ANZ COMMODITY TRADING PTY LTD v. EXCELLENCE RAISE OVERSEAS LTD AND OTHERS

CACV 48 /2023, [2025] HKCA 997

On appeal from [2023] HKCFI 179

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 48 OF 2023

(ON APPEAL FROM HCCL NO 4 OF 2017)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.  This is JC Camp’s application for leave to appeal to the Court of Final Appeal against the judgment of the Court of Appeal handed down on 30 July 2025 ([2025] HKCA 701; “CA Judgment”). For ease of reference, the terms and expressions in the CA Judgment are adopted.

2.  On 30 July 2025, we dismissed JC Camp’s appeal against the judgment of Mimmie Chan J (“Judge”) dated 20 January 2023 ([2023] HKCFI 179; “CFI Judgment”), which was in favour of the plaintiff after a 12-day trial.

3.  Mr Kenny Lin, together with Mr Jason Kung, acts for the JC Camp.

4.  Mr Charles Sussex SC, together with Mr Derek J Y Chan, acts for the plaintiff.

5.  Both sides have lodged written submissions in accordance with Practice Direction 2.1.  Having considered the submissions and papers, we think it is appropriate to determine the application on paper and proceed to do so.

Notice of Motion

6.  The questions posed by the JC Camp are set out in its Notice of Motion dated 27 August 2025.  There are stated two questions of great general or public importance (“GGPI”) and two questions on “or otherwise” grounds.

7.  The two questions of GGPI read as follows:

(1)  Where A paid a sum to B pursuant to a contract induced by fraudulent misrepresentation, in a claim for proprietary restitution of the money by A against a third-party recipient without joining B as a party:

(a)  whether it is necessary for A to plead expressly and particularise in the Statement of Claim that the contract between A and B has been rescinded; and

(b)  whether actions taken by A against the third-party recipient in respect of the money, including the commencement of court proceedings against him for restitution, and without more, are sufficient to constitute A’s rescission of his contract with B? (“Question 1”)

(2)  In a set of back-to-back contracts for sale and purchase of commodities, where the head contract is not by itself fictitious but some or all of the other sub-contracts are regarded as instruments of fraud, whether, and, if so, under what circumstances, the exception of Halley v Law Society [2023] WTLR 845 is applicable to the head contract so that it can be regarded as an instrument of fraud and rescission is not required? (“Question 2”)

8.  In the written submissions of the JC Camp, it is stated that they would not address the “or otherwise” grounds and would leave it to the Appeal Committee to consider because of this court’s usual practice not to grant leave on “or otherwise” grounds.  It is therefore unnecessary for this court to deal with the two questions on “or otherwise” grounds.

Background

9.  The background facts are set out in detail at §§1 to 47 of the CA Judgment.

10.  The two questions of GGPI relate to the ground of appeal summarised at §50 of the CA Judgment, regarding the rescission of the Purchase Contracts:

“Second, he contended that the proprietary claims against the JC Camp are unsustainable in that it has never been the plaintiff’s case that it had rescinded the Purchase Contracts with MCM and the plaintiff has never pleaded such rescission (grounds 4 to 5).”

11.  This court’s analysis of the issue of rescission is set out at §§68 to 106 of the CA Judgment.

12.  We accepted the plaintiff’s contentions regarding the rescission issue on two grounds:

(1)  the plaintiff had indicated its intention to rescind the Purchase Contracts to the defendants^[1]; and

(2)  alternatively, it was not necessary to establish rescission because of the exception in Halley v Law Society^[2].

13.  These were two alternative bases to uphold the Judge’s determination regarding rescission of the Purchase Contracts.

14.  Hence, if either Question 1 or 2 is answered in the negative, the other question is entirely hypothetical.  It would not be appropriate to exercise our discretion to grant leave to appeal to the Court of Final Appeal on a hypothetical question, which may or may not be reasonably arguable.

