  Clause 18.1 titled “Amendments to this Agreement”: “The Agreement may only be amended in whole or in part by a written instrument executed by all of the Members, except if the Company admits new Members who subscribe for Class A interests.”

62.5  Clause 18.2 titled “Amendments to the Memorandum”: “The Managers may unilaterally add to, delete or otherwise amend the Memorandum to the extent it considers necessary to comply with any applicable law or regulation.”

62.6  Clause 18.10 titled “Execution as a deed”: “Each party executes and delivers this Agreement as a deed notwithstanding that it executes this Agreement by application of its electronic signature.”

63.There is no plea or evidence to the effect that the Offering Memos have ever been amended pursuant to the aforesaid Clause 18.2.

64.The Offering Memos in turn contain, relevantly, the following provisions:

64.1  On the investment period (p.10): “The investment period for the Class A Interest will be a period of six (6) months from the date upon which the invested capital from the relevant Class A Subscriber (as defined below) is invested into the Fund (the ‘Investment Period’), which period shall commence within thirty (30) days from the date of receipt of such Class A Subscriber’s invested capital and all required subscription documentation by the Fund.”

64.2  On the investment objective (p.10): “The investment objective of the Fund is to seek competitive returns through short term direct debit investments in one or more Gold Production Projects.  All proceed will be used to secure the Letter of Credit for gold trader to facilitate the gold sale process.  The direct debt investments will be backed by cash in escrow or the gold bar purchased throughout the entire cycle. Through a fully coordinated and insured logistics process, the gold is physically transferred to Hong Kong, where the gold bar undergoes a metallurgical assay to confirm weight and purity before the refineries take receipt.  Each shipment and financing cycle is approximately 7-14 days, where aggregated gold produced from the mining facilities is assayed and smelted into bars which are then ready for official testing and delivery to refineries in Hong Kong the current under sales and purchase agreements.  Each debt investment’s return will be protected by bank guarantee or prefunded interest in the form of deposit or performance bond.”  (Emphasis added.)  

64.3  On return (p.10): “The return is 6.5% in 6 months, protected by bank guarantee or preferred interest in the form of deposit or performance bond.”

64.4  On financial control (p.12): “All cash movement in the Fund except Management Fee, Administration Fee and Operational Expense as is necessary to obtain written approval from a Majority in Interest of the Combined Class A Subscribers. The Fund Administrator shall obtain a written approval from a Majority in Interest of the Combined Class A Subscribers before process any payment instruction except Management Fee, Administration Fee and Operational Expense…”

65.I reject the Defendant’s case on Mr Maeng’s consent to the Revised Business Model.

66.First, the argument is barred by Clause 18.1 of the LLC Agreements, which is drafted in plain language and requires any amendment to be in writing and executed by the parties.  Read together with Clause 18.10 which provides for the LLC Agreement itself to be executed as a deed by appending each party’s electronic signature, it follows that any amendment must likewise be executed by each party appending its electronic signature via an authorised representative.  No signature appears in the 31.7.2019 Email sent by Mr Maeng.

67.I accept that the effect of clauses like Clause 18.1 is to invalidate any purported variations not effected in accordance with the stipulated formality requirements: Oriental Fa Ltd v Lam Chok Lai [2026] HKCFI 1790, §36 (DHCJ Bernard Man SC). 

68.The Defendants’ argument on variation therefore fails, this being the combined effect of Clause 18.1 and the fact that the Offering Memos (and by extension the Investment Objective) have never been varied.

69.Secondly, I agree that the 31 July 2019 Email cannot be construed as constituting consent to the Revised Business Model. 

70.The 31 July 2019 Email was sent by Mr Maeng in response to an email of the same date from Chang, and nothing in its body or its attachment suggested that there would be any departure from the Investment Objective of investing the Plaintiff’s funds in gold trades exclusively.  To the contrary:

70.1  The body stated that: “Please see the PPT for the issuance of DLC through DBS Bank of Singapore.  The entire trade and finance process is the same, in this case we will be using the DLC Provider’s DEB Bank in Singapore to issue DLC…”  (Emphasis added.)

70.2  The attached PowerPoint slides also stated in large font: “Same as Existing investment process”; “Additional partnership”; “Same trade execution process”.

71.On the facts, I do not accept that Chang’s email had proposed any variation of the UIB Fund Transaction Documents or any departure from the Investment Objective.  All that it proposed, and all that Mr Maeng was responding to, was for a letter of credit to be issued with the help of an intermediary provider.  There was no agreement from Mr Maeng for the Plaintiff’s funds to be used for any purpose not originally permitted under the investment scheme.

72.Without the variation, it is clear to this Court that the 1^st and 2^nd Defendants have breached the Subscription Agreements and violated the Investment Objective by making the Recycled Payments and the Wrongful Third Party Payments.

73.The Subscription Agreement expressly provides that it is to be read in conjunction with the LLC Agreements and the Offering Memos.  I accept that giving the provisions cited above their natural and ordinary meaning, their combined effect is as follows:

73.1  The 1^st and 2^nd Defendants shall only conduct the business set out in the Offering Memo.

73.2  That business is confined to the Investment Objective as elaborated on p.10 of the Offering Memo, i.e. physically-backed gold trades.

73.3  The investment period was 6 months, upon the expiry of which the 1^st and 2^nd Defendants would repay the principal sum together with the 6.5% return.

73.4  The funds invested by the Plaintiff could only be withdrawn for two purposes, namely payment of Company Expenses or investment in accordance with the Investment Objective.

74.On the Recycled Payments, I reject the Defendants’ argument that the funds invested by the Plaintiff in Series IV and V could somehow be used to repay the amounts owing to the Plaintiff under Series I to III.  It is contrary to the express provisions canvassed above.  It is also contrary to the rationale of the entire investment scheme: the very point of the scheme was for the repayments on Series I to III to be funded by the gold investments made by those Series themselves and each Series were to be segregated from each other. 

75.For the Wrongful Third Party Payments, I also reject the Defendants’ argument that the 1^st and 2^nd Defendants were allowed to apply the Plaintiff’s capital funds to settle Company Expenses and Operational Expenses.

75.1  While Clause 9.4 of the LLC Agreements vests the Manager with the power to apply the funds in payment of Company Expenses (which includes Operational Expenses), the Defendants have not adduced any evidence that the Wrongful Third Party Payments were in fact made for the reasons pleaded in the Points of Defence at §§31(1) to (4).  

75.2  In relation to the payment of management fees to Chang, the amount received by him was US$1,207,202 from Series IV and US$55,320 from Series V, I accept that there is no plea by the Defendants as to, let alone evidence to show, (i) how these amounts were calculated, (ii) the contractual or other basis on which the calculations could be justified, or (iii) that any payments made to Chang were in fact paid as management fees.  I also note Mr Chow’s point that given the identical nature of Chang’s involvement in Series IV and V, there is no ostensible reason why the management fees allegedly payable to him should differ so significantly between the 2 Series.

75.3  As for the payment of consulting fees to Eric Ho, the Defendants’ case is that Eric Ho was employed (i) under an oral employment agreement in respect of UIB Fund Series I reached in around May 2019, and (ii) a written employment contract with UIB Fund Series VI dated 30 May 2020.  Further, remuneration for services rendered to Series I and VI self-evidently cannot amount to operational expenses incurred by Series IV or V.

75.4  In relation to the amounts paid to Legacy Trust (US$454,095 for Series IV and US$472.303.69 and HK$313,926.71 for Series V) and the amount paid to WMG (US$236,863.90 for Series V only):

(i)  The Defendants have not explained the basis on which the fees are payable or calculated.

(ii)  In relation to Legacy Trust, Points of Defence at §31(3) relies on the Administration Agreements dated 28 November 2019 for Series IV and 23 December 2019 for Series V.  Clause 10.2 of the Administration Agreements expressly stipulates that written invoices for the administration fees payable to Legacy Trust shall be submitted to the Fund or its designee by the Administrator, and presumably such invoices would be in the Defendants’ possession if they had been submitted by Legacy Trust.  Mr Chow for the Plaintiff is correct that the Defendants have not adduced such invoices by way of discovery. 

(iii)  As for WMG, Schedule 4 to the Master Agreement provides that the fees payable to WMG would be “1% of the gross value of fund invested by the Fund from time to time and agreed for other funds created by the Fund/Investment Advisor from time to time”.  Again, here is no evidence from the Defendants as to the gross value of the fund and whether any fee was invoiced to them as fees payable under the Master Agreements.  There is also no reason why fees should be payable to WMG in respect of Series V but not Series IV.

(iv)  Mr Chow for the Plaintiff very fairly acknowledges that some level of fees may have been properly payable to Legacy Trust and WMG, but the Defendants have simply failed to discharge their onus of proving that (i) the Wrongful Third Party Payments were in fact paid to Legacy Trust and WMG as properly owing fees, or (ii) if so, that the amounts of such fees was correct and justified.

76.As for the payments made to MCR (allegedly under the Revised Business Model), I agree that that could not have been done in compliance with the Investment Objective:

76.1  MCR itself has stated that it is principally engaged in the coal business, with gold-related business only accounting for 10% of its business.