Question 1

15.  The arguments pursued by the JC Camp are essentially the same as those pursued at the appeal hearing.  We have set out our reasons why the Judge’s holding that the Purchase Contracts were rescinded by the plaintiff cannot be impugned.

Question 1(a)

16.  The JC Camp submits that Question 1(a) raises an important question of the pleading requirement in a claim for proprietary restitution against a third-party recipient of money.  We disagree.  The question just raises a fact-sensitive pleading point which this court determined on established principles.

17.  We have not sought to cast doubt on the importance of pleadings, the purpose of which is to ensure that the parties know the case they must meet at the trial.

18.  We did not find where rescission is required to establish a proprietary claim, it is not necessary for rescission to be pleaded as a matter of general principle.  Whether a case is adequately pleaded is necessarily fact-sensitive.

19.  We have reviewed the state of the pleadings^[3] and held that the issue of rescission “had clearly been raised” and was properly canvassed and debated at the trial.

20.  We held that, even if the plaintiff had not pleaded a positive case of rescission, it had averred in its reply pleadings that it “retains and asserts a proprietary interest in the Funds” and is “entitled to trace the Funds into the hands of any subsequent recipients which hold the traceable proceeds of the Funds on constructive trust for the Plaintiff.”  This was in response to the pleadings of JA and HE that the Master Agreement and the Purchase Contracts remained valid and binding contracts between the plaintiff and MCM.

21.  We agreed with the Judge that it was “inconceivable” that MCM or any of the defendants in this action “would have been under any misunderstanding or illusion that the Plaintiff treated the Purchase Contracts and any transaction thereunder as valid and still subsisting”.  We agreed with the Judge that the defendants “well knew and understood” that the plaintiff was rescinding the Purchase Contracts. 

22.  Looking at the case in its totality, we do not think there is any ‘pleading issue’.  We have found that the issue of rescission had been fully canvassed at the trial.  The JC Camp cannot claim to have been taken by surprise.  They knew the case they had to meet, and it was known to them that the plaintiff was rescinding the Purchase Contracts. 

23.  Question 1(a) therefore does not raise any issues of GGPI.

24.  Additionally, the principles regarding pleadings have been well canvassed by the Court of Final Appeal, and there is no challenge to these principles.  We agree with the plaintiff that the question raised is essentially a factual appeal disguised as a question of law.

Question 1(b)

25.  The JC Camp contends that Question 1(b) arises in light of the Judge’s holdings affirmed by this court as summarised in §§71 and 96 of the CA Judgment:

“71. The judge mentioned the measures taken by the plaintiff upon discovery of the forgery of the warehouse receipts in January 2017, the commencement of the present proceedings in May 2017 against ERO as a recipient of the funds traced, the joinder of CH and MW by ERO as third parties, the ultimate joinder of CH and MW by the plaintiff as defendants, the contemporaneous proceedings in England by MCM against CH and MW relating to the same forgery of the warehouse receipts, and came to the view ‘[it] is inconceivable that MCM, CH, MW, Wong or any other defendant would have been under any misunderstanding or illusion that the Plaintiff treated the Purchase Contracts and any transaction thereunder as valid and still subsisting.’”

“96. The judge found on the facts that MCM and the defendants in this action ‘well knew and understood’ from the actions taken by the plaintiff, at the very latest by the plaintiff’s joinder of CH and MW in this action on the basis of the claims made under the forged warehouse receipts, that the plaintiff was rescinding the Purchase Contracts. She regarded it as ‘inconceivable’ that MCM or any of the defendants in this action ‘would have been under any misunderstanding or illusion that the Plaintiff treated the Purchase Contracts and any transaction thereunder as valid and still subsisting’. The judge is perfectly entitled to make these findings of fact. It cannot be seriously suggested that she is precluded from making these findings of fact merely because there is no express or clear pleading by the plaintiff that the Master Agreement and/or the Purchase Contracts had been rescinded or avoided, as argued by Mr Lin. In making her findings of fact on the evidence, the judge is not constrained by the absence of averment or particulars of rescission in the plaintiff’s pleadings. She has found there is no evidence of the plaintiff ever affirming the transactions.”