76.2  The payments made to MCR were not in accordance with the mechanism set out in the Offering Memo.  Contrary to the Offering Memos, the investment proceeds were not used to secure an LC for a gold trader, and the payments to MCR were not backed by cash in escrow or gold bars.  The payments were fundamentally contrary to the “physically backed” and “principal protected” nature of the investment scheme as pitched by Chang to the Plaintiff.

77.For the reasons stated above, I have no difficulties in concluding that the 1^st and the 2^nd Defendants have acted in breach of contract by using the Plaintiff’s capital funds to pay MCR and to make the Recycled Payments and the Wrongful Third Party Payments.

78.As to damages, the Plaintiff fairly accepts that there is no guarantee that the investment, had it been properly executed, would have generated returns of 6.5%.  However, in a counterfactual scenario where the 1^st and 2^nd Defendants had acted in accordance with the contracts and the Investment Objective, then:

78.1  The capital funds injected by the Plaintiff would not have been dissipated to MCR, nor would they have been paid to third parties by way of the Recycled Payments or the Wrongful Third Party Payments.

78.2  Indeed, given the principal backing mechanism outlined in the Offering Memos, even if the investment did not generate positive returns, the principal funds themselves could not have been lost.  At worst, the investment would have generated zero return, but the principal sums paid by the Plaintiff should nonetheless have been repaid to it.

79.I find that after giving credit for the amounts subsequently recovered by the Plaintiff by way of mitigation, the amounts of principal funds which were lost by reason of the breaches of contract by the 1^st and 2^nd Defendants and remain unrecovered to date are:

79.1  US$25,553,111.03 for Series IV (against the 1^st Defendant); and

79.2  US$17,845,139.75 for Series V (against the 2^nd Defendant).

80.I therefore to award the Plaintiff the above sums as damages for breach of contract as against the 1^st and 2^nd Defendants respectively.

81.Secondly, the claim for misrepresentation is brought against the 1^st, 2^nd, 3^rd Defendants and Chang on the basis that the UIB Fund Information Deck contained misrepresentations which induced the Plaintiff to invest in Series IV and Series V, thereby suffering loss.

82.The claim in misrepresentation is only being maintained against the 1^st, 2^nd, 3^rd Defendants and Chang: Amended Points of Claim at §44.

83.§15 of the Amended Points of Claim pleads that the “Investment Representations” were made in the UIB Fund Information Deck and defines that term as meaning the following representations:

83.1  The purported investment was to provide short-term loan financing for gold trading only;

83.2  The purported return and the principal investment were fully asset-backed and secured; and

83.3  The purported investment would generate a 6.5% yield in 6 months and with a 6-month lock-up period.

84.The Plaintiff further pleads that the Relevant Representations were false (§46), and that Chang, the 1^st, 2^nd and 3^rd Defendants made the Relevant Representations fraudulently in that they knew, or were reckless as to whether, they were false (§47). The Plaintiff also pleads that he relies on those representations and that but for those representations, it would not have agreed to invest in Series IV and V or paid over the investment amounts (§§48A and 49) and that it has suffered loss and claims for damages in amounts corresponding to the unrecovered principal monies invested by P in Series IV and V and the promised return; or alternatively damages to be assessed (§50).

85.The Defendants expressly admit §15 of the Amended Points of Claim but plead that the Investment Representations were superseded by the matters pleaded in Points of Defence at §§24-26, i.e. Mr Maeng’s alleged consent to the Revised Business Model which has already been discussed above.

86.The elements of fraudulent misrepresentation are well settled. (See: Haifa International Finance Co Ltd v Concord Strategic Investments Ltd [2009] 4 HKLRD 29, at §15 (Cheung JA)).

86.1  There must be a representation of fact made by words or conduct.

86.2  The representation must be made with knowledge that it is or may be false. It must be wilfully false or at least made in the absence of any genuine belief that it is true.

86.3  The representation must be made with the intention that it should be acted upon by the claimant, or by a class of persons which includes the claimant, in the manner which resulted in damage to him.

86.4  It must be proved that the claimant has acted upon the false statement.

86.5  It must be proved that the claimant suffered damage by so doing.

87.I am of the view that the Plaintiff has proved its case on fraudulent misrepresentation on the part of the 1^st, 2^nd, 3^rd Defendants and Chang. First, the Relevant Representations were made by Chang on behalf of himself and he 1^st, 2^nd, 3^rd Defendants with the intention that they were to be acted upon by the Plaintiff. I find that Chang was in control of the 1^st, 2^nd, 3^rd Defendants at all material times.  Chang was their signatory when contracts had to be executed and letters issued in their names.  There can be no doubt that Chang was their directing mind.  The only question is whether he provided the Plaintiff with the UIB Information Deck on behalf of the 1^st, 2^nd, 3^rd Defendants in addition to doing so in his own personal capacity. 

88.I accept Mr Chow’s learned submission that for its part, UAM stood to benefit from the investment scheme including but not limited to the potential receipt of administrative fees.  In pitching the investment scheme to the Plaintiff, Chang would have been acting in the interest of UAM. As for the 1^st and 2^nd Defendants, their position is more nuanced because those entities were only established after Chang provided the Plaintiff with the UIB Fund Information Deck, i.e. the 1^st and 2^nd Defendants were not yet in existence when the UIB Fund Information Deck was initially provided to the Plaintiff by Chang. 

89.However, I accept as a matter of commercial reality that Chang plainly provided the UIB Fund Information Deck to the Plaintiff in anticipation of their incorporation and for their benefit.  After all, the very purpose of pitching the investment scheme to the Plaintiff was to induce it to invest in the 1^st and 2^nd Defendants.  They stood to benefit directly if the Plaintiff were to invest in them.

90.Importantly, Chang was in control of the 1^st and 2^nd Defendants following their incorporation.  Given this control, his knowledge that the Investment Representations had been made can readily be attributed to the 1^st and 2^nd Defendants: Moulin Global Eyecare Trading Ltd v Commissioner of Inland Revenue (2014) 17 HKCFAR 218, §§77-79, 106. 

91.In light of this knowledge and the fact that the 1^st and 2^nd Defendants did not withdraw the representations after their incorporation, the correct legal analysis is that the 1^st and 2^nd Defendants knowingly allowed the Plaintiff to rely on the Investment Representations with full knowledge that the same were untrue. Deliberate silence and omission attract liability as much as positive representation on the facts of the present case. It is a continuous representation which turns out to be false. See: Armagas v Mundogas SA [1986] AC 717, 745-746 (Robert Goff LJ), cited in Spencer Bower and Handley on Actionable Misrepresentation (5^th edn) §8.12.

92.Secondly, the representations were intended to be acted upon by the Plaintiff.  Chang and his entities made the representations in order to induce the Plaintiff to invest in the UIB Fund.

93.Thirdly, the Relevant Representations were false. In relation to the Investment Representations, although the Plaintiff fairly accepts that they were statements of an intention to do certain acts in the future, it is trite that such a statement amounts to a representation of the existence of that intention when it was made: Actionable Misrepresentation at §2.05.

94.The pertinent question is when Chang provided the Plaintiff with the UIB Fund Information Deck in January 2019, did he do so with the intention of carrying out the investment scheme in accordance with the Investment Representations?  If not, then the Investment Representations would have been false. I am convinced that the answer is in the negative. Conduct speaks for itself.  Significant amounts were paid out of the Plaintiff’s capital investments to Chang and his associates.  As seen from Legacy Trust’s disclosure, these misappropriations started as early as 2 December 2019 for Series IV and 13 January 2020 for Series V.  In other words, the misappropriations began to be made within weeks of the Plaintiff’s investment in Series IV (20 November 2019) and Series V (23 December 2019).  This is outright fraud.  

95.Given that the misappropriations began almost immediately after the investments were made, I am satisfied that the intention of Chang and his entities from the very outset was to misappropriate the funds. 

96.Further, Chang and his entities attempted to mislead the Plaintiff into thinking that the UIB Series LLCs were being managed and operated in accordance with the Investment Objective.  To mislead the Plaintiff into thinking that all was well, Chang went as far as providing the Plaintiff with the Danamon Letters which were forged documents in light of Danamon Bank’s denial that it had ever sent such letters.

97.I agree that such actions amounted to further, albeit implicit, representations made to the Plaintiff to the effect that the UIB Series LLCs were being managed and operated in accordance with the Investment Objective when in fact they were not. The fact that they lied about what they were doing is consistent with Chang and his associates having intended to deceive the Plaintiff from the outset.

98.Fourthly, I accept that there were inducement and reliance.  The Plaintiff had relied on the UIB Fund Information Deck’s description of the investment scheme – in particular the “physically backed” and “principal protected” nature of the investment scheme.  

99.Fifthly, Mr Chow for the Plaintiff is definitely correct that it would not have been open to the Defendants to invoke the non-reliance clause in the Subscription Agreements to excuse their own fraud which is in any event unpleaded, contrary to the requirement under RHC O.18 r.7. A party cannot reasonably exempt themselves from liability for fraud.

100.Finally, I agree that the Plaintiff has suffered loss as a result of the Relevant Representations.  But for the Relevant Representations, the Plaintiff would not have invested in Series IV and V, and it would not have suffered the loss of its funds.  The quantum of damages should therefore be equivalent to the aggregate amount of the Unrecovered Funds.