26.  The question as set out is clearly a factual question based on an assumption.  It asks:

“Whether actions taken by A against the third-party recipient in respect of the money, including the commencement of court proceedings against him for restitution, and without more, are sufficient to constitute A’s rescission of his contract with B?” (Emphasis supplied.)

27.  We agree with the plaintiff that this is not a question that can be answered in the abstract^[4]. It is not a question of GGPI but a challenge against the Judge’s findings of fact affirmed in the CA judgment.  On this basis alone, Question 1(b) fails.

28.  In any event, we will address JC Camp’s submissions with respect to Question 1(b).

29.  The JC Camp submits there is a fundamental question of the law of rescission regarding the election of rescission of an impugned transaction, in particular, whether Car and Universal Finance Co Ltd v Caldwell [1965] 1 QB 525 and National Crime Agency v Robb [2015] Ch 520 stand for the general rule that a clear indication by an innocent party to the third parties (such as by steps for the recovery of the money against the third parties) is sufficient to rescind the transaction for fraud.

30.  We agree that those cases establish such a rule.

31.  In National Crime Agency v Robb [2015] Ch 520, Sir Terence Etherton C held at §47:

“There is binding authority on a first instance court that rescission for fraud is effected when the innocent party clearly indicates that he or she is rescinding the contract: Car and Universal Finance Co Ltd v Caldwell [1965] 1 QB 525; Shalson v Russo [2005] Ch 281, para 120; and generally O’Sullivan, ‘Rescission as a Self-help Remedy: A Critical Analysis’ (2000) 59 CLJ 59. The additional claimants plainly gave that indication when they joined these proceedings in order to claim a declaration under section 281 that part of the fund belongs to them.”^[5]

32.  In Car and Universal Finance Co Ltd v Caldwell [1965] 1 QB 525, Upjohn LJ stated at 554C-D, “In principle and on authority, however, he must, in my judgment, in the ordinary course communicate his intention to rescind to the other party.  This must be so because the other party is entitled to treat the contractual nexus as continuing until he is made aware of the intention of the other to exercise his option to rescind.”

33.  What amounts to the innocent party’s indication that he wishes to rescind a contract is undoubtedly a factual matter.  Whether or not a party’s commencement of court proceedings is a “sufficient” indication is a matter of fact.  In National Crime Agency v Robb, it was held that the joinder of additional claimants was sufficient to demonstrate that intention.

34.  The JC Camp submits that the rule only stands for an exception in cases where a fraudulent buyer of goods has made it impossible or impracticable for the defrauded seller to communicate with him, and that in the absence of such exceptional circumstances, the election to rescind by the innocent party still requires the communication of intention to rescind to the counter party, and that it is “reasonably arguable” that the mere indication of an intention to rescind to third parties is, without more, insufficient to rescind the contract.

35.  We disagree.  The rule derived from Car and Universal Finance Co Ltd v Caldwell [1965] 1 QB 525 and National Crime Agency v Robb [2015] Ch 520 speaks for itself.  The purpose of the indication is to ensure that the other party is aware of rescission.  Whether someone is aware of a contract that has been rescinded depends on the facts, ie, what was told or indicated to him or her.

36.  On the present facts, as we have held, there is no basis to impugn the Judge’s determination that the defendants “well knew and understood” from the actions taken by the plaintiff, at the very latest by the plaintiff’s joinder of CH and MW in this action on the basis of the claims made under the forged warehouse receipts, that the plaintiff was rescinding the Purchase Contracts.  This is against the background that the transactions were found to be back-to-back and co-ordinated, that MCM was interposed as a conduit for the Funds advanced by the plaintiff to be transferred to CH/MW, and that the transactions formed a single transaction or scheme.  It was “inconceivable” that MCM or any of the defendants “would have been under the misunderstanding or illusion that the Plaintiff treated the Purchase Contracts and any transaction thereunder as valid and still subsisting”.