101.Thirdly, the Plaintiff pleads the tort of inducing breach of contract against the 3^rd, 4^th Defendants and Chang and Eric Ho on the basis that they induced the breaches of contract by the 1^st and 2^nd Defendants.

102.The Plaintiff’s pleaded case is set out in §§51-60 of the Amended Points of Claim. The effect of those pleas is in gist that:

102.1  The 3^rd and 4^th Defendants, Chang and Eric Ho and KH UAM had each procured the 1^st and 2^nd Defendants commit the breaches of contract discussed above.

102.2  Alternatively, they had acted with reckless indifference as to whether their actions (in authorising or permitting payments out of the Series IV and V funds etc.) would breach and cause the 1^st and 2^nd Defendants to breach their obligations under the Subscription Agreements.

102.3  As a result, the Plaintiff has suffered loss and damage and claims for the amount of the Unrecovered Funds, or alternatively damages in a sum to be assessed.

103.The Defendants’ responses to those pleas are at §§50-52 of the Points of Defence and consist in gist of a denial that Chang, the 1^st to the 3^rd Defendants had never intended for the Investment Representations to be true or complied with, and a repetition of the plea that the Investment Representations and the UIB Fund Transaction Documents had been superseded by Mr Maeng’s alleged consent to the Revised Business Model.

104.I am of the view that the facts are simple. Chang, Eric and the 1^st to the 4^th Defendants had never intended to comply with Investment Representations.  From day one, Chang knew that the scheme was to get in the Plaintiff’s money, deploy part of it to repay the Plaintiff and siphon off the rest for his own use, through himself, his associates and entities.  He knew that the contracts would be breached from the day it was entered into.  Such knowledge should be attributed to his corporate entities to which he had had control.

105.As recently summarised by Ng J in Rich Place Investment Ltd v Oriental Patron Securities Ltd [2024] HKCFI 576 at §75, the 5 elements of this tort are (1) a contract (2) known to a third party who (3) does something which induces or persuades a contracting party to break it (4) intending to bring about the breach and (5) thereby causing loss. 

106.I do not need to repeat the clear elaborations of legal principles by the learned Judge save that I am satisfied that all the elements are satisfied here. For the sake of completeness, I accept Mr Chow’s very comprehensive submissions and do not repeat the same here.

107.Fourthly, on the same set of facts, I am also satisfied that all the Defendants have committed the tort of unlawful means conspiracy against the Plaintiff.

108.I accept that the Defendants combined to carry out the following wrongful acts with intent to cause loss or injury to the Plaintiff:

108.1  Breach of the Subscription Agreements by the 1^st and 2^nd Defendants;

108.2  By Chang, UAM and the 1^st and 2^nd Defendants making the Investment Representations;

108.3  By Chang, the 3^rd and the 4^th Defendants and Eric Ho procuring the 1^st and 2^nd Defendants to breach the Subscription Agreements; and

108.4  By the 1^st to the 4^th Defendants breaching their respective obligations under the respective UIB Fund Transaction Documents.

109.I note that the Defendants’ pleas in response consist of admissions of corporate details and a repetition of the Defendants’ case on Mr Maeng’s alleged consent to the Revised Business Model, and bare non-admissions or bare denials of the conspiracy and of having the requisite knowledge.

110.As explained in China Metal Recycling (Holdings) Ltd v Chun Chi Wai [2021] HKCFI 378 (DHCJ MK Liu) at §92, conspiracy to injure by unlawful means is actionable where the plaintiff proves that it has suffered loss or damage as a result of unlawful action taken pursuant to a combination or agreement between the defendant and another person(s) to injure it by unlawful means, whether or not it is the predominant purpose of the defendant to do so. 

111.As Deputy High Court Judge MK Liu explained at §93, the elements of this tort are:

111.1  a combination, arrangement or understanding between 2 or more people. It is not necessary for the conspirators to all to join the conspiracy at the same time, but the parties to it must be sufficiently aware of the surrounding circumstances and share the same object for it properly to be said that they were acting in concert at the time of the acts complained of;

111.2  an intention to injure another, albeit with no need for that to be the sole or predominant intention. The necessary intent can only be inferred if it can be shown that the act is done deliberately and with knowledge of the consequences;

111.3  concerted action (in the sense of active participation) consequent upon the combination or understanding;

111.4  use of unlawful means as part of the concerted action; and

111.5  loss being caused to the target of the conspiracy.

112.An intention to injure can be inferred from the very fact of committing the unlawful act or using the unlawful means.  Thus, the requisite intention can be proved if (i) the agreement and the acts performed pursuant to it were aimed or directed at the plaintiff, and (ii) it was reasonably foreseeable that such acts would injure the plaintiff: Bullen & Leake & Jacob's Hong Kong Precedents of Pleadings (4^th edn) §22-06.

113.As to what constitutes unlawful means for the purpose of unlawful act conspiracy, breach of contract and torts will both suffice: Clerk & Lindsell on Torts (24^th edn) §§23-73, 88-90.

114.As it is in the very nature of a conspiracy that there will be a strong element of concealment by the conspirators, inferences are usually drawn based on the primary overt acts: Kuwait Oil Tanker SAK v Al Bader [2000] 2 All ER (Comm) 271, 312-315; Sunni International Limited (in liq) v Kao Wai Ho Francis [2023] HKCFI 2882, §64 (Ng J).

115.A company can conspire with its directors, and the knowledge of the company can derive from the person with management or control for the transaction or act in question: Clerk & Lindsell §23-106 and fn 509.

116.On the facts of the present case, I am of the view that all the elements of the tort are present. First, an inference of an agreement or combination can readily be drawn. The objective circumstances show that the Defendants cooperated closely to effect the scheme orchestrated by Chang, with each defendant playing a distinct role in that scheme.  This could not have been coincidental.  An inference can be drawn that they must have reached, at a minimum, a broad understanding as to how the scheme was to be executed at some point prior to the breaches in question (at the latest).

117.Secondly, intention is readily proved. The conspiracy was directed at the Plaintiff, and the whole point of the conspiracy was to divert the Plaintiff’s funds to the Defendants themselves.  Economic harm to the Plaintiff was not only foreseeable; it was inevitable.  The requisite intention is made out.

118.Thirdly, the Defendants engaged in concerted action to execute the fraudulent investment scheme, by pitching, executing and later attempting to conceal the fraudulent scheme.

119.Fourthly, the unlawful means in question are breach of contract, fraudulent misrepresentation and inducing breach of contract. 

120.Finally, the loss suffered by the Plaintiff as a result of the conspiracy is the amount of the Unrecovered Funds.

121.Fifthly, the Plaintiff pleads a case on Quistclose and Constructive Trust. As against the 1^st and 2^nd Defendants, the Plaintiff pleads that its investment funds were paid over to them on the basis that they would only be applied pursuant to the Investment Objective and that they do not otherwise have free disposal of the same (i.e. the funds are subject to a Quistclose trust), and that the 1^st and 2^nd Defendants have breached that trust.

122.As against the other the Defendants, the Plaintiff pleads that the funds received by them deriving out of the Plaintiff’s investment were impressed with trusts in the Plaintiff’s favour, such that they are liable to restore the same to the Plaintiff.

123.I am of the view that both claims are established and proved on the facts of the present case. The funds advanced to the 1^st and 2^nd Defendants were funds earmarked for investment in a specific and defined purpose and class of assets and not otherwise. All the other defendants have not right to receive money belonging to the Plaintiff for their own use and benefit. Insofar as they hold the same now for their own use and benefit, the same are held on constructive trust for the Plaintiff.  As to fees and expenses, as Mr Chow quite rightly points out, it is for the Defendants to adduce evidence to prove the exact quantum and basis of such fees and expenses to which the Defendants have not adduced any despite being afforded all the opportunities to do so.

124.The principles governing Quistclose trusts were recently examined in China Life Trustees Ltd v China Energy Reserve and Chemicals Group Overseas Co Ltd (2024) 27 HKCFAR 359.  As Ribeiro PJ explained at §§20-21, 57-58 (with footnotes omitted and emphasis in underline):

“20. The term ‘Quistclose trust’ derives from the decision of the House of Lords in Barclays Bank Ltd v Quistclose Investments Ltd. Such a trust comes into existence where X pays money (or transfers other property) to Y by way of loan or otherwise, with the parties objectively intending the money to be applied for a specific purpose (and no other). That clothes the transferred funds with a trust subject to their being properly applied by the recipient for the designated purpose. If for any reason that purpose fails to be achieved, the funds are simply held on such trust for the payer. Such restriction on the use of the funds is the key consideration: the payer must have intended, with the recipient's agreement or acquiescence, that the money should be used only for that specific purpose and should not to be at the recipient's free disposal.

21. Where, as a matter of objective fact, such restrictive intention has been established, certain consequences follow as a matter of logic and legal analysis. Since the money may only be applied for a specific purpose and no other, it follows logically that the money is not intended to become part of the recipient's general assets and that the recipient may not freely use it. It means, as a matter of legal analysis, that beneficial ownership of the money is not transferred to the recipient who takes it in a fiduciary capacity to apply it only for the aforesaid purpose. Equity will restrain mis-application of such funds. It furthermore follows that on an insolvency, the money, not being the recipient's property, does not pass to the recipient's trustee in bankruptcy. And to the extent that the specific purpose fails, the recipient holds the funds on a resulting trust to restore them to the payer.

…

57. If, as a matter of fact, the evidence objectively establishes that the payer intended to pay the money to the recipient to be used for a specific purpose and no other, with the recipient agreeing to or acquiescing in that restriction, such finding carries with it the logical consequence that the money was not to be added to the recipient's general assets or to be at the recipient's free disposal. It would follow as a matter of legal consequence that the transferee did not acquire a beneficial interest in the funds and that the transferor retained a beneficial interest throughout, so that on failure of the specific purpose, the money would be held on resulting trust for the payer.

58. The difficulty that has arisen - in the Court of Appeal's judgment, as discussed below - is that an approach has been adopted requiring not only an intention that the money paid would only be used for restricted purposes, but also some express stipulation or indication that the payer intends to reserve such a beneficial interest. That does not represent the law as it stands.” (Emphasis added)

125.I accept that it was plainly the parties’ intention to restrict the use of the funds such that they were not to be used for any purpose inconsistent with the Investment Objective. 

126.Secondly, I have no hesitation in finding that the Plaintiff’s investment in Series IV and V was procured by fraud. Accordingly, the investment monies would have been impressed with a constructive trust at the very moment of being paid over – per the well-established principle in Westdeutsche Bank v Islington LBC [1996] AC 669 – and the Plaintiff’s proprietary interest would subsist in any substitute proceeds deriving from the initial payment.

127.The consequences of receiving property impressed with constructive trust would be two-fold:

127.1  The recipient is bound to restore the property to the rightful owner; or

127.2  If the property has since been dissipated in breach of trust, the recipient would be liable to repay the value of the property to the rightful owner.

See Lewin on Trusts (20^th edn) §§42-091 to 096.

128.Sixthly, on the claim of knowing receipt, I am of the view that as a result of the finding of fraud by this Court, it follows that the claim on knowing receipt is also proved.

129.In short, liability for knowing receipt is established by proving the following elements:

129.1  property was received by the defendant;

129.2  the property was impressed with a trust or fiduciary duty;

129.3  the receipt was in breach of trust or fiduciary duty; and

129.4  the defendant knew that the receipt was in breach of trust or fiduciary duty.

(See: Britestone Limited v Cohome (HK) International Trade Co Limited (unrep, HCMP 2928/2016, 1.9.2017, DHCJ Kent Yee) at §§38-39.)

130.All the elements are satisfied here. As to receipt in particular, this is proved by the contemporaneous records and fund flow diagrams disclosed by Legacy Trust showing the Defendants’ receipt of funds deriving from the Plaintiff’s capital investment in Series IV and V.

131.As the Defendants’ liability in knowing receipt is proved, I make an order that the Plaintiff is entitled to claim against them for the sums particularised in Prayers 7 to 16 of the Amended Points of Claim.

132.Seventhly, the Plaintiff pleads a case of dishonest assistance against the 3^rd, 4^th Defendants, Chang and Eric Ho. The Plaintiff’s case is that the Defendants have assisted in the breaches of trust committed by the 1^st and 2^nd Defendants in misapplying the Plaintiff’s investment funds. The Defendants’ plea on this claim consists of a bare non-admission.

133.Dishonest assistance in a breach of trust attracts accessory liability, based on the defendant’s wrongful participation in a primary breach committed by the trustee.  Per 孫嬅徽 v CIS 環球機遇基金獨立投資有限公司 [2023] HKCFI 2493, §34 (H Au-Yeung J), the elements of the claim are:

133.1  breach of trust by someone other than the defendant;

133.2  the defendant’s assistance;

133.3  dishonesty; and

133.4  resulting loss.

134.The test of dishonesty is an objective one, being judged by the standards of an ordinary honest person: Britestone §45.  I accept that elements 1, 2 and 4 are established for the reasons stated above.  

135.For element 3, I am satisfied that the assistance was dishonest by objective standards.  The Defendants obviously had pitched the purported investment scheme to the Plaintiff with no intention of actually implementing that scheme, that is necessarily dishonest.  The same conclusion must follow when the same individuals running the scheme subsequently, and as they intended from the outset, proceeded to assist the 1^st and 2^nd Defendants in misapplying the funds.

136.I am of the view that the Plaintiff is entitled to recover the amounts of the trust funds which were misapplied with the assistance of each relevant defendants. 

137.Finally, in my judgment, the Plaintiff is also entitled to the claim in unjust enrichment against Chang and Eric Ho in respect of the amounts received by them which derive from the Plaintiff’s capital investment in Series IV and V. 

138.The premise of the claim is that, inter alia, there was no lawful justification or purpose for Chang and Eric Ho to receive the sums in question when in fact, and unbeknownst to the Plaintiff at the time, the Plaintiff’s funds were in fact being misappropriated or misapplied for purposes contrary to the Investment Objective. The Defendants’ response is a bare denial.

139.In analysing an unjust enrichment claim, the Court adopts the analytical framework set out by Ribeiro PJ in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at §67:

139.1  Was the defendant enriched?

139.2  Was the enrichment at the plaintiff’s expense? 

139.3  Was the enrichment unjust? 

139.4  Are any of the defences applicable?

140.The “at the expense of” requirement has been discussed by the UK Supreme Court in Investment Trust Companies v HMRC [2018] AC 275 (“ITC”).  The law recognises a number of situations where, although it may appear that the defendant was not enriched directly at the expense of the claimant, the law treats the transfer as being equivalent to a direct transfer of value:

140.1  Where the defendant receives property from a third party into which the plaintiff can trace an interest, the defendant is treated as if he had received the plaintiff’s property – because the property is, in law, the equivalent of the plaintiff’s property: ITC §48.

140.2  The Court may also treat a set of related transactions, operating in a co-ordinated way, as forming a single scheme or transaction, on the basis that to answer the question by considering each of the individual transactions separately would be unrealistic: ITC §§48, 61.

141.As to unjust factors, these include relevantly total failure of consideration (also known as failure of basis).  As explained in Goff and Jones on Unjust Enrichment (10^th edn, 2022) §12-01:

“The core underlying idea of failure of basis is simple: a benefit has been conferred on the joint understanding that the recipient’s right to retain it is conditional. If the condition is not fulfilled, the recipient must return the benefit. The condition might take one of a variety of forms. For instance it might consist in the recipient doing or giving something in return for the benefit… Alternatively, the condition might be the existence of a state of affairs, or the occurrence of an event, for which the recipient has undertaken no responsibility…”

142.I agree that it is indisputable that Chang and Eric Ho were enriched upon receipt of the Plaintiff’s funds, as money is an incontrovertible benefit. The payments received by Chang and Eric were at the expense of the Plaintiff. Although it is indisputable that those payments were not made by the Plaintiff directly, they were indirectly at the expense of the Plaintiff in both senses identified in ITC, namely:

142.1  For the reasons grounding the claims in trust, the funds in the 1^st and 2^nd Defendants’ custodian accounts with Legacy Trust and their traceable proceeds were impressed with a trust in the Plaintiff’s favour.  The Plaintiff’s subsisting proprietary interest in those funds entitle it, simultaneously, to trace into the property and to satisfy the “at the expense of” requirement for the claim in unjust enrichment.

142.2  The payments made to Chang and Eric Ho were the final payments in a long string of coordinated payments made pursuant to the overarching fraudulent scheme orchestrated by Chang and his associates.  It would not be realistic to treat each dissipation as an individual payment divorced from the overarching scheme.

143.I am also of the view that there has been a total failure of basis which entitles the Plaintiff to restitution. Specifically:

143.1  The initial payments from the Plaintiff to the 1^st and 2^nd Defendants were indisputably made on the basis that there was a legitimate investment scheme whereby the funds would be applied towards the Investment Objective.  That this was an objective basis of transfer jointly shared by all parties is evidenced by, inter alia, the UIB Fund Information Deck and the arrangements enshrined in the contractual documents: Goff and Jones §13-02. 

143.2  That basis of transfer has been subsequently discovered to be completely false.  This fundamentally undermines the transaction and entitles the Plaintiff to reverse the enrichment bestowed on the recipients of its funds, by way of a restitutionary claim in unjust enrichment.

144.I am therefore of the view that the Plaintiff is also entitled to claims in unjust enrichment against Chang and Eric Ho in respect of the sums received by them.

145.For the sake of completeness, I accept all the witness statements of the Plaintiff on record and find the account of events set out in the Plaintiff’s witness statements are all true and accurate. They are not challenged by the Defendants.

146.I also like to record that this Court has given all the opportunities for the Defendants to come forward to make good their defences but they chose not to.

DISPOSITION

147.In the circumstances, I made an order in terms of the Draft Order as proposed by the Plaintiff with costs of the present action to be paid to the Plaintiff as set out in the Draft Order.

148.Finally, it remains for this Court to thank Mr Chow and Mr Chan for the Plaintiff for their very able and professional assistance to this Court.

Mr Val CHOW and Mr Zenith CHAN, instructed by Reynolds Porter Chamberlain, for the Plaintiff  

The 1^st to 6^th Defendants, being absent