37.  In light of the concurrent findings of fact which the Court of Final Appeal will not disturb save in exceptional circumstances, we find that Question 1(b) also does not raise any question of GGPI.

38.  As the JC Camp has failed to satisfy this court on Question 1, Question 2 is academic and the exception in Halley v Law Society does not need to be resolved.

39.  Nonetheless, we will deal with Question 2 for completeness.

Question 2

40.  Question 2 reads:

“In a set of back-to-back contracts for sale and purchase of commodities, where the head contract is not by itself fictitious but some or all of the other sub-contracts are regarded as instruments of fraud, whether, and, if so, under what circumstances, the exception of Halley v Law Society [2023] WTLR 845 is applicable to the head contract so that it can be regarded as an instrument of fraud and rescission is not required?”

41.  The Halley exception is encapsulated in these statements of Carnwarth LJ in Halley v Law Society at §§45-48:

“45.      The submission, as I understand it, is that this is not simply a case of a valid contract being induced by fraud; but that the fraud so infected the whole transaction that it had no legal effect at all.  The ‘contracts’ were in reality no more than devices to extract money by fraud; in Mr Dutton’s words –

‘The “agreements” were fictitious contracts. They were as the judge found merely part of an elaborate charade (or mechanism) by which the loser was persuaded to part with his money.’

The position, accordingly, is said to be ‘akin to theft’.  Where property is stolen, no beneficial interest passes to the thief.  Mr Dutton submits that the same applies where money is extracted by fraud, otherwise than under a legally enforceable contract.  He relies on Westdeutsche Bank v. Islington LBC [1996] AC 669 at 705C-D, 715H-716D (per Lord Browne-Wilkinson).

‘I agree that the stolen moneys are traceable in equity. But the proprietary interest which equity is enforcing in such circumstances arises under a constructive, not a resulting, trust. Although it is difficult to find clear authority for the proposition, when property is obtained by fraud equity imposes a constructive trust on the fraudulent recipient: the property is recoverable and traceable in equity. Thus, an infant who has obtained property by fraud is bound in equity to restore it: ….’

46. Mr Tager submits that so to hold would be contrary to the decision of this Court in Twinsectra v. Yardley [1999] LlLR 527 (paras 98-9), where his own submissions to like effect (as counsel for the claimant in that case) were rejected.  Twinsectra lent money to a Mr Yardley, on the security of a solicitor’s undertaking given by a Mr Sims, whom Twinsectra believed to be acting for him.  Mr Yardley fraudulently failed to inform them that, by the time of the loan, he had withdrawn Mr Sims’ instructions (para 64).  It was held that this was sufficient to establish Twinsectra’s claim in deceit, but not, in the absence of rescission, to given them a proprietary right over the money lent.  Mr Tager, relying on the Westdeutsche case, had argued that the obtaining of money by false pretences should be regarded as ‘theft’, and that accordingly it should be held that a constructive trust was imposed on the recipient at the moment of receipt (para 98).  This argument was rejected.  Potter LJ said (para 99):

‘It seems to me that, whatever the legal distinctions between “theft” and “fraud” in other areas of the law, the distinction of importance here is that between non-consensual transfers and transfers pursuant to contracts which are voidable for misrepresentation. In the latter case, the transferor may elect whether to avoid or affirm the transaction and, until he elects to avoid it, there is no constructive (resulting) trust; in the former case the constructive trust arises from the moment of transfer. The result, so far as third parties are concerned, is that, before rescission, the owner has no proprietary interest in the original property; all he has is the “mere equity” of his right to set aside the voidable contract…’

Within the dichotomy which begins that passage, Mr Tager submits that the present case cannot be categorised as one of ‘non-consensual transfer’.  The transfers were made voluntarily by the applicants under what they at least believed to be valid contracts. 

47. In my view, however, there are important distinctions between that case and the present.  In that case, there was a straightforward contract of loan, under which legal and beneficial interest in the money passed to Mr Yardley (subject only to a ‘purpose’ trust, which does not affect the present argument).  The contract may have been induced by the fraud, but it was not itself the instrument of fraud.  In this case, the contract has been held to be the instrument of fraud, and nothing else.  The elaborate documentation was, in the words of the judge, ‘no more than a vehicle for obtaining money… by false pretences’ (para 119).  Furthermore, the legal interest in the money passed to the escrow agent, but the beneficial interest remained with Toro, unless and until it passed to Tidal under the contract.  In my view, the court is entitled to disregard the apparent effect of that fraudulent contract, and hold that the beneficial interest remained throughout with Toro.

48. In such a case, it is meaningless to impose a requirement for the fraudster to be notified of ‘rescission’.  From the fraudster’s point of view there is nothing to rescind; for practical purposes, he has parted with nothing of value and incurred no obligations; the victim is left with some documents which, from the outset, were known and intended by the other party to be worthless.  The ‘election’ to which Potter LJ referred is not a real option.  Although the case does not fit neatly into Potter LJ’s binary classification, he was not dealing with these facts.  Subject to any direct authority, I see no reason why it should not be regarded as a simple case of ‘property obtained by fraud’, in Lord Browne-Wilkinson’s terms.” (Emphasis supplied.)

42.  In short, Carnwarth LJ held that where the contract itself is an instrument of fraud, it is meaningless to impose a requirement that the fraudster be notified of rescission.  This has become known as the Halley exception and, despite reservations in some academic writings, has been applied in three cases in the High Court in England^[6].

43.  At the appeal, the JC Camp did not challenge the correctness of the Halley exception^[7]. The argument raised by the JC Camp was that this was a novel point not taken before the Judge and not even covered in the respondent’s notice, and it should not be open to the plaintiff to raise it on appeal.  It was further submitted that the Halley exception should not apply as there was no evidential basis to establish that the transactions are in effect unreal or purely instruments of fraud, so that the “election” to rescind is unreal.

44.  This court held that the Halley exception, although not pursued at trial, is a point of law and there was no prejudice or unfairness to the JC Camp if it were considered on appeal^[8].  The JC Camp has not challenged this.  Additionally, we found in light of the findings made by the Judge^[9] that it was a “compelling inference that the co-ordinated transactions are instruments of fraud and an elaborate mechanism to obtain money by false pretences, such that the court is entitled to disregard the apparent effect of the transactions which are fictitious and nothing more than a vehicle for fraud”^[10].

45.  The JC Camp now contends that the ambit and the doctrinal basis of the Halley exception are unclear and controversial^[11], that the application of Halley to a set of back-to-back contracts is a novel extension of the principle, and this should be clarified by the Court of Final Appeal.  In particular, it is queried whether the Halley exception can apply to a head contract without the head contractual counterparty being implicated in the wrongdoing.

46.  On the last point, the application of the Halley exception has to be considered against the specific facts in this case.  The Judge made a finding that, on the entirety of the available evidence, the successive transactions are all sufficiently and causally connected transactions between the plaintiff and MCM, and between MCM and CH/MW, forming a single transaction or scheme^[12]. That factual finding has never been challenged.  This just demonstrates the problem in recasting the factual circumstances here into a generic situation in the question.

47.  We decline to exercise our discretion to grant leave to appeal on Question 2.  The correctness of the Halley exception was not argued on appeal.  This question is rendered academic in light of our determination on Question 1 and an academic question does not provide a proper basis to grant leave to appeal to the Court of Final Appeal^[13].

Disposition

48.  For the reasons above, we dismiss the Notice of Motion.

49.  There is no reason to depart from the general rule that the costs of the application should follow the event.  The plaintiff filed a statement of costs for this application, totalling $296,710.  Taking a broad-brush approach, we summarily assess the plaintiff’s costs of this application at $210,000.  The costs order and summary assessment are in the nature of orders nisi.  They will be made absolute if no application for variation is made by any party within 14 days of the handing down of this judgment